Track upgrade could cost more than $100 million says Cullen

11.45am

Upgrading the rail network could cost the Government more than $100 million, Finance Minister Michael Cullen said today.

Dr Cullen said there was no upper limit on what the Government was prepared to spend on refurbishing and improving it.

"Various estimates have been running around about the cost of upgrading," he said.

"The $100 million mentioned is the best estimate we can arrive at in terms of the minimum we are likely to spend.

"It could be more than that, I don't think it is likely to be a great deal more than that."

A planned deal with Toll Holdings of Australia appeared to have fallen through, after the Government refused to sell the network.

Dr Cullen said if a great deal more was needed to be spent on the track, a private sector operator would not be able to afford it anyway.

Toll Holdings had indicated it was not interested in a joint approach with the Government to buy Tranz Rail.

It wanted control of the rail network and infrastructure, as well as the operational side of Tranz Rail.

Dr Cullen said the Government would not sell the tracks, as that would leave it with no assurance of maintenance of services.

Selling the tracks could allow them to be ripped up with only 90 days notice if service ceased and could leave New Zealand without a strategy for increasing rail freight.

Dr Cullen felt Toll Holdings had shown bad faith.

They would now have to make a very good offer to regain the Government's interest, he said.

"I'm not convinced that their ambition now is to improve the rail system, as opposed to getting hold of the trucking company.

"Tranz Link is the country's largest trucking company and in some ways is worth probably more than the rail system to a freight operator like Toll."

The Government accepted the cost of maintaining and upgrading the rail network was a financial risk, Dr Cullen said.

"From the Government's perspective the alternative cost ... is greatly increased expenditure on roads, so at the end of the day the cost comes back to Government from a failure of the railway system."

Dr Cullen yesterday told Parliament he had asked officials to investigate a joint approach with Toll Holdings following a meeting with the Australian transport operator in his office.

A joint approach had been signalled in previous discussions.

"That joint approach was that they would withdraw their offer, we would see sound negotiations, we'd talk about a joint approach."

Dr Cullen said he was not sure why Toll Holdings' managing director Paul Little had since expressed amazement at the Government's offer.

Dr Cullen said he had been unable to tell Toll Holdings, when the representatives came to his office, about the nature of the Government's deal because that would have been in breach of legislation.

Mr Little had said Toll Holdings would have been interested in talking about the Government owning the rail track.

Dr Cullen accused Mr Little in Parliament of either telling "fibs" or being "just not in control of his own company and not being reported back to by his own negotiators, who came over here to talk about that particular matter".

However, "we said to them what you're planning to do and what we are talking about doing are on a collision course".

Toll Holdings said on Friday it was not withdrawing its bid, although Mr Little said it was "unusual to be competing with a government".

The Government has proposed a $126 million rescue package for Tranz Rail, leaving Toll Holdings facing an uphill battle in its bid to buy the ailing rail operator for 75 cents a share.

Dr Cullen said on Friday the Government package would include an immediate cash injection of $44 million to prevent Tranz Rail becoming insolvent.

If the deal is approved, that loan will convert to a down payment on a $50 million offer to buy land, property and leases.

The Government will also buy 35 per cent of Tranz Rail for $75.8 million, through the issue of 113 million new shares in Tranz Rail at 67c a share.

The Government's proposed buy-up of new shares will dilute existing shareholders' stakes including Toll Holdings' 10.1 per cent.

- NZPA