Treasury reveals millionaires' freight monopoly plan for rail

By PAM GRAHAM

Mainfreight and millionaire investors Trevor Farmer and Alan Gibbs pitched the idea of breaking up Tranz Rail and creating a rail freight monopoly.

The idea was put to the Government in February last year, reveal documents released on Treasury's website last week.

Marked "commercial" and "secret", the letters and reports show some of the behind-the-scenes drama in the saga leading up to the Government's buyback this year of the national rail track.

They reveal Treasury's adviser, First NZ Capital, spoke to Toll Holdings of Australia - eventual buyer of a majority stake in Tranz Rail, now called Toll NZ - and RailAmerica as far back as October 2002.

They also show a difference of opinion between Treasury and the Ministry of Transport about whether a Government-owned track should be "open access", rather than in the hands of a single owner.

The ministry wanted open access.

During Tranz Rail's troubles, as it struggled to keep the support of its bankers, no New Zealand bidder for the company emerged - although listed company Mainfreight had talked to the Government.

The papers reveal a Mainfreight-led consortium proposed splitting the national rail track from the operations.

The track would have been kept in a private company financed by the issue of indexed bonds, and a consortium led by Mainfreight would have held monopoly rights for rail freight operations.

The consortium included Tappenden Holdings, controlled by Gibbs and Farmer, and an Australian company called Allco Finance.

But the idea did not seem to proceed beyond a preliminary stage.

Treasury advised that Tappenden was the only party with any capacity to fund the proposition and, at the time, its commitment had not been established.

The documents also reveal Queensland Rail approached the Government about working with a track-owning company.

They show that the Government investigated the option of nationalising the track when Toll Holdings was stalling on settling a rail sale deal.

And Finance Minister Michael Cullen threatened in a letter to Toll's managing director, Paul Little, to use sovereign powers in an attempt to get the talks going.

The documents show that in 2002, RailAmerica wanted the Government to finance the bulk of a takeover, it wanted control of the infrastructure, and it did not want open access.

Toll was busy with other things when first approached in connection with Tranz Rail.

Its positions changed over time.

Early on, it said it would consider the idea of open access.

Later, it did not want to sell the network.

In 2002, the Government was advised on a range of options, including buying all of Tranz Rail and then selling the "above rail" operations, or joining a third party to bid.

Advice was given that investors might block a 100 per cent takeover to force the price higher, which is what eventually happened to Toll.

Talks were also held with Tranz Rail about buying the track, but in 2002 Tranz Rail wanted $400 million.

By May last year, the company was on the brink of collapse and talking to the Government about its survival.

It is not known why RailAmerica stopped talking to the Government and made its own bid at 75c a share in May last year.

This move started a series of events that lead to the Toll Holdings' present ownership of 84 per cent of Tranz Rail.

It has renamed the company Toll NZ and sold the track to the Government. Toll paid $1.10 a share.