Rail in New Zealand - a litany of loss

(From left) Jim Bolger, Annette King, Michael Cullen, Helen Clark and Ontrack's Cam Moore launch KiwiRail. Photo / Mark Mitchell

History is usually written by the winners. Modern New Zealand rail history, however, is a litany of loss.

Perhaps this explains why nobody can agree on a single narrative about why rail failed and continues to lose money.

Talk to various stakeholders and a cornucopia of ills are diagnosed: government bureaucracy and incompetence, private-sector greed and malfeasance, market failure and even, fatally, technological obsolescence.

Modern rail history is still being written. There is unanimity, however, about that kinder, gentler age, the 1970s.

"Two thirds of the wagon fleet, half the locomotive fleet and 40 per cent of staff were unnecessary to achieve current and expected future levels of demand," says Dave Heatley, a research fellow at the Institute for the Study of Competition and Regulation, talking about rail operations before corporatisation.

"It was only deregulated in 1982," recalls Mainfreight managing director Don Braid. "Prior to that, you couldn't move freight by road further than 150km. Before 1978, it was 40 miles. There were more than 20,000 people [and] it was a bureaucratic government department. That stupid regulation [restricting freight] is what helped Mainfreight get started."

Restrictions on road transport were removed in 1983 and a series of reforms saw more than three-quarters of the rail workforce dismissed. Productivity lifted 300 per cent. The system was privatised in 1993 - and it is what happened in its time in private hands that is hotly disputed.

Heatley says freight volumes increased under private ownership, as did operating profits - though not enough to meet capital costs. Even so, it was in 1997-1998 - under private ownership - that sleeper replacement approached what was needed for appropriate network maintenance, said a PricewaterhouseCoopers audit.

While sleeper replacement and track renewal was generally higher when the system was in government hands, Heatley notes this was the result of generous taxpayer subsidies.

"The underinvestment didn't start in 1993 and end in 2008," he says. "The underinvestment happened for a long time in government management and it's probably still happening today."

Braid, whose company unsuccessfully bid for rail in 1992, has a slightly different memory of those years: "It was sold to the highest bidder, rather than the most sensible bidder. It became a money transaction rather than an industry play and from that moment we started to see the demise of a valuable infrastructure asset."

"The evidence is," counters Heatley, "in the first years they put a lot of investment in. The capex seemed to peak around 1997-1998, a period when the owners of Tranz Rail thought it was worth putting in a lot of money for future benefits."

That contention sticks in Braid's craw. "It was a money transaction - pull out as much as possible, invest as little as possible and then make the books look good for an initial public offering.

"When rail management was replaced by shipping company management, things started to take a turn for the worse from an operating point of view," Braid says. "And then financial trouble under poor management, the culmination of that lack of investment. Then the easy answer - let's sell it to the Aussies [Toll]."

KiwiRail chief executive Jim Quinn offers this summation of modern rail history: "The Fay Richwhite guys bought in and then sold out, the public listing came along, new owners came through - it nearly failed toward the end of that. Then Toll picked it up."

But who was to blame? "I'm not interested in that," Quinn says. "I have what I have, and my job is to find a way to create a sustainable railway."

The Government bought back the track in 2004 and the rail business in 2008 after Toll's controversial ownership.

Braid accuses Toll of misusing its position to benefit its trucking business; Heatley points to government interference, particularly retention of unprofitable lines.

"There is general agreement that the purchase price paid [by the Government to Toll] was too high," Heatley says. Braid: "They [Toll] came in and bought it for a paltry [sum] and then left with a bigger cheque and did no investment in that time."

For Quinn, the ultimate cause of failure was the series of different owners, implementing different strategies in a business that requires long-term planning.

"You can't just lurch from one strategy to another, from one owner to the next," he says, "that is not an environment for superb management."