This approach was sold to us as a virtue of MMP and it may or may not work in some circumstances. Where it clearly doesn’t work is in commercial decision-making.
There are currently three clearly different views within the Cabinet on the KiwiRail ferries.
Act believes the crossing of Cook Strait should be left to the private sector, and points quite reasonably to KiwiRail’s privately funded competitor, getting on and doing just that without the help of the taxpayer chequebook.
National doesn’t want to rock the boat to that degree but does want something a lot cheaper than the gold-plated iRex plan cooked up by the previous Government. This was destined to cost somewhere north of $3 billion, with the Treasury believing it to be more like $4b. In straitened fiscal times, it makes little sense to spend the price of one and a half Dunedin hospitals on a ferry service when there is already one operating.
Winston’s warriors are nostalgic for all things rail and they want the iron bridge across Cook Strait the way we used to have it, with trains chugging on to ferries and off the other side. Never mind that the rest of the world has largely forsaken that nostalgia for the simpler and cheaper, if less glamorous, approach of picking up the containers off the trains and putting them back on the other side (which is sort of the point of container freight after all).
However, when it comes to Cook Strait ferries, Winston is very Boris Johnson. He is pro both having his cake and eating it, so he believes he can get railway tracks on ferries at nothing like the price of Labour’s iRex “solution”. A weary Cabinet, knowing this stalemate has gone on way longer than it should have, has decided to give him a shot at it. And here we are.
This saga has in fact been going since 2017, and certain themes are repeating. When I was first briefed as Finance Minister on the replacement ferry project then, KiwiRail was more than happy with the cost-effective roll-on roll-off option. Indeed, the then chief executive told me it would be “nuts” to go with the expense of rail-enabled ferries.
Unfortunately, the Ardern Government, which included one Winston Peters, contained a much higher percentage of what they call “Foamers” or people obsessed with trains, and they installed more of their number on the KiwiRail board. IRex was born.
Add to that a nostalgic desire to resurrect the ill-starred and earthquake-prone 1970s-era Kaiwharawhara reclamation to be the northern terminus for the ferries, and the cost shot through the roof. To the point where even that famous spendthrift, Grant Robertson, blanched.
It’s all taken eight years to date and hundreds of millions of dollars. And in the meantime, KiwiRail’s wider fortunes continue to head south.
The above is an explanation of what got us to this point but it doesn’t answer the bigger question. What the hell are we doing in the 2020s having politicians decide which boats a rail company should buy? Last time I looked none of them has run a logistics company or a rail company or a ferry company, and most of them haven’t run any sort of company.
So why can’t KiwiRail make its own investment decisions? That highlights the more fundamental problem. Without ever more piles of taxpayer cash, it will go broke. Ever since KiwiRail was bought back with great fanfare by the late Michael Cullen in 2008 it has been an absolute money pit.
I was involved in setting up the first KiwiRail Turnaround plan, which was a commitment of $1b of taxpayers' money towards a $4b investment in the track and rolling stock to bring it up to speed. The plan failed, in part because the freight companies refused to commit the necessary freight volumes to KiwiRail to make it work.
It became clear that while the freighters noisily support the Government tipping money into KiwiRail, in practice they have KiwiRail right where it suits them – as a “peaker” to take their freight when their own truck fleets are full. That helps maintain full utilisation of their assets with the backup of a government-subsidised option during busy times. It’s a great model if you can get it.
The money pit didn’t end with the Turnaround plan. Victoria University of Wellington academic Bronwyn Howell has added up that nearly $12b of taxpayers' money has been tipped into KiwiRail since Cullen bought it back. That’s enough for four or more Dunedin hospitals, with all the frills.
And all that money hasn’t achieved anything. The amount of freight carried by KiwiRail has actually fallen during that period. Customers today meet only one-third of its costs, down from 70% or 80% 10 years ago. By its own estimate it now carries just 13% of New Zealand’s internal freight task.
The rail enthusiasts say KiwiRail is treated unfairly. They point to the roading network as not having to pay for itself. Yet that is wrong. The roads largely do pay for themselves. Largely because they get used more, and helpfully by both freight (trucks) and passengers (cars).
Most of the cost of maintaining and building new highways comes out of petrol taxes and road user charges. Governments of a certain stripe even siphon off some of this income for building pedestrian crossings and cycleways. Nobody is talking about siphoning money from KiwiRail for such things. That’s because it doesn’t generate any.
Rail is ideally suited to moving container freight to ports and bulk cargo like coal. The sad fact is that ever since the demise of our coal industry there just hasn’t been enough suitable freight to keep much of the network going. Three-quarters of the freight KiwiRail carries moves between Hamilton, Tauranga, and Auckland. The rest of the network is largely carrying fresh air.
We are overdue for a proper discussion about the future of KiwiRail and which parts of it we should keep. If we let the foamers just carry on, we’ll have a couple of very expensive ferries, lots of shiny, empty rail corridors and lots of tired old run-down hospitals.
