Commuters to pay for resurrection of KiwiRail

Steven Joyce, Minister of Transport, says that 'the challenge with KiwiRail is getting it to a sustainable form and able to pay its own costs'. Photo / Derek Flynn

Auckland rail commuters will be among the first to be called on to pay more for KiwiRail services under a 10-year turnaround plan.

Addressing the NZ Rail 2010 conference in Wellington yesterday, Transport Minister Steven Joyce said it was decision time for the rail company, bought by the last Government for $1 billion but now valued at $388 million.

But Auckland Regional Council chairman Mike Lee said last night that Aucklanders had paid their way in kick-starting the resurrection of their rail network, and he decried what he saw as a clear signal that the minister "intends to significantly increase rail costs to Auckland ratepayers".

Mr Joyce said KiwiRail had worked for several months on the turnaround plan, which was being reviewed by the Treasury and outside advisers.

He expected to make an announcement soon, possibly in next month's Budget, on the plan for KiwiRail to become "a sustainable freight-based business that's able to fund its ongoing operating and capital expenditure from its customer generated revenue".

That would be a challenging goal with significant spending needed for track infrastructure and rolling stock.

The Crown would provide the necessary capital "cautiously because it is taxpayer money and all borrowed".

A key aim was to get stakeholders including passengers, freight customers and regional councils to meet the full operating and capital cost of rail services.

"We have to say [KiwiRail] is entitled to have reasonable costs and [to] have those costs met, otherwise it will always be a sort of orphan child struggling to make a return."

The Government's due diligence on the turnaround plan had met with a "pretty positive" response, particularly from large freight customers.

Mr Joyce said accounts showed "there's definitely some freight being carried at a marginal cost rather than a full cost basis."

While it was not necessarily about commuters paying more, "that's possible in some circumstances."

"Certainly in Auckland rail for example, they have plans to raise fares over time as services improve."

The minister said the turnaround would inevitably mean the closure of some branch lines.

He indicated the out-of-commission Stratford to Okahukura and Northern Wairarapa lines were under threat.

Other marginal lines including Napier-Gisborne and Northland may survive if KiwiRail could secure an "anchor tenant" or large freight user for ongoing business.

Should the turnaround plan succeed while National was still in office, it was unlikely to re-privatise the company.

"It's just not on the table. The challenge with KiwiRail is getting it to a sustainable form and able to pay its own costs. Even at that point, it won't be making a sufficient return on capital for what you might call normal shareholders."

Despite the minister's comments about privatisation, Mr Lee wondered whether his motive for transferring extra costs to Auckland ratepayers, to make KiwiRail's balances sheet look better, was ultimately to sell it.