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KEY POINTS:
The Government plans to invest hundreds of millions of dollars into modernising its new rail service - a move critics say will cost taxpayers many times over its $665 million price tag.
Finance Minister Michael Cullen announced yesterday the Government was buying Toll Holdings' rail and ferry assets as a key part of its sustainability push.
As well as the $665 million purchase price, he warned ongoing investment would be required to achieve the Government's aim of improving rail link-ups with major ports to reduce the amount of freight transported by road.
Overhauls of passenger services were also needed and while the Government was still working on the figures, "obviously that will be measured in the hundreds of millions rather than tens of millions".
National leader John Key said there was no rationale in the Government taking over rail from an experienced operator other than to "curry public favour".
"They've got no expertise in running rail and no clue how they're going to do it. It puts the taxpayer in the worst of all possible scenarios."
However, National would not re-sell the asset. Mr Key pledged last month not to sell any state assets in the first term of a National Government. Mr Key said the price the Government was paying was so high that any re-sale would be for a significant loss and he was unwilling for that to happen.
Prime Minister Helen Clark defended the purchase, saying rail assets were an important part of the Government's sustainability strategy and "we are not going into this to make money".
But she added: "We are light years away from what the old NZ Rail used to be. We are light years away from what old-style pre-1980s state owned enterprises used to be. SOEs are run well, efficiently."
Negotiations have been under way for three months and Dr Cullen said $665 million was more than the Government wanted to pay, but less than Toll had wanted for the deal.
"What we want to see is more extensive usage of the rail network, the maintenance of the current network, some strategic expansions around places like the port of Whangarei so we can carry more traffic on rail," Dr Cullen said. Urban passenger services in Auckland and Wellington were also a focus, but inter-city provincial routes that had already closed were unlikely to be reopened.
The Government takes over on July 1 with senior Toll staff contracted to stay for a transition period. It is likely to be established as a separate SOE or under the umbrella of a larger SOE which would run it as a separate operation from OnTrack, which runs the Government's train tracks.
