KEY POINTS:
Should the Government buy back the railway business? The question arises seriously with the news that the Australian operator, Toll Holdings, has been unable to make the business afford the rent the Treasury wants for use of the tracks. The two sides have been trying to negotiate an access fee since 2003, when the Government needlessly took back ownership of the rails.
If Toll has been running its trains at no cost of track maintenance for all of that time, it is no wonder it is in no hurry to settle an access fee. And if the Government has been unable to recover its costs since buying back the network, no wonder Finance Minister Michael Cullen's office has now let it be known that a buyout of Toll's rail business is under consideration.
This has evidently come as a surprise to Toll's managing director, Paul Little. If Toll is not anxious to sell the business it bought four years ago, the Government would be facing a high price to acquire it. We need a serious assessment of the true value of the railway to the country.
When New Zealand Rail was privatised - tracks as well as trains - the purpose was to find out whether it could operate economically. Under state ownership the railway had been a financial loser for as long as anyone could remember. It ran at a loss every year and required regular injections of new capital from taxpayers to keep it operable.
But in that era the railway was not expected to be economically efficient. It was used to soak up unemployment and provide trade training for other industries in the protected economy.
Once sold to a consortium organised by Fay Richwhite its fortunes steadily declined. The few remaining passenger services came to an end and the company, TranzRail, was constantly accused of neglecting track maintenance and generally running down the business. Many of the critics were environmentalists and Auckland urban passenger transport planners. Others were the few big industries, such as coal and logging, that still rely on rail for bulk cargo movements. Together they convinced, or manoeuvred, the present Government to renationalise the track network about the same time that Toll was buying TranzRail.
Toll was willing to buy the whole operation but the needless nationalisation of the network means we do not know whether the successful Australian rail operator could have maintained the tracks at an economic level. Its failure over such a long period to accept the access fee the Treasury wants to charge suggests there is a substantial gap between the profitability of the rail service and the cost of maintaining the infrastructure.
That is the useful information privatisation has to provide. It leaves the country with an important decision. If we want to preserve what remains of the rail network, we will have to subsidise the maintenance costs. That benefit might be captured by the private sole operator, or passed on to users by a public operator. Unsurprisingly the bulk customers are urging Dr Cullen to renationalise the service.
The decision must not be influenced by the self-interest of industrial users, or by sentimental attachments to rail. The value of the infrastructure needs to be compared to the road network, which many argue imposes hidden costs on the country that are not recovered from users in road charges and fuel taxes.
If voters can be persuaded the rail network is at least as economic as roading, it would be worth the cost we now discover we have been carrying since 2003. But we will take some persuading.
