KEY POINTS:
Conspicuous by its absence from the Government's announcement this week that it was buying Toll Holdings' rail and ferry assets was a clear explanation of the reason.
On the face of it, the $665 million price, some $235 million above book value, seems high for an asset that the Bolger National Government sold in 1993 for less than half that. It may gladden the hearts of those who have always considered privatisation a dirty word to see the rail network back in public hands, but running a rail company has always been a dodgy commercial proposition in this country, even before the railways lost their statutory monopoly over long-haul goods services in the 1980s.
Prime Minister Helen Clark seemed to acknowledge as much this week, saying that the Government was "not going into this to make money". That's just as well. The Government paid $44 million five years ago to stop Tranz Rail going bankrupt. That was meant to be part of an agreement to buy back the entire network for $126 million with a further $100 million over five years to be invested in improvements to the network. Finance Minister Michael Cullen puts those improvement costs now at "hundreds of millions". The delay has cost him dearly and he will not be expecting a return on this week's investment any time soon.
And there is no reason he should. Toll, a successful Australian-based firm that is the region's largest transport company, has no stomach for more after five years of ownership. Tellingly, the ink was barely dry on the contract before the company's managing director, Paul Little, announced Toll's "complementary acquisition" of Northland trucking firm United Carriers. Clearly Toll believes in the future of road over rail.
The Government may - and certainly should - have its eye on the more distant horizon. Cullen has described the purchase as a key part of a push for sustainability, though he begs the question by failing to explain why Government ownership is necessary to ensure rail's survival. He might be forgiven for being tired of using public money to prop up private enterprise; perhaps he is encouraged by the performance of Air New Zealand since he became its major shareholder, but he could have done a better job of explaining his reasoning to the electorate, who will be paying for his spending spree.
National's decision in 1993 was based on Treasury advice at that time questioning the need for having a rail service at all: distances were too short and the country too long and thin for rail to compete with long-haul trucking that can provide a door-to-door service without double handling. In addition, the advice said, there were not enough bulky goods to make rail freight economic.
Certainly the landscape has changed in the 15 years since - most notably in soaring fuel prices. If we are to meet our (postponed) emission-reduction targets, more trucks will have to come off the road. As a way of moving goods (long-distance passenger services are unlikely to be revived) rail may have a bigger future than it did last week.
The return on investment is unlikely ever to be in hard cash or even black ink in Government accounts. Whatever benefit it confers will be spread across various parts of the economy: it will be disguised as savings in road-surface maintenance, lower road tolls and quicker progress towards environmental and other targets.
But the move is shrewd politics. The return of assets to public ownership makes for good election-year headlines and the move causes discomfort to National because it highlights the gap between its leader and deputy leader on asset sales.
It is also music to the ears of the Greens, who may yet save Labour's bacon in the scramble to form a Government.
