Editorial: We're stuck with KiwiRail, like it or not

Once the Government has spent its $750 million that would be the end of state assistance to KiwiRail. Photo / Mark Mitchell

The Government is about to throw good money after bad on the nation's railways. It admits as much in its decision to pour up to $750 million into KiwiRail over the next three years. A Ministry of Transport information paper says bluntly: "The Government has decided to make the best of what is currently a poor investment by providing KiwiRail the opportunity to make the business commercially viable."

This year's outlay, included in today's Budget, will be $230 million. Put in context, it is more in the next 12 months than the entire $225 million of new money being put into science and research for the next four years. That first $230 million will indeed be "thrown" at the KiwiRail problem, but the Government has tried to keep its options open for the remaining $500 million, coyly describing that as "committed in principle".

KiwiRail's turnaround plan involves the Crown putting up big annual capital investments conditional on the company improving its performance and stimulating demand to increase its revenues dramatically. Once the Government has spent its $750 million, all things going well, that would be the end of state assistance to KiwiRail and it would be compelled to live within its budget. Locomotives might fly.

Rail has not paid its way in this country for generations, if ever. As a Government department it was bloated and inefficient. Privatised, it was a thinned-down struggler benefiting only big shareholders who pocketed dividends or capital gains or browbeat the Government into renationalising it at a cost way beyond its value.

As KiwiRail, it has repeatedly sucked up injections of Crown capital yet still requires $750 million to even get to the platform for its own $3.8 billion journey of reinvestment over the rest of the decade. That eye-watering total will need to be funded directly out of KiwiRail profits, with the Government accepting no chance of taking a dividend while the turnaround plan is enacted.

So, to qualify for the remaining $500 million in Government funding and then produce substantial profits to upgrade the main trunk line and major port services, KiwiRail will need to increase its volumes and charges, and soon. For freight custom, it faces a Catch 22 dilemma: customers might pay more but only when services are faster and better.

For metro passenger services, KiwiRail will require ratepayers through their regional councils to agree far bigger subsidies and the travelling public to tolerate a series of fare rises, which the Transport Ministry thinks they might be open to because of improved stations, lines and trains.

Freight volumes are expected to double in the next 30 years, with all forms of transport needing to increase capacity and efficiency to meet demand. Rail will have to remain part of the solution if the country is to maintain economic growth and not be forced to spend anyway, building even more new highways.

That is why the previous Government blinked and paid over the odds to buy it back from Australian freight company Toll. And it is why the current administration has given up any thought of selling KiwiRail. The private sector has not been able to make it viable. The $750 million over the next three years must, according to ministers, improve the company's services and attract more, profitable, custom. They have charged KiwiRail's board and executives with achieving "quick wins" to show revenues are beginning to flow.

Will the turnaround plan work? The required increase in revenues and 10 years of reinvestment seem too steep an incline, on all previous rail experiences, for KiwiRail to traverse alone without the engine of Government funding. The state is likely stuck with it now, turnaround or not, because it can neither be closed nor sold.