Govt could have bought the trains for less

So the Government is coughing up $665 million of taxpayers' money to buy Toll New Zealand's trains and Cook Strait ferries.

Amid government crowing today about it apparently saving the transport system, environment and economy, it's worth remembering the Government missed the chance to buy these assets for a lot less five years ago.

Back in April 2003 the rail operator, then known as Tranz Rail, engaged in a foolish, and unsuccessful, attempt to obtain a High Court gagging order preventing Standard & Poor's from making public a five notch downgrade in the rail group's credit rating.

The court was told that Tranz Rail's cashflow forecasts showed it would have just $1.3 million available at the end of June 2003 with its bank debt facilities fully drawn.

That would have been nowhere near enough to meet a large and complex company like Tranz Rail's day to day running costs. Asset sales were one lifeline but potential buyers knew the financially crippled Tranz Rail would be a forced seller. So clearly the company was heading for bankruptcy.

The Government, which Tranz Rail had been lobbying for help for months, was well aware the rail group was in dire financial straits. 

Rather than launch a quick bid, or allow Tranz Rail to fall into receivership from where it might have plucked the assets at fire sale prices, the Government concocted a complex $226 million rescue package. Meanwhile Tranz Rail's shares continued trading on the sharemarket.

This allowed aggressive Australian freight group Toll Holdings to buy shares, building up a 19.9 per cent stake and seizing the initiative.

This eventually led to an uncomfortable alliance with the Government buying the dilapidated rail network for $1 and Toll the trains, ferries and trucks.

Fast forward five years and rather than great improvements to the rail network, all we've really had is continuous bickering between Toll and the Government over who pays for what.

At least that should end now. But it's worth remembering it might have happened at a lot less cost to the taxpayer.

- © Fairfax NZ News