The Napier to Gisborne rail line is going to be mothballed due to the cost of repairing storm damage and the likely cost to continue maintaining the line.
KiwiRail chief executive Jim Quinn said the rail freight line was unlikely to generate sufficient revenue in the foreseeable future to cover costs.
Freight rail services to Gisborne have been suspended since March after serious storm damage caused several large washouts north of Wairoa. Reinstatement of the line was expected to cost around $4 million and would take several months to complete.
However ongoing costs to maintain the rail track and structures along it, such as bridges, were likely to rise from the current level of around $2 million a year, to $6 million a year to ensure the line could continue to support freight services. For example several of the bridges along the route are nearing the end of their expected life and would need replacing.
Mr Quinn said a recent review indicated revenue on the line could grow from the current level of around $1 million to about $2.5m in future years.
"However, the costs of both running the trains and maintaining the infrastructure would mean an annual cash deficit of between $5 million and $8 million a year."
For the 2012 financial year to March, the line carried 44,345 tonnes and generated revenue of $1.04 million. However there was a cash deficit of $2.4 million after operating costs and annual line maintenance costs.
Mr Quinn acknowledged there had been an upturn in volumes carried on the line in the months prior to March, but it still fell well short of making the line financially sustainable.
"We acknowledge the support given by the local businesses and the wider community for retaining rail to the region.
However, we need to ensure we invest in areas of the network where we are able to grow business to a level it is commercially sustainable, and sometimes that means making hard decisions," Mr Quinn says.
Mothballing the line, rather than closing it preserved the option of using it in future, he said.
"It allows us to look at opportunities as they evolve."
KiwiRail and the Government would now work with the region to consider the strategic value the line has to the wider New Zealand economy, including alternative uses for the corridor and how best to realise that value for the good of the New Zealand economy.
KiwiRail also assessed the option of operating rail services between Wairoa and Napier, but this was also discounted as the majority of freight movements were to, or from, Gisborne. The traffic expected from Wairoa was not enough on its own to sustain services, Mr Quinn says.
KiwiRail was also working with the Gisborne City Vintage Railway to explore possible options for continued heritage operations in the region.
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