Billion-dollar buyback (+video)

Big price tag placed on network upgrade

Last updated 22:35 05/05/2008
ROBERT KITCHIN/The Dominion Post
RAIL HANDOVER: Michael Cullen with a toy train presented by Toll chief Paul Little.

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Taxpayers face a bill of more than $1 billion to buy back rail and ferry operations once urgently needed investment in new tracks and trains is added.
View video: Trains and ferries back in NZ hands

On top of the $665 million price the Government has agreed to pay Australian-owned Toll NZ, it also needs to pump more than $200 million into new tracks, through state-owned operator Ontrack.

Another $200 million to $300 million will be needed for new rolling stock. Toll will also get a six-year rent holiday, estimated to be worth up to $20 million, on premises for its Tranzlink trucking business.

"We paid more than we liked, Toll got less than they'd like - that's the nature of any agreement of this particular kind," Finance Minister Michael Cullen said.

Toll put the book value of the assets at $430 million.

The failure, after years of argument, to resolve what access fees should be paid to Ontrack was the major trigger for the sale.

The trains will be owned either by a new state-owned enterprise or in a separate entity within Ontrack. Senior Toll staff will be seconded till February to run the business.

The sale comes after months of talks, revealed by The Dominion Post, that almost collapsed after a $500 million offer met a $1 billion counter offer from Toll.

Prime Minister Helen Clark said a modern rail network would lessen transport's carbon footprint, take pressure off the roads and make trucking and shipping more efficient.

Dr Cullen said investment in new rolling stock would be "measured in the hundreds of millions rather than tens of millions".

It would be "fair comment" to say taxpayer money would have been saved if the Government had bought the business four years ago, when Toll paid about $400 million for it.

The priority would be improving freight and urban rail services. Inter-city passenger services that had been dumped would not be restored any time soon.

Dr Cullen was confident due diligence would see the transfer of ownership on July 1, and that the public would approve.

"The selling off of our public rail system in the early 1990s and the running down of the asset afterward has been a painful lesson for New Zealand."

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National leader John Key said it was the wrong choice at a time when money should be channelled into helping struggling households. He pledged, however, to retain the assets in state ownership for the first three years of a National-led government.

Toll managing director Paul Little would have preferred not to sell the business, but wrangling with the Government over track access had made it difficult to spend what was needed, so a sale was the best option.

"We bought this business 4 1/2 years ago and it was a mess," he said. Toll had improved the system, with 74,000 truckloads a year taken off the roads. Further improvements required bigger and faster trains.

Toll's record came under fire yesterday from Rail and Maritime Transport Union general secretary Wayne Butson. He said Toll had promised new locomotives but not one order had been placed. "It has been, `Paint them up in Aussie colours and send it back out into service'."

Toll has instead concentrated on improving existing trains by installing new electronic systems.

Former Labour minister Richard Prebble, who oversaw big staff cuts at NZ Rail before it was privatised by National, said it would be "the most expensive purchase that the taxpayer's ever had to fund". Labour had botched the buyback of the rail network without getting agreement on sharing costs with Toll.

"Their solution to that is to say, `We'll buy the rail operator as well'."

WHAT WE ARE GETTING

* 180 mainline locomotives

* 4200 wagons

* One rail ferry

* Leases on two other ferries

* About 2300 people work in the rail and ferry operations.

- The Dominion Post

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