KiwiRail mired in Labour ideology
BY LUKE MALPASS
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OPINION: On election night Helen Clark expressed hope that all her government's gains would not go up in a "bonfire of right- wing ideology".
Curiously, few have dared question the Clark government's ideological inclination toward state ownership of assets - especially the flawed decision led by Michael Cullen to nationalise the rail network.
When the government bought back New Zealand Rail in 2008 and renamed it KiwiRail, it was supposed to herald a new era in integrated and sustainable transport strategies. Modern locomotives would wind their way across beautiful New Zealand vistas, carrying not only freight and people but also the aspirations of a country boldly facing the future.
Private sector ownership was out; public ownership of what the government called an important strategic asset was in.
The government publicly presented the buyback as the only obvious result of the failed policies of the past and as a fait accompli to the New Zealand taxpayer, who should be grateful to such a visionary government for having the guts to make this bold move.
In the year since the purchase, we can properly appraise the decision and it appears that the rhetoric was little more than just that - rhetoric.
The purchase is not grounded in economic reality, strategic thinking or environmental concerns. Instead, it is an ideological Trojan horse and an expensive vote winner.
It is best to examine KiwiRail in the light of an outgoing government that needed something to fit into its narrative about the failed policies of the past and the supposed evils of privatisation. Little else demonstrated that better than rail, a system that had lurched along because the Labour government could not bear to see it shrink to an economically sustainable size without subsidies.
Consider the following facts: KiwiRail was bought for $665 million. That figure then turned out to be $690m, plus other spending commitments, and ongoing preferential treatment for Toll's trucking business at the expense of New Zealand- owned competitors (so much for supporting local business). This failed policy has already cost the taxpayer about a billion dollars.
KiwiRail has been subsequently valued at $369m. This was an upfront loss to the taxpayer of $321m - a loss of almost a million dollars a day for a year after the purchase. Put another way, $320m of taxpayers' money was spent for value that never existed.
Further, this valuation is an optimised depreciation valuation, a public service entity costing. In other words, KiwiRail is worthless as a business.
In order for rail to come close to commercial equilibrium (to break even), the network has to shrink from 4000 kilometres to 2300km. The government was repeatedly advised of this by the Treasury before the purchase.
The rail system required a subsidy under private ownership to operate a network of the present size. This policy will continue under public ownership - except the subsidy will get larger.
In purchasing an asset this bad, the Labour government demonstrated its allegiance to an ideology - that government ownership and operation of rail is inherently more desirable than private ownership and operation. The government bought the asset hurriedly and went into the last election with the campaign slogan of "Kiwibank, KiwiSaver, KiwiRail - keep it Kiwi, Vote Labour," leveraging off the idea of positive public ownership of assets.
The difficulty with this jingoistic approach, however, is that organisations such as the World Bank say "privatisation is now so widespread that it is hard to find countries not using this approach. North Korea, Cuba and perhaps Myanmar make up the shrunken universe of the resistant".
Paradoxically, the buyback was, to use the words of Dr Cullen, "an ideological burp".
The OECD considers that, in New Zealand, "there is no fundamental economic rationale for government ownership in these sectors [such as rail] beyond perhaps a transitory phase".
With such a commercial and political mess on its hands, the present Government has only one policy option - the reform, rationalisation and resale of KiwiRail. The difficult reality is that many of the unprofitable lines must be closed while the Government prepares to sell off separate parts of rail to interested parties in the private sector. The rail system needs to shrink substantially to become viable in the long term. Only then will taxpayers be insulated from further political expediency and foolishness.
Without such bold action, rail is going to continue to be a drag on the economy and a constant cost for taxpayers, who have already spent a billion dollars on the business in the past year.
Privatisation is fiscally responsible but is politically fraught. It will take time and courage to introduce the reforms needed and, while privatisation is off the agenda for now, hopefully Prime Minister John Key and Finance Minister Bill English are preparing for their second term of government.
* Luke Malpass is a policy analyst at the Centre for Independent Studies. His report KiwiRail: Doomed to Fail? is made public today.
- © Fairfax NZ News
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This reads like a "softening up" ordered by the Minister of Transport for an excuse to boost trucking on the country's already over-congested roads instead of moving freight by rail.
Its pretty simple really, who likes following a string of trucks up a mountainside when the are trying to go on holiday, answer no one. Keep the rail lines, once they are gone they are gone forever. Living in Europe as I do,you would imediately see the benefits of rail transport lets not be short sighted here. Christchurch roads are getting congested, instead of cutting back, investment should be made now for the future...yes, don't leave it too late like London, completely snarled up, they will never catch up with demand for transport here. Luke Malpass needs to get out and about and count how many freight wagons move around NZ by train and decide if he wants all of this tonnage on the roads.
One would have to seriously question Luke Malpass's objectives behind writing this half truth, one sided report. It is misleading and not balanced.
Does the state highway network have to return a profit? The state highway network is deemed essential infrastructure so why should the rail network be treated any different? Rail is essential infrastructure just as much as roads. People need to stop and think about the benefits that rail can bring not only to the country's roads, but to the country as a whole.
More freight such as containers etc being carried by rail, means less trucks on the roads, which means less damage to the roads, less noise and pollution, less fuel consumption and safer roads.
More passenger trains, especially suburban commuter trains in the main cities, means less cars on the roads, less congestion, and again less fuel consumption, less noise and pollution and safer roads.
More money, not less, needs to be put into the rail system to improve it so that it can become truly beneficial to the average New Zealander. The rail network and rail services need to be expanded and improved, not reduced.
New passenger train services using fast modern railcars need to be introduced to places that people want to go to and will use such Auckland and Mt Maunganui, Auckland and Rotorua, Wellington and Gisborne, Christchurch and Dunedin.
Suburban commuter trains need to be introduced in Christchurch, Dunedin and Tauranga and between Hamilton and Auckland.
Auckland needs to have new suburban lines built to the Airport, North Shore, CBD underground loop, Avondale-Southdown, Manukau-Botany-Howick-Pakuranga-Panmure.
New rail freight centres need to be established in all the main towns and cities around the country with road-rail container transfer facilities.
New lines need to be built to connect industries with ports and cities eg Marsden Point Port line in Northland, relay part of the former Moutohora line between Gisborne and Te Karaka for forestry, reopen and extend the Rotorua line south to Taupo for forestry and connecting the Waipa sawmill and Reporoa dairy factory, build a line between Rotorua and Te Puke connecting this forestry region by rail with the Port of Tauranga, build a spur line into the Clandeboyde dairy factory near Timaru.
Other improvements need to be carried out such as realigning and improving the North Auckland line between Swanson and Otiria with tunnel widening, curve and grade reduction, and reconnecting the line between Opua and Otiria, to allow bigger containers to be carried by rail and for train speeds to be improved.
The rail network needs to be improved and maintained to a standard where trains can operate at 130km/hr which is quite realistic and possible on New Zealand's 3'6'' gauge track.
Most importantly the rail track needs much more maintenance to remove speed restrictions and improve train speeds and travel times. The state highway network is continually being improved with realignments, motorway construction, passing lanes, large new sweeping curves, new bridges etc, but very few improvements get made to the rail network.
Rail is at a disadvantage because much of the network still follows the original routes from when the lines were built more than 100 years ago and uses old locomotives and carriages. Rail recieves considerably less funding and improvements compared to roads and therefore can't compete fairly with roads and road transport truck and bus companies and then it is deemed unviable by people like Luke Malpass.
Road users don't pay the full cost of building, maintaining and improving the roading network, it is heavily subsidised by the government and therefore, the taxpayer.
Rail has the potential to be viable and bring real benefits to the country provided it gets the funding and support it needs from the government. One only has to look at the many countries around the world such as in Europe, the UK, Australia and even the US and see the investment that these countries are putting into rail. Even in Auckland the 'city of cars' as soon as improvements are made to the rail system, more people immediately start using trains and soon they are full, proving that if you provide the service, people will use it.
Just to get the facts straight, state owned railways are the norm in the OECD, viz French SNCF, German DB, USA Amtrak, and so on:
http://en.wikipedia.org/wiki/SNCF http://en.wikipedia.org/wiki/Deutsche_Bahn http://en.wikipedia.org/wiki/Amtrak
Oh and that's not to mention Queensland Rail, VicRail, etc just on the other side of the ditch.
Andrew Hamblyn - do you really think we have another billion dollars to invest in rail? Even Cullen acknowledged (post-election) it would need far more investment than that. I appreciate your point about transport links requiring rail, but after almost 10 years of extremely generous welfare payments and then the final icing on the cake as $320 million dollars was hurriedly wasted, where is all this cash supposed to come from? By cutting social services?
I realise it is easy to counter-attack every criticism of Clark and Cullen as right wing ranting, but I do think this writer has a point. Enormous sums of money were absolutely squandered. If NZ is ever going to achieve true prosperity - with genuine productivity and work ethics, rather than just increasing benefits every year - we all need to acknowledge the facts of what has happened over the last nine years.
When I used to live in NZ it used to owned by the government it was called NZR. The bank was owned by the govt too. When the price of fuel goes up and up the cost of the railways becomes cheaper. Privatization always fails eventually.
There is no disputing the rail service is necessary and being back in state ownership, given the history of privatisation, a good thing.
The questions remain: - Did Labour need to buy it back on the eve of an election? - Did they need to spend $690m plus to buy back a dilapadated service that had been run into the ground?
Answers on the back of an envelope to Helen Clark and Michael Cullen.
Wonder how much in unpaid fines is lost? Maybe instead of cancelling them then the courts should have the right to have it deducted from the their pay and if not working then out of their benefits. This would put more money in the coffers to help pay for the things we really want. Some of these people owe thousands with no intention of paying.
Wow!! What a one-eyed, pro National, "in the back pocket of the RTF" piece of sensationalism this is!!
With Bill English publically stating that National think the railways in New Zealand are "worth nothing", who on earth in the private sector do they or the Dominion think will purchase KiwiRail??
Your opinon harps on about Labour sticking to Government Idealoligy, yet here we are slapped in the face with Nationals long held ideals to "sell everything!"
With narrow minded souls such as Joyce, English, Friedlander and others at large, who see railways as "a threat", and narrow minded media opinionists playing town cryer to the masses preaching doom and gloom, no wonder railways are seen in a dim light.
The small matter that the rail system suffered terribly under private control, being nothing short of RAPED, asset stripped and neglected for 15 years seems largely overlooked, as money, income and asset control were funneled overseas!
The Government are spending BILLIONS of dollars on roading to cater for bigger and heavier trucks, that will cause another billion dollars of damage, and will be an even greater hazard to motorists than they already are. How many trucks have fallen into the sea along the Kaikoura coast already?? How many motorists have died colliding with trucks? How many trucks have crashed, rolled, broken and jack kniffed this year alone???
If the government were to invest a billion dollars into rail, we wouldnt need 53 - 60 ton trucks.
I find it interesting that industry giants such as Fonterra, Solid Energy, BHP, and Norske Skog have commited long term to transporting product by rail, yet if media is anything to go by, the rail system is doomed, unworthy and uneconomic!
Do the RTF really believe they have the capacity to effectivly and economically transport everything on trucks? Honestly?
Despit what media say, rail tonnages are increasing everywhere, and with the purchase of new locomotives sealed this week, we will indeed have "...Modern locomotives.. to wind their way across beautiful New Zealand vistas..."
The notion that the rail system needs to shrink in order to be cost effect is misguided and flawed, and the Dominion's public opinion on the matter is spawned from a lot of uneducated guesses and information.
Andrew
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Luke Malpass's synopsis is predicated on the dangerous assumption that the status quo is guaranteed to continue to favour a transport system fueled by cheap imported fossil fuels.
Establishing and maintaining alternative transport infrastructure is first and foremost an issue of national strategic security – THE fundamental responsibility of any government.
Forget about all the arguments as to how road stacks up against rail – under present day conditions. Present day conditions are a passing phase. (google> the nex oil shock : NZ parliamentary support research papers )
If we allow our transport options to be limited, we increase our vulnerability to outside variables ( e.g. the price of oil ) and decrease mobility, resiliance , AND our economic competitiveness. -Not to mention ignore our commitment to reduce our greenhouse gas emissions.
We simply cannot afford to lose our rail infrastructure.
Should New Zealanders aspire to being governed by intellegent,well-informed decision makers using research-based best practice methodologies – or should we let ourselves be dragged down to 'what the market can bear' and let the dynamics of the National Government’s relationship with the trucking,roading and auto-petro lobby take us where we are going?
To join a broad network of people working to save the railways being threatened with closure , to offer your skills, knowledge or time, or just to be kept informed of what's happening, please send an e-mail to : thewayforward2011@gmail.com To learn more,go to our web-site : https://sites.google.com/site/thewayforward2011/ thewayforward2011@gmail.com