Govt buys back rail, ferries for $665m

Re-nationalisation of railways rewinds history

Finance Minister Michael Cullen has pledged more state investment in the rail network following today's announcement that Government has bought back Toll's rail and ferry business for $665 million.

Dr Cullen said the deal gave the Government complete control of the rail assets, which would allow it to better integrate the rail network with other transport networks and address climate change issues.

He said the Government had initial plans for further investment in the network, though details were not ready for release.

The Crown has been in negotiations with Toll over a buyback for several months.

It comes against a backdrop of wrangling over Toll's access agreement to the rail tracks, which are already owned by the Crown, with the Government saying it has been failing to pay its fair share.

Prime Minister Helen Clark today said the deal would pave the way for the modernisation of the rail network, which formed a key part of the Government's sustainability agenda.

"Modernising our transport sector is central to transforming our economy and making it truly sustainable," Miss Clark said.

"With rising fuel prices and growing awareness about the challenge of global climate change, many nations are looking to rail as a central part of 21st century economic infrastructure."

She said a modern rail system could reduce the emissions of the overall transport network, take pressure off our roads and allow trucking and shipping to operate more efficiently.

The Government will pay a purchase price of $665 million for the rail and ferry business with settlement on June 30. The deal does not include Toll's freight forwarding business, which includes one of the country's biggest truck fleets operating under the Tranz Link name.

Dr Cullen said buying the rail operating business was the best way to increase investment in the industry and make it more responsive customers' needs.

Rail assets had been run down after the sale of the public rail system in the early 1990s and the Government would now look at upgrading rolling stock.

Dr Cullen said Toll had done a good job increasing freight volumes and streamlining the operation of terminals, but it had struggled to run a "commercially viable" business without government support.

"The Government will now avoid paying subsidies to third parties and we also avoid the on-going disputes over the implementation of the National Rail Access Agreement that had the potential to destroy value in the business and erode the morale of the people who work in it."

The negotiations reportedly took place against a backdrop of the Government manoeuvring to make Toll start paying the full price of access to the rail track network.

Toll has been paying about $48 million a year since an access deal was struck in 2004, with the Government picking up the shortfall of about $10 million needed to maintain and improve the tracks.

POTTED HISTORY

The Government's re-nationalisation of the railways , buying the assets off Toll NZ for $665 million, has rewound history.

1862 - first railway opens - a horse-drawn tramway from Dun Mountain copper mine to Port Nelson.

1863 - first steam railway opened on the Christchurch-Lyttleton line, via the Lyttleton tunnel.

1870 - with less than 100km of track operating, Prime Minister Julius Vogel calls for railways to aid economic development, and a narrow gauge is chosen to save money.

1873 - first train in North Island, Auckland-Onehunga.

1878 - first express trains Christchurch-Dunedin cover 370km in 11 hours.

1879 - possible to travel 600km from Christchurch to Invercargill by train.

1880 - Almost 1900km of railway open.

1886 - Wellington and Manawatu Railway Company opens line to Longburn, near Palmerston North, introducing gas lighting and dining cars. It was profitable for 22 years, until taken over by Government.

1908 - North Island main trunk line completed after 23 years work - the crowning achievement of the "railway age". First train carried MPs on a junket to Auckland, in August.

1923 - West Coast line opens - its Otira tunnel, at 8.55km the longest in the British Empire and containing the nation's first electric railway.

1930 - Rotorua Limited introduced for tourists from Auckland, with observation car.

1936 - First successful railcars, Wairarapa route.

1945 - South Island main trunk from Christchurch to Picton completed.

1953 - the length of railway line operating hits its all-time peak - 5656km. Christmas Eve crash at Tangiwai kills 151 rail passengers.

1955 - Rimutaka tunnel opens, eclipsing Otira as the longest at 8.8km.

1982 - Railways Corporation created as statutory corporation from Railways Department.

1983 - Start of deregulation of "distance limits" on trucking companies opens railways to road-based competition. Rail employs 21,000 workers.

1984 - Electrification of North Island main trunk starts. Completed in 1988 at a cost of $250 million.

1986 - Labour government makes railways a state-owned enterprise. In six years the workforce is cut from 21,000 to 5000, while productivity of the land-based workforce is lifted 300 percent.

1990 - Finance Minister says Railways Corporation has accumulated debt of $1.1 billion, and the Government is considering restructuring it.

1990 - Limited liability company, New Zealand Rail (NZR) is formed.

1993 - Government announces sale of NZR to a consortium of Wisconsin Central Transportation Corp and Berkshire Partners (60 percent stake) and Fay Richwhite (40 percent) for $328.3m.

1995 - Company re-named Tranz Rail.

1996 - Wisconsin Central and Fay Richwhite strip cash out of the business before exiting. They took $322m of equity out before floating 31 million shares to the public at $6.19/share.

1997 - Tranz Rail share price peaks at $9.

1998 - Tranz Rail share price slumps to $2.71.

2002 - David Richwhite and Michael Fay quit their stake at $3.60/share, netting an $87m profit on their original $31m investment, plus collecting $10m in advisory fees. Wisconsin quits two weeks later at $3.70/share, netting a $100m profit on its $37m investment, plus getting $8m in advisory fees.

2002 - Tranz Rail's operating loss $70.7m (net loss $122.7m).

2002 - Finance Minister Michael Cullen's spokeswoman says speculation the Government may buy back the national track network is "premature".

2003 - Standard & Poor's suspends Tranz Rail's BB- plus credit rating, saying only that the suspension was extremely rare.

2003 - Stock plunges towards 30c/share, details emerge of how the company needs to sell assets to meet lease payments and repayments of debt required by bankers.

2003 - RailAmerica makes a $158m takeover bid, saying it would refinance $235m of Tranz Rail's existing lease obligations and debt.

2003 - Australian firm Toll Holdings Ltd discloses a strategic 6.1 percent stake in Tranz Rail, bought at 76.37c. Tranz Rail shares jump nine cents to 95 cents - a 20 percent gain in two days.

2003 - RailAmerica chairman axes bid after due diligence investigation. Tranz Rail shares plunge 23 cents to 70 cents immediately.

2003 - Toll Holdings puts in a lowball bid for the company at 75 cents/share, 13c below previous day's closing price of 88c. Share price falls 5c.

2003 - Tranz Rail receives formal notice of Toll Holdings' takeover offer, Toll will also assume debt and lease obligations - estimated by RailAmerica at $236 million - taking the total value of its bid to $394 million.

2003 Government announces $75.8 million bailout of Tranz Rail, in which it will buy the rail network for just $1, take a 35 percent stake in the rail operator through a rights issue, and give it an immediate $44 million cash injection.

Transport Minister Paul Swain said if the Government had not acted the trains would have stopped running within a week.

2006 - Toll Holdings and government agency Ontrack in face off over how much Toll should pay towards improving the tracks.

2006 - Toll NZ reported it had nearly doubled its June year net profit to $53.3 million. It made a $30m profit in the second half.

2006 - Toll NZ said to face rail track access fees as high as $100 million a year by 2013, more than double the amount it was paying at that time. The Track Access Charge (TAC) would rise once the $200m the government was investing in the network ran out.

2006 - Toll NZ threatens to slash services on much of the national rail network including the main trunk line unless it gets a long-term agreement from the Government on its track-access fee.

2007 - Toll Holdings buys another 10 percent of railway shares, triggering a compulsory takeover for the remaining shares at the same price of $3 each. Toll could finally take full control of its New Zealand assets and "grow the business more quickly", it said.

2007 - October: Rail buffs speculate Toll Holdings is finding New Zealand too hard a place to make a dollar and may sell its rail business to the Government, Toll NZ spokeswoman Sue Foley said Toll NZ was absolutely committed to rail in New Zealand and freight was increasing on a number of its services.

2008, May 5 - The Government buys back Toll's rail and ferry business for $665m, after several months of negotiations.