Taxpayers to pay millions for rail revamp

DOMINION POST

HAPPY: Toll's managing director, Paul Little, left, presents Finance Minister Michael Cullen with a model train at yesterday's announcement of the Government's buyback of the country's rail service.

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The privatisation of railways turned full circle yesterday when Finance Minister Michael Cullen signed a deal with Australian Toll Holdings to buy the network for $665 million.

Government negotiators worked through the weekend to thrash out a deal, concluding it about 11pm on Sunday.

The move comes four and a-half years after Toll bought the ailing business from Tranz Rail and 15 years after it was sold to a consortium run by Wisconsin Rail and Fay Richwhite by the former National government.

From June 30, taxpayers will own not only the rail track, bought by the Government in 2003 but also 180 mainline locomotives, 4200 wagons, one rail ferry and the leases on two other ferries.

The purchase completes the second major return to government ownership of a transport asset by this Labour-led Government. The first was the $885m purchase of a majority share in Air New Zealand in 2001.

But unlike Air New Zealand, which has trebled its book value since the Government bought it, taxpayers are likely to have to part with hundreds of millions more to bring the rail system up to scratch, Cullen admitted.

He refused to release budget data on the likely liability to the Crown but said the likely investment would be measured in the hundreds of millions rather than the tens of millions.

The Government is promising newer, better trains for both urban passenger services and freight as the new owner of the business but it cannot yet say how this will be delivered. Cullen admitted no decisions had yet been taken on who would run the new company.

Options included allowing government track provider OnTrack to run it at arms-length, creating a new state-owned enterprise, or contracting the business to a private provider. In the short term, Toll would continue to run the operation under a management contract, Cullen said.

He dashed any hopes of a revival of long-distance passenger services such as the Southerner or the Bay Express between Wellington and Napier.

Cullen made it clear the Government's priority was to get freight off roads and on to rail, even if it meant under-cutting trucking companies to do so.

That would save expenditure on roads and dovetail with the Government's climate change initiatives.

Toll managing director Paul Little said yesterday was an emotional day.

He indicated the company's hand had been forced to some extent by negotiations over the price of access to the government-owned track.

 Insiders say Toll was more
than happy to exit the
business, taking with it a
$235m profit. In a statement
to the Australian Stock
Exchange, Toll said it had an
estimated book value of just
$430m.   
 National has slammed the
purchase as an election-year
bribe and a waste of money.
Yet the party has pledged not
to sell it again  because it is
caught by National's recently
announced ban on asset sales
during its first term.     
 Leader John Key said the
total bill to taxpayers of
owning the rail network was
likely to approach $1 billion
and the purchase made no
sense.   
 ``At a time when skilled
Kiwis are leaving in droves,
when interest rates, groceries,
and fuel costs are forcing
families further into debt,
simply buying back a rail
company won't fix any of
that,'' he said.
 Key said National would
be stuck with the purchase,
however, because no private
company would pay the sort  of money the Government
had just parted with. ``Our
view would have to be that we
would be making the best of a
bad situation.''    
 The Greens and New
Zealand First welcomed the
buyback.   
 Asked why taxpayers
needed to own trains, Cullen
said: ``I suppose it's almost
Robert F. Kennedy _ some
people ask why, I ask why
not?ntsa Cullen said. nte  
``We were efficient oper
ators of a rail system by the
early 1990s under corporati
sation. It is a business which inherently has difficulties
around being a purely
commercial operation. There
fore there is no reason why
the Government cannot be an
effective operator of a rail
system.''   
 Former ACT leader Richdh
ard Prebble, who once ran
railways as a Labour Cabinet
minister, said it would be far
more expensive than people
realised.  ``It's going to be the
most expensive purchase that
the taxpayer's ever had to
fund. We've got 100 years
experience that the Govern
ment cannot run a railway.'' 

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