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Posts Tagged ‘NZ railways’

Kiwirail – back on track, on the sea

22 September 2011 3 comments

Full story

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It’s nice to see more investment in the up-grading of our rail and inter-island ferry service.  Kiwirail is fast being brought back up to standard, after 15 years of neglect under private ownership.

Railways was privatised in 1993, by the then-Bolger-led National Government.  (Source)  The new owner, Tranz Rail Ltd,  paid $400 million to the government and was made up of  a consortium consisting of  Fay, Richwhite & Company (40% ),  the American railroad Wisconsin Central (40%), and Berkshire Partners (20%).

From then, until 2008 – when railways was re-nationalised by the then-Clark-led Labour government – the asset was owned by a variety of private owners. In 2003, one of the major institutional shareholders was AMI – now facing insolvency after several major earthquakes in Christchurch.

Continuing losses, such as $346 million lost in the half-year ended December 2003, did not help the companies viability, despite carrying considerable amounts of freight such as 2.1 million tonnes of coal on the Midland line in the South Island.

The rail network was badly run-down by 2008, with many urban lines and stations dilapidated, vandalised, and in need of urgent maintenance.

In the Hutt Valley, for example, very few stations had any identifying signage which indicated which stop it was. They had all been mostly vandalised beyond recognition or destroyed totally. It was not until post-2008, and with State investment, that suburban rail began a programme of considerable improvements and upgrades. New passenger carriages; freight wagons; and locomotives were purchased, and Kiwirail began a slow progression back to a modern service, that is fit-for-purpose and a valuable asset for the 21st century.

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The privatisation of railways has been a stark and expensive reminder that privatisation is not a guarantee for better service. In the case of railways, the taxpayer is now footing the bill for fifteen years of neglect – even when the directors and managers of Tranz Rail walked away with $6 million in severance payments. Not exactly a good look,  one might think.

In fact, the only pirece of major capital investment in 15 years of private ownership was the sub-charter of the new inter-island ferry,  ‘Kaitaki, in 2005. No other capital investment, rolling stock, or improvements were made to the rail system during the period of private ownership.

As the price of fossil-based fuels continues to rise, transport based on alternative systems such as railways will become more and more critical to a modern, functioning economy.  Railways is simply too vital to be rested in private ownership which – as recent history has demonstrated – is not capable of managing such a strategic asset.

In the coming decades, this author predicts that railways will assume a greater role in our economy and society.  As petrol and diesel escates in price, rising on an almost weekly or monthly basis, rail will once again become profitable. It may also reverse the primacy of the internal-combustion automobile, making rail a preferred option for long-distance travel.

In the decades to come, it may become apparent that the decision of the  Labour Government in 2008 to re-nationalise railways was perhaps the single most prescient act on their part.

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In retrospect

Lack of ongoing maintainance reached critical levels in the summer of 2002/03, when high temperatures resulted in tracks buckling and the LTSA ordering Tranz Rail to reduce train speeds and to re-hire track de-stessing crews,

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Broken-down trains… unmaintained tracks… disgruntled passengers. Sound familiar?

It is fairly evident that the current maintenance and purchase of new rolling-stock are things that should have been carried out over the last couple of decades. The neglect of our rail system allowed private owners to attempt to make short-term gains, over long-term necessary expenditure.

The tax-payer is picking up the ‘tab’ for this misguided experiement in privatisation.

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Don – stop smoking that ‘Kronic’!!

21 August 2011 1 comment
Don Brash, Leader of ACT Party

Don Brash, on Q+A today (21 August),

“Nobody seriously believes that Governments run commercial business better than private owners do. There is no logic at all for Governments to continue to own them.”

Really, Don?

Let’s do a Fact Check on your claim that “nobody seriously believes that Governments run commercial business better than private owners do”.

Case # 1: Air New Zealand.

In April 1989 the airline was privatised by Roger Douglas with a sale to a consortium consisting of;  Brierley Investments Ltd(65%), Qantas (19.9%), Japan Air Lines Ltd (7.5%), and American Airlines Ltd (7.5%) .

The owners were a fairly high-powered, supposedly commercially-saavy, group of corporations.

Sources:

Treasury 1

Treasury 2

The sale went through, earning the State $660 million.

In 2000, Air New Zealand entered into a commercial deal to buy 100% Ansett Airlines, for  $A680 million, from Rupert Murdoch’s News Corporation Ltd. This deal went sour and Ansett Australia was placed into liquidation by September 2000.  Air New Zealand subsequently announced a $NZ1.425 billion operating loss .

By  October 2001, Air New Zealand was itself in imminent danger of collapsing and  was re-nationalised by the then Clark-led Labour government under a  NZ$885 million bail-out. The government ended up with a 76.5% stake.

So much for private ownership.

Case #2: NZ Rail

In September 1993, NZ Rail was privatised and sold for $400 million (less debt)  to a consortium consisting of Wisconsin Central (40%), Berkshire Partners III L.P. (20%), and Fay & Richwhite (40%). NZ rail then had a succession of owners, culminating in heavy losses, with a $346 million loss for the half-year ended December 2003.

In May 2008 the Labour Government agreed to buy Toll NZ Ltd (less its trucking and distribution operations) for $665 million.

This experiment in privatisation was also a spectacular failure. No private owner could make a profit, even with the government agreeing in  2003 to spend $200 million over the following five years, upgrading the track via the new SOE, Ontrack.

The rail network had been badly run down through lack of investment in new rolling stock and lack of basic maintenance. And one of it’s first private owners, David Richwhite were investigated late 2004, by the NZ Securities Commission, regarding alleged insider trading. In June 2007 Richwhite  agreed to pay NZ$20 million, but did not admit liability.

Another “Tui time” for private ownership of state assets.

Case #3: Finance Companies.

It might be worthwhile reminding Don that the recent chain of collapse of finance companies in this country cost investors  $6 – $8 billion dollars in losses . Many of these  are the real “Mums and Dads” investors that National speaks  lovingly when mooting asset sales.

So Don, spare us the rhetoric that “nobody seriously believes that Governments run commercial business better than private owners do”. Because as many will confirm – that’s bullshit.

The question I ask myself is; Don, do you really believe that fantasy or not. If you do, you are deluded. If you don’t, you are  deliberately mis-representing the truth.

Either way – not a good look, mate.