Transport Minister Gerry Brownlee says the Government can not justify repairing the Napier to Gisborne rail line, yet it announced $4 million will go towards constructing passing bays on State Highway 2 between the cities.
Mr Brownlee and KiwiRail's chief executive Jim Quinn announced today that the rail line would be mothballed for the foreseeable future.
Mr Quinn said a $4m repair bill from earlier this year, and increased maintenance costs of $6m per year, made the line unprofitable.
Freight rail services to Gisborne were suspended in March after serious storm damage caused large washouts north of Wairoa.
Mr Brownlee defended the decision to mothball the line, saying it was carrying the equivalent of only five trucks filled with freight a day.
He refused to confirm whether the Government would reopen the line in future. "Mothballing simply means you're maintaining your options for the future."
Mr Brownlee said the upgrade to SH2 would improve access of freight getting in and out of the Gisborne region in a cost-effective way.
Labour's Transport spokesman Phil Twyford said mothballing was code for closure, and it would make it harder to re-open the line later.
He said the decision was the result of the Government's policy of pouring billions of dollars into motorways while setting up KiwiRail to fail.
"It is the ideological consequence of the unrealistic financial targets National has imposed on KiwiRail; expecting it to find $3.75 billion from its own balance sheet for capital expenditure."
Mr Twyford said locals had pleaded with the Government to keep the section of line open.
"They have protested, they have petitioned the Government. Yet each time they've been told there isn't enough money in the coffers to fix it."
Green Party transport spokeswoman Julie Anne Genter said the decision was a huge disappointment for the Gisborne community.
"Rail lines are expected to generate maximum profits, but the wider economic benefits they create are ignored.
"The opposite seems to be the case for the National Government's uneconomic motorways," she said.
Mr Quinn said staff had spent "considerable time canvassing" businesses about existing and future opportunities, and had assessed the line's 10-year future.
It found revenue on the line could grow from its current level of about $1m to about $2.5m per year, resulting in a deficit of between $5m and $8m.
"We acknowledge the support given by the local businesses and the wider community for retaining rail to the region," Mr Quinn said.
"Since 2010 the Government has invested $750 million in the rail freight business as part of its strategy to get the business operating commercially and on a more sustainable financial footing."
KiwiRail last week announced it would cut 20 per cent of its infrastructure and engineering workforce, with the loss of 158 jobs by the end of October.
Mr Quinn said the company was yet to decide how many jobs would be lost by cutting the Gisborne Napier line.
Mr Brownlee said there were still costs involved in mothballing the line.
"The line is going to be mothballed for a period. That's not a cheap exercise but it does preserve the option of opening it up again if the freight volumes start to rise very significantly.
"The railway line is not lost, the optionality remains with the mothballing, but in the end all of these things have to be able to pay their way."