KiwiRail is to sell its Dunedin-based Hillside Workshop business just months after making 44 workers redundant and contracting out the work.
The business will be advertised for sale as a going concern from early May, 2012 with a final decision due by the end of August, 2012.
KiwiRail chief executive Jim Quinn said the decision was made after analysing the financial impact of the reduction in construction and refurbishment forward work orders for Hillside Workshops.
While the sale terms are negotiable, the preferred outcome will be that it is purchased as a going concern, he said.
"We are looking for a sale outcome that secures Hillside's future as New Zealand's largest heavy engineering site,'' he said.
"We know this decision is difficult for our staff and we will be ensuring that they have full access to all information and any support services they require.''
The Rail and Maritime Transport Union said the sale was "totally avoidable".
Its general secretary Wayne Butson partly blamed it on Kiwirail's decision not to bid for the contract to build a new fleet of trains for Auckland last year.
"If government procurement settings do not support local industry, then we simply won't keep good manufacturing jobs in New Zealand. This government is sitting on its hands, while one of KiwiRail's most significant assets is privatised."
He said the Hillside workshops made too important a contribution to the Dunedin economy and workforce to be closed.
"Hillside should be a strong vibrant centre of engineering excellence...
"The taxpaying public, the local business community and workforce have the most to gain if Hillside flourishes and these green collar jobs and skills remain in South Dunedin."
Labour MP for Dunedin South Clare Curran said privatising the Hillside workshops amounted to a Government asset sale.
It would affect 130 skilled jobs and cause the loss of a "hugely valuable" part of KiwiRail's infrastructure, she said.
"This move is irresponsible and will have a negative impact on our infrastructure and workforce.
"National talks of prioritising jobs where costly convention centres in Auckland are at stake, but highly skilled railway workers in Dunedin have never been courted in the same way."
KiwiRail cut 44 jobs at its rail engineering division at the Hillside Workshops last June, a decision unions blamed on the Government's refusal to step in and stop contracts from going overseas.
The company then brought in contractors to carry out rail engineering duties less than four months after the redundancies.
In March a petition to save Hillside jobs was rejected by a parliamentary select committee.
Green Party co-leader Metiria Turei, who has has been part of a group of local manufacturers, union representatives, MPs, the chamber of commerce and the council seeking to keep Hillside running and in public hands, also said the privatisation of Hillside was a direct result of the Government's refusal to implement a smart procurement policy.
"A Berl report showed that having the new Kiwirail rolling stock for Auckland built at Hillside would have added $250m to the economy, reduced the current account deficit by $122m and created 1270 jobs.
"Unfortunately, National insisted that Kiwirail only consider its narrow commercial interests and ignore the wider impacts of its decision,'' Mrs Turei said in a statement.
"That has now led to Hillside's sale. 130 highly-skilled and well-paid jobs at Hillside - along many more at the dozens of associated local businesses - are at risk.''