Editorial: KiwiRail costs must be visible

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When the Government announced an agreement in May to repurchase the railway much remained to be decided. Not much more had been decided at a deadline of midnight Monday. Yesterday the Government was able to announce only the superficialities: A predictable name, "KiwiRail", the colour of the trains (socialist red) and an establishment board headed shamelessly by the Prime Minister who presided at rail's privatisation.

The Bolger board will manage the operation until remaining issues are resolved, most importantly whether to put the trains under a separate company to "Ontrack", the state-owned enterprise that has maintained the tracks since the Government re-acquired them four years ago. The alternatives set out by Finance Minister Michael Cullen yesterday were to merge the trains and tracks either completely or as separate divisions of a single state enterprise.

He hopes an advisory group will be able to settle this issue next month. It is vitally important to the economics of the railway and its worth to the economy overall.

The 15-year privatisation has proven that rail cannot pay its own way. Two owners have failed to make it profitable in the private sector. Toll Holdings, a successful train operator in Australia, has been unable to pay the track access charges that Ontrack has set in order to maintain the rails at their supposed value.

Ontrack had obtained an extra-ordinary revaluation of the asset that must reflect its political sensitivity and environmental benefit more than its commercial performance against competing transport modes. If so, it is no wonder the taxpayer has to support it, and now buy it because the Government is unwilling to subsidise a private business.

Taxpayers might agree that if they have to subsidise the service it ought to be state-owned. Nevertheless, it should be set up in such a way that the subsidy can be constantly scrutinised and kept under control. That is unlikely to happen if the trains and tracks are merged in one Crown entity with no public transactions to show the economic cost of maintaining the main trunk, a century old next month.

The pitfalls of political economics were evident in the Prime Minister's remarks yesterday. "One locomotive can pull the equivalent freight of 65 trucks," declared Helen Clark. But one locomotive cannot take that freight to 65 different destinations. The train will need trucks to deliver much of its cargo at one end of the journey or the other, often both. Multiple handling probably costs more than single long haul saves. Witness Toll's wish to keep the railway's profitable truck depots.

Bulk cargoes with rail connections from mill or mine to seaports will be the main beneficiaries of rail subsidies. Other industries that have found door-to-door road transport cheaper, faster or more reliable, will be forced to use rail if trucks cannot compete with subsidised trains. Those industries will not complain so long as subsidised rail rates mean their freight costs are the same. And car drivers would be happy to encounter fewer trucks on the roads.

With petrol prices high and climate change haunting public policy, rail's renationalisation is timely. Social and environmental considerations are as important as economics. But the economics should not be ignored. "Kiwirail" will probably require eye-watering sums from the taxpayer and re-orient the country's transport of goods around its costly spine.

If the economic costs are to be constantly visible and containable, the operation and infrastructure should be separate companies, with KiwiRail not guaranteed exclusive use. It is a wonder all of this was not settled before a train was repainted and presented to the public yesterday. The $665 million repurchase and its attendant liabilities, still undeclared, leaves too much to be decided down the track.

- NZ Herald

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