$30m bid given sideline shunt

By PAM GRAHAM

Tranz Rail received an offer of more than $30 million for its coal-hauling business from Solid Energy in December.

The offer would have resolved an impasse between the rail company and the state-owned enterprise that provides 10 to 15 per cent of its freight volume.

Solid Energy said it made the offer after an approach from Tranz Rail.

The two had failed for two years to agree on contract terms that would have allowed Solid Energy to lift its output, coal company executive Don Elder said yesterday.

He said Solid Energy put in a written offer in December and was told Tranz Rail was not in a position to consider it until the new year.

Tranz Rail came back to Solid Energy in March.

Elder said the parties were never far apart on price but the deal was not concluded.

Solid Energy was not interested in being a long-term owner of the track. It was looking for control over its destiny and performance efficiencies.

It would have talked to Tranz Rail and other rail companies about operating the rail component of the business, though exclusivity to the track would have to be waived to let in another operator.

"That was part of the negotiations that never got concluded and would have had to include Government."

Elder declined to say what price was offered, although he said it was more than $30 million.

Tranz Rail and Solid Energy have a contract signed in 1999 that lasts until 2009, under which up to 2.7 million tonnes of coal can be moved a year.

Solid Energy wanted to lift output to 4 million tonnes a year but did not want to make an investment in new mines rail terms running for 15 to 20 years. "So we spent two years trying to negotiate an operating agreement.

"We were not prepared to pay excessive prices for performance that was not guaranteed."

Elder said the sticking points were Solid Energy's belief that maintenance on the track had been deferred and the valuation of track assets Tranz Rail used to calculate its return on.

He said the deal did not go through because the Government made its offer to take a stake in Tranz Rail. Any sale and purchase agreement would have been subject to the agreement of New Zealand Rail Corp, which controls the lease over the land under the rail network, and the Government.

Elder said he was disappointed that Paul Little, the managing director of Toll Holdings, the Australian company bidding for Tranz Rail, had not been to see him.

"He had better not rely on any growth in volume from us unless he is prepared to offer us very long security, absolute guarantees of performance, with strong penalty provisions, and pricing at or better than current pricing."

"There is a huge deferred maintenance liability that we think he is picking up that he appears to be underestimating."