Rail races to the crossroads

By PAUL PANCKHURST and STAFF REPORTERS

If it's rail industry politics, Don Elder is there.

Two years ago, the boss of coalminer Solid Energy was part of the big business lobby telling the Government to buy back a national rail network run down in the decade since privatisation.

"We said, 'Either rail dies and exports from this country start to die, or you step in and make this right'."

The Government did as it was told.

But now one of the big questions is how much sway the biggest customers such as Elder and his company should have over the running of rail.

The Government's buy-back negotiations with Australia's Toll Holdings, which took over national rail operator Tranz Rail last year, are going to the wire.

A deal was expected last night, but not for the first time, agreement was not reached.

The final deadline is Wednesday and the main sticking point is the fees Toll will pay to the Government's "Trackco" to use the track.

Finance Minister Michael Cullen vented his frustration last week, threatening legislation to impose a deal - or even nationalising the company.

The main users - a group that includes the likes of Solid Energy, Carter Holt Harvey, BHP Steel and Fonterra - have been complaining about the delays.

Everyone is frustrated.

A Government negotiator says: "We went into this because the bloody rail users were yelling at us, and a year later they are still yelling at us."

Apart from access charges, Solid Energy also wants resolution of its beef over who coughs up - the Government, the users, Toll or a mixture of the three - to repair the damage wrought by years of neglect.

The big users argue that $300 million to $400 million of maintenance was deferred between privatisation in 1993 and before Toll swooped last year.

Their goods account for 80 per cent of the freight on the network and they calculate:

* The 4000km of track has a 40-year life.

* That means replacing 100km a year.

* Only 30km has been replaced each year for the past decade.

* That leaves a 700km shortfall.

Also, they say, welding of the track before privatisation was badly done.

As a result, normal repair and maintenance work was put on hold while the repairs were made.

The Crown talks of putting in $200 million - maybe more - over five years.

Unfortunately, that does not look like enough.

The big users say they have contributed through past charges and should not face higher charges now.

Toll says it has committed enough cash upgrading its locomotives, refurbishing the Arahura ferry and buying rolling stock.

Despite the impasse, most believe a new deal will be signed and there is reason for optimism that this deal will not lead to a repeat of past mistakes.

For a start, the political landscape has shifted dramatically.

A decade ago, the Treasury advised the Government of the day that the country could manage without a rail network. And that the private sector would do a better job of running it or - as it happened - running it down.

No one is putting forward such a policy now.

Meanwhile, the big customers are no longer dealing with a weak operator such as Tranz Rail, which was hamstrung by huge debts. Furthermore, the slow pace of the negotiations is just the latest piece of evidence showing Toll is not a player to be pushed around.

Indeed, it now emerges that Toll's entry into the New Zealand market was a signal it would not be earbashed by customers.

Elder says big users discouraged potential buyers, including Freight Australia, Rail America and Toll.

The users told Toll that taking over Tranz Rail could mean assuming a much bigger liability than it realised because the company was in such a state of disrepair.

He says: "Even if they passed it [the cost] on to the Government, the time it would take to address the issue would make it difficult for them to achieve the performance they were looking for and we would not give them a honeymoon period.

"They went ahead against our specific advice."

Big customers are also getting some of what they want - the track buy-back and a Government pledge to put money into track - but not everything.

Instead of "open access", with a range of rail operators, they deal solely with Toll.

Toll executives are also enthusiastic, talking of a "rail renaissance".

The company has a unique offering in transport and logistics with its mix of trucks and trains. It is betting that customers in Australia and New Zealand will commit to long-term relationships, with some investing in assets such as rolling stock and railheads.

At Solid Energy, Elder describes Toll as "very businesslike", but says the state-owned company and Toll have "clear differences".

He keeps bringing the topic back to maintenance - which he claimed this week to be worth $70 million on the coal route between the West Coast and Lyttelton port.

When the work is done, the line will run at 90 per cent or more of capacity, rather than in the low 80s, says Elder, helping both Solid Energy and Toll to make money.

Solid Energy has threatened for years to build a jetty to ship coal out of Westport, avoiding rail altogether.

It now says it is looking at options for shipping and barging coal north.

Toll chief executive Paul Little says the impasse in negotiations was in April and he is perplexed about why Cullen later went public with complaints about the process.

The Cullen camp wonders why Toll is holding off on signing when the issues at stake are "detail".

- additional reporting Pam Graham