Toll's tough year on and off the tracks

By PAM GRAHAM


Since Toll took over the troubled Tranz Rail last October its Melbourne boss, Paul Little, has been taken to task by Finance Minister Michael Cullen and union bosses have called the executives bully boys.

After a near-miss at the entrance to Tory Channel at the opening to the Marlborough Sounds, and a couple of storms, the inter-island ferries got the kind of news coverage no one wants, not once, but three times.

Toll copped floods in Wellington in October, floods in the lower North Island in February and Wellington's worst storm in a decade in August.

And all along they ran the gauntlet. Foreigners. Here to take wealth. Got a bargain.

But a lot has been going on behind the scenes and it should soon become clear whether Toll is just one more logo on New Zealand's clapped-out locomotives or a facilitator of a rail renaissance.

Last week, the Government agreed to fund Wellington passenger services. And this week, a Queensland Rail executive, David George, was named chief executive of the now Government-owned track.

To revive the crippled and debt-laden operator, Toll spent about $186 million buying 84.2 per cent of Tranz Rail shares. It wants to move eventually to a full takeover, but has so far been unable to convince other investors to sell.

It agreed to sell the track, privatised with the operator in 1993, back to the Government for $1 and invest $100 million in rolling stock.

The Government also agreed to invest $200 million in the network. This deal was struck on June 30, a year later than planned and only after Cullen threatened nationalisation of the track.

Still, Little says relations with the Government are cordial and the group is confident about the future.

"The Government drove a very hard bargain and they have told us that we did, too," said Little. "The way it has turned out is a best outcome for us. We have a lot of money to spend."

And in a major break with the recent past, the Government also holds this view.

"The relationship between the Crown and Toll is very productive," said Chris Mackenzie, the senior adviser in Cullen's office, who continues to be a key player from the Government's side.

"They still continue to drive a hard bargain, but when we strike an agreement both sides go away to make it work," he said.

Documents released by the Government reveal Toll was not the most hungry of predators. They show Toll said it was otherwise engaged when first approached by First NZ Capital on behalf of the Government in October 2002.

Little said Toll had had a watching brief on Tranz Rail, Mainfreight and Owens Group for some time and was not particularly excited by any of them.

"As we focused a bit more closely, I think we understood that Tranz Rail was best suited to the model we were trying to emulate, because with rail came a road and sea capability."

Tranz Rail eventually chose itself, he said.

For Toll, the first year has been about internal change. It bankrolled the business, changed the name to Toll NZ and put in a new management team, including chief executive David Jackson and chief financial officer Austin Perrin from Australia.

Toll finance boss Neil Chatfield, operations chief Mark Rowsthorn and executive Stephen Stanley jetted in as needed.

Paul Garaty from Toll Shipping oversees the ferries. Jackson kept on the head of TranzLink and employed a former Qantas executive to run rail.

The change is evident in the group's new marketing approach. Witness the apology ads in newspapers after a horror ferry voyage and free tickets to foot passengers last Friday to mark the $4 million tart-up of the Arahura ferry.

The Australians are playing up the beauty of the Marlborough Sounds and the tourism attractions at either end of the journey.

This is in direct contrast to suspicions that Toll wanted Tranz Rail only for its trucks and was not committed to rail.

Little said he did think Tranz Rail's road transport unit, TranzLink, looked like "a big slab of business we could fix" while rail looked intimidating, too hard to fix.

He now thinks the partnership with the Government is going well and that logistics will be different in the future.

"We're in a global market and we have to be globally competitive," he said.

The sorts of things dairy giant Fonterra was doing in its logistics review of the Upper North Island was "right up there".