KEY POINTS:
There was no shortage of brave words to accompany the Government buy-back of Toll Holdings' rail and ferry business. Many countries, said the the Prime Minister, were looking to rail as a central part of 21st century economic infrastructure. Rather less mention was made, however, of the fact
that two experienced rail operators, Wisconsin Central and Toll, had been only too happy to walk away from their New Zealand investment. And no one in Government went to any length to justify the spending of $665 million on a business whose one constant has been an often alarming absence of profitability.
Finance Minister Michael Cullen did observe that Toll had struggled to run a "commercially viable" operation without Government support. But he did not explain just how the renationalised business would be made profitable. There was only a brief reference to the rail assets having been run down since their sale in 1993, along with an apparent conviction that modernisation of the rolling stock and services, at a further cost to the taxpayer of hundreds of millions of dollars, would bring customers flocking back. The Government was more intent on dwelling on relatively peripheral issues, such as transport network emissions.
The key point here is why the system is run down. If those private owners who put their money into the assets did not maintain their investment, there must have been a reason. They would surely have not let those assets deteriorate if rail was truly competitive with road transport and capable of realising a good profit. Passenger services would not have ended if people had viewed trains as a preferred means of transport. Most recently, Toll had been unable to make the business afford the rent that the Treasury wanted for use of the Crown-owned track network. Clearly, there was a significant distance between the profitability of the rail service and the cost of infrastructure maintenance.
This set the scene for yesterday's announcement. Dr Cullen, unable to recover the costs of maintaining the network from Toll, determined that, rather than subsidise a private operator, he should own the business outright. Major freight customers, keen to see a taxpayer-funded upgrade of the rail service, had been only too happy to reinforce that sentiment. As were those who adhere to a romantic notion of rail, particularly its environmental benefits, while paying no heed to its competitiveness with road.
Thus, with the lessons of privatisation disregarded, the wheel has turned full circle. Circumstances today are, however, much different from those when NZ Rail was a byword for losses, capital write-offs, overemployment and "social dividends". The public will be loath to see a return to such practices. People will also take some convincing that modernisation, in itself, will make rail attractive to customers. Evidence supplied by Wisconsin Central and Toll suggests there is a substantial, perhaps unbridgeable, gap between it and roading in purely economic terms.
Regrettably, the National Party says it will not sell the rail and ferry business if it is elected later this year. It describes the renationalisation as "reckless", but remains committed to a policy of not selling state assets in a first term. An exception was clearly warranted in this instance. The service should be placed in the hands of another foreign rail company which, disciplined by the risk to its own money, would run a commercial enterprise. There might well be no rush to buy. But better that approach than a buy-back which ignores the lessons of 15 years of privatisation. And which will be a major drain on the taxpayer for as long as rail remains in state hands.
