Minister for Rail Winston Peters said KiwiRail expects to achieve its surplus target. Photo / Mark Mitchell
Minister for Rail Winston Peters said KiwiRail expects to achieve its surplus target. Photo / Mark Mitchell
Minister for Rail Winston Peters has called out the Treasury for being too cautious with its suggestion KiwiRail would fall short of its financial targets.
In a statement to Newstalk ZB, Peters was not mincing his words, putting it remarkably frankly: “Treasury got it wrong.”
A briefing from Treasury, given to Peters and Finance Minister Nicola Willis in early February, stated it did not expect KiwiRail to meet its 2024/25 forecast target on earnings before interest, tax, depreciation, and amortisation (EBITDA) - a measure of profitability.
In a statement, Peters said KiwiRail did in fact expect to achieve its $110 million operating surplus target.
“Treasury were cautious given the economic conditions, but the company has delivered. Not for the first time with railways, the Treasury got it wrong,” Peters added.
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He reiterated his expectations earnings would grow “from this point” as KiwiRail addresses its costs, lifts reliability, and target more customers.
Treasury were cautious given the economic conditions, but the company has delivered. Not for the first time with railways, the Treasury got it wrong.
Ministers were told the variance from the state-owned enterprise’s budget is increasing, economic conditions are challenging, and rail closures in January 2025 reduced both freight volumes and revenue.
A Treasury briefing said KiwiRail was implementing a financial "transformation plan" in its prediction the agency would not meet its profitability forecasts.
The memo outlined a “transformation plan” was under way from KiwiRail to “get match fit” in the 2024/25 financial year. It then planned to “grow and invest” in the two following financial years before scaling “new growth”, predicted through to 2028/29.
If KiwiRail’s cost-savings initiatives were successfully put in place, Treasury predicted it to run a “self-sustaining” business.
The transport operator offered voluntary redundancy to staff in October 2024 in a bid to reduce the size of its workforce and bring costs down.
Treasury also told the two ministers that the initial focus on reducing costs, including the redundancy scheme, should increase KiwiRail’s operating margin and EBITDA.
“KiwiRail will need to invest in new systems and processes to improve its services offerings in order to grow future revenue,” the briefing said.
A number of economic difficulties were highlighted in the memo.
The Treasury suggested that when the financial forecasts for 2024/25 were developed, the outlook varied from the reality.
“Tawhai tunnel had not collapsed and it was not known that Winstone Pulp International Limited was going to cease operations”, the Treasury wrote, noting both matters reflected in KiwiRail’s freight revenue.
In a statement on the briefings, KiwiRail’s chief finance officer Jason Dale said the transport provider agreed with Treasury’s assessment that economic conditions are “challenging” and have impacted the transport sector.
But despite the challenges, Dale reiterated KiwiRail expected to deliver its operating surplus target, and added “major initiatives” to “transform” KiwiRail were taking shape. He added these should bring about improvements to the agency’s performance.
KiwiRail’s “transformation initiatives” have so far made cost-savings in excess of $30 million, including the agency’s voluntary redundancy scheme which approved 80 people. KiwiRail had to decline some applications for voluntary redundancy, and said it did not accept them from people in critical roles.
The agency’s full cost-cutting target was redacted in the briefing from Treasury, obtained under the Official Information Act.
Dale added savings initiatives were ongoing, but it had already brought about “positive changes” on improving services, growing value and reducing costs.
Winston Peters shared a positive outlook regarding the state-owned enterprise’s future.
He added that KiwiRail was lifting its reliability and Interislander had been “near 100%” reliable this year.
New KiwiRail chairSue Tindal starts on July 1 - her first day also marking the start of a new financial year.
Azaria Howell is a multimedia reporter working from Parliament’s press gallery. She joined NZME in 2022 and became a Newstalk ZB political reporter in late 2024, with a keen interest in public service agency reform and government spending.
