Hard News by Russell Brown

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Hard News: Track to the Future

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  • Russell Brown,

    Owning the railways ourselves doesn't make us any better off unless the government can actually run the service at lower cost or higher quality, or if the subsidies are temporary measures needed while the business develops to a normally profitable level.

    But this was the argument put up against the buy-back of Air New Zealand. It was very easy to argue a counterfactual and simply assume that selling the airline to Singapore would have solved everything.

    But it's a lot harder to argue that Air NZ's performance since the government became the major shareholder hasn't been out-of-sight better than when it was a widely-held listed company.

    We can't know what state the railways would be in now if the people who bought TranzRail from the government (in a deal that sucked for both the government and Fay, Richwhite's shareholders) hadn't basically looted the company. But they did, and it seems clear that Toll's ownership wasn't going anywhere that would fix things.

    What we can say is that Labour wanted to announce this at the first possible opportunity: the full sale agreement isn't even completed yet.

    The Q&A suggests an SOE. One like Kordia, that operates commercially but can be roped in to public goals.

    I'm not at all against privatisation of businesses the government doesn't need to own. But I think there's a case to be made that the government did need to step in here, if it wanted to be able to exercise a strategy to reduce fossil fuel dependence that went beyond carbon taxes and emissions trading.

    Of course, if you think there's no need to reduce fossil fuel dependence, there's not much of a case.

    Auckland • Since Nov 2006 • 22850 posts Report Reply

  • Russell Brown,

    I agree with most of what you've said there. The counter-point would be - if the subsidy led to a profit (which it presumably is doing for Toll), that profit should be used to reduce the subsidy and make it profit-neutral for the government. Instead of a $10 million subsidy, maybe it could be $7 million.

    I think the main issue was access charges: Toll wanted a monopoly on freight service but didn't want to pay for it. The real subsidy is the money the taxpayers would spend on the network to give Toll a monopoly position.

    Auckland • Since Nov 2006 • 22850 posts Report Reply

  • Russell Brown,

    Cullen is on Checkpoint saying that Toll's position would have involved the government subsidising the purchase of its rolling stock, and that the original 2003 agreement had never been complied with. I understand the counter-argument, but the more I look at it, the more I'm okay with the government choosing not to expatriate a whole lot of taxpayers' money to Australia.

    Auckland • Since Nov 2006 • 22850 posts Report Reply

  • Christopher Worthington,

    There's no doubt that Air NZ has had a remarkable turnaround but I'm not certain what specific role government ownership has had to do with that. It's clearly not the case that government ownership has forced Air NZ from profit-maximizing to pricing at marginal cost - obviously profits have gone up not down.

    I didn't say that it was impossible that the railways will be a good investment, just that the existing subsidy is not an argument for making the investment. To justify the investment the case must be made that Toll was using its position to extract rents from the government and that there are externalities that justify the subsidy in the first place.

    However, the long history of both the government and the private sector losing money on rail should make people suspicious that the rail network in NZ will never be economic. Instead we just seem to have a "pie-in-the-sky" hope that this time will be different, thanks to more investment/carbon taxes/peak oil.

    I'd reiterate Libertyscott's point that this is not, by and large, a subsidy for an Australian company - it is a subsidy for New Zealand companies that use the railway for freight.

    Since Jan 2008 • 25 posts Report Reply

  • Russell Brown,

    It's clearly not the case that government ownership has forced Air NZ from profit-maximizing to pricing at marginal cost - obviously profits have gone up not down.

    No. But having a patient dominant shareholder may have made a difference. Remember that Air NZ's problem under its previous board was a failure to stick to its knitting.

    However, the long history of both the government and the private sector losing money on rail should make people suspicious that the rail network in NZ will never be economic. Instead we just seem to have a "pie-in-the-sky" hope that this time will be different, thanks to more investment/carbon taxes/peak oil.

    The SOE version of TranzRail was actually profitable. Its major problem was the inherited debt that the national government wrote off with the sale.

    I'd reiterate Libertyscott's point that this is not, by and large, a subsidy for an Australian company - it is a subsidy for New Zealand companies that use the railway for freight.

    But it's a subsidy that would have been paid anyway. I just don't think anything was ever going to happen with Toll -- it has been promising to buy new rolling stock since the 2003 deal with the government, and has never done so. That's five years. The argument for Toll is a "just wait and it will happen" one. But I'm really not sure it was going to.

    Auckland • Since Nov 2006 • 22850 posts Report Reply

  • mark taslov,

    good on Mr Rudd, a very gentlemanly thing to do. No doubt it will be a huge boost to the NZ civil unions industry.

    Te Ika-a-Māui • Since Mar 2008 • 2281 posts Report Reply

  • Peter Ashby,

    I regularly when discussing civil unions/partnerships over here in the UK extol the virtues of civil unions in NZ. Here in the UK civil partnerships are for Gays only which makes it far too vulnerable to a future government for one thing. I think that the Act in NZ made civil unions open to everyone and can even be used for non sexual union purposes is wonderful.

    If I were to get married again (don't let the missus see this but) I would go for a civil union. At the time we got married basically to satisfy the families and in a church ditto. I agree with Russell that it is the commitment between two people that matters most, not wider society. Having the support and best wishes of family and friends is nice, but not necessary and certainly not sufficient.

    Dundee, Scotland • Since May 2007 • 425 posts Report Reply

  • Cecelia,

    This is a good discussion and I love blogs like those in Public Address. However, I couldn't help laughing out loud at Steve Braunias' blog parody in yesterday's SSTimes. I guess blogging is so recent that the codes and conventions of the genre are still rather weird. Any thoughts?

    Hibiscus Coast • Since Apr 2008 • 559 posts Report Reply

  • Neil Morrison,

    Meanwhile, Stateside, Red State Obama derangement reaches right over...

    he can look forward to a lot more of that.

    One the Obama fans, if you check out MyDD (thee best non-tribal Dem site), at the top left of their homepage there's a map illustrating Obama vs McCain. Up til a few days ago Obama was trailing McCain significantly - he's now leading.

    That polling info is as good as you get - it's a pretty sophisticasted decanting of opinion polls combined with voter trend analysis.

    Clinton still does better but that shift to Obama is pretty significant.

    Since Nov 2006 • 932 posts Report Reply

  • Maureen Gallie,

    Having in the old days,used the railcar from Hamilton to Auckland,I was under the impression that the service was being run down.The decor was very shabby,and I felt very ashamed about it.It wouldn't take much to encourage punters to use rail again.Just clean and comfortable with a good timetable.Any old train would do for me,I would travel in all of them!

    Russell/Hamiltonxtra • Since Mar 2008 • 11 posts Report Reply

  • Steve Barnes,

    <quote<Ever tried to fly from London to Paris,</quote> I hitchhiked once, the French can be funny people, they pretend not to understand English and I can't fly, I don't have wings. other than that, what was your point? My point was about everybody being in such a hurry.

    Peria • Since Dec 2006 • 5521 posts Report Reply

  • Steve Barnes,

    ,I was under the impression that the service was being run down

    NZ had little choice after Mugoon spent all the borrowed money on "Think Pig" projects. I would rather be able to have the choice of sedate travel, as would many tourists, over fast porn access.

    Peria • Since Dec 2006 • 5521 posts Report Reply

  • Geoff Lealand,

    Having prised the rail system from Toll's cold and deadly hands, what I hope for now is the reinstatement of regional railcar services. Some years back, there was such a daily service from Hamilton to Auckland but it departed at a ghastly hour (6am) and crawled its way to Auckland. It was also poorly promoted but there was some pleasure in moving along merrily past the stalled traffic on the motorway. Had some right jolly people on board but I guess they knew their days were numbered.

    I am not a train romantic but having just experienced the remarkable JR/subway system in Yokohama and Tokyo, it is an enormous efficient means of moving people around.

    Screen & Media Studies, U… • Since Oct 2007 • 2562 posts Report Reply

  • Rich of Observationz,

    This is the same fallacy as assuming that government ownership of a company is better because the government doesn't need to make profits. The true cost is the opportunity cost for all that capital, which in this case would be investing in a profitable non-subsidised company with a similar risk-profile

    The government is able to borrow money at a substantially lower rate that any other borrower in NZ dollars. That matters to a capital intensive business.

    Also, with essential infrastructure the government is providing an implied guarantee of a bailout (as happened with Air NZ).

    There is also the argument that the government has accountability for the entities successful operation through the ballot box as well as to the customers, which a private firm does not have. Regulation attempts to replace this, but often doesn't work well - but then nor does the SOE model when it gets to the point that companies pretend they are owned and controlled by management (Solid Energy).

    Incidentally, I assume the 2003 "deal" was not on paper - otherwise why is the government not suing Toll?

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Shep Cheyenne,

    Steve - One of the cnr stones of sustainability is to build for locals not tourists.

    I'm of the understanding Air Travel doesn't pay any tax on its fuel. So as far as passenger travel is concerned - The trains on our terrain can not compete with the plane.

    Since Oct 2007 • 927 posts Report Reply

  • Craig Ranapia,

    but the more I look at it, the more I'm okay with the government choosing not to expatriate a whole lot of taxpayers' money to Australia.

    Well, Russell, I'm reasonably confident that Toll HQ in Melbourne isn't exactly awash in hemlock and arterial spray .

    In a statement to the Australian Stock Exchange, Toll said it had an estimated book value of just $430 million on the assets sold. The Government has agreed to pay $665 million for the rail and ferry operations.

    Toll will retain its Tranz Link freight forwarding business, which with several hundred trucks has one of the country's biggest truck fleets, plus its warehousing and contract logistics operations.

    The Government will pay Toll $665 million by June 30 and provide the Australian company with a six year rent free period on existing premises, Toll said.

    "While we had not been looking to sell the rail operating business back to the Government, the sale has enabled us to re-focus our efforts on accelerating growth in our road and rail forwarding and logistics businesses and this will include acquisition based growth," Toll managing director Paul Little said.

    I wonder if Doctor Cullen play poker...

    North Shore, Auckland • Since Nov 2006 • 12370 posts Report Reply

  • WH,

    I'm not at all against privatisation of businesses the government doesn't need to own.

    There really aren't that many good reasons to be for the privatisation of soundly run state owned businesses, unless you are a potential investor. First, profitable state owned enterprises help the Crown's fiscal position, allowing profits to be spent on other government expenses rather than being distributed to (overseas) private shareholders. Second, SOE's earning 'normal' profits can provide worthwhile alternatives in non-competitive markets (ala Kiwibank). Alternatively, products can be provided more cheaply to the market if government decides that profits are not its sole objective (Electricorp). Lastly, the effective regulation of privately owned monopolies can be very difficult as every conceivable accounting gimmick, legal trick, and PR stunt can be deployed to defeat effective oversight (Telecom, Enron).

    Couldn't say whether renationalising the rail network is going to work though - I'm kinda hoping Cullen has run the numbers. Auckland needs to start building a subway or a tube, maybe it has something to do with that? Who knows.

    Since Nov 2006 • 797 posts Report Reply

  • Craig Ranapia,

    Couldn't say whether renationalising the rail network is going to work though - I'm kinda hoping Cullen has run the numbers.

    Apparently not, I've just heard Cullen on Morning Report saying there's been some "preliminary work done" but "we've got to sit down and come up with a proper long-term plan" and the rest of us are just going to have to wait and see. Oy and vey...

    North Shore, Auckland • Since Nov 2006 • 12370 posts Report Reply

  • Don Christie,

    If I were the Government I would reinstate small scale passenger services to Napier, Rotorua, Dunedin and Invercargill...before the next election.

    Other than being "a good thing" in its own right, the political mileage of MPs riding the tracks would be great.

    Cullen knew the value of the asset he was purchasing. They have also bought a running business which has some residual value. If there is one thing people don't accuse him of it is being thick and not able to cut reasonable deals.

    I would sit this one out before reaching for the invective bucket.

    Wellington • Since Nov 2006 • 1645 posts Report Reply

  • Russell Brown,

    I would sit this one out before reaching for the invective bucket.

    Me too. Does anyone else think Richard Prebble made a fool of himself on Morning Report today?

    Fran O'Sullivan is displaying lots of wisdom after the fact today, but I don't recall her urging the government to buy the rolling stock in 2003.

    Interestingly, major companies that use rail are taking a rather different view:

    http://www.radionz.co.nz/audio/national/ckpt/rail_purchase_part_2

    And the Checkpoint interview with Wayne Butson is worth listening to too. He points out that Toll has promised to buy new locomotives from the day it arrived. It has never done so, and machines have literally been hauled out of museums to keep services running:

    http://www.radionz.co.nz/audio/national/ckpt/rail_purchase_part_3

    He also says that rail engineers have been increasingly leaving for Australia ...

    Auckland • Since Nov 2006 • 22850 posts Report Reply

  • Tom Semmens,

    At the end of the day I would suspect that this end to the fifteen year sorry tale of rail in New Zealand - paid for by generations of taxpayers, looted by a decade and a half of crony capitalism - isn't going to be anything but an expensive investment for the government with little short to medium term return. But in an age of a looming liquid fuels crisis to leave such a key piece of strategic infratstructure to a private company happy to let the competition to its trucking arm slowly rust into oblivion would be an act of short sighted and blinkered stupidity by any government charged with assuring and insuring the nation's future.

    The Herald online is today running three stories and an editorial that together are a carefully constructed attempt to paint the deal in worst possible light. Richard Prebble flew into a raging rant worthy of David Farrar's comments section on morning report this morning which alone was worth my $165 odd contribution to the 665 million, and along with the incandescent rage of the right wing blogsphere it all goes to shows just what a potent political symbol buying back rail is.

    You've got to admire the politics behind all this. John Key's me too-ism is being used by Labour to keep pulling Key further and further towards their policy platform and straightjacket National into Labour lite. I see that Fran (and she would know, she is so far to the right) is today muttering darkly about the ideological chasm between John and Bill, and as already mentioned on PA Maurice looked like he had swallowed a huge rat at the broadband announcement. From what I hear (admittedly from ACToid's with insider mates in the Nats admin) the National caucus is now thoroughly split, with only the high poll ratings papering over the cracks. Also you keep hearing from different places these stories swirling about that John Key only has the job until the election, with Bill English poised to take the job. All This scuttlebutt is just that, because I would imagine such a story if provable would be known to someone like Fran O'Sullivan and would thus be splashed all over the front page of the Herald... Wouldn't it?

    Sevilla, Espana • Since Nov 2006 • 2217 posts Report Reply

  • Steve Barnes,

    Steve - One of the cnr stones of sustainability is to build for locals not tourists.

    I'm of the understanding Air Travel doesn't pay any tax on its fuel. So as far as passenger travel is concerned - The trains on our terrain can not compete with the plane

    I wasn't suggesting the sole purpose of sedate rail to be a tourist attraction but, all the same, they come here expecting to see the country and expect to spend money, what better way to see the country. Plus, not all tourists are foreign, some are local too. And plus since when did freight need to travel at 200kph?

    Airlines don't pay tax on fuel? Maybe international flights but I'm sure domestic flights have tax on the fuel, if not why not? As for competing, it's not just about the money. It could be to do with comfort and sustainability. Once you have driven to the airport, found a place to park, checked in, waited for the pilot to sober up and sat in the worst bar ever drinking the worst beer ever only to be packed into an aluminium tube and flung from one end of the country to the other and find your luggage was sent to Brisbane.....you start to long for the day long relaxing train jouneys of old.

    Peria • Since Dec 2006 • 5521 posts Report Reply

  • Russell Brown,

    From a Herald editorial, Sept, 2003:

    Toll Holdings' increased offer for Tranz Rail has virtually ensured that New Zealand will soon have a new railway operator. Once the takeover is completed, another attempt can be made to find rail's most efficient role in the national transport network. It follows a decade of lacklustre post-privatisation management. A want of committed ownership during that time has starved Tranz Rail of upkeep and alienated many of its main customers. The question for New Zealand is whether Toll will deliver in the national interest, as well as its own, by promoting a more rational land transport arrangement ...

    For all this risk, there is the potential for considerable gain. Toll will bring capital, an efficient IT system and a reputation for good service. It also appears confident that it can repeat events in Australia by doubling the freight carried by rail. At the moment, there is a gross imbalance between road and rail. In part, this reflects the troubled history of an asset that has come close to insolvency. It also indicates a failure to press home what appear to be obvious advantages, including rail's protected right-of-way and freedom from bottlenecks.

    Today's editorial:

    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.

    Apparently they knew all along it wasn't going to work ...

    Auckland • Since Nov 2006 • 22850 posts Report Reply

  • Steve Barnes,

    French-owned Veolia runs Auckland's urban passenger rail services under contract to the Auckland Regional Transport Authority (ARTA) under their MAXX brand,

    From HERE

    How does this affect things?

    Peria • Since Dec 2006 • 5521 posts Report Reply

  • Tom Semmens,

    From a Herald editorial, Sept, 2003:

    and

    Today's editorial:




    I see a tee shirt coming on...

    "Amnesia: Making it easier for the right since I forget when"

    Sevilla, Espana • Since Nov 2006 • 2217 posts Report Reply

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