Wednesday, February 28, 2007

The rail network is worth what?

Stuff reports that the Crown Accounts now show the rail network as being worth a ridiculous $10.6 billion, as this would be the replacement cost if tomorrow there was no rail network and you wanted to start from scratch. Imagine if Telecom's "value" was the replacement cost of its network?
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Of course, nobody would pay $10.6 billion for it, the government paid $81 million for the Auckland network and $1 for the rest, and the total value of TranzRail/New Zealand Rail was never close to a billion dollars when it held the lot.
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Cullen doesn’t even believe it is realistic. You couldn't charge track access charges to recover a bank deposit rate of return on an asset valuation like that, minus maintenance costs.
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The appropriate value should be the market value – what would the government get if it sold it off, which would be, in many cases, the scrap value of the track and the sliver of land the network is on. You could make a bit out of the rail corridors in Auckland and parts of Wellington, but most of it would be a marginal addition to farm land. The value of the asset as a railway is only reflected by how much rail companies would pay to use it, and it is unlikely to be very much (with little left behind after you cover the cost of maintaining the track, signals etc).
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The value of the rail network is as a sunk asset in most cases. Nobody seriously would build a brand new line from Napier to Gisborne for example.
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So how much of the Crown’s net worth is this sort of snake oil?

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