Monday, December 03, 2007

Rail nationalisation?

So Dr Cullen is thinking about buying the entire railway business of Toll NZ, as there is disenchantment with the "network nationalisation" model that the Greens were cheerleading some years ago.
Let's recall what has happened in the last seven or eight years:
  1. In 2000/2001 Tranz Rail brought on board a new chief executive, Michael Beard, to try to arrest an ongoing decline in profits, share price and a mounting legacy of infrastructure and rolling stock that would need hefty investment. In short, the company was not making a return on capital that was worth investing further in it - what that means is simple, the average investor was better off putting money in bank deposits than in Tranz Rail. Michael Beard announced a new focus on freight businesses by commodity, and that a whole raft of lines looked like they should be closed, with much publicity surrounding the Napier to Gisborne line - an expensive to run line, with barely enough freight to keep a train a day going. He also announced Tranz Rail would sell off its passenger businesses.
  2. Government leaped, various Ministers declared this plan was unacceptable and negotiations began on saving various parts of the network/system with subsidies. Auckland local authorities sought to spend $120 million of ratepayers' money to buy the entire Auckland metropolitan rail network to meet aspirations for a massive upgrade of commuter rail services. Central government did it instead, spending $81 million to buy back the Auckland rail network, despite Treasury valuations at the time, of it being worth no more than a quarter of that. Meanwhile Tranz Scenic was sold, and Tranz Rail agreed to not close any lines while it continued negotiations with government on rail policy.
  3. Tranz Rail's shareholders were keen to bail out, and a deal was struck whereby Toll Holdings would buy the company, in exchange for the government taking over the rest of the railway network for $1. The government would own and maintain the rail network, while Toll would have a monopoly on rail freight services as long as it maintained a minimal level of service on each line. Toll was meant to pay adequate track access charges to keep the network maintained, while the government agreed to put $200 million taxpayers' money into the network.
  4. The railway network has been transferred to Ontrack - a Crown company - which is meant to negotiate track access charges with Toll Rail. These negotiations have failed, and an independent arbitrator has decided on charges that Toll claim are unacceptable.
So. What now?
Simple. The government should, at the very least, call Toll's bluff. It should insist on Toll either paying the track access charges or buying the network off it. Arguably the government should ask for what it has put into it, minus track access charges, but let's face it - it's a dud investment. Something socialists are good at finding. Either Toll will pay up and make a profit, or buy the network and do so, or buy it and run much of it into the ground, or sell up the business to a coalition of rail freight users (you know, the ones who claim it is "so essential", but wont pay enough to pay the cost of running it).
The clear answer is this - the government is not best placed to know whether the rail network is economically efficient or not. However, some think it is.
Idiot Savant for one, is cheerleading this, based on a number of strawmen:
  • Rail services are vital infrastructure: Wrong, countries can exist and thrive without railways. About the only section that can be seen as "vital" is the Wellington commuter rail network, and even then only because the alternative (expensive road widening) is not as cheap as keeping the rail network. Rail services have never made a good return on capital for decades, road transport, by contrast, has been privately run for a long time, and the road network generates a substantial surplus from road user charges that is reinvested in that network. Rail cannot even generate enough revenue to maintain what its got. I don't doubt that some of the rail network could be sustained, but clearly less that what there is.
  • the key problem of private ownership - the tendency of private owners to cut back on maintenance spending and run down the infrastructure: Actually this reflects an economic fact, it was not profitable to maintain the infrastructure to do more. For example, when you can only sustain one freight train a day on a segment of around 40km (Rotorua), and a high level of maintenance makes that unprofitable then what should be done? Should non-customers pay for something they don't use? By the way, have you noticed how run down truck fleets and bus fleets are, not? Most long haul trucks in New Zealand are an average of around seven years old, and most major bus companies don't keep buses beyond 15-20 years. There is not a long haul locomotive on New Zealand tracks that is younger than 20 (or a diesel younger than 28) (and yes I know they have a longer service life, but engine technology has moved on a lot since the 1970s!).
  • (renationalisation will) allow us to have a properly planned rail network and services again: I wonder when he last thought this happened? In 1990 and 1993 it collectively had NZ$1.3 billion (in 1993 values!) wiped, this happened before in 1982 when around NZ$100 million in debt was wiped (it collected this debt while it had a statutory monopoly on long haul freight). Is this the proper planning that saw investment in new goods sheds that were shut a few years later, or the manufacture of its own rivets at several times the cost of buying them off the shelf?

However he makes one correct point "we're effectively subsidising them, and paying for their profits, by maintaining the infrastructure they depend on to run". Indeed, but the answer to that isn't to pay for the business, after all if YOU were Toll Holdings, wouldn't you ask a good bit of money for the business if the government wanted to buy you out? Labour might threaten to pass legislation to force nationalisation, but wouldn't that look a bit Robert Mugabe or Hugo Chavez - and in election year too.

So, I'm expecting this to drag on. Toll Holdings knows though that its best deal is almost certainly under a Labour government rather than a National one, so it will want to strike a deal - Labour also knows it wants to be the government that "saved rail" for whatever reason. In addition, the Greens will demand it as one of their "faith based initiatives". So you might find another wad of taxpayers' money being thrown into the rail network to prop it up a bit more, otherwise I dare all those who want the government to force New Zealand taxpayers to save rail to do something...

save rail yourself. Get like minded people to come together and offer Toll Holdings a price. You might need to get the rail freight customers like Fonterra, Solid Energy and the like to join you, but make the effort. If you're not so inclined, then buy a train ticket on one of the few long distance passenger services left - at least you can say you've used it, since your taxes have paid for the lines!

7 comments:

Steve_W said...

I'm afraid a somewhat simplistic viewpoint in my opinion. You're looking back and not forward(Greenhouse & Peak Oil come into the equation). You also haven't taken into account how subsidised road transport is. Do you have any idea how much Oil (materials & fuel usage) is required for roadmaking? Do you have any idea how much damage is done to the roads by heavy vehicles? I think not.

libertyscott said...

Ok Steve so:
1. Peak oil. Funny how at high oil prices rail is still a crap investment, transport doesn't just run on fuel, in fact it is only a small portion of costs. How high does oil have to be for rail to beat road? It's clearly nowhere near it otherwise Toll would be happy as can be.
2. Greenhouse effect: The government's own surface transport costs and charges study indicated that rail freight was sometimes more, sometimes less polluting than road, depending on conditions. So rail is not always a lower emitter, unlike what the Greenevangelists thing.
3. Road transport subsidies start and end with rates on local roads, which don't even compete with rail except at the very margins. Trucks well and truly pay for road maintenance and costs through road user charges.

and frankly Steve, I know a damned sight more about the damage done to roads by heavy vehicles. In NZ about 50% of road wear and tear is due to - the environment, being sun and rain INDEPENDENT of road use. 10% by light vehicles and 40% by heavy vehicles. Shall I go through how road user charges are calculated in order to generally meet the costs of road maintenance imposed by heavy vehicles, or treat you dismissive little remark as one of a childish amateur?

Maybe you should read the RAG report, the STCC study in full, ask about the RUC cost model, the fourth power rule...

Steve_W said...

More simplistic twaddle - I would be interested to know who you expect to pay for the 50% of road damage that you claim to be caused by the environment? Is it allocated 80% to heavy traffic, 20% to light, 100% to taxpayer? Today even the government has increased the loadings for road transport having been fed by the trucking industry their BS, that if more is allowed there'll be less trucks. More likely their accidents will be worse as they will involve a vehicle of greater mass.
Are you a consultant for the road industry? Probably, their association became the laughing stock of Wellington if not New Zealand not that long ago when they suggested pulling up the Johnsonville railway and replacing trains with their buses. I guess this was your great project-it would have to be.
Overall the complexity of this issue is far too much for you, There are many other issues which you haven't argued properly in your initial generalisations or just have your facts incorrect. Here are a few more examples
- for a start you weren't able to answer "Do you have any idea how much Oil (materials & fuel usage) is required for roadmaking?"
- where are your calculations for the far greater instance of injury and death on NZ roads than railways. There are horrific costs, some tangible and some not tangible. How many extra hospitals, doctors, specialists and beds are required?
- Re your er "point" - "we're effectively subsidising them, and paying for their profits, by maintaining the infrastructure they depend on to run" well I have news for you Toll and other multinationals also own and operate a huge number of trucks in New Zealand. Every time a new road opens maybe a bypass or whatever Toll makes a cost saving as well the subsidisation of roads which you won't admit to ergo, has contributed to Toll's profit in the same way.
- The Rotorua Line you quote as an example of one freight train a day has been disused since Feb 2002!
*May be the best thing is for you is to go out and fill pot holes with a road gang and make real use of your road knowledge. Don't bother to reply to this as I won't be reading it. I thought you wanted real debate - but no, you just want to show everyone that you're a pompous twit! Well done-you have.

James said...

Rail is a losser in NZ and always has been....Steves flogging a dead horse....which is still more economic that rail....

"If it needs subsiding its not really wanted or needed...."

Railways of New Zealand said...

I think the fact of it is that Toll is hoping for an improvement after the 2008 election.

I am pretty sure Labour wants to settle a few scores. See my post at
http://hisnameisfreedom.blogspot.com/2007/12/rail-business-attacked-by-government.html
in regard to this particular issue, and
http://hisnameisfreedom.blogspot.com/2008/01/rail-sector-is-pawn-to-leftist-ideology.html
for a bit more about the rail sector and its political tendencies.

AJ said...

Yep, dead right Steve. Obviously a highly paid bagman for the hugely subsidised truck industry.. Maybe one day we will have a truly LEVEL playing field - and a lot less damage will be done to the roads as a result! Someone kick the soap box out from under this guy. No one is buying...

libertyscott said...

Go on AJ, how is the truck industry subsidised? Did you read the Surface Transport Costs and Charges study?

The only subsidy is rates for local roads, hardly matters for rail. Of course you could read more and realise I support full road pricing, which would charge trucks by location and time, as well as weight.

By the way I've never received a dollar from the trucking industry - you defaming prick/bitch.

Let me deal with Steve's faith based points one by one.
1. The 50% of road damage caused by sun/rain should be shared equally by all road users, light and heavy. Since their presence on the road makes no difference to this. It is a fixed cost for having a road network.
2. You can speculate that trucking accidents get worse with bigger trucks, fine. I'd actually open up ACC to competition so that truckers with bad records paid more anyway.
3. Ripping up the Johnsonville line was not my project, actually I was involved in securing the funding for allowing the Ganz Mavag units to run on it as a compromise - go stick that fact up your arse Steve.
4. How much oil is required for roadmaking? Well Steve it depends on the road, and roads should be built according to net economic benefit. I oppose Transmission Gully on the same basis. Why is this a concern?
5. The injury and death on roads relative to railways is for two reasons. For starters, the passenger km on roads are around 30x that compared to rail, and secondly this is what happens when you have a network not segregated from pedestrians dominated by private users. While there is socialised healthcare and ACC, accident and health costs across the country are shared by everyone. I'm happy for that to be fixed, but only across the board.
6. Steve I oppose taxpayers' money going on roads, but support road users money going on it. Most money on roads now comes from road users. The main change I'd make is to commercialise this, but none of your type seemed to support roads running for profit, which would mean them making a financial return.

I know about the Rotorua line, I talked about it in the past tense. You're the sad bastard who is full of insults, no economic analysis and a faith based bigotry against road transport. I love trains, know more about rail than most people. I wish rail was more viable than it is, but it is best placed for bulk and long haul freight.

You and AJ can go engage in mutual onanism in rooms of others bemoaning economic reality, but you wont change things. Read a bit more, there is record rail freight doing what it does well - but it can't replace road transport for most tasks.