Sunday, May 04, 2008

Did you want to buy a railway?

Well it isn't a question - you own one now according to the NZ Herald. Clark and Cullen have taken $665 million of your money and have bought a dog. The private sector didn't want it, but now you have it - lucky you. It is another one of those investments that doesn't actually generate a financial return - funny that.
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You see the government's competency is astounding given its record on this.
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First it paid $81 million for the whole Auckland rail network, even though Treasury valued it at best at $20 million. The shareholders of Tranz Rail paid out a special dividend of around $50 million directly because of that purchase - that's YOUR taxes going to Tranz Rail shareholders' back pockets.
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Then it paid a nominal $1 for the rest of the network, and started undercharging Toll (as rail operator) to use it. $10 million a year undercharging, coming from YOUR taxes. The beneficiaries being Fonterra, Solid Energy and several forestry companies and freight forwarders - because your taxes should subsidise their freight shouldn't they??
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Since then it has poured more taxpayers' money into the network. As I blogged about before:
- At least $450 million to upgrade the Auckland rail network (track, signals and platforms) from 2005;
- $100 million per year for six years from 2007 to upgrade Auckland and Wellington rail networks;
- $25 million in 2008/09 and again in 2009/10 to upgrade the national rail network;
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Now it has said that "The Government will now avoid paying subsidies to third parties and we also avoid the on-going disputes over the implementation of the National Rail Access Agreement that had the potential to destroy value in the business and erode the morale of the people who work in it."
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*cough* Bullshit! The subsidy wont be going to Toll, it will be going to rail freight customers and rail ferry customers implicitly. It is reducing freight costs for timber, coal, containers and milk - that's it, by subsidising them - these are third parties. You see railways aren't exactly carrying just air.
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So why buy it? What about the concerns about road maintenance, pollution and congestion?
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Well this is all terribly funny. At a time of record fuel prices, the claims about the efficiency of rail over road would apparently be so self evident subsidies wouldn't be needed - and of course they aren't, since the railways ran happily without them for freight from 1988 till 2003. The difference is the government, as rail owner, wont charge Toll the full price of the cost of rail maintenance. So either rail is very fuel efficient (and conversely has lower environmental impact) or it isn't, or isn't enough to make up for the enormous fixed costs of having lightly used tracks. Not so sustainable now is it?
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So what about road maintenance? Well Road User Charges recover the costs of highway maintenance from trucks attributable to trucks. They get revised regularly to respond to those costs, so they aren't being undercharged (on average). Funny how the government will undercharge trains on its tracks, but not trucks on its roads. An argument can be made that trucks on local authority roads should pay more, instead of ratepayers paying for these costs, but these roads rarely compete with rail for most freight.
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So what about pollution? Well the government's own study indicates that the environmental impact of long haul road freight is sometimes the same or less than that of rail, and vice versa. It is route dependent, so is not as simple as the Greens preach it is.
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and congestion? Well rail freight will do next to nothing to address that, and passenger services in Wellington seem to be getting upgraded quite happily without government ownership of the operations. You're deluded if your think that the Auckland rail upgrade, which will serve locations where only 12% of Aucklanders work, and largely see a shift from bus to rail, will reduce congestion.
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and if that doesn't convince you remember this:
- In 1982 the government wiped what was then $100 million worth of debt from the Railways Department to restructure it. In today's dollars that would now be roughly $250 million.
- In 1988, the government wiped another $350 million worth of debt from the Railways Corporation to pay for the Think Big rail electrification which was a sunk cost and unprofitable project;
- In 1990, the government wiped $1 billion worth of debt from the Railways so it could start with a clean slate, the second time in eight years.
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No amount of ridiculous cargo cult worship of railways will get over the fact that this is a dog of an investment. The main freight customers should have been left to buy it and run it as a business, and if the government wanted the roads and railways to be on a level playing field, it could have run the highways as a business and even, shock horror, sold them.
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Instead the government pours taxpayers' money into poor quality exhorbitant road projects that are environmentally gold plated (like the Waterview extension and eventually Transmission Gully), and makes you buy a railway to shift traffic from the roads it wont manage on market principles.
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oh and you might ask why all the socialists and environmentalists didn't buy rail shares when they were available.

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