Thursday, February 19, 2009

No future for rail freight?

I'll give credit to the Green Party Frogblog for the post "The End of Kiwirail?" which shows that someone from the party at least went to hear David Heatley from the NZ Institute for the Study of Competition and Regulation talk about"The Future of Rail in New Zealand". That presentation is now on Powerpoint here.

It is well worth a read.

The presentation addresses some simple myths about rail:
1. Rail network shrinked due to privatisation. Wrong. Almost all line closures were under state ownership when rail had a statutory monopoly on long haul freight!
2. Rail stopped being viable after free market reforms. Wrong, it stopped being consistently financially viable by 1945. It short pockets of profitability since then.
3. Track Maintenance was run down after privatisation. Wrong, it was already being run down in public ownership, track was run down more, but sleeper replacement under private ownership increased.
4. Rail is worth a lot as an asset. Wrong. The NZ$12 billion book value of rail on the Treasury accounts is a nonsense, equating it to all other SOEs combined (e.g. 3 power companies, Transpower, NZ Post) which all make profits. Most of the value is based on a replacement cost if it was built today, which of course would never be done. I'd argue it is probably worth 4% of that at best.
5. Rail only needed rescuing after privatisation. Wrong. It has been rescued several times before, then the commercialisation was reversed because of political pressure. It has long had serious economic viability issues.
6. Rail is good to reduce accidents, congestion and environmental problems Wrong. "the optimal level of externalities is not zero – at some point it becomes more expensive to lower them than the welfare created by their further abatement" Rail related deaths only slightly lower than truck related. No evidence that it reduces congestion. Sea freight is twice as fuel efficient than rail, but little interest in that.

Like I said before, the presentation basically says that rail is not as fuel efficient as is quoted, and that only 30% of the current network handles 70% of the freight. It suggests concentrating on the main trunk, and lines to the Bay of Plenty and the West Coast.

Sadly, Frog doesn't think the presentation answered concerns about peak oil or climate change, or if you "think trains are cool". Let's ignore that last remark as just light hearted, not a basis for sound public policy.

In the comments I have battled a bit with most others who worship the religion of rail, and give largely highly misinformed comments. One that, to be fair, I did once believe in before I did extensive work in the transport sector, because I quite like trains. However, the overwhelming evidence sadly doesn't match my personal nostalgia to keep lots of railway lines open with trains on them - as I can hardly justify making people pay for something they don't use.

If you want a bit more, check out this two part report (Part one, part two) the Treasury received a few years on the economics of rail in New Zealand. It starkly shows that compared to the US and Australia, the volumes and distances for rail in New Zealand are small, and fuel is only a small proportion of costs.

The rail religion remains a faith not a fact based initiative. I'd just like to know why environmentalists think subsidising a dairy product exporter, a coal exporter and logging companies is good? The entire West Coast railway network is dependent on exporting a dirty fossil fuel to Asia!

1 comment:

Andrew B said...

WRT your point number 4, Scott: 3 years later and they're writing it down by half, not by 96% as you suggest, but it's a start:
"KiwiRail, the state-owned railroad, has proposed writing down its assets by $6 billion, halving their current value which is too high given the commercial realities of the business."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10762258