Abandon the railways or just the facts?

The former editor of NZ Trucking Magazine Jon Addison has written in the NZ Herald proposing that the rail network be ripped up and the corridors used to build dedicated trucking roads. I don't agree, I think the cost of that is prohibitive in itself and much of the rail network is too narrow to make that worthwhile (don't forget most railway lines are single track, which means one way roads!). I also think that some railway lines are economically viable (2 hourly freight trains on the main trunk line isn't a bad use of that corridor).

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However, he has made some very good points that those who worship rail as a religion, than simply a technology, often ignore:

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"New Zealand's rail network is constrained by more than its ageing bridges and locomotives. Its 3ft 6in (1067mm) narrow gauge tracks limit the speeds at which trains can operate and its 150 tunnels are too small to accommodate double-stacked containers, which have boosted rail efficiency overseas."

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"Taking the last of these first, the introduction of Euro 5 emissions standards in Europe this October and inevitably eventually in New Zealand will mean that in some urban environments the truck exhaust will be cleaner than the air entering its engine. Truck noise levels have also reduced significantly.

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While the fuel used by an efficient train will be less than that used by trucks carrying the same weight, this ignores the fact that freight is invariably carted by trucks at one end of the train trip and often at both ends. And at the transition, fuel is used by forklifts or container cranes and increasingly used to maintain the temperature of freight while its waiting to be moved.

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As far as driver efficiency is concerned, change is on the way. Most of the major automotive manufacturers are working towards driverless vehicles and some are predicting that they are less then 20 years away. All of the technology exists now, and some of it is already appearing in production vehicles.

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Interesting stuff indeed. He concludes by suggesting that maybe converting the rail network to roads wouldn't add up, but it is worth investigating. Perhaps so. I am more convinced it could be worthwhile using the rail corridors in cities for roads, but in Wellington and Auckland too much money has been poured into passenger rail for this to be worth considering for now.

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Meanwhile, Keith Ng in the NZ Herald has a column called "Just the Facts" where this week he challenges Richard Prebble's assertion that "it was a myth to say rail was environmentally friendly if the production of rail, locomotives and the need for trucks to take goods to destination were counted". He claims an EECA study is the most authoritative, because it claims the energy intensity of road vs rail is a factor of around 5 to 1. What he doesn't say is the basis for this comparison, because the factors vary wildly. For example, a truckload of freight from Wellington to Petone by rail will burn a lot more fuel per tonne km, than a trainload consigned from Wellington to Auckland.
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but then he goes to Chris Kissling of Lincoln University. Yes, the same one I fisked a month ago for advocating bullet trains in NZ, "smart clothes" that automatically open doors and "steer people around hazardous places" and that the future of flying is that passengers will be drugged and stacked horizontally on beds! Kissling presumably supplies him with a European study about environmental costs, which makes rail look good, failing to point out to Keith the most recent comprehensive New Zealand study directing comparing rail and road freight environment costs -
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I've quoted it before, the Ministry of Transport's Surface Transport Costs and Charges study.

It contradicts what Chris Kissling and Keith Ng says, showing that Keith isn't showing "just the facts", since he ignored one of the most authoritative studies. What did it say? Well it compared the environmental impacts of freight between Wellington and Auckland, Napier and Gisborne and Kinleith and Tauranga. The comparison is as follows:

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Environmental costs per net tonne km in NZ$

Wellington-Auckland rail NZ$0.008, road NZ$0.006

Napier-Gisborne rail NZ$0.002, road NZ$0.002

Kinleith-Tauranga rail NZ$0.001, road NZ$0.004

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So in other words, on average it is more environmentally friendly to send freight by road between Wellington and Auckland than by rail, but the opposite between Kinleith and Tauranga. In which case, Richard Prebble is pretty much right.

Kiwirail's asset revaluation - because Labour concealed the truth with accounting: UPDATED

Regular readers will remember that I’ve been long critical of the bizarre Treasury valuations of the social policy/heritage/commodity sector subsidy project called Kiwirail. So the latest report that this “asset” is to be revalued hardly surprises me. However, I am enormously dismayed at the unprofessional politically driven basis for valuation of this business which was instigated by the previous Labour government. It is one thing to throw taxpayers’ money at buying it back, another to hide what a real dud it is on the government accounts. Let’s bear in mind that neither Labour, nor the church of the Holy gRailway the Greens, have any interest in really showing what it’s worth.

So let’s start with the latest announcement. What does it mean?

The short version is “I told you so… again”. What was reported before has finally happened.

The land assets will remain under the NZRC, which has in fact been the case since 1 April 1982 when it was created. There was always a peppercorn rental of NZ$1 paid for use of the land under the rail corridor, which given that the Crown isn’t paid for the land under the road network, has always seemed an easy compromise in dealing with the thorny issue of valuing strips of land with little alternative use (especially roads, given land without access to roads has greatly diminished value). This should not be controversial, but let’s be honest about what the valuation of that asset should be – the market value of the land if sold. A study commissioned by the MoT valued it, in 2001, at NZ$462 million. This could be indexed to today’s values and priced, but I doubt it would top NZ$1 billion. Bear in mind this was never privatised in the first place, because every time TranzRail closed a rail line (which was rare), the corridor would, ultimately, be able to be sold by the Crown.  So the valuation was done professionally based on assumptions of the value of neighbouring land being applied, in most instances, to a narrow inaccessible corridor.

Yet the Annual Report 2011-2010 indicates land is valued at just over NZ$6 billion. This is quite absurd, so is the asset write down going to address this? Let’s continue.

The transfer of the other assets to a separate SOE is exactly what happened before the last privatisation, when NZ Rail Ltd was set up. The logic of this is clear, as the issues around rail land and its use are complex. Partly because of Treaty of Waitangi claims over Crown land, partly because the confiscation of past land under the Public Works Act means that if the land isn’t to be used for rail purposes, the previous owners or their successors must be offered the land back.

So the new SOE will be responsible for everything, other than the land, just like before. This is already raising the spectre of a new privatisation among those who treasure Kiwirail because they think it will be the saviour in the event oil prices and climate change suddenly decimate the viability of road transport.

Bill English states the total assets are being written down from NZ$13.4 billion to NZ$6.7 billion, this being both the land and the operations business. A simple halving of value, indicating a lot of in depth work was not done into this at all. The Kiwirail press release explains this further by saying that the non-land business will carry a valuation of up to NZ$1.3 billion “reflecting the revenue generated by it” rather than the current NZ$7.8 billion.  That's helpful in analysing this further.

The land component of the valuation seems to retain most of its book value, as it will be worth around NZ$5.4 billion, yet wont be expected to make a return on most of that asset (given the land under the roads isn’t expected to either). A small writedown of around NZ$600 million, but not nearly enough. Has the land under the rail network really shot up in value by a factor of 11 since 2001?  Kiwirail's Annual Report indicates that a professional valuation was done, no doubt in good faith. However, does that really reflect the market value of this land? If a railway line across a field, or behind some warehouses or houses is sold, are there really any other likely buyers beyond the neighbouring property owners? The discrepancy between valuations seems extraordinary, and I doubt whether valuations of railway corridors are done frequently enough in New Zealand to enable it to be equated to other such valuations.  

Setting that to one side, the valuation of NZ$1.3 billion for the operating business still seems wildly excessive. It was bought for NZ$665 million. How has it suddenly become worth double that since 2008? Is it revenue? Well no.

In 2011 it had gross revenue of NZ$667 million. It also got nearly NZ$345 million from taxpayers (yes you’ve spent more than a billion on this one and counting). However, its operating costs were NZ$567 million. Cool NZ$100 million profit before government right? No. Once you remove roughly NZ$60 million in subsidies for operating Auckland and Wellington passenger rail services, you’re down to about NZ$40 million. Not so good then.

Bearing in mind that the NZ$345 million from taxpayers is a capital grant to replace and renew some assets, you’ll also see it’s clear this isn’t a sustainable business able to renew its capital.  Otherwise it would take out debt that would be repaid over the depreciated life of those assets, which of course is not going to happen (but Treasury of course has taken out debt to pay for the nationalisation and all of the capital grants).  Bear in mind also that the market valuation when Toll Rail was nationalised was only NZ$435 million. Has the government really trebled the value of this business even though it has never paid a dividend yet? 

One guess as to why Opposition Finance spokespeople haven't asked that - because they fully supported this destruction of taxpayer wealth.

So the valuation continues to be generous in market terms. Kiwirail, if sold, would not go for the sort of money on its accounts, even if it continued to get hundreds of millions of dollars in subsidies and grants every year.

The use of replacement cost as an asset valuation gives a false impression of the value of an asset if it to be sold, simply because it does not generate sufficient revenue to justify ever replacing the asset on the scale (and in the same way) as it was originally acquired.

My previous post on this was right.

Kiwirail is not an “investment” in its current form, but rather an emotionally laden piece of heritage that mixes some commercial elements, some local public policy elements with a lot of hyperbole and wishful thinking.

Debates about pouring taxpayers money into it need to be based on some market based accounts, accounts that might actually show it can generate a reasonable rate of return based on what it could be sold for – but which wouldn’t ever justify the money poured into it so far.

For that reason, given both National and Labour have thrown over a billion into this taxpayer owned bonfire, and the Greens are just gagging to throw billions more at it, means that having debates based on reasoned balanced analysis are absent when most of those involved prefer conspiracy theories around corruption, hyperbolic evangelism about rail “saving the economy” and economic illiteracy.

Most of my past posts on this subject are summarised in this one, on what it would take to make the railway a viable business.

It includes the following ones:

-  The Greens posted a link to a great presentation on Kiwirail, which actually destroys most of their own self-generated myths about the business.  I link to it here.

-  Where is the rail network viable?

-  Bill English admits the rail network is virtually worthless

Another good read is this from Ross Clark which explains that the "failure" of rail privatisation is because there are some serious questions about the viability of rail at all.

UPDATE:  I know this article has been linked to by a couple of forums.  Please read the articles at the bottom and indeed the presentation I linked to here. You can romanticise as much as you like, and I have a stack of Rails magazines from the 1980s and 1990s, and the NZ Railway Observer as well, so I am a rail enthusiast at a personal, emotional level, but the hard economic facts are that rail is an expensive way to move goods given the high capital costs of the bespoke equipment and infrastructure.  Only when volumes are high, frequent and over long distances do the fuel and personnel advantages start to offset this.  It's about economics.  In the US, rail freight succeeds in spite of serious undercharging of trucks on untolled interstate highways, in NZ Road User Charges contribute to a very different picture.

Urban myths about Kiwirail

Once again the Alliance Party and rail unions' views on Kiwirail are being touted by the Labour Party as truths.

They are not.  Don't believe me? Thought not.  However, you might believe the Institute for the Study of Competition and Regulation based at Victoria University.

I've blogged this before, but it is worth repeating.  The full presentation debunking the myths is in Powerpoint here.

Here's a good summary I wrote before...

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!  The track network length has barely changed in 20 years.

2. Rail stopped being viable after free market reforms. Wrong, it stopped being consistently financially viable by 1945. It had short pockets of profitability since then. The early 1970s saw it drift from profitability to losses, which weren't recovered until 1983 after debts had been written off and it started being paid by government to run commuter rail services in Auckland and Wellington under contract (and a host of unprofitable freight lines, such as the Otago Central Railway).

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 that was on the Treasury accounts was 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.   It's worth noting that this has only been partly fixed as of late.

5. Rail only needed rescuing after privatisation. Wrong. It has been rescued several times before. It has long had serious economic viability issues.   In recent history it was bailed out in 1982 (all debts cancelled, and the operation commercialised), 1990 (had the debt of the North Island Main Trunk line electrification written off as a "Think Big" debt, then NZ$350 million, and another $1 billion wiped off to pay for the restructuring to make it viable).

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 are only slightly lower than truck related. No evidence that rail reduces congestion. Sea freight is twice as fuel efficient than rail, but little interest in that mode.  Indeed Greens actively oppose international ships carrying domestic freight along the coast to placate their unionist mates.

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

Point scoring not principle

The paucity of principle in modern politics is unsurprising, so let's just establish the Labour Party's view on state ownership.

1.  The State can buy whatever it likes, even large unprofitable businesses, without an electoral mandate.   Taxpayers are expected to cough up for whatever politicians think they should buy with their money. 

 

2. Successful privatisations have been erased from history.  Opus, the former Ministry of Works, is now a successful multinational consultancy firm taking New Zealand expertise to the world.  Auckland Airport is a shining success as an airport.  Hardly a peep is heard of Contact Energy, bringing private competition to a state owned market.  State Insurance hasn't been state for 20 years.  NZ Steel continues to be a competitive exporter and productive job creator years after it was sold.  

3. It was ok for Labour to try to sell 20% of a state owned asset to its largest foreign competitor.  Dr Cullen was salivating at the chance to sell part of Air New Zealand to Qantas, which would have ended competition on domestic routes, sewn up around 80% of the Trans Tasman market to one operator.  However, that was "ok".  Only the Commerce Commission stopped this cosely set up deal, although few remember how much effort Qantas made to lobby the Labour Government at the time to delay giving the consent to Singapore Airlines buying 49% of the then privately owned Air NZ/Ansett group, which was a key step in kneecapping the group - in Qantas's interest - as it knew the NZ government wouldn't bail out Qantas's biggest domestic competitor (Ansett), and scuppering the Singapore deal bought Qantas years of dominance on the Australian market.

Either you're upfront and believe the state should own businesses and acquire new ones under certain principles, or that it shouldn't and should divest itself of them over time.

The Greens believe the former, Labour and National believes in none of the above and all of the above, depending on who you ask, and what time of day it is.

Greens worship at the altar of rail with your money

Worshipping at the altar of a railway line. The Greens are advocating forcing taxpayers to pay to bail out a foreign company that owns the provision of railway services - Toll. A party that tends to be at best sceptical of capitalism and loathes foreign companies is seeking to give it a free ticket out of New Zealand with a big hand out of taxpayers' money. What an incredible sell out all to worship the altar of the railway.

The Greens love railways more than any other mode of transport. So even in an age when oil prices are at a record high, when rail cannot compete for most freight efficiently, there are major problems with rail freight being competitive for most freight in New Zealand. This puts paid to notions that "we need" railways in an age of expensive oil - it seems that it STILL isn't cheaper to send most freight by rail for all sorts of reasons (e.g. double handling, speed, inefficiency of compiling trainloads of wagon or less than wagon load lots).

Sadly the Greens are woefully ill informed about the railways at all. Jeanette Fitzsimons claims there isn't the revenue to pay for upgrades and “Nowhere is this more apparent to the public than in the state of Wellington’s commuter rail services". What rubbish. For starters, the Wellington commuter rail services get around half their revenue from taxes - whether road taxes through Land Transport NZ, or rates from the Wellington Regional Council. Secondly, with comparatively new trains recently introduced on the Wairarapa line, and all of the older electric units recently refurbished (and a major upgrade of the track, signal and electrics infrastructure underway), the Wellington system is hardly in a poor state. Toll Rail's revenues are about freight, not passenger services. So she is either poorly informed or lying to get the public's sympathy.

She claims Toll "cannot afford to pay the track access fees that were always part of the deal with Government". Really? Does she have access to Toll's accounts? Could it just be gameplaying with a government that is soft on rail?

The government is already spending hundreds of millions of taxpayers' dollars on upgrading the rail network, but even that isn't enough. Why?

Well that is the question the Greens should answer. It isn't because trucks are underpaying to cover road maintenance costs, generally they aren't. It isn't because trucks have far higher environmental costs per tonne km than rail, because the government's own study points out that it varies considerably by route (in some cases rail is lower in some cases road is lower).

I suspect it quite simply is because - notwithstanding the low cost of RUNNING a train to carry a lot of freight, the handling of freight to load and unload a train, the time/cost of warehousing freight (effectively) in assembling/disassembling a train, the high capital cost of railway equipment, the limitations on the NZ railway network placed by many low tunnels (and almost always a slower alignment than roads), rail can't compete for most freight. It can compete for hauling bulk commodities, such as coal and milk, and to a lesser extent logs. It can compete for long hauled containers, but that's about it. Rail is a very heavy, capital intensive mode with its own corridors that, by and large, get little use compared to roads. For example, the Napier-Gisborne railway on average has one train each way every day. Imagine the road having one truck (or even the dozen or so that would replace the train). That one train would have to carry the full cost of maintaining and operating the line, whereas the road has many vehicles to spread the cost over.

Passengers are a peripheral activity, unlike the UK, in NZ long distance passenger rail is about scenic tourist trips by and large.

So the Greens might have to look beyond the altar of rail and dispassionately ask why it isn't working to do what they want. Given the very high cost of diesel, the notion that rail can "save the day" when it clearly is failing to do so, seems spurious. Similarly, as the environmental costs of road and rail freight are not that dissimilar, the alleged "green" benefits of rail freight seem equally spurious.

so when will the Greens stop worshipping rail, and start supporting evidence?

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!

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!

Told you so - Kiwirail's bullshit asset valuation is written down

The NZ Herald has reported that Kiwirail has proposed writing down its asset value of NZ$13 billion by NZ$6 billion, and splitting the firm into a property company (with a NZ$5 billion value for the rail corridor and land), which is essentially the old New Zealand Railways Corporation and the operating business (with a NZ$1 billion value).

I predicted this in 2009 saying:

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.

That was based on a presentation by David Heatley from the NZ Institute for the Study of Competition and Regulation called"The Future of Rail in New Zealand".

I would still argue Kiwirail is grossly overvalued.  Its business and related assets are not worth NZ$1 billion, indeed they are probably about a third of that.  The value of the land is more significant, but I would question the NZ$5 billion for that, especially given the Surface Transport Costs and Charges study valued the land in 2001 as being worth NZ$462 million.   Property prices haven't inflated over 1000%.   Indeed there may be more value in the scrap of the track.

The key point is that The Treasury was being seriously disingenuous accepting that ridiculous over valuation of Kiwirail in the first place.   To consider an infrastructure business as being valued on a replacement cost basis is ludicrous, for it would see all of the electricity SOEs valued on the basis that you would - once again - build a Clyde Dam, for example.

The real asset value of Kiwirail is the optimal value that can be gained for the business either as a going concern, or if it was split and sold for the sum of its parts.   As much as there is much romanticism about it (and I carry a fair bit myself, as I have loved trains since I was a child, and have many fond memories of riding on them), that shouldn't be allowed to distort objective appreciation of what Kiwirail is as a business.

I believe it has a future, providing a core freight service on higher density lines, and given the fortune poured into the black hole of commuter rail in Auckland (and not so much in Wellington), it may as well be used for that until those assets need replacement.  However, it is telling that, at a time of high fuel prices, and with RUC rates having recently been increased, the railway still struggles.   The reasons why are partially explained by Heatley's presentation, and are in part because there simply isn't enough freight with enough frequency being moved in New Zealand on the routes serviced by railways, to make most of the lines sustainable in the long run.

Could it be that a further writedown will be on the cards, and is the reason it hasn't happened that much yet is to protect debt related to Kiwirail?

What's wrong with Kiwirail?

Kiwirail has been in the news a lot recently, many due to disappointed about it failing.  It includes the breakdown of the single track evaluation car in Wellington (and scheduling of track inspections as well), the programmed closure of Auckland's rail network to enable significant reconstruction, and the simple answer given to this is that it is a failure either of rail privatisation (which was reversed partly in 2001, 2003 and ultimately 2008.

In 2001, the Clark Government bought the Auckland rail network for $81 million, in 2003 it bought the rest of the rail network for $1, but with a $44 million investment in TranzRail (and the buy back of the network then included a monopoly being retained by TranzRail). Finally in 2008 the entire business was bought for $690 million, which was well above the market price at the time.

So there have been 15 years of state owned enterprise Kiwirail, which is exactly how long the privatised NZ Rail/TranzRail existed for, but some pundits still claim that all of the problems stem from privatisation. Surely government ownership is meant to fix everything, after all the country had government owned railways for well over a century beforehand, weren't they wonderful?

To some extent there is some bad luck with a few incidents regarding Kiwirail, but it is pretty clear the incentives around the company are very mixed indeed.  

For example, Auckland the commuter trains are owned by Auckland Transport, although they are operated by Auckland One Rail, a train operating company contracted by Auckland Transport to operate the trains for eight years (starting 2022).  The rail infrastructure is owned by the Crown through Kiwirail, but the stations are owned either by Auckland Transport (Waitemata, Newmarket and New Lynn), or a mix of Auckland Transport (for the buildings) and Kiwirail (for the platforms). Of course the train services themselves are subsidised by Auckland Transport as the contractor, which gets 40% of its funding from Auckland ratepayers with the remainder from Waka Kotahi (i.e. taxes paid by road users).  Fare revenue only recovers around 30% of the costs of operation in normal times (whereas at present taxpayers are halving that to 15%).

In Wellington, it is similar, with the commuter trains owned by Greater Wellington Regional Council, operated by TransDev, with infrastructure owned by a mix of the Crown through Kiwirail and the regional council (Kiwirail owns the track and the main railway station, the regional council owns the other stations). 

The railfreight system is all owned by the Crown through Kiwirail, as is the long distance passenger rail system.

However, what isn't widely known is that whether it is Kiwirail's freight trains, or the commuter trains operated in Auckland and Wellington, that the Track User Charges paid for trains to operate on the tracks don't go to Kiwirail, they go to Waka Kotahi.  This bizarre situation is the brainchild of the current Labour Government.

Instead of Kiwirail getting its day-to-day operating revenue, for maintaining the track and related infrastructure from the trains operating on the network (whether its own trains, or in Auckland and Wellington the commuter trains contracted by the relevant authorities), the Track User Charges, set by politicians, go to a central government bureaucracy - Waka Kotahi - which then gives Kiwirail money to maintain the tracks, based on the Rail Network Investment Programme.

So Kiwirail's infrastructure business is not paid based on trains operating, but paid on whether it can convince a bureaucracy, guided by Ministers, to give it the money it requests for its network. Michael Wood and Grant Robertson have broken the link between use of the track and being paid for the track.

Of course this replicates the road network, but road funding has always had that separation and the separation is an artifact of how motor vehicles are charged to use the road network. Because all petrol-powered light vehicles pay petrol tax, it is impossible to reliably link your car to what roads you drive on, so the revenue from petrol tax is all collected by Customs, and handed over to Waka Kotahi to fund road maintenance and improvements.  Road controlling authorities (Waka Kotahi for the State Highways and territorial authorities for local roads) have to bid for funding from Waka Kotahi (yes you noticed that?) for road maintenance.

However Kiwirail's network isn't like that.  It is effectively a controlled private network as Kiwirail knows exactly what railway vehicles are on its tracks at any time, and charges them Track User Charges, which could be based on whatever it needs to charge to maintain and develop its network. Indeed if the track infrastructure was run as a separate business, setting its own Track User Charges, then it would expect to not get paid if it didn't enable trains to operate.

That's not what the Government has done, it has disconnected payment to use the tracks from the provider of the tracks, which is a retrograde step.  Every other piece of effective infrastructure operates with user pays. Airlines pay airports fees for landing, taking off and parking aircraft at terminals and on their tarmac. Shipping companies pay port companies fees for docking and other services. Indeed if structured appropriately, as in some other countries like Austria, Czechia, Japan and Slovenia, there is no reason why trucking companies and motorists couldn't be paying to use the roads directly to road companies.

However, the Ardern and Hipkins Government has chosen to weaken the link between providing rail infrastructure and getting paid for doing so by customers, by Kiwirail getting paid by Waka Kotahi instead.  $1.2 billion is being spent by Waka Kotahi to Kiwirail to maintain and develop the rail  freight infrastructure, of which $834.4 million comes from general taxpayers (the remainder from the National Land Transport Fund, which Track User Charges are paid into).  Not only that, unlike the National Land Transport Programme (which outlines the road and public transport projects funded from the National Land Transport Fund), the Minister has to approve the Rail Network Investment Programme.  It's a highly politicised funding system. Kiwirail has to respond to what the Minister wants, not what its customers want, in relation to the infrastructure.

It's worse than that of course. Because Kiwirail runs two businesses, an "above rail" business (hauling freight, carrying long-distance passengers and running rail ferries), and a "rail infrastructure" business (providing the tracks, signals, etc so trains can operate on them), it will prefer the "above rail" business which it directly gets revenue from. Consigners of containers on freight trains pay Kiwirail directly, which it then includes its accounts (even if it has to pay Track User Charges to Waka Kotahi).  Whereas the train operating companies running Auckland and Wellington commuter trains don't pay Kiwirail directly at all for the tracks, but pay Waka Kotahi.

Bear in mind also that Kiwirail, as track provider, has a literal iron grip on access to its network for competitors. Now there may be a low chance of a rail freight competitor emerging, because of the high cost of acquiring rolling stock, but likewise if another business wanted to operate say a passenger train from Christchurch to Dunedin, then Kiwirail could effectively decide whether it would let it do it.  Kiwirail's "rail infrastructure" business is not incentivised to try to find a way to let a new customer use its network because it wont get paid for it, but it's incentivised to do what works for its staff and contractors, and for its own trains.

One can argue about whether enough taxpayers' money was put into the rail network since it was renationalised, or whether it is good value for money at all. After all, why should the rail freight network not pay its own way, given trucking companies pay road user charges, which fully fund the state highway network?  However, if the government is going to keep owning the railways then maybe it should follow a model seen in some European countries.

Split it up.

Have a Kiwirail holding company for oversight of the assets (including the land held by NZ Railways Corporation), but have three separate companies underneath it:

1. A railway infrastructure company. Have it receive Track User Charge revenue directly and let it charge what it needs to do to maintain its network.  If the government wants to upgrade tracks, then it can put taxpayers' money into it transparently and have arguments in the public sphere about whether new cancer treatments are better to pay for than a faster railway line somewhere.  Ensure that company has open access, and seeks to encourage new entrants into the rail industry.  It may also include stations and freight terminals not held by local government, but also be willing to enable competing operators with access to those facilities.
2. A freight company.  Have it own the locomotives and rolling stock Kiwirail currently has to run and operate freight trains.  Arguably it should also have the Interislander as it is core to that operation, and it makes more sense than it being in the railway infrastructure company or the next company.
3. A passenger company.  It may only be four passenger trains at present, but let it be willing to expand on a commercial basis. It might even run the commuter trains in Wellington and/or Auckland if it  wins contracts to do so.  It should own the locomotives and rolling stock for passenger rail, or it might seek to lease locomotives from the freight company. 

There is an argument that there isn't really enough business for rail to have competition in New Zealand, and it may be right, but given the government owns the network, it ought to at least enable the possibility of competition. 

A hard-nosed look at railways in New Zealand would confirm that the rail freight business is the core, followed by commuter rail services (which require subsidy as long as pricing of roads at peak times in Auckland and Wellington does not target congestion).  Rail freight is about containers, logs, milk and coal, and a handful of other commodities.  

It should have nothing to do with Waka Kotahi (except its role as safety regulator), nor should Michael Wood or any other Transport Minister be deciding how much money the railways get to maintain their tracks (after all, what would they know?). If more money is going to be poured down the black hole of railways in New Zealand, it should at least be incentivised to operate trains reliably.  At present it has poor incentives, is costing taxpayers a fortune in money that will never be recovered, and has been set up into a bizarre funding structure that has no parallels elsewhere in the world.

Oh and for all of the calls to "restore" intercity passenger rail services, there isn't a business case for it, but at least if the rail business is structurally separated, those who think there is a business case for a lot more long-distance passenger rail can put their money where their mouths are (not their glued hands though). Intercity bus services and airline services are not subsidised in New Zealand, so it is appropriate that intercity passenger rail isn't either.

Auckland rail electrification - a very bad idea

Well you KNEW I would have to comment further on this.

So first - what the government said:

Steven Joyce said "Rail is an important and growing way for Aucklanders to get to work each day". Important? Hardly. Growing? Yes, but at the expense of what? Less bus users (when you ignore the Northern Busway), less carshare riders.

He further said "The government has decided in principle that now that KiwiRail has been re-purchased by the government, it should be the owner of the new crown-funded passenger rail stock in Auckland and Wellington.

Mr Joyce says this will save costs over time and ensure the most efficient use of transport funds." I don't have a problem with the Crown owning something new, except of course that the moment the Crown holds onto it, the value of the rolling stock will drop significantly. The global market for secondhand electric multiple units on narrow gauge is not high. More importantly, the trains wont ever make a profit.

The Q&A on the press release asks

Why are you committing to Auckland rail?

The says:

"The government has decided in principle that now that KiwiRail has been re-purchased by the government, it should be the owner of the new crown-funded passenger rail stock in Auckland and Wellington. This will save costs over time and ensure the most efficient use of transport funds."

That ISN'T an answer why. It DOESN'T say why rail is good for Auckland. The answer is not "because ARC said so", because this is public policy and economic snakeoil.

I've talked about rail electrification before, so let me just summarise yet again why it is a very bad idea, starting with the claims of the enthusiasts - or indeed the heroic and shoddy assumptions in the "rail business plan":

1. It will make an imperceptible difference to traffic congestion, less than 1km/h faster trips on the motorways parallel to the track;

2. It conceivably can only provide an option for a maximum of 6% of all commuters in Auckland (less than half those commuting to the CBD), of whom perhaps a third will use it. Most Aucklanders don't live or work within a cooee of a railway station - so said Helen Clark once;

3. Outside peak times it will be grossly underutilised, around two thirds of the trains will be used for only 6 hours a day, the rest of the time lying idle. Same with track capacity;

4. It will render even more commercial (unsubsidised) bus services unprofitable. Already the proportion of bus services in Auckland that are unsubsidised has dropped significantly since money was poured into rail;

5. Most of the users are people who would otherwise have caught the bus or rideshare with a car commuter - in other words, the majority are not former car users. Maybe at best 1 in 4 would have driven a car. Why are you subsidising the other three? It is a sheer lie to claim the people who would use rail would otherwise have travelled by car.

6. It will make an imperceptible difference to pollution levels in Auckland or CO2 emissions, as the trains running around all day are going to be carrying the equivalent of busloads of people.
7. It will never make a return on capital and never make a operating profit. In other words it commits central and local government to subsidise trips for people travelling to downtown Auckland on a mode of their choice - the part of Auckland with some of the highest value employment. The low income workers in Manukau City wont be getting the train to work, but their rates and fuel taxes will subsidise suits travelling from Tamaki to Britomart.
8. It doesn't matter how many people ride it, unless the majority would have driven and it makes a measurable difference to congestion. However, neither of these claims are true. High growth is just subsidising people's choices of home and employment.

9. Nowhere in the New World (North America/Australia) has a new rail transport system made any measurable difference to road congestion levels. The cities have too low a density, too diverse travel patterns, and there are not corridors with anywhere near the consistent density of trips to make rail superior in economics to high quality bus routes.
10. The claimed capacity of heavy rail over a motorway is true, but Auckland rail will NEVER be carrying 25,000 people per hour. It is like buying a Boeing 747 to fly Wellington to Auckland.
11. The plan is predicated on no changes in commuting patterns over time, like peak spreading and telecommuting, both of which are encouraged by congestion and properly pricing peak road capacity. It subsidises old patterns of behaviour.
12. Auckland’s rail corridors are an irreplaceable asset. Yet it is a grossly underutilised one and will continue to be so. Trains every 5 minutes at peak times is quite a period without another vehicle using the corridor. Find any arterial road in Auckland and count the vehicles passing every 5 minutes.
13. 28% of Auckland's population will NOT live within 800m of a rail station by 2016. This is a highly "optimistic" forecast based on more people wanting to live in medium and high density housing adjacent to a station. Do you want to do that? Do you want to walk 800m four times a day (remember the other end) to get to a mode of transport?

My solution is not libertarian, but more economic rationalist. Let the current contract run its course, and then -while the government underprices peak demand for road space - use some existing road tax revenue to subsidise peak rail fares only to follow second best pricing principles. In other words, pay for the benefits road users get for those switching from car to rail. That wont be enough to justify electrification or new trains. As existing trains need replacement, cut services and remap the Auckland rail network for what it should be:
1. A freight line from the main trunk to Southdown and via Tamaki to the Port (the Overlander can use this if it is viable);
2. Dedicated tolled commercial vehicle corridors along the abandoned North Auckland line (the rail network north of Auckland is not worth saving). The stations can be adapted for buses (including Britomart for low emissions buses). Yes, you'll have to manage the Public Works Act and Treaty of Waitangi implications of changing rail land to another use - but that is about having a will to change legislation.

Then rail in Auckland can get on and do what it does best - long haul freight.

You see - I want to know why the government thinks Aucklanders want this. Because they are too lazy to vote for an ARC that wont pursue pet projects like this? I want someone to robustly critique the claim in the "rail business plan" that "The “Exit Rail” option was eliminated early in the process when it became clear that it would involve considerable additional expense estimated at greater than $1 billion and would increase traffic congestion. Also, the “Exit Rail” option is inconsistent with the Regional Land Transport Strategy and Government strategies and so was not pursued." Why considerable additional expense, when the rail electrification plan will cost a fortune anyway? What increase in traffic congestion? Who gives a damn if the strategies are wrong?

Electrification of rail in Auckland is fundamentally wrong, the business case is grossly optimistic on a cost and benefit basis, it neglects to properly evaluate a cheaper alternative because the ARC is ideologically wedded to this project (and the last government was as well). You can see this in the statement that "It has become clear that applying Land Transport NZ’s standard project evaluation methodology to a major Passenger Transport investment such as this is too restrictive in its nature and does not allow for the full benefits to be realised."

Code for - the project is a bad investment when compared to all the other ways that road taxes could be spent, so we had to come up with a methodology to give the answer we wanted.

Want to know more? Well let's have a look...

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;

- $100 million upfront in upgrading the national network from 2003, and $25 million annually from 2004 to 2007.

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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.

Inter-regional passenger rail - a dearth of serious analysis

I LOVE travelling by train, I caught long-distance passenger trains as a child. My father took me on the Northerner in a sleeper to Auckland and back on the Silverfern, I rode the Southerner from Christchurch to Dunedin, I rode the Picton-Christchurch Express and the Christchurch-Greymouth Expresses, and my first long-distance trip by myself was on the Wellington-Gisborne express.  I took the last Bay Express from Napier to Wellington.  I rode the Indian Pacific on my honeymoon, I've ridden Amtrak, I rode umpteen trains in the UK when I lived there, including the sleeper from Paddington to Penzance, I was a frequent traveller on Eurostar. I rode by rail from Pyongyang to London, on five different trains across China, Russia, Belarus, Poland, Germany and France. 

So nobody can accuse me of not liking trains. I had a model railway as a kid, and yes I have a transport nerd's knowledge of a lot of trains, and I wished the Silverstar had returned to service and I even wrote to the Minister of Railways at the time pleading the case (who was Richard Prebble!).

I would be thrilled if there could be more, viable, long-distance passenger rail services in New Zealand, but I am not thrilled by the idea that they are, somehow, special and deserve to get taxpayer subsidy over air and coach services, let alone private motoring. 

The Transport and Infrastructure Committee of Parliament has wasted time and taxpayers' money investigating whether taxpayers should pour money into subsidising long-distance passenger rail services (called inter-regional by the Committee), and has produced a report that largely consists of "reckons" by activists with a complete paucity of evidence and analysis as to the costs and benefits of doing so.

The fact that the Committee has produced such a poor quality report reflects both on the understanding of the majority of its Members (from Labour and the Greens), and the staff supporting the Committee, who seemed to be incapable of undertaking some fairly basic research or analysis (or perhaps were directed not to bother too much).  You would think they could at least have gotten some information from this book.

It made six recommendations, of which my favourite (for the wrong reasons) is "We recommend that funding arrangements for future inter-regional passenger rail services reflect the level of national benefit of such services to New Zealand". At best that would be nil, at worst it means the Committee thinks subsidies should equal benefit, so each dollar of taxpayers' money spent should return a dollar, which displays the level of economic ignorance of the Committee.

It's worth a read, as it exemplifies the standards of critical analysis that are deemed acceptable by many MPs today, and it shows how far there is a dearth of economic and policy analytical depth today.  Noting this Committee was supported by the Ministry of Transport, the Infrastructure Commission and an economist. 

Take the introduction which mentions how lots of people used to catch trains then:

"However, as private car and air travel became more popular and accessible, many passenger rail services were cancelled. The national railway network then experienced decades of underinvestment."

Hang on, so WHY did private car and air travel become more popular?  The first because of flexibility, you didn't need to wait hours or a whole day till it was time to travel, and it didn't necessary go from where you live to where you wanted to go.  Plus trains were simply slower. Air travel is obvious, it is fast and it became a lot cheaper over time, as did car ownership.  Modes that were faster, more convenient and more flexible and ultimately cheaper saw people abandon passenger rail.

However. the "decades of underinvestment" claim is quite something. For a start, there was underinvestment from the 1920s onwards, NZ Railways didn't bother reintroducing dining cars after World War 1, and the last remaining one operating in 1930.  There was no on-board catering (beyond tea and coffee) until 1970, so the "underinvestment" was par for the course by the Railways, as it treated its peak passenger demand like many monopolies do, it took them for granted.

To claim there was underinvestment as demand tailed off implies there should have been more "investment" poured into passenger rail, in the 1960s, 70s, 80s, but why, and for what ends?  In reality the major problem was that the NZ Railways Department operated as a heavily-unionised government department with monopolies on much of the market to move people and goods. It was simply a lazy, non-customer focused organisation, it was focused on political and industrial relations imperatives.  Business travellers moved to airlines and leisure travellers to cars, and it wasn't until the Lange Labour Government stop subsidising long-distance passenger rail that it became much more responsive to passenger demand and was business oriented.  That Government gave the Railways Corporation its final subsidies as a lump sum to upgrade services and make them viable, which it did at the time. It's just that over the subsequent 20 years demand changed, airline competition saw fares drop substantially in real terms and the removal of protectionism for local car assembly saw new and used car prices drop as well. People's mobility improved and demand for long-distance rail travel eroded. The routes with growing overseas tourism demand thrived, like the Tranz-Alpine and Coastal-Pacific services between Christchurch and Greymouth and Picton respectively are scenic trips, and are viable in their own right. The Auckland-Wellington Northern Explorer has hung on marginally, but the largely locally used Southerner and Bay Express had insufficient patronage. Rotorua's Geyserland Express suffered because the cost of the service had to bear the full cost of the track as freight traffic was not viable from Rotorua to Waikato/Auckland, and the Kaimai Express to Tauranga had insufficient patronage on a regular basis (also not a route significant in scenery or as an overseas tourism destination).

However, the Committee didn't get told that. 

In the Background (p6), another enormous error is published:

"Over time, and particularly in the early 2000s, focus shifted away from passenger rail services towards providing rail freight services."

This is complete nonsense, railways in New Zealand have been focused on freight for literally decades. In the 1970s the Railways Department noted that the proportion of its business that is passenger traffic was less than 20%.  Unlike railways in Europe and Japan, passenger traffic has not been the focus for railways in New Zealand perhaps since the 1920s.  It is the same in Australia and the United States.

The report summarises Te Huia without really shedding any light on whether it actually contributes to what the report says is the point of the inquiry, which is whether there are any net benefits in expanding inter-regional passenger rail.  There is NO data on how many Te Huia passengers previously drove a car to take the same trip compared to how many are new trips (and whether it enabled people to take jobs they didn't have before, or if they are simply leisure trips). There is no data on the effects on competing, unsubsidised bus services, in other words the analysis is just how many passengers ride it, how happy they are and how taxpayers/ratepayers are paying more than 85% of the costs of RUNNING the train, let alone the capital costs of purchasing and refurbishing the rolling stock and upgrading the stations.  Where's the economic analysis?

It summarises the Capital Connection service (Palmerston North-Wellington) without noting it was set up and operated on a fully commercial basis for many years, without subsidy.  There is no data on daily patronage (just annual) and none on farebox recovery, but there is this odd insertion of a generic definition in the report:

"The Capital Connection service uses older rolling stock that is nearing the end of its life. Rolling stock refers to railway vehicles, such as locomotives, carriages, wagons, or other vehicles used on a railway."

The authors forgot to write a definitions section, and also forgot to mention how much money was spent to acquire rolling stock for Te Huia and build a new station (and upgrade another) (it was $49 million).

The report continues with a completely odd section about historical services, which it could have largely left, or it could have focused on those that operated until 2001.  However it is just full of mistakes (p7-8).  Without nitpicking...  Auckland-Tauranga and Auckland-Rotorua were reinstatements of services that were cancelled in 1967, because of poor patronage. The Waikato Connection seems odd to include as it was a trial of less than a year, especially since Te Huia is essentially the same route. The Northerner did start in 1975, but was a successor of the first Main Trunk overnight service started in 1908.  Why mention that and not the Silverstar? 

However there was no Endeavor (sic) between Gisborne and Napier, Gisborne hasn't had passenger rail service since Cyclone Bola in 1988, and the Endeavour ceased operating in 1981 and never returned to Hawke's Bay (it was used as a substitute train from Wellington to Auckland, and the rolling stock later refurbished (with higher density seating) returned to use as a pool for several unnamed services).  It is also odd to talk of the "New Plymouth express" starting in 1955, when it finished in 1955 and was replaced by a railcar service, until 1977.  There are umpteen books about this, and it wouldn't have taken long for the Committee to get an actual rail enthusiast or two to confirm all of this.  

I could point out minor errors in the descriptions of the roles of agencies, such as "The NLTF is made up of revenue from fuel excise duty, road user charges and road tolls, vehicle and driver registration and licensing".  No, driver licensing fees do NOT go into the National Land Transport Fund.  Seriously, how hard is it for the Ministry of Transport to not fact-check such basic stuff?

The bulk of the report is a summary of what submitters said with little analysis as to its merits. For example, on p13:

"Submitters highlighted that inter-regional passenger rail would also benefit users of other transport modes. For example, if more travellers used inter-regional passenger rail there would be fewer cars on the road. This would reduce congestion, thereby shortening journey times and reducing costs for road users. Some submitters suggested that investing in rail and alternative transport modes would reduce wear on roads and save on expensive road upgrades."

This assumes the extra demand comes from car drivers, it assumes that congestion arises from inter-regional car driving (which outside peak holiday times is simply not true) and the marginal cost of car use on road wear is so tiny (most road wear is caused by heavy vehicle axle loads and the effects of sunlight, rain and temperature changes), so it simply wouldn't reduce road wear in any meaningful way.  

This utter nonsense is repeated lower on the page:

"Passenger rail could also enable more efficient use of existing transport infrastructure. This is because a reduction of vehicles on the roads would be likely to improve the longevity of road infrastructure, reducing maintenance costs and the volume of emissions-intensive resources needed to support maintenance and renewal programmes for roads."

No it wouldn't, this is just ridiculous. Fewer cars has next to no impact on the maintenance of state highways, and to talk about "emissions-intensive resources" to maintain roads, without noting that railways need resources to be maintained as well, and are a duplicate network to roads is completely lunatic thinking, and it's shocking that such claims are giving the credibility to be in a summary.

Further nonsense appears below:

"Submitters noted that passenger rail could improve New Zealand’s resilience to the effects of climate change, natural hazards, and other events. For example, if natural hazards or extreme weather events prevented access to roads or air travel, rail could provide an alternative method for moving people and goods."

Those submitters are morons. Unless you happen to live near a railway station (walking distance) the idea you will get there or that consumer goods would get to you by rail if a road is closed is largely fanciful. Most parts of the rail network are much more vulnerable to closure than the road network, and there has never been any case of a natural disaster which left the railway intact to perform access functions that the road could not (in fact very much the opposite). 

The absurd claims continue, until on pg 14 there is this:

"Some submitters also suggested that inter-regional passenger rail would offer an alternative to domestic air travel, thereby reducing aviation emissions"

Yes if you have a lot of time to spare.

Claims on emissions don't include key caveats, such as patronage or whether or not a car driver is driving an electric car.  

"While a diesel train is generally a lower-emissions form of transport than petrol car or air travel, an electric train can produce around three times less emissions than diesel train"

Besides the pointless reverse mathematic of "three times less", this is entirely dependent on how many people travel on the train compared to the car or aircraft.  Before many services were stopped in 2001 and 2002, the average patronage of those services was much less than a busload.  There is absolutely no analysis about what levels of patronage or modal shift would make sense from an emissions point of view (and of course the fact the Emissions Trading Scheme caps emissions from domestic transport is blanked out, officials and politicians so often just pretend that cutting emissions has no cost, or that they aren't replaced by emissions from others, unless the cap is reduced).

The Committee's response is rather entertaining...

"We think that inter-regional public transport could bring demonstrable public value to New Zealand."

..."While it is evident that there are wide societal benefits associated with passenger rail, it is difficult to measure or quantify these benefits."

Here's a clue, the people who benefit from passenger rail can quantify the benefit according to ... whether they are willing to pay the costs of providing the service!  It isn't "evident" because there was literally no evidence published from submitters in this report, just "reckons".  No evidence whatsoever!

The report isn't without some glimmers of sense though.. on pg.16:

"Increasing inter-regional passenger rail will likely require a high level of investment in the national rail network. On the other hand, historical trends suggest that inter-regional passenger rail services are unlikely to result in a high commercial return without services experiencing patronage growth. Careful assessment will be needed of whether inter-regional passenger rail services are the public transport option that best benefits the public."

Maybe if they had a high commercial return you wouldn't get involved? The last sentence is perhaps generously stating that there is unlikely to be any reason why inter-regional passenger rail services are the best option.

Then there is this claim, throwing the bus sector.. under the bus:

"We note that several commercial bus or coach services operate inter-regionally. While these options do not provide the same level of public benefit as passenger rail, particularly in terms of accessibility and environmental benefits, they remain a viable option for many people."

That's right, buses are MORE environmentally friendly than trains, and their accessibility is likely to be higher because they can stop just about anywhere.  Then the committee of politicians and bureaucrats make this empty claim:

"If passenger rail services are designed efficiently, accessibly, and in a manner that meets people’s needs, there is real potential for large-scale uptake."

In short, if you design a service that people want to use, they might use it.  However, what does any of this actually mean?  What demand IS there on the key routes submitters discuss? Couldn't the Committee have obtained data on intercity bus service demand and long distance car traffic, and if not, why not?  How many people drive between Auckland and Tauranga each day, surely you need to know this if there is likely to be some assessment of potential for a rail service?

Fortunately the Committee isn't completely mad as it decides to be focused on... more evaluation:

"At this stage, we think what will be most useful is identifying specific inter-regional services that should be investigated further. We need to better understand the costs and benefits of specific services before we can properly evaluate their potential."

No, you can't evaluate any of this.  You don't decide what routes Air New Zealand and other airlines fly, or routes Intercity operates, so you shouldn't be doing this.

Then Te Waihanga, the Infrastructure Commission, weighs in on pg.18, without thinking more widely about the point:

"Te Waihanga told us that KiwiRail’s commercial mandate means that investment decisions are often made based on the economic viability of services, rather than consideration of any wider societal costs and benefits. This means that, even if a rail service would be worthwhile from a public-value perspective, investment is still unlikely to occur."

Well it doesn't happen for air or bus services, or inter-regional freight services, so why is rail special? Indeed, regional councils ARE mandated with thinking about public transport subsidies and "public-value", so they actually can work together on this.  What matters more is that Kiwirail has a monopoly on managing access to the rail network, so no other business can readily obtain access to that network without Kiwirail approving it. This looks likely to be provide one option for enabling at least other commercial operators to have a chance at providing more services.

Te Waihanga can't identify the "public-value" of these services, but maybe it thinks this should be its job?

Ultimately the report seeks a growth in bureaucratic involvement in transport by saying"We recommend that the Government identify an agency to act as system lead for interregional public transport.".

Why? Because it can't identify whether inter-regional passenger rail is worthwhile, or specify how it might be. So it calls for a new role for government to "lead" not just rail, but bus and even ferry (maybe even airline) services.

This is absurd, because unless there is a clear case for this, it would set up an agency with responsibilities that it would, no doubt, decide, needed to be expanded. You can see a return to the days of 1970s when transport licensing was undertaken based on demand, with intercity bus services regulated (can't have them "undermining" inter-regional passenger rail), and the heavy hand of central planning seeking to respond to the demands of whoever the Minister of the day is.

The remainder of the report is the Committee's "reckons" as to routes worth further investigating.  Tauranga-Auckland is suggested with zero analysis of potential demand, Auckland-Wellington suggested whilst dismissing the fact there is already a service, it is geared towards tourists people who are willing to pay the costs of using the service.  The claim for Auckland-Wellington is that it should be "affordable" which is code for "paid for by someone else". The case for why one mode of travel between Auckland and Wellington should be subsidised when none of the others are is not made.  It then suggests Napier-Wellington. Why? Who knows, because literally nothing the report backs that route as an option over say Christchurch-Dunedin (it also falsely claims there is no station in Napier, when the old station remains very much intact). Likewise, extending the Capital Connection to Feilding is presented with zero evidence as to why.  This is literally just bureaucratic and political reckons based on nothing, although the report claims "The case studies we have identified in this chapter are what we consider “low-hanging fruit”."

However, this is based on virtually nothing, except the wild claims of rail enthusiasts. 

The only saving grace of this report is that the National and ACT members dissented, presumably they could see how ridiculous this all this. 

It's all quite simple.

Inter-regional passenger transport is, by and large, commercially viable or privately funded.

Air New Zealand, Jetstar, Air Chathams, Soundsair, Originair and other domestic airlines operate such services fully funded from users, paying airports to use the infrastructure and including the cost of the Emissions Trading Scheme in their fares. 

Intercity operates commercial coach services, again fully funded from users, paying road user charges and also paying for emissions through the ETS.

Private car owners and renters of cars pay for their own cars, paying for fuel including fuel tax and the ETS, again paying for the road.

Kiwirail runs commercially viable inter-regional rail services between Auckland and Wellington, Picton and Christchurch and Christchurch and Greymouth. If it sees business opportunity in starting new services it should do so. Likewise if any other business wants to start up such services on the rail network, Kiwirail should not get in its way.

However, there is no serious public policy reason to spend taxpayers' money to set up new passenger rail services. The state highways are generally not congested outside a handful of holiday periods, and will not be relieved by a few daily passenger rail services.  Almost all rail routes are significantly slower than the parallel state highways (and one train a day will not justify pouring hundreds of millions of dollar in speeding up rail lines).  The dream of an overnight sleeper train service between Wellington and Auckland may seem nice, but realistically most business travellers would rather fly, and the density of sleeping accommodation to be competitive would be akin to couchettes because more standard sleepers would just be too expensive compared with flying (and beyond Friday and Sunday nights, patronage is unlikely to be high).   However, of course, the advocates for this, don't want to pay the full cost of providing the service - even though the passengers on Airbus A320s pay for theirs.

There are merits in ensuring Kiwirail doesn't unreasonably block the entrepreneurship of other rail operators in establishing passenger (or indeed freight) services using the infrastructure taxpayers now own - but to spend much time or money investigating the merits of long-distance passenger rail is wasteful.  Meanwhile advocates might want to use existing services much more frequently and demonstrate they are willing to spend more time travelling than other modes, before they call to force everyone else to pay for new services.