Worthless asset - Part 2 - what can be done with Kiwirail?

I like railways and I am an economic rationalist. I find it a little sad when a railway line closes, as if its purpose, hauling goods or people, is no longer needed, like a piece of economic history, and that for a long term it served a useful purpose to many people as an artery. However, I also resist vehemently, the idea that people should be forced to subsidise the freight movements or passenger movements of others. Some like railways and don't apply economics to it, like the Greens. Some apply economics, and want the railway shut down.

Some blogs are suggesting that Kiwirail be shut down, which was what Pacific National, past owner of the Tasmanian rail network threatened, until the Tasmanian state government agreed to take over the network. I can understand this view. However, it is NOT a lost cause. Governments have bailed out the railways twice before in my lifetime, now it should be about accepting the massive right down in value on the government's books before trimming it back to what can be profitable.

I've written many times about this already, so I don't want to add too much:
- Subsidising rail freight is subsidising rail freight's customers, which is coal, timber, dairy and shippers of containerised freight. If anyone should be paying for rail it should be them. A subsidy to rail is "picking winners" in those industries.
- A presentation by NZISCR on the future of rail freight, originally linked to by Frogblog. That presentation dismisses many myths about rail;
- Why the Greens are wrong to worship the religion of rail;
- History of previous rail bailouts and Labour's spending of taxpayers' money on railways;
- Consultant's reports to The Treasury on why rail freight in New Zealand is not on a scale or distances that compare favourably to profitable railways in Australia or the USA. Part One and Part Two.

And after that, where IS rail viable.

In summary, I am optimistic about rail transport in New Zealand, if not for the value of the renationalised "asset". Why?

1. The Auckland-Wellington-rail ferry-Picton-Christchurch-Dunedin route has sufficient traffic to be profitable in the long term. It can carry containerised traffic by the train load efficiently. Similar traffic profitably runs from the Port of Tauranga to the main trunk.
   
2. As long as good quality coal comes out of the West Coast and can be sold, it is profitable to send it by train to Lyttelton. Meanwhile, the TranzAlpine tourist train is also profitable on that same route.
3. Fonterra's milk traffic from Oringi to Longburn, and Hawera to New Plymouth is profitable.
4. It may be profitable to keep hauling logs out of the Kaingaroa forest, and rail wood products from Kawerau to the Port of Tauranga, and from Kinleith similarly.

Beyond that it needs to be on a case by case basis, and the likelihood is most other rail freight can only profitably run as long as the rolling stock and track can be maintained in a serviceable condition and the revenue from running trains makes a profit on top of that. When trains need replacing or track/bridges on some lines, it will simply be a case of giving up.

If trains aren't to operate anymore, the line can be mothballed, so if anyone else wants to run services they can - at a cost. After a set number of years, if there has been no serious interest (in some cases railway enthusiasts take over the line and run tourist services, such as to Middlemarch in Central Otago, or at Waitara) then the tracks should be pulled up and the corridor reused. If people want to convert them into cycleways, so be it.

Bill English and Steven Joyce should request a report from Kiwirail describing not lines, but freight business by major customers/commodities and route. It should describe how long term the contracts are, their financial position, and any demands for new capital to keep services going, with recommendations for the short term, medium term and long term future for those services. Business like decisions need to be made. If Kiwirail wants more money to invest in profitable parts of the business, it should borrow against those projections and recover it from users.

Oh and while you're at it, think about the state highways being run as a business too, directly charging road users for the cost of using them. The state highways ARE profitable as a whole, but it would be nice if it were explicit, and they were run as a business supplying customers, instead of a bureaucracy following statutory objectives.