Ignore the privatisation scaremongerers

I remember the time before what socialists call the “neo-liberal” era which “sold out” the country to “rampant capitalism”. Sure I was at school, at the time when people and businesses had to plan weeks ahead to get the Post Office to install a phone line (no mobile phones then, as the Post Office hadn’t deemed that to be appropriate until 1987, even though Australia had had a limited carphone mobile service from 1981 and the UK had launched mobile telephony in 1985).

It was an era when the 100% state owned Air NZ had to get Cabinet approval to buy new airliners, and was made to buy Rolls Royce engines for its Boeing 747s, because it was thought it might improve trade prospects more generally, even though the airline had the spares and the staff training for General Electric engines (and the Board had recommended such aircraft). Such is the ways of nationalised industries.

It was also an era when phones calls beyond your local calling area (which in Wellington did not include Kapiti) cost tens of cents a minute, so a ten minute call (remember no SMS or email) to Auckland might cost several dollars. Phone calls internationally cost dollars a minute, so twice a year my grandmother would talk to her sister in Scotland, for birthdays, for around 10 minutes. Those calls cost $30-$40, and it wasn’t because of technology, it was because the Post Office used money from phone calls to cross subsidise its unprofitable postal monopoly. Then there was the Post Office Savings Bank, a government bank that at a time of double digit inflation had children’s “savings” accounts paying 2% interest. Effectively a scheme for the state to steal savings from children, but hey it wasn’t privatised nor “foreign-owned” (strange how supposedly “anti-racist” socialists are so agitated about foreigners when they own businesses they use), so it was great - the socialists got kids' money to spend on "the People" (which is of course what they always say).

Wellingtonians 40 plus might remember the Wellington domestic terminal, later the Air NZ domestic terminal, which on a windy wet day would leak, with the lino floor flooded, being drafty with not enough seats for people waiting for flights. Until (foreign and local capitalist owned) Ansett NZ was allowed to fly domestically, all jet flights were boarded through steps in the wintery Wellington windy rain. The Government and Wellington City Council argued over decades about who should pay for a new one. They would also remember Wellington City Transport, which was 100% owned by the City Council and subsidised by ratepayers, so that on Sunday evenings hardly any buses ran at all, all of the routes terminated in the city centre (needed more buses and drivers for that, and the Tramways Union would hold the city to ransom if it didn’t get what it wanted). New buses required the Council to order them, and as a result the fleet would be on its last legs before new vehicles would get ordered. 30 year old diesel buses would be operating (the economic life of a diesel bus is around 15 years) and of course Wellington’s trolley bus infrastructure would be patched up for decades.

None of this is reflected on by Max Rashbrooke in the Spinoff. He wrote a piece last week that followed on from the rather awkward set of comments between David Seymour, Chris Luxon and Nicola Willis which indicated various interest in looking at further privatisation, but unfortunately Rashbrooke didn’t demonstrate a great deal of depth in thinking. Most of it was parroting the claims and slogans of former union economist Bill Rosenberg, and high level papers written overseas by leftwing researchers.  

I couldn't resist, it was so full of nonsense, it deserves a response:

- “Privatised TranzRail had an appalling safety record, its staff dying at work at eight times the national average. And while cutting maintenance to a level Rosenberg labelled “abysmal”” What was the safety record before privatisation, before SOE status, before corporatisation (before there was safety regulation of rail)? Rosenberg, a former CTU economist bases the maintenance level on “what”? Bear in mind that in 1984 Booz Allen reported on how the rail network had been over-maintained in places, but also how 

- “Fay Richwhite and their fellow owners took out at least $370m in profits from a firm for which they had paid just $328m”. Dividends over a 12 year period, but of course taxpayers have never taken a dividend from Kiwirail or NZRC, ever. Socialists need to decide if the state owning trading enterprises is to make money from them for “the People”, or for them to be moneypits for the “Public Good”, but that isn’t clear.  Truth is most are primarily commercial but they might want certain services delivered at taxpayer expense, but this doesn’t require entire operations to be operated Soviet style.

- “Helen Clark’s Labour government was then forced to repurchase the railways, creating KiwiRail as we now know it. The whole episode cost the state around $4bn, according to then business commentator Brian Gaynor”. Nobody was forced to repurchase it, in fact there were three transactions from buying the Auckland track for $81m (Treasury valued it at $20m), buying the network and then buying the whole business. If nothing had happened, it still would exist, it just would have seen a series of lines close that carry little traffic, and the state has poured much more into Kiwirail since.  For what end though?

- “Profits flowing offshore to wealthy interests rather than ordinary New Zealanders” What profits? Kiwirail has never generated a dividend, and besides “ordinary New Zealanders” wouldn’t get it, it would go to the Minister of Finance to wash in with other spending.

- “The maddest examples have come when monopolies – water, rail – have been sold to private firms, even though competition is the only thing that makes markets work” Rail isn’t a monopoly, and in NZ water hasn’t been privatised (and corporatisation was opposed by economists like Rosenberg in the 1990s, see the resistance of the Alliance to the creation of Watercare Services, and demonstrates the utter failure of the socialist model of democratic control of the provision of services.  

- “A private monopoly is the worst of both worlds: no competition-based incentives to improve, and no public-good ethos pushing the organisation to look out for citizens’ interests”. Do tell us about this public-good ethos, the one that saw the Post Office take weeks to install phone lines, that gouged consumers for toll calls, that saw rampant theft of freight on the railways as a monopoly government department (it had a statutory monopoly until 1983 on long haul freight), the Post Office Savings Bank that gave kids 2% interest on savings accounts when inflation was in double digits. Please!

- “in the UK, privatised railways have been such a disaster – massively increasing costs with no corresponding rise in quality”. If you think rail travel in the UK is no different in quality today compared to the era of British Rail you need help. By any measure, frequency, number of routes, reliability, speed and capacity, and indeed patronage (which has grown to record level turning round decades of patronage decline), it is a remarkable transformation. Yes subsidies have spiralled as well, but it’s overly simplistic to think the UK has a private rail system now, as Network Rail effectively renationalised the network over 20 years ago, and most services are franchised (with the franchisees either paying to operate services on routes that are commercially viable, or pay to operate those that are not). Furthermore, rail freight volumes have increased 80% since 1983, hardly a failure if a key goal is to shift more freight off of congested roads. Socialists (mainly the unions that can’t shut down the entire system with a strike anymore) say privatisation didn’t cause the rise in patronage, but if privatisation “harmed” services, wouldn’t people have just abandoned rail in favour of buses and driving? Well of course they didn’t.  The system has been highly flawed, that’s for sure, mainly because it is highly politicised and Train Operating Companies have been poorly incentivised to control costs (because their main client isn’t their customers but the state), but that’s an argument for less state control, not renationalisation.  As usual, it's much more complex than simple slogans

- "Even worse has been the privatisation of British water services, whereby firms have extracted tens of billions of pounds in shareholder dividends, hiked water fees and discharged large amounts of effluent into local waterways." Yet DIA’s own report on the Three Waters reforms noted the performance of English water companies exceeded that of any in New Zealand, and Scottish Water. A huge amount of investment has gone into renewing water infrastructure in England, in fact OfWat requires it, and regulates water user fees. New Zealand HAS the model the UK had before privatisation and it’s an abject failure. NZ has local democratic control of the water and waste water system, and it is falling apart in many centres. It doesn’t generate dividends, it charges people based on the value of their property, not what they use, and effluent gets discharged into waterways regularly.  We have socialist water and it doesn’t work. 

- "Privatised bus companies, the OECD concluded, are cheaper than public ones only because they cut wages." This is simply false. The OECD did not conclude that, the link is to a report on a roundtable discussion involving case studies in four countries, three in Europe, plus the USA (which has few privatised urban bus services). It is not an official report from the OECD. EVEN then it said that private operators can be more innovative than public ones. The idea you can compare the performance of the Yellow Bus Company in Auckland in the 90s (let alone the ARA), or Wellington City Transport in the 1980s to their equivalents today is extraordinary.  When bus services were moved into the contracting model, there were savings of around 15-20% which enabled more routes and frequencies to be offered, but it did stop the Tramways Union from being able to shut down an entire bus network when it didn’t get what it wanted.  

- "Even when three of them were fully state-owned, the “gentailers” that supply our electricity were able to operate rather like a cartel, generating excess profits and freezing out potential competitors." Wait what? So it ISN’T state ownership you oppose, it is running trading enterprises as “enterprises”. So you don’t want the state to make dividends from its businesses?  Well we did the socialist model before, for decades. It saw massive investment in generating capacity (politicians liked power stations then), but let the local distribution network fall apart (politicians don’t like charging people for what they use), a bit like water.  Were they operating as a cartel? Well shouldn’t the Commerce Commission be dealing with that, in which case, maybe this claim of it being a cartel (which is serious), is actually not true? Maybe if they were all fully private, they could be properly subject to scrutiny because politicians wouldn’t be worried about loss of dividends.  In fact there may be a case for structural separation of generation from retail, but that's about ownership.  Not a lot of coherence in the issue here is there?

- US healthcare – not voucher-based, admittedly, but the nearest thing the developed world has to a private health system – is a catastrophe. It’s not the nearest thing the developed world has to a private health system, as there are umpteen other examples. Nobody, literally nobody advocating for more market-oriented healthcare thinks the over-regulated, highly subsidised US model (Medicare and Medicaid are uncapped liabilities to US taxpayers) is a model for anyone to follow, but it doesn’t stop socialists from the Anglosphere blanking out Switzerland, France, Singapore or the Netherlands. Australia’s system is a mixed model, but that doesn’t fit the narrative.

After all of this selective agitprop (yes education vouchers “fail” but let’s not mention Sweden which to this day maintains one of the most open market education systems in the world, but that doesn’t fit either), we get the philosophy:

There is a basic philosophical issue: public services – health, education – are things people deserve as of right, as a basic entitlement of citizenship. They are not the equivalent of buying, say, another item of clothing, and treating them as mere consumer goods risks degrading their deep importance.

Hold on, most of this article focuses on railways, then water, and talks about electricity, then ends with health and education.  Is the claim that the state has to provide everything that is a “basic entitlement of citizenship”? Should the state own all housing? Should the farms be state owned and all food supplied by state shops (after all food is MORE important than health and education, because most can last months or years without health and education, nobody can last more than weeks without food)?  The sneering comment that “treating them as mere consumer goods” says a lot about attitudes, that when the public are allowed to choose it is “degrading”. Really?

If, as is often the case, privatisation means charging for something once paid out of taxes, it is likely to have a harmful effect on poorer households.  Why? Because poorer households use the most electricity, rail freight or water? Of course they don’t, but is the argument here that everything people need should be free at the point of use, but that half the population should pay taxes so the others don’t?  We can see what “free” water has done to demand for it, and the infrastructure. We see it with roads everyday where consumers aren’t exposed directly to the costs of what they use, with the result of queuing. Public health systems are all about queuing after all, socialists seem to think that is fair, as long as the workers get paid well, the workers not in those systems should be grateful “is isn’t ‘Merica”!

You see the problem is, the common people are stupid and ignorant, whereas public servants, producer unions (especially those run by people paid much more than the average wage) and politicians are enlightened, capable and benevolent…

People don’t generally know what healthcare they need; in education, research suggests “competition” between schools is often driven either by parents making calls based on external factors like uniforms, or by prejudiced views about keeping their kids away from certain other children.  

Well just give them what you think they deserve, parents are incompetent clearly. The state should probably feed kids too (already started with that). Parents must make lots of bad calls too, so maybe the state should buy groceries, buy clothes, maybe run activities for the children to keep fit and socialise, maybe ensure they don’t have “prejudiced views”, maybe build a sense of community. Maybe we can call them Brigades, give them uniforms. Maybe they can help identify grownups who express “hateful and harmful” views. You can see where this attitude that parents know least can head, but it is exactly the arrogance of people who think because some parents make poor choices, none should be allowed to. 

I could go on, there is a misconstruing of how Telecom performed in the 1990s (which from a consumer point of view saw prices plummet across almost all services, essentially enabling people to communicate across the country and internationally affordably for the first time). 

The only interesting part of the article is the claim that if only the public could be “involved” in the decision-making of state owned organisations they could be more responsive.  This is quaint but delusional.  Most people have the time to work, look after their families and then spend quality time enjoying themselves. A small, but vocal minority get involved in activism and inevitably those who will shout the most and get involved the most will be those with spare time or motivation, either because of their political ideology or in many cases simply having time because they are retired or not working. The citing of the “successful German model” for electricity companies is laughable given some of the highest electricity prices for consumers in the EU. If that's success I'd stick with the status quo thank you very much.

It ends with this “We could also entrust frontline public servants with more responsibility, putting them in charge of locating efficiencies and potential innovations” Sure, because public servants are well known to be at the frontline of identifying the most efficient ways of doing things, and innovating with technology and service delivery, that’s why they have jobs they rarely can lose, and don’t get paid based on performance. It's naive at best.

I get that socialists hate private enterprise at worst or are highly sceptical of it. What I don’t get are the absolutely contorted contradictions of, on the one hand hating private enterprise making a lot of money from former state enterprises, and then not wanting the state to make money from them (but rather for taxpayers to subsidise them, for no clear aim other than to make sure people don’t pay for what they use).  I absolutely don’t understand how intelligent people who purport to be interested in public policy outcomes parrot agitprop slogans from trade unions.  What is the point of the state owning Kiwirail? Is it to get more freight on rail and off of roads? If so, is that the best way to do it?  None of this is clear.  What is the point of the state owning a power company? To make it cheaper for some consumers? To reduce emissions (which will make it more expensive for someone)?  Nobody knows.

Socialists have successfully scaremongered about privatisation in NZ for decades. This scaremongering stopped water getting reformed in the 1990s outside Auckland, and has stopped serious reform of ACC, and making the electricity market more competitive (by the state not having a stake in generation and retail). It’s largely banal slogans pushed by Marxists with a strong vibe of xenophobia, and it deserves to remain back in the 1990s with the Alliance.

POSTSCRIPT: By the way, I am not in favour of privatising prisons. The state has a core function to protect law and order, and to protect citizens from the initiation of violence by individuals and state.  Politicians and public servants should be held accountable for the success and failure of managing them, and with the monopoly of the legal power to incarcerate people being quite unique, passing that responsibility to a business - regardless of efficiency - dilutes that accountability.  

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.

Main trunk electrification was always a dud

The usual howls and wails of emotive knee-jerk reaction have come from Kiwirail's announcement to stop operating electric locomotives on the Main Trunk line.

It would cost NZ$1b to extend electrification to the Auckland network, and to Wellington.  However, Wellington's network is electrified to a different voltage and on DC not AC, so dual-voltage locomotives would need to be bought.  Even then, many of the trains on the line, going to and from branch lines (such as to the Bay of Plenty, Taranaki and Hawke's Bay) would still be operated by diesel.

However, the North Island Main Trunk electrification has always been a dud project since Rob Muldoon made the NZ Railways Department (NZR) embark on it as part of his Think Big central planning programme.

Main Trunk electrification was considered in the 1950s, after the line north of Wellington was electrified when it was deviated from what is now the Johnsonville line and placed in two double-track tunnels, so that trains were already operating electric from Wellington to Paekakariki (as steam locomotives couldn't run through the over 4km long Tawa Flat Number Two tunnel).  A set of electric locomotives were bought that could have served on the main trunk (and were the most powerful locomotives in NZ until 1972), but spent their lives almost entirely dedicated to operating the Wellington to Paekakariki trains (until tunnels on the line north of Pukerua Bay were lowered to enable diesel to run all the way through).

However it was rejected and the decision was made to go diesel, not least because the government owned railways was conservative technically, and was not keen to adopt what it thought then was the "risky" AC electrification system (being widely rolled out in Europe, but not yet used in New Zealand).  The DC system used in Wellington, Christchurch and Arthurs Pass was going to be too expensive, so diesel locomotives were bought to phase out steam.

The Think Big project came from an age when NZR had a general statutory monopoly on moving freight further than 150km.   NZR was facing delays on the main trunk line because of growing export traffic.  The problem, as it saw it, was a lack of capacity.  Its solution was to upgrade the line, bypassing several bottlenecks with shorter deviations, new viaducts able to take heavier trains and some steep winding sections avoided, but also to electrify the line between Palmerston North and Hamilton.  Why not to Auckland and Wellington?  Because the bottleneck was in the middle, and the way NZR operated meant that many trains were broken up and shunted along the route at Hamilton and Palmerston North.  

This was also an age with guards vans, with lots of small stations and sidings, as NZR's monopoly on long haul freight meant it handled small consignments of single wagons or even box loads.  Towns like Paraparaumu, Otaki, Hunterville, Otorohanga and Huntly had shunting locomotives to handle freight, like they always had.

In short, NZR ran an old fashioned, inefficient railway, handling consignments better suited to trucks, and its solution to its congestion was not to propose competition (naturally), but an expensive grandiose engineering based solution.   

Yet the Muldoon Government wasn't completely economically illiterate.  Main trunk electrification was committed, and would end up costing $350m in 1990 prices, but in 1982 NZR was converted into a corporation, effectively becoming the first SOE.  It would be required to make a profit, was no longer subject to political direction (except a Ministerial veto on closing lines) and would be subsidised directly for services that were unprofitable that the government required it to operate.

In 1983, Minister of Transport George Gair opened up domestic freight transport to competition, abolishing the 150km limit on road freight competition.  In 1984, a major consultancy report by Booz Allen Hamilton for the Railways Corporation made major recommendations for it to be competitive and profitable with competition from road freight.  This included closing two workshops, removing guards vans, closing small stations, moving from handling small lots of freight to trying to handle multiple wagon and train loads of freight.  

The Railways Corporation reformed, but it still lost freight to road competitors over many years.  In 1987, it commissioned Coopers & Lybrand to assess whether the main trunk electrification (that it was required to complete) could be an asset.  The report concluded that even if electricity were free it would still be a net loss to the Railways Corporation annually.  The only part of the project that made sense were all of the deviations.

As a result, when the Railways Corporation was restructured into a full SOE, it received $350m from taxpayers to bail it out of its Think Big project (after all the others were).  Officially, the Main Trunk Electrification had no net value that could ever be recovered from users of the line.

In short, the main trunk electrification has ALWAYS been a dud.  

After 30 years, the locomotives have become unreliable, many of the trains that now operate on the line have little operational need to be stopped at Hamilton and Palmerston North to change locomotives, wasting time, labour and fuel.  

A project that was inspired by technocrats running a monopoly, decided by politicians engaging in Soviet style central planning, has come to its natural conclusion.

It's not worth spending NZ$1b to incrementally reduce CO2 emissions, which will make no more difference to climate change than stopping a child urinating in a lake will stop it being toxic.  

Yet that wont stop the hyper-emotive railevangelist central planners making every hyperbole about this being some giant leap backward.   The Otira-Arthurs Pass electrification was closed in 1997 once technology enabled diesel locomotives to run all the way through from the West Coast to Canterbury, the Christchurch-Lyttelton electrification was closed in 1970, as equipment was due for replacement and with the age of steam coming to an end, it could be dieselised.  

Is it a shame that such a large project has proven to be not worthwhile? Absolutely, but it wasn't Kiwirail's fault, but the fault of the central planners of the Muldoon era - those the Labour Party and the Greens now ache to emulate, who chose to waste hundreds of millions of taxpayers money solving a problem that existed because of their regulation and archaic business practices it protected.

Kiwirail is a marginal operation at best, it doesn't need to have around its neck the vanity proposals of politicians who think they know best, and who think that saving every tonne of CO2 is worth unlimited amounts of taxpayers money.   

Note though how odd it is, that the Greens, who all claim to care about CO2 emissions, continue to oppose foreign ships on international trips carrying domestic cargo as they travel between NZ ports. This has next to no impact on CO2 emissions, as the ships are sailing anyway, by using spare capacity on the ships to carry freight within New Zealand.

Why?  Because the Seafarers Union doesn't like the competition.  The bottomline is that the Greens prefer even socialism to reducing CO2 emissions. 

Commuter rail for Christchurch? Cheaper buying them each a Porsche

I'm being a little tongue in cheek here, but the proposal from the Labour Party to spend $100 million to give Christchurch a commuter rail service is so utterly ludicrous that it deserves ridicule.

Anytime a politician says he will "invest" your money, you know that you'd never see it again, and that's exactly what would happen to the $100 million David Cunliffe wants to waste on giving Christchurch a transport service that it neither needs nor is willing to pay for.  In the USA it would be called a boondoggle, a political driven project that has little basis on market demand or economic benefit.

The policy is described here, and then here and here, showing how much effort has gone into something that isn't even important.

I nearly wrote a lengthy post pulling it apart bit by bit, but it's much easier to list what's wrong in a few bullet points.

- Christchurch last had the remnant of a local rail service in 1976 when a once daily, yes once daily, service between Rangiora and Christchurch was scrapped because of lack of patronage.  The last regular service (as in all day service like in Wellington) was between Lyttelton and Christchurch, which ended when the road tunnel was opened in 1972 (the rail service only had an advantage over driving over the Port Hills).  Before that, other services were discontinued during the 1960s as bus services proved more cost effective and car ownership rose.  Christchurch's population grew by over 50% in the period between the end of these services and the earthquake, indicating it was hardly constrained by a lack of passenger rail services.

-  It wont unclog Christchurch's roads.  The Press report says Labour intends the system to accommodate 10% of commuters from the north to central Christchurch.  Phil Twyford says there are 5000 - yes 5000 commuters making this trip (10,000 trips), so it is $100 million for 500 commuters.  That comes to $200,000 per commuter, before any operating subsidies are considered.  In other words, the price of a Porsche 911 for each commuter.  Taking about 400 cars off of Christchurch's roads every morning isn't going to "unclog" them,  it hardly makes a difference, even if it did happen.

- However, what it might do is encourage more people to live further away from the surrounding suburbs closer to the city, because it subsidises living well outside Christchurch.  That's hardly conducive to reducing congestion, nor environmentally sustainable.  It would be far more preferable to focus on finishing renewing the local road network including marking out cycle lanes, than to incentivise living well out of the city.

- A commuter rail service to central Christchurch can't even go there, as the station is 4km from Cathedral Square, in Addington.

- The $100 million is to double track the line to Rangiora, and rebuild some railways stations, but not a new central station (which can't be anymore "central" than the old one on Moorhouse Avenue), nor new trains, although the ex. Auckland ones could be relocated, if a depot could be built, and sidings to put them on were rebuilt as well.

- The rail service would replace commercially viable and some subsidised bus services, but politicians don't find buses sexy.

- The service would lose money, a 1000 trip a day railway service is a joke.  Proper commuter trains in major cities carry that number on one train.  

- If there really is demand for more public transport from the northern suburbs, it could come from commercial bus services.  Clearways could be used for bus lanes and the hard shoulder of the existing and future extended Northern Motorway could be used for peak bus lanes too, if needed.  Trains only make sense if buses are incapable of handling the volumes of demand, and that clearly isn't the case.

- Christchurch was the first major city in NZ to scrap trams, because the grid pattern street network and low density of the city meant there were few major transport corridors to support high density public transport systems, like trams (and commuter rail).  It was also the first of the big four cities to scrap commuter rail altogether (even Dunedin had commuter rail services until 1982 to Mosgiel).   In short, the geography of Christchurch is as poorly suited to commuter rail as it is well suited to cycling.

So when David Cunliffe says "The long delayed recovery of Christchurch hinges on a modern commuter system for the city"  you have to wonder what he's been smoking.

  

Really David? Really?? Not entrepreneurs investing in businesses creating jobs, and so attracting people who want to live there?  

No, David Cunliffe wants a toy, something he can point to and say "I did that", with money taken from motorists (as he wants to divert money collected from motoring taxes from roads to this pet project).  He has no real interest in reviving Christchurch by letting business do business, but to spend up on shiny projects that polish his ego - at your expense.

UPDATE: and the Green Party idea of creating a new bureaucracy called Canterbury Transport is equally ludicrous, because there isn't a governance problem.  Christchurch City Council is responsible for all roads except the State Highways, in the city (and no central government would rightfully surrender national corridors to local politics). It isn't broken up into multiple districts or cities like Auckland was.  Environment Canterbury, like all regional councils, is responsible for contracting subsidised public transport across the region, and planning urban public transport services.  Again, there is no division here.  It's far from clear what such an entity would do that is different from this.

Unless,. of course, you hark back to the "good old days" of council owned bus companies having monopolies and getting endless ratepayer subsidies. A model that saw the near continuous decline in urban bus patronage across NZ for 30 years.  You see at the moment bus services in Christchurch are operated mostly by two companies, one owned by Christchurch City Council, another by a private firm.  They typically compete for contracts for subsidised services, helping keep costs down and providing a check on performance.  The Greens are awfully fond of state owned monopolies, because you can trust politicians and public servants to be incentivised to look after customers and taxpayers' money far better than the private sector competing for both, can't you?

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.

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.