15 September 2008

Rail buyback ended years of stalemate

The Labour-led government’s buyback of New Zealand’s rail system ended years of stalemate that prevented the modernisation of the network, papers released by Finance Minister Michael Cullen show.

The papers – from late 2006 through to the 1 July launch of KiwiRail – show that a huge range of valuations for Toll’s rail asset existed. They also show that the government was at one stage within hours of announcing the collapse of the negotiations.

“With rising fuel prices and growing awareness of the threat of climate change, the restoration of New Zealand’s rail system is now an economic necessity,” Dr Cullen said.

“After 15 years of failed private ownership, New Zealand rail is now back in New Zealand hands. KiwiRail is going to be a huge success for our economy.

“While the government came to hold an opinion that continued private ownership would result in the further deterioration of the rail system, we were simply not prepared to write a blank cheque to buy back the trains. I came within hours of announcing the collapse of the talks and the strict enforcement of the National Rail Access Agreement.

“A huge range of valuations existed. By ignoring some important factors – like Toll’s monopoly operating right – it was possible to argue that the rail system was worth less than what Toll paid for it.

“Toll believed, however, it was worth over $1 billion. As the government had to take national interest factors into account and as the existing owners of the track itself, we were always going to have to pay more than commercial rail operators who did not have an interest in keeping services open.

“In the end roughly half of the price the Crown paid was to buy Toll out of its long term monopoly right.

“We paid a reasonable and fair price. Having KiwiRail in Kiwi hands will allow us to protect rail services for provincial economies, move more freight off roads and onto tracks, and help make our economy a truly sustainable one.

“The government expects to make major announcements about funding for KiwiRail in the weeks ahead.”

A number of documents relating to the purchase are available on the Treasury website at www.treasury.govt.nz/publications/informationreleases/rail/purchase

ENDS

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