Heriot-Edievale.Com (Trading as Heriot-Edievale Limited)
The Transport / Rail Blog
The Transport / Rail Blog
|Posted on August 17, 2020 at 12:05 AM||comments (4251)|
After an absence of a few years the Heriot-Edievale advisory/consultancy business has been re-established.
Heriot-Edievale Limited was Incorporated by The New Zealand Companies Office Register on 17 August 2020. The business provides advisory and consultancy services to various parties in the Public Transport, Rail and Freight sectors in New Zealand as well as internationally.
We have also started to build relationships with overseas experts who we can bring into our service offering as required.
Please look out for further updates, and the occasional blog, on this website. In particular, also look out for new documents and papers on the New Zealand Rail sector that will from time to time be posted on our Resources and Reports page.
Heriot-Edievale Limited was founded by Michael van Drogenbroek, Director. Michael has vast experience in Public Transport, Rail, Aviation and Freight transport together with experience in delivering various transport projects in diverse international locations such as Abu Dhabi (United Arab Emirates - UAE), Melbourne and Brisbane (Australia) as well as across New Zealand.
|Posted on August 29, 2016 at 9:04 AM||comments (2088)|
As the press release below indicates, Kiwi Rail met its SCI targets by and large for 2016 and it is good that they have a realistic but tough plan in place to achieve their objectives despite the many challenges the business continues to face.
The full Kiwi Raill 2016 Annual Report will be posted here in due course when available which is likely in October 2016.
The press release follows.
Momentum continues in reshaping the business to deliver for NZ
26 August 2016
Chairman John Spencer today announced a strong financial and operational result for KiwiRail for the year ended 30 June 2016, despite difficult market conditions.
“Bulk milk and coal revenues were down by $18m this year due to market demand and weather conditions. It’s been a year of significant change for the company as we’ve focused on reshaping the business and reducing future reliance on government funding. Excluding restructuring costs, KiwiRail achieved an operating surplus of $86m, and delivered on its budgeted commitment to the shareholder.”
Mr Spencer also reflected on areas where the company is experiencing strong market growth. “We’ve achieved continued growth in the import/export freight sector of 11%. The tourism market was also strong, resulting in 10% growth in our Interislander and Scenic Journeys passenger services.”
Chief Executive Peter Reidy reinforced the company’s focus on delivering on financial, operational and safety targets. “The Board and management are fully committed to lifting the company’s performance. Over the year we have made considerable progress delivering our strategy of simplifying our business, standardising our assets and investing in our people. We delivered $27m savings from productivity initiatives over the last year, reflecting the strong commitment across the organisation to implementing the changes that are required to achieve better results for our customers and shareholders.”
The safety of staff, contractors and the public continues to be paramount for the company, with the continued focus on a zero harm environment delivering a 33% reduction in the injury frequency rate over the last 12 months.
Kiwi Rail has also made real in-roads into the development of its High Performance High Engagement strategy with employees. “We are fully committed to working together with our union partners to lift the company’s performance for our customers.”
s exports and work closely with our customers to help them drive competitiveness in their markets. During the year, ”
Working alongside NZTA, KiwiRail is focused on improving land transport resilience and optimising road and rail corridor planning and investment. Mr Reidy highlighted that “both agencies are now working together to take a connected approach to planning and development in order to maximise the efficient movement of freight and optimise the value of public investment in the land transport system in NZ.”
Kiwi Rail has also released its most recent environmental impact figures, saying the freight carried by rail in the year represented a reduced heavy vehicle impact of 1.1 million trips and a reduced impact of 208,000 tonnes of CO2 emissions and reduced fuel impact of 77 million litres for NZ.
Chairman John Spencer reflected on a positive year for the company, “The multi-year transformation we embarked on is already delivering benefits for New Zealand. I would like to thank our customers, stakeholders and staff for their ongoing commitment in demonstrating the value of rail for New Zealand.”
Operating surplus represents earnings before depreciation & amortisation, interest, impairment, capital grants and fair value changes. The reported operating surplus (including significant items) for the period is $76m.
|Posted on February 29, 2016 at 6:37 AM||comments (777)|
KiwiRail remains upbeat despite the many challenges it is facing.
There are some real positives in this result that signal the sterling steps KiwiRail are taking to get the business more commercially in shape. Tranz Scenic and Interislander are doing better. Great!!
Restructuring the operating business to increase its efficiency is ongoing - Good.
The increase in Rail Inland Port Hubs traffic is also a paradigm shift that is growing more in importance. This is great also and seems to be area of value bringing back greater relevance of Rail in New Zealands vital Supply Chains to international markets. Fonterra over a decade ago really started this one rolling at their Frankton Crawford Road hub north of Hamliton.
Good on them is all I can say. It is a tough business with many tough calls to make that many outside those working in the industry, or that follow it closely, simply do not understand. I have to say though there is at last a growing understanding amongst the followers of Rail in New Zealand of this reality so obviously KiwiRail are also doing a better job at their communications in this regard.
This is never easy as there is a emotional attachment by many to the Rail business.
But the business must survive for the benefit of New Zealand as a whole and if it is to, people need to look at the commercial realities it faces. The only thing that I would like KiwiRail to do more is to continue to be transparent in its communications as to why it has to make these tough calls - it is as I said doing better at this though.
The press release on the recent six month results follows below:
KiwiRail announces half-year result as environmental benefits accrue
29 February 2016
KiwiRail today announced an operating surplusof $27m for the six months ended 31 December 2015 compared to $35m achieved in the same period the previous year.
The result included significant items totaling $6m relating primarily to restructuring costs. The underlying operating surplus was $33m, only slightly below the equivalent period last year.
The company also released its most recent environmental impact figures, saying the freight carried by rail in the six months to 31 December represented a reduced heavy vehicle impact of 545,000 trips and an additional 106,000 tonnes of CO emissions had it been carried on New Zealand’s roads.
Chairman John Spencer said KiwiRail’s Board, Executive and staff were focused on service reliability, productivity improvements and strategies to lift the company’s performance.
“These strategies include standardising our assets, investing in our people and simplifying our business. I can see a real commitment in the company to implementing the changes that are required to achieve better results for our customers, and for our shareholders.”
Chief Executive Peter Reidy says the company is also focused on its long term growth strategy in shaping inland intermodal freight hubs which will enable KiwiRail to aggregate export freight to these sites and distribute to ports via road and rail. Inland port rail-enabled hubs are developing across NZ (Rolleston, Whanganui, Longburn, Horitui) and are examples of strong strategic relationships with Ports and customers. This is also reflected in the strong performance of the import/export market with revenue up $4m.
In addition to this growth strategy, Peter Reidy said KiwiRail was focused on productivity initiatives. This included staff reductions of 200 in the first six months of this financial year, and fuel saving initiatives. The reductions were among a range of necessary decisions that would in the longer term save $20 - $30m each year.
“Another important focus for us is the safety of our staff, contractors and public. We are therefore pleased with an improvement of 26 per cent in our Total Recordable Injury Frequency Rate,” Mr Reidy says.
“While we are making good progress in many areas, revenues were down by $20m in the first half of the financial year due to challenging market and weather conditions for two of our bulk freight commodities – coal and milk. This was partially offset by strong passenger growth in Interislander and Scenic Journeys (6 per cent and 8 per cent respectively) and productivity initiatives noted above.
“We are working hard on re-shaping the business to enable us to deliver on our financial and sustainability targets. This will enable us to grow intermodal freight strategies with our customers and New Zealand Transport Agency to bring integrated transport benefits to enable export and tourism growth for New Zealand.”
Mr Spencer said KiwiRail expects its underlying full-year results to be within the forecast range.
 Net operating surplus represents earnings before depreciation, amortisation and impairment.
|Posted on February 29, 2016 at 6:01 AM||comments (584)|
Despite aparrent denials in some quarters, it seems almost certain that the railway line north of Kauri, (north of Whangarei where a Dairy factory is), to Otiria in the far North of New Zealand will likely close from September 2016.
In recent years we have seen so many line closures that on a route kilometre basis we have not seen since the 1960's. These include the SOL line, the Napier to Gisborne Line, the Dargaville Branch and now likely the line to Otiria. Sad but perhaps a sign of the times as the network rationalises itself to modern realities.
As stated recently in this Blog Solid Energy's woes could see more line closures soon. Already the short Kimihia branch for coal north of Huntly has closed.
A leak from KiwiRail as detailed in the below news story seems to confirm the inevitiable.
KiwiRail will not be renewing its contract for log haulage with Marusumi. The line has been loss making for years and commercially this is the right choice - strategically now thats a entirely different matter but mothballing the route would be a good idea for now.
In any case substantial expenditure would be required on the line were it to be upgraded to modern standards.
Perhaps a nice new cycle way might be in the offing.
The story below explains it all:
Trains north of Whangarei will come to a halt later this year.
Newshub has exclusively obtained leaked documents which show the rail line from Kauri to Otiria will no longer be in use come September. Kiwirail has not renewed the contract with the sole operator of the line, Marusumi -- but Transport Minister Simon Bridges says there is no plan to close the line.
"No intention to shut lines that are operating at the current time," he said.
He also said that last year. On October 20 last year Mr Bridges was asked by Winston Peters whether there was any plan to close the rail line, and he said no. But documents show that just seven days later, on October 27, Kiwirail was talking about axing the contract with Marusumi -- rendering the track useless. An email dated 27 October 2015 says:
"Our contract with MWC (Marasumi Whangarei Co.) expires 31 Aug next year and will not be renewed".
Another sent on February 17 2016 gives reasoning, saying "our contract with Marasumi finishes 31 August and has not been renewed with life expired wagons and poor commercial return to justify reinvestment".
That means that while the line won't officially close, no trains will use it.
Newshub showed Minister of Transport, Mr Bridges, the documents -- but he says he had no idea.
"I'm not aware of exactly what the nature of any internal discussions may or may not be within KiwiRail," he said.
But Northland MP Winston Peters is accusing Mr Bridges of lying, saying he was in the know about the lines future.
"When you say something that's not true like that, you've got to be accountable as a minister and so he should resign," he said.
Currently there are just two trains a day travelling on the line, transporting logs down the country to Whangarei. Without them 150 logging trucks per day will need to be on the road. Northland's roads are already packed with trucks, and they're not in the best shape.
"The National Party comes up here and talks about a brighter future and its massive 58-point plan -- and right under their nose, they're shutting down the key infrastructural investment."
Alan Preston from Save our Rail Northland says the move is a huge loss to Northland's infrastructure.
Read more and see the video link on this story at www.newshub.co.nz at the link below:
Earthquakes, Coal Mine Disasters and World Coal Demand Hits New Zealand South Island West Coast Railway Hard - Might It Close?
|Posted on February 14, 2016 at 10:36 AM||comments (1753)|
The New Zealand South Island West Coast railway network viability is under real threat now.
Solid Energy's serious woes continue. They are currently in Voluntary Administration and have now confirmed that closing the Stockton Coal Mine at Ngakawau north of Westport on the South Islands West Coast is a real possibility. This is the source of most of the railable West Coast coal to Lyttelton that is exported to world markets.
They are of course trying to find buyers for this mine as a Going Concern. I hope they do.
Rail transport of coal will form a big part of any bidders analysis on any possible purchase of the mine. Coal prices however remain very depressed and it is unclear for how long the situation will stay that way.
Of course the Rail link north of Stillwater through Reefton and Westport to Ngakawau would most likely close, or in modern day terms be "mothballed", should a buyer not be found and the mine closed.
Once, not so very long ago, the West Coast rail route was very busy with :
I thought of this network, as most did, as one of the potentially best pieces of rail business in the country. Alas how things change.
But then came:
The only upside is that Westland Dairy has continued to grow although elements of that (like inbound Milk) may be under a threat too.
"It Never Rains But It Pours" if you pardon the pun, on the New Zealand West Coast.
Tourism is a upside for the Coast but then another Christchurch Earthquake on February 14, 2016 could dent confidence once again on the Tranz Alpine just as it was getting it's Mojo back with bigger trains being run. This could not have happened at a worse time right in its 2016 peak season. What a terrible shame!
Recent announcements in February 2016 suggest however that the Tranz Alpine revenue is now back at pre Earthquake levels. This must be on the back of better yeilds rather than passenger loadings though. Actually this is a good outcome and shows better management of the business possibly - but please no more big Earthquakes!
Overall though, this story is really quite sad and it seems we are back in the days of the late 1980's again when the whole West Coast Rail link (including the Midland Line) was under threat of closure.
Senior Officials at Kiwi Rail, quoted from various sources, recently said that only the line to Ngakawau ex Stillwater is under potential threat. But is this really true in the current climate?
Luckily Dairy ex Hokitika's Westland Dairy plant is still strong and has been growing in recent years but is it, with the TranzAlpine, enough to sutain the route? Certainly the line north of Stillwater will go if the Stockton mine closes.
The West Coast often has been boom or bust in its history and now is a time of some bust and I must say todays Earthquake in Christchurch hasn't helped. I am watching developments with great interest. They really do need some luck.
Poor old Kiwi Rail really is getting hammered but as a former colleague said to me once :
"It's Old New Zealand Wearing Out"
Yes the railway has to reinvent itself.
Worst case scenario (same may say best) could see a Taieri Gorge Railway type slow speed passenger line operated privately from beyond Darfield to Arthurs Pass only for the Tranz Alpine and the rest turned into a cycle trail. The parallels to the Otago Central Branch Railway (OCB) are quite scary right down to the Dairy sites on the Canterbury Plains like that Fonterra storage facility on the Taieri Plain near Dunedin on the first section of the old OCB. This would see the first section of the Midland Line to Darfield continue to operate commercially. Of course the TranzAlpine would run from Christchurch to Arthurs Pass and return partially on the Kiwi Rail tracks to Darfield just like the Taieri Gorge train does to East Taieri. But the costs would be likely much higher than the OCB to Middlemarch operation albeit the revenue would be higher if only those Earthquakes would stop.
Beyond Arthurs Pass would likely not stay as a operating railway because of the huge costs of the Otira Tunnel and with rugged difficult West Coast terrain beyond.
I sure hope something positive happens - a financial analysis of the current situation would be interesting and no doubt someone in KiwiRail is on to that right now.
Read the following press clippings for further insight into these developments:
Solid Energy has decision "pending" on whether to close Stockton
(From Stuff.co.nz website)
Solid Energy is reviewing whether the Stockton Mine on the West Coast should be closed, and has hinted a decision will be be made soon.
The state-owned company, which has entered voluntary administration in a bid to minimise loses to creditors, is undergoing a complete sale of its assets across New Zealand.
Chairman Andy Coupe told MPs that Solid Energy could give an update on the sales process around the middle of the year, and would have a good idea of what would be sold before the end of 2016.
Solid Energy chief executive Dan Clifford said the company will continue to review whether mines can be sold and if not, they face closure.
However, the company appeared to hint that a decision on the future of the Stockton Mine, the largest opencast mine in New Zealand, could be closed.
A decision would not be made "tomorrow", Coupe said, but would come "well before June".
"What the workers have been told is that the mine is losing money. All sorts of figures have been bandied around about the costs being greater than the coal price. We've been told a decision will be made by June or July about whether it will be closed if a buyer is not found," he said.
The 140 union members were well aware closure was possible by the end of the year.
"It doesn't make it any easier and it makes them feel insecure, but should it come down to that redundancy compensation has been secured with the administrator," he said.
Chief executive Dan Clifford said the company had removed about 40 per cent of the operation plant from the mine, north of Westport, in recent weeks. Asked whether the mine could be closed, Clifford said employees were aware it was a matter being considered.
"We're continuing to assess that [closure] now. We've made it clear to employees that we have a decision pending on that."
While the company was preparing an information memorandum on its mines and would soon hold site visits for possible buyers, the viability of mines would continue to be under review.
"We will continue to assess our assets for profitability. We will continue, irrespective of where we're going we'll continue to do that. We have an obligation," Clifford told reporters after a select committee appearance in Parliament.
"If that means shedding equipment or closing down non-profitable mines, we will do that."
Despite reducing costs, Stockton was still reporting "slight" losses.
While the company was expecting interest in its mining assets because of the unique quality of the coal, Coupe said it was realistic.
"We're not expecting to be knocked over in a rush" by buyers, he said.
"There are assets for sale all over the world."
Solid Energy's assets had interesting elements to them but they were "very small in the scheme of things".
Coupe earlier told MPs that redundancies were "inevitable" and staff appeared to appreciate this. Although head office staff had been reduced from one in five employees to one in 10, it was likely that following the sales process there would be further head office loses.
Current employee numbers were about 450, including full time equivalent contractors, down around 1000 on four years ago.
Buller mayor Garry Howard said he had a meeting with Solid Energy representatives this week for an update on the sale process.
"My understanding is that closure is a last resort. Sale as a going concern is far more preferable and better for the market," he said.
There had been international and domestic interest in the mine, he said.
"People have visited Westport to view the mine. I hope that the information memorandum is completed as soon as possible to allow buyer interest to come to fruition. I remain hopeful it will be sold. I've got alot of confidence that the mine will attract interest," he said.
The prospect of closure was hanging over the community, which had already suffered hundreds of job losses since the slump in coal prices.
"Solid Energy is being realistic with a depressed coal market. There is a considerable level of anxiety among the workers and that won't change until the process goes through its course."
And Kiwi Rail Lays Up Rail Wagons from Radio New Zealand News on 3 February 2016.
Kiwi Rail Revenue Hit By Lower Coal Volumes
Kiwi Rail has given details of how much the collapse of state coal mining company Solid Energy has cost it.
Solid Energy went into voluntary administration last year after accumulating unpayable debts of $400 million.KiwiRail transports the bulk of the company's coal.
Kiwi Rail chief executive Peter Reidy told Parliament's transport and industrial relations select committee that Solid Energy's failure has hit his company hard.
He said 64 percent of its revenue comes from carrying bulk materials like coal, which has slipped in two years from being a $50 million-a-year business for KiwiRail to a $23m business.Mr Reidy said many coal wagons were lying empty on unused tracks.
And sadly it's not over yet!! We will keep you posted.
|Posted on February 7, 2016 at 7:11 AM||comments (516)|
In a move not entirely unexpected Kiwi Rail has "announced" to a Parliamentary Select Committee, and as reported by News Talk ZB (See below news item from them), that it is and has been, down sizing its Business and reducing head count overall by 800 people from 4,200 to 3,400.
Many of these jobs have already gone (about 200 or so) as the 4,200 staff number quoted was the headcount some time ago. The reporting of these numbers is therefore a little loose and alarmist and not quite the true picture.
To be clear about another 300 or so of this is due to the fact that Kiwi Rail lost the Wellington Metro operating contract and these employees will transfer to the new successful bidder of this operation - Transdev. It seems the real further redundancies to come is closer to about 300.
Of more note is the frank admission that they intend to get out of rail ferries all together and move to road only ferries - this is not unexpected either.
Next of the list will be the decommissioning of the NIMT electrification. Then may be further line abandonments.
Make no mistake the cuts will keep coming as I have said now for over 4 years on this Blog. See my summary of blog posts below:
It does bring me no joy, of course, to see my opinions and predictions as expressed in 2012 come to eventual fruition but :
"The Economics of Rail in New Zealand are the Economics of Rail in New Zealand" as a senior Treasury official once told me.
And as someone said to me once:
"You can't choose who or what you fall in Love with - it is the way it is" -
And so it is for many, including me, with the dear old New Zealand Railways - but the loss and pain of what has happened and is happening to it is so real to many of us and just plain sad!
But all is not lost - at least Metro Rail investment is really going ahead in New Zealand!
News article as reported by News Talk ZB
Kiwi Rail Announces Job Cuts
Kiwi Rail's making it clear Government subsidies are set to be a permanent part of its business model.
The state owned operator currently runs at an annual loss on its books - an issue that's been the focus of questions at a parliamentary hearing today.
Kiwi Rail's chairman, John Spencer, says the commercial review they undertook revealed every configuration of running a rail network required an ongoing level of Government investment.
"Simply put, there is not enough demand for rail in NZ to generate the revenue to allow the company to be fully self sufficient."
Kiwi Rail has also announced plans to shrink its workforce, indicating around 300 jobs will go in the future.
The plans have been outlined at a Parliamentary hearing this afternoon.
Chief executive Peter Reidy says two years ago they had 4,200 staff, this year they'll have 3,700, and they'll get down to 3,400.
He says they're reducing the cost base in their business because, if they're to help New Zealand reduce the cost of its supply chain, they need to be competitive.
Mr Reidy says there's a business imperative to get more efficient and KiwiRail's not always been as efficient as it could be.
The days of rail carriages carrying freight on KiwiRail's inter-island ferries are also set to be numbered.
The company's looking at the way it shifts its freight across the Cook Strait as it looks to find savings in its operational costs.
Mr Spencer says it's almost impossible to get a rail compatible ferry around the world now, so the company has to pay the cost of doing that.
He says because they're leasing ferries the biggest cost is when you hand the vessel back, as you have to put it back to what it was.
Mr Spencer says they're now working on the basis of not having any rail compatible ferries at all.
And from NZ First, who never seem to miss a beat on political comment full with rhectoric on New Zealand Rail, comes this:
3 FEBRUARY 2016
Kiwi Rail to Use Rubber Bridge to Replace Iron Bridge Across Cook Strait
In another more bizarre twist to the KiwiRail Cook Strait ferry shambles, the company is introducing risky rubber-tyred trailers to replace railway waggons on the Cook Strait run.
New Zealand First Leader and Northland MP Rt Hon Winston Peters says the Cook Strait ferries – with the exception of Aratere – can no longer carry rail freight. The Aratere cannot maintain an all-weather sailing schedule because of its multi-million dollar lengthening bungle.
“In a moment of inspiration, KiwiRail has now decided to load containers from railway waggons on to rubber-wheeled trailers then drive the trailers down a private roadway onto the Cook Strait Ferries.”
Mr Peters says this raises safety concerns on the ships. There are serious doubts whether the decks can cope with unstable rubber-tyred trailers carrying heavy weights which they are not designed for.
“For example, a set of tyres cannot spread a load on a deck like a set of rails.
“The move to eliminate rail on the ferries will require double handling and reconfiguration of the railway yards in Wellington and Picton,” says Mr Peters.
KiwRail confirmed yesterday that the days of carriages carrying rail freight on ferries are numbered.
“The future of KiwiRail is at risk because the state company went through a fire sale in the nineties, new owner asset stripping, share-value collapse, and the last Labour Government having to buy it back. Then followed years of gross mismanagement.
“Unfortunately the company kept a lot of top management from the previous owner Toll Holdings and continued making unsound commercial decisions on the Cook Strait service and elsewhere,” says Mr Peters.
“On Cook Strait a new ship would have been and will be, much cheaper in the long run.
“Railways predicament stems from the management not being up to the job and a litany of pathetic excuses for incompetence.
“When will successive National Ministers of Transport do something on rail to justify their portfolio?
“This rudderless, leaderless SOE is winding back regional services as a consequence.”
|Posted on July 13, 2015 at 2:27 PM||comments (573)|
Like a scene from the classic 1980's films "Back To The Future", or maybe even better an all time favourite of mine "Groundhog Day", as one Tranz Rail stock analyst once said, we all it seems, have been here before.
In many ways there is not a lot further I want to say on the matter that I haven't said before!
The New Zealand Government's Treasury recommendation of pretty much full closure of the Railfreight operation and Rail network in New Zealand is nothing new and I have been warning about this for the past three and half years on this blog for anyone that cares to have noticed.
I think more than anything it is simply time to repost my earlier blogs of February 2012 and the later ones in 2014 explaining my position.
One thing I am bit sick and tired of is the Rail support fraternity simply supporting Rail because they "Love" it. The Love of something you care deeply about is all well and good - I do too. Romance can bring a glow to the mind and so it does for many in regards to New Zealand Railways but don't let the starry eyes you have for New Zealand Railways fool you. Clearly anyone that follows this blog will know my undying love for New Zealand Railways but don't rely simply on that to save it by using unsubstantied "facts" that Rail is more efficient than trucking - research like I have done and put it under the microscope. I have made my views here clear on that many a time.
Look at the analysis and issues before you put your hand to key board uttering one liners that "Rail is the most efficient transport mode - the externalities are always better". As I have outlined Rail has been, is, and will likely always be a real challenge in New Zealand. God knows it is many other parts of the world too and in New Zealand it is especially challenging. I have little sympathy anymore for the whimiscal utterances that many make on this matter having spent 25 years working in the industry in New Zealand trying to make it viable and save it.
The political claptrap that is issued by certain politicians is even worse. Utterances about getting people in that know how to "Run Railways" sack the current Railways management. Where have these people been for the past 30 years? How many "sackings of Railway Management's and Boards" does it take?
People that know how to run railways - yeah right - Oh I forget - Road transport companies executives, Shipping companies executives, logistics companies executives, Engineering management company executives, courier company executives, overseas railways experts executives, New Zealand railways experts - the list goes on. Every single one of these types of management "teams or types" has been tried in New Zealand and here we all are still in the same place looking for that Nirvana management team - Go figure please. What about history never repeating itself. I think I will now go play my favourite Split Enz song "History Never Repeats" - I tell myself before I go to sleep. Or maybe it is "Groundhog Day" after all - he did get the girl in the end you know!
Oh New Zealand Railways how I Love You!
Oh and before I forget - Those that say Fay Richwhite or privatisation of New Zealand Railways in the 1990's caused these problems. Utter rubbish they did not - you are wrong and I can prove it.
Treasury had the same advice in 1989 to close Railways in New Zealand down. Privitisation of Rail as lead by the managment team of Dr Francis Small with Wisconsin Central and Fay Richwite as shareholders, saved Railways in this country when no politician or anyone else seemed to care.
Funnily enough back in public ownership here we are again talking about closing it down. Go figure.
What happened after 2000 in private ownership was a issue between shareholders more than a railway issue. Sure capital expenditure was curtailed for three years from 2000 onwards but this did not destroy the railway - what happened would have happened anyway - surely anyone can see that now.
Someone simply has to pay the bills and for quite a few years when the Government didn't care it was the long suffering Tranz Rail shareholders. You should be grateful they did!
I rest my case - so here we are then - see my blogs below for my considered views on these matters.
One more thing I really did enjoy Richard Prebbles commentary in today's New Zealand Herald - he is right and by the way for those you that don't know - He did save Rail - yes I know you may not like it but he did, along with many others, but as in anything you save you don't save it for all eternity only until its next threat comes along and so it does.
Now my previous blogs on these matters.
The Transport Analyst: Posted on Saturday, 14 January 2012 3:54 p.m
Much has been written about the financial performance of Rail in New Zealand over the past few years but few seem to understand, at least from the writer’s perspective, the true economics, or dare I say it the bigger picture of Rail in the broader economy and in the socio / political environment. This post is about the former, the broader economic justification for Rail in the macro sense.
In reading the Productivity Commissions draft report on New Zealand “International Freight Transport Services”, released this week, it struck me that once again there was a challenge as to the wisdom of further major Rail investment in New Zealand. This is quite a widely held view of academic economists and ex Treasury officials in New Zealand and is a matter of the public record. It is also not surprising as one David Heatley has written much on Rail economics in New Zealand (see below) and he is also a key advisor to the Commission. David does seem to be trying to make a point somewhere here about Rail viability.
It may not be widely known by the Public but in 1988/89 the New Zealand Governments Treasury went as far as recommending the complete closure of the nations entire railway system. It was only the valiant efforts of the NZRC Board and Railways management at the time that saved the day for Rail in New Zealand. Together with a somewhat sympathetic Minister of Railways, by the name of Richard Prebble. Treasury maintained this view well into the 1990’s and off -loading this “liability” business played a big part in the decision to privatise Rail that was to follow a few short years later. Basically if we can’t close it lets sell it! I will write more about this history in due course and what lead to that view and conclusion but back to the present.
More recently a strong view is still held by certain interests that a wholesale closure of parts, or even all, of the current network is desirable. What is interesting is that this is a view held by otherwise broadly well informed, intelligent observers rather than the users of the Railway system, the public or the politicians.
Big companies like Fonterra, Solid Energy, the nations major export ports such as Port of Tauranga, freight forwarders such Mainfreight and Toll, the forestry industries are keen supporters of Rail and lobby the Government for investment in Rail assets and upgrades. What is it they see that the academic, research fellows and ex Treasury officials don’t seem to see? Is it just big business promoting its own self interest as some might say? That they see a way of getting cheap freight rates below economic costs at the cost of taxpayer investment? Thank you Mr Taxpayer! Or is it more about broader economic comparative advantage and lowering supply chain costs in order to make our supply chain to the worlds markets for our produce cheaper than our international competitors? So that in turn we export more produce overseas and therefore have a higher GDP for the good of the nation’s economic prosperity overall? The truth most likely is that it is a combination of these factors. It is good for their business’s growth but also a way of subsidising their transport costs through government intervention by public investment of taxpayers money in Rail. This in turn leads to a stronger export lead economy and a higher profit for those businesses and a better performing New Zealand overall from which we all benefit. In a pure efficient market this may sound like a nonsense, but other countries we compete against do it so we seem to be forced into a corner.
It seems Rail in its history has so often been wedged into this somewhat uncomfortable position itself as it is in many other parts of the world. New Zealand at large, it would seem, should generally benefit from these investments in Rail infrastructure much like it does in Roads. But many struggle to see the public good in Rail that they can easily see in Roads because Rail is more of a closed system not open to causal users like the Roads. Only the Rail operating company has access to the tracks. When it comes to Roads everyone seems to be a socialist as it enables us all to put our “snout in the trough”.
Surely we have got past the Road vs. Rail arguments in 2012. Where the more neo classical academic economists seem to struggle is the allocative efficiency of this “intervention” in the freight market by the Government and the investment of scare public funds in Rail. It is after all a more Keynesian approach and the Government trying to help pick winners. Pity for Coastal Shipping as they currently seem to, unfairly, miss out on any of these economic welfare transfer payments - except maybe the local body owned Ports. Welfare economics has always been a difficult area for these types of investments – it sees these “welfare transfer payments” to Rail as having lots of economic leakage and waste. But what is your choice? Is there a welfare gain or loss from the investment in Rail? Someone needs to do the “Gods work” on this. Certainly if we are just talking about the market for Railfreight you could say that over the last 30 years the private and public provision of this market for Railfreight services has failed for the Rail business, and its markets for that matter.
An interesting view on this failure is a report by Ross Clark, Rail Performance Manager for Transport, Scotland. Ross used to work in the Rail sector in New Zealand and is more qualified than most to form a view. His report makes a very interesting read. It can be found at the following links.
Another very interesting, insightful and well researched paper was released by David Heatley from ICSR. David's, now advising the Productivity Commission, paper was released in 2009 is titled “The History and future Of Rail in New Zealand” . It is hard to fault much of David’s analysis and it is generally a good piece of well researched work. It covers the history well, at least from an economic view. However it does get a few things wrong. For example the lines south of Christchurch are perhaps some of the best Rail in New Zealand outside the Golden Triangle of Auckland - Hamilton - Tauranga. Fonterra traffic has been exploding down there. It is very debatable if Fonterra would be as viable in the South Island in the way it is without the important rail transport links from the Edendale factory or even the Clandeboye (not directly rail served but served from the nearby Temuka Railhead). Then there are the freezing works for export meat at Mataura, Finegand etc, the forestry fibre plants, the coal from Nightcaps, the Gold Slurry to Palmerston to name a few major traffics. Also missing from his work is much commentary on the larger strategic reasons why Rail exists in New Zealand. But from a simple micro economic point of view on Rail in isolation his work is hard to fault. The facts are there. Read it and form your own views. The report can be found at the link below:
Another piece of work is by Luke Malpass from the Centre for Independent Studies. In his report titled ”KiwiRail: Doomed to Fail?” Luke made some interesting points also and his work has much in common with David’s. But I don't believe he fully appreciates the nature of the broader NZ Railways business well enough to draw the rather dire conclusions he does. He seems to start from the proposition that Rail is and always will be failure in New Zealand. He needs to talk to the customers of Rail and have another look at his work to form a more balanced view. To suggest as he does that much or even most of the network should be closed down and the land sold off would seem indeed to be act of national, if not broader economic, vandalism. However as stated some of what he says is accurate and again it is a welcome addition to the debate. As stated he does have some questions that need to be addressed and answered by the industry. His report can be found at the link below.
It is not the intention of this blog to criticise out of hand such reports but to critically examine them. As I have stated they have many valid points and in my view are a welcome addition to the debate to tease out once and for all these issues of Rail viability. I will have more to say on this in due course.
Some will say this debate shouldn’t happen – having a national Railways in New Zealand is a given. I don’t agree. Rail like everything in society should continually justify its existence particularly as the world is changing so fast. Debate is to be encouraged. There is still much confusion as to what the purpose of the general Rail network in New Zealand is and in my view this doubt places Rails future in peril.The Regional Councils by taking effective "ownership" and responsibility of the nations urban Rail assets, if not literally the rail itself and below infrastructure yet, have at least for now resolved that issue for urban Rail assets and investment. Kiwi Rail needs to get on with doing that with the rest of the national network. It is not just about commercial sustainability for it was the Network should have probably been closed in 1989 as Treasury suggested. There are much bigger issues at play and it will take some bravery on the part of Rail Stakeholders to finally admit this in due course. If you suggest otherwise you just need to look at the proposed write down of Kiwi Rail operating assets (non land) values from around $6 Billion to around $1 Billion. From a commercial view point that may make sense in a valuation sense as that is the value of the commercial asset base that the Rail “commercial business” can support via a simple commercial ROI calculation. But clearly the assets can’t be perpetuated at that written down value unless you go to a Pay as you go (PAY GO) approach for capital where all such expense is expensed to the P&L at time of purchase. This would instantly kill the commercial businesses profitability of the business in one hit. Goodness they are spending close to $400 million outside of Metro Rail capex a year and long range average capital is not that much lower than that for a viable network for above and below Rail assets if it to remain up to date in perpetual state. Are they going to have a several $Billion asset write off every few years in order to keep asset values at a level that can sustain a reasonable cost of capital economic return? This sure would be ammunition to close the business. We have been here before as David and Luke point out.
Much to date has been achieved by KiwiRail but make no mistake they need to do a lot more in selling their case for the current National network sustainability. To date they have largely been silent on what they contribute to New Zealand in the broader sense, outside the narrow commercial model purpose, to justify their existence and in particular the large investments of new public money in the business Turnaround. A new fairer way will need to be found to look at the Rail investment in New Zealand if it is to be sustained. A simple narrow commercial sustainability criteria for the national network is unlikely to be sufficient to sustain all of it. It would be simple if it were but life is hardly simple when it comes to Rail.
Our network traffic density in a country of under 5 Million people, with barely 15 Million tonnes of current railfreight with average haul length of around 300 km on offer, over 4000 km of network (track density average barely a 1 Milllion tonnes a kilometre!) through tough difficult terrain split by a rough Cook Strait is too low for commercial sustainability of any quality railway anywhere. Even doubling the tonnage would likely be too low by any sort of international comparison. Anway, how would they do that without drastically reducing freight rates to gain market share and be competitive? Freight rates need to rise on the back of better service propositions not lower in a race to the bottom.
However this doesn’t mean it should close for if it did, then surely most of our Road networks and towns across the nation should close also and the nation would ultimately be the poorer for it. The externalities need to be examined and are likely much broader than generally supposed when one looks at the broader GDP effects outlined above resulting from a more internationally competitive supply chain that goes with having a high capacity transport system such as Rail can and does provide. It goes without saying of course that Rail should be as effiicient as it can be. A lot of work remains to be done there and KiwI Rail are, commendably, getting on with that good work but much remains to be done.
The world is changing. Markets are changing. Supply chains are changing. Global warming is now. Peak Oil is close. New technology such as ultra-fast broadband is becoming widespread changing transport patterns. Trade and economic allegiances are changing. Transport technology is changing. It is not just about a narrow view of Commercial sustainability anymore. If it is, as stated the future is indeed rather bleak for our national Rail system. Moving towards that nirvana is right and good but in itself is unlikely to be enough to sustain it. It is as Trevor Hayward, former General Manager of NZ Railways, said back in 1979 a “Time for Change” in the way we look at our national Rail network.
And then my blog on the Productivity Commission
Productivity Commission Release Draft Report On International Freight Transport
The Transport Analyst: Posted on Thursday, 12 January 2012 9:25 p.m
The Productivity Commission today released its preliminary findings on the New Zealand International Freight Transport sector.
Key findings were in the area of Governance and ownership structure of the nation’s Ports. In particular there were findings around accountability structures and a suggestion that Port companies governance should be put under a type of SOE model format with less interference from Councils (more independent directors - no Councillers or Council officers) and independent external monitoring by an agency like COMU which does that for the Crown owned SOE's.
Submissions on the draft report close on 27 February 2012 with the final report due out on 1st April 2012.
This report is to be welcomed and we look forward to similar reports on the domestic transport sector in due course. This is foreshadowed to some extent as the following comments are made on Rail:
"The New Zealand Railways Corporation (trading as KiwiRail) is a state-owned enterprise. Governance and other arrangements are specified in both the State-Owned Enterprises Act 1986 and the New Zealand Railways Corporation Act 1981, which is a potential source of ambiguity and inefficiency. It would be preferable if KiwiRail’s governance arrangements were specified only in the State-Owned Enterprises Act.
KiwiRail is currently classified as a ‘multiple objective company’ whose financial expectations are moderated by public good delivery requirements. However, there is little transparency about exactly what public goods are being delivered and at what cost to the taxpayer. The State-Owned Enterprises Act contains provisions for SOEs to receive direct payments for non-commercial activities (s.7), and it would be preferable if these provisions were used to identify expectations delivery of public goods by KiwiRail and the costs incurred in their provision.
The transparency of KiwiRail’s longer-term investment plans is less than might be expected from an equivalent private company (at least one listed on a stock exchange). The public justification for the Government’s initial $250 million contribution towards KiwiRail’s $4.6 billion Turnaround Plan was very limited. This is unusual given the poor history of previous large capital injections into New Zealand railways. A full cost-benefit analysis, comparable to the ones produced for major road projects, would be a valuable contribution to the public debate."
“A full cost benefit analysis (ie, including all externalities) should be published for government investments in rail infrastructure, including further investment in the KiwiRail Turnaround Plan. These analyses should be directly comparable to those produced for major road projects.
Proposals for investment in road and rail should be subject to rigorous investment screening in a coordinated way, which enables the best projects to selected – be they road, rail, or a combination of the two. Without this level of transparency, the public cannot be confident that scarce resources are being allocated to the most beneficial projects."
The report has much more to say about Rail and Road. Here are some further extracts
"The Commission’s preliminary view is that it is not correct to argue that road freight is subsidised on account of its PAYGO method of funding, which does not explicitly charge users for past road infrastructure investment. It agrees with the Australian Productivity Commission’s response to similar concerns: Capital costs are fully recouped under a PAYGO approach. Under a pay-as-you-go approach… capital spending is recovered in the period in which it occurs. This means that users of roads, rather than road providers, effectively fund the investment. In principle, therefore PAYGO does not subsidise freight infrastructure users compared with an approach where users are charged an amount each year that covers asset depreciation and a return on capital. Australian Productivity Commission (2006), p.xxxii
Another argument put forward is that rail is subsidised by the government as it does not achieve an acceptable rate of return on the capital invested. This view is supported by Booz Allen Hamilton (2005b), who found that for 2001/2002 rail freight revenues were sufficient to cover operating costs (and track and rolling stock replacement), but insufficient to fund an adequate economic return on the total recoverable assets (including land and other infrastructure assets). The financial consulting firm Rockpoint also found that rail has generated an insufficient return on capital (Rockpoint, 2009). Section 8.2 provides information on the level of government subsidies to rail. The Commission has not undertaken the analysis needed to reach a conclusion on whether current and envisaged levels of rail subsidies are economically efficient, but it is concerned to see the investment of large amounts of public money without the presentation of a full business case.
The Commission therefore recommends (see Recommendation 9.1) that a full cost-benefit analysis should be produced for future government investments in rail infrastructure, including those in the KiwiRail Turnaround Plan. Such analysis would make the purposes and amounts of subsidies transparent and help inform public debate. A further concern raised in submissions is that prices charged do not fully reflect the external costs of different forms of freight transport. Such external costs include greenhouse gas emissions, other environmental impacts, congestion and accident costs. To the extent that these external costs are not incorporated into prices, they are implicit subsidies. For example, coastal shipping has the least greenhouse gas emissions and is the most energy-efficient mode per tonne kilometre, rail lies in the middle and road freight has the highest environmental impact.123 124 To the extent that New Zealand’s Emissions Trading Scheme does not fully incorporate the impact of greenhouse gas emissions then, this ordering implies a parallel set of subsidies with coastal shipping disadvantaged relative to road and rail, and rail disadvantaged relative to road.
Subsidies and the economics of coastal shipping and rail
If it turns out that public investment in KiwiRail has a large subsidy component and so does not earn an economic return, and coastal shipping has smaller environmental impacts than rail and particularly road, then the playing field is indeed tilted against coastal shipping. Despite freight charges for coastal shipping being lower than for rail and road (see Table 4.6), it attracts relatively low volumes of freight because of slow transit times, infrequent services and other features. However, on a more level playing field, coastal shipping (both domestic coastal and international operators) would have an even greater price advantage and could attract more custom. In turn this could make it economic for coastal shipping operators to offer more frequent services, which will reduce transit times and further boost custom. Without a good justification for the current pattern of subsidies, such a change might well improve the overall efficiency of domestic freight transport.
As mentioned, coastal shipping is suited to longer routes such as between Auckland and Christchurch. Yet this is just the route that the KiwiRail Turnaround Plan is targeting, including investment in expensive ferries that can carry rail wagons. This deployment of resources does not, on the face of it, seem efficient."
These comments are not at all surprising to me and are to be welcomed. Not because I necessarily agree with all the comments or their conclusions but because it is clear to me that Rail has still not sold its business case well enough yet to external parties such as the Productivity Commission. You would have to acknowledge Kiwi Rail has done a great job at selling their Business case to the current Government administration and Crown officials. They did afterall get the Government to sign off on a $4.3 Billion Turnaround Plan - a Herculean achievement by any account but that is still not enough. Life is tough. It must go further if Freight Rail is to survive and prosper in a sustainable way in this country otherwise we will back revisiting the Rails failures of the past in due course. Greater transparency will be required of all major transport participants, especially where Central or Local Government Investment occurs. This is doubly important given the importance of this sector to the economy. From Kiwi Rail's perspective if there is to be long term buy in by future Government’s on their commitment to the future of Freight Rail investment, the business will have to behave more like a Public listed company. This will enable public scrutiny with external analysis of its operational and financial performance. This would be very much welcomed as there are currently huge amounts of public money being pumped into Kiwi Rail for the benefit of their customers. How this benefits New Zealand more broadly needs to be clearly spelt out and hopefully would help secure Rails long term sustainable future despite the winds of political change from time to time. Currently there is much “chatter” that Rail is simply subsidising the freight costs of its key customers via Government capital investment.
NZTA too need similar scrutiny for "Roads of National Significance" (RONS) investments by the public although they are ahead of Kiwi Rail generally in Business case presentation due to decades of experience in that field.
The report can be found at the following link
The video presentation is at this link
And then my more recent blog below:
KiwiRail To Undertake Major Strategic Review Of Business
The Transport Analyst: Posted on Saturday, 7 June 2014 6:18 p.m.
Just four short years after the review that resulted in the KiwiRail Turnaround Plan being formulated in 2010, KiwiRail are to undertake another major Strategic Review of their business.
What? Another major Strategic Review. Surely not.
Well - I have to say I am not at all surprised by this and I believe it is well overdue. Whilst the Turanound Plan ("TAP") has not yet "failed" in the classic sense it has had some material execution issues that have resulted in below par financial performance for KiwiRail. KiwiRail for its part bravely acknowledges this.
Let's be frank here - KiwiRail has invested close to a Billion dollars in the TAP since 2014 with very mixed results. It seems the only reason not used for non financial performance against the plan are pestilence and famine and you could hardly say "famine" with the huge amount of Government money pumped in.
Yes, Earthquakes have had an effect, as have storms, floods, mining disasters (Pike River tonnage loss) and coal volumes collapsing but given the money invested in the freight business the results have been quite below what one would commercially expect. If you go back to the Tranz Rail (Youtube Link here) era, and the then business, had that amount of capital been invested in that business then goodness knows what could have achieved. Maybe a lot more than KiwiRail in its current form!
Whilst recognising the privatisation of the rail network did have some very resultant significant issues (mostly shareholder related) - generally what limited capital was pumped into the business was spent a lot more wisely and targeted at real commercial opportunities. Yes the infrastructure was run down under private ownership, and in part we are still paying the price for it, but overall the commercial business was run with a lot more flair, creativity and innovation than it is now and money was spent wiser. Like it or not the Tranz Rail era (especially the early years 1993-1999 was a period of significant innovation in the NZ Rail sector). We now seem to be paying the price of Government ownership with lack of commercial entrepreneurship and understanding from the owners.
Lets be frank again - the railway should not have been fully renationalised. Yes the Government should own and invest in the track (just like they do with the roads) - that's what Ontrack was for. Even the unions knew this to be true - their campaign was "Take Back the Track" - not the Operator. Of course they didn't object to it when the Government did take back the Rail Operations. The reality is the Government of the time couldn't swallow the private Operator running the business due to their political ideology more than what was right for the business. Maybe they could have been partial owners of the Operater business like in the Air New Zealand ownership model but still owned 100% of the track and network - that is one business model.
Look at the comments at the bottom of this blog from KiwiRail. You have to admire ;-) how they try to put a brave face on what the Government is telling them. Lets be honest though - The Government is "hacked off" with the KiwRail investment. They just haven't returned the financial results expected of them and without major change to the way they look at the business model they likely never will - and I mean never. This is not necessarily the individuals fault running the business - let's be fair there - but it is the buisness model and probably the ownership structure. I have said this before - see blog here. Look at the below news report as reported by TV3.
Transport Minister Gerry Brownlee has launched into KiwiRail, saying the state-owned company is "fundamentally dead" despite the Government pouring more than a billion dollars into it.
"There's no doubt the previous government bought an absolute lemon when they bought back KiwiRail," he told Parliament today.
"There's no question about that. This Government has poured over a billion dollars into a recapitalisation programme trying to make the thing work. Sometimes it's hard to kick life into something that's fundamentally dead." Mr Brownlee was facing questions from NZ First leader Winston Peters over the problems KiwiRail is having with its Interisland ferries.
Mr Peters said the Aratere was stuck in dry dock in Singapore and its replacement, the Stena Alegra, was out of action after crashing into a wharf on Tuesday.He reeled off a list of previous problems with the ferries, and asked Mr Brownlee whether he still had confidence in KiwiRail's management.
Mr Brownlee said the company's management was "dealing with recent incidents affecting the Aratere and the Stena Alegra appropriately".Mr Peters asked him whether "anything short of a sinking" would cause him to lose confidence in KiwiRail's management, and it was at that point Mr Brownlee ripped into KiwiRail.
He said Mr Peters, who was part of the previous Government, had supported the decision to buy the company back
Having a look at the main routes - Right now the following lines are most likely uneconomic :
Other problem lines include the historic poor returns from Solid Energy or the "Coal Route" from the West Coast. Sure they have enough tonnage but do they get enough revenue yield per tonne to cover their total operating and ongoing capital costs. This line should commercially work very well with the West Coast export coal, Westland Dairy tonnage, the Gold Slurry and the world famous Tranz Alpine passenger train. If it doesn't commercially work then that is surely a issue the way the business (or business model) is run or setup.
The route to/from the Taranaki is probably also sustainable providing Fontera underwrite them (and stick with them) and they probably should. Is the central NIMT commercially viable? Well it might be if Fontera keep volumes on there from the Taranaki. What goes from Hawera to New Plymouth now? Not much I suspect as it all seems to head down to Marton and the NIMT or Napier. The recent National Freight Demand Study shows traffic on this line has increased a lot in recent years with changes in shipping patterns for dairy exports.
As stated above the whole NIMT and MNL (Picton to Christchurch) needs very close analysis to see if Interisland Rail is viable in its current form (including rail decked ferries) and whether the cross use of the NIMT with ex Taranaki tonnage for Fontera is also commercially viable and not vulnerable to the whim of future Fontera port changes.
My gut feeling is the NIMT could possibly be viable within itself but can it do so without South Island bound traffic? This needs very close analysis and I will be looking for that in the report when it comes out. I think that as a National Strategic call the route should be maintained but the Government needs to recognise this and simply look after it once it done its own economic report if it supports that conclusion. For the long term good of the business these questions must be answered. Afterall is KiwiRail a full national network business long term or a collection of lines with traffic flows from hinterlands to ports that happen (almost accidentally) fall into a network shape.
The line to Napier seems to have been given a boost due to changes in Fontera export dairy flows ex Taranaki and Winstone Pulp in the central North Island to Napier port flows that used to go to Wellington port. But are these companies simply using the rail option here as a bolster to their own returns and trade off the ports or shipping lines against each other at the expense of fundamental rail commercial viability. Is the rail business getting a adequate return on these changes in traffic flows? Again I await to see the answer.
Probably what is commercially viable currently is the Golden Triangle/Waikato/BoP lines in the Tauranga / Hamilton / Auckland area. This includes Auckland - Hamilton, Coal lines, the Steel Mill line to Glenbrook, the Fonterra spurs, the Forestry lines to Kinleith and Kawerau and the ECMT itself to Tauranga. I also believe the Main South lines South of Christchurch to Invercargill and Bluff with Ohai line thrown in for good measure may be commercially viable especailly with all the primary produce eminating down there.
The metro rail passenger networks in both Auckland and Wellington don't come into this analysis as they are funded by Local and Central Government partnerships which seems to be, for now at least, a sustainable mechanism for their perpetual existence.
I hate to say but I think it is time to have another critical look at the David Heatly report from 2009 and even the Luke Malpass report from around the same time. They can be found at the links here:
These reports don't make happy reading for the rail fraternity and most wouldn't like to see their recommedations necessarily acted on but the issues they raise should be addressed to silence the critics. Rail is a stratgeic investment for the nation as much as it is a simple commercial one afterall but the economic case should be proven as much as it can be anyway. There will always be differing views on the broader economic returns for the railway - that is to be expected but lets get the information out there.
Don't get me wrong I would love to see the total National Rail network continue to its current extent but as stated above it needs to be understood what the benefits and costs truly are and accepted that not all of it may be commercially viable and that some may require broader strategic economic support or simply be run in a different business model. Other bits may have to be let go or at least "rail banked" for future potential development.
Have a read of the below blurb from KwiRail and make up your own mind where it's heading.
There is one thing for sure - KiwRail needs some serious help and it needs it soon or else the financial umbilical cord from the Government will be cut.
We are now four years into our turnaround plan and it is time to look to the future.
We’ve achieved a lot in those four years. We’ve made major investments in rolling stock and infrastructure. We’ve consolidated and improved the network. Changed the way we do business. Independent reviews have endorsed our approach and we’ve strengthened customer confidence and engagement. We’ve grown the business but we’ve also suffered some serious setbacks. In the last 18 months,
This has impacted on our performance and slowed our progress towards achieving financial sustainability. That inevitably influences the perceptions of our shareholder. It is logical and reasonable for the Government to question the utility and future viability of its investment in KiwiRail. Equally, it is dependent on us to answer those questions and build a compelling case for rail. To do that convincingly, we need to build a long-term view of the wider benefits rail will bring to NZ Inc.
That is what Project 2045 is about — it’s about building a 30 year view of the company. To do that, we’ve established a dedicated team with representatives drawn from all parts of the business. The team is led by independent consultant Simon Aimer who will serve as Strategic Director. We’ll also be engaging with some key external agencies. Treasury has seconded a senior analyst, Ant Shaw, to the project and he is already working with the team in Wellington. We are building a positive and constructive partnership with Treasury and this promises much for the future of Project 2045. We will also be working with other important agencies including the New Zealand Transport Agency and the Ministry of Transport. To re-test our case, we’ll need to map projected freight demand by sector, customer and service. We’ll need to understand performance by corridor and train service and demonstrate how this is complemented by our Interislander and Passenger services and the function of a well-managed property portfolio. Freight volumes are expected to double over the next 20-30 years. We need to outline strategies that will show how we plan to capture that future growth. To do this we’ll have to consult with our customers and draw on the support of independent data such as that provided by the recently completed National Freight Demand Study. On that basis, we can then confirm train plans and rolling stock investments.
We’ll also need to look at all modal options and assess the risks our business may face. Port developments, changes in coastal shipping, industry relocations, the introduction of trucks with vastly increased capacity and the development of new transport hubs, all have the potential to impact negatively on our business. We need to articulate how we will meet these challenges and still drive our business forward.
We plan to complete and deliver Project 2045 to our shareholder by September/ October this year. The project aims to provide the Government with greater confidence in the future security of our business and enable it to make informed decisions about the future of rail. This will not only secure a sustainable future for KiwiRail, it will also enable us to make an increasingly important contribution to the future development of the national economy.
A final footnote commentary from Randal Prestidge from Target Railway Progress makes some great points -
"The 2014/15 Budget brought a double dose of good news for KiwiRail: $198M of new funding, plus the announcement of an inquiry into the KiwiRail business model. This is potential good news because it might signal a change to the hand-to-mouth nature of this support, which cannot be conducive to effective long-term planning.Some negative sentiments have been emanating from the beltway recently: from Treasury that “the [KiwiRail] business model is wrong”, and Mr Brownlee’s quip that “sometimes it’s hard to kick life into something [KiwiRail] that is fundamentally dead”. If he scrutinised the updated Freight Demand Study he would see that in the last 6 years rail has increased its market share and GTK, whereas road transport has shown a decline. So, for all its troubles rail is far from dead.But we feel his frustration. He has handed over more than the $750M requested by the Turnaround Plan. But more is needed, because both the Plan and the business model are wrong. Many of the benefits created by the existence of the freight rail system actually go to users and funders of the road network, but these good folk don’t get to contribute anything toward the resultant easing of road network congestion and maintenance and expansion costs. The ad hoc Crown funding that makes this all possible is actually a great national investment, but “the system” stigmatises it as a subsidy for a sunset industry.
Will the government inquiry come up with a mechanism for facilitating National Land Transport Fund investment in rail, in recognition that “more rail” actually works for the benefit of road users and can reduce their overall costs?"
And then my blog of last year on KiwiRails current difficulties:
KiwiRail's 2014 - A Difficult Operating & Trading Year
The Transport Analyst: Posted on Sunday, 31 August 2014 8:25 a.m.
Well Kiwi Rail have announced their 2014 annual result (seeRead Full Post »
Video Of The Month April 2015 - New Zealand National Film Unit - "Railways Of The Pacific Wonderland 1939"