Yes, we need to talk about KiwiRail, and recognise it for what it really is. It’s a quasi public service, in SOE drag. The problem with KiwiRail is not KiwiRail itself, but actually how we view it. We need a different perspective.
KiwiRail is an SOE, but only for want of a more appropriate entity form. In 2021, the government recognised this, and asked the Ministry of Transport to review its status. In the Terms of Reference, it stated:
“When considered from a combined above- and below-rail perspective, KiwiRail is not a viable commercial business as it generates only a portion of the cash required to fund its investment in above- and below-rail assets. The Crown’s willingness to meet the funding gap is due, in large part, to the Crown’s desire to purchase wider public benefits associated with rail, such as reduced road congestion and lower emissions.”
Unfortunately, the MoT review produced no change, confirming KiwiRail to be an SOE, despite this being an unsuitable entity form. This was not a good outcome, because it constrains KiwiRail from growing its business, and it leads observers to have inappropriate expectations, as evidenced by Dr Howell’s article. KiwiRail is a square peg in a round hole in this respect.
A look into KiwiRail’s accounts shows that the above-rail operations are usually profitable; it is the maintenance of the rail network, the below-rail operation, that is not profitable. This situation is the norm around the world. The only profitable railway networks are monopolies carrying bulk commodities, where competition with road transport is unrealistic. A good example is the Central Queensland Coal Network, operated by Aurizon. Other railway networks in Australia, owned and operated by State governments for general freight, are not profitable, and are not expected to be so.
Dr Howell asks, in relation to the catch-up investments for asset renewals that successive governments have made since 2009, “how long is too long?” Due mainly to privatisation, New Zealand’s railway was starved of capital for about 20 years (1990 to 2010 approximately). Consequently, much asset renewal was deferred. The problem with such deferral is that it is easy to do, but hard to catch up on. It takes many more years to recover from deferred asset renewals than the number of years of deferral, because of limitations in financing, resourcing, and getting access to otherwise operational tracks. For this reason, it will probably take another 20 years to complete the catch-up work, or longer if the current government continues to withhold funding.
Governments need to fund the construction and maintenance of both highways and railways for “NZ Inc” to function well. Therefore, the rail network should be seen as a national asset, complementary to the highway network. KiwiRail does the heavy lifting for “NZ Inc”, moving up to 18 million tonnes of freight per year, of exported and imported bulk coal, export logs and pulp, all of Fonterra’s exports, and other import/export containers.
Domestic freight is a relatively small proportion of KiwiRail’s traffic task. It is constrained in attracting more non-bulk freight because it is forced to play on an uneven playing field, due to the highway network not being structured as an SOE. The recovery from users, of the costs of providing and maintaining highways, is grossly inadequate, largely due to the political influence of the trucking industry.
Freight trains are much more labour-efficient and fuel-efficient than trucks, but the difference in the costs of access to the ‘way’ is a critical element that creates a serious distortion in the market. The government needs to adjust its land transport policy settings for KiwiRail to thrive.
HI folks. I have done something extraordinary. I have actually consulted someone who knows about this area and has written a book about it. {Probably not an economist, probably not a Treasurer acolyte, but give him his due. He has thought long and hard about this - and written a book. Why not buy it? I asked him to respond to my two questions. Here are his answers:
\
I’m responding to your comment of a few days ago, in Asymmetric Information, asking for “any comparative, international information” that will help with understanding KiwiRail’s situation.
In Australia, there are six government-owned rail organisations, in various entity forms. Five are vertically separated, i.e. the government provides the rail network for train operating companies to use, and Tasmanian Railways is vertically integrated, like KiwiRail. Two of these networks are operated for profit, and four are heavily subsidised to attract freight to rail, as a matter of policy. In all six cases, the governments fund asset renewals and development of their rail networks, to support their land transport policies. Benefits of freight-by-rail include not having to build all rural and regional roads to accommodate heavy road vehicles, to reduce traffic congestion in major cities especially around the ports, and the obvious environmental benefits that flow from the fuel efficiencies of rail versus trucking. That governments support their rail systems stems not from use of conventional economic theory, but are “whole-of-government” decisions made on the basis of “what is best for the state to thrive?”.
Comparison with Australia shows that successive New Zealand governments are not unusual and have not been imprudent in funding capital for both the rail network and the rail operations business. Dr Bronwyn Howell’s issue was that KiwiRail is not profitable as an SOE should be. Looked at another way, KiwiRail is not a sufficiently conventional business to fit into the SOE mould. In 2021, the government sought a better entity form, describing KiwiRail as “not a viable commercial business as it generates only a portion of the cash required to fund its investment in above- and below-rail assets.” [MoT Terms of Reference: a review of the entity form of KiwiRail Holdings Limited and the New Zealand Railways Corporation] The outcome was that funding of rail infrastructure will come from the NLTP, not from KiwiRail. Another entity form for KiwiRail was not proposed, but that does not make the SOE form any more suitable. KiwiRail shows, in its annual reports, the capital spending and the sources of funds for both the above-rail business and the rail network.
In my recent book “Off the Rails: the Privatisation of Freight Railways in Australia and New Zealand, and the Consequences” (available in NZ from Fishpond.co.nz), I tell why train operating companies can be profitable while railway networks are mostly not profitable. Also, why governments still choose to invest in rail network infrastructure, but not nearly enough to make rail competitive with road. It’s an intriguing story.
What we lack here - or, at least, I lack here - is any comparative, international information. It is pretty obvious from the drift of comments from Bronwyn and Dave that they think KiwiRail is (mostly) a dead duck. But what other countries of our ilk are able to maintain their non-urban rail systems without "government subsidies" (a terrible phrase I know!)? For example, how do Australia and Canada manage to maintain cross-country railway systems? Do they receive any form of public subsidy (disguised or otherwise)? Secondly, one of the problems for rail in the past is that they had not only to run above-track services profitably (and why not), but they had also to maintain and improve the track network. In the UK these two were separated out so that the privatised franchises were expected to operate profitably, but the network itself was maintained as an element of international infrastructure like, say, the motorway road network. Would drawing a distinction here help advance the discussion?
Dave/Bronwyn; you've smoked out the rail enthusiast again!
Forgive me for this long-winded comment, but I'm stuck at home with Covid in the house!
I suspect Bronwyn, a serious talk about the future of Kiwirail is going on in and around the Beehive right now. A Treasury suggestion that Kiwirail shutdown it's freight operations altogether (apart perhaps from the Auckland-Hamilton-Tauranga route) came up during the last term of the previous National lead government.
At that point English (who I think was PM at the time) and the then transport minister, Simon Bridges weren't prepared to go through with the move.
Possibly the Luxon/Brown duo are.
My guess is they're encountering resistance from NZ First, which championed rail freight last time it was in government, and was a big supporter of the Mega Raildeck ferry plan.
I suspect Bronwyn that your financial analysis of Kiwirail's freight service is correct; the company is not earning sufficient revenue to sustain the current network - without further help from the taxpayer.
Aspects of it are profitable; the Auckland-Hamilton-Tauranga route, and the branchlines linking into it (apart from the line to Northland) which service the dairy, steel and forestry industries.
Wellington-Palmerston North and Wellington-Masterton stay because of the revenue Kiwirail gets to run passenger services (perhaps the freight lines servicing Fonterra plants in Hawera and Pahiatua survive too).
In the South Island the line from Christchurch to Westcoast/Buller survives as long as we keep selling coking coal to Asian buyers, as does the line from Christchurch to Invercargill, because of the role it plays linking dairy factories with export ports.
But the North Island Main Trunk from Te Kuiti to Marton, the Hawkes Bay line, and the Christchurch Picton line (once we retire our last remaining rail deck ferry the Aratere) currently earn enough revenue to fund the expenditure needed to maintain them, let alone upgrade them.
I admit I am merely an armchair enthusiast, but I suspect the decline in Kiwirail's share of the freight market began with the Key/Joyce Government's decision to allow larger truck trailers onto our roads; greatly improving road transport productivity. Oh, that and some of the Rons didn't help rail either.
New Zealand's relatively small geographical size, and small industrial base, mean with a some exceptions, rail doesn't have sufficient economy of scale to compete with road.
If we were to plow investment into the rail system that enabled freight wagons to be heavier (we're way behind railways with the same gauge in Australia) rail might be able to win back traffic, but as Bronwyn points out, who's going to trust Kiwirail to deliver?
However, an honest discussion about the future of Kiwirail, should also consider the costs taxpayers face if road's share of the freight market were to increase further; we could start with the half billion annually the present Goverment is putting into fixing road ware. The popular narrative seems to blame potholes on the previous "woke" regime. Trucks play a big part in road ware. There is a case that car motorists are subsidising big trucks. Perhaps we're happy to do this?
The other major complaint of the rail lobby, is while the Government puts billions into Roads of National Significance; putting the burden of funding new investment in road right-of-way onto the taxpayer. Meanwhile, rail gets very little (at least rail freight has in recent years). The last big capital investment in any rail freight route was the electrification (and re-alignment) of the North Island Main Trunk in the late 1980s.
Maybe taxpayers are happy with this; after all we get nice new motorways out of it.
You could argue the economic growth that the Government uses as part of its justification for so much new road spending comes mainly in the form of more car-dependent suburban sprawl, but again, if that's the sort of urban design most voters want to live in, that's democracy in action.
I do wonder about the need for higher speed limits.
Bronwyn, you made the point about the opportunity cost of the Government support of Kiwirail - maybe equal to a new Dunedin hospital. How much money is going into the "Rons" to enable speedlimits of 110/120 kmhr, that could have gone on other projects?
Do we really need to travel faster than 100 k/hr?
I wonder if the value of Kiwirail's operations is somewhere between the optimistic assessment provided a few years ago, and the grim looking bottom line Bronwyn's piece focusses on?
My guess is while the Hawkes Bay line is very vulnerable (it just lost its largest customer in the Tangiwai (Winstone) Pulp Mill) the Government won't go through with closing the Main Trunk or the Christchurch-Picton line, but won't provide any additional funding to upgrade them either. Kiwirail will struggle on, losing money on its Auckland/Christchurch business, until at some point a major weather or seismic event forces its hand.
But, in closing, there are two further reasons for maintaining the Ak/Chch link, beyond a simple profit/loss equation.
One: The benefits and flexibility Kiwirail gets out of having a unified network - rather than one split into three isolated nodes.
Two: That at some point, we really get concerned about climate change and find we can't source the number of electric trucks needed to decarbonise road transport in a hurry. Then there's the issue of our even greater dependence on fossil fuel through our use of air transport for domestic travel.
While there is scope for electric motors to replace diesel engines in trucks and buses, electric engines for anything other than small planes seems a long way off.
Would it then not be wise to have the option of a rail spine up and down Aotearoa to re-invest in?
Kiwirail reported annual benefits of rail in the range of $1.7 to $2.1 billion a few years ago. https://www.kiwirail.co.nz/who-we-are/about-us/value-of-rail/ Factor in the need to address planetary resource overshoot/climate change/exceeding 6 of 9 basic planetary thresholds and the case for rail is further boosted. Perhaps the real problem is the narrow analysis of KiwiRail as an state owned enterprise? Coupled with the consequences (common to much of our infrastructure) of the neoliberal-driven neglect of the need to keep on top of our infrastructure maintenance and upgrading, in favour of short term looting?
Hi Andrew. Thanks for your comment. The benefits in EY’s “value of rail” report that you refer to is not directly comparable to the numbers in KiwiRail’s accounts. The EY report looked at rail freight plus commuter rail in Auckland and Wellington, whereas KiwiRail’s accounts include rail freight, Interislander, (network provision only) for Auckland and Wellington rail, plus some tourist trains etc., as outlined by Bronwyn. Most of the benefits that EY cite arise from Auckland and Wellington commuter services - these are funded and operated by regional councils, and also receive direct government funding that does not go through KiwiRail’s books.
Thanks for that Dave. My intended point was/is that we should take a much broader look at KiwiRail than just its business accounts. And ask how important will infrastructure like rail have in our future world. Enough to operate at a financial cost but an economic benefit?
Hi Bronwyn. Good work laying these numbers out but aren’t you falling into the classic trap of failing to cost externalities? The shareholders of a standard business don’t bear the costs of building and maintaining more roads when freight is offloaded, or paying the looming bill for failure to meet greenhouse gas targets, or picking up the fiscal, economic and social costs when regional economies and employment are impacted. Adding these and many others might make Kiwirail a bargain, albeit one that still needs investing in. The principle objective of the SOE Act does include a social responsibility clause (needs strengthening) and the Act acknowledges that a big customer of its services is the Crown who, when considering savings it makes elsewhere from Kiwirail’s service, might consider it good value compared to alternatives.
>falling into the classic trap of failing to cost externalities?
Hi Martin - just about every activity has externalities of one sort or another. It's not so much the existence of positive externalities, but their size relative to what we are paying for them that matters. I made an honest attempt at valuing the positive externalities from NZ rail freight in 2009, and came up with a pretty small number relative to the government support they were then receiving. I have no reason to believe those relativities have changed. See also my reply to Andrew Riddell re the EY report that KiwiRail likes to cite.
If we were a rich country that could afford anything we desired, then of course. Absent that, air (and bus) travel won out a long time ago. Here's what I wrote it 2009. Not much has changed, except that air travel has grown further.
In New Zealand, long-distance passenger travel has moved almost entirely away from rail. For
example, consider the Overlander that travels south from Auckland each day over summer, with less frequent services in winter. This train carries up to 160 people, about as many people as a Boeing 737. By the time the Overlander reaches Wellington 12 hours later, a 737 could have easily done the return trip three times. One hundred and forty-seven domestic flights leave Auckland daily, carrying on average 7871 passengers a day. Air has clearly
won the long-distance passenger market.
Long-distance passenger rail is no longer relevant in New Zealand from a passenger transport
perspective. It survives only as a tourist experience, and the economics of this application is doubtful.
Toll NZ attempted to close the Overlander service in 2006 because it was losing $2m a year due to poor patronage, only retaining it in response to public and government pressure.
Toll’s 2008 “Plan B” required closing both the Overlander and the Tranz Coastal. Only the Tranz Alpine service would have been retained.
It is not possible for a maximum of two trains per day on a long route to generate enough revenue to make a significant contribution to the upkeep of the fixed infrastructure. Long-distance tourist trains in New Zealand will only survive as opportunistic users of tracks that are funded from other revenues.
This conclusion may appear anomalous to those with experience of well-patronised, high-quality long-distance passenger services in other parts of the world. To be competitive with air travel, rail needs to offer similar end-to-end travel times. This includes: waiting for the next available service, travel to the point of departure, check-in and boarding, travel time, unloading, travel to the desired destination and allowances for delays. While the central location of inter-city railway stations can offer time savings relative to the city-periphery location of airports, even the fastest trains have significantly longer travel times than aeroplanes. As all the other time components are fixed, trains will only be able to offer competitive travel-times with frequent services on relatively short routes.
Fast trains require an enormous investment in infrastructure, which can only be recouped by spreading it across large numbers of passengers. Therefore long-distance passenger services will only be economically viable on sectors where there is a high demand for travel. A high demand for travel requires, amongst other things, a large population.
These conditions are met in many parts of the world including Europe, India and parts of North
America. However a comparison of New Zealand with continental or sub-continental networks is unlikely to be informative. A better comparison is against island countries of a roughly similar size and shape to New Zealand. For example, the United Kingdom and Japan are first-world countries that have well-developed long-distance passenger rail which competes effectively with air travel on at least some sectors. The crucial difference is population density: New Zealand less than 16 persons per square kilometre, approximately one-twentieth of the density of the UK (252 persons/km2) and Japan (341 persons/km2).
In New Zealand, domestic air travel offers better interconnectivity with international travel than rail.
It would appear that New Zealand has made the economically rational choice of investing in air rather than rail for intra-country long-distance passenger travel.
Great summary Dave and pretty tough to argue against. Like/don't like. I grew up regularly catching the overnight AKL-WGTN service, and even now, living 5 min walk from the main trunk pretty much halfway between those cities, my family still catch the barely hanging on tourist 3x a week version to cities north or south regularly. I'll enjoy it while it lasts.
This article is typical of the soft porn disinformation encouraged by the alt right and needs to be seen against reports like those produced by Ernst and Young.
Far from being a millstone around our necks Kiwi rail provides a highly needed service.
Nowhere does this piece mention that the leading supporter of Kiwi Rail is “Mainfreignt” a major trucking company and frequent user of Kiwi rail.
Please read this article alongside the highly plausible story above.
If you still belong to the anti vaxer,flat earth, climate denying group then don’t bother.
Yes, we need to talk about KiwiRail, and recognise it for what it really is. It’s a quasi public service, in SOE drag. The problem with KiwiRail is not KiwiRail itself, but actually how we view it. We need a different perspective.
KiwiRail is an SOE, but only for want of a more appropriate entity form. In 2021, the government recognised this, and asked the Ministry of Transport to review its status. In the Terms of Reference, it stated:
“When considered from a combined above- and below-rail perspective, KiwiRail is not a viable commercial business as it generates only a portion of the cash required to fund its investment in above- and below-rail assets. The Crown’s willingness to meet the funding gap is due, in large part, to the Crown’s desire to purchase wider public benefits associated with rail, such as reduced road congestion and lower emissions.”
Unfortunately, the MoT review produced no change, confirming KiwiRail to be an SOE, despite this being an unsuitable entity form. This was not a good outcome, because it constrains KiwiRail from growing its business, and it leads observers to have inappropriate expectations, as evidenced by Dr Howell’s article. KiwiRail is a square peg in a round hole in this respect.
A look into KiwiRail’s accounts shows that the above-rail operations are usually profitable; it is the maintenance of the rail network, the below-rail operation, that is not profitable. This situation is the norm around the world. The only profitable railway networks are monopolies carrying bulk commodities, where competition with road transport is unrealistic. A good example is the Central Queensland Coal Network, operated by Aurizon. Other railway networks in Australia, owned and operated by State governments for general freight, are not profitable, and are not expected to be so.
Dr Howell asks, in relation to the catch-up investments for asset renewals that successive governments have made since 2009, “how long is too long?” Due mainly to privatisation, New Zealand’s railway was starved of capital for about 20 years (1990 to 2010 approximately). Consequently, much asset renewal was deferred. The problem with such deferral is that it is easy to do, but hard to catch up on. It takes many more years to recover from deferred asset renewals than the number of years of deferral, because of limitations in financing, resourcing, and getting access to otherwise operational tracks. For this reason, it will probably take another 20 years to complete the catch-up work, or longer if the current government continues to withhold funding.
Governments need to fund the construction and maintenance of both highways and railways for “NZ Inc” to function well. Therefore, the rail network should be seen as a national asset, complementary to the highway network. KiwiRail does the heavy lifting for “NZ Inc”, moving up to 18 million tonnes of freight per year, of exported and imported bulk coal, export logs and pulp, all of Fonterra’s exports, and other import/export containers.
Domestic freight is a relatively small proportion of KiwiRail’s traffic task. It is constrained in attracting more non-bulk freight because it is forced to play on an uneven playing field, due to the highway network not being structured as an SOE. The recovery from users, of the costs of providing and maintaining highways, is grossly inadequate, largely due to the political influence of the trucking industry.
Freight trains are much more labour-efficient and fuel-efficient than trucks, but the difference in the costs of access to the ‘way’ is a critical element that creates a serious distortion in the market. The government needs to adjust its land transport policy settings for KiwiRail to thrive.
Surely the billions that have been invested were provided by taxpayers? The term "government investment" always seems to me to be rather misleading.
An investment that if it fails will put another 25 000 trucks on the road is clearly in the public interest.
The government is there to protect and represent the best interests of the people of this country.
Public Good must be its first priority.
An alt right agenda has brought about the downfall of much wealthier countries than ours.
Our liberal democracy is seriously at risk.
HI folks. I have done something extraordinary. I have actually consulted someone who knows about this area and has written a book about it. {Probably not an economist, probably not a Treasurer acolyte, but give him his due. He has thought long and hard about this - and written a book. Why not buy it? I asked him to respond to my two questions. Here are his answers:
\
I’m responding to your comment of a few days ago, in Asymmetric Information, asking for “any comparative, international information” that will help with understanding KiwiRail’s situation.
In Australia, there are six government-owned rail organisations, in various entity forms. Five are vertically separated, i.e. the government provides the rail network for train operating companies to use, and Tasmanian Railways is vertically integrated, like KiwiRail. Two of these networks are operated for profit, and four are heavily subsidised to attract freight to rail, as a matter of policy. In all six cases, the governments fund asset renewals and development of their rail networks, to support their land transport policies. Benefits of freight-by-rail include not having to build all rural and regional roads to accommodate heavy road vehicles, to reduce traffic congestion in major cities especially around the ports, and the obvious environmental benefits that flow from the fuel efficiencies of rail versus trucking. That governments support their rail systems stems not from use of conventional economic theory, but are “whole-of-government” decisions made on the basis of “what is best for the state to thrive?”.
Comparison with Australia shows that successive New Zealand governments are not unusual and have not been imprudent in funding capital for both the rail network and the rail operations business. Dr Bronwyn Howell’s issue was that KiwiRail is not profitable as an SOE should be. Looked at another way, KiwiRail is not a sufficiently conventional business to fit into the SOE mould. In 2021, the government sought a better entity form, describing KiwiRail as “not a viable commercial business as it generates only a portion of the cash required to fund its investment in above- and below-rail assets.” [MoT Terms of Reference: a review of the entity form of KiwiRail Holdings Limited and the New Zealand Railways Corporation] The outcome was that funding of rail infrastructure will come from the NLTP, not from KiwiRail. Another entity form for KiwiRail was not proposed, but that does not make the SOE form any more suitable. KiwiRail shows, in its annual reports, the capital spending and the sources of funds for both the above-rail business and the rail network.
In my recent book “Off the Rails: the Privatisation of Freight Railways in Australia and New Zealand, and the Consequences” (available in NZ from Fishpond.co.nz), I tell why train operating companies can be profitable while railway networks are mostly not profitable. Also, why governments still choose to invest in rail network infrastructure, but not nearly enough to make rail competitive with road. It’s an intriguing story.
Spencer Naith
What we lack here - or, at least, I lack here - is any comparative, international information. It is pretty obvious from the drift of comments from Bronwyn and Dave that they think KiwiRail is (mostly) a dead duck. But what other countries of our ilk are able to maintain their non-urban rail systems without "government subsidies" (a terrible phrase I know!)? For example, how do Australia and Canada manage to maintain cross-country railway systems? Do they receive any form of public subsidy (disguised or otherwise)? Secondly, one of the problems for rail in the past is that they had not only to run above-track services profitably (and why not), but they had also to maintain and improve the track network. In the UK these two were separated out so that the privatised franchises were expected to operate profitably, but the network itself was maintained as an element of international infrastructure like, say, the motorway road network. Would drawing a distinction here help advance the discussion?
Dave/Bronwyn; you've smoked out the rail enthusiast again!
Forgive me for this long-winded comment, but I'm stuck at home with Covid in the house!
I suspect Bronwyn, a serious talk about the future of Kiwirail is going on in and around the Beehive right now. A Treasury suggestion that Kiwirail shutdown it's freight operations altogether (apart perhaps from the Auckland-Hamilton-Tauranga route) came up during the last term of the previous National lead government.
At that point English (who I think was PM at the time) and the then transport minister, Simon Bridges weren't prepared to go through with the move.
Possibly the Luxon/Brown duo are.
My guess is they're encountering resistance from NZ First, which championed rail freight last time it was in government, and was a big supporter of the Mega Raildeck ferry plan.
I suspect Bronwyn that your financial analysis of Kiwirail's freight service is correct; the company is not earning sufficient revenue to sustain the current network - without further help from the taxpayer.
Aspects of it are profitable; the Auckland-Hamilton-Tauranga route, and the branchlines linking into it (apart from the line to Northland) which service the dairy, steel and forestry industries.
Wellington-Palmerston North and Wellington-Masterton stay because of the revenue Kiwirail gets to run passenger services (perhaps the freight lines servicing Fonterra plants in Hawera and Pahiatua survive too).
In the South Island the line from Christchurch to Westcoast/Buller survives as long as we keep selling coking coal to Asian buyers, as does the line from Christchurch to Invercargill, because of the role it plays linking dairy factories with export ports.
But the North Island Main Trunk from Te Kuiti to Marton, the Hawkes Bay line, and the Christchurch Picton line (once we retire our last remaining rail deck ferry the Aratere) currently earn enough revenue to fund the expenditure needed to maintain them, let alone upgrade them.
I admit I am merely an armchair enthusiast, but I suspect the decline in Kiwirail's share of the freight market began with the Key/Joyce Government's decision to allow larger truck trailers onto our roads; greatly improving road transport productivity. Oh, that and some of the Rons didn't help rail either.
New Zealand's relatively small geographical size, and small industrial base, mean with a some exceptions, rail doesn't have sufficient economy of scale to compete with road.
If we were to plow investment into the rail system that enabled freight wagons to be heavier (we're way behind railways with the same gauge in Australia) rail might be able to win back traffic, but as Bronwyn points out, who's going to trust Kiwirail to deliver?
However, an honest discussion about the future of Kiwirail, should also consider the costs taxpayers face if road's share of the freight market were to increase further; we could start with the half billion annually the present Goverment is putting into fixing road ware. The popular narrative seems to blame potholes on the previous "woke" regime. Trucks play a big part in road ware. There is a case that car motorists are subsidising big trucks. Perhaps we're happy to do this?
The other major complaint of the rail lobby, is while the Government puts billions into Roads of National Significance; putting the burden of funding new investment in road right-of-way onto the taxpayer. Meanwhile, rail gets very little (at least rail freight has in recent years). The last big capital investment in any rail freight route was the electrification (and re-alignment) of the North Island Main Trunk in the late 1980s.
Maybe taxpayers are happy with this; after all we get nice new motorways out of it.
You could argue the economic growth that the Government uses as part of its justification for so much new road spending comes mainly in the form of more car-dependent suburban sprawl, but again, if that's the sort of urban design most voters want to live in, that's democracy in action.
I do wonder about the need for higher speed limits.
Bronwyn, you made the point about the opportunity cost of the Government support of Kiwirail - maybe equal to a new Dunedin hospital. How much money is going into the "Rons" to enable speedlimits of 110/120 kmhr, that could have gone on other projects?
Do we really need to travel faster than 100 k/hr?
I wonder if the value of Kiwirail's operations is somewhere between the optimistic assessment provided a few years ago, and the grim looking bottom line Bronwyn's piece focusses on?
My guess is while the Hawkes Bay line is very vulnerable (it just lost its largest customer in the Tangiwai (Winstone) Pulp Mill) the Government won't go through with closing the Main Trunk or the Christchurch-Picton line, but won't provide any additional funding to upgrade them either. Kiwirail will struggle on, losing money on its Auckland/Christchurch business, until at some point a major weather or seismic event forces its hand.
But, in closing, there are two further reasons for maintaining the Ak/Chch link, beyond a simple profit/loss equation.
One: The benefits and flexibility Kiwirail gets out of having a unified network - rather than one split into three isolated nodes.
Two: That at some point, we really get concerned about climate change and find we can't source the number of electric trucks needed to decarbonise road transport in a hurry. Then there's the issue of our even greater dependence on fossil fuel through our use of air transport for domestic travel.
While there is scope for electric motors to replace diesel engines in trucks and buses, electric engines for anything other than small planes seems a long way off.
Would it then not be wise to have the option of a rail spine up and down Aotearoa to re-invest in?
It is useful to think about alternative scenarios. Amongst others:
If there was a higher charge for freight would the users have paid or moved to road haulage or something different?
If we closed down KiwiRail and all that freight moved to road what would the costs be for or road network and road users?
etc.
Kiwirail reported annual benefits of rail in the range of $1.7 to $2.1 billion a few years ago. https://www.kiwirail.co.nz/who-we-are/about-us/value-of-rail/ Factor in the need to address planetary resource overshoot/climate change/exceeding 6 of 9 basic planetary thresholds and the case for rail is further boosted. Perhaps the real problem is the narrow analysis of KiwiRail as an state owned enterprise? Coupled with the consequences (common to much of our infrastructure) of the neoliberal-driven neglect of the need to keep on top of our infrastructure maintenance and upgrading, in favour of short term looting?
Hi Andrew. Thanks for your comment. The benefits in EY’s “value of rail” report that you refer to is not directly comparable to the numbers in KiwiRail’s accounts. The EY report looked at rail freight plus commuter rail in Auckland and Wellington, whereas KiwiRail’s accounts include rail freight, Interislander, (network provision only) for Auckland and Wellington rail, plus some tourist trains etc., as outlined by Bronwyn. Most of the benefits that EY cite arise from Auckland and Wellington commuter services - these are funded and operated by regional councils, and also receive direct government funding that does not go through KiwiRail’s books.
Thanks for that Dave. My intended point was/is that we should take a much broader look at KiwiRail than just its business accounts. And ask how important will infrastructure like rail have in our future world. Enough to operate at a financial cost but an economic benefit?
Hi Bronwyn. Good work laying these numbers out but aren’t you falling into the classic trap of failing to cost externalities? The shareholders of a standard business don’t bear the costs of building and maintaining more roads when freight is offloaded, or paying the looming bill for failure to meet greenhouse gas targets, or picking up the fiscal, economic and social costs when regional economies and employment are impacted. Adding these and many others might make Kiwirail a bargain, albeit one that still needs investing in. The principle objective of the SOE Act does include a social responsibility clause (needs strengthening) and the Act acknowledges that a big customer of its services is the Crown who, when considering savings it makes elsewhere from Kiwirail’s service, might consider it good value compared to alternatives.
>falling into the classic trap of failing to cost externalities?
Hi Martin - just about every activity has externalities of one sort or another. It's not so much the existence of positive externalities, but their size relative to what we are paying for them that matters. I made an honest attempt at valuing the positive externalities from NZ rail freight in 2009, and came up with a pretty small number relative to the government support they were then receiving. I have no reason to believe those relativities have changed. See also my reply to Andrew Riddell re the EY report that KiwiRail likes to cite.
Where does all this leave the possibility of ever redeveloping a national passenger rail service? Assuming the political will existed of course..
If we were a rich country that could afford anything we desired, then of course. Absent that, air (and bus) travel won out a long time ago. Here's what I wrote it 2009. Not much has changed, except that air travel has grown further.
-----------------------------------------------------
In New Zealand, long-distance passenger travel has moved almost entirely away from rail. For
example, consider the Overlander that travels south from Auckland each day over summer, with less frequent services in winter. This train carries up to 160 people, about as many people as a Boeing 737. By the time the Overlander reaches Wellington 12 hours later, a 737 could have easily done the return trip three times. One hundred and forty-seven domestic flights leave Auckland daily, carrying on average 7871 passengers a day. Air has clearly
won the long-distance passenger market.
Long-distance passenger rail is no longer relevant in New Zealand from a passenger transport
perspective. It survives only as a tourist experience, and the economics of this application is doubtful.
Toll NZ attempted to close the Overlander service in 2006 because it was losing $2m a year due to poor patronage, only retaining it in response to public and government pressure.
Toll’s 2008 “Plan B” required closing both the Overlander and the Tranz Coastal. Only the Tranz Alpine service would have been retained.
It is not possible for a maximum of two trains per day on a long route to generate enough revenue to make a significant contribution to the upkeep of the fixed infrastructure. Long-distance tourist trains in New Zealand will only survive as opportunistic users of tracks that are funded from other revenues.
This conclusion may appear anomalous to those with experience of well-patronised, high-quality long-distance passenger services in other parts of the world. To be competitive with air travel, rail needs to offer similar end-to-end travel times. This includes: waiting for the next available service, travel to the point of departure, check-in and boarding, travel time, unloading, travel to the desired destination and allowances for delays. While the central location of inter-city railway stations can offer time savings relative to the city-periphery location of airports, even the fastest trains have significantly longer travel times than aeroplanes. As all the other time components are fixed, trains will only be able to offer competitive travel-times with frequent services on relatively short routes.
Fast trains require an enormous investment in infrastructure, which can only be recouped by spreading it across large numbers of passengers. Therefore long-distance passenger services will only be economically viable on sectors where there is a high demand for travel. A high demand for travel requires, amongst other things, a large population.
These conditions are met in many parts of the world including Europe, India and parts of North
America. However a comparison of New Zealand with continental or sub-continental networks is unlikely to be informative. A better comparison is against island countries of a roughly similar size and shape to New Zealand. For example, the United Kingdom and Japan are first-world countries that have well-developed long-distance passenger rail which competes effectively with air travel on at least some sectors. The crucial difference is population density: New Zealand less than 16 persons per square kilometre, approximately one-twentieth of the density of the UK (252 persons/km2) and Japan (341 persons/km2).
In New Zealand, domestic air travel offers better interconnectivity with international travel than rail.
It would appear that New Zealand has made the economically rational choice of investing in air rather than rail for intra-country long-distance passenger travel.
Great summary Dave and pretty tough to argue against. Like/don't like. I grew up regularly catching the overnight AKL-WGTN service, and even now, living 5 min walk from the main trunk pretty much halfway between those cities, my family still catch the barely hanging on tourist 3x a week version to cities north or south regularly. I'll enjoy it while it lasts.
This article is typical of the soft porn disinformation encouraged by the alt right and needs to be seen against reports like those produced by Ernst and Young.
Far from being a millstone around our necks Kiwi rail provides a highly needed service.
Nowhere does this piece mention that the leading supporter of Kiwi Rail is “Mainfreignt” a major trucking company and frequent user of Kiwi rail.
Please read this article alongside the highly plausible story above.
If you still belong to the anti vaxer,flat earth, climate denying group then don’t bother.
https://easyfreight.co.nz/blog/kiwirail-import-export-nz-economy/
Poorly written and misleading contribution.
Just not sure if it’s misleading on purpose (lying) or by accident (incompetence)? Hmmm
Eg including CRL metro prep costs as if it contributes to generate core revenue