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.
Surely the billions that have been invested were provided by taxpayers? The term "government investment" always seems to me to be rather misleading.
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.
Where does all this leave the possibility of ever redeveloping a national passenger rail service? Assuming the political will existed of course..