Railroaded
For a mere $708m (or about $165 each) we all took proud ownership this week of one slightly used rail and ferry network. Add to this cheque, the money needed for track maintenance and upgrades of rolling stock and the public investment will be well in excess of $1 bn.
Labour’s buyback of the rail network was the natural consequence of their earlier decision to maintain a rail monopoly when Labour brokered Toll’s purchase of New Zealand Rail in 2003. In both 2003 and this year there has been an element of conservative thinking in the decision making by the government, where concern for maintaining the status quo has superseded any thoughts about what might be in the best interests of New Zealand. Just because we have a rail network is not grounds for ensuring its survival, but survival at any cost seems to be Labour’s current mantra, and this has influenced their thinking on rail.
It is perhaps natural for people to think of something large and tangible like the railways as having some intrinsic value in its own right. Yet despite their long presence in New Zealand, rail services are simply a means to an end: shifting goods and people to where they need to go. In this regard, although superior to the canal boats and horse drawn carriages they replaced in the 19th century, rail is a less enticing transport solution in the 21st century. Train movements are limited to where tracks run. Our topography and the narrowness of the rail gauge limits the speed of train travel in New Zealand. The smallness and wide dispersion of our population limits access to high volume routes.
The net impact is that rail offers a useful transport solution to a very limited number of customers: mainly exporters wishing to move large volumes of products from a focal production point to a port. After Solid Energy, Fontera and a few forestry companies there are not many other well-paying rail users left. And this was probably the impasse that developed between Toll and the government. Any rational business would cease non-performing operations and concentrate on areas where demand is highest. These include transporting coal from the West Coast to Lyttleton, dairy products to Tauranga or Auckland, and wood products from the Bay of Plenty to Tauranga. These lines and rail services have value to the exporting companies and offer profitable opportunities to rail services.
Rail finds it difficult being profitable in other areas because rail is not well suited for transporting small quantities to a wide range of destinations. Even in Wellington where there is a reasonable urban rail system, no company would consider using rail as a means of distributing products around the region. Even if the price was right, the issue would remain about transporting products from the station to their final destination. Road transport dominates because it is a cost effective and versatile means of delivering people and goods to where they need to be. The fuel cost is just one, typically minor, part of goods delivery. Equally important are handling costs and timeliness of delivery.
There may be some valid arguments for maintaining and even extending light rail options in urban centres. If commuter use is sufficiently high, local train services can potentially be profitable. But even if not, there may be valid arguments for public support given that commuter services can potentially ease congestion on roads and in city centres.
Neither the provision of local commuter services nor bulk product transportation requires the maintenance of a monopoly national rail service. Transporting coal across the South Island does not have to be provided by the same company that shifts dairy products in the North Island. Indeed there seems little reason why the large exporters involved could not make private arrangements about who provided rail services.
The issue facing exporters to date has been that rail services have been government ordained monopolies. The arrival of KiwiRail will not change the choices facing companies like Fonterra. It is either deal with the rail monopoly or use road transport. The rail monopoly simply has to price to a point below what would make road transport viable. There is little incentive for them to price any lower – indeed the incentive will be to gouge our major exporters for as much as possible in order to cross-subsidise rail’s other loss making operations.
Taking ownership of rail also creates unnecessary conflicts of interest for the government. For example, any increase to road user charges or fuel taxes will directly benefit the rail business. This exposes the government to criticism that transport policy is being set for the benefit of KiwiRail and its principal sponsor, Labour, and not the general welfare of New Zealanders.
