The Problem with KiwiRail

There has been a lot of talk in recent days about how some railway lines might be under threat of closure because KiwiRail is not generating enough business along them to make them viable. It probably didn’t help that the National Infrastructure Plan’s fairly mixed words on KiwiRail’s future came out on the same day that KiwiRail reported worse than hoped for financial results. I think a lot of people have put the two together to theorise that the end of lines such as the Gisborne-Napier Line, the northern Wairarapa Line and the Stratford to Okahukura Line (which hasn’t been used for a few months now due to damage it suffered during a derailment) might be drawing near. The government hasn’t exactly been providing much reassurance, and I do at least partially agree with the Labour Party when they say that the government’s heart just doesn’t seem to be in KiwiRail.

Let’s look at the bigger picture for a minute, before I get into what I think the problem is here. The National Infrastructure Plan certainly says that most investment in the rail network should be focused on lines that are the most commercially viable – which makes logical sense. What’s said in the tract I quote below actually sounds fairly promising in some respects:

The Government wants to set KiwiRail on a path towards commercial independence and long-term viability. For that reason, any financial support for it will focus on helping it catch up on deferred capital expenditure in those parts of the rail network where rail offers the greatest comparative advantage to other transport modes, based on undistorted price signals. This is likely to be in the transport of bulk goods, and imports and exports to and from major ports, where rail offers a vitally important alternative to road transport. This will relieve congestion and provide a greener and more cost-effective transport solution for some users.

In terms of future capital expenditure, it’s a little more mixed:

Subject to policy decisions about the size of the rail network and level of service the Government wishes to support, it is possible that KiwiRail will undertake further capital expenditure. For example, the current locomotive and wagon fleet is old (average age is 30 years for locomotives and 25 years for wagons) and prone to structural failure, and thus allows little or no room for revenue growth. In addition, a new interisland rail ferry is likely to be needed by 2016 to replace the ageing vessel Arahura. This may cost up to $250 million to purchase, or long-term leasing arrangements will need to be put in place.

There’s something a bit strange here though. We don’t generally say things like “subject to policy decisions about the size of the state highway network….”, or “it is possible that NZTA will undertake further capital expenditure on the state highway network…”, so why are we saying this about the rail network? After all, the rail network and the state highway network are both critical pieces of infrastructure that I think deserve to be treated in similar ways.

Yes, there are very very few inter-city passenger trains meaning that the rail network (outside urban areas) is almost exclusively used for freight purposes, but that doesn’t mean things have to be that way, or that they will always be that way. For all we know, in a decade’s time petrol could be $8 a litre, we will be electrifying inter-city railway lines around the country and thinking about catching electric trains to cities around New Zealand when we want to visit them. Just as we have a critical network of power lines, roads, telecommunications and so forth, the rail network is simply that: infrastructure. In the longer term I would imagine a whole pile of different companies operating freight services on the rail network, competing against each other for business potentially and so forth. The government would, and should, still own the rail network and all the organisation that goes on behind the scenes – but in terms of the actual trains that run along it who knows what the future ownership structure might be.

The problem that we have at the moment is that the infrastructure side of KiwiRail is bundled up with what is essentially “just another freight company”. Because of this, KiwiRail has the completely unreasonable task of being asked to use the money it makes from its freight business to both pay for the delivery of that freight business but also to maintain and develop the core infrastructure of the rail network. The first part is fair enough, and as far as I know KiwiRail do a pretty damn good job of ensuring that their income covers the job of delivering their business. The problem is that they are also required to spend huge amounts of money on looking after the railway network. That would be like asking the trucking industry to build and fund the road network – completely unreasonable and impossible!

When KiwiRail was bought back by the government in 2008, ONTRACK (which was the trading name for the government’s ownership of the tracks and associated infrastructure) was effectively subsumed into the freight business that had previously been Toll and was now KiwiRail. In hindsight I think that was a mistake, and (here’s for a fairly controversial thought) I think that ONTRACK and NZTA should have been brought together into one agency – perhaps known as “Transport New Zealand” or something like that. By putting ONTRACK into the same agency as NZTA there would have been proper recognition of the railway network as part of the transport network, not just the rights-of-way used by a particular freight company (in this case KiwiRail).

There are a number of other advantages that would arise from having ONTRACK merged with NZTA. The most obvious one to me is that we’d finally have an agency capable of planning, funding and constructing critical urban rail projects such as the CBD Rail Tunnel, rail to the airport and so forth. In our cities railways act very similarly to motorways, so it seems crazy that we have a very capable agency (NZTA) doing excellent long-term planning, designations when necessary, construction and so forth of motorways – but when it comes to ever doing anything about urban railways you need to get about 20 different agencies together, develop funding systems that we’ve never seen before and so forth. Having one agency responsible for delivering both the state highway network and the railway network would also mean that motorway projects would effectively compete against railway projects for funding – we could assess whether the CBD Rail Tunnel or the Holiday Highway is a better use of that $1.4 billion. This is how you end up with the best decisions being made, when all types of projects have “equal access” to funding and are chosen on merit.

Another advantage would be that the railways would no longer be expected to “make a profit”, just as the state highways aren’t expected to do so. There would be recognition that together, the railways and the state highways form a critical part of New Zealand’s infrastructure. In the meanwhile, KiwiRail would be able to get on with the job of actually trying to make a profit without being lumped with the unfair cost of having to fix 20 years of neglect of the rail system while trying to run a competitive freight business.

I have heard some public transport advocates worry that if rail was part of NZTA it would be ignored and sidelined. I don’t actually think that’s the case. I really think that NZTA wants to do public transport – I mean heck they are keen on extending the northern busway to Orewa even though it’s probably about priority number 3257948728529 on the list of needed public transport projects in Auckland. Why are they wanting to do this? Because it’s the only public transport project that they can actually do. NZTA are pretty damn good at weighing up which projects are most necessary (when they are left to do it by the politicians), and I think that it’s pretty clear important railway projects in Auckland – for example – would rise to the top of their list.

Oh, and NZTA have money. No other transport agency in the country seems to have any money but NZTA have buckets and buckets of it. So we might actually be able to improve the rail network if ONTRACK was a part of NZTA instead of KiwiRail.

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