There has been an interesting debate in recent days about a speech that Steven Joyce gave at the 2010 Australasian Rail Association Conference. In particular, I think that the controversy relates to these parts of his speech:
The fourth group we need buy-in from are the regional councils in Auckland and Wellington which, along with the Transport Agency, are responsible for the commuter rail services in their respective cities.
The Crown has invested a huge amount in improving metro rail in the last several years, with much of the change just now becoming apparent.
In Auckland alone we’re investing $1.6 billion to modernise and extend the network.
That means double-tracking the Western line; a process that will be complete by June, plus new stations and facilities in places like Newmarket, Grafton, Kingsland, Morningside and New Lynn – all of which I have visited in various guises in recent times.
It also means half a billion for the infrastructure of electrification, with contracts underway for new signalling systems, and the poles and lines to provide the motive power.
And the further half billion for the new electric units to run on the network which I announced in November last year, and which Kiwirail is currently tendering for in the market for delivery commencing 2013.
And in Wellington the government has committed $258 million through a Crown appropriation to the Greater Wellington Regional Council towards the project and further sums directed to KiwiRail.
So the infrastructure is improving at a great rate, but the reality is this: neither Auckland or Wellington are currently paying the actual amounts required to maintain and renew their share of the network.
By that I mean they’re not paying enough to enable KiwiRail to maintain the tracks and ensure services are reliable.
Because of this, we are in the ironical situation where, here in Wellington, KiwiRail is constantly bagged because of its run down and sometimes unreliable services but no one has yet been prepared to fund the full amount to have the network adequately maintained.
Well – for a KiwiRail Turnaround Plan to work, all customers, including those regions that provide metro passenger services, and their co-funder NZTA, will need to stand up.
The metro operations will have to meet the actual fair costs for the renewal and maintenance of the networks that they use going forward. And discussions on that responsibility will start shortly.
Basically it seems like Joyce is saying that NZTA and the Regional Councils are responsible for paying for rail operating costs, while KiwiRail is only responsible for paying rail capital costs (ie. new stuff). Now I find that a rather bizarre separation myself, in that I don’t see why NZTA funds can’t be applied to rail capital costs, but that’s another issue which I shall return to later.
Now I don’t necessarily disagree with what Steven Joyce is saying here. After all, KiwiRail is primarily a glorified freight company – why should a freight company be responsible, and have to pay for, the maintenance of railway lines primarily used by commuters? A very good question, and one that cuts to the heart of a very interesting matter – whether it really is a good idea lumping together the ownership and management of our rail network (the work that used to be undertaken by Ontrack) with the operation of a glorified freight company that just happens to run trains along it (the bulk of KiwiRail). It’s almost like saying that a particular road-freight company should have to maintain and develop the road network, and ideally can only use the money that it gets from doing the freight work to fund the maintenance and development of that network. Crazy, right?
Ultimately, our rail network should be viewed, in my opinion, in a very very similar way to our state highway network. It should be owned and managed by NZTA, be funded by track-access charges paid by KiwiRail and whoever operates the passenger rail system, plus – where there are indirect benefits to road-users from having more passengers or freight on the rail network, or indirect benefits to all of us through lower environmental effects of the transport system – by petrol taxes and RUCs collected into the National Land Transport Fund and general taxation. Having OnTrack wrapped into KiwiRail is, I think, a step backwards for our rail system and the cause of many of the problems Steven Joyce has referred to above.
Of course the Auckland Regional Council has justifiably screamed and yelled about the insinuation that it should have to pay a far greater amount:
Auckland Regional Council (ARC) Chairman Mike Lee says that in case the Minister hadn’t noticed, in terms of investing in rail transport, the Auckland region stood up many years ago and for a lot of that time stood alone.
“In terms of fighting for a first-world rail infrastructure, Auckland is still standing and we are still fighting,” says Mr Lee.
“The Minister needs to be told that over the five years to 2006, some $363 million was invested in upgrading the Auckland rail network.
“Of this, about $288 million or 80 per cent was provided by the Auckland region and its ratepayers. This funding provided for the construction of Britomart, upgrading of stations, double-tracking and the purchase and refurbishment of trains.
“The ARC initiated the first stage of double tracking the western line, funded by an Infrastructure Auckland grant, because the Government refused to do so.
“Between 2006 and 2009, the ARC funded the costs of purchasing and refurbishing trains and upgrading stations, and received no Government subsidy for this at all.
“The ARC also funded the costs needed to get the electrification project off the ground and 40 per cent of the costs of passenger rail services.
“In 2009/10, the ARC provided $25 million in operating funding to the Auckland Regional Transport Authority (ARTA) for rail passenger services and $66 million for investment in refurbished trains and upgraded rail stations.
It really was the initial investment by the ARC, and also by Auckland City Council in the construction of Britomart, that led to the rail revival in Auckland. The previous Labour government did eventually stump up with the big money for Project DART and the infrastructure side of electrification, while this government has stumped up with the $500 million for electric trains. But, it was mainly kick-started by Auckland itself. Looking forward, it will be interesting to see the extent to which the Auckland Transport CCO prioritises public transport spending – as ARTA’s budget of $150 million-ish will increase to a budget for Auckland Transport of $650 millionish. So there is theoretically more money available at a regional level to fund the rail system in the future, if it gets prioritised.
Overall, I find the whole debate rather bizarre and Steven Joyce’s position somewhat contradictory. Obviously KiwiRail’s budget needs to be brought under some sort of control – and hopefully the freight part of their business left to look after itself (which it apparently does quite well and reasonably profitably if you exclude depreciation of the track network) without its financial situation being burdened by the need to also look after the rail system for the wider benefits that having a rail system brings. KiwiRail shouldn’t have to stump up with the money to provide new railways tracks for passenger trains in Auckland, or have Auckland’s electric trains being a burden on their balance sheet, when this has absolutely nothing to do with their freight business.
The obvious two agencies (as well as commuters themselves) that should be paying for rail in urban areas are:
- Local Government – because the city benefits from better public transport through better social, environmental and economic outcomes.
- NZTA (ie. petrol tax and road-user charges) – because road users themselves benefit from there being fewer other road-users congesting the streets and roads of the city.
Rather bizarrely, the Government Policy Statement for transport specifically bans the use of NZTA money on rail improvement projects (even though obviously building the CBD rail tunnel for example would benefit road users enormously through the reduction in congestion) but says that NZTA funds are OK for rail operating costs (on the basis that when people use the rail network there are congestion relief benefits). This contradictory situation means that KiwiRail has effectively been forced to fund the upgrades to the Auckland and Wellington rail networks – even though their core business is actually running a freight company.
Which once again begs the question of why is a freight company running a core part of our infrastructure? The core of this messy debate revolves around that question, and until it is answered or until NZTA funds can actually be used for rail upgrades (like it seems Steven Joyce is actually wanting) we will continue to have this bizarre and complicated debate.
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Essentially, this whole argument is about money, and a bit of history might be useful:
* When the old National Roads Board was set up in 1953, it was funded through a dedicated system of road taxes – so the users paid, fairly well directly, for the system.
* The old Urban Transport Council was set up in 1980 to tidy up the way in which government assistance was paid to urban transport. This was directly taxpayer-funded.
* The two bodies were merged in 1989 to become Transit New Zealand. The idea at the time was that it would allow joined-up thinking, especially about urban transport as a whole. This didn’t happen because a massive budget cut the following year pushed the whole structure into survival mode, where it remained for about ten years (I was working for them for much of this time, then went off to Tranz Rail as the passenger rail business analyst). However, it did establish the precedent of allowing road user funds to support the operational costs of public transport.
* During this time Infrastructure Auckland was set up, to allow Auckland to pay for investment which the local ratepayers couldn’t face and which central goverment wasn’t prepared to support either.
* Tranz Rail, which was sold off in 1993, came back into the government control between 2004 and 2008. The rail investment in Wellington and Auckland has not been paid for by Kiwirail as a commercial investment, but by the Crown into Kiwirail as a direct disbursement through the profit-and-loss line.
* Kiwirail’s freight business problem is simple: it can cover its operating costs well enough, but it doesn’t make nearly enough free cash to invest back into the business, hence the age of much of the freight kit (depreciation does matter as an accounting issue). Based on what I have seen in the UK, I would say OnTrack belongs more with the rail operation than it does in transport planning – that’s from a structural and operational point of view.
Basically, Joyce is saying:
* We (the government) have fronted up with more than enough money for Wellington and Auckland passenger rail, now it’s up to you to pay more of the operations and maintenance (currently, NZTA picks up 65 percent of the rail operations costs).
* We are STILL not prepared to use road user funds to support capital investment in passenger rail (possibly becaus Treasury thinks that investment in rail doesn’t actually make all that much difference to how the road network functions)
* Separately, we don’t want to put any more money into rail freight, because it’s a money pit, but I guess we’ll have to – and we’ll abandon the low-traffic lines in the meantime, to save some money.
Does that make more sense?
Thanks Ross, that certainly fills a few gaps in my knowledge. I guess that the key is to show the benefits to road users of investment in the rail system (thereby helping to justify using NZTA funds for rail capital projects) and also to show the benefits for the economy/society/environment as a whole, thereby justifying central and local government funding.
I’ve had another look through the policy statement to make sure that I know what they’re on about, and the critical thing is the statement:
and,
The problem in funding it from general government revenues, is that those revenues are under a lot of pressure, so funding of rail infrastructure (and support for rail freight, for that matter) has to fight its corner against all the other demands on the public purse. That’s our next problem.
Yup you got it Ross. Those paragraphs are the key to our problem. There is no available money from the general government coffers – however there is potentially masses of money to be spent on low-quality state highways (in terms of their business cases) over the next decade. Ideally rail projects would be largely funded out of money redirected from poor quality state highway spending.
For example, build the CBD rail tunnel instead of the holiday highway.
I think the answer is luckily very simple:
– Move Ontrack to the NZTA
– Amend the GPS to state that freight and passengers shipped/moved by rail is a benefit to road users, as it frees up road space
In an urban setting in NZ there is no choice. We _have_ to drive because there is no provision for any other form of infrastructure. Road-users charges go into “roads roads roads” and it self-funds because after 60 years of “roads roads roads” we either have to participate or stop living in the city because all other options have been removed. The only amazing thing in all this is the sticking power of 1950’s thinking.
Nice history Ross. You missed the bit where Infrastructure Auckland wanted to buy the Auckland rail network for $120m, but Mike Lee and myself put a stop to that. Unfortunately we couldn’t stop the Government spending $89m to buy it back, shortly before TranzRail was sold to Toll.
The key line for me is this one. I really want to know the figures are here. How much does it cost KiwiRail to maintain the tracks in Auckland? What is the definition of maintenance. You could claim the maintenance cost attributable to passenger rail is bugger all, as the have to maintain the track and signals for freight services anyway. What they have been doing in the last few years is capital investment in double tracking etc.
Jarbury, you ask “Which once again begs the question of why is a freight company running a core part of our infrastructure?” but in actual fact KiwiRail is the group, and there are a number of business units within it. Hillside workshops, Wellington passenger rail, freight, ferries, scenic rail services, and Ontrack. It makes sense to have a department within Kiwirail in charge of track maintenance and expansion, but I’m not sure about the need to have it as a completely stand alone entity.
Cam I definitely see where you’re coming from. The general thinking behind that question is that a profit is expected to be made out of KiwiRail, when the same sort of requirement is hardly put on NZTA for its spending and income. NZTA does not get nearly enough money to cover the costs of the entire roading network, and effectively gets subsidies from local ratepayers for local road spending (it’s generally thought of as the reverse I know).
Then there’s the issue of rail capital expenditure not having access to the National Land Transport Fund, which unless changed means that the CBD Rail Tunnel will never happen. If Ontrack was a part of NZTA then it would obviously have access to that money.
It just seems a double-standard for state highways to be treated differently from rail in my opinion.
Hi Cameron
We are agreed, I think, that the money needs to be sorted out if we are going to make better sense of the situation, but a quick guide to railway economics might help:
[1] The network is about half the costs of the overall operation
[2] Perhaps three-quarters of the network costs are fixed to all intents and purposes – you pay the same maintenance costs whether you run two trains a day or two hundred. Hence the problems of the viability of a lot of the branch network
[3] Hence, the better solution would be for the fixed costs of the network to be picked up by the NZTA as a block grant. This is how it is now done in Great Britain and a number of European railway systems. The operators pick up their own direct costs, but not having to cover the fixed maintenance costs would take a lot of strain off Kiwirail’s accounts.
[4] Ontrack does not need to be a part of NZTA – I would recommend against that – but it does need to have more generous funding to cover its maintenance charge.
As for NZTA making a “profit”. Years ago, there was some thought given to setting the roading network’s accounts on a commercial basis. It wasn’t followed through, partly because after a while it became painfully clear that the road system has a substantial degree of cross-subsidy within it, in financial terms anyway. Urban areas cross-subsidise rural areas; state highways subsidise local roading networks. Auckland generates more money than is actually spent on it (the economics behind this I can explain later, if you need some bedtime reading). Small isolated rural roads cost more to maintain than is collected in road user revenue, sometimes a lot more, but we don’t have a road charging approach sophisticated enough to allocate the costs that accurately. The “profitable” parts of the system are certainly there, but the current accounting buries the details.
The point is that if we cross-subsidise the rural road system we can do the same for the bulk of the rail freight network as well. [QED]
I just thought I’d go a little off topic and raise a totally burning issue about the rail in Auckland that I stress more people need to realise. ARTA has contracts with Kiwirail and Veolia transport to operate the Auckland rail network. It provides funding from rate payers to these companies to as subsideries. Now, here’s the real punch in the gut. While Kiwirail is government owned and tries to make what ever profit it can, it stays within NZ, within the rai, within the Kiwirail network which will eventually lead to upgrades and additional funding solutions to upgrade current and future projects.
Veolia however, is a french, private company which is in the busness of making money. Now I’m sorry but I have to say I am not at all happy with my rates being paid to a private french company to operate the auckland rail network. Your rates are subsidising them, adding to their profits, which go offshore.
to put it perspective, its like ratepayers paying Vodafone or any other private company you can think of. Its totally distgusting!!!
One reason why we have Veolia’s involvement is because an earlier iteration of the ARC did not want to deal with an earlier iteration of Kiwirail.
Veolia are running a management contract – they don’t own the assets. The real question is not Veolia’s profitability or lack of it, but are we getting what we’re paying for?
I think there is one further important piece of this issue that should be tabled . . . how Transfund (now NZTA) implemented its “Patronage Funding Scheme” for PT in 2002 (revised in 2003/04). This scheme fundamentally changed the general approach of subsidising government PT funding to regional councils from subsidising council expenditure to an outcome (i.e. patronage) based funding model. At it’s core, this scheme funded regional councils for 48% of their operating subsidy for current patronage and 75% of increased patronage (for 3 years). This was supposed to incentive regional councils to expand their PT patronage levels but, importantly, it excluded any central government support for PT capital investment. (It also passed the funding risk of falling patronage to regional councils)
The key point here for this debate is in 2004, just as the new funding rules were to be applied, the Transfund Board excluded passenger rail from the funding model !!
Instead Transfund established an “interim funding model” of 60% for both passenger rail operating and capital costs (which was the funding for rail before the scheme). Although refined, rail mode PT has been more generous (at 60% operating and capital) than the government subsidies for bus/ferry mode PT (50% operating only) ever since then.
You can still see this funding difference in section F5.10 “Funding for passenger transport operations and infrastructure” of NZTA “Planning, programming and funding manual” (you have to also look at the table in section F1.3 “Classification of activities” to work out what is funded for what).
Far from being bizzare, some might say that all the Min of Transport and the current government has decided is to apply the standard PT funding rules that support our bus and ferry PT services to rail services (making a level playing field if you will 🙂