January 18, 2018

Political changes lift KiwiRail prospects

Written by  Richard Worrall
  • Print
  • Email

KIWIRAIL enters 2018 with its prospects for long-term investment and financial viability far greater than they have been for the last decade or more. 

This is thanks to the change in government last September from the pro-road-building National-led government to a Labour-led coalition, which has signalled it wants to invest far more heavily in the struggling national railway company.

 

The initial signs are positive. The new government announced within weeks of coming into office on September 21 2017 that it will commit $NZ 800m ($US 548.8m) towards upgrading the almost-derelict railway between Auckland and the Whangarei in Northland and construction of the long-discussed branch line to Marsden Point Port, also in Northland.

KiwiProspectsIt also reaffirmed a commitment made during the election campaign to fund the introduction of a trial passenger service linking Auckland, Hamilton and Tauranga - the busiest route in the country which has had no passenger train service for decades.

If the trial is successful this is likely to lead to the funding of a far more ambitious service. This will involve upgrading the rail corridor to facilitate the introduction of new higher-speed electro-diesel passenger trains operating at up to hourly frequencies and with travel times faster than driving.

Urban rail has also received a major boost at least in the Auckland region with two new light rail projects given the green light. One will link the city centre with the airport while the other will connect the city centre with the fast-growing north-western suburbs. The estimated cost of both projects is about $NZ 5bn with the bill to be split between central government and Auckland Council. These projects are in addition to the central rail loop underground project beneath the city centre, construction of which is well underway.

At a more general level new transport minister Mr Phil Twyford has decided to amend the government’s Policy Statement on Land Transport so that reductions in carbon emissions will be considered when allocating funding. This is likely to curtail any major expenditure on large highway projects and boost funding for rail and other modes of transport with lower carbon footprints. The previous government quietly abolished this requirement in 2013.

Further cause for optimism is the new government’s commitment to make New Zealand carbon neutral by 2050, which should also boost the prospects for rail investment.

Ongoing funding

However, all is not plain sailing for KiwiRail just yet. Although several specific spending announcements have been made, they cover just one small part of the country - Northland. A comprehensive strategy to upgrade the national network has yet to emerge nor has there been any indication of the exact level of additional funding that this will receive.

Funding will also need to be ongoing so KiwiRail can plan ahead with certainty. The previous nine years was marked by uncertain, limited short-term funding by the former government which was accompanied with veiled threats of future funding cuts unless the state-owned railway improved its financial performance. This was a classic Catch 22 situation because although KiwiRail has undertaken major cost cutting measures including shedding a further 1000 staff in recent years, the moribund state of most of its infrastructure severely limits its ability to attract new business.

KiwiRail claims it will need between $NZ 300m and $NZ 450m a year to make up for decades of underinvestment and maintain assets to a safe and reliable standard. This level of spending is between two and three times the annual funding allocation from the previous government.

Finding the money for all of this will be the biggest challenge for the new government if it is to deliver on its promises. The National Land Transport Fund, which amounts to $NZ 3.5bn annually, and is raised mainly from road user charges on heavy vehicles and fuel taxes, is the logical choice of revenue. However, the very powerful road transport lobby is strongly against using any of the funding to invest in the rail network.

KiwiRail does have allies within the trucking industry including Mainfreight, one of the largest trucking and logistics companies in New Zealand which also operates in several other countries. The company is a major user of the rail network with a number of its largest freight terminals across the country having rail connections. CEO Mr Don Braid has long maintained that a national rail network is a vital part of the national land transport infrastructure and he supports further investment. Braid says Mainfreight would make greater use of the rail network if it was upgraded.

New Zealand’s largest company, and the world’s largest global dairy products exporter, Fonterra, has also reoriented its domestic supply chain to link processing plants, distribution centres and ports around the rail network and will also been keen to see network improvements.

Another welcome morale boost was November’s delayed release of a report prepared for the NZ Transport Agency which calculated the value of the rail network to the wider economy over and above KiwiRail’s balance sheet.

Net road congestion, safety, maintenance and emissions benefits generated by the rail network were all considered in the report, which estimates the total benefits to the country of $NZ 1.55bn per annum.

Such information will prove invaluable to KiwiRail as it fights to gain a greater share of land transport funding from a government which appears at long last to want to give rail the priority it has been lacking for so long.

Get the latest rail news

Global news and analysis from IRJ, Railway Age and RT&S by email