10 October 2003 Media Statement

On track for a better, safer rail network

“New Zealand is now on track for a better, safer rail system,” Finance Minister Michael Cullen and Transport Minister Paul Swain said today of Toll Holdings’ decision to proceed with the acquisition of Tranz Rail.

“The purchase will activate the Heads of Agreement negotiated between the Crown and Toll in July, including the sale to the government of the track for $1 and commitments by both partners to an extensive capital investment programme,” they said.

The government has undertaken to invest $200 million to upgrade the rail network, $100 million up front and $25 million a year over four years: Toll will invest $100 million in rolling stock.

“The government will now soon be in a position to release the first $100 million. The specific work projects will be determined in consultation with Toll but will focus on improving safety and efficiency,” Dr Cullen said.

Mr Swain said rail was a key component of the New Zealand Transport Strategy.

“The government’s objective is to shift people and freight on to rail to ease traffic congestion and as a cost competitive and environmentally sustainable alternative to roads.

“This is a big step toward achieving that goal,” he said.

Other components of the Crown-Toll agreement are:

- A new Crown entity – TrackCo – will be set up to maintain and control the track. TrackCo will charge Toll for access. Until the initial $200 million of capital spent, the charge will reflect TrackCo’s cash outgoings. Subsequently charges will reflect not only TrackCo’s operating costs but also any capital costs. Toll will appoint a director to TrackCo.
- Toll will have exclusive access to the network for freight services but will be subject to transparent Key Performance Indicators with a bonus and penalty regime. The Crown will have “step-in” rights if volumes on a line slip below 70 per cent of current usage.
- Incentives will be provided to encourage Toll to shift freight from road to rail.
- Tranz Rail’s lease over the land under the tracks will be surrendered except for some specific properties. The Crown will pay compensation at agreed valuation for any resulting loss of assets or income. This transaction will be revenue neutral for the Crown.

“Tranz Rail was the subject of an extremely soft privatisation deal. Unlike with the Telecom and Air New Zealand sales, the then National government did not implement a Kiwi Share or put in place any effective alternative mechanism to enforce performance obligations,” the Ministers said.

“This package goes a long way to remedy those structural defects and will breathe new life into the rail industry with spin-off benefits for the wider economy.”

ENDS

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