8 2002

Total Review Of Tranz Rail Needed Before Payment Of Subsidies

The Ministers of Transport and of Finance should have a suitably qualified independent consultant analyse Tranz Rail and establish which parts of its business have a viable future before Tranz Rail gets large subsidies from the roading account, Road Transport Forum Chief Executive Officer Tony Friedlander says.

“We are talking about very substantial amounts of public money going into Tranz Rail. The Government is intending to require Transfund to provide continuing subsidies to Tranz Rail of about $30 million a year. That’s equivalent to a capital injection of more than $400 million, if capitalised at 7%. Add on existing Tranz Rail passenger transport subsidies, the $81 million Tranz Rail was paid for the Auckland tracks, plus any future purchase of Tranz Rail’s Wellington rail passenger business, and public funding of Tranz Rail is getting close to the total value of Tranz Rail shareholders’ funds, measured by its current share price. Expenditure of that magnitude needs to be very carefully thought through and managed.

“We are strongly opposed to Tranz Rail being subsidised, but given the Government’s decision to use large sums of roading money to prop the company up, we suggest it would be prudent for the responsible ministers, Mark Gosche and Dr Cullen, to have a close look at the whole business. Careful analysis will at least assure road users, who after all are paying the bill, that their subsidies are properly targeted and not wasted on parts of the business with little or no practical chance of longer-term survival.

Mr Friedlander says the Forum has always accepted that rail has a role in New Zealand’s domestic freight industry, especially with the substantial freight volume increases forecast over the next 10 years. “But rail’s role in the freight system must be based on sound commercial principles if it is to be sustainable.

“Substantial sums of money are involved. The public deserves a detailed review of Tranz Rail’s total operations to determine which parts of the business are sustainable in the long term. If the Government insists on subsidising Tranz Rail, these payments should only go into operations which have an economic future and will make a positive contribution to the New Zealand economy. Otherwise there is a risk subsidies will be poured into supporting rail projects for political expediency or simply end up lining the pockets of Tranz Rail shareholders.

“Government saw merit in taking this type of approach before sinking money into Air New Zealand. The Forum thinks it would be sensible for it to carry out a similar exercise with Tranz Rail so that their subsidy strategy is carefully thought out, rather than blindly throwing other people’s money at the problem and risk wasting it.”

Ends

© Scoop Media