KiwiRail: Doomed to Fail?

Luke Malpass
10 September 2009 | IA115
KiwiRail: Doomed to Fail?

ia115Government ownership cannot and will not ‘fix’ rail in New Zealand.  Luke Malpass argues that one year after the renationalisation, it has become clear that the previous government’s justifications for purchasing this expensive, loss-making asset were driven more by ideology rather than sound economic or social reasons.

Since the New Zealand rail system was nationalised in 2008, it has already cost the taxpayer around $1 billion. In the year since the purchase, KiwiRail has lost almost $1 million of value per day, and keeping trains running will require ongoing taxpayer subsidies regardless of ownership,’ says Malpass. ‘There are too many kilometres of track and insufficient demand from New Zealand’s small population to reach a commercially viable break even point.’

‘The renationalisation of KiwiRail was a flawed decision.’

‘Treasury repeatedly advised the Clark government that a change of ownership would not change the underlying problems with rail. Yet KiwiRail was purchased for environmental reasons like getting more traffic off roads, reducing carbon emissions, and promoting sustainability.’

The reform, rationalisation and resale of KiwiRail should be a top priority for the government.

‘KiwiRail needs to be restructured and privatised in separate pieces. The commercially viable parts can be privatised and certain lines sold to interested parties like ports and private companies.’

‘Isolating the profitable parts of the rail system from the failures would help stem the flow of losses and give re-privatised parts of the system the best chance of success,’ says Malpass.

Treasury estimates that to break even, the serviced track distance will have to shrink from 4,000kms to approximately 2,300kms. To achieve this, extensive track closure is required. The unprofitable parts of the line should be shut down and the land sold, or put to better uses, such as part of the new national cycleway.

‘KiwiRail should not continue in its current form; it will become a soak hole for cash. The best thing government can do is get it off its books,’ says Malpass.

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