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Turnaround plan for KiwiRail – Part One

by Rail Express last modified May 18, 2010 01:31 PM
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The New Zealand Government is “working hard” to encourage an environment where rail can operate efficiently and with strong commercial imperatives, though this is not without its challenges, according to transport minister Steven Joyce.

Turnaround plan for KiwiRail – Part One

Image courtesy of KiwiRail

By Jennifer Perry

Given the previous NZ Government’s “poor choice” in spending a billion dollars of taxpayers’ money on KiwiRail, that is now valued at just $388m, Joyce* said its time for some “hard-nosed realism” about future investments.

KiwiRail’s turnaround plan
For the past several months, KiwiRail has been working on a turnaround plan that aims to see the company become a sustainable freight-based business that is able to fund its ongoing and capital expenditure from customer generated revenue within ten years.
“It’s a challenging goal,” Joyce said.
The condition of the below-track infrastructure and rollingstock continues to present “serious issues” for the company, Joyce said, adding that the problem with Wellington’s metro rail is just one example.
“There’s been a lack of a consistent and clear customer focused strategy to preserve market position over a long time and a number of owners,” Joyce explained, adding that this has led to a lack of customer confidence and an absence of organisational certainty due to differing ownership objectives.
The net effect of this is that rail has lost relevance as a “time-dependant freight option”, and has seen rail’s share of NZ’s net-tonne kilometre freight task decline from approximately 20% to 16% in a period where the total freight task grew by 87%, he said.

Government’s role
Joyce emphasised that for the turnaround plan to be successful, all stakeholders must get behind and support KiwiRail, not just government and taxpayers.
“The Crown’s role would be to front up with some capital [and] the government will shortly announce a decision as to what level of investment it is prepared to provide the company,” he said.
“Before we part with any more public money we need to see sound business cases that clearly demonstrate how services will be improved and revenue will flow from those improvements.”

Customers’ role
The next group of stakeholders that need to step up, according to Joyce, is KiwiRail’s big freight customers.
Some freight is being carried on KiwiRail at prices approaching marginal cost basis.
Joyce said these arrangements need to be altered to ensure that KiwiRail can meet the reasonable costs of track maintenance and renewals from the freight it carries.
“It’s not about pricing uneconomically. It is quite possible for rail to be significantly cheaper than other modes for the types of freight it is most suited to carry, and cover its own costs,” he said.
As well as carrying freight at a fair price, Joyce said KiwiRail will need to carry a lot more of it.
“The big customers have told us that they are very positive about putting more freight with KiwiRail, particularly on the main trunk, and if service times and delivery times improve then they will put much more freight through the company,” he said.

*This was a report from NZ minster for transport Steven Joyce’s presentation given at the recent NZ Rail conference.

To read Part Two of this story click here

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