Government moves to rescue Tranz Rail

AS THE VALUE of shares in Tranz Rail continued to slide towards NZ$2, public ownership of New Zealand's 3900 km rail network became a subject of serious public debate during July. A group of major exporters ranging from coal and forestry to dairy products announced the formation of Rail Freight Action to ensure that their interests were taken into account, should the government decide to take back control of the network.

In a statement issued on July 22, RFA said Tranz Rail's operating performance and its worrying financial situation posed a threat to the competitiveness of New Zealand's key export industries. Some members had reported price increases of more than 50% as rail freight contracts came up for renewal this year, despite the fact that 'Tranz Rail appears unable to fund proper maintenance of tracks and rolling stock from its own resources' (RG 8.02 p397). According to RFA, the cash situation is apparently so dire that some exporters 'have been asked to front up with cash for routine maintenance of wagons.'

During a July 23 briefing, Tranz Rail Managing Director Michael Beard and his Chief Financial Officer Wayne Collins strove to allay the concerns of investors about the true profitability of the company. They said earnings before interest and tax are forecast to rise from NZ$26m during the coming year to NZ$94m in 2004-05. However, the result for the year to June 30 2002 is expected to be a loss of around NZ$200m thanks to abnormal items and asset write-offs.

Collins promised that the lease of the train ferry that links the two islands would be moved on to the balance sheet, resulting in a one-off charge of NZ$30m during the financial year to June 30 2003. As for the treatment of spending on infrastructuremaintenance and renewals, 'we weren't afraid of making the tough calls to do the right thing, but in the case of track investment we are completely satisfied that our practices are appropriate', he insisted.

The government has been discussing the network's future with Tranz Rail since the start of this year, but appears to be some way from any decision. What it has done is to encourage regional and district councils to apply for grants to support rail improvements under the Alternatives to Roading scheme launched in 1995.

Tranz Rail revealed on June 27 that six such applications had been made for grant totalling some NZ$40m. Schemes include improvements to keep existing Bay of Plenty log traffic on rail, track lowering through tunnels to carry high cube containers, and replacement of a timber bridge by a modern structure over the Grey river.

RFG argues that if the infrastructure were to be nationalised 'a regime which allows competitive provision of rail freight is essential.' But in a small and thinly-populated country with an essentially rural economy, trucking provides more than enough competition already.

H Tranz Rail shares were delisted from the NASDAQ stock market in New York on July 31.