KiwiRail Response to Napier-Gisborne Report

15 January 2013 9:09AM

KiwiRail is satisfied that the figures in our report are robust and our view remains the same - if we thought we could run a commercial operation on that line we would be doing so.

However you assess it, the gap between what was currently operating on the line, and the volume required to cover the fixed costs of reinstating and then keeping the line in a fit for purpose state is significant. On top of the $4million to reinstate the line, the overall rail asset is in extremely poor condition and high capital and maintenance costs will be required for well beyond 10 years to ensure it is fit for purpose. 

The BERL report is essentially a brief desk-top assessment of a highly complex business case. We have spent over two years assessing the costs and future viability of this line on a commercial basis, as well as extensively and directly consulting with local business and community leaders. We know the business, we know the region, we know the infrastructure and we are confident of our assessment.

For example we agree there is a wide range in the capital assessments, but for such a long and complex line such estimates are normal practice and they generally average out when a detailed engineering assessment is conducted. But even if the capital requirement was at the lower end of our estimate, it would still need to be funded as the margins are not enough to cover the capital that would need to be spent. We have always said that that a more detailed assessment would be required so that the full risk is understood before more money is committed, but we won’t be doing further work on this unless the funding becomes available.

The comparison based on revenue per tonne is flawed. Revenue is directly linked to the distance the freight needs to travel and a large proportion of the freight only travelled approximately half the length of the distance between Napier and Gisborne. For this reason revenue per net tonne kilometre (NTK) is a more accurate indicator for comparative pricing.

The BERL report notes that the capital spend for rail on the line is $9.25 million over 10 years, which is correct for the low projection scenario.  But the report doesn’t mention that this is in addition to the $31 million of annual maintenance costs over the same 10 year period. The combined annual cost  of the capital and maintenance spend is therefore at a minimum $4 million per annum for the foreseeable future (ie not just for ten years) and it is this level of cash that needs to be generated in freight margins to pay for the infrastructure costs. But we estimate that $6 million per year, as we have previously stated, is a more realistic estimate.

We do not debate the volumes of goods to be moved out of the region over time. What needs to be understood is whether rail provides the right answer to those producers in many different locations in a competitive market. For example road operators can travel directly north, whereas rail has to travel hundreds of kilometres south, before going north. It is a fact that if rail cannot meet the timings and pricing of other transport operators, the volumes will not come to us and our pricing must be on a commercial basis.

The possibility of forestry has always been the promise, however we have not been able to gain any commercial agreement that would deliver on that promise, and nor is the wood on stream in the right areas soon enough.

Our assessment remains unchanged  - we do not consider volume growth in the ranges required to be realistically achievable and, therefore, the line is not commercially viable.

ENDS

Media Contact: Kimberley Brady, Communications Manager, 021 942 519