Rail bill balloons as talks deadline looms

By Duncan Bridgeman

Friday 25th June 2004

The government could be forced to pump another $100 million into upgrading the national rail network as initial estimates of upgrading and maintenance costs increasingly fall short.

Multiple reports confirming the West Coast Midland Line required $70 million within two years' time to keep it operational give a glaring indication the government's proposed $200 million total upgrade package will be insufficient.

The news coincides with delicate talks between Finance Minister Michael Cullen and transport giant Toll Holdings over the transfer of the network back to the Crown.

A stumbling block has been achieving certainty over the access charges Toll would pay for on-going maintenance of the track an issue that threatens to stymie an agreement being signed before the June 30 deadline.

The government is caught between not wanting to set an access fee that is prohibitive to Toll, or any other operator, and not wanting to provide Toll with a charity.

But track users such as Solid Energy, which rely on the Midland Line, were sweating over again being asked to pay for deferred maintenance work over and above the government's $200 million funding package.

"If there is a dispute about access charges I would hope that it doesn't relate to deferred maintenance work because we will not accept that," Solid Energy chief executive Don Elder said yesterday.

Track users had already paid more than $300 million in the 1990s for this purpose but the money was never spent on maintenance at the time.

Chris Mackenzie, an advisor to Dr Cullen, said the new board of Track Co, the state entity set up to run the track, would determine the allocation of the $200 million.

"They may also determine there's some upgrading needed in consultation with Toll ... and anything over and above the $200 million Toll will contribute to varying degrees through the access fee," he said.

Track Co would evaluate the network to establish how much extra money, if any, would be required once it came into existence next month.

Elder said the Midland Line made up about 11% of the total national track, which all things being equal could mean a total deferred maintenance liability of $600 million.

However, the Midland Line was one of the most difficult areas of track in the country and carried close to a quarter of total rail freight, which meant the total upgrade could be estimated at four times the cost of Midland, or about $300 million.

"We warned everyone about this and on July 2 we want to see action not talk," Elder said.

Mackenzie said the government would not comment about any extra costs for upgrading the track until an evaluation was done.

Asked whether the taxpayer would be asked to front up with more funds, Mackenzie said that decision would be made if it was necessary.

"The new [Track Co] board might come in and say they've actually found the network is stuffed and we need another $50 million ... so then cabinet would make a decision whether to pass that funding across to Track Co."

The Track Co board will be appointed next month. Cameron Moore, 63, a former plastics company director, has already been appointed as chairman and Toll will automatically get a seat.

Meanwhile, Mackenzie said negotiations with Toll were on track for a deal transferring ownership of the track network to be signed by June 30.

Dr Cullen earlier told a finance select committee that talks were difficult and he was concerned about Toll gaining a tax advantage if the deal was delayed.

Mackenzie said the problems, including the access fee, stemmed from a different set of circumstances today than those when the two parties signed a heads of agreement last July.

As a single operator Toll had wanted to pay a single access fee. But with new operator Connex appointed in Auckland, the government had decided to go with a lines-specific fee.

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