Kiwirail vs Skycity

Fran O’Sullivan looks at two deals…Michael Cullen’s buy back of Kiwirail off Toll Holdings and John Key’s SkyCity deal. One cost the taxpayers truckloads of cash and the other cost the taxpayers nothing.

First the Kiwirail deal.

When Michael Cullen bought “the train set” back from hard-nosed Australian transport operators Toll Holdings in 2008, Australian wags labelled it the Sale of the Century.

The former Labour Finance Minister wrote a cheque for $665 million to acquire Toll NZ’s rail and Cook Strait ferry operations and relaunched the business as KiwiRail in a patriotic fanfare at Wellington Railway Station. Toll had placed its book value for the assets at only $430 million. Naturally, Toll was feted by Australian analysts and the sharemarket which regarded the Kiwi assets as “a dog” and couldn’t believe the price the Kiwis were paying.

Hidden costs soon emerged (as well as preferential undertakings to Toll) and the “dollars out” cost became $690 million.

By the following April, the rail assets that the taxpayer had stumped up $690 million for were revalued at $349 million by Treasury – an upfront loss to the taxpayer of $321 million.  

Kiwirail has gone on to cost taxpayers considerably more than that. What is interesting is the next part.

It’s worthwhile recalling this cautionary tale when we assess the quality of the deal two businessmen-turned-politicians – John Key (who did a great deal of initial eyelash fluttering with the SkyCity board) and Steven Joyce – have notched.

Neither Cullen nor the Key/Joyce combo involved the New Zealand Treasury as a frontline negotiator in their respective deals.

Politicians of both Labour and National stripes wanted to get to the finish line and carping memoranda from Treasury officials full of economic jargon, net present values, cost-escalators, discounted cash flow etc; not to mention the crying need to invest in other more worthy investments, did not feature highly in their deliberations.

It’s worth remembering this when Labour bangs on now about Joyce/Key short-circuiting good governmental processes.

Labour’s moral high ground doesn’t look so very high when it comes to such matters.

Oh, look, another massive hypocrisy from Labour, a deal conducted behind closed doors, paying way over the mark and not involving Treasury. Labour really are sanctimonious pricks.

SkyCity meanwhile has cost the government how much? Oh that’s right nothing.

We won’t know for a while yet whether the “convention centre for pokies” deal SkyCity inked with the Key Government is the Buy of the Century. But judging by the raft of official papers released over the past two weeks, it does (on the surface) look very much as if SkyCity has scored a licence to print money with a good deal of downside risk underwritten by the Kiwi taxpayer.

Really? Underwritten how? The government has simply locked in a monopoly situation in Auckland which existed anyway and there was no political will to change. Labour and Greens oppose pokies out-right, despite availing themselves to sumptuous entertainment so they are never going to allow a second or even third casino to challenge SkyCity are they? Once again Sanctimonious crocodile tears from a bunch of lying hypocrites.

The problem is the deal created an uneven playing field and reinforces the impression that the Key Government will opt for backroom deals over due process.

Again, Really? All the other bidders required either government land, ratepayer cash, taxpayer cash or subsidies…in other words back handers. Only SkyCity cost taxpayers nothing.

We got a good deal, paid fro by stupid people being taxed for their stupidity. Just like smokers, I thank gamblers for their contribution to society.

  • Michael

    Despite the left wing beatup, the Convention Centre deal looks pretty good. No tax payer dollars in, Skycity have all the risk that the centre breaks even after the extra gaming is factored in.

    Fran also neglects to mention that the Toll deal included Kiwirail keeping $300m in debt, so in effect the taxpayer stumped up a billion dollars for a run down, loss making enterprise.

  • Blue Tim

    As usual the media an and the QoH (quadrant of hypocracy: greens, labour, mana & Winston 1st anti-jobs/investment hypocrites) don’t understand tha the man on the street thinks the deal is ok. It’s only an issue for the QoH who want everyone dependant on the state. God knows who’ll pay the tax

    • Sir Cullen’s Sidekick

      Wait for garden gnome, communist Campbell to run a text poll asking the losers whether the sky city deal is a good one or not. Then the “Stranded” will hold on that poll outcome for ever….

      • rockape

        You of course being a personal friend of Cambell know he wont phrase it like that. It will be the question . is problem gambling bad? which will get an overall yes vote,that will be proof that the JK deal is bad. You know how media works.

        • Sir Cullen’s Sidekick

          That is so true. I am noticing a trend (started by Vomit McCarten) from the left wing losers to blame John Key for everything. Since they cannot dent his popularity even by 1%, they are resorting to blaming him for everything.

          • Dave

            I suggest others have a look at the link to realise how toxic Matt McCarten is. his background and ability to defraud Taxpayers trump most fraudsters known to kiwis.

            http://en.wikipedia.org/wiki/Matt_McCarten

            I always thought he has a leftie fool, but………

    • Macca

      Totally agree BT! The other thing I would like to know is who is it that is holding a shotgun to the heads of these gamblers? Who is driving them to the casino and MAKING them put their money in to the machines and push the button! The QoH as you so correctly call them are big on advocating that beneficiaries are responsible people and the gummint should leave them alone, yet these gamblers are incapable of having any personal responsibility!

  • Sir Cullen’s Sidekick

    My uncle Matt McCarten says – “Kiwi Rail transports people, SKy City convention centre deal ruins people”. Can’t argue that!

    • rockape

      Nearly right but not quite; Railways ruin the country and Sky city gives the convention center and lots of lovely tax revenue. As for transporting people my BMW does just fine and nearly always runs on time !

      • Richard McGrath

        Correct re Kiwi Rail ruining the taxpayers who had to bankroll it. But what about the shareholders in SkyCity who will be enriched under the deal?

        • parorchestia

          And it requires hefty but hidden subsidies to keep it running. If we let this Victorian technology die it would make shipping more attractive.

  • Balanced View

    Gee – you wouldn’t want to learn a lesson I suppose…..

  • Col

    So the lesson learnt here, would be for Len Brown too sell some assets. maybe?

  • PP

    I don’t see what the issue is with the extra pokies. If someone wants to waste their money on them they can already do it at the existing SkyCity facilities around the corner. This isn’t creating a “problem” that doesn’t already exist.

    Now if the new pokies were placed at corner dairies scattered around the city that might be a different story. Oh wait… Lotto.

    • Euan Ross-Taylor

      Totally agree PP. Sky city is not being moved closer to problem gamblers, nor is it putting on a free bus service to the door. It is in no way making it easier or harder for people to get in. The only thing that is to happen is Sky city have said, “We will build a big convention centre next door to us for free if we can add extra tables to cater for the extra clientele patronising the new convention facility. Absolutely nothing changes for Joe kiwi gambler. Of course Sky City needed an extension to their license to guarantee to be able to recoup at least some of their outlay over the coming years.

      • rockape

        I wonder how many Kiwis from a radius of outside 50 miles have ever been to Sky City casino ? I have been up the tower with my son ,but in the 5 years I was in Auckland never set foot once in the casino.

        • parorchestia

          I have. $6 down, got bored, left.

    • parorchestia

      Is the number of gambling addicts related directly to the number of poky machines? If not, why do the antis whinge and moan.

  • AnonWgtn

    Fran must have got out of bed the wrong side – she is usually very good but lacks serious depth this time.
    Where is it going to cost Taxpayers please ?

    • GazzW

      It’s the social cost AW – you know, all those kids abandoned in the carpark, the welfare cheque disappearing into the pokies, no money for food or decent housing. It’s all about that new word in the lefty political dictionary, ‘poverty’.
      Funny though that there appears to be so little concern about the grubby gambling dens out in the ‘burbs or horseracing or Lotto. What about the giant brothel over the road?

      The hypocrisy of it all sickens me – how can anyone accept labour’s stance on this when their leading politicians are caught redhanded accepting kickbacks by way of hospitality and premium event tickets. Just the same with The Hobbits and God knows what else that we don’t know about.

      • Macca

        Totally agree Gazz. The difference is that the hypocrites from Labia ie. Duck and Cosgrove, got up in the house the other week and admitted to the backhanders they had received from Sky and tried to trivialize them before they slagged of the convention centre – so that made it all OK!

    • Jman

      Fran O’Sullivan is definitely losing her credibility. First she supports the man ban, and now this. I smell a rat.

  • Phar Lap

    When Sullen Cullen rushed in and got fitted out by slick Aussies on the great train robbery sale,with Kiwi Rail.It brought to mind the famous saying of Barnum and Bailey the circus kings.”There is a sucker born every minute”,surely not Cullen?.With John Key,and Stephen Joyce”.Never look a gift horse in the mouth”.Or why did it take so long to clinch the deal with Sky Casino.I forgot ,joke green party, and the also ran Lie-bour party the potential destroyers of NZ economy both parties a rabble of losers mostly list MPs who wouldn’t work in an iron lung,tried to block it.

    • Macca

      I think Fran is on drugs if she thinks there is any comparison between Cullen and Key/Joyce – to even mention them in the same sentence is ridiculous – unless comparing chalk with cheese!
      Correct me if I’m wrong PL, but was Kiwirail not bought by the left in another desperate attempt by Liebour to clutch on to the baubles – along with WFF and the interest free loans? I still laugh when I hear any of the idiots from the left referring to the bottomless pit which is Kiwirail as being an investment! Thank God that Key’s idea of an investment differs to Cullens – maybe that could also be a defining factor as to why there own bank accounts differ somewhat – although I hear Cullen is certainly now making amends to that fact, thanks again to the taxpayer!

    • Dave

      Who lost money in the Kiwirail deal….. yup, the Kiwi taxpayers, all up with the maintenance and reinvestment probably now over a cool BILLION.

      Who stands to loose money on Skycity, oh, SkyCity, and any fools stupid enough to take their been money in there. THe business model they are following is to build a convention centre next to their gambling operations, oh, probably to lure visitors to the conference centre, and in turn to spend a few hundred in the casino. so, say 100,000 people extra a year through the casino, (mainly Business people visiting) at an average of $100 – Geez Louise, that could be $10,000,000.00 (Put the extra 2 zero’s in for you SCS).

      Now i understand why key thought the SkyCity deal was good, and why Cullen thought the CityRail deal was so good, Key can add, Cullen and Labour are blind.

      PS: Above “ciggie packet” calc’s dont include the other spinoffs, Taxi’s, retail, Air NZ, restaurants, you can probably add another 25-50,000,000.00 for all of that.

      I wonder if Cullen or his family trust, or hidden investments didn’t have a lot of shares in Toll Holdings. WOuld explain a lot, but we know labour would never do anything corrupt, would they!!

      • dyannt

        I don’t know why it has taken me so long to be aware that Cullen is never interviewed in the media. If that was the condition of him getting his job at the Post Office, it was nearly worth it. Same applies to Helen being assisted to move to the UN.

      • rockape

        Dont forget the GST and company tax that goes into Government coffers!

  • Johnny T

    Key was very successful in what he did prior to coming to politics, and he has all the skills to do deals such as the sky city one. History lecturers on the other hand don’t tend to have those skills.

  • Mr_Blobby

    I will say it again MONOPOLIES are bad COMPETITION is good.

    Come on Muppet’s take your best shot.

    For those who appreciate the real situation, buy as many Skycity shares as you can.

    But that does not make it, the deal, right.

    • rockape

      monopolies are bad when they deliver essential services. Like electricity, fuel,food, water,rubbish removal all things government at local or national level want control of in a socialist World. Monopolies where I can choose to ignore the service eg casinoes, brothels,TV etc I can live with. I dont need to use them so their monopoly has little power over me.

    • rockape

      Yes I approve of competition, competition in education in health services on the type of light bulb I chose to fit to my house. In who provides my garbage disposal,provides my water and who surveys the fact my house is fit for its purpose. I see very little in local or National goverment provided services that allows me the freedom to choose.

    • rockape

      Do I take it your preferred choice would be we went to another casino operator and had him build another Sky city with equal facilities to the present one. That would provide competition but would it help with problem gambling,would it get us the money for the conference center.

    • rockape

      If monopolies are bad, how do you think multiple railway companies would survive. Do you not think the railway monoploly is what keeps trains on the track. Before you jump in and say Ah well they have competition from road transport, well so does Sky city have competition from pub pokies from tab, from the lottery.

  • Richard McGrath

    The Labour Party hypocrisy just goes on and on… while they wail on about SkyCity, they are almost certain to stand a TAB sports bookie as their candidate in the Wairarapa electorate at next year’s general election.

  • Anonymouse Coward

    A fair price for Kiwirail at the time of purchase would have been scrap value plus a small margin. Remember assets are valued on the free cash flows they generate. Kiwirail didn’t generate enough cash to pay operating costs, fund improvements or renewals and then have enough left over meet the cost of its capital and return a profit to its owners.

    Toll was bleeding cash at the time because of its investment in Virgin Australia, it needed cash desperately.

    Paul Little from Toll needed to sell fast, he had the good fortune to meet a big sucker bankrolled by the NZ taxpayer, Michael Cullen.

    This is all history, the current mystery is why the National Government gave Michael a knighthood and a nice little earner as Chairman of NZ Post?

    You will note that I have not extended to Michael the courtesy of referring to him by his title “Sir” Michael. The honour of a knighthood is extended to those who have served the country well, a requirement that Michael did not meet.

    Giving a gong to Michael is the equivalent to awarding Pol Pot a humanitarian award.

    • parorchestia

      Maybe it is a very cunning plot to keep him in the public’s eye in the same way as mothers say: “be good, or the bogey man (who got us into all this mess) will come back.”

  • parorchestia

    I hate to disagree with our Fran, but but the Convention Centre was a GREAT deal, not just a good deal. And Cullen’s train set was an absolutely lousy deal. That plus the trucking arrangements made it obvious that Dr Cullen had no business ability whatsoever.

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