Photo Of The Day

SuperluzSME confronts policemen, Mexico City, April 2011.  Photo Noor Khamis/Rueters

SuperluzSME confronts policemen, Mexico City, April 2011.
Photo Noor Khamis/Reuters


  SuperluzSME represents Mexico’s Electricians Union

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Mythbusting – Rail in NZ

Liberty Scott

The Labour party and other train spotters would have you believe a whole load of nonsense about rail in New Zealand that is frankly all motherhood and apple pie fantasies.

Liberty Scott bursts those bubbles:

Here’s a good summary I wrote before...

1. Rail network shrinked due to privatisation. Wrong. Almost all line closures were under state ownership when rail had a statutory monopoly on long haul freight!  The track network length has barely changed in 20 years.

2. Rail stopped being viable after free market reforms. Wrong, it stopped being consistently financially viable by 1945. It had short pockets of profitability since then. The early 1970s saw it drift from profitability to losses, which weren’t recovered until 1983 after debts had been written off and it started being paid by government to run commuter rail services in Auckland and Wellington under contract (and a host of unprofitable freight lines, such as the Otago Central Railway).

3. Track Maintenance was run down after privatisation. Wrong, it was already being run down in public ownership, track was run down more, but sleeper replacement under private ownership increased.

4. Rail is worth a lot as an asset. Wrong. The NZ$12 billion book value of rail that was on the Treasury accounts was a nonsense, equating it to all other SOEs combined (e.g. 3 power companies, Transpower, NZ Post) which all make profits. Most of the value is based on a replacement cost if it was built today, which of course would never be done. I’d argue it is probably worth 4% of that at best.   It’s worth noting that this has only been partly fixed as of late.

5. Rail only needed rescuing after privatisation. Wrong. It has been rescued several times before. It has long had serious economic viability issues.   In recent history it was bailed out in 1982 (all debts cancelled, and the operation commercialised), 1990 (had the debt of the North Island Main Trunk line electrification written off as a “Think Big” debt, then NZ$350 million, and another $1 billion wiped off to pay for the restructuring to make it viable).

6. Rail is good to reduce accidents, congestion and environmental problems Wrong. “the optimal level of externalities is not zero – at some point it becomes more expensive to lower them than the welfare created by their further abatement” Rail related deaths are only slightly lower than truck related. No evidence that rail reduces congestion. Sea freight is twice as fuel efficient than rail, but little interest in that mode.  Indeed Greens actively oppose international ships carrying domestic freight along the coast to placate their unionist mates.

Like I said before, the presentation basically says that rail is not as fuel efficient as is quoted, and that only 30% of the current network handles 70% of the freight. It suggests concentrating on the main trunk, and lines to the Bay of Plenty and the West Coast

Understanding assets sales properly

NZ Herald

Yesterday John Roughan very clearly explained the ethos of the mixed ownership model:

Key’s relationship with the electorate is more like a corporate chief executive than any New Zealand Prime Minister I have seen. People like me sense that he looks at assets as a business person does, not as we do.

Most of us don’t sell any personal possessions that still have value for us, unless it is to replace them with a new or better version of the same thing. Most people take the same attitude to public possessions.

But business managers dispense with valuable assets all the time. When they look at their property they see a chunk of capital that can be put to possibly better use. They often sell their buildings and lease them back. Like most people I can’t understand that.

Companies lease cars and much else. They see holding costs that most of us don’t notice.

When someone like Key looks at a profitable state-owned enterprise he doesn’t simply see a stream of future dividends as most people do – and as the Greens did when they calculated the sale of power companies would be a net loss to the public.

Key looks at those properties and thinks of the cost of the capital he is having to borrow for other public purposes.

Because he is running a country, not a company, he thinks the best use of his capital is in public services that cannot operate profitably and attract private capital.

The Greens and Labour don’t understand this because to a man or woman they have never run a business…most have had a lifetime cosseted in one for or other of state employ. What Labour and the Greens do understand though is this:

Labour and the Greens think so too – that is why they haven’t undertaken to buy back the assets Key will sell. And not many of us would want them to. It is a curious thing that while there is heavy opposition to privatisation there is no public enthusiasm for nationalisation.

When the previous Government rescued Air New Zealand and bought back the railway it was more by accident than design.

It took over railway maintenance hoping to lease the tracks to the train operator, but Toll Holdings, like TranzRail, couldn’t make the operation cover the full cost of maintenance.

That privatisation confirmed the infrastructure is not economic.

Labour and the Greens have a major problem though. With the gutting of their support they are left with hard core activists who seriously believe that nationalisation is a valid option. Dyed in the wool Leninists most of them.