Keep the Rail

Regional study must not be a ‘whitewash’ February 15, 2013

East Coast rail supporters say a regional economic study with a focus on transport infrastructure will need to have Terms of Reference set by the communities affected to avoid being a contrived tool for Government to justify closure of the line.

District Councillor Manu Caddie said he will table a paper at the Gisborne Regional Transport Committee next week recommending a Terms of Reference be drafted by the local authorities, have proper opportunity for public feedback and be signed off only with the support all the councils affected.

“The announcement yesterday was intended to deflect criticism from the sorry situation the Government have found themselves in” said Mr Caddie.

In a Select Committee meeting yesterday KiwiRail admitted a lack of maintenance led to the washout that closed the Gisborne line and blamed the lack of funding for basic maintenance on government policy under the ‘Turn Around Plan’.

Minister for Economic Development Steven Joyce and Transport Minister Gerry Brownlee announced the joint local and central investigation to be funded by the Ministry of Business Innovation and Employment after a meeting with regional mayors in Wellington.

Dr Ganesh Nana, the senior economist for BERL who provided a review of KiwiRail estimates for the line has offered to assist with setting the Terms of Reference for the much deeper study the BERL report recommended and opposition parties have called for.

“BERL’s expertise will be invaluable to ensure the whole story is told so we don’t arrive at a predetermined outcome or ignore essential considerations” said Mr Caddie.

Mr Caddie said it was vital that the regions involved had control of the process to avoid a central government whitewash of the investigation.

“Basing their decision on the KiwiRail business case – which BERL has shown is a lot better than KiwiRail or the Government claimed – is a bit like asking a local freight company if they want some remote roads in the district to remain open.” said Richard Burke, General Manager at Leaderbrand.

“Local business owners have shown there has been a negative impact on business and local jobs as a result of this decision that the Government is responsible for” said Mr Burke. Leaderbrand is a major horticultural exporter from the region. Clyde Lumber in Wairoa has stopped processing timber since the line was mothballed in December with 15 to 20 staff now out of work. “Products from this region will be less competitive without the rail and that will mean more job losses that our communities cannot afford” said Mr Burke.

“The evidence is clear, from the Government’s own projections we are going to see another 80-90 logging trucks every day on the highway.”

Maintenance costs on State Highway 2 between Gisborne and Napier have increased significantly in the last 10 years – from an average of $7.6 million per year between 2002 and 2005, to nearly $15 million per year between 2008 and 2012. Based on MAF forestry data, BERL conservatively expects over 80 more trucks each day on the highway if rail is unavailable.

“We currently have rail freight income for 75% of the break-even cost of the line, and that doesn’t include any of these externalities like improved road safety, significantly reduced road maintenance costs and a number of important environmental benefits. With some small investment, it won’t take much to get to 100% in a few years and within ten years the line will be quite profitable. But that is still a false economy, we need to include the other benefits and this study has the opportunity to show the real costs and benefits of a secure rail link complimenting other transport infrastructure” said Mr Caddie.

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CONTACT: Manu Caddie: 0274 202 957  /  Richard Burke: 021 444 439

Still No Meeting with Minister February 5, 2013

Labour pledges to re-open rail line January 22, 2013

Phil Twyford  |  Tuesday, January 22, 2013

Labour in government will re-open the Gisborne-Napier rail line due to be closed under National, the party’s Transport spokesperson Phil Twyford says.

An independent report by economic consultants BERL casts doubt on the analysis used by KiwiRail to justify the mothballing of the line.

“KiwiRail’s business case for the closure is utterly inadequate and falls way short of a comprehensive cost-benefit analysis, something a Labour government would carry out and which I am confident would justify the line’s re-opening,” Phil Twyford said.

“National doesn’t give a damn about the affected communities, and is content to sit on its hands while Gisborne loses a vital economic lifeline.

“It is wasting billions of dollars on its ‘motorways of madness’ but cannot find $4 million to fix slip damage to this rail line.

“Shutting the line is typical of the short-termism National demonstrated with the closure and sale of the Hillside rail workshops. The BERL report shows that National is blind to the wider economic costs and benefits, just as it was at Hillside.

“The line should be reinstated now for $4 million. It will never be cheaper. The longer you leave it, the more expensive it will be to re-open it.

“This whole issue demonstrates National’s double standard when it comes to road and rail: KiwiRail’s inadequate business case justifying the line closure falls well short of the benefit cost analysis required of roading projects. On the other hand, if the Government applied the same narrow financial analysis to half the country’s roads they would be mothballed too.”

Mr Twyford said the BERL report noted annual freight volumes only needed to reach 180-200,000 tonnes per year for the line to be profitable. Current volumes of 44,000 tonnes showed that growth from local horticulture and forestry would bring the target within reach and this would justify future re-opening.

Gisborne-Napier Rail Review Released January 15, 2013

MEDIA RELEASE – 15 January 2013

An independent review of a KiwiRail report used to justify closing the Gisborne to Napier line has been released. The review was paid for by donations from the public and undertaken by economists at BERL and a specialist international rail engineering consultancy reviewed the capital aspects of the report.

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DOWNLOAD: BERL Report

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A number of significant inconsistencies within the KiwiRail report have been identified, and a series of questions raised about the figures used and conclusions reached in the report.

“The main finding is that the numbers are a heck of a lot closer to break even than previously claimed and with a tiny fraction of the massive amount of wood coming onstream put on rail, the line will quickly be profitable. The Government needs to make a small investment now to save provincial jobs and some horrific roading costs if the wall of wood was to travel by road” said Gisborne District Councillor Manu Caddie who led the fundraising campaign.

“With a margin of error of +/- 30% KiwiRail need to provide a more accurate estimate to justify their decision that undermines Gisborne and Wairoa employment and potentially closing down businesses in a region desperate for work” said Mr Caddie. “National Party MPs have been suggesting ratepayers should pay for the line repairs, next they’ll be expecting councils to fund schools and hospitals. The rail is public infrastructure paid for by taxes and 100% owned by central government – just like state highways.”

Gisborne Mayor Meng Foon said “I ask the Government to give us a chance to prove our ability to use the rail sustainably, it is only $4m for the capital repairs and we’ve seen how quickly KiwiRail committed to repairing the flood damaged West Coast rail earlier this month. Is it just the East Coast that is no longer important?”

“KiwiRail is in a bind as they have been tasked to deliver a return to government which is very hard to achieve when the asset they were given to do this on is in such a poor state of repair having been neglected for 10-15 years during privatisation. Freight had increased on this line and potentially there is a lot more to be had if the line was up to spec and well run” said Richard Burke from LeaderBrand, a major food exporter based in Gisborne. Mr Burke believes there is a compelling case for the government to make a capital investment to protect an essential public asset that benefits the regional economy.

“The costs to both repair and maintain the line vary significantly from what has been reported and give rise to questions of the government’s commitment to rail and even to regional New Zealand” said Mr Burke.

“Little consideration has been given to the impact of forestry on road network, the truck volumes are huge, not the five trucks a day Anne Tolley quoted. To bring the line out of mothball will not be viable, getting rail to a state where it can be competitive and ready for increase in log traffic has not been properly considered.”

“Commitment from more business in and out of region is a case of chicken and egg, wait until the rail is needed before investing, or set up now and be in a position to capitalise. Government wants assurances from users, users want an efficient cost effective, environmentally sustainable transport system. Our challenge is to government to give KiwiRail the opportunity to be just that!” said Mr Burke.

When capital costs are adjusted to more accurate figures (based on advice from the assessment of a specialist engineering consultancy), the rate of return on capital is brought into line with similar national infrastructure assets and more accurate existing freight volumes are input, the line is very close to break-even and – with some capital investment and a regular service – will quickly see a transfer from road to rail of some of the vast amount of wood coming on stream[1] resulting in Gisborne-Napier becoming profitable. And this is before the tremendously adverse impact on the roading budget of scrapping the rail line, is factored in. The likely per annum cost addition to the upkeep of roading from removing the rail option will exceed the per annum cost of retaining the rail by later this decade.

KiwiRail and the Government have an opportunity to relook at the situation before the report is publicly released in early January and reconsider the decision to mothball.

A meeting between Kiwirail, the Minister of Transport and a small group of business and community leaders from Gisborne and Hawkes Bay to discuss the reports has been agreed on but we are still waiting on his office to confirm a date.

CONTACTS:

Alan Dick – Chairperson, Hawkes Bay Regional Transport Committee: Tel. 027 224 0012

Meng Foon – Mayor, Gisborne District Council: Tel. 027 448 4084

Manu Caddie – District Councillor, Gisborne Regional Transport Committee: Tel. 027 4202 957

Richard Burke – Managing Director, Leaderbrand: Tel. 021 444 439

Roger Dickie – Roger Dickie New Zealand Limited, 0274 428 687

a)     The break-even tonnage for the line is less than 200,000T per annum rather than the 400-800,000 suggested in the report, if a return on capital is not included (as it is not for roads). If a 5% return is required then the required tonnage is 280-290,000T. This is on the basis of revenue charges per tonne seen elsewhere in KiwiRail’s NZ network, and holding operating margins at the level projected for FY12 on the Gisborne line by KiwiRail in its report.

b)     The figures quoted in the forecasts for capital track expenditure (e.g. track renewals) have not been based on a detailed survey and a thorough condition assessment of the track infrastructure on the route. Hence, there is a very wide tolerance on these figures that the engineering consultancy has not been able to independently quantify as part of this review. However, KiwiRail has stated that the figures may have a tolerance of +/- 30%.

c)      KiwiRail identified a major capital expenditure programme was required at the same time as an increase in maintenance expenditure. The engineering consultancy believes the increase in maintenance expenditure may not be necessary if the capital expenditure was split between sleeper life extension and renewal processes with poor sites being targeted early in the rehabilitation campaign. The consultancy believes the rate of sleeper replacement implied in the Kiwirail report is likely excessive.

d)     The engineering consultancy has some reservations about the manning requirements for this route as stated by the KiwiRail report.

e)     The engineering consultancy strongly believes that to determine a more accurate forecast for the route a detailed condition assessment needs to be undertaken to determine the true costs of forward track maintenance and renewal costs.

f)      The review concludes that the below rail capital expenditure forecasts were grossly exaggerated in the KiwiRail report “higher” estimates, but broadly accurate in KiwiRail’s “lower” estimates. That is to say, over the next 10 years circa $15.9m would need to be spent on the line in capex.

g)     The review has highlighted the erroneous double-counting of an 8.9% charge against the line made by KiwiRail for its own corporate assets, then followed up by KiwiRail further discounting the resulting cashflows from the line at a rate of 8.9% per annum to deduce a claimed “Net Present Value”.

h)     The addition of tonnages up towards a total of 280-290,000T p.a. (e.g. by way of capturing say even just circa 10-20% of the massive tonnage of forestry coming from the Mohaka area over the coming decades – see MAF’s 2008 Report projections) will then see a further increase in the item “Line Section Contribution to Other Sections” of the network in KiwiRail’s Report.

i)       Together these impacts imply that at a 5% required rate of return for national infrastructure (even this 5% would be in excess of the government’s cost of funds) at 280-290,000T p.a. the line pays for itself. This is before any allowance is made for the adverse impact on the roading network of the coming volumes of forestry (see k and o, below).

j)       In 2011-2012 more than 50,000T was transported on the line, another 50-100,000 is guaranteed and the balance will be quickly found from wood freight, which could within 3-5 years reach 1,200,000T per year should the line:

1. remain open with a regular, reliable service;
2. provide a cost per tonne (to the freight customer) similar to other parts of the country; and
3. have a small amount of capital spent on it to provide access from forests.

k)     The impacts on road maintenance costs and safety is a factor that has been highlighted by BERL. Impacts are likely to be much more significant than the KiwiRail report suggests. 83 trucks per day would carry 750,000T per annum (only half of the wood that the Ministry of Primary Industries projects from Mohaka alone) down SH2. Using rail provides a significant saving to the roading budget and improves public safety.

l)       The Port of Napier is now exporting more tonnage than the Port of Auckland and the transport needs for produce from north of Napier needs to be appreciated by decision-makers. Industrial users have pointed out that the Gisborne Port is today circa 65% more expensive than the average of comparable New Zealand ports. The international trend for reasons of port economics is for consolidation into fewer, larger ports serviced by rail.

m)    BERL has been particularly conservative in their analysis and have not included freight opportunities like Ravensdown who said they have 2,000T/week to transport north. A regular service offered at a rate comparable to other lines around the country would quickly see wood transferred from road to rail, and even more so if a short spur line was put into the PanPac mill at Whirinaki.

n)     Independent expert engineering advice obtained as part of the review suggests that (based on the line being first repaired) if KiwiRail’s capital expenditure was “well directed and preferably ‘front-loaded’, the annual maintenance could be reduced”. Another absolutely critical consideration is that railway line is part of New Zealand’s core public infrastructure, and the provision of that capital is for the government – like public roads, it should not need to make a full commercial return to the SOE KiwiRail.

o)     Spending on the Napier to Gisborne road in the last ten years has totalled $102 million. In the last four years it averaged $14.8 million per year. If the number of trucks, and heavy trucks at that, increases as projected by MAF due to rising forestry harvest by 33% to 38% because the rail line is not available for wood freight, the annual spend on the road can be expected to increase at least proportionately, namely by $4.9 million to $5.6 million per year. Note that this per annum projected increase in the roading budget dwarfs KiwiRail’s own per annum capital expenditure estimate on the rail line of an average of $1.58m per annum (refer page 38 of their report, note this average of Kiwirail’s includes the initial $3.3m to repair the March 2012 washouts). This indicates that it would be in the national interest to make the capital expenditure required on the rail rather than having to increase spending on the road, and suffer the negative externalities on the road.

p)     With a projected 750,000T (increasing thereafter) of logs annually to move from the Mohaka forestry area to the port of Napier, putting this volume (and weight) on rail would be the equivalent of taking off the highway a minimum of 83 trucks a day. New Zealand Transport Agency figures in the KiwiRail viability report state that there are 220 to 250 truck movements per day on the road, so this gives an insight into what rail freight could substitute in kind.

q)     Precise annual traffic volumes required for profitability are hard to quantify. KiwiRail’s report lists a number of (conflicting) tonnages required for viability.

r)      KiwiRail has added a 30% flat inflation in line maintenance cost to address “a backlog of work”. Independent engineering advice is that with a proposed increase in capital works of about $925,000 per year proposed for years 1 to 10, there should be no need to increase maintenance expenditure by 30%.

s)    BERL provides some calculations on the regional and national benefits of the line remaining open in terms of viability of local businesses, savings on road maintenance, road safety benefits and environmental benefits, particularly lower carbon emissions. BERL notes that all analysis to date, including that within the KiwiRail report falls a long way short of an adequate cost benefit analysis of the national interest for this decision which has serious and long term economic repercussions.

Review Released Tomorrow January 14, 2013

An independent review of the KiwiRail report used to justify closure of the Gisborne-Napier line will be released on this website on 15th January 2013.

BERL Report given to KiwiRail and Government December 13, 2012

MEDIA STATEMENT
13 December 2012

An independent review of the KiwiRail report used to justify mothballing of the Gisborne to Napier railway line has been completed this week and is now with the Government and KiwiRail for consideration before public release.
Gisborne District Councillor Manu Caddie says the review undertaken by BERL and a specialist rail engineering consultancy has identified inconsistencies within the KiwiRail report that suggest a different conclusion on the viability of the line.
“We want to give the Minister of Transport and KiwiRail the opportunity they did not provide the affected businesses and communities by letting them read the report before it is released publicly” said Mr Caddie who was part of a community fundraising campaign to pay for the review.
“Given the proximity to Christmas, we will give the Minister and Jim Quinn the holiday period to consider their response before we publicly release the report in early January. We had over 100 individuals, families, businesses and organisations donate to pay for the study and I know they are keen to see the outcome and we want to make sure the process has the best chance of success.”

Kiwirail agrees to cooperate with independent review October 10, 2012

Kiwirail has agreed to fully cooperate with an independent review of their decision to mothball the Gisborne to Napier railway line.

Gisborne District Councillor Manu Caddie said he had been assured in person and in writing by CEO Jim Quinn that Kiwirail would provide any information requested to BERL and engineers reviewing the calculations and conclusions announced by Kiwirail last week.

“Rather that using the Official Information Act, Jim has agreed to give us access to their staff reports, briefings, cost assessments and any other information required by the review” said Mr Caddie.

We have agreed to organise a meeting with the relevant Kiwirail staff and the independent review team to discuss the review process and work out what information is likely to be required.

“We are pleased Mr Quinn has offered to be the first point of contact and work constructively with the review team to help them understand how Kiwirail arrived at its decision” said Mr Caddie.

“Mr Quinn and I agree that it is important we all have a common base of assumptions to draw our conclusions from. If there is some error or new information Kiwirail are happy to revisit the decision” said Mr Caddie.

Mr Caddie said BERL start work on the review this week and expect to take about two weeks to complete the study provided they have access to all the information required.

Rail group pass fundraising target for Kiwirail review October 9, 2012

Photo: Kieran Chisnall

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Organisers of a public appeal to raise funds to review a KiwiRail decision to shut the Gisborne to Napier railway line are celebrating passing their fundraising target.

Gisborne Rail Action Group member and District Councillor Manu Caddie said this morning that $10,600 had been received already and more than $2,000 pledged to come in the next couple of days.

“This is really exciting, it means we can get the independent economic review underway and pay for an engineer’s peer review of the KiwiRail conclusions on the infrastructure.” said Mr Caddie.

Mr Caddie says there appears to be anomalies in the KiwiRail report.

“Even at Kiwirail’s 8.9 percent capital discount rate, which is very high compared to roading and other public infrastructure, on the freight tonnages predicted in recent reports we see a positive net present value within 10 years. Which means a recommendation to reinvest.” said Mr Caddie.

www.rail.org.nz

RAG Release Initial Analysis on KiwiRail Report October 7, 2012

Plans by a Gisborne lobby group to seek an expert independent economic analysis of the KiwiRail report used to justify the Gisborne-Napier railway line have had a boost with nearly $8,000 being raised over the weekend.

Gisborne Rail Action Group member and District Councillor Manu Caddie said the response has been overwhelming. The group hopes to raise at least $10,000 to pay for independent economic analysis of the business case for the line.

“This is not just a Gisborne issue, we have had some huge donations from all over the country, many New Zealanders are as angry about this decision as us locals.”

The group has released its initial assessment of the KiwiRail report and says that even if conservative freight figures are used the future for the line looks secure.

“Based on this initial analysis we are keen to get independent experts to have a close look at the KiwiRail figures and also an engineering second opinion on some of the claims made in the KiwiRail report.”

“Of course there are also wider economic impacts that KiwiRail should consider as a State Owned Enterprise such as the loss of tourism and the potentially much higher costs of freight should the rail not be available and it would have been good to see some of those included as well” said Mr Caddie.

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DOWNLOADS: Initial Comments on KiwiRail Report (PDF) + Appendix (PDF)