Rail buy back marks new sustainable era for transport

The Labour-led government has reached agreement with Toll Holdings Ltd for the purchase of Toll New Zealand’s rail and ferry business, Prime Minister Helen Clark and Finance Minister Michael Cullen announced today.

“Modernising our transport sector is central to transforming our economy and making it truly sustainable,” Helen Clark said. 

“With rising fuel prices and growing awareness about the challenge of global climate change, many nations are looking to rail as a central part of 21st century economic infrastructure.

“A modern rail system can lessen the carbon footprint of our wider transportation network, taking pressure off our roads and allowing our trucking and shipping businesses to operate more efficiently.  Combined with an increase of almost 1,100 per cent in public transport investment since 1999, today’s announcement marks a major step forward in building a truly sustainable transport network.”

The government will pay a purchase price of $665 million for the rail and ferry business with settlement on 30 June 2008.

“The selling off our public rail system in the early 1990s and the running down of the asset afterward has been a painful lesson for New Zealand,” Dr Cullen said. 

“During the negotiations with Toll it transpired that buying the rail operating business including the ferries was the best way to increase investment in the industry and enable it to be more responsive to the needs of New Zealand customers.

“Running a commercially viable business that was able to contribute to the economic and environmental development of New Zealand was proving extremely difficult without government support.

“The government will now avoid paying subsidies to third parties and we also avoid the on-going disputes over the implementation of the National Rail Access Agreement that had the potential to destroy value in the business and erode the morale of the people who work in it.

“We acknowledge the important role that Toll has played in the industry by increasing the volumes carried by rail and improvements that they have made to the operation of the terminals. We look forward to continuing to work with them in their ongoing freight forwarding business.

“In the months ahead, I will explore options for significant investments in new, modern rolling stock.  These will be presented to Cabinet and full details will be made available as soon as possible.”

Questions and Answers – Government rail buy back

What will the government own after today’s purchase?
The government already owns the rail infrastructure which includes

•  4,000 kilometres of track,
• six million sleepers,
• 1,787 bridges,
• 150 tunnels,
• 12,000 culverts and signalling infrastructure including points,
• railway level crossing alarms,
• electrification and communications systems.

These, along with control of trains on the network, are vested in ONTRACK, which has a staff of 900.

Following today’s purchase, the Government will own

• 180 mainline locomotives,
• 4,200 wagons,
• one rail ferry and
• leases on two other ferries.

Toll employs approximately 2,300 people in its rail and ferry operations.

Why has the government purchased Toll’s New Zealand rail business?
Buying the rail operational business:

• enables the government to implement a sustainable, integrated transport strategy and to invest in the business to further rail’s potential to contribute in a much more meaningful way to the New Zealand economy. The government believes a fully modernised rail system will be a central component in our work to build a truly sustainable economy.
• It also enables the government to avoid paying subsidies to third parties and the on-going disputes over the implementation of the National Rail Access Agreement that had the potential to destroy value in the business and erode the morale of the people who work in it.

Is this the sale and purchase agreement?
What has been signed is a “frame agreement” - an overarching agreement that sets the path for due diligence and contains the basis for all the subsidiary agreements necessary to carry out the transaction. 

How much a share does are you effectively paying for Toll’s business?
If you remove the value of the road transport and warehousing businesses, the value is approximately $3.16 a share. The amount being offered is not out of kilter with the $3 a share paid by Toll to buy minority shareholders last year. The asset has a greater value for the Government because the deal unlocks a number of benefits that didn’t exist under the former ownership structure.

How will the rail system be operated after the government takes ownership on 1 July?
The government is in discussions with Toll on a transitional agreement and is still developing plans for the long-term governance structure of the rail business.  Further details will be made public as soon as they are available.

Will the government invest in new rolling stock for the rail system?
The Minister of Finance will investigate options for purchasing new, modern rolling stock and will present options to Cabinet as soon as possible.