The Crown has been in negotiations with Toll over a buyback for several months.

It comes against a backdrop of wrangling over Toll's access agreement to the rail tracks, which are already owned by the Crown, with the Government saying it has been failing to pay its fair share.

Prime Minister Helen Clark today said the deal would pave the way for the modernisation of the rail network, which formed a key part of the Government's sustainability agenda.

"Modernising our transport sector is central to transforming our economy and making it truly sustainable," the PM 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."

She said a modern rail system could reduce the emissions of the overall transport network, take pressure off our roads and allow trucking and shipping to operate more efficiently.

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

Finance Minister Michael Cullen said buying the rail operating business was the best way to increase investment in the industry and make it more responsive to customers' needs.

Rail assets had been run down after the sale of the public rail system in the early 1990s and the Government would now look at upgrading rolling stock.

The New Zealand First party will welcome the announcement, as their transport spokesman Peter Brown called for rail to be nationalised last December.

"The failure (of negotiations between the Government and Toll) is yet another chapter in the sorry history of our rail services. Sold for a song in 1993 by the National Government to its rich mates Fay and Richwhite, rail has been run into the ground by a succession of owners. It is time to face facts - privatisation has failed.

"Government ownership could open the door to improved flexibility, innovation, efficiency and service, which are currently lacking," he said.

Dr Cullen said Toll had done a good job increasing freight volumes and streamlining the operation of terminals, but it had struggled to run a "commercially viable" business 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."

The negotiations reportedly took place against a backdrop of the Government manoeuvring to make Toll start paying the full price of access to the rail track network.

Toll has been paying about $48 million a year since an access deal was struck in 2004, with the Government picking up the shortfall of about $10 million needed to maintain and improve the tracks.

See also:

New Zealand buys back rail network from Toll

Reuters: May 5

WELLINGTON - The New Zealand government said on Monday it was buying back the rail network from Australia's Toll Holdings Ltd.

It said it would pay NZ$665 million ($520 million) for the operation, including inter-island passenger and freight ferries, and take control on June 30.

Finance Minister Michael Cullen said the privatisation of the rail network in the early 1990s had been painful and seen the asset run down.

"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," Cullen said in a statement.

Toll, Australia's biggest transport group, acquired control of the rail operation after a protracted takeover bid for TranzRail Holdings Ltd in 2003.

At that stage the New Zealand government bought the rail track network for NZ$200 million and gave Toll exclusive use for an annual fee based on performance along with promises to invest in new rolling stock.

The railways were sold in 1993 to a consortium that included U.S. rail operator Wisconsin Central.

See also:

Rail buy back marks new sustainable transport era

Press Release: New Zealand Government
Monday, 5 May 2008

Rt Hon Helen Clark
Prime Minister of New Zealand
Hon Dr Michael Cullen
Minister of Finance

Embargoed until 10am

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.”

Dr Cullen will hold a media briefing at 10am. Further details including background material will be provided later in the day.

ENDS

See also:

Govt could have bought the trains for less

Fairfax Media: 05 May 2008
By GARETH VAUGHAN

So the Government is coughing up $665 million of taxpayers' money to buy Toll New Zealand's trains and Cook Strait ferries.

Amid government crowing today about it apparently saving the transport system, environment and economy, it's worth remembering the Government missed the chance to buy these assets for a lot less five years ago.

Back in April 2003 the rail operator, then known as Tranz Rail, engaged in a foolish, and unsuccessful, attempt to obtain a High Court gagging order preventing Standard & Poor's from making public a five notch downgrade in the rail group's credit rating.

The court was told that Tranz Rail's cashflow forecasts showed it would have just $1.3 million available at the end of June 2003 with its bank debt facilities fully drawn.

That would have been nowhere near enough to meet a large and complex company like Tranz Rail's day to day running costs. Asset sales were one lifeline but potential buyers knew the financially crippled Tranz Rail would be a forced seller. So clearly the company was heading for bankruptcy.

The Government, which Tranz Rail had been lobbying for help for months, was well aware the rail group was in dire financial straits.

Rather than launch a quick bid, or allow Tranz Rail to fall into receivership from where it might have plucked the assets at fire sale prices, the Government concocted a complex $226 million rescue package. Meanwhile Tranz Rail's shares continued trading on the sharemarket.

This allowed aggressive Australian freight group Toll Holdings to buy shares, building up a 19.9 per cent stake and seizing the initiative.

This eventually led to an uncomfortable alliance with the Government buying the dilapidated rail network for $1 and Toll the trains, ferries and trucks.

Fast forward five years and rather than great improvements to the rail network, all we've really had is continuous bickering between Toll and the Government over who pays for what.

At least that should end now. But it's worth remembering it might have happened at a lot less cost to the taxpayer.

See also:

History of the railways in New Zealand

New Zealand Herald: May 05, 2008

The Government's re-nationalisation of the railways , buying the assets off Tranz Rail for $655 million, has rewound history.

A potted history of New Zealand railways:

1862 - first railway opens - a horse-drawn tramway from Dun Mountain copper mine to Port Nelson.

1863 - first steam railway opened on the Christchurch-Lyttleton line, via the Lyttleton tunnel.

1870 - with less than 100km of track operating, Prime Minister Julius Vogel calls for railways to aid economic development, and a narrow gauge is chosen to save money.

1873 - first train in North Island, Auckland-Onehunga.

1878 - first express trains Christchurch-Dunedin cover 370km in 11 hours.

1879 - possible to travel 600km from Christchurch to Invercargill by train.

1880 - Almost 1900km of railway open.

1886 - Wellington and Manawatu Railway Company opens line to Longburn, near Palmerston North, introducing gas lighting and dining cars. It was profitable for 22 years, until taken over by Government.

1908 - North Island main trunk line completed after 23 years work - the crowning achievement of the "railway age". First train carried MPs on a junket to Auckland, in August.

1923 - West Coast line opens - its Otira tunnel, at 8.55km the longest in the British Empire and containing the nation's first electric railway.

1930 - Rotorua Limited introduced for tourists from Auckland, with observation car.

1936 - First successful railcars, Wairarapa route.

1945 - South Island main trunk from Christchurch to Picton completed.

1953 - the length of railway line operating hits its all-time peak - 5656km. Christmas Eve crash at Tangiwai kills 151 rail passengers.

1955 - Rimutaka tunnel opens, eclipsing Otira as the longest at 8.8km.

1982 - Railways Corporation created as statutory corporation from Railways Department.

1983 - Start of deregulation of "distance limits" on trucking companies opens railways to road-based competition. Rail employs 21,000 workers.

1984 - Electrification of North Island main trunk starts. Completed in 1988 at a cost of $250 million.

1986 - Labour government makes railways a state-owned enterprise. In six years the workforce is cut from 21,000 to 5000, while productivity of the land-based workforce is lifted 300 per cent.

1990 - Finance Minister says Railways Corporation has accumulated debt of $1.1 billion, and the Government is considering restructuring it.

1990 - Limited liability company, New Zealand Rail (NZR) is formed.

1993 - Government announces sale of NZR to a consortium of Wisconsin Central Transportation Corp and Berkshire Partners (60 per cent stake) and Fay Richwhite (40 per cent) for $328.3m.

1995 - Company re-named Tranz Rail.

1996 - Wisconsin Central and Fay Richwhite strip cash out of the business before exiting. They took $322m of equity out before floating 31 million shares to the public at $6.19/share.

1997 - Tranz Rail share price peaks at $9.

1998 - Tranz Rail share price slumps to $2.71.

2002 - David Richwhite and Michael Fay quit their stake at $3.60/share, netting an $87m profit on their original $31m investment, plus collecting $10m in advisory fees. Wisconsin quits two weeks later at $3.70/share, netting a $100m profit on its $37m investment, plus getting $8m in advisory fees.

2002 - Tranz Rail's operating loss $70.7m (net loss $122.7m).

2002 - Finance Minister Michael Cullen's spokeswoman says speculation the Government may buy back the national track network is "premature".

2003 - Standard & Poor's suspends Tranz Rail's BB- plus credit rating, saying only that the suspension was extremely rare.

2003 - Stock plunges towards 30c/share, details emerge of how the company needs to sell assets to meet lease payments and repayments of debt required by bankers.

2003 - RailAmerica makes a $158m takeover bid, saying it would refinance $235m of Tranz Rail's existing lease obligations and debt.

2003 - Australian firm Toll Holdings Ltd discloses a strategic 6.1 per cent stake in Tranz Rail, bought at 76.37c. Tranz Rail shares jump nine cents to 95 cents - a 20 per cent gain in two days.

2003 - RailAmerica chairman axes bid after due diligence investigation. Tranz Rail shares plunge 23 cents to 70 cents immediately.

2003 - Toll Holdings puts in a lowball bid for the company at 75 cents/share, 13c below previous day's closing price of 88c. Share price falls 5c.

2003 - Tranz Rail receives formal notice of Toll Holdings' takeover offer, Toll will also assume debt and lease obligations - estimated by RailAmerica at $236 million - taking the total value of its bid to $394 million.

2003 - Government announces $75.8 million bailout of Tranz Rail, in which it will buy the rail network for just $1, take a 35 per cent stake in the rail operator through a rights issue, and give it an immediate $44 million cash injection.

Transport Minister Paul Swain said if the Government had not acted the trains would have stopped running within a week.

2006 - Toll Holdings and government agency Ontrack in face off over how much Toll should pay towards improving the tracks.

2006 - Toll NZ reported it had nearly doubled its June year net profit to $53.3 million. It made a $30m profit in the second half.

2006 - Toll NZ said to face rail track access fees as high as $100 million a year by 2013, more than double the amount it was paying at that time. The Track Access Charge (TAC) would rise once the $200m the government was investing in the network ran out.

2006 - Toll NZ threatens to slash services on much of the national rail network including the main trunk line unless it gets a long-term agreement from the Government on its track-access fee.

2007 - Toll Holdings buys another 10 per cent of railway shares, triggering a compulsory takeover for the remaining shares at the same price of $3 each. Toll could finally take full control of its New Zealand assets and "grow the business more quickly", it said.

2007 - October: Rail buffs speculate Toll Holdings is finding New Zealand too hard a place to make a dollar and may sell its rail business to the Government, Toll NZ spokeswoman Sue Foley said Toll NZ was absolutely committed to rail in New Zealand and freight was increasing on a number of its services.

2008, May 5 - The Government buys back Toll's rail and ferry business for $665m, after several months of negotiations.