New Zealand rail renationalisation deal settled
NZPA: June 30 2008
Haggling over the details of the government buyback of Toll Holdings' rail business in New Zealand will go right to the wire today.
The deadline is midnight today and late yesterday agreement on all aspects of the deal had not been reached.
Plans are in place for a big revelation of the new look of the business at Wellington's railway station on Tuesday.
In May the Government and Toll announced a heads of agreement for the government to buy Toll's rail and ferry assets for $665m. There are another $25m of associated costs.
The heads of agreement, which had to be announced because Toll is a listed company, sets out principles but there was still a lot of negotiating to do on the detail.
NZPA understands that negotiaters were working hard in the offices of lawn firm Russell McVeagh at the weekend and that the talks are set to go on right up to the deadline.
It was minutes before midnight when a government official finally handed over a small coin when the track was repurchased for $1 after a tense negotiation.
There will be no announcements from the Government until the negotiations are concluded.
The Government has not confirmed speculation that former National Party prime minister Jim Bolger will be chairman of the new rail operator.
Rail Corp is understood to be the working name of the business in documents but not its final name. A new paint job on locomotives is believed to drop the green and gold Australian look and include black but not on the front and back for rail safety reasons.
The road transport industry is concerned that Toll's ongoing trucking business Toll Tranzlink will enjoy cheap rents on leased rail land and cheap rail charges going forward.
The refinancing of the rail company's debt will also be an issue as the company benefitted from the parent Toll's credit rating. Debt will be assumed in the transaction as is normal in a takeover.
Railfreight is most likely to have a future on long haul routes and when successfully connecting to ports. Passenger services in cities and tourist routes are also seen as core areas.
"Rail has been a commercial failure," a report on the port sector by Rockport Corporate Finance Ltd said this month.
The report said that long suffering tax payers may be surprised at the scale of a subsidy needed from government.
The buyback of the rail business by the Crown comes at a time Australian state of Tasmania struggles to retain a viable rail business.
Issues affecting rail in New Zealand going forward include:
* the cost of fixing up the track and buying new locomotives and rolling stock to increase efficiency;
* the relationship between track owner Ontrack and the rail operator under government ownership;
* whether capital expenditure will include the building of a new line to Fonterra's Clandeboye plant in Temuka, a line to Northland Port or sidings at Wiri for Ports of Auckland;
* the company has to this year buy back 15 percent of its rolling stock previously sold and leased back by Tranz Rail.
* how the company satisfies major customers like Solid Energy and Fonterra.
* how the company will be affected by a proposed law allowing heavier trucks and a revival in coastal shipping.
A history of rail deals:
1990 - Government transfers all of its rail and inter-island ferry operations into New Zealand Rail Ltd but retains ownership of the land under the track and at depots. NZRL had a 40 year lease with a 40 year right of renewal. It has exclusive use of the rail lines and has to fund all maintenance.
1993 - NZRL is sold to Tranz Rail Holdings Ltd, a consortium comprising Wisconsin Central Transportation Corp, Berkshire Partners LLC and Fay Richwhite and Co, for $328.3 million. The company has about $300m of debt and $105m of equity.
1995 - Tranz Rail makes a $100m return of capital to the founding shareholders, almost equal to the initial equity they have in the company.
1996 - New shares in Tranz Rail are sold to the public and are listed on the New Zealand Stock Exchange and NASDAQ. The sale raises $175m, virtually all of which is used to repay debt.
2003 - Toll Holdings launches a takeover for the company at a time when the Crown has negotiated a heads of agreement giving it a 35 percent stake. A court case reveals Tranz Rail is near financial collapse. Toll signs a separate heads of agreement with the government that leads to the sale of the track and sets up a track access regime that is never adhered to.
2007 - Toll Holdings moves to 100 percent ownership of Toll NZ.
May 2008 - Heads of agreement is signed between the Government and Toll to sell the rail business back to the Crown, leaving Toll with a trucking, warehousing and freight forwarding business.
See also:
Rail rolls into government ownership
NZPA: July 1 2008
In fairytales midnight is when carriages become pumpkins but for New Zealand's railways it marked the changeover from public to private ownership.
Haggling over the details of the government buyback of Toll Holdings' rail business went right to the wire last night before a function this morning to reveal the new look business at Wellington's railway station.
In May the Government and Toll announced a heads of agreement for the Government to buy Toll's rail and ferry assets for $665m. There are another $25m of associated costs.
The Dominion Post reported today the new rail and ferry services were to be rebranded KiwiRail and the new livery would include a rust colour as well as safety yellow at the front and back.
It has been rumoured former prime minister Jim Bolger would chair the new crown company which would have a separate board from OnTrack.
However, the newspaper said it understood the two entities would be brought under one holding company within a few months.
Branding of the Interislander ferries, and TranzScenic and TranzMetro train services would not be changed.
NZPA reported yesterday the sticking point before the deal could go through related to road transport industry concerns that Toll's ongoing trucking business Toll Tranzlink would enjoy cheap rents on leased rail land and cheap rail charges.
See also:
Bolger to head Govt's 'KiwiRail' service
New Zealand Herald: July 01, 2008
The renationalised rail system is to be called KiwiRail and will be run by an establishment board under former prime minister Jim Bolger.
The Government took ownership of the rail and ferry assets at midnight.
In May, the Government and Toll announced a heads of agreement for the Government to buy Toll's rail and ferry assets for $665m. There were another $25m of associated costs.
The KiwiRail establishment board will manage the service until decisions about how it would be run are made. The Government already has a separate state owned enterprise, OnTrack, to look after the tracks.
Finance Minister Michael Cullen said a Rail Development Group would report to him and State Owned Enterprises Minister Trevor Mallard in early August with recommendations for the structure and management of the rail business. Cabinet would then make decisions.
Dr Cullen said options ranged from a single SOE including OnTrack and KiwiRail as separate divisions to a separate crown entity and SOE.
"New Zealand's rail network is now back in New Zealand's hands," Dr Cullen said.
"We will now be able to make the investments necessary to develop a world-class 21st century rail system for New Zealanders."
He said potential reconfigurations in Auckland and Wellington would see changes to maintenance and storage to cope with more stock for metro areas.
Also on the board with Mr Bolger, who chairs Kiwibank and New Zealand Post, were Brian Corban, Mark Franklin, Ross Wilson, Brian Jackson, Linda Constable and Ross Martin.
Prime Minister Helen Clark said government ownership would allow it to make strategic decisions and investments to help rail make New Zealand more sustainable.
In addition to Jim Bolger, the other members of the KiwiRail board are:
* Brian Corban,
* Mark Franklin,
* Ross Wilson,
* Brian Jackson,
* Linda Constable,
* Ross Martin
- NZPA