The Kiwirail black hole

Bronwyn Howell writes:

KiwiRail is a state-owned enterprise, and so by law its principal objective is “to operate as a successful business”.1 Success in the business world means that you provide something that your customers are willing to pay for, at a price for that exceeds your cost of production, leaving something to reward your owners/investors for the resources they have committed. 

Something all the other SOEs have managed.

That is a very powerful graph. In 16 years they have not managed to grow their revenue despite the economy as a while increasing 115%.

But they have taken is $12 billion from taxpayers which is around $6,000 per household.

From 2014 to 2017 taxpayer subsidies made up around 25% of Kiwirail cash, but since 2017 it has exploded to over 60%. And remember this is meant to be a commercial SOE, making money.

To put these figures in context, the $3bn of government funds that went into KiwiRail over the past two years could have paid for the Dunedin Hospital rebuild, which is at risk of being scaled back for affordability reasons.

A great reminder of opportunity cost.

Independent analysis shows that Interislander is a profitable business for KiwiRail. Interislander’s private-sector competitor, BlueBridge, certainly is. And I have no reason to believe that KiwiRail is not recovering its costs from Auckland Transport and Wellington Regional Council.5 So, the gap between revenues and costs would appear to be primarily attributable to KiwiRail’s freight services.

This is a fascinating aspect to the analysis. So we’ve put in $12 billion to help subsidise a freight service.

Maybe we should turn the Interislander into a standalone SOE, and sell the Auckland and Wellington train lines to the local operators.

A much quoted definition of insanity is “repeating the same mistakes and expecting different results”.6 Successive New Zealand governments have officially accepted arguments that KiwiRail is just one big subsidy cheque away from meeting its principle objective, to operate as a successful business. Sixteen years of financial accounts suggest otherwise.

If KiwiRail’s assets are still in poor condition, and its market share and commercial viability are in a worse state, then what has the government’s continuing investment in KiwiRail actually achieved?

I think it is high time we had a mature national conversation about KiwiRail.

Hard agree.

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