Institutional arrangements

110. The rail network is currently owned and managed by the New Zealand Railways Corporation (trading as KiwiRail Group), a State-Owned Enterprise (SOE).

111. Urban passenger trains in Auckland and Wellington are subsidised by the respective regional councils, who also effectively control the level of service provided. Rolling stock in Auckland is mostly owned by the regional council while, in Wellington, the rolling stock is mostly owned by KiwiRail.

Funding and pricing

112. Urban passenger rail fares are determined by the regional councils. Freight rates are determined by KiwiRail.

113. KiwiRail funds its operations in part from a government subsidy, in part from borrowings and in part from Crown equity.

Planning

114. KiwiRail is responsible for all planning of rail capital works.

Analysis

Rail Traffic Flows

Source: KiwiRail

Rail Facts and Figures

Source: KiwiRail

115. A report in 2008 by the Rail Development Group[28] noted that “the relative economics of rail vs. road and sea mean that relieving the business of deferred capital expenditure will only go some way to enabling it to be financially sustainable on a stand-alone basis”, and that if the national rail network is to retain its current size, an ongoing government subsidy would be required.

116. The argument for ongoing public subsidisation of the network tends to rest on the premise that rail offers positive externalities (e.g., reduced congestion, emissions and accidents) and that road transport does not pay for its full social costs, reducing the ability of rail to compete. There is little current evidence to support this.

117. Much of the New Zealand rail network is uneconomic, even when taking into account the environmental value of rail’s greater fuel efficiency. While there may be a case for subsidising rail up to a certain point, based on its social and environmental contribution, it is an unresolved question about whether this would be sufficient to cover the full capital costs of the entire rail network. It is also possible that road freight prices are on average close to the economically correct level across the country (or at least there is no contrary evidence). If this were the case, there would be less justification for subsidising rail freight on this basis. Nevertheless, further work is being undertaken to determine the relationship between current road prices and optimal prices, and will be used to inform future government rail funding policy.

118. The National Freight Demands Study undertaken for the Ministry of Transport, Ministry of Economic Development and the New Zealand Transport Agency in 2008[29] indicated that there is likely to be increased demand for the transport of bulk commodities in the future (an increase of 70 per cent by weight to 2031), where rail has a comparative advantage. It is also likely that rail will continue to be competitive in general freight and container transport in certain parts of the country where economies of density are exhibited, such as between Auckland and Tauranga. This implies that rail will continue to be an important part of New Zealand's transport infrastructure. At the same time, this growth is only likely to be in specific parts of the network, and many other parts of the network will remain under-utilised and uneconomic.

119. The government has difficult but important policy decisions to make about what size rail network it wishes to support with taxpayer funds. Its decisions are unlikely to be finalised before publication of the Plan. This work is led by the Minister of Transport Hon Steven Joyce.