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.
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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.
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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.
David Farrar runs Curia Market Research, a specialist opinion polling and research agency, and the popular Kiwiblog where this article was sourced. He previously worked in the Parliament for eight years, serving two National Party Prime Ministers and three Opposition Leaders.
Click to view
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.
Click to view
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.
David Farrar runs Curia Market Research, a specialist opinion polling and research agency, and the popular Kiwiblog where this article was sourced. He previously worked in the Parliament for eight years, serving two National Party Prime Ministers and three Opposition Leaders.
2 comments:
Thank God for a rational and long overdue comment on the scandal that comprises KiwiRail. This is a classic example of people running a railway not people running a business. The State owns the network and is supposed to charge the operators for the right to run their trains along the tracks. Might there not be a massive conflict of interest if the only freight hauler is also State owned?
To understand the reasons behind the recent failures at KiwiRail, it is essential to examine the organization's leadership and their backgrounds. It raises questions about how the highest-paid CEO can justify spending millions on hiring McKinsey consultants for strategic guidance. Additionally, a review of the senior management team reveals a lack of experience in successfully running a business.
A friend of mine who works at KiwiRail has noted that appointments to well-compensated positions often occur not based on merit, but rather due to personal connections or shared nationality. It is imperative for the government to reevaluate the allocation of taxpayer money to KiwiRail, which has been likened to a bottomless pit, and initiate a thorough audit of the company.
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