Wednesday, July 02, 2008

KiwiRail purchase price confirmed at over $1Billion

Readers of this blog will recall I posted here that the upfront cash commitment by the Labour Government to purchase the rail operations from Toll would be in excess of $1Billion. Once the loss of Toll's current cash contribution of $48million to the network costs was added to the purchase price.

Fran O'Sullivan today confirms my analysis

Toll was supposed to pay Ontrack - another SOE which runs the national rail track assets - some $48 million annually for access fees.

The value of this over 10 n years at seven per cent would have been $340 million - money that will not now come into the overall business.

Add the $340 million forgone revenue to the $690 million purchase price and the $120 million debt and the overall Government investment quickly tops the $1 billion mark.

This is a shocker of a deal. All the benefits the Government claim were available without paying a premium to Toll. The supposed GHG savings from rail operations vs road arise from the mode not who owns the railway. If the efficiency of rail for linehaul is as Clark says, then high fuel prices and yesterday's shock 10% increase in RUC's costs to truckers will move traffic to rail. Again no need to own it. This is how markets work Michael....

The other reason put out by Clark and Cullen was to avoid giving taxpayer's funds to Australians. I guess a cheque for $690Million and forgiveness (sorry, assumption) of $120Million in debt does not count as giving taxpayers funds to Australians. Especially when the goodwill component was at least $400Million....

Bolger and Co have a hospital pass (smirk). He and his ilk cannot survive this. certainly Clark and Cullen will not be there to save them.

The Hive have a good summary of the news media's take on this "investment".

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