Tranz Rail was overpaid for rail corridor

By Nick Stride

Friday 18th October 2002

The government paid Tranz Rail more than four times the amount of an independent commercial valuation of Tranz Rail's Auckland corridor, papers released this week show.

In a letter to Tranz Rail managing director Michael Beard dated August last year Finance Minister Michael Cullen said the $75 million base price for the corridor "will be difficult for the government to justify publicly."

That was because a Grant Samuel independent report, which became public only after the letter was released under the Official Information Act, valued the corridor at only $10-20 million.

The government in the end paid $81 million following the conclusion of agreements for train control and track maintenance for which Auckland councils are paying Tranz Rail $2.85 million a year.

Dr Cullen's letter, posted this week on the Act New Zealand website, noted the $10-20 million valuation but said: "I believe the $75 million recognises the strategic value of the assets to Tranz Rail and also reflects our eagerness to find a compromise and close a deal."

It is understood the Grant Samuel valuation was for the assets and the operating business, not just the tracks and right-of-way.

The letter asked Mr Beard to justify Tranz Rail's asking price of $112 million.

It noted that was for only 100km of track, whereas Tranz Rail's 2000 annual report valued the 3900km national network at $450 million, including buildings, land, and rights-of-way.

Plans for an Auckland public rail service have since become mired in politics, with Auckland Regional Council and Infrastructure Auckland disputing which should pay the $166 million needed to replace the corridor rolling stock.

The council wants Infrastructure Auckland to pay while Infrastructure Auckland thinks the stock should be privately funded.

The council, Infrastructure Auckland, the government and councils in the Auckland region are negotiating the transfer of the rail project from Infrastructure Auckland to the Auckland regional transport network.

The government has said buying back the rail network nationwide was one option under consideration for its national transport strategy.

The repurchase of the Auckland corridor, the downtown Britomart transport terminal and Auckland's regional rail strategy have come under fire from critics who point out that only 8500 Aucklanders travel by train a day.

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