A Good Price for the Family Tin? Rail Privatisation in New Zealand in the light of Wider Railway and Network Industry Experience

Abstract

When New Zealand's railway system was privatised in 1993 it was as one entity thus avoiding any issues arising from the 'separation of wheel and rail'. Yet this approach failed in time in that in 2003 the New Zealand Government had to come in and purchase the track in order to bail out the operator. In May 2008 it elected to purchase the operator outright as well rather than persevere with what had become a very difficult relationship. This presentation argues that the debates over the privatisation of rail (in New Zealand and elsewhere) have neglected two major considerations. First there have been few substantive treatments of how market failure would bear on the privatisation process. Second there have been no comparisons made with the privatisations in other transport and infrastructural industries which have worked in financial terms anyway. If 'railways are different' as many in this industry insist then the paper will argue that the difference derives from the extent to which the industry needs to be subsidised. While public policy can deal with competitive privately-owned industries which need subsidy (such as 'social' bus services) and privately-owned monopolies which don't need subsidy such as airports or telecommunications it is the combination of these two elements (subsidy and monopoly in a context of market failure) which explains why the privatisation of the railway network in New Zealand fundamentally did not work. The paper to which Ross is speaking can be found here: http://www.iscr.org.nz/f63017980/17980_ETC_2010_paper.pdf Commentary provided by Dave Heatley New Zealand Productivity Commission. Ross Clark is Rail Performance Manager for Transport Scotland the local equivalent of the Transport Agency except that it also has direct oversight of the railway network in Scotland. He went to the UK from New Zealand at the start of 2005 partly to see what a decent-sized railway looks like. His professional background with Tranz Rail was as a business analyst in its Passenger Group. He also served for some years as an administration officer with New Zealand's highways and land transport agency and began his career in transport in the area of road safety economics. His other professional interests include getting to see first hand the world's best airports and for variety some of the really bad ones as well. Dave Heatley is a Senior Advisor at the Productivity Commission currently at work on the international freight transport services inquiry. Prior to joining the Commission Dave was at Victoria University: firstly as an MBA student and subsequently as a Research Fellow for the Institute for the Study of Competition and Regulation. At the ISCR Dave produced original research on many topics including the Overseas Investment Act New Zealand railways state-owned enterprises and telecommunications policy. In addition to his first career as a computer programmer Dave has worked as an environmental lobbyist park ranger and entrepreneur. He founded a scientific software and aquaculture technology company that at its peak employed over 50 people. When not hard at work as an economist Dave can often be found on mountainsides - skiing climbing tramping or running.