Media Release
South Island Coal Route faces multi-million dollar maintenance bill or closure
23 June 2004
The LTSA Review of the South Island Rail Coal Route, released today, has confirmed that the rail line could be closed in less than two years unless a major backlog of deferred maintenance is cleared immediately. A separate report to coal producer, Solid Energy, by the same consultants, Kellogg Brown and Root, has estimated the cost of bringing the lines back up to standard at around $70 million.
Dr Don Elder, Solid Energy's Chief Executive Officer, says that while the review's conclusions are appalling it confirms what the company has known for some time: there is a major backlog of maintenance and renewal work and even with current freight levels, significant expenditure is needed right away to keep the line operating.
It is imperative that Toll Rail, formerly Tranz Rail, and others responsible, carry out the deferred maintenance as soon as possible and provide assurances to all the route's freight and passenger users that it will never again be allowed to deteriorate into such a sorry state of repair.
The South Island coal route represents 11% of all national rail track and a quarter of all freight carried on a tonne-kilometre basis. The major issue that must be urgently addressed is funding for the multi-million-dollar maintenance programme that is needed to bring the system up to a proper standard for carrying freight and passengers to schedule.
Dr Elder said: "Fortunately the Government recognised the need for investment in the rail system at the time of the sale of Tranz Rail to Toll and has set aside a minimum of $200 million for the rail system. It is essential that sufficient funds are released right away for this route as the need has now been confirmed twice by independent infrastructure experts."
The performance of the coal route is poor and getting worse by the day. Even though the review concludes that the coal route is "currently fit for the tonnage it was carrying", the review is concerned primarily with safety. This does not recognise that trains are subject to significant speed and weight restrictions because of the state of the rail infrastructure.
Solid Energy commissioned KBR to carry out an independent estimate of the cost to bring the line to a standard that would enable current contracted volumes to be carried. KBR has concluded that the value of the deferred maintenance on the line is probably around $70m. This is only subject to completion of detailed engineering plans. Furthermore it is likely that this amount is increasing with every day that passes without the work being done.
"Solid Energy has been freighting coal by rail from the West Coast to the Port of Lyttelton for more than 25 years, paying freight rates under a number of contracts, all of which required the operators to provide and maintain the rail assets to a standard to carry the tonnages ordered to an agreed schedule. Rail operators over the years have not met performance targets and continue today to underperform.
Solid Energy can no longer rely on rail to meet its distribution needs from the West Coast. The rail operators' corporate maintenance philosophy of not replacing assets until they reach "the end of life" constrains the company's ability to meet customer orders. As a result Solid Energy is now barging coal to Huntly Power Station, other customers in the North Island, Lyttelton and two Australian ports. The company is planning to build and operate ships to carry increased volumes of coal from the West Coast.
"While coal is the major commodity carried on the route, the conclusions of the KBR review will also be of great concern to the communities and other businesses on the West Coast particularly dairying, timber, cement and tourism," Dr Elder says.
Dr Elder concludes: "As users, Solid Energy and other West Coast businesses have paid many hundreds of millions of dollars over the years to successive rail operators to operate and maintain these assets. Under Solid Energy's long term contract Toll Rail is responsible for delivering the capacity required by the company and to undertake maintenance of the rail line. Clearly the coal route has not been maintained to an acceptable standard. If something is not done now we will be looking at closure of the line. This would be a disaster for Solid Energy, the West Coast and the Port of Lyttelton. Furthermore it would decimate one of New Zealand's largest export industries, currently worth over $200m a year in export earnings."
For further information contact Vicki Blyth, Communications Director, Solid Energy New Zealand Ltd, telephone 03 345 6000, mobile 021 670 250.
