Dunedin City Council Votes To Mothball Dunedin Railways As Complete Close Down of Business

We have already blogged twice recently about the direction Dunedin City Council is taking with Dunedin Railways, which has suggested the closure of Dunedin Railways in its current form. This week we obtained the minutes of the DCC meeting a month ago where they discussed the options for Dunedin Railways and made the decisions.

Dunedin City Holdings Ltd (DCHL) prepared a special report for this meeting and presented it to the full Council. The meeting was conducted via audio visual link due to Covid-19 restrictions.

The report has stated that DRL's revised financial forecasts for the year ending 2020 show a net loss of $1,332,862, compared with a pre-Covid forecast loss of $578,579. DCHL had investigated future business prospects with the view that the impacts of both international and domestic tourism market collapse would be substantial. It determined that the Council should consider 3 options as follows:

1.     Close the business (DCHL Recommendation)
2.     Mothball for around 18 months with a view to re-opening train services on the Taieri Gorge line.
3.     Mothball with  view to exploring alternative options for company assets.

Option 2 would entail retaining only 7 staff, to maintain track and rolling stock assets and perform administrative functions, at estimated cost of $900,000 per year, which shareholders would have to fund

DCHL expressed its concern that Option 2 did not address the significant deferred maintenance bill on the Taieri Gorge line, estimated at $1 million per year for all of the next 10 years (total $10 million). This would also have to be funded by shareholders.

Option 3 would see the Taieri Gorge line closed permanently to heavy rail trains. This removes the need to fund the $10 million maintenance bill. Five staff would be retained in the short to medium term for asset maintenance.

The report clearly states with Option 3 that "A key component of this option is to discontinue rail activity on the Taieri Gorge line in view of the cost of deferred maintenance".

The Council voted for option 3 on a 14-1 division, committing to provide the ongoing funding for the next 18 months to support the close down of the company. DCHL indicated that their next steps included engaging with OETT. Following that conversation, OETT chose to sell their shareholding of the company to DCC. We do not know anything at this time as to the significance of the OETT decision but it would appear likely they wished to recover some of their investment in DRL and exit their involvement in the business. It is not clear whether they recovered their full equity or capital from the sale or took a loss.

The question now is as to the future of the operation. We expect that DCHL will look to dispose of most of its existing rolling stock on the open market, or as scrap. There is likely to be little interest in Dunedin in any other organisation acquiring this rolling stock, given the small rail heritage community there.

The bigger questions relate to the in ground assets - the Taieri Gorge track and structures, the stations at Pukerangi and Sutton, and the railway precinct at Middlemarch. We are of the view that there is a future possibility for an alternative ultralight rail tourist operation over the Taieri Gorge line, similar to Forgotten World Adventures' business on the former SOL. Since sections of the DCHL report that was released have been redacted, we do not know if this has been one of the alternative options DCHL is exploring. And since OETT has sold their shareholding in the company, we do not know if they have an interest in any alternative uses of the Taieri Gorge line. If an ultralight rail operation is not possible, then converting the corridor to an extension of the existing Rail Trail is a possibility that will keep it accessible to the public forever. The railway precinct at Middlemarch is well developed and it should be possible to retain it as part of Middlemarch as a whole. Our impression is that DCHL are focused on future options for Dunedin Railways whilst at the same time closing down Taieri Gorge, so we do not think they are looking at any particular option for the TGR.

Currently DCHL / DRL are still going through a staff consultation process and discussing possible options for the future of the line and it is difficult to know if any of the alternatives that are being considered will become viable. We are not commenting on these for now.

Taieri Gorge Railway unlikely to continue commercially

Last week we blogged about Dunedin Railways being mothballed. Since then various pieces of information have been published. Based on what has been released to date, we see it as unlikely that the Taieri Gorge line can be continued in its present form as a commercial operation between Wingatui and Middlemarch. We have no viewpoint about the rest of Dunedin Railways' services.

The Taieri Gorge Railway consists of the first 64 km of the old Otago Central Branch railway and came into being initially as a train service run on the line when it was part of the NZR network. Otago Excursion Train Trust (OETT) inaugurated the Taieri Gorge Limited back in 1987 as a Dunedin-Pukerangi daily service and was subsequently able to raise sufficient funding to finance 50% of the purchase of the Wingatui-Middlemarch section of the OCB. This was then reformed as Taieri Gorge Railway Ltd in 1990, the other half of the initial capital being matched by funding from Dunedin City Council.

We know very little about the financials of the early years of operation as there was no cruise ship market back then as it did not develop in NZ until more recent times. But it is probably correct to say that the operation at best broke even in the early period of its life. In the mid 1990s additional capital injections were needed and a higher proportion, if not all, came from Dunedin City Council with the net result that they increased their shareholding to 72% reducing OETT's holding to 28%.

It was always going to be a tough ask in the south of New Zealand to be able to run a 64 km tourist railway and although income from cruise ship services and running extra trips to Oamaru and Palmerston as well as charter tours must have helped the finances, this has to be balanced against the ageing of most rolling stock which includes the fleet of diesel locomotives that are now more than 50 years old and the original wooden carriage fleet which in more recent times has been steadily upgraded to more modern steel sheathed designs. 

Some of DRL's operations run over the Kiwirail network and this requires considerable additional expense in certification and maintenance standards as well as direct operational costs which for the excursion train market around NZ has resulted in severe cut backs since the 1980s. We also understand from information released that there is a considerable maintenance backlog on the Taeri Gorge line, which is always going to be more expensive in upkeep, in the shorter term because of the topography (hills and a steeply sided gorge) it passes through, and in the longer term because of the many viaducts in this section which will eventually need a lot of money spent on them. The big floods in the Taieri catchment a couple of years did a great deal of damage to the line which must have cost a lot to repair.

So what could happen in the future for DRL? We have no idea whether the operation can be made viable as a cruise ship tourism operator with the key issue being it could be many years before this business builds up again to where it was last year. The future for the Taieri Gorge Line is, regrettably, likely to be either as an ultralight rail vehicle operation (golf carts or rail bikes) such as we see in other parts of the country. It is possible that the section from North Taieri to Pukerangi or from Pukerangi to Middlemarch could be developed as a heritage railway if enough support can be found in the Dunedin area. 

Here, there are certainly questions; we have noted that OETT has chosen to completely sell out of its 28% shareholding, which seems to indicate a limited future for them as a whole, and even before that, rail heritage in Dunedin in general was struggling. A heritage operator could run cruise ship trains with volunteers (Gisborne City Vintage Railway is one heritage railway that works in that market) but keeping the entire line open to Pukerangi could be a hard ask. A lot depends on Dunedin City Council's attitude, and whether Dunedin Railways as a whole continues to operate. The worst case scenario is to convert the line into an extension of the Otago Central Rail Trail.

Taieri Gorge Railway mothballed; OETT selling out its shareholding

It's been reported in the ODT today that Dunedin Railways is to mothball its operations due to the COVID-19 caused economic recession. 80% of their business comes from overseas tourism, notably cruise ship visits to NZ, which is naturally hugely affected by COVID-19, and it is difficult to run the trips under current lockdown conditions which also curtail domestic tourism.

In addition, the company chairman is quoted in the news reports as saying the company has high running costs and its operations are financially challenging with there being $10 million of deferred maintenance costs on the Taieri Gorge Railway.

At the same time as the mothballing has been announced, Otago Excursion Train Trust (OETT), the joint founder of Dunedin Railways (which started as Taieri Gorge Railway Ltd in 1990) has decided to sell its 28% shareholding in Dunedin Railways to Dunedin City Holdings Ltd (DHCL) which owns the other 72% of Dunedin Railways currently. DCHL is in turn 100% owned by Dunedin City Council (DCC).

OETT originally held a 50% shareholding in DRL/TGRL but this has been reduced over the past 30 years to 28% due to the need for further capital investment into DRL that has been met largely by DCHL. It is well known that since it became a minority shareholder there has been much angst at OETT over their reduced influence on the operations of DRL. However it is not known exactly why OETT has decided to sell out at this stage and we will try to find out if they are willing to comment about this. One possible issue, however, can be found in a statement on OETT's news page that further capital investment in DRL is needed in rolling stock and track maintenance. Shareholders are normally expected to be able to finance the businesses they own and it may well be the case that OETT would not be in a position to finance any additional capital themselves. 

This means that the era of DRL being in rail heritage ownership has come to an end and we don't like the implications of that. Local government entities have a penchant for running their infrastructure assets into the ground, or appropriating them for other unrelated projects. There has been a change in emphasis on DRL since the new board chairman was elected who has stated that they expect DRL to produce a financial return. This is due to the politicians demanding more income and dividends from all of DHCL's trading enterprises. The earlier proposal to mothball the line from Pukerangi to Middlemarch is an example because the most obvious solution is to rip the line up and sell the land to raise money. Under a profit focused DHCL this is exactly what could happen.

[OFFTOPIC] Kells Transport Museum, Blossomgrove, Cork, Ireland

These Google Earth images are the notorious Kells Transport Museum in Blossomgrove, Cork, Ireland, a large collection of buses owned by one Michael Grimes. This fellow has apparently had a few run ins with the law as well as with lots of other people and his bus collection allegedly numbered over 400 at its peak (we estimate about 200 buses visible in the aerials, so whether other buses were stored at different sites seems possible). 

He also has a website called "Railway International" which still operates (unlike the KTM website whose domain registration expired last year), the RI site covers visits to the railway systems of many countries, NZ included. We were previously familiar with the site for its coverage of the Ecuadorian rail system. It is uncertain at this time if this website will continue operating as Mr Grimes has apparently been made bankrupt in Ireland, the domain registration expires at the end of next month. We assume both sites will be available from Web Archive but in any case the RI site seems to be missing many photos so it is only partly useful.

It is rumoured that the bus storage site in Blossomgrove was cleared late last year as a result of the bankruptcy proceedings but we have not been able to confirm this, however these may well be historical images. There is also an independent Flickr photo set resulting from someone's personal visit to the site if you want to see what it looked like close up on the ground. This Youtube video also appears to be shot at the same site and is more recent, showing significantly greater damage and decay to the bus collection in later years. As the aerials show, the bus collection was well hidden off the main road in a field with an access road 1.5 km in length.

Private train proposals have zero credibility

As we all know the national railway network in this country has had a range of owners particularly in the last 25 years when it was privatised by a National government. It got renationalised back in 2003-8 but not as the unified network it once was, since metro operations had been tendered to various operators, and while Kiwirail was able to fold network maintenance and ownership into the new business, they were forced by National to recontract parts of their operations in the 2008-2017 term of government. One significant impact on the freight operations dating from renationalisation was the loss of their trucking network (Tranz Link) and some freight terminals which remained under Toll control although sitting on government owned land.

The real purpose of this post is to discuss the ongoing campaign by one group in particular to be able to run private trains of various sorts around NZ and this does go back to the 1980s or 1990s when a significant fleet of privately owned steam locomotives was purchased and subsequently, carriages were imported from the UK, however these carriages were prevented from being allowed to operate as a private fleet on Tranz Rail's network at the time and were subsequently sold and operated by TRL. The fleet of locomotives is of course that which is owned by the organisation known as Mainline Steam, one of a small number of groups who are able to maintain steam locomotives in main line operable condition to haul steam excursions, and whilst these groups organise the running of these trains, they are actually physically operated by Kiwirail staff with owner representation on board. The same general principles apply to other groups that organise trips of this type on the network. Since the 1980s it has been possible for these private locomotives and in some cases carriages to be allowed to run on the national network but the trains are under the control of Kiwirail and are not independently operated.

There has been interest as well from Mainfreight which did in fact tender (unsuccessfully) to purchase the NZ Rail Ltd network back in 1993 and is today a major freight customer of Kiwirail being one of a number of freight forwarders who have effectively taken over the road-rail transfer and local delivery role that the national rail operator used to provide in "goods sheds" at the major stations. It's possible to speculate that Mainfreight and some of the other road freight / logistics operators are likely to support a campaign for private trains to be able to operate on the national network in competition with Kiwirail Freight. Currently however the national network relies on Kiwirail's own ferry fleet to bridge Cook Strait and no one appears to be campaigning for their own rail ferry to operate in competition with Kiwirail there. 

In recent years the campaign for private train operation has been most keenly seen in the East Coast of the North Island since Kiwirail pulled out of operating the Napier to Gisborne Line. At that time a number of private campaigners suggested the line should be reopened as a "short line" operation as seen in the US. There appears to be little merit in such suggestions however as they are dependent on the same kind of funding that Kiwirail itself was lacking at the time the line was closed down. Hawkes Bay Regional Council produced some funding options for re-opening the line to Wairoa but it appeared to be insufficient to get their project over the line. With the recent change of government, Kiwirail is re opening the line to Wairoa with a partnership with HBRC which owns Napier Port. The line further north to Gisborne is a different proposition due to heated opposition from Gisborne local government politicians and the port company they control, which sees a threat to its main (and puny) log traffic income stream from a rival region. 

The Gisborne rail debacle is largely a sad reflection on vested self interest from local politicians in Gisborne and a consequence of its basket case local governance as a unitary council. Around the countryside, regional councils are tasked with transport development responsibilities across a number of local territories. For example, Northland Regional Council covers a large area from Cape Reianga down to Warkworth and was instrumental in the development of the Marsden Point spur rail line proposals in the 2000s when it was clear the region would benefit from the new port development with a rail link to transfer freight off ships to other parts of the region. At the same time as this work was happening, Far North District Council at the northern most extremity of the rail network was campaigning for it and other territories to become unitary, at a time when FNDC had muscled the Opua-Kawakawa heritage rail line out of Opua and forced it to build a cycleway over much of its trackage. 

The idea that a local territory can not have a massive conflict of interest as a regional transport authority over the same area, with its local interests, is a complete crock. There are fortunately not many unitary authorities in NZ as most of them exhibit similar traits - the others are those in the Nelson-Marlborough region, and Auckland Council in Auckland. Auckland Council has pretty blatant self interest with lukewarm support for rail development outside their boundaries and opposition to any transfer of port services. Gisborne District is a very poor example of such a conflict and their latest regional development plan produced in response to PGF funding scenarios is totally lacking in vision. The idea seems to be the port will mostly move logs, and the government needs to spend money on improving the highways to reduce cost of moving freight by road through other regions. The problem is that the cost of improving those highways over hilly country to the point where costs are significantly reduced would not be justifiable. 

Because of this local governance nonsense in Gisborne and the reluctance of the National Government to fund any alternative transport options other than highways for the region, and only limited highway improvements at that, there has been fertile ground for the campaign for private rail operations in the area, but they have stalled on one obvious problem, which is that if government is not willing to fund Kiwirail to keep the line open, they are hardly likely to see the point of funding another operator, and that's the key reason why the private rail campaigners have no real credibility. The most merit, and it's a limited amount of merit too, that they can bring to their campaign is the supposed gains to rail freight of allowing "open access" to the national network, and those gains, where they exist, generally are outweighed by the downsides. Open access rail operators would cherry pick the high value freight and leave the low value stuff to be carried by Kiwirail as operator of last resort. This in turn results in that traffic being lost to road because KRL would not be able cover its running costs. Furthermore, Kiwirail is not a full transport operator like some of its competitors; it would be at a disadvantage compared to NZ's largest transport and logistics firms who may choose to become involved in private train operations.

It is important in all of this to remember the economic viability of the Gisborne Line has always been in question even in when it was first being built in the 1930s. The fact the line was still open in 2008 was something of a miracle as it had been proposed for closure many times and has been very expensive to maintain long term, although probably not more expensive than State Highway 2 which crosses the same unstable land formations across the Whareratas. In the last years of operation the maintenance standard certainly slipped and this contributed to the final outcome of the line being closed in 2012. That said, the budding private outfit definitely does not have the experience needed to restore the line and keep it in operation. This is not a simple repair job that will be all resolved after spending a few weeks or months in earthmoving work to fill a washout. There is not only a backlog of slips to attend to but there is also a lot of other deferred maintenance particularly on waterways (culverts under embankments, as well as embankments alongside rivers and streams). But the big factor is that land is constantly on the move in the area, and major stabilisation work is needed in a number of areas. There's been some very large landslides and slips along the route and it is just a lot of work to keep open.

However, a lot of Gisborne's isolation is self inflicted and their local government could easily do a lot more to have freight easily and cheaply able to be moved from the area and doesn't do so. Whether that is rail or it is by ship, since the rail line closed there has been a lot of nonsense from mostly people that have some sort of vested interest in the port and its ownership especially. For them, other businesses costs is irrelevant because they don't get money from them. This is very much a problem in smaller provincial centres around NZ, where having a port and making money from it becomes all consuming and more important than other transport modes that they do not own or control. GDC could easily have got a container ship going to Napier or Tauranga but has not moved into this traffic, or they could have partnered with transport interests to support a rail freight hub that could have generated some freight to keep the railway in operation. The fact they have done neither is a big black mark against them.

Clear choices needed in local government elections

Later this year there will be local government elections held throughout New Zealand. Whilst there are only a few areas in which good transport options are being compromised by local politicians, it is important to address these, and the areas concerned are as follows:

• Northland - the Regional Council is too pro-road (being dominated by National Party members) and needs to shift back to supporting rail as they did ten years ago when they did a lot of good work in the early stages of developing the proposal for the Marsden Point branch.
• Gisborne - has a unitary council which itself was a bad idea back in 1989, but that's another story. The region has suffered from neglect with the National government slashing land transport corridor funding all round.
• Gisborne local government's transport plan is focused on using their port for log traffic and moving everything else by road hundreds of kilometres to another port (Napier and Tauranga are both about 200 kilometres by road from Gisborne). 
• Apparently about 900,000 tonnes of freight is moved by road in and out of Gisborne every year.
• This is very self seeking as all they are interested in is the money they can make out of moving logs through the port. The reason for this is they have a monopoly and can therefore jack up the price. No one is going to move the logs to another port by road.
• Logs are a type of freight that has low margins meaning they have to shift very large volumes of them to make a reasonable amount of money.
• Apart from the extra cost of shifting freight by road, the two highways north-west and south go through difficult country (as does the railway) and all three have been majorly affected by the unstable geology of the area resulting in substantial cost to keep them operating.
• The options for Gisborne therefore are spending money on land transport options whereby if there is the choice of putting large amounts of money into a transport corridor then the railway would be a better choice than the highways but none of these options are cheap and will have ongoing maintenance expenses. They will be difficult to keep open as reliably as the transport corridors south of Wairoa.
• The other option is coastal shipping which fits well with another part of Labour's transport strategy. It doesn't require large ongoing expenditure like the land transport corridors do. However the idiots in power in Gisborne are focused on going it alone rather than working with another port (either Tauranga or Napier) to move containers by sea. 
• Wellington
• Wellington City Council has welshed on its commitment to a Rapid Transport system. Although this may be addressed by new proposals for light rail.
• Marlborough - another example of poor governance under a unitary authority structure.
• MDC is responsible for air pollution from the ferry fleet but has been shirking its responsibilities in this area. This is becoming a concern for people living in the Sounds. Low sulphur fuel should be mandatory for the Cook Strait ferries.
• Christchurch
• The Christchurch City Council is not committed to spending any significant funding on transport infrastructure and has created obstacles to route changes within the city.
• The Regional Council is returning to a fully elected structure this year and there needs to be the right kind of people elected and especially pro public transport people as there has been poor priority to PT under years of appointed National Party commissioners.
• Dunedin
• As in Christchurch, Dunedin City Council is focused on political objectives over who controls the operation of the bus network rather than providing better services to its residents such as improving roads to enable more stops and better routes.

The Government also needs to look at some policy settings.

• We look set to keep regional council control of public transport services in most regions of NZ which is a good policy. 
• However the government has so far failed to address farebox recovery target funding by NZTA
• The problems caused by central government interference in public transport tendering under the PTOM have yet to be addressed in any form, so there are still problems seen in areas like Christchurch, Wellington and Dunedin where the regional council is still having to work with the challenges of being dictated to by NZTA
• In Wellington the Regional Council (GWRC) is able to own and build rail related infrastructure so the question of why regional councils in other regions such as Canterbury are not funded to build infrastructure is a question as this is usually left to a territorial council to provide and most don't spend more than a token amount.

National Railway Museum is too small to go it alone

The National Rail Museum is a rail heritage group based at Ferrymead Heritage Park in Christchurch. A date of establishment isn't something I could put my finger on right now, but I am guessing 2003 would be an approximation but it could well be earlier than that. I do recall a number of events taking place in 2003 which appeared to be focused around some sort of official launch.

In fifteen years progress has been slow. Whilst there have been a number of railway vehicles acquired during this time frame, the construction of their key building has been quite gradual. The building is to be a roundhouse, and so far what has been completed is the turntable and the track leading into it.

When I started in rail heritage in the 1980s (which I eventually exited from around the same 2003) there was a lot more going for the various groups in terms of resources, because we lived in a different kind of society where people had more free time and money to give to these groups. The situation is now very different and the various groups find they have to work together a lot more, and some have folded up. Against that reality it's very hard for a new group to be formed and established. The other key factor which has changed a lot is the structure of the national railway network which has been through a process of corporatisation, privatisation and nationalisation. The extent to which the national network has been able to support rail heritage has changed vastly in that time, and is currently a fraction of what it used to be.

The key problems I see for the NRM are as follows:

• It's on the Ferrymead site yet it is a separate organisation
• It is a self established group rather than being a national initiative
• It competes for funds and resources with every other rail heritage group in NZ rather than cooperating with them.

Being on the Ferrymead site will bring competition with every other Ferrymead society and the way it is set up is to be completely independent from even the Ferrymead Railway to which its track connects. As well, they now have a bus in their collection, which brings them into competition with two other groups at Ferrymead which preserve buses.

It can't be denied that when you are in competition with other established groups on the same site that you are all competing for members time, members funds and external funding sources.  The nature of the NRM is that they are completely separate from the Ferrymead Railway, with their own collection that they have acquired independently of that group. Whereas, it may have made more sense for them to be a subcommittee of the Ferrymead Railway and simply borrowing some of their existing vast collection of rolling stock.

Also being at Ferrymead sets them up to be in competition with other rail heritage sites in NZ, most of which are openly or not so openly competing against each other and it's doubtful there will be much support from rail heritage groups in other centres, such is the nature of rail heritage that there is nowhere near as much cooperation as there should or could be. Many of these groups will view the NRM as another group like them rather than being something they should support as a national initiative. The politics of being at Ferrymead, which tends to come across as a grandiose pretentious organisation due to their existence at a nationally significant site, will count majorly against them.

I think that the best future for the NRM would be as a branch of Rail Heritage Trust and established around New Zealand with the rolling stock and exhibits at a number of sites rather than being in one single place, thus being able to attract more widespread support. In my view RHTNZ has achieved much more in creating a national railway heritage collection and initiatives around NZ than NRM has achieved to date, and they have also been able to source additional funding support which NRM would not be able to access.

If on the other hand NRM chooses to stay at Ferrymead then they should merge with the Ferrymead Railway and focus on being a branch of that institution rather than duplicating everything which they are doing at the moment and therefore competing with them for resources.

This post is not part of any regular diversion from the core purposes of NZ Rail Maps and I do not expect to be commenting on this type of non-core topic more than once a year at this stage.