Rail & Maritime Transport Union (RMTU), New Zealand

When the government in New Zealand and Toll NZ were unable to agree to a sustainable track access charging regime, the government took action. They bought it back!

Reasons for the buyback

The main trigger for the buyback was the lengthy conflict over the level of access fees that should be paid to ONTRACK, which owns and manages New Zealand’s rail network on behalf of the government. ONTRACK is managing 4,000km of railway track as well as signals, bridges and tunnels.

Toll has been paying about NZ$48 million a year since an access deal was struck in 2004, with the government picking up the shortfall of about NZ$10 million. In 2006 Toll NZ threatened to slash services on much of the national rail network, including the main trunk line, unless it got a long-term national agreement from the government on its track-access fee.

Lessening transport's carbon footprint, taking pressure off the roads and making trucking and shipping more efficient were other motivations for the government to re-nationalise the railways.

Details of the deal

Negotiations have taken several months. The government initially offered NZ$500 million to buy back, but Toll wanted NZ$1 billion. The deal was struck on 5 May 2008, after the government agreed to pay NZ$665 million for Toll New Zealand's trains and Interisland Cook Strait ferries.

Toll will keep its freight forwarding operations, including its trucking businesses which operates under the Tranz Link name. The trucking operation of Toll Tranz Link is New Zealand’s second largest trucking company and is consolidating its market share. Toll admitted to have been taking freight off Toll Rail and placing it into Toll Tranz Link trucks for a while. Toll Tranz Link will get a six-year rent holiday, estimated to be worth up to NZ$20 million, on premises for this business.

The estimated value of Toll’s assets is NZ$430 million, equalling a NZ$235m profit for Toll.

Tolls assets are:

• 180 mainline locomotives;
• 4200 wagons;
• one rail ferry;
• leases on two other ferries.

The trains will be owned either by a new state-owned enterprise or in a separate entity within ONTRACK. Operation of the business may also be contracted out to the private sector. Transfer of ownership occurred on 1 July 2008.

Other costs

It has been estimated the following required expenditure to upgrade the rails:

• NZ$200 million into new tracks, through state-owned operator ONTRACK.
• Another NZ$200 million to NZ$300 million for new rolling stock.
• NZ$26 million to pay for the 6 year lease-free period for Tranz Link (the trucking operation) and also the secondment of four Toll senior managers until February 2009 to run the business.

Industrial situation

The Rail & Maritime Transport Union (RMTU), with more than 4300 members in rail, road and ports industries, is the largest transport union in New Zealand.

Unfortunately, 26 of its members have been killed at work, most of them in the rail industry. RMTU has set up memorials at the accident sites and in most of New Zealand's cities, and is a passionate supporter of the International Workplace Health & Safety Workers' Memorial Day on 28 April of each year.

RMTU is currently busy consolidating five specifically rail collective agreements that cover the majority of its members:

• Toll NZ Consolidated Limited, expired 30 June 2008;
• ONTRACK NZRC Ltd, expired 30 June 2008;
• ONTRACK Infrastructure NZ Rail, expired 31 March 2008;
• Veolia Transport Auckland Limited, expired 30 June 2008;
• United Group Rail Limited, expired 31 March 2008.

Toll Networks NZ Ltd (formerly Toll Tranz Link and covered by the Toll NZ Consolidated agreement) renegotiated a new agreement on the same or more favourable terms. RMTU has also initiated Multi Employer Collective Agreements (MECA’s) with Toll and Veolia and another MECA to consolidate ONTRACK core and ONTRACK Infrastructure.

From late 2007, RMTU has been subjected to a hostile strategy from ONTRACK management with the tacit approval of their board, although its members are appointed by the Labour-led government and one of them is the President of the Labour Party.

The union mounted a successful campaign and managed to receive political support against the ONTRACK board’s strategy which, at its core, was to “undermine the influence of the RMTU”. The union sees re-nationalisation of rail operation as an opportunity for changes in the ONTRACK board.

History so far 1986: Labour government makes railways a state-owned enterprise In six years the workforce was cut from 21,000 to 5000, while productivity of the land-based workforce increased by 300 per cent. 1989: NZ Rail Corp’s NZ$1 billion debt is taken over by the government (National) 1993: NZ Rail is sold by the national government for NZ$328.3 million to US railway group Wisconsin Central and Berkshire Partners and Fay Richwhite. The buyers also absorb NZ Rail's NZ$71.1 million debt. 1995: Company renamed (Tranz Rail) 1996: Wisconsin Central and Fay Richwhite take NZ$322 million of equity out before floating 31 million shares to the public at NZ$6.19/share. 1997–2003: Share price slumps 1997: Tranz Rail share price peaks at NZ$9. 1998: Tranz Rail share price is NZ$2.71. 2003: 30c/share. Tranz Rail's operating loss is NZ$70.7 million (net loss NZ$122.7 million). 2000: Ministerial inquiry into Tranz Rail Occupational Safety and Health, following the death of five Tranz Rail employees in 12 months (39.3 deaths per 100,000 employees compared to a country average of 4.9 deaths per 100,000). 2002: David Richwhite and Michael Fay quit their stake at NZ$3.60/share, netting an NZ$87 million profit on their original NZ$31m investment, plus collecting NZ$10 million in advisory fees. Wisconsin quits two weeks later at NZ$3.70/share, netting a NZ$100 million profit on its NZ$37m investment, plus NZ$8 million in advisory fees. 2003: Toll Holdings and the government take over and split the business Government bails out Tranz Rail at a cost of NZ$75.8 million, buys back the rail network for NZ$1, takes a 35 per cent stake in the rail operation, and gives it an immediate NZ$44 million cash injection. Toll put in a low bid for the company at 75 cents/share, 13 cents below previous day's closing price of 88 cents. Toll also assumed debt and lease obligations – estimated at NZ$236 million – taking the total value of its bid to NZ$394 million. Toll gained monopoly right to use the rail network after promising to invest $NZ100 million in rolling stock. 2007: Toll buys another 10 per cent of railway shares, triggering a compulsory takeover for the remaining shares at NZ$3 each. Toll has spent NZ$200 million on the business in the last 2-3 years, and says that benchmark return on investment is up from 10% to 20%.

This is the edited version of the New Zealand Country Report presented by Wayne Butson, General Secretary, Rail & Maritime Transport Union, at the ITF Railway Workers’ Section Steering Committee meeting, London, 29 - 30 May 2008