In a recent opinion piece in the Otago Daily Times , National List MP Michael Woodhouse justified the lack of involvement by his government in Kiwi Rail’s awarding of key contracts to overseas companies by saying that it was always gong to be a commercial and not a political decision. He goes on to outline the key financial considerations Kiwi Rail followed, and the difficulty of making such a tough call.
Kay Simmonds Murray outlines how he is just plain wrong.
“Tenders are confidential and the tender prices were not made public but I understand Hillside’s price was about 25% higher than the successful bidder.”
Kay Simmonds Murray
“KiwiRail CEO Jim Quinn was quoted in ODT 30th May as saying “On price, the Hillside bid was about 15% more expensive than the CNR-PPD tender.”
She notes that
“In that item, Jim Quinn neglected to tell us whether the agreed purchase price includes the cost of the tendering process and the visits to inspect overseas workshops etc. These are extra costs that would have been avoided if KiwiRail’s own workshops had simply been given the work to do, which has been normal procedure for the past 100 years.”
“In his opinion piece, Mr Woodhouse neglects to point out, given that this is over a ten year period, it would be cost of only $6 million a year.”
“Having the wagons built in New Zealand is actually cheaper for the New Zealand taxpayers. Buying the wagons overseas, as KiwiRail has done, is a cost to the New Zealand taxpayer. “
Citing a 2010 report by BERL on producing the trains in New Zealand*, Murray points out that any overseas tender would need to be 29% cheaper than Hillside if immediate benefits are considered and 62% cheaper if all the benefits are considered such as skills development and maintenance, support for supply and service industries, export potential and impact on foreign exchange, crown revenue and trade balance.
“The Government is prevented by the State-Owned Enterprises Act from interfering in operational decisions of this nature.”
Kay Simmonds Murray
“Surely Mr Woodhouse is familiar with the saying “he who pays the piper calls the tune”? When it comes to KiwiRail the government most definitely pays the piper. By Mr Woodhouse’s own admission the government has provided $250 million in operational and capital funding to KiwiRail this year alone. It has also promised a further $500 million for Auckland’s new electric trains. This sort of generosity with taxpayer provided funds obliges the government to ensure that New Zealand as a whole gets the best possible value for its investment.
“Under the State Owned Enterprises Act, KiwiRail is accountable to the government and the people of New Zealand, not the other way around as Mr Woodhouse would have us believe”
Murray points out that the Government has a duty to ensure that KiwiRail fufills the obligations outlined in the KiwiRail statement of Corporate Intent.
These are “being a great New Zealand business and meeting our social obligation.” And exhibiting “a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so.”
“Outsourcing the building of rolling stock that could be done locally fails the social responsibility test. Furthermore it does not represent value for money for the people of New Zealand.”
*(The BERL report pointed out there are enormous economic and social benefits from doing the work in New Zealand. If the wagons are built in New Zealand the government gets the benefits of the income taxes paid by the workers, the GST on the wages they spend on goods and services. It gets the benefits of reduced unemployment. )