A number of factors combined to persuade the National Government in the early 1990s to sell the rail network and its freight and passenger business.
In straitened economic circumstances, the sale of state assets was favoured as a means of both raising money and avoiding the need to invest in those assets. The rail industry had already been corporatised and staff numbers greatly reduced from the heady days of the 1970s.
Road transport had been deregulated in 1983, freeing it up to compete with rail. This, and the progressive increase in the permitted size and weight of trucks, led to a significant loss of rail freight traffic over the remainder of the decade. At the same time, the rail industry needed heavy investment in both network infrastructure and rolling stock to modernise and be competitive.
To the Government of the day, leaving this to the private sector seemed a sensible solution.
Steps to privatisationIn 1990, New Zealand Rail Ltd was incorporated as a limited liability company wholly owned by the Government. In September 1993, following a bidding process, the company was sold to Tranz Rail Holdings. Principal shareholders included Wisconsin Central Transportation Corporation, Berkshire Partners LLC and Fay Richwhite & Company.
New Zealand Rail Ltd became Tranz Rail Ltd in 1995 and the company was listed on the New Zealand stock exchange in 1996.
The change appeared to bring benefits through the early years. Costs were reduced and freight volumes increased. But a recapitalisation, increased debt, and management changes combined to sap profitability and performance in the late 1990s and early 2000s.
Debt prevents investmentGrowing levels of debt reduced the amount of capital available for investment in the network. At the same time, a move of the corporate office to Takapuna in Auckland reduced the opportunity for interaction with Government and government agencies.
In 2002, the Government negotiated with Tranz Rail to buy back the Auckland suburban network. Auckland local authorities through Auckland Regional Council’s transport agency the Auckland Regional Transport Authority, became responsible for providing suburban rail services through a contracted operator.