CHAPTER 7
CONCLUSIONS AND RECOMMENDATIONS
Introduction
7.1 The Committee's primary observation on matters referred to it
reflects the views of submissions and evidence to the inquiry.
7.2 Notwithstanding the Brew review process of AN and NR, and the
Government's November 1996 rail proposals, there are a number of other important issues
which should be addressed by the Government in the process of asset disposal and reform.
7.3 The most important among these issues relates to finalisation of
transfer arrangements with the governments of South Australia and Tasmania. Each state
must reach agreement with the Commonwealth on the proposed disposal of AN assets in those
states, so as to satisfy the terms of relevant rail agreement Acts.
7.4 There is a possibility that either or both state governments may
not agree to most disposal proposals. This possibility was raised by both governments
during the Committee's inquiry.
7.5 Other unresolved issues are the apparent difficulty the
Commonwealth will have in securing a sale of its shareholding in NR, and the proposed
structure and precise role of the proposed national track authority.
The Brew Report
7.6 The Committee accepts that the financial analysis undertaken by
Mr Brew and his advisers is based on the best information available to them. However,
evidence to the Committee shows that Mr Brew's report is based on immediate financial data
for AN and NR, and a narrow range of consultations. Also the Brew recommendations for
privatisation and vertical separation are based on limited international experience and
did not canvass any other options or broader transport policy issues.
7.7 The fact that the Government was unable to publicly release the
complete Brew report hampered the Committee's inquiry as submissions made prior to early
February 1997 relied on the report's executive summary rather than the full report.
7.8 Submissions to the Committee, including AN's and NR's,
highlighted and confirmed the basic findings of the Brew Report: that the financial
position of AN is serious and that the Commonwealth as owner of AN must urgently deal with
it.
7.9 Submissions stressed that the Brew report had several
limitations, namely
- lack of focus on the effect of loss of AN businesses on South
Australian community
- lack of consultation with the users of the interstate passenger
network
- lack of focus on users of AN services and the current AN workforce
- concerns over accuracy of calculations and basic factual assertions -
particularly on freight traffic
- lack of understanding of the changes made to AN's business in the
last decade - and especially since the creation of NR.
- failure to consider the situation at AN in the broader context of
land transport policy, ecologically sustainable development and employment and regional
development objectives of the government
- the contradiction between the proposal to sell off rail assets on the
one hand, and split up those assets into several parts on the other, and, at the same
time, making no recommendations about intrastate regulatory or safety frameworks.
7.10 It is the view of the Committee that privatisation is not
necessarily the solution to AN's financial situation. This is something which needs to be
addressed prior to, and irrespective of, whether privatisation is to proceed. The
Government has, in effect, recognised this through its proposal to take over all debts and
liabilities so that the new owners will be unencumbered. The Government should consider
whether this should be done even if support for privatisation is not forthcoming.
7.11 The Brew review was commissioned by the Government to provide
it with a `snapshot' analysis of AN and NR's financial position and likely prospects. The
Brew report made recommendations within its terms of reference and - though incidental to
its main task - made several recommendations on options for future Commonwealth
involvement in the rail industry. (In particular, Brew was not asked to comment on matters
related to infrastructure control and access, but in fact recommended establishment of a
track authority)
7.12 The Brew Report raised a number of general propositions on rail
operations. Firstly, the recommendations appear to be based on an analysis
that profit is the sole measure used to determine the 'viability' of a
service. Indeed, not only are there other measures of efficiency which
may be indicative of performance as a rail transport business, but that,
over time, earning fluctuations will occur. Yet the suggestion that AN
businesses should close down or that unprofitable lines should close are
predominant features of the report and that other transport outcomes that
would flow from such actions were not considered. Second, substantial
evidence the Committee received indicates that there are a range of other
complex issues that require resolution as part of the rail reform process,
regardless of the nature of ownership. Thirdly, as indicated above, the
findings in the report appear based on consideration of the rates of return
on capital. As has been pointed out, the realisation of any proceeds of
the sale of infrastructure and capital investment should, at least, be
reinvested in the community. [1]
7.13 The Brew report also reduced its overall value, in the
Committee's view, by examining matters beyond its terms of reference on one matter, (ie,
the allocation of any proceeds of sale of AN assets) and by expressing a plain preference
in advocating allocation of funds realised on the assets sale be allocated to areas such
as education and health issues.
The Committee concludes:
- that the Brew Report provides an adequate analysis of the
financial position of individual business units of AN and NR at one point in time.
However, on its own, it is not a proper framework for policy development as it fails to
consider the role of rail in the Australian transport system and any other issues other
than financial performance.
- that while the Brew report is a principal source of recent data on
AN and NR it fails to take account of the need for future policy on the Australian rail
industry. This is so particularly in relation to community and public service aspects of
current AN businesses.
The Government's November 1996 rail proposals
7.14 The Government's November 1996 rail proposals are discussed in
Chapter 5. The Committee concludes that, notwithstanding the initiatives are at an early
stage of implementation, it is not premature to make several recommendations on them.
7.15 The November 1996 rail proposals are unequivocally a formula
for privatisation of AN at the earliest possible time. The Committee's principal concern
is that the sale process now underway is ill-conceived, taking no account of broader
transport policy issues, and will inevitably lead to a fire-sale approach to AN.
General Observation - Sale Process
7.16 The Committee notes the scoping study for the AN assets sale
and disposal has been completed and a short list of bidders have been invited to undertake
due diligence examination prior to final bids.
7.17 It is important that the Parliament and the community have a
clear picture of how this process is proceeding, and the extent and nature of interest in
AN.
In summary, the Committee concludes that the November 1996
package
- contains very little new funds for the rail system or contains
inadequate funding for track upgrading
- will minimise the value of the assets realised at sale
- will run down the value of the Commonwealth's rail assets and
therefore recommends that the Government immediately inform the Parliament on the
following matters:
i) the expected timetable for the sale and disposal process
ii) the expected return to the Commonwealth
iii) the outcome of any agreement with the Governments of South
Australia and Tasmania on asset disposal or sale
iv) the regulatory and safety environment that will prevail after
privatisation
v) the outcome of a sale of AN as an integrated rail enterprise.
The Committee comments on individual aspects of the November
1996 rail proposals as follows
AN interstate Passenger Services
7.18 As the Committee has concluded in its discussions on the future
of interstate AN passenger services, the continuation of passenger service catering to
travellers - as compared with `tourist experience' type travel is an essential part of the
national rail infrastructure.
7.19 If the Government's disposal and sale process attracts bidders
prepared to either buy or franchise either of the Indian Pacific, the Ghan and the
Overland trains, conditions should be imposed that regulates and maintains the current
level of service.
7.20 The Committee considers that the Government, as a preferable
alternative to privatisation, seek to transform AN's passenger service into a national
tourist asset through proper management and marketing.
7.21 The Government should also ensure, as a community service
obligation, that existing service levels are maintained and subsidised pricing for
domestic travellers is maintained so that the service remains affordable.
7.22 The Committee recommends that if AN's
passenger service is to be sold, contrary to the recommendation of this Committee, any
bidder for the purchase or franchise of this asset be required to maintain the current
level of operation of these passenger services as a condition of purchase. The
Committee also recommends that subsidised pricing arrangements, as community
service obligations, be maintained for domestic travellers.
AN Intrastate Freight - South Australia
7.23 The Committee warns that there are potentially severe problems
with the break up and sale on the AN intrastate network in South Australia. The Committee
received no evidence why this approach was preferable in South Australia whilst Tasrail
was being sold as an integrated railway. The Committee strongly endorses the preference of
the South Australian Government and the ACTU rail unions that these assets remain as an
integrated enterprise and notes that their sale requires the agreement of the South
Australian Government under the Railways (South Australia) Act 1975.
7.24 The Committee recommends that any agreement
reached between the Commonwealth and South Australia on the future of the AN intrastate
freight network be provided to the Parliament at the earliest opportunity following
conclusion of any agreement.
These details should clearly indicate to the Parliament
- the terms of the agreement reached between thew Commonwealth and the
States
- the proposed timetable, both in the State and Commonwealth
parliaments, for necessary statutory enactment of such agreements
- the nature and extent of any agreement in respect of continuing
Commonwealth liability in respect of accumulated liabilities and superannuation
liabilities
AN Workshops - South Australia
7.25 The Committee has indicated the deep concern it has over the
immediate and long term future of the SA workshops, and their workforce. As the Committee
has highlighted, securing work for the SA workshops, either in rail or other work, will
require urgent and active consideration.
7.26 The Committee concedes that the creation of NR and NR's
subsequent decisions to locate its maintenance requirements away from South Australia is
highly likely to lead to the closure of the South Australian workshops unless urgent
measures are taken now. With the exception of the Dry Creek MPC, the current AN workload
is significantly less than current capacity.
7.27 While the Committee does not make any specific recommendations
on the future of the SA workshops, the Committee notes that the effect of allowing closure
will be the permanent loss of these engineering facilities to South Australia.
TASRAIL
7.28 The Committee notes that there was significant community
support for the sale of Tasrail forthcoming, if the choice is between privatising Tasrail
or seeing it close. The Committee is not, however, convinced these are the only options.
Community support is also dependent on Tasrail continuing to operate as an integrated rail
system. If the Commonwealth proceeds to sell Tasrail, the Commonwealth should guarantee
the continued operation of the railway, including provision of capital investment funds to
maintain its modernisation program. This would compensate Tasmania for its effective
exclusion from the benefits of the proposed Track Authority.
7.29 The Committee welcomes the assurance by the Tasmanian
Government that TASRAIL will not be closed. This means the continued freight operations
without an unacceptable transfer of a large proportion of heavy freight traffic to the
Tasmanian road system.
7.30 The Committee recommends that the Government
pursue the option offered in the Brew Report of eliminating the AN debt in TASRAIL and
returning the system to the Tasmanian Government.
Sale of the Commonwealth `s Shareholding in NR
7.31 The Committee has canvassed views on the proposed sale of the
Commonwealth's shareholding in NR. The Committee considers the proposal to dispose of its
equity in NR before the end of the shareholders' agreement is premature and may be to the
detriment of further development of NR business.
7.32 The Committee recommends that the sale of the
Commonwealth equity in NR not proceed at this time. The Committee also recommends
that the Commonwealth review the sale of its shareholding in NR in the light of NR's
performance at the expiration of the NR agreement in 1999.
Community and Public Service Obligations
7.33 The Commonwealth's November 1996 rail proposals for
continuation of the community service obligations inherent in a rail service have been
dealt with in Chapter 5.
7.34 The proposed Regional Development Package is limited and will
be insufficient to ameliorate the regional and social impacts of workshop closures and
associated community disruption, particularly in Port Augusta. The package should be
extended to include a specific Labour Market Adjustment Program at least as strong as that
now applying in AN.
7.35 The Committee recommends that the Commonwealth
needs to take more seriously the social effects of the AN disposal and sale. Significantly
more funds will, in the Committee's view, be required to this purpose in the long term.
The Proposed National Track Authority
7.36 The Committee has drawn attention to the preliminary nature of
the structure and funding of the planned national track authority.
7.37 Legislation to establish a proposed national track authority
will need to be carefully scrutinised in relation to a number of important areas.
7.38 These include
- the need for commitment to a long term mainline investment program
similar to that outlined by the Bureau of Transport and Communications Economics for the
National Transport Planning Taskforce
- the need for competitive neutrality between road and rail
- the need for the existing interstate rail infrastructure to be the
responsibility of the national track authority
- track access regime and track access charging
7.39 The Committee recommends to the Government
that in considering the proposal for a National Track Access Authority, it consider the
need to ensure an appropriate balance between road and rail investments and the need to
consider the impact of the Authority on state rail systems.
7.40 The Committee recommends that legislation
establishing the proposed national track authority be referred to the Senate Rural &
Regional Affairs and Transport Committee for inquiry following its introduction into the
Parliament.
Options for Future Commonwealth Involvement in the Rail Industry
7.41 The Committee has been given several views on possible options
for the future involvement in the rail industry, which were not considered by the Brew
report. The Committee believes these options deserve proper analysis. These options should
not be put aside as a result of the November 1996 package, which contained no coherent
view on transport investment, (unlike positive overseas examples, such as Germany and
Sweden). The Government seems to have no clear picture of what Australia's rail system
might look like after privatisation. Such a picture is necessary for the future
involvement in the industry of both public and private sector investors.
The Committee therefore recommends that before proceeding
with the sale process, the Government should develop a coherent land transport policy
framework, taking into account financial, economic, social and environmental goals and
recommending mid and long term investment programs for road and rail in all major
corridors.
7.42 The Committee has considered the views put to it, particularly
on the comparison between the current Commonwealth proposal and alternatives of `above the
rail line' and `below the rail line'
7.43 In general terms, an example of an Australian solution which
offers potential for further serious examination is the model of an integrated rail system
presented by Queensland Rail.
7.44 The Committee notes with concern that neither the Brew Report
or the November 1996 package made any reference to the need to protect employment in the
rail industry, especially in regional areas, nor did they recognise any obligation to
ensure the current living standards of railway workers, their families and communities.
Before proceeding any further, the Commonwealth should give an undertaking that in any
restructuring or privatisation, the benefits to the taxpayer, operators or customers are
not achieved through the reduction of living standards of people working in the rail
industry and that rail jobs in regional areas will be protected as far as possible.
Senator John Woodley
Chairman
References Committee
May 1997
Footnotes
[1] Evidence, 29 January 1997,
p.112.