GOVERNMENT SENATORS' ALTERNATIVE POSITION
Introduction
G.1 The Government Senator's primary observations on matters
referred to the Committee reflects the views of a number of submissions and evidence to
the inquiry
G.2 The Government Senators note that other members of the committee
have criticised the Brew Report for going outside the terms of reference. It is the view
of the Government Senators that it is inconsistent on the one hand to criticise the Brew
Report for going outside its terms of reference, yet on the other to criticise it in other
areas for not going outside the terms of reference, when to do so would support a specific
argument. 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 National
Track Authority). However, it is not surprising that in fact Brew did respond to a number
of the issues, and in particular, the establishment of a track authority because so many
of the submissions and witnesses raised these issues. In particular, it can hardly be
surprising that having identified that the cost to Government of AN is some $10 million
per month - that the Brew Report suggested the Government could invest this money more
wisely for the benefit of taxpayers. There is no doubt that Brew was “damned” if
it did not comment on issues outside the Terms of Reference, and “damned” if it
did comment on issues outside its Terms of Reference because of the preconceived position
already adopted by many of the individuals' involved.
G.3 The reality is that had the Brew Inquiry been into a private
enterprise business, it would have been the equivalent of a receiver moving in to plan the
liquidation course of that business which was bankrupt or about to go bankrupt. There are
a number of reasons for this, not the least being the way in which the previous Labor
Government established the National Rail Corporation and the asset stripping which
occurred and the debt being left in the hands of Australian National. The ill conceived or
absolutely hopeless position in which Australian National found itself is highlighted from
evidence in Adelaide and spelt out by former Minister and member of the current committee,
Senator Collins when he said:
Senator BOB COLLINS--I expect that a large
part of AN's debt would obviously relate to track and other rail infrastructure. Can you
advise the committee--again, not necessarily now--of what some of those assets are worth
and how much of AN's debt supports them?
Mr Neal--I think there is very little. I can
give you some rough figures. They are probably as good as you are going to get. I said
that the debt is not divided into specifics.
Senator BOB COLLINS--I will ask a more
general question about whether you have done any modelling. I hope you have. I will
certainly be striving that this committee's report reflects it in a prominent way. It is
very easy to understand the frustration of AN's management as to the misconceptions on the
level of losses that are constantly put up in lights with no actual explanations. The
substantial reason, as you have said, is as a direct result of the National Rail
operations. Although those adjustments were mooted, they were never delivered. Have you
done any modelling of your debt levels if National Rail were paying for the use of those
assets on a normal commercial basis? Have you calculated for that adjustment?
Mr Neal--No. We have not got any detail. I
can give you the specific case of the locomotives. We will be relieved of some $30 million
per year in lease payments there.
Senator BOB COLLINS--Just for locomotives
alone?
Mr Neal--That is correct.
Senator BOB COLLINS--I concede that this is a
forlorn exercise but, without dying in a ditch on it, could you attempt to provide the
committee at some stage with an assessment, rubbery as it might be, of the actual outcomes
for AN if NR were paying under normal commercial terms for what they are using which
originally belonged to AN?
Mr Neal--I will take that on notice.
Senator BOB COLLINS--Thank you. I want to
respond to an inquiry from Senator Calvert. Mr Smorgon and Mr Neal may not be aware of
this. I want to say this for the record, because it is an important question and relates
to the sense of broad frustration that I gave vent to half an hour or so ago. There are
difficulties in trying to get nationally desirable solutions when you are dealing with six
state governments and a couple of territories. National Rail was to provide for the first
time in our settled history the highly desirable outcome of a single gauge freight
operation connecting all of the state mainland capital cities and, therefore, the major
centres of population in Australia from the Fisherman Islands near Brisbane around to
Perth. It was to avoid the unbelievable performance that you had to have with different
bogies and the rest of it to get freight around the country.
For what it is worth, as a former Minister for Transport, I
have to say that the most highly desirable option I would like to have seen accomplished
from the Commonwealth's perspective was to have based that operation on AN and to have
used AN as the springboard from which that operation went forth. To my total astonishment,
the highly desirable outcome of a single gauge operation almost come unstuck about 100
times, even after the establishment of National Rail. A lot of it was personality based as
well. I have no doubt that, over a long period, the antipathy of state rail services and,
through them, their ministers and all the people who represented them to AN was so great
that, when that possibility was explored, it was rejected.
I have no hesitation in saying that if it had been a matter
insisted on by the Commonwealth as a condition of its capital infrastructure and AN had
been used as the vehicle, if you like, through which that single gauge line was delivered,
the probabilities are that we would still be talking about it now. Rather than having it
completed and operating as it is, it would probably never have happened, or at least not
happened for a very long time, because the antipathy was so great and entrenched. I say
that with great regret, because that is what I would like to have seen happen. It simply
was not possible. That is a potted history of why that outcome was there. Having said
that, it is important for the record that the real financial position of AN, adjusted for
those commercial payments of National Rail, be a matter of public property. This Senate
inquiry would be a good vehicle through which it could be published."
G.4 It also needs to be noted that in the 13 years of Labor in
office, AN ran-up a debt of almost $1 billion, and that over 7,000 rail jobs in urban and
regional South Australia and Tasmania were lost.
G.5 Notwithstanding the Brew review process of AN and NR, and the
Government's November 1996 rail proposals, Government Senators identified a number of
important issues which should be addressed in the process of asset disposal and reform.
G.6 The principal of these issues relates to finalisation of
arrangements with the Governments of South Australia and Tasmania. Each must reach
agreement with the Commonwealth on the proposed disposal of AN assets in those States.
G.7 Government Senators note that the Government needs to secure the
agreement of both South Australian and Tasmanian Governments to the sale process of AN.
Both Governments raised the need for negotiation and agreement with the Commonwealth
during the Committee's inquiry.
G.8 Other unresolved issues are the possible difficulty the
Commonwealth could have in securing the sale of NR. In particular the difficulty of the
sale of NR shares which could relate to the NSW Labor Government refusing permission to
even undertake a scoping study of NR and examine the books.
The Brew Report
G.9 Government Senators accept the financial analysis undertaken by
Mr Brew and his advisers, as that required by the terms of reference for the Brew Report.
It has focused on financial solutions to the situation at AN and NR. The Committee has
heard evidence from a range of sources which suggests that wider consultation with
customers and other industry bodies should be considered by the Government, and the rail
reform package should be consistent with broader transport policy issues.
G.10 Submissions to the Committee of Inquiry highlighted and
confirmed the conclusions of the Brew report: that is that the financial position of both
AN and NR - though principally AN - gave limited options to the Commonwealth as owner of
AN and the principal shareholder of NR. Clearly AN's position is acute, NR's less so.
G.11 In fact, Mr Brew disclosed that there had been 7,000 jobs lost,
mostly in South Australia, that taxpayers were subsidising every remaining employee
$30,000 per year and that this subsidy would increase to $220,000 in just four years time
unless substantial changes were made. The Government Senators note the very generous
redundancy payments that were made available to AN staff which resulted in the loss of
many skilled employees to the private sector. Government Senators also note that a
constant concern of existing AN staff was the uncertainty over both the future of AN and
their future as employees. Evidence from various sources, both staff and community groups,
indicated that the Government's announcement to sell AN and provide redundancy payments to
all AN staff entitled to them has resulted in certainty, allowing AN staff to effectively
plan for their future.
G.12 In fact, the evidence was consistent about NR and in
particular, AN's financial situation and management problems (this came from AN
management, AN staff, unions, community groups and rail lobby groups etc.), who
consistently said the situation was acute, that the day had come for major reform and that
the Government could not continue to own and manage AN any longer. This was highlighted by
the following exchange between Senator Ferris and the Mayor of Port Augusta, Mrs Baluch.
Senator FERRIS--I wanted to make one last
comment: I heard you say this morning on the radio--I think this is an accurate and quite
colourful quote--that you would have to be deaf, dumb, blind and with a Labrador dog to
suggest that AN should continue to be operated by government. Would you like to elaborate
on that?
Mrs Baluch--No, that is a correct statement
of what I said. I have said it before.
G.13 The Government Senators highlight that submissions presented,
including AN's and NR's, 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 take
urgent actions to deal with these.
G.14 Some submissions claimed that the Brew Report had several
limitations. It should be noted that virtually all of these claims were outside the terms
of reference of the Brew Report.
G.15 Regarding those matters inside the Terms of Reference,
particularly those to do with the financial position of AN and NR, there was little or no
disagreement. In fact, the Brew Report made the impact of establishing NR on AN's balance
sheet abundantly clear.
G.16 National Rail took AN's interstate assets, for example railway
engines and rolling stock, and left AN with the debt (refer to previous question by
Senator (Bob) Collins to Mr Neal where Senator Collins questions “I concede that
this is a forlorn exercise but, without dying in a ditch on it, could you attempt to
provide the committee at some stage with an assessment, rubbery as it might be, of the
actual outcomes for AN if NR were paying under normal commercial terms for what they are
using which originally belonged to AN?” and Mr Neal replied “I will
take that on notice.”)
Government Senator's Conclusions on the Brew Report
G.17 Government Senators conclude that:
The Brew Report was up-to-date, properly informed and accurate in
relation to the business operations of AN and NR.
Government should implement decisions related to rail reform within
a broader framework of ensuring rail plays a viable role in the Australian transport
system.
The Brew report presented the Government with a professionally
prepared `snapshot' picture to use as a policy planning tool for considering its options
on Australian rail policy.
The Brew Report was only one source of information for rail reform
policy in that its charter was to deal with the financial status of AN and the NRC.
G.18 The Government Senators note paragraph 3.11 in which the Brew
Report is criticised as being too focused on the financial aspects of Australian National
and the recommendations for the closure of unprofitable businesses. Government Senators
believe this to be an unreasonable criticism of a report whose terms of reference were
specifically financial.
G.19 The Government Senators note that much evidence presented to
the Committee indicated that the recommendations of the Brew Report were not surprising
given the way Australian National's debt had increased over recent years. For example, Mr
Rodney Nettle, CEO, Spencer Regions Development Association, said:
"The recommendations of the Brew Report therefore cause
us no surprise at all in this region, and it would not cause any surprise to any other
person who had half an ounce of commercial nous.
We are of the view that it was the intention of the [former]
Australian Government to force the ultimate failure of Australian National and shift the
responsibility of the adjustment of that failure back to the communities where the failure
had its greatest impact. In the case of the Spencer regions that is very much Port
Augusta."
The Government's November 1996 rail proposals
G.20 The Government's November 1996 rail proposals are discussed in
Chapter 5. Government Senators conclude that, even though the initiatives are at an early
stage of implementation, it does not consider it premature to make several
recommendations.
G.21 The Government Senators consider that evidence presented in
paragraphs 4.7 to 4.12 are simply an effort to present the former Labor Government's
stewardship of AN in a far more positive light than the reality of the situation. All the
evidence presented to the Committee clearly demonstrated the declining financial situation
in AN and the inability of AN to have a viable future due to the way in which NR was
established.
G.22 The November 1996 rail proposals are clearly designed to reform
the rail industry by involving the private sector. This direction was supported by a
significant number of witnesses and submissions who highlighted the need for private
sector involvement. They consistently emphasised that the option for the Government was
either to close them down or privatise.
Senator FERRIS--If the debt was to be set
aside--as some of our submissions have suggested, I think--or in some way relieved, that
is, accepted by the government, do you think AN has a future?
Mr Smorgon--No, I think we have reached a
stage where we are past that point. If you look at the losses of key people in the
organisation over the last few years, the redundancy payments that have been very generous
have meant that a number of our key management and key workers have disappeared from the
organisation. It is usually the situation that the better people feel confident to go out
and find another job. There has been a big reduction in the number of key people in the
organisation.
We have also had the problem with the amount of jobs we have
been receiving reducing as our problems have continued, and I think we have reached a
stage now where in AN's hands it would be almost impossible for us to continue but in
private hands I think those businesses can be rescued and the jobs of those people
currently employed can be saved.
General Observation - Sale Process
G.23 Government Senators note the scoping study for the offer of the
AN asset has been completed. Further, that bidders have been invited to make approach to
the Government's consultants with expressions of interest and bids for possible purchases.
G.24 It is important that both the Parliament and the community have
a clear picture of how this process is proceeding, and the extent and nature of interest
in AN.
G.25 Government Senators recommend that, in continuing the process
of sale and disposal of AN assets, that the Government inform Parliament on the following
matters:
- the extent of interest in the sale of AN assets
- the expected timetable for the sale and disposal process
- the expected return to the Commonwealth when appropriate
- the outcome of any agreement with the Governments of South Australia
and Tasmania on asset disposal or sale
- the regulatory and safety environment that will prevail after
privatisation.
G.26 Evidence given at Port Augusta gives a stark perspective of the
deterioration in the employment opportunities in rail. In 1974 there were 2157 employees
working in the rail industry in Port Augusta. In June last year the figure was 618 and it
has since been reduced further. Evidence from Mr McSporran highlighted the seriousness of
the position and the Council's view of the need for change.
Senator CRANE--Could you give us an overview of how you
see the future of AN, railways in particular, and the direction you think it ought to
take.
Mr McSporran--As we understand the situation, if there is
not a change in the mode of operation of Australian National then it will basically be a
very small operation based in Port Augusta. We are not sure of the exact number of
employees at this point in time. We suspect that that is below 450. It has come down from
over 2,000 in the 1970's.
Admittedly, technology has brought significant changes. But
unless there is to be a change in the mode of operation, there will be not be an operation
of the rail industry in Port Augusta, under the current Australian National management.
That is the view that council has adopted. It is also one of the reasons why in July of
last year we, as a council, went of our volition and sought comment from private companies
in the rail industry as to how they saw the future of the rail industry in Port Augusta
- It should be noted that as AN is costing taxpayers $10 million per
month to subsidise its continuing losses that the Government does not have the luxury and
would be negligent to continue to allow the debt to grow without taking action. It is
therefore important that Government, while proceeding with due caution, must also proceed
with some urgency. In fact, the consistent theme from many witnesses was do not delay, do
not let the rail system deteriorate any further, that the Government must act now. In
fact, evidence was given that said the best future for AN staff and the ongoing future of
AN's assets is to get private operators in as soon as possible. The theme was - the longer
we wait, the more the value will deteriorate and the chance of retaining good employees in
the rail industry and providing them with jobs will diminish. It should also be noted that
the sale advertisement, placed in the Australian and the international media, makes very
clear the broad framework within which this sale is being undertaken (see attachment).
G.27 Government Senators comment on the individual parts of the
November 1996 rail proposals as follows:
AN Interstate Passenger Services
G.28 The Committee heard evidence from some regional centres that
passenger rail services should continue in their current form. Government Senators
consider there is a future for rail passenger services and for travellers who want a
“tourist experience”.
G.29 Government Senators consider that the Government's sale process
will attract bidders prepared to buy or franchise the Indian Pacific, the Ghan, and the
Overland, and that this will lead to increased levels of passenger use which will assist
in maintaining current levels of service and improving their service.
G.30 Government Senators recognise the important role played by AN's
passenger services in providing regular transport to regional areas. It also recognises
the potential for profitable tourist operations where the rail journey includes tourist
destinations.
G.31 Therefore the Government Senators recommend the Government
should ensure that if AN's passenger services are sold to operate as luxury tourist
trains, the needs of existing rail commuters to regional centres are considered by
alternative services.
G.32 It would be counter-productive to force a potential operator to
continue the existing pattern of operations as in some instances a combination of services
on one train may not work. Future development must be done in such a way that it allows
the development of the right product for the market. Flexibility will be essential to
overcome the existing problems.
G.33 The Government Senators consider the requirements identified in
paragraphs 5.28 and 5.39 are too limiting to a potential private sector operator and
restrict the opportunity for a more effective and customer focussed passenger operation.
AN Intrastate Freight - South Australia
G.34 The Committee has noted that the disposal or sale of AN
Intrastate freight assets will require the agreement of the Government of South Australia
under the Railways (South Australia) Act 1975.
G.35 Government Senators recommend that the agreement between the
Commonwealth and South Australia on the future of the AN intrastate freight network be
provided to the Parliament following the conclusion of any agreement.
AN Workshops - South Australia
G.36 Government Senators are aware of concern over the immediate and
long term future of the SA workshops, and their workforce, and notes the need for
immediate action to explore alternative engineering and associated work for the
facilities.
G.37 Government Senators note 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 their closure unless a buyer is found or there are alternative
engineering tasks. With the exception of the Dry Creek MPC, the current AN workload is
significantly less than current capacity.
G.38 The Committee does not make any specific recommendations on the
future of the SA workshops. In broad terms, Government Senators would recommend to the
South Australian Government and a new owner that they seek through whatever means
available to attract new operators on rail or other industries to utilise the significant
engineering equipment and expertise that exist at these workshops. The Government Senators
remain optimistic that an appropriate buyer will be found for the complex.
TASRAIL
G.39 Evidence received by the Committee indicated significant
community support for the sale of Tasrail. The submissions and evidence have highlighted
the opportunity that a `greenfields' integrated rail enterprise would be the best option
for continuation of rail transport in Tasmania.
G.40 The Government Senators note the views of a range of Tasmanian
groups which support the sale of Tasrail to ensure a viable rail industry in Tasmania.
Government Senators note the comments of Mr Scott McLean, Assistant State Secretary,
Construction, Forestry, Mining and Energy Union, Forestry Division:
"...they [the former Labor Government] used
Tasrail as a political football."
"...it needs to change. Otherwise, the only option is that
it will close because it will continually run itself into the ground."
G.41 The success of other - albeit specialised - shortline
operations in Tasmania is a helpful sign of interest: This highlights that areas of
Tasrail operations are considered profitable. The Tasmanian Government has indicated that
Tasrail will not be closed. Therefore the sale proposal has additional positive aspects:
particularly its potential ability to capture more of the heavy freight.
G.42 The Government Senators recommend that the proposal for the
privatisation of Tasrail continue.
G.43 The Committee notes the option suggested in the Brew Report of
eliminating the AN debt in Tasrail and the return of Tasrail to the Tasmanian Government.
The Committee also notes that whilst the Tasmanian Government agrees that the Tasrail debt
must be eliminated it also made it clear that the best option was to then privatise
Tasrail because it believes this is the most efficient outcome for the long term success
and profitability of rail in Tasmania.
Sale of the Commonwealth's Shareholding in NR
G.44 The Government Senators note the recommendation of the Brew
Report that the Commonwealth review its shareholding in NR and give consideration to how
and when it sells its equity in NR. It is noted that the Government has announced its
intention to sell NR and its desire to undertake a scoping study of NR. The Government
Senators support the Government's aims of revitalising the rail industry through the
involvement of the private sector to introduce competition, provide access to new
operators and to provide greater levels of customer service.
G.45 Government Senators note that the NSW Minister for Transport
has to date, failed to allow the Commonwealth to gain access to National Rail's financial
information to allow a scoping study to be undertaken. Government Senators believe the NSW
government should quickly move to support the Commonwealth to allow National Rail to be
sold so that the benefits of private sector involvement in rail can be achieved as soon as
possible.
G.46 Government Senators recommend that the Commonwealth's share in
National Rail be sold to the private sector as soon as possible.
G.47 The Government Senators do not agree with paragraph 5.93 which
is designed to delay the sale of National Rail and so postpone the benefits to the rail
industry of the involvement of the private sector.
Community and Public Service Obligations
G.48 The Commonwealth's November 1996 rail proposals for
continuation of the CSO obligations inherent in a rail service have been dealt with in
Chapter 5.
G.49 Government Senators recommend the Commonwealth needs to
continue to be mindful of the social effects of the AN disposal and sale. Additional funds
could, in the Government Senator's view, be required for this purpose in the long term.
The Proposed National Track Authority
G.50 The Committee draws attention to the nature, structure and
funding of the planned NTA.G.51 Legislation to establish the proposed NTA will need to be
scrutinised in relation to a number of important areas.G.52 These include:
- the need for a long term mainline investment program of capital works
for the NTA;
- similar transport investment criteria to specific corridors whether
rail or road;
- the existing interstate rail infrastructure to be the responsibility
of the NTA;
- track access charging.
G.53 It should be noted that these are demanding requirements -
requirements that the previous Labor Government did not deliver in thirteen years.
G.54 They should not be used to delay the establishment of the
National Track Authority.
G.55 The Government members of the committee note that the
Commonwealth proposes to invest significant funds into the upgrading of the interstate
rail network. It also notes that the Commonwealth owned rail track is in very good
condition, due to extensive concrete sleepering and a continuous maintenance program. That
is in contrast to the standard gauge networks in other states, particularly NSW and
Victoria, where State Governments have failed to invest adequately in the standard gauge
network.
G.56 The Government Senators note the rail industry's view that the
establishment of a National Track Authority under the management of a single entity is
essential for Australia's rail industry. The Government Senators recommend that the Bill
establishing the authority be supported by the Senate to ensure the establishing of the
best achievable track authority to maximise the future of commercial interstate rail
operations.
Options for Future Commonwealth Involvement in the Rail Industry
G.57 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 Government Senators believe these options deserve proper analysis as they
could well sit comfortably alongside the policy initiatives announced by the Government in
November 1996.
G.58 The Committee heard a number of views regarding the benefits of
vertical integration (as in Queensland and some overseas countries) as opposed to
separation of “above” and “below” line responsibilities, as in many
overseas countries. Government Senators recommend the Commonwealth implements the best
model for rail reform that takes into account the specific nature of the Australian rail
environment.
G.59 Government Senators recommend 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 transport systems.
G.60 Government Senators do not underestimate the size and the
difficulty of the task of reforming and revitalising the Australian national rail system.
The deterioration during the 13 years of the previous Labor Government is almost beyond
comprehension. Mr Brew disclosed that in recent years 7,000 jobs had been lost, mainly in
South Australia, that taxpayers were subsidising every remaining employee $30,000 per year
and that this subsidy would increase to $220,000 in just four years time unless
substantial changes were made.
G.61 He forecast that AN would lose more than $100 million per year,
worsening under the pressure of the competitive market required by the Hilmer Report
commissioned by the previous Federal Labor Government.
G.62 In Adelaide we heard of the continued demise of the South
Australian rail network where since 1982 1,375 kilometres of railway line have been closed
or abandoned and worse still, often torn up and sold for scrap. In just 15 years almost
entirely during the jurisdiction of the previous Labor Government 50% of the South
Australian network has been closed. In Port Augusta since 1974 rail employment has reduced
from 2,157 to just 618. Wherever the Committee went, and in particular Broken Hill and
Tasmania, the situation was similar.
G.63 The Government Senators note that the Coalition has proposed a
$2 billion reform package to rejuvenate rail operations and services in Australia. Key
elements include establishing one authority to manage the interstate rail network and
importantly, introducing competition to the rail industry by involving the private sector.
G.64 The Government Senators note the Government's Rail Reform
Program, which is designed to revitalise rail in Australia. Government Senators commend
the aim of ensuring that rail transport for general freight and bulk commodities is made
as efficient and competitive as possible.G.65 Government Senators consider it is
essential, however, that the Government monitors the new rail industry reform program to
ensure that the best long term economic, environmental and safety outcomes are achieved
for the Australian community.