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Farrar joins call for SOE reform

Written By: - Date published: 7:00 am, December 24th, 2010 - 93 comments
Categories: assets, business, dpf - Tags: , ,

Say you run a large company. Say the manager of a division in your company chose do a deal that improves the division’s own profitability instead of one that would have made the division less profitable but the company as a whole more profitable. You would be angry. So why are the people who run our SOEs required to act like that?

It doesn’t make sense for parts of the government called SOEs to act as if they are independent entities and ignore the impacts of their decisions on the the rest of the government. Twice this year, Kiwirail has made the choice to save small amounts of money by buying rolling-stock overseas when it could have bought them from its own workshop creating hundreds of jobs and big tax flows to its owner, the government, which would have meant more services or lower debt for less tax you for and me.

We’ve been hitting this topic for a while on The Standard and even David Farrar now sees this is madness. He re-posted a long post about it yesterday and I’m going to do it again here.

This isn’t about protectionism. This isn’t about trade barriers. This is just the government acting sensibly to get the most bang for its buck for us, its owners:

I have always found it remarkably easy not to get all het’ up about other people’s problems. However, over the past couple of years I have been doing a lot of thinking about ‘the economy’ and I have slowly come to realise that individual and group woes have a tendency to compound over time into big globs of ‘economic ugly’ that inevitably effect almost all of us working class shlubs, particularly in a country as small as NZ.

KiwiRail’s recently announced decision to outsource the purchase of 300 container wagons to Chinese manufacturing concern CNR has not just het’ me up – it’s got me positively incendiary.

This decision is bollocks – there is no other way to put it. Actually there are several better ways to put it – but hey, this is a family friendly blog…..

The Southland Daily Times reports KiwiRail’s CEO, Jim Quinn, as saying that this decision does not imperil jobs at it’s own Hillside and Hutt Valley workshops. He proceeds to reinforce this carved-in-wet-sand assurance by further stating that he cannot guarantee that there will always be enough work for them…..[unless, of course, he did something like, lets see…award them Kiwi-Rail’s own contracts].

I have had personal dealings with Hillside. Back in 2005/06 Sarah & I photographed the ‘Men & Women of Hillside’ for the Toll NZ calendar – that’s where the photo comes from. I gained a great deal of respect for the operation – and it’s workers during these photo shoots.

Hillside is not inhabited by a bunch of over-entitled, Teamster style union shirkers tossing handfuls of bolts in the general direction of a locomotive. The carpark is not chocka with $60,000 SUVs and I never spotted a lunch room filled with workers taking 2 hour seniority breaks.

They are a highly skilled, workforce building remarkable products on a scale that I have not seen previously in NZ. Quite simply, they are bloody good at building big heavy stuff and they do it all – from foundry to paint shop to high tech electrical controls – in about the most Dickensian agglomeration of buildings still standing in the Southern Hemisphere.

The bottom line is this – Hillside Engineering is about as competive and lean as a manufacturer can be in New Zealand. In 10 years time when China is no longer cheap we will need these skills again in NZ, so we had better not lose them in the interim.

The reason for Hillside’s failed bid on this project was surprise, surprise – cost. To my knowledge, CNR have not promised to deliver a 40% lighter, self-loading, web-savvy super-wagon that comes complete with it’s own facebook and twitter accounts. Nope, CNR are 25% cheaper than Hillside on this $29 million contract and that’s it. By my calculations that equates to about $7.25 million – so for expediency I’ll call it an even $7M between friends which, admittedly, seems like a lot of money – but is it in the scheme of things?

Now, I don’t fully understand the operating rationale behind SOE’s – I would naively assume that it would be to utilise and safeguard state owned assets for the betterment of the broader New Zealand economy. What I do understand is that the previous Labour Government stumped up at least $665 million to purchase what is quite possibly the least successful monopoly in commercial history. If we had three privately owned railroad competitors in NZ, I could understand that the imperative to cut costs would exist – but we don’t** and we as the taxpayer are stuck with Kiwi-Rail (at least until after the next election) whether we like it or not – I for one do like it.

So if we own a monopoly why don’t we just do what all good monopolies do best – pass the extra costs on to the end user in order to deliver a more holistic package of benefits to the NZ economy?

If we are already at least $665 million plus in the hole, what the hell is another $7m to keep New Zealanders working at a time like this? Bernard Hickey summed it up beautifully when he said that we need to be much more nationalistic about these issues – damned right we do.

Like most of the developed world, manufacturing is more expensive here because we live in a country where we expect a living wage, social safety nets and a safe working environment. Inevitably we operate under A LOT of Government penned legislation that safeguards these expectations and adds A LOT of costs in the process. If an SOE cannot afford to pay the true cost of manufacturing in NZ using it’s own workers, who else can? We might as well just shut up shop tomorrow.

Let’s face it. Hillside will never be able to beat the Chinese on price. Everything is cheaper in China – in fact Kiwi Rail might like to consider outsourcing it’s CEO role to China, I am sure they could easily exceed a 25% saving on that.

So the question has to be what do we stand to lose from this deal? Are we really saving $7 million?

I would argue that from the get-go the New Zealand loses at least 12 million dollars by sending this deal to China. (apples for apples – The Hillside deal has a $7 million ‘buy NZ’ premium and I am assuming $10m imported materials which is a capital outflow from NZ – meaning an additional $12 million leaves NZ under the CNR deal). I am a macro-economics gumby*, but as far as I can see, The CNR deal ensures that this additional $12m is off to China, and unless someone in the CNR Mansion*** is in the market for a few thousand tonne of kiwifruit or a nice package deal holiday to NZ it ain’t coming back except as part of Bill English’s weekly $300 million loan package.

Which segues rather neatly to my next point – let’s look at that $7 million in context – as we have previously established $7 million is a shed load of money to most of us (though up until last week $7 million was probably Mark Hotchin’s monthly living costs). But $7 million is a mere 2.3% of the aforementioned weekly rogering that we are already taking as a country – I can’t be bothered looking it up, but I suspect that $7 million pays for about 6 hours of dole and DPB payments at present.

Continuation of this accounting-centric purchasing at Kiwi Rail could well ensure that the dole, DPB, or worse, Australia, is where a large portion the 180 skilled workers of Hillside could soon be headed. What is the downstream cost of that? Is it worth the risk for a measly $7 million? I for one don’t think so and I would be happy to foot my portion of that bill as a taxpayer.

But do we really have to foot the bill?

I always like to chunk business problems down to the smallest denominator – it brings perspective and big problems often look a lot more resolvable.

Firstly, lets spread the $7m extra cost over the 300 carriages. That’s about $23,000 extra per carriage – significant yes, but wagons don’t curl up and die after a year – though it is entirely possible that they could be tagged to death in South Auckland within their first week of service.

I am no train spotter, but looking at Kiwi Rail’s current rolling stock it would appear that a wagon can ride the rails for at least 97 years and survive two world wars – but I’ll adopt a more economically palatable 10 year timeframe. That’s a paltry $2,300 per annum across their life span – we’ll apply some snazzy time value of money guess-timation and make that $2500 per annum to give the bean-counters a return on investment. That’s less than $7 a day – or the equivalent of a Big Mac combo a day we have to recover to keep 180 Kiwis in work.

I have no idea how rail container freight is charged out (volume, time, or weight) but trucking 2.5 cubic metres from Alexandra to Auckland return cost us $750 return last month so I am guessing a container would cost thousands for the same trip. Will Fonterra**** really balk at the equivalent of $7 or even $25 dollars a day in charges? I doubt it.

So what to do? It’s simple really – CANCEL THE CONTRACT maybe pay some penalties to keep the diplomatic corp from squirming at embassy dinners and bring the jobs home. We all know that the Chinese Government would have few qualms reciprocating if their manufacturing sector looked like ours.

Do the right thing, CANCEL THE CONTRACT.

93 comments on “Farrar joins call for SOE reform”

  1. jbanks 1

    “even David Farrar now sees this is madness.”

    Wow David Farrar! Impressive benchmark. That guy tells it how it is. Hope to hear more from this ‘David Farrar’ guy.

    • Mr Magoo 1.1

      He tells it how you think it is.

      A not so subtle difference. But at least we can find common ground.

  2. Draco T Bastard 2

    http://www.berl.co.nz/1166a1.page

    The Berl Report on the making of trains in NZ compared with anywhere else estimated that, once the wider economic benefits were taken into account, the foreign built trains would have to have a 66% discount on the NZ$ price. 25% cheaper doesn’t cut it.

    NACT: Being real bloody stupid with our economy and, by extension, our society.

    (Copied my comment from last nights OpenMike across)

    • Swampy 2.1

      Dont think much of the lobbysits have a clue, this guy is talking rubbish suggesting Kiwirail is a monoply. They compete against road transport which has all thecards in its favour so saying they can jhust load the extra costs onto their freight charges is bulldust.

      • Draco T Bastard 2.1.1

        Tell you what, we’ll just put all the costs that truckers cause to the roads on to RUCs and things should be about right. In fact, I think you’ll find that there won’t be that much competition from the truckies after that.

        • Swampy 2.1.1.1

          Sure then there won’t be any economy left how does the stuff get from the Manufacturers plant to the ship or train or wharever LOL

          • Armchair Critic 2.1.1.1.1

            That’s a bit simplistic, swampy.
            The way the RUC and petrol tax is operated at present results in a subsidy from smaller vehicle operators (cars, motorbikes and very light trucks – under 4.5t) to heavy vehicle operators (vehicles that require a class 2, 3, 4 or 5 licence to drive). Rail and sea modes don’t receive this subsidy.
            From what I recall of previous comments, Draco is merely suggesting trucking companies pay their fair share, and forego the subsidy. You might call it competing on a level playing field.
            So it’s not a call for a large increase in costs, just a call for the costs to be redistributed and paid by the people that actually incur them. Sound fair to you?

            • Swampy 2.1.1.1.1.1

              Sorry you have it the wrong way around
              The MOTs latest RUC study concluded most cathegories of truck are overcharged RUC’s except the 5 tonners.
              http://www.transport.govt.nz/news/newsevents/Documents/RUC-Final-Report.pdf

              in other words
              light trucks get subsidised by heavy trucks RUCS
              what you claim is the opposite & not supported by the facts

              • Colonial Viper

                WHERE in the report does it say that, thanks.

                Just so we don’t have to wade through all 135 pages worth to find the passage you are referring to.

                Furthermore, the CAM (Cost Allocation Model) does not seek to recognise the group of costs which are customarily referred to as externalities. These would typically include costs associated with such matters as road related accidents and adverse environmental impacts. The ultimate and ideal cost recovery mechanism would be that which recoups from all road users the long run marginal social cost of maintaining the network.

                And after having said that they recommend this:

                That the Government investigates alternative funding for non-road related costs in light of our conclusion that costs recovered through the road user charging system should, in general, be confined to the costs associated with road use only.

              • Armchair Critic

                what you claim is the opposite & not supported by the facts
                What a load of crap you write.
                The report you use to support your claims is flawed.
                1. The title states that the report is an “independent review”. Yet:
                None of the authors is a roading or rail engineer, thus none of the authors has significant practical experience in the engineering of roads or railways.
                One of the authors is a shareholder in and director of a company with a significant interest in the RUC system, and has a vested interested in increasing the use of that system. This is best achieved by getting more trucks on the road.
                Appendix 4 of the report is an advertisement for this company.
                2. The report refers repeatedly to a Cost Allocation Model (CAM). The CAM is not appended to the report and is not available through http://www.transport.govt.nz so it can not be reviewed.
                However, the report identifies that the fourth power relationship and weight distribution assumptions should continue to be used, for now. It recommends two openly pro-truck actions. A review of the power factor, to reduce the proportion of the wear that can be assigned to heavy vehicles, and a review of the average loading factor from 55% to 45%.
                Most critically, it does not mention anything about the design standard requirements that are imposed by heavy vehicles. To accomodate heavy vehicles, roads not only need to built with thicker pavements and more complex seals, but they also must be built wider (more materials) and flatter (more earthworks). It goes without saying that bigger, thicker pavements and more complex seals have higher maintenance costs. IMO all the costs imposed by heavy vehicles should be borne by their operators. I want to know whether this was considered and, assuming it was, why it is not discussed.
                The MOTs latest RUC study concluded most cathegories of truck are overcharged RUC’s except the 5 tonner
                No, it doesn’t. It concludes that “Option A” in the study would result in a reduction in RUCs for everything except 5t trucks. Coincidentally Option A also requires the technological solution offer by the aforementioned company with which one of the report’s author’s has an interest. And none of the other Options require it. Even more coincidentally, Option A is the recommended option. Who would have guessed??
                The basis of comparison is unfair too. While it looks at all types of vehicle, it assumes they all average 15,000km per year. This is reasonable for privately-owned cars, but most heavy vehicles do many times this distance. I’m surprised no one picked this up during the pre-release review.

                On a kind of related subject, I’m still extremely angry that National retrospectively confiscated my RUCs, forced me to buy new ones at a higher cost and charged me extra GST on them. Bunch of fucking thieves.

        • Swampy 2.1.1.2

          Already the case so nothing new there, no change.

  3. LynW 3

    Great article! CANCEL THE CONTRACT! Support New Zealand and New Zealanders! It’s as simple as that!

    • Eddie 3.1

      and so sensible. you know – not tariffs or artificial things like that just ‘if you’re part of the government, consider the impacts of your actions on the whole government’

      • jcuknz 3.1.1

        I’ve been saying that for years, long before we had SOE and the like. But people live in their little boxes of thought and either are incapable or don’t see the need to take a holistic approach to what they do. It happens under both left and right wing governments … it is the closed box mentality … all so sad.
        Great first para Eddie .. sums it up well.

    • Swampy 3.2

      No its not that simple.

      The locomotive contract would have been 70% dearer and starting from scratch a massive disadvanagte against existing factories already in operation.
      Now these argumenets are not neew. they were being had decades back even the 1970s when there were much more rail workshops than are now. yet all the major locmotives now running were built over seas.

  4. RedLogix 4

    I keep getting a whiff from these CNR contracts. They make no economic sense and everyone involved knows this.

    So why are they happening?

    • Draco T Bastard 4.1

      Follow the money is usually good advice when something is happening that really shouldn’t be. In cases like this it’ll be “hidden” money – the information that we’re prevented from seeing due to commercial sensitivity and the information that we actually need to know. It is, after all, our money and our society that National and the Kiwirail CEO are selling out.

      • Swampy 4.1.1

        Oh so youre implying some sort of kickback or hidden political comeback for the Nats

        But if the boot is on the other foot Labours key affiliate union adding to their millons of assets with more union fees from increased membership etc

        Its quite wrong to be advocating Kiwirail should get some favours from the goverment as owner when it competes in the market place against road transport operators which are privately owned

    • Bright Red 4.2

      Sammy Wong was over there apparently, making these deals for Kiwirail…

    • felix 4.3

      I agree RedLogix, something is wong here. Very, very wong.

  5. RedLogix 5

    Actually if you include the ‘total lifecycle costs’ these ‘cheap’ wagons and DL locos from CNR will turn out to be very expensive indeed.

    A friend of mine is a very experienced engineer at Woburn; listening to him give all the exact technical reasons why these Chinese imports are a bad idea makes my ears bleed. The initial purchase price is only a small fraction of the costs involved… the real price is maintenance and repairs. Building them here in the first place achieves three main things:

    1. It creates the skilled work-force, who know the equipment intimately …because they built it.

    2. It ensures that you get the right design, with all the components specified exactly as you want.

    3. It engages the wider commercial community as suppliers and sub-contractors… and energises the manufacturing customer base who will respond to seeing new efficient, kiwi-made rolling stock.

    • Draco T Bastard 5.1

      Yep, the wider economic benefits far outweighed the small savings achieved from importing.

    • Swampy 5.2

      The fact is they will be maintained in NZ so workshops will be in work for years to come
      There is no sane reason why they would be better if they have been put together here out of the components made in China.

      when you talk about 1 2 3 there is no gurantee any of these things and there is no existing locomotive manufacturing industry in NZ so Kiwirail would also be paying the costs of building this industry up from scratch then it woild be winding down again at the end of the contracts so all the skilled people would have to leave again because Theres no way any other business would be found

      And saying that NZ has never found a reason to have such industry before Not even in the glory dayes of the NZR Railways Dept has anyone ever seriously got any credenace given to making main line locos in NZ only shunting engines

      • RedLogix 5.2.1

        Building diesel locos is more of an assembly process than making it all from scratch. The engines, the alternators, traction motors, the control systems and electrics are all sourced from various global suppliers. This is true regardless of whether they are made by CNR or Hillside.

        The frame, bogies and most of the rest (excluding the actual wheel castings which come from Aussie) could be readily made here in NZ by the existing skilled workforce. Building them in a short time-frame would put some pressure on them, but nothing that could not be resolved by bringing in some short-term sub-contractors to deal with specific tasks. There are plenty of kiwi engineering firms out there gagging for such work right now.

        This is not idle speculation, it is informed comment direct from one of Kiwirail’s own production managers.

        • Swampy 5.2.1.1

          May be so but its much more expensive as Kiwirail points out, they have not got cash to spare, wagon buildings on a different level .

  6. ak 6

    Good God. First Hickey, now Farrar inching their way towards sanity. Take some credit all you Standardistas, for your sound and dogged reasoning over the last 3 years, and keep it up you good things.

  7. Ed 7

    It won’t happen – John Key is ambitious for……? John Key? …. Hawaii? …. China?

  8. Brett 8

    Wouldn’t the free trade deal with China be the main reason behind the CNR contracts?
    We buy their trains, they buy our dairy products?

    • Bright Red 8.1

      um… no.

      as we didn’t have any tariffs on trains before, the FTA changes nothing.

      And an FTA doesn’t compell us to buy trains, or anything else, from them

  9. felix 9

    Farrar is such a fucking troll he even trolls his own forum. As usual he appends it with a nudge & a wink, this time about the evils of trade “barriers” and as usual all the commenters take the bait and pretend that the post was about banning SOEs from dealing with overseas companies.

    • Draco T Bastard 9.1

      Yeah, saw that but the post itself was a good one. It wasn’t actually written by DPF but some relation.

      • jcuknz 9.1.1

        His sister-in-law’s brother-in-law :-) and I thought some of my explanations were involved :-)

        Yes the liwiblog thread comments do really miss the point but what can you expect from RWNJs

  10. deWithiel 10

    It would appear that KiwiRail under its new NACT appointed board have been doing a number of slightly whiffy things with CNR. Aside from this particular tender, CNR was recently added to an existing short list for the $500million contract for the new Auckland EMUs, causing the withdrawal of the original 4 shortlisted companies and yet another ministerially-caused delay to the introduction of electric trains to Auckland. Then there are all sort of unexplained bits to this jigsaw puzzle, such as the activities of Pacific Power Development (NZ) Ltd who apparently acted on behalf of CNR on the container wagon contract; they have a partial English language website and a contact address via a Pakuranga post office box but no listed personnel. And then there are the recent revelations concerning the ubiquitous Sammy Wong who was involved with Toll some years back and, more recently, made an as yet unexplained trip to Dalian (where CNR have a major subsidiary) on the taxpayer dollar.

  11. Nick C 11

    Here’s what you have missed: There are two ways we can make trains. We can manafacture them in Dunedin, or we can farm them on the Cantabury plains ;)

    Sounds crazy? It’s not. Read this:

    http://faculty.tamu-commerce.edu/dfunderburk/428/readings/The%20Iowa%20Car%20Crop.htm

    • RedLogix 11.1

      The obvious dumbass fallacy of the ‘Iowa Car Crop’ is this…. the only people who could afford to buy them would be Iowa farmers. In this simplistic model everyone else would be under or unemployed… and so therefore cannot afford to buy them..

      Even Henry Ford knew that the he could only be successful if his workers could afford to buy his products.

      • Nick C 11.1.1

        “In this simplistic model everyone else would be under or unemployed… and so therefore cannot afford to buy them..”

        And yet in the real world people who do not manafacture cars can afford imported cars, this is just a model with only 2 goods to show the logic of trade.

        Surely then if the Iowa car crop model is flawed on the grounds that only the corn farmers can afford cars, then your model is flawed on then grounds that only the people who manafacture the trains can afford to ride them? Either way that is a fallacy that you are arguing.

        The Iowa car crop simply shows that we dont lose domestic jobs by importing a good. It shows that in reality kiwirail isnt competing with chinese train factories, it’s actually competing with cantabury farms.

        • RedLogix 11.1.1.1

          The quaint little story you link describes what is called a ‘toy economy’. In other words it hugely simplifies the real economy down to a very simple model that is easy to talk about….and then uses that tale to draw conclusions that it then claims would be valid if projected onto the real economy.

          In this toy economy there is only ONE class of people in the USA making an income… the farmers. No mention of how anyone else could possibly afford to buy a car. Therefore it fails on it own logic.

          Toy economies are a useful teaching tool, but are not a substitute for real world analysis.

          • Draco T Bastard 11.1.1.1.1

            I don’t think that they’re a useful teaching tool either as idiots take them as being real.

        • jcuknz 11.1.1.2

          But they are buying the cars with borrowed money at the rate of $350 million a week. What suckers we all are and have been for decades … ever since Britain closed off our exports way back when? when? and we had to stop living in a fools paradise… but we didn’t…

    • Draco T Bastard 11.2

      More free-market bollocks. How so?

      Because we also mine and produce the steel here so exporting food to re-import the exported steel is inefficient and massively ramps up real (physical) costs.

      • Nick C 11.2.1

        Surely the price system is the best way to determine who can keep real costs down the most? And the Chinese had the lowest bid, so they would probably be able to complete the project with the lowest cost, no?

        • Draco T Bastard 11.2.1.1

          …so they would probably be able to complete the project with the lowest cost, no?

          Nope. Making them in China actually increases real costs. More fuel used (transport and coal fired power stations), more people used pushing costs (food, houses, transport etc) there up as well and the fact that they’re likely to be importing the steel from us anyway. It would, in real physical terms, be cheaper to make them here. The only way it could look cheaper is because the price system is corrupted through things like exchange rate manipulation and high interest rates. And even if the price system wasn’t corrupted, which it is, the lowest bid wasn’t the best bid as the wider economic benefits of making them here vastly outweighed the savings achieved by importing them.

          • Nick C 11.2.1.1.1

            I dont think you read the link I posted. The question isnt ‘is it cheaper to make the trains here or in China’, the question is ‘is it cheaper to make trains here, or to grow cows here and send them off to China in exchange for trains’. Even if New Zealand does have an absolute advantage in the production of trains (which is essentially what you are arguing), we do not have a comparitive advantage in the production of them.

            • Draco T Bastard 11.2.1.1.1.1

              In a highly mechanised industry comparative advantage is meaningless as it’s something that any society can do. All it needs to do is train the people to have the skills (done) and build the factory (also done). Also, it’s not proven that we have such an advantage – the pollution in our rivers from farming would indicate that we don’t (the price of food is far lower than the price of trains so we have to grow far more food to pay for the trains meaning more pollution which we then have to pay to clean up).

              So, we’re left with absolute advantage and what’s best for our society as a whole. The absolute advantage is that it’s cheaper to make them ourselves and it’s better for our society if we do so as well because it pushes the bounds of our knowledge and skills which pushes our culture to develop.

              And, no, I didn’t read more than the first two lines of the article. I’ve studied economics for the better part of ten years now so that was more than enough to understand the simplified (for RWNJs) version of BS that it was selling.

              • jcuknz

                Trouble with you guys is you have no thought for the poor chinese workers who will be out of work and starving … no UB in China I suspect … if we don’t buy Chinese.
                Sorry moderators … that’s trollish … but its Christmas and I am a little drunk :-)

          • Swampy 11.2.1.1.2

            NZ bought locomotves from many countries like Britain UK and Us in past
            Never worried about any economic benefits lost to NZ because the benefits of having them put together by experienced firms that make them all the time is superior.

            • jcuknz 11.2.1.1.2.1

              Yes they did Swampy but think of the industrial base we could have built in addition to our agricultural base if we had built those locos in New Zealand. But of course the British industrial power ruled the world then with the States tagging along … but quite quickly of course we DID build our own locos … so somebody had brains back in those days and Hillside, Addington and the other workshops came into being.. Yes in this field we did have an industrial base which has been let run down by foolish limited thinking economics rather than proper holistic assessments.
              So often in so many different fields …. it makes me cry.

              • Swampy

                That was to buld steam locos much less technology involved. When the end of steam came in NZ so to did come the end of locomotive building except very simple ones.
                The clear benefits were seen then of buying from experienced builders because of leap intechnology needed. and being geared up to make them meant they could be made a lot quiicker (sound familiar>)

                Look at the poms experience. a lot of locos having very short lives because the builders didnot have a clue.

                There are a few private builders established in Aust if there was an advantage to building in NZ they would have come over by now.

            • Draco T Bastard 11.2.1.1.2.2

              Yep, we did – until we started making them ourselves.

              A Colonial Viewpoint

              As with many of the 1980s projects, the early approach to the railways had been essentially a colonial one, with total imports of the technology, but the paucity of overseas exchange resulting from Vogel’s Public Works programme led to the decision to build locomotives locally. The expertise built up in the workshops, which had been established to carry out maintenance, provided the base for this move. Large numbers of workers, including many craftsmen, were employed in these workshops, which were the largest workshops of any industry in the colony.

              It seems that they did, as a matter of fact, take into account wider economic benefits. They didn’t call them that but they did take them into account.

          • Swampy 11.2.1.1.3

            Kiwi rail has the benefits from spending the money that was saved on these locos – wagons on something else
            Still has economic benefit.

    • Bright Red 11.3

      of, Nick C, we can just make sure government subsidiaries consider the impacts of their decisions on the whole government.

      It’s not revolutionary, it’s not anti-trade. You wouldn’t expect a division of Microsoft to ignore impacts on the whole company when making its decisions, why should the government be different?

      the fact that you’re resorting to anti-trade misdirection suggests you don’t have an answer.

      • Nick C 11.3.1

        No, kiwirail should act in the interests of the country, which is exactly what it is doing here by taking the cheapest contract

        As I said, there are two ways we can make trains: We can build them in Dunedin or grow them in Cantabury (that is to say, export something and get trains as an import in return). If we build trains in Dunedin then the Cantabury farmer goes out of business. If we grow the trains in Cantabury then the Dunedin factory goes out of business.

        • Draco T Bastard 11.3.1.1

          And no matter how many times you repeat it it still isn’t true. The wider economic benefits of making the trains here far outweighed importing them. Go read the Berl report.

          • Nick C 11.3.1.1.1

            Of course it’s true. What do you think the chinese want in return for building these trains for us? Green pieces of paper with pictures of the Queen on them?

            No, they want dairy products, and various other things that New Zealand can export. So when we buy goods from China we give them the NZ$ to buy goods from here, thus helping our export industries. If the chinese never got the $NZ they would never buy the NZ milk and therefore the export would never happen.

            Point me to where in the Berl report that is taken into account. If its not, then it isnt worth the paper it is written on.

            • SPC 11.3.1.1.1.1

              If your argument was true – the Chinese had a trade surplus with New Zealand before this deal.

              Otherwise

              1. Nations don’t barter.

              2. They have the foreign currency reserves (trade surpluses with many other nations) to buy New Zealand, not just our dairy products.

            • Draco T Bastard 11.3.1.1.1.2

              Typical RWNJ – just doesn’t fucking listen.

              The cost/benefit analysis, taking into account the wider economic benefits of making the trains here, show that it’s better for NZ to make the trains here rather than exporting dead cows and importing trains.

              Get it?

            • Colonial Viper 11.3.1.1.1.3

              If the chinese never got the $NZ they would never buy the NZ milk and therefore the export would never happen.

              This is so fraking stupid your RWNJ certificate is hereby revoked.

              (PS as long as Fonterra accepts USD, which the Chinese happen to be sitting on hundreds of billions of, our dairy trade will be just fine. You’re hereby also downgraded to Financial n00b.)

          • Swampy 11.3.1.1.2

            The Berl case assumes a gravy train approach
            Its 1970s Muldoon in power The railways get told to mop up unemployment by making work for peop,e on the dole queue etx
            Railways show a huge loss in the govermment accounts at the end of the year

            That used to happen but does not any more. We live in the real world now. N one in their right mind is going to suggerst we start a locomotive building industry from scratch by throwing pots of money into the railway workshops that will be lost on the costs of setting up from scratch.

            • jcuknz 11.3.1.1.2.1

              But we already have the nucleous of a railway building industrry and we had one until the RWNJs sold it out from our control. You guys just don’t know your history. The stupidity of the RWNJs is un believable. Such limited thinking and concept of reality which should be obvious to them as it is to me with my limited brain power.
              I’m drunk remember and going for another …..

              • Swampy

                NO we did not the rail workshops are about the capacity they were late 80s well before Privatisation was guessed at
                A tiny number of very simple locos put together one at a time or assembled from kit sets made overseas in the last 40 years. not a locomotive building indstry.

                The shops do have the capacity to overhaul & have been doing so many years but its all spread out so they are working continuoulsy. gearing up extra capacity for short period of contract then laying pple off at the end is wasteful.

                • Colonial Viper

                  gearing up extra capacity for short period of contract then laying pple off at the end is wasteful.

                  yeah, according to National giving talented NZ’ers work for a year or two is wasteful, as is building up our industrial capacity to be able to bid on more work overseas.

                  I think National needs to start wearing an L on its forehead.

                  A tiny number of very simple locos put together one at a time or assembled from kit sets made overseas in the last 40 years. not a locomotive building indstry.

                  Yeah but we could obtain that capacity. And we are proficient at building modern rail cars.

                  • Swampy

                    No. We are proficient at refurbihsing carriages and units. There is a difference in designing them fromm scratch and rebuilding existing ones which is what the work shops have been doing for years. using some one else’s design and reparing the carriage or wagons according to the manufactureres spec is quite different to starting from scratch.

                    The notion the unions put out that the shops could compete with other manufactureres overseas is quite ridiculous especially with Asian manufactureres. most larger countries have their own railway builders already established without the dis advantgae of the large distance we are by sea from any export martket.

  12. B 12

    Refresh my memory. Who was the NZ sales agent for this deal? How much was the commission?

    • Bright Red 12.1

      Sammy Wong was working for Kiwirail … http://pansyfacts.co.nz/category/questions-arising/

      • deWithiel 12.1.1

        According to KiwiRail he was working for PPD (NZ) Ltd. See: http://www.blueskynz.net/index.php?styleid=2). The website states that PPD ‘serves as a duly authorized representative and an amiable ambassador for major leading enterprises of China’s railway industry.’ Pansy has contradicted the KiwiRail statement. PPD were the agents, again the website states, in Mandarin (Google translation, sorry) that: ‘ PPD team success with the New Zealand design, manufacture and supply of the 100 container trucks, the vehicle is currently in New Zealand railway line has been fully operational. The container truck designed to fit the meter gauge railway line in New Zealand transport and design, is the first time New Zealand rail vehicles vehicle market, but also received the New Zealand Government Railways assets, for the first time all the vehicles in overseas orders.’

  13. B 13

    Which means he wasn’t working for Kiwirail, but for an ‘authorized representative and an amiable ambassador for major leading enterprises of China’s railway industry’. So how much was PPD’s commission and who are their shareholders?

  14. randal 14

    it might be madness but in the long run all foreign currency has to be paid for and usually in trinagular offsets.
    kiwi rolling stock is only a goer if we can export surplus production.
    that is the nub and not just the short term effects here.
    the government knows it cant engineer that sort of capacity without treading on significant toes overseas and making the situation worse.

    • Swampy 14.1

      Sure. kiwirail compete against establihed builders with track record like all the AUssie ones to say the least. never happen

  15. Adrian 15

    Why did Key need to be kept appraised of Wongs interests in the hovercraft company? Why was Wong with Key on several ? business trips to China ? Did Key know about Wong being an agent for CNR interests ? Does the Key/ Wong connection go a lot deeper than we know about? Can you really believe that Key is not still trading/dealing ( WTF does he do all the time in Hawaii considering that he has a beach house here in NZ ?) Is it a good cover for who knows what ?. And finally if you think all of the above is unlikely, ask yourself , “Do I really trust him?”

    • marsman 15.1

      Of course Key is still trading. Before he was trading NZ currency. Now the whole of NZ is his trade currency.

  16. Deadly_NZ 16

    Yeah follow the money trail…

    From Sammy Wong to Pansy Wong to John Key to Bill English Hmmm 7 million saved split 4 ways not a bad bit of wedge for them just for ripping off the NZ workers and tax Payers..

    Let em come after me with a law suit (I got no money it’s all been stolen by the NATS) So I’ll say it again They are ALL CORRUPT!

  17. Swampy 17

    The amount of time that left wing blogs have spent attacking Kiwirail over its tendering decisions is grossly disproportionate. It is really just the advance wave of next years election campaign being fought by Laour and one of its key afialiate unions.

    There’s not going to be any return to the day of massive government subsidies to the rail network so get used to it

    • Colonial Viper 17.1

      Apparently stripping capability enhancement and product development opportunities from NZ industry (not even mentioning putting jobs at risk), while giving those same opportunities to foreigners, is not worth too much of a second thought to you.

      Well it is to Labour, and you will hear about it day after day next year.

      There’s not going to be any return to the day of massive government subsidies to the rail network so get used to it

      Just massive National Government subsidies for failed investors and highways to no where?

      Yeah your crew are clueless, planless, and a team full of missed opportunities.

      Roll on 2011, can’t wait.

      • Swampy 17.1.1

        Labour Government spent $660 million of OUR money buying rail workers votes last election and still lost. Eat that.

      • Swampy 17.1.2

        And that would be because the Labour Party stands to benefit financialy wouldn’t it

        Just like antoher example $1000 bonus to union memmbers in certain State sector awards, effectively free union membership paid by the taxpayer.

  18. Swampy 18

    If the othe decision was the building of locomotives it is very wrong to say its about small amount of money

    70% more expensive to build the locos in NZ = substantial amount.

    Its also quite wrong to say Farrar issupporting this cause, he has not expressed anything that suggests that he just let his mate post on his blog.

    Now what is being asked? government subsidies to kiwirail so that it must buy in NZ well this is really old hat and it should not amount to the goverment giving money to its own company to be favoured over competitoors in the marketplace

    Its not surprising to me to see this sort of political lobbying that Kiwirail (whose employees just happen to make up the membership of one of the Labour partys key union affialites) should be granted aprivileged status over and above just because its goverment owned and the fact this sort of lobbying is going on is a good reason why the goverment should not own a rail operator or any business that competes against the private sector as rail actually does.

    • jcuknz 18.1

      He didn’t let his mate post on his blog as he has done in the past year with several contributors but he copied and pasted this personal blog onto his own blog. And I thought the lefties were the conspiracy maniacs but you are just as bad..
      I’m off to bed now … you can guess why :-)

    • Draco T Bastard 18.2

      Nope, CNR are 25% cheaper than Hillside…

      Seems to be a bit less than the 70% that you’re saying.

  19. ak 20

    From deWith’s link:

    “Therefore, the New Zealand specifies that before the imported locomotive contract is placed the Trade Unions shall take charge of the last procedure to decide whether it is signed after its investigation. On February 9th, 2009, the New Zealand Trade Unions made an on-the-spot investigation to Dalian Locomotive & Rolling Stock Co, Ltd and took a ride on HXD3 electric locomotive, during which time they were highly satisfied by what they had reviewed”

    Velly intelering…….anyone know who exactly was in this “New Zealand Trade Unions” delegation?

  20. Colonial Viper 21

    CNR China takes and uses German Train Tech (then throws the Germans out)

    China knows how to do it, this National Government does not.

    Read and weep RWNJ’s: active govt procurement is crucial in the development of an advanced, high value industrial economy.

    The NATs just bumble along with their anti real economy agenda.

  21. Swampy 22

    “It doesn’t make sense for parts of the government called SOEs to act as if they are independent entities and ignore the impacts of their decisions on the the rest of the government. ”

    Actually, it does. SOEs are set up to be at arms’ length from the goverment. The reason why this is important is SOEs are engaged in commercial activties which often compete with private sector companies. Therefore their operation has to be totally transpoarent and free of political interferece.

    What doesnt make sense is for a government to direct an SOE to make a poliitcal decision which is what you are advocating. Savings made from these contracts will go into some other part of Kiwirails operation rather than buying political favours.

    • lprent 22.1

      Agree and disagree. We retain ownership of SOE’s for strategic reasons and the hands off approach is to allow for transparency on strategic investments rather than the hidden social subsidies common in the Muldoon era.

      The imperatives of a fully private enterprise are always towards short term profit. The state retains ownership stakes to ensure that longer term ‘infrastructure’ decisions with longer paybacks can be made. It means that if the state wants to make them then it needs to pay for them.

      In this case, the question about being able to maintain our ability to maintain our ability to repair and build our on rolling stock over the long term is a political decision not a short term commercial one. It is the same type of decision as bailing out air nz to maintain a air freight link for nz required by our exporters.

      In my view we need to be able to build and maintain our rolling stock over the longer term. The government should invest in making sure that happens.

  22. Frank Macskasy 23

    “Is it worth the risk for a measly $7 million? I for one don’t think so and I would be happy to foot my portion of that bill as a taxpayer.”

    Which comes to just under $2 per every person in New Zealand.

    $2.

    You can buy about 15 minutes carparking in downtown Wellington for that price.

    Or a newspaper.

    Or a packet of chewing gum.

    But not much else. Yet, for just under $2, we could have provided New Zealanders with jobs. I’m with David Farrar on this; the decision by Kiwirail flies in the face of common sense.

    Cancel the contract. And while we’re on cancelling contracts – let’s look at Jim Quinn’s.

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