Health”

True true. I would hope that this is captured through insurance premiums and road tax, but there could be an argument here as well.

“I thought the main problem was natural monopoly?”

I was hoping someone would mention natural monopoly, as it is a common justification.

If we have a natural monopoly then we have a market failure as competition can’t drive prices down (and quantity up) to the “socially optimal level”. However, for it to be a natural monopoly there must be large costs to entry. Since the government already owned the rail lines – wouldn’t there be the threat of effective competition from another provider which would keep prices down (as someone could enter with a train).

Now, it may be impractical to hire a train, and expensive to buy one. However, when looking at a good we have to ask, what are its substitutes. Trucks provide a substitute for carrying cargo – as does sea transport to some degree. As there is effective competition for the same service, the industry is unable to extract the same level of “economic rents” helping to neutralise the issue of natural monopoly.

Ultimately, “effective competition” is an important factor when actually trying to determine if something is a natural monopoly for a given good – not just the level of fixed costs involved in the industry.

More externalities:

Health – trucks on the road are more dangerous than goods on tracks.
Damage to roads (which ought to, but may not for reasons of political economy, be catchable through road tax).

Externalities aside,

I thought the main problem was natural monopoly?

Agreed there are both complements and substitutes. However, I’m not sure if rail is the most effective way of moving stock to ports in most cases – instead this provides an increasing role of road transport.

The reason I feel this way is because of the rail infrastructure that appears to be feasible in New Zealand is of a low quality and is relatively slow. Furthermore, the flexibility associate with trucks etc is a useful attribute.

“If the government has done its job in a proper analysis we should see some rail lines discontinued with more shipping to replace it and vice versa”

That is what I would hope to – again if there is a cost-benefit analysis showing that what they are going to do with rail is the best use of the money they spent I will agree with it – I just can’t see that happening.

“Then there’s the long term consideration of Peak Oil. Having dozens of trucks all taking the same route between Auckland and Wellington will become less and less viable as fuel supplies decrease.”

Wouldn’t this be a route that sea transport would provide to? Isn’t the relative route for peak oil a touch shorter – such as Auckland to Hamilton.

Also, peak oil implies that the price of oil will rise significantly. If this is the case, demand for rail services will increase which would have given a private firm the incentive to improve number and quality of train routes in the relevant areas (given that the government, as owners of the rail lines, put in appropriate investment). I’m not sure the government will provide a better service with regards to this – we need to believe that there are positive externalities from the industry which require government intervention to realise.

Ultimately, government strategy on transport needs to be more coherent. We hear discussions of a carbon tax, ets on fuel, car registration changes, commercial vehicle RUC changes, sea change strategy, rail strategy, congestion charges, lowering the speed limit etc – but these strategies all work together in varied ways.

Purchasing the rail lines could be a sensible part of a total transport strategy, but I would like evidence that they looked at it in regard to the myriad of other transport strategies they are working on when they came up with it.

Personally, this strategy seems to be the result of governments failure to work with business – rather than part of a coherent strategy to improve economic outcomes through the development of our transport network.

Given that we are a small thin country with a low population, there seems to be more scope for investment in sea transport around our coast, and as we have a small population road transport to these ports seems like the most effective way of getting it there. The government agrees with this and is planning to invest in sea transport – something that will compete directly with their new rail line.

Would sea transport directly compete with rail though?
I would expect that they would be able to complement each other as they each fill their own niche in the market. If the government has done its job in a proper analysis we should see some rail lines discontinued with more shipping to replace it and vice versa. There is also the case that ships just can’t reach everywhere while rail may already be there.

Then there’s the long term consideration of Peak Oil. Having dozens of trucks all taking the same route between Auckland and Wellington will become less and less viable as fuel supplies decrease.

I’m not sure anyone really knows why they brought the rail back – I listed the four justifications they might use in the post, and why I thought they didn’t hold.

Ultimately, I don’t think this is a particularly good investment given the size and shape of our country – hopefully the government did some cost-benefit analysis that proved me wrong before buying back rail.

The only real asset is the real estate. Turn the rail bed into a two lane dedicated “truck track” with center barrier electronic steering assistance and GPS dedicated traffic spacing. (tip: Owen McShane)
Truck trains can deliver right to the door and can be owner operated.

The cost would be horrendous but cheaper over the long run, than any alternative (especially rail).