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The NZ Government yesterday admitted that the rail network it sold in 1993 and bought back in 2004 is in appalling shape and will cost taxpayers more than the pledged $200 million to fix.
In a deal a year ago, the Government paid $1 for the track and agreed to invest $200 million in it over several years.
Toll Holdings, the Australian company that took control of Tranz Rail when it was near-collapse, pledged to invest $100 million in rolling stock.
Yesterday Finance Minister Michael Cullen told a parliamentary committee that more than the $200 million would be needed and the Government would not earn an economic return on the investment.
He did not say how much more money might be needed.
Toll has been shopping for new locomotives in China and has signed new contracts with Solid Energy and Fonterra, two of rail's biggest freight customers.
Dr Cullen said he was not averse to renegotiating the original deal.
He has been publicly at odds with Toll at various times and yesterday described its officials as a tough group of people.
It is understood talks so far have not been about putting in another fixed amount, such as an extra $200 million. Rather, the Government would agree to fund certain projects once the money ran out.
Problems with the network vary throughout the country but the most expensive work is on bridges. Also, floors have to be lowered in tunnels to allow bigger locomotives and higher wagons. Some busy lines need more passing loops and corners smoothing.
Already old lines have been reconnected to Waikato dairy factories and six kilometres of new track has been laid at a new "freight village" in Hamilton.
Just how the relationship between a government track owner and private sector rail operator will work has been an open question.
Toll pays an annual access fee, which is supposed to cover all track maintenance once the $200 million is spent. The fee was set for the first year at just under $40 million and the two parties have been talking about this year's fee.
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