B a c k B o n eof integrated transport networks

the

mike kilsBy, locomotive engineer

Backbone of integrated transport networks

contents

introductionthe networkBusiness overviewkiwirail at a glancethe case for railFreight Businessmechanical Businessinterislander BusinessPassenger Businessnetwork Businessmajor Projectsrail safetycorridor managementBrief rail History

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milk train

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IntroductIonKiwirail is the owner of a business with a long and proud history of service to New Zealand. We need no introduction, but there is still much that New Zealanders don’t know about us.

Most know that we are one of New Zealand’s biggest freight movers. But it comes as a surprise to many that we are one of the country’s biggest tourism operators and one of the most significant property owners and developers.

On one hand we are a new company bringing the different elements of the rail industry back together; on the other, an established business with a strong new Zealand history.

Many years of under-investment have reduced rail’s competitiveness. Our challenge today is to improve the quality of our assets and services and to compete on even terms with other modes of transport while also cooperating with other players to create solutions for customers. The more successful we are in meeting this challenge, the greater the contribution we will make to the New Zealand economy.

Our aim is to grow the business by making the most of rail’s natural advantages – moving bulky goods, linking export industries to major ports and moving people through congested cities. Rail is vital to New Zealand’s export and domestic industries. We move 33 percent of the country’s export goods.

This document has been produced to improve understanding of the rail business and its role in the economy. We welcome your support and input.

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the networKregion line line aBBreviation

Northland North Auckland Line NALAuckland Auckland suburban network NAL, NIMTEast North Island East Coast Main Trunk ECMTAuckland-Wellington North Island Main Trunk NIMTLower North Island Palmerston North-Gisborne Line PNGL Wairarapa Line WLWellington Wellington suburban network NIMT, WL, JVLUpper South Island Main North Line MNLCentral South Island Midland Line (Greymouth-Rolleston) ML Stillwater-Westport Line SWLLower South Island Main South Line MSL Ohai Line

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BUSINESS OVERVIEWOn 1 October 2008 the rail industry in New Zealand became a single entity. While its legal name is the New Zealand Railways Corporation (NZRC), it chose KiwiRail as its trading name.

KiwiRail is a statutory corporation operating as a single entity with multiple business units. Governance is provided by a Board headed by Wellington businessman John Spencer. KiwiRail is managed by Chief Executive Jim Quinn. Key elements of the business are:

• Kiwirail Freight provides rail freight services and locomotives for passenger services.

• KiwiRail Mechanical services our locomotives and rolling stock at Hutt workshops and provides heavy engineering services at hillside.

• Kiwirail Interislander operates the ferry passenger and freight services.

• Kiwirail Passenger provides urban passenger services in wellington under contract to the Greater wellington regional council. It also operates long distance passenger services, TranzCoastal, TranzAlpine, Overlander and Capital Connection.

• KiwiRail Network maintains and improves the rail network and controls the operations of trains on the network.

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governance and management

Paula Rebstock, Deputy Chair

Bob Field, Director

John Spencer, ChairAppointed 1 July 2010, the Chairman of KiwiRail is Wellington-based businessman and company director John Spencer.

Mr Spencer’s most recent role was Deputy Chairman of Solid Energy, one of KiwiRail’s largest customers. His background includes a period as the Chief Executive of NZ Dairy Group - one of the two dairy companies that merged to form Fonterra.

He retains his interest in the dairy industry with a seat on the board of DairyNZ, the dairy industry’s “public good” organisation. He also led the merger of Asure NZ Ltd and AgriQuality Ltd in 2007 to form AsureQuality Ltd, which he also now chairs.

John is also Chairman of Tainui Group Holdings Ltd and WEL Networks. He serves on the boards of Allied Nationwide Finance Ltd, Tower Ltd, and is Deputy Chair of the Legal Services Agency.

Mark Franklin, Director

John Leuchars, Director

Bryan Jackson, Director

Mark Tume, Director

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Jim Quinn, Chief ExecutiveJim Quinn joined KiwiRail as Chief Executive in March 2009. Previously, he had been Chief Executive Officer of Express Couriers Limited, a joint venture between New Zealand Post and DHL. He brings to the rail industry experience from work in the postal, electricity, information technology and transport sectors as well as a strong customer service dimension from the courier business.

Iain Hill, GM Freight

Karen Paterson, GM Legal and Governance

Dr Deborah Hume, GM Passenger

Thomas Davis, GM Interislander

Graeme Docherty, Chief Information Officer

Lloyd Major, GM Mechanical

Rick van Barneveld, GM Network

David Walsh, Chief Financial Officer

Nicola Brown, GM Human Resources

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Rail has an extensive jargon. Here are some terms you may benefit from being familiar with:

• Above rail - train and train service operations.

• Axle load - the weight on any one axle (tonnes).

• Below rail - rail infrastructure such as track, bridges, tunnels, signals etc.

• carriage - unpowered vehicle of a passenger train.

• DART - Developing Auckland’s Rail Transport (the Auckland urban rail upgrade).

• Day-lighting - converting a tunnel into a cutting.

• EMU - electric multiple unit.

• Net tonne kilometres (NTK) - the sum of tonnes of freight carried, multiplied by the distance travelled.

• railcar - self-powered railway passenger vehicle.

• Rolling stock - all locomotives, railcars, wagons and carriages.

• Rail maintenance - the day-to-day work that involves things like fixing faults and clearing culverts.

• Renewal - the replacement of an asset on a like for like basis.

• Upgrade - building or installing totally new assets or replacement of an existing asset with something better.

• wagon - a railway freight vehicle.

• WRRP - Wellington Region Rail Programme (the Wellington urban rail upgrade).

terms you’ll encounter in tHis document

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useFul Facts aBout tHe Business

• More than 30 percent of rail freight traffic is import-export goods.

• One milk train carries the load equivalent of 28 road tankers.

• If the freight traffic that travels on rail was transferred to road, it would add an estimated one million more truck trips a year to the roading network.

• the Ministry of transport predicts rail freight traffic will grow by 70 percent over the next 20 years.

• Auckland-Tauranga is the country’s busiest rail freight route. Forty percent of the freight moving to and from Port of tauranga travels by rail.

• A $13 million investment in passing loops on the ECMT (Hamilton to Tauranga) will double the line’s capacity.

• The $600 million upgrade of the Auckland suburban network will enable six trains an hour (approx 10 minute services) to operate.

• Railway locomotives are on average 30 years old; wagons average 20 years.

• Approximately 200 km of the 4000 km rail network is approaching the end of its predicted life.

• thirty-three percent of railway bridges are 80 or more years old.

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KIWIRAIl AT A GlANCE

Weekly, train control operations manage the movement of:

• 800 freight trains.

• 52 inter-city passenger trains.

• Approx 2,200 suburban passenger services in Wellington.

• Approx 1,490 suburban passenger services in Auckland.

In a year, the Interislander manages 5,500 sailings carrying:

• 891,000 passengers.

• 51,000 rail wagons.

• 62,000 trucks.

• 214,000 vehicles.

Freight carried (NTK) 3,984,000Urban passengers 11,876,000Long distance passengers 492,000Ferry passengers 859,000Rail and vehicle ferry traffic 328,000

Business 2008-09

assets

Track (km) 4,000Bridges 1,656Land managed (ha) 18,000Weekly freight services 800Mainline locomotives 149Freight wagons 4,200Ferries 1 owned 2 leasedStaff approx 4,000

KiwiRail’s External Revenues by Business Unit ($000’s) 2008-09

311,553 KiwiRail Freight 97,923 KiwiRail Interislander 49,518 KiwiRail Passenger 45,449 KiwiRail Network 13,656 Other

oPerations

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Line Weekday Weekend (daily) North Auckland Line (NAL) 4 1Auckland Metro 290 116East Coast Main Trunk (ECMT) (including Kawerau) 32 20North Island Main Trunk (NIMT) 24 14Marton-New Plymouth (MNPL) 10 4Palmerston North-Gisborne Line (PNGL) 19 6Wellington Metro (WL, NIMT, JVL) 357 108Main North Line (MNL) (Christchurch-Picton) 12 11Midland Line (ML) 16 14Main South Line (MSL) (Christchurch-Invercargill) 20 12

daily train movements

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container train

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THE CASE FOR RAIl

Rail has been experiencing growth, both in new Zealand and around the world. In this country, the revival is based on rail’s competitive advantage in specialised roles such as:

• The transport of bulk commodities such as coal, milk, dairy products, logs and steel.

• Import-export goods – largely containerised goods moving to and from major ports.

• long-distance containerised goods between major cities.

• Urban transport in Auckland and wellington and between their nearest cities.

Rail is a cost effective means of moving bulk goods long distances. It is also recognised as being between three and seven times more energy efficient as a form of transport than road, and has significant safety benefits, being two to three times safer than heavy road transport for the same freight task.

Throughout the country, an under-utilised rail network runs parallel to an overstretched roading network. The cost of improving the reliability of the rail network to take some of the pressure off roads is modest compared to building new roads or improving existing ones.

The point is graphically made on the East Coast Main Trunk (Hamilton to Tauranga). An allocation of only $13 million, to build new and extend existing crossing loops will double capacity on the line. Currently, approximately 40 percent of traffic in and out of the Port of tauranga is carried by rail.

Rail is important to New Zealand’s export industries, carrying more than two million tonnes of coal a year for export as well as nearly another two million internally or imported. It carries substantial quantities of dairy exports, and as well, strong flows of bulk milk. The dairy industry’s competitiveness is enhanced by rail’s ability to carry large flows cheaply. Rail also carries many thousands of containers a week both for export and for import.

If this traffic transferred to road it is estimated it would add an extra one million truck trips a year to the roading network – a high proportion of these in areas where roads are already heavily congested.

rail excels in sPecialised roles

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FreigHt growtH Forecasts

The Ministry of Transport National Freight Demand Study (NFDS) forecast overall freight volume would increase by 75 percent in the next 20 years. While modal share is predicted to remain relatively constant, the sheer increase in freight volumes will make rail an increasingly important part of New Zealand’s transport system. The table below is the NFDS prediction of growth in commodity volumes that rail currently carries.

GROWTH PRODUCT GROUP 85% Dairy Products (incl Milk) 13% Meat 151% Logs and Woodchips 24% Timber, Wood Products and Pulp and Paper 223% Horticulture Products 35% Coal 557% Chemicals, Fertiliser and Minerals 71% Food and other Manufactured Products 70% Total expected growth in rail freight

Findings oF tHe FreigHt demand study

The Nation Freight Demand Study, carried out in 2008 for the Ministry of Transport and Ministry of Economic Development, predicted that freight demand will increase by 75 percent by 2031. Other findings included:

• Rail’s average freight haul is 283km, more than double the figure for road (118km).

• rail currently carries 6 percent of total freight tonnes and 15 percent of total tonne kilometres.

• The majority of freight movements (73 percent) are within regions and are not a natural market for rail.

• Rail has a significant share of some commodities like dairy, meat and steel with potential growth opportunities in other areas like horticultural products, aggregate and food products/forestry.

• Rail plays a critical role in inter-regional freight movements.

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• Freight traffic is predicted to increase by 75 percent by the year 2031 with rail freight expected to grow by 70 percent over this period maintaining relatively the same market share as currently.

• The 70 percent predicted growth retains status quo for rail’s current market share and equates to rail tonnage growth from 13.7 million to 23.1 million during that time. Net tonne kilometres will grow from 3.9 billion to 6.6 billion.

• The study identified region and inter-region growth opportunities. A number of the identified growth regions are not areas rail serves well.

• From an infrastructure perspective the study identifies that for rail, work is needed on track, clearances, and axle loads (and that work is underway). line capacity is identified as posing no real issue with lack of wagons and locomotives hampering rail growth opportunities at present.

• With constrained wagon capacity, it notes that existing customers got priority, and some customers have had difficulties with using rail.

• Major growth in traffic needing transfer to and from rail will result in more terminal space required, with potential land, facility and consent problems. It is recommended major cities should take decisions on reserving railway-owned land for them now and that government should facilitate the consent process in order to help the policy to switch from road transport.

• An estimated 4.2 million tonnes of goods are carried coastally, including domestic cargoes on international vessels. Coastal shipping is dominated by petroleum, cement and container moves, with general goods estimated at 464,000 tonnes from Auckland and 169,000 tonnes from Tauranga, especially to Canterbury.

• The study notes that the present practice of importing through Auckland and Tauranga for the whole country may change, with some firms looking at more direct imports into Wellington and the South Island. This could have both positive and negative implications for rail.

• The biggest unknown at the beginning of the study was the flows by road. The study concludes by recommending a regular picture of freight demands on road be obtained by compulsory survey.

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Rail’s role in the New Zealand economy is very different from the days 150 years ago when trains first started running. It’s even changed significantly in the last 50 years. That means the way we plan our business must adapt to changing times and changing circumstances.

At its most basic, it involves focusing on the movement of freight – on rail and ferry – along KiwiRail’s routes of national significance. A secondary focus is on containing and effectively managing those parts of the business that are essentially non-commercial.

The rail industry differs from road in the length of its investment timeframes. locomotives and wagons have working lives of 30 years or more. Bridges and tunnels can last 100 years.

This tells us that although the business planning period is three years, our own planning and investment horizons must be much more distant. Key elements of our future business approach are as follows:

kiwirail’s Plan For long-term growtH

1we need to maintain a connected network

The KiwiRail network extends over 4,000 km – a mixture of main lines, secondary lines and minor lines.

Growing the business depends on us maintaining a connected network.

A connected network doesn’t necessarily mean the network as it is today. Minor lines that carry little or no traffic will only survive if they have proven future potential and/or an imminent anchor customer.

2growth in volume and revenue quality is

essential

Freight is critical to the financial success of KiwiRail. It currently generates more than 75 percent of KiwiRail’s revenue from carrying bulk commodities, import-export goods and domestic freight.

the predicted near doubling of the freight task over the next thirty years and the opportunity to increase rail’s market share on some routes underpins its importance to the business.

3investment in infrastructure is

critical to improving transit times and reliability

Under-investment in infrastructure and rolling stock over many years has reduced reliability and with it, rail’s ability to compete.

Targeted investment in key routes – particularly Auckland-Christchurch - will restore reliability and give the freight business the opportunity to win back domestic market share.

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4greater ferry capacity is needed for the auckland-christchurch route to

be competitive

Greater rail capacity will be needed for Interislander to support freight business growth.

5the auckland-christchurch route is the key route on the network

Increasing the amount of domestic freight carried on the Auckland-Christchurch route is critical to the growth of the freight business. Other routes are busy and important. But in most cases, rail has already claimed close to its maximum market share, or growth depends on some other factor – like natural growth in the economy.

Rail carries 18 percent of domestic traffic between Auckland and Christchurch. In 1995 it carried approximately 60 percent. We intend to focus on removing Auckland and Wellington Metro bottlenecks and making the North Island Main Trunk more robust.

6long-distance passenger business growth will come from creating rail

experiences

Few tourists or new Zealanders use long-distance trains as a means of travel from place to place. However, they value trains as a travel experience. Future growth in long-distance passenger travel depends on improving the quality of the experience.

7 Wagon and locomotive fleets need to be upgraded

Currently the newest diesel locomotives in the fleet are 30 years old and the average age of wagons between 25 and 30 years. Adding new locomotives and wagons to the fleet is critical to improving transit times and reliability.

8the metro business depends on true costs being recovered

this area of the business will be accounted for separately so that the total costs are fully understood by the stakeholders and there is wider appreciation of the impact of decisions made.

9 improvement in productivity

Productivity can always be improved and we must always challenge ourselves to make the necessary changes.

Funding commitments

The Government has committed $250 million in the 2010-11 financial year to support KiwiRail’s Turnaround Plan. A further $500 million has been allocated in principle over the following two financial years, subject to the submission and approval of business cases.

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FREIGHT BUSINESSKiwiRail Freight is responsible for the rail freight business and each week operates approximately 800 services around the country. Its commercial and customer service teams are predominantly based in Auckland with representatives at each of its major depots around the country. Rail operation is managed through three regions: Northern, Central and Southern.

The Interislander ferry service forms a key part of the national rail network and the three ferries provide important value options in terms of rail and freight capacity across the Cook Strait.

KiwiRail works with major customers both to meet changing freight volume patterns and to convert freight movements off road and onto rail.

Broadly speaking there are three key freight markets in which rail, as a freight transport option competes in New Zealand. Each of these segments is characterised by their own market-unique drivers and circumstances, which in turn determines the applicability of rail as a transport solution.

Bulk commodities are well suited to rail where there is an intrinsic ability to carry large consignments and make use of the benefits of scale. KiwiRail already moves over 70 percent of coal volumes. Trials have demonstrated rail’s ability to carry the projected increased coal volumes from the West Coast to lyttelton.

Rail moves more than 50 percent of export dairy product and provides an essential alternative to road. There is a significant opportunity for greater use of rail within this sector. Similar opportunities exist with steel and forestry where rail’s share of the bulk market remains below 50 percent. With forests maturing throughout the country over the next three to five years, a significant uplift in log volumes moving on the rail network is expected.

Bulk

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domestic

The domestic market is defined as all other products that are transported on the rail network whose end destination is not directly for an international market, or alternatively is moved in quantities that do not warrant an individual tailored service, such as those provided to the bulk market. While the majority of this market is of products fit for immediate domestic consumption or use, there is a broad array of other commodities that are transported under this banner - grain, steel, fuel for example.

With consolidation in the road transport industry likely, there is significant opportunity to make greater use of rail within this sector. The principal freight routes are:

• Auckland–Christchurch: predominantly containerised general freight

• Auckland–Hamilton-Tauranga: import/export container traffic between Auckland and Tauranga, (MetroPort business for Port of Tauranga); also some localised bulk movements eg forestry, coal

• lower North Island and lower South Island: bulk milk

• Westport-lyttelton route: coal

imPort and exPort (imex)

Heavier commodities, which tend to be moved in large quantities, lend themselves to rail, where superior axle load capacities can more efficiently transport large and heavy consignments.

In the containerised market rail currently has a competitive advantage over road in that it can carry larger, heavier containers and multiple containers on a single train. There is plenty of opportunity to develop this market further through greater integration of land transport planning including consolidation of ports and the development of inland ports and hubs.

Ongoing rationalisation and deployment of larger vessels into New Zealand will see fewer ports serviced and more import/export cargoes hubbed around the country via rail and coastal shipping to connect with these services.

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volume oF FreigHt carried on tHe network

Measure 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09NTK carried 4089.3 3720.3 4291.2 4505.3 4567.4 3984.3 (millions)

Market Segment Bulk Export Domestic (coal/forestry/ (import/export) (retail/wholesale) minerals) (FCI/LCL)Timeliness Less important Important CriticalLoad Wagon Loads - Containers - Smaller Loads - up to full train single to multiple (consolidated as wagon or container loads)Distance up to 400km up to 400km 300 to 1200kmTotal NTK (000) 1,751,611 (43%) 953,534 (24%) 1,229,121 (31%)Nett Tonnes 8,008,451 (54%) 4,387,410 (30%) 1,960,516 (13%)

market segment

routes oF national signiFicance

Route Key TrafficAuckland - Tauranga Containerised export and bulk productsAuckland urban network CommutersAuckland - Christchurch Containerised domestic goods Overseas and local passengers (Overlander and TranzCoastal)Waikato - Bay of Plenty Wood and wood products forestry linesOringi - Whareroa Bulk milkWellington urban network CommutersCook Strait Containerised domestic goods Passengers and carsWestport - Lyttelton Bulk coal International visitors (TranzAlpine)Edendale - Port Chalmers/ Containerised dairy products and coal Timaru/Lyttelton

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coal traincoal train

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maJor traFFic Flows

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rolling stock

The age and limited fleet size of both locomotives and wagons presents a major challenge to growth in the freight business. the youngest in the current fleet of 149 locomotives is 20 years. the average age of wagons is between 25-30 years, and most wagon axle loads are only 14 tonne.

Although the fleet of locomotives was refurbished in the early 1980s these are considered underpowered and outmoded by today’s standards. A recent Government commitment of funding for 20 new locomotives will enable considerable efficiency gains on key freight routes.

Opportunities to convert more freight to rail would otherwise have been at risk with no new locomotives coming on stream. New locomotives are needed to maintain existing services and meet the obligation to provide six locomotives

MECHANICAl BUSINESS

for use on the Auckland commuter network, in addition to the 19 already leased by the Auckland regional transport Authority.

KiwiRail has around 4,300 wagons. About half are container flat wagons, the rest made up of specialised wagons for specific commodities – coal, fertiliser, refrigerated goods, milk.

Around 70 percent of the container fleet is made to a 1970 design and based on a 14 tonne axle load capacity. Since 1970, container weights have steadily increased and to stay competitive in the modern market, an axle load of at least 18 tonne is needed.

A priority for the business is to add new wagons able to carry heavy loads and maximise capacity of each service. A fleet of 100 new container wagons, with

higher axle loads and a longer base was added to the fleet in late 2008. The majority of these will be used on the Kiwirail and Port of tauranga MetroPort service. These, combined with the infrastructure improvements being made on the route will allow for more consistent delivery times and increased capacity.

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locomotives

wagons

CLASS TOTAL POWER TRACTION ORIGINAL BUILDEF 17 4000hp 256kN 1988DXR 2 3000hp 280kN 1972-1976DXB 15 2600hp 280kN 1972-1976DX 21 2600hp 185kN 1972-1976DFM-DFB 12 2450hp 240kN 1980DFT 18 2450hp 175kN 1980DQ 4 1500hp 175kN 1968DC 54 1500hp 160kN 1965DBR 6 950hp 85kN 1965

TYPE NUMBER AVERAGE AVERAGE AGE AXLE LOADINGContainer flat wagons 2263 28 14TBox 467 30 14TLogs 356 30 14TCoal 330 10 18TMilk tanker 66 18 18TFlat general 130 35 14TInfrastructure 179 30 14T4 Wheelers 144 35 12TCanopy (e.g. steel) 142 22 14TReefer 36 20 18TGrain / Fert 39 23 18TAuto 21 25 14T

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Hillside Engineering in Dunedin is the only large heavy engineering rail and fabrication plant in the South Island. It attracts work outside the rail industry but most of its work is commissioned by KiwiRail businesses, Greater Wellington Regional Council, and the Auckland Regional Transport Authority (ARTA).

Hillside undertakes the fabrication of new rail assets and refurbishment of locomotives, carriages, wagons and other rail assets. It also operates the largest foundry in New Zealand which produces materials for both rail and non rail industries.

In addition to KiwiRail, Tranz Metro, Tranz Scenic and ARTA, Hillside undertakes work and projects with heritage trust groups, major industrial companies owning their own rolling stock, and a wide range of other firms both inside and outside the transport sector.

Hillside

Key facts

• 186 employees

• Site established 1875

• 7.2 hectares (18 acres) set in industrial zoned area of South Dunedin

Major facilities

• Fabrication Shop – 7000 sq m

• Refurbishment and Project Shop – 8500 sq m (total)

• Foundry – 4500 sq m (total)

• Machining - 3800 sq m (total)

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Hutt worksHoPs

Wagon and locomotive servicing and engineering 2007/08 2008/09 Wagon wheelsets changes 1301 1088Wagon bogie changes 584 467Wagon brought back into service 32 58Wagon conversions 25 14New wagons 33 100Locomotive bogie changes 28 21Locomotive overhauls 8 9Locomotive engine overhauls 5 6Locomotive re-instatement 2 4

The Hutt Workshops site has the capability to undertake all aspects of maintenance and refurbishment of railways rolling stock in New Zealand - including heavy maintenance and structural repairs.

The site specialises in the refurbishment of mainline and shunt locomotives, metropolitan passenger trains (EMU) and other rail assets.

The Hutt Workshops site refurbishes mechanical and electrical components for the NZ railways industry.

Their work is commissioned by KiwiRail, Greater Wellington Regional Council, and the Auckland Regional Transport Authority.

Key facts

• 187 employees

• Site established 1929

• 63 acres set in industrial zoned area of lower Hutt

Major facilities

• Production plants – 26700 sq m

• Inventory Store – 5650 sq m (total)

• Test track and load testing facilities

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araHura

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INTERISlANDER BUSINESSThe Interislander provides freight and passenger services across Cook Strait on three ferries: Arahura, Aratere and Kaitaki. Arahura and Aratere were purpose-built for New Zealand conditions, containing dedicated rail decks for rail freight. Kaitaki cannot accommodate rail traffic.

NAME AGE YRS TONNAGE OWNED FREIGHT PASSENGER CREW LEASED VOLUME NOS (LANE METRES)Arahura 25 12,735 Owned 300 539 50Aratere 9 12,596 Leased 515 359 39Kaitaki 13 22,365 Leased 1,780 1,650 60

Arahura underwent a $9 million refit in Singapore in 2008 to make her SOlAS (safety of lives at sea) compliant enabling her to continue to carry a full complement of passengers past September 2009.

The refit was commissioned as an interim measure and Arahura will need to be replaced by 2016 or before. Dependent upon the desired configuration, Aratere may also require replacement at the same time to enable single shore-based infrastructure to remain. There is also an option to extend and reconfigure Aratere to increase capacity, speed and reliability.

Interislander owns the Wellington Arrivals Terminal building and the majority of land holdings at the terminal. CentrePort owns and maintains the Departures Terminal, gangways and link-spans. Port of Marlborough owns and maintains the terminal building, gangways and link-spans at Picton. the ownership of the land holdings is shared between Interislander and Port of Marlborough.

Ferries compete with BlueBridge as well as with airlines for passenger travel. The recent downturn in the tourism industry, both domestic and international was noticeable but has since picked up.

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PASSENGER BUSINESSKiwiRail Passenger operates long distance passenger services under the Tranz Scenic banner and the urban passenger services in Wellington, operating as Tranz Metro.

long distance passenger services include:

• The Overlander: Wellington - Auckland, currently daily during the summer months but three times a week during winter months.

• TranzAlpine: Christchurch – Greymouth daily throughout the year.

• TranzCoastal: Christchurch – Picton daily throughout the year.

In addition, Tranz Scenic runs the Capital Connection long-distance, Wellington-Palmerston North commuter service Monday to Friday as well as charter services in association with heritage groups and cruise ship visits.

the focus for the long distance passenger business has been on attracting tourists – international and domestic. long distance passenger train travel in new Zealand is based on creating a travel experience rather than simply getting people from one place to another. ‘Explore By Rail’ is a new rail tour under development for tourist experience.

Cheap airfares and competition from the private motor vehicle have eroded the functional role that rail once played in moving people around the country. All three long-distance services have been successful in increasing passenger volumes by building on the model created for the TranzAlpine.

long distance passenger has a fleet of 43 carriages, including 18 South Island-based, big window carriages, eight North Island-based big window carriages, eight Capital Connection carriages and nine charter fleet, small window carriages. In addition, there are three Silver Fern railcars and 11 luggage vans.

During the 2008-09 financial year long-distance passenger trains carried almost 500,000 passengers. Customers contribute 100 percent of operational funding with no government funding. In 2009 the Government allocated $39.9m to fund 17 new carriages for the Tranz Scenic fleet, to be used on the two South Island services.

long distance Passenger

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Tranz Metro provides urban passenger (commuter) services between Wellington and Paraparaumu, the Hutt Valley, the Wairarapa and Johnsonville. Services are provided under contract to the Greater wellington regional Council (GWRC).

Tranz Metro operates more than 2,200 services each week and carried 11.8 million passengers during the 2008-09 financial year. Wellington is the destination for ninety percent of passengers.

Customers contribute 62 percent of revenue while Government (23 percent) and GWRC (15 percent) contribute the remainder. Capital comes via GWRC with the majority of funds coming from central government.

there are currently 141 units / carriages in the Tranz Metro fleet. Eighty eight are two-

car Ganz Marvag sets that entered service on Paraparaumu and Hutt Valley lines in 1982-83 and are now overdue for ‘midlife’ refurbishment.

Thirty-five are English Electric multiple units, some dating back to the 1950s. These are used on some Hutt Valley services and on the Johnsonville line. They have all been refurbished at some point and are due to be withdrawn from service within four years.

In 2007, 18 new carriages leased from GWRC were brought into service for use on the Wairarapa route. New electric multiple units are due to come into service in 2010-2011. As a short term measure two English Electric units and six SE carriages and three Eo Electric locomotives were refurbished and introduced into service in late 2008.

rail Passenger services

SERVICE NO OF PASSENGERS PASSENGERS SERVICES 2007-08 2008-09Tranz Metro 104,809 11,552,000 11,876,000Tranz Scenic 487,000 492,000

Overlander 470 47,000 58,000TranzCoastal 716 69,000 67,000TranzAlpine 726 200,000 181,000Capital Connection 500 172,000 185,000

metro services

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NETWORK BUSINESSKiwiRail Network is the infrastructure management and maintenance arm of the rail industry, responsible for managing the national rail network to enable trains to deliver on time.

It undertakes a range of activities to maintain the network and provide rail operators with safe and timely access to it.

In 2004 when it took responsibility for the rail network on behalf of the Crown, it inherited a decade of deferred maintenance.

Since that time the rate of activity has substantially increased and the aim is to clear this backlog in 2010.

In addition to the maintenance work, there is a programme of renewals - replacing assets that have reached the end of their useful life, for example timber bridges.

In 2004 there were nearly 2,800 timber piers and 4,700

metres of timber spans in the network with much of this timber being 80 – 130 years old. Since that time the rate of timber pier renewals has quadrupled.

The effects of an aging network can be seen in other areas. Most of the mainline formation was constructed between 50 and 75 years ago and was engineered for axle loads at the time.

As axle loads have increased significantly along with tonnage and speeds, much of the formation is now wearing and showing distinct signs of stress.

Currently, 200 kilometres of rail (five percent of the network) is approaching the end of its predicted life. twenty three percent of all railway bridges are at least 90 years old. thirty three percent are 80 years or more.

ninety to 100 years is the normal age at which a bridge

would be replaced. currently there are 30 bridges on the network subject to speed restriction because of their age or condition.

In addition to maintenance, there are also upgrades to the rail network, introducing totally new assets or replacing existing assets with something better. The rail traffic using a given line dictates the nature of much of this activity.

A significant amount of work has gone into increasing the capacity of the east coast Main Trunk, which serves the busiest freight route in the country between Auckland, Hamilton and tauranga. careful planning of any upgrade work is required to minimise disruptions to this busy route.

during 2008 several upgrades made rail in the lower north Island more competitive for the movement of containerised goods. In June 2008 a deviation around the Kai Iwi

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MEASURE* 2003-04 2004-05 2005-06 2006-07 2007- 08 2008-09New rail laid (km) 11 25 29 32 27.2 33.4New sleepers laid (000) 50 75 70 102 103 103Line de-stressed (km) 130 180 180 100 107 156Bridges replaced (m) 197 509 850** 562 555 947***Timber spans replaced (m) 102 350 288 354 367 368Timber piers replaced 8 33 35 35 61 132Derailments 61 60 42 48 45 36

* includes renewals and upgrades (including DART and other projects, although these are not included in target figures).

** includes Cobden Bridge.*** includes bridges replaced with large box or pipe culverts.

measuring imProvements to network inFrastructure and PerFormance

tunnel was commissioned, removing a major impediment to the transport of the largest containers used extensively for dairy produce from Fonterra’s whareroa plant in south Taranaki.

In November the ‘day-lighting’ of three tunnels at the eastern end of the Manawatu Gorge was completed. Combined with the earlier lowering of the floors in two long tunnels in

the Gorge the elimination of these last three tunnels opened the way for trains on the Palmerston North-Gisborne line to also carry the larger hi cube containers.

Rail plays a key role in the viability of the west coast coal mining industry and in 2008 a new ‘balloon loop’ loading facility was built at Ikamatua for Pike River Coal, which is expected to rail 1.3 million tonnes of coal per annum.

Over the past twelve months work has continued with the northland regional council to designate a rail link from the North Auckland line to Marsden Point port and a Notice of Requirement has been lodged with whangarei district council. while designation will secure the route and give landowners certainty there is no date set at this stage for building the link.

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auckland rail uPgrades

There are three main components to the current upgrading of Auckland’s commuter rail network.

Project DART - The $600 million suite of rail infrastructure projects now nearing completion that has increased the capacity, reliability and reach of the network.

MAJOR PROJECTS

Electrification of the Auckland passenger rail network - including all lines between Swanson and Papakura ($500 Million)

Rolling stock – KiwiRail is managing the procurement process for the new electric Multiple Unit (EMU) fleet (up to $500 Million).

1Project dart

The goal of this suite of projects has been to enable six trains an hour on each of the main suburban lines while still providing for freight movements through the network. The key elements included the duplication of the Western line, the redevelopment of Newmarket junction and station, construction of the Manukau Rail link and the rehabilitation of the Onehunga Branch line.

June 2010 saw the completion of the final section of the Western line Duplication – the most significant aspect of Project DART both in terms of cost and outcome. It has enabled significant timetable and reliability improvements to commuter services.

The final pieces of work include commissioning the second track inside the New lynn Rail Trench, which is

mostly complete after nearly two years of construction.

A complex new track arrangement at Newmarket Junction was commissioned in January 2010 when the new station was opening, easing a former bottleneck on the network, clearing the way for more frequent services.

Two remaining projects are Manukau and Onehunga, which extend the reach of the Auckland rail network. The Manukau Rail link is the first new rail route to be built in Auckland since the 1930s, and the formation of the line and rail trench are well underway. The Onehunga Branch line sees rail return to Onehunga after a 37-year absence; the construction of a new spur line and feature station is underway.

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2 Electrification of the Rail network

Auckland’s commuter rail network will be electrified between Papakura in the south and Swanson in the north. Providing the infrastructure for electrification is budgeted to cost $500 million and is due to be completed in 2013.

The three main elements of work include traction (overhead poles and wires and power supply), signalling, and providing sufficient clearance beneath bridges.

Work is already in progress to re-signal the Auckland metro network with a system which will improve reliability, allow for more frequent services and be compatible with proposed 25kV AC overhead system. Power will be supplied from two feeder stations at Penrose and Southdown.

Work is also underway putting in the foundations for the overhead poles, which will begin appearing around the network in early 2011.

Of the 86 bridges crossing the network (vehicle and pedestrian) work will be required at 50.

The 2011 Rugby World Cup will create significant demand on the Auckland passenger rail network. The DART projects and the signalling elements of electrification that will give the capacity and flexibility needed to move large crowds to and from Eden Park will have been completed in time.

3 Procurement of new rolling stock

The Government approved funding in November 2009 for KiwiRail to buy the fleet of electric multiple units for the Auckland network.

A fleet of up to 38 EMUS comprising up to 114 cars each with 240 seats is proposed. The procurement process provides for a contract to be finalised by the first half of 2011, with the delivery of the first units to follow two years later.

KiwiRail is working closely with key stakeholders in the Auckland region on the process.

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wellington region rail Programme

An investment of $550 million is being made to improve the Wellington railway system to provide more reliable passenger services. This is a joint programme between Greater Wellington Regional Council which has ordered a fleet of new electric multiple units to be introduced from late 2010 and KiwiRail Network which is leading the upgrade of the existing railway infrastructure to accommodate the new trains and improve the overall reliability of the network. This work includes upgrading the power supply, signals and station infrastructure around the wellington area.

In association, work is also underway to increase capacity of the network, so for example all seven tunnels on the Johnsonville line were made larger by lowering their floors. Double tracking and electrification of the North Island Main Trunk is being extended to enable regular commuter services to travel to Waikanae. This will extend the reach of the suburban system and more than double capacity on this section of the line. At the entrance to Wellington Railway Station, a third main line is being installed to reduce delays at a bottleneck in the system where previously four main lines reduced down to two. The new line will be bi-directional, ensuring there are two lines into the Station during the busy morning peak and two lines out during the afternoon rush hour.

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newly Built newmarket station, auckland dart ProJect

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RAIl SAFETYSafety is paramount in the rail and ferry industry – both the safety of our own staff and passengers we carry and safety of the general public who access our property, including the 4,000 kilometres of track and 18,000 hectares of land we manage.

By its nature the rail and ferry industry is an unforgiving workplace. We try to counter the inherent risks and give our staff and contractors a safe working environment through the provision of training, safety equipment, and specialist safety staff.

Public safety on the other hand, often relies on the actions of individuals who are outside of our control. KiwiRail attempts to encourage certain types of behaviour to improve the safety of the rail and ferry environment.

this includes providing rail safety education programmes, conducting

anti-trespass initiatives, and upgrading public level crossings.

there are roughly 1400 public road level crossings in the country and 85 stand-alone public pedestrian crossings. Around 700 road crossings have either barrier arms or flashing lights and bells – the others are protected by stop or give-way signs. currently only 20 percent of crossings are fitted with barrier arms - a legacy of the past, and the comparatively high costs and engineering time and skills involved in installing them.

ten years ago there were regularly between 30 and 40 level crossing collisions a year. It’s dangerous to regard individual years as typical - which is why we place more emphasis on rolling averages. In recent years the average has been trending down. In the 2007 calendar year there were 23 public road level crossing collisions, in the 2008 year, 20, but in 2009, 30.

At the risk of tempting fate, we’d like to think we are seeing a gradual decline in the number of collisions. Ten years ago, Tranz Rail identified a group of collision black spots that were responsible for about 80 percent of collisions. there were roughly 30 crossings on the list.

Much of the progress on making these crossings safer has occurred since 2005 as we’ve accelerated the upgrade programme.

In the five calendar years between 2000 and 2004, there were only seven upgrades carried out. By the end of the 2009 calendar year, we had completed 34 more. The progress we have been making in upgrading them is directly reflected in the reduction in collisions.

Fatalities at unprotected level crossings put the spotlight on the progress KiwiRail Network is making in upgrading crossings. while barrier arms might look

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deceptively simple, they are not “off-the-shelf” solutions. Each installation takes months of design work, planning and testing.

Fatalities put pressure on us to adopt an ad hoc approach by reacting to the latest collision. We find ourselves in an unenviable situation. It’s hard to say “no” to those who appeal to us to install barrier arms at crossings where they have lost family members or friends.

But to be fair to all communities around the country, we have to make decisions based on objective information.

the crossings we upgrade meet an objective test based on the volume of road and

rail traffic, the collision history of the crossing and any other relevant factors like visibility along the line.

The bottom line is that even at the increased rate of upgrading crossings, it’s going to take time to install protection at all those that need them. It’s also sobering to reflect on the fact that more than 50 percent of collisions occur at crossings fitted with either barrier arms or flashing lights and bells. this tells us that crossing upgrades aren’t the only tool we need to employ.

KiwiRail is a major sponsor of the chris cairns Foundation, which aims to raise public awareness of the responsibilities at public level crossings. It

MEASURE 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09Level Crossing 29 35 27 25 19 27 CollisionsLevel Crossing 0 5 6 7 9 7 Upgrades

was formed in 2006 by international cricketer Chris Cairns, whose sister louise died in 1993 when a train she was travelling in collided with a truck at a level crossing near Rolleston, south of christchurch.

The Foundation focuses on education campaigns to help people understand the dangers associated with level crossings and the rail network. In 2008 Chris cairns led a fundraising and awareness campaign which involved a walk from Auckland to Rolleston.

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PuBlic level crossing collisions

calendar years 2003-2010 (to 5 July)

10

3133

36

16

23

20

30

10

4 4 36

0

5

02

0

5

10

15

20

25

30

35

40

2003 2004 2005 2006 2007 2008 2009 2010

Vehicle*Pedestrian

13

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cHris cairns rail saFety camPaign

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CORRIDOR MANAGEMENTManaging 4,000 km of rail corridor, 18,000 hectares of land, 4,000 wagons, 180 passenger carriages and numerous buildings across the country may seem like challenge enough. In fact, managing the appearance of these assets is a major challenge in its own right. In the main cities, graffiti and litter is the biggest problem while in smaller towns and the countryside it’s weeds and vegetation.

The job of ‘keeping up appearances’ is made that much more difficult when the mess is caused by other people – either throwing out their rubbish or tagging on railway property.

The problem of graffiti will be a familiar one but what is surprising is how many New Zealanders seem to believe that the rail corridor is a substitute for their local tip.

The graffiti issue is a tough nut to crack and there are limits on what we can do to address the issue. A number

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of freight wagons end up carrying graffiti because with high demand on the fleet, it is difficult to justify taking them out of service for cleaning and repainting after they’ve been tagged.

We are often also held responsible for graffiti that isn’t even on railway property but is sprayed on fences and buildings that adjoin the corridor. Allowing people onto the rail corridor to remove graffiti isn’t straightforward – it is a hazardous environment and people working in the corridor need to know how to stay safe.

But we do what we can to address the issue through a mix of prevention and cure. Passenger carriages are checked daily for graffiti and removed from traffic as soon as possible to be cleaned before being allowed to return to service.

Graffiti is removed within 24 hours from all Tranz Metro Wellington stations

and facilities. We work in partnership with a number of local community trusts and agencies that specialise in graffiti and litter control. that includes providing training and supervision for volunteers to work on the rail network clearing rubbish and painting out graffiti.

Partner organisations include the Manukau Beautification Society, Keep Waitakere Beautiful and Tag Out Trust in Auckland and Keep New Zealand Beautiful in wellington. we have also worked with the Department of Corrections on a pilot scheme where people sentenced to community work painted out graffiti on the rail corridor near Henderson in Auckland.

As well as cleaning up afterwards, we’ve looked for ways we can prevent graffiti before it becomes a problem. This includes how we use landscaping and planting as a deterrent for taggers. Trials of planting programmes are underway

on several urban sites. we are also exploring ways to minimise illegal access to the rail corridor as people who graffiti are frequently trespassing. Taking a bigger picture perspective on the problem and how it can be addressed, KiwiRail Network joined the Government advisory group which worked on the preparation of the national strategy to deal with graffiti, launched in late 2008.

While graffiti on wagons remains a concern outside of the major cities, the bigger issue is weeds and vegetation. We have increased the spending on vegetation control by 30 percent in recent years to try and improve the appearance of the rail corridor. The work includes ballast spraying to prevent weeds, vegetation control to prevent trees from falling across tracks or interfering with overhead wires and to ensure level crossing view lines are adequate.

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BRIEF RAIl HISTORYthe new Zealand rail system grew from separate beginnings made by individual provinces or entrepreneurs from the 1860s onwards. colonial Treasurer and later Premier Sir Julius Vogel made rail a major plank in his programme to develop the colony in 1870. By 1880 new Zealand railways (NZR) was operating more than 1,900 kilometres of track, and carrying almost 3 million passengers and 830,000 tonnes of freight a year. The first half of the twentieth century was a ‘golden age’ for rail. By 1953 the rail network reached its peak in terms of network reach – 5,689 kilometres. But advances in air and road transport began to cut into its competitive advantage. In 1936 a system of transport licensing had been introduced to protect rail from competition. Initially, road was limited to carrying loads no more than 30 miles but this gradually increased, reaching 150 kilometres in 1977.

PuBlic works dePartment workers digging tHe raurimu sPiral

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The Railways Department was reorganised in 1982 to become a government-owned corporation with a commercial mandate. Also, the government began deregulation of the transport industry, removing statutory protections for rail against competition by road. In 1980, rail carried approximately 30 percent of all goods, but following deregulation, its market share dropped significantly.

In 1990, the operating assets of the Railways Corporation were transferred to a limited liability company under government ownership, New Zealand Rail ltd. In 1993, the company was sold to a private consortium comprising Wisconsin Central Transportation Corporation and two investment groups. Three years later, the new owners made a public offering of shares in Tranz Rail Holdings, listing the company on the New Zealand Stock Exchange and the NASDAQ market in the United States.

The process of deregulation, commercialisation and privatisation saw a reduction in the number of employees, from 21,000 in 1982 to 3,757 in 2002. After the sale in 1993, the New Zealand Railways Corporation continued as a residual government body with two principal activities: to manage all known litigation, contingent issues and statutory obligations; and to manage the rail corridor lease with Tranz Rail and the lease of other crown land held for operational rail purposes.

During the 1990s, Tranz Rail expanded into new markets, including the movement of bulk milk to dairy processing plants and establishment of New Zealand’s first inland port south of Auckland. The new port, a joint development with the Port of Tauranga, is connected by train with tauranga and created a significant new line of containerised freight business. In 2003, Toll Holdings limited,

an Australian-based transportation and logistics operator, acquired approximately 85 percent of the shares in Tranz Rail. As a result of Toll’s offer for shares in Tranz Rail becoming unconditional, an agreement between Toll and the Crown was triggered, a key feature of which was the buy-back of track and associated infrastructure by the crown.

The Crown undertook to invest $200 million in improving rail infrastructure while Toll undertook to invest $100 million in new rolling stock. In September 2004, ownership and management of the network and its assets was vested in the existing Railways Corporation of New Zealand which adopted the trading name ONTRACK. Under the agreement, Toll retained exclusive rights to the network for freight purposes, subject to meeting minimum tonnage levels annually.

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1862 First railway opens - a horse-drawn tramway from Dun Mountain copper mine to Port Nelson.

1863 First steam railway opened on the Christchurch-Lyttelton line, via the Lyttelton tunnel.

1870 With less than 100km of track operating, Prime Minister Julius Vogel calls for railways to aid economic development, and a narrow gauge is chosen to save money.

1873 First train in North Island, Auckland-Onehunga.1878 First express trains Christchurch-Dunedin cover 370km in 11 hours.1879 Possible to travel 600km from Christchurch to Invercargill by train.1880 Almost 1900km of railway open.1886 Wellington and Manawatu Railway Company opens line to Longburn, near

Palmerston North, introducing gas lighting and dining cars. After 22 years, it was bought by Government.

1908 North Island Main Trunk line completed after 23 years work - the crowning achievement of the "railway age". First train carried MPs to Auckland, in August.

1923 West Coast line opens - its Otira tunnel, at 8.55km the longest in the British Empire and containing the nation's first electric railway.

1930 Rotorua Limited introduced for tourists from Auckland, with observation car.1936 First successful railcars, Wairarapa route.1945 South Island main trunk from Christchurch to Picton completed.1953 The length of railway line operating hits its all-time peak - 5656km. Christmas Eve

crash at Tangiwai kills 151 rail passengers.1955 Rimutaka tunnel opens, eclipsing Otira as the longest at 8.8km and Nelson

railway closes.1959 – 1971 Numerous country branch line closures as steam era comes to an end as

re-equipping lines with modern locomotives and updated infrastructure not considered viable.

1971 Last regular steam train in New Zealand signals completion of dieselisation of railway network.

1978 Completion of the Kaimai tunnel signals more direct freight link between Waikato and Bay Of Plenty.

1982 Railways Corporation created as statutory corporation from Railways Department.1983 Start of deregulation of "distance limits" on trucking companies opens railways to

road-based competition. Rail employs 21,000 workers.1984 Electrification of North Island Main Trunk starts. Completed in 1988 at a cost of

$250 million.1986 Government makes railways a state-owned enterprise. In six years the workforce

is cut from 21,000 to 5000, while productivity of the land-based workforce is lifted 300 percent.

a cHronological History oF new Zealand rail

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1990 Finance Minister says Railways Corporation has accumulated debt of $1.1 billion, and the Government is considering restructuring it; Limited liability company New Zealand Rail (NZR) is formed.

1993 Government announces sale of NZR to a consortium of Wisconsin Central Transportation Corp and Berkshire Partners (60 percent stake) and Fay Richwhite (40 percent) for $328.3m.

1995 Company re-named Tranz Rail.1996 Wisconsin Central and Fay Richwhite float 31 million shares to the public at

$6.19/share.1997 Tranz Rail share price peaks at $9.2003 Stock plunges towards 30c/share, details emerge of how the company needs to

sell assets to meet lease payments and repayments of debt required by bankers.2003 Tranz Rail taken over on market by Toll, who also assume debt and lease

obligations. Track to be sold back to Crown.2004 Government assumes ownership of national rail network and ONTRACK formed

to run it. National Rail Access Agreement (NRAA) with Toll comes into effect with Toll exclusive operator and ONTRACK network provider.

2006 Toll NZ threatens to slash services on much of the national rail network including the main trunk line unless it gets a long-term agreement from the Government on its track-access fee.

2007 Toll Holdings buys another 10 per cent of railway shares, triggering a compulsory takeover for the remaining shares at the same price of $3 each.

2008, Jul 1 The Government buys back Toll's rail and ferry business for $665m, after several months of negotiations.

2008, Oct 1 ONTRACK and KiwiRail form a single integrated rail business under New Zealand Railways Corporation KiwiRail banner.

2009, Mar 23 KiwiRail brings the maintenance of locomotives and wagons in-house by purchasing United Group Ltd.

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tranZalPine