LEGISLATIVE COUNCIL PARLIAMENTARY PAPER NUMBER 576 General Purpose Standing Committee No 4 Privatisation of FreightCorp Ordered to be printed according to the Resolution of the House December 2000 Report 6 - December 2000 LEGISLATIVE COUNCIL New South Wales Parliamentary Library cataloguing-in-publication data: New South Wales. Parliament. Legislative Council. General Purpose Standing Committee No. 4 Inquiry into the privatisation of FreightCorp / Legislative Council, General Purpose Standing Committee No. 4. [Sydney, N.S.W.] : The Committee, 2000. – approx 115 p. ; 30 cm. (Report 6, December 2000 / General Purpose Standing Committee No. 4) (Parliamentary paper ; no. 576) Chair: Jenny Gardiner. ISBN 0-7347-2025-4 1. FreightCorp. 2. Privatization—New South Wales. 3. Corporations, Government-- New South Wales. 4. Railroads—Freight-- New South Wales. I. Title II. Gardiner, Jenny. III. Series: New South Wales. Parliament. Legislative Council. General Purpose Standing Committee No. 4. Report ; 6 IV. Series: New South Wales. Parliament. Parliamentary paper ; 576 385.24 (DDC21) ii Report 6 - December 2000 GENERAL PURPOSE STANDING COMMITTEE NO 4 How to contact the committee Members of the General Purpose Standing Committee No 4 can be contacted through the Committee Secretariat. Written correspondence and enquiries should be directed to: The Director General Purpose Standing Committee No 4 Legislative Council Parliament House, Macquarie Street Sydney New South Wales 2000 Internet www.parliament.nsw.gov.au Email [email protected] Telephone 61-2-9230-2641 Facsimile 61-2-9230-2981 Report 6 - December 2000 iii LEGISLATIVE COUNCIL Terms of Reference These terms of reference were self-referred by the Committee on 12th October 20001 That General Purpose Standing Committee No. 4 inquire into and report on the privatisation of FreightCorp, and in particular: 1) the economic, social, safety, employment and environmental implications of any privatisation of FreightCorp, 2) the effect on rural and regional New South Wales of any privatisation with respect to: (i) rail infrastructure and service improvements including the potential for reopening disused lines, (ii) cutbacks in rail services, maintenance and staff, (iii) the potential for more freight to be transported by rail and less heavy vehicle use of roads, and (iv) the economic and social impacts on country communities, 3) options for achieving fairer competition between road and rail freight transport operators, and 4) the implications of possible monopoly ownership of FreightCorp and Australian National Rail and vertical integration of the freight business. 1 Minutes of the Proceedings of the Committee, No 16, Item 4 iv Report 6 - December 2000 GENERAL PURPOSE STANDING COMMITTEE NO 4 Committee Membership The Hon Jenny Gardiner MLC National Party Chair The Hon Ian Cohen MLC The Greens Deputy Chair The Hon Amanda Fazio MLC Australian Labor Party The Hon Charlie Lynn MLC Liberal Party The Hon Ian Macdonald MLC Australian Labor Party The Hon David Oldfield MLC One Nation The Hon Janelle Saffin MLC Australian Labor Party Other Members who participated in the inquiry The Hon Duncan Gay MLC National Party The Hon John Hatzistergos MLC Australian Labor Party The Hon Tony Kelly MLC Australian Labor Party Report 6 - December 2000 v LEGISLATIVE COUNCIL Table of Contents Chair’s Foreword ix Executive Summary xi Summary of Recommendations xiii Glossary xv Chapter 1 Introduction 1 Self referral of inquiry terms of reference 1 Conduct of this inquiry 1 Structure of this report 3 Chapter 2 Recent government announcements of rail freight privatisations 4 The Commonwealth Government announcement of the sale of National Rail Corporation 4 The NSW Government and FreightCorp response to the sale of NRC. 6 Other reasons to privatise FreightCorp 11 Chapter 3 The FreightCorp business 14 FreightCorp 14 Recent regulatory reform 19 Chapter 4 The economic, social, safety, employment and environmental implications of any privatisation of Freightcorp. 21 The lack of publicly available independent information about the implications of any privatisation of FreightCorp 21 The effects of privatisation of other Australian government owned rail freight companies 23 The Victorian privatisation of V-Line Freight 23 The Commonwealth privatisation of Tasrail 24 The Commonwealth privatisation of Australian National South Australian operation 24 The West Australian privatisation of Westrail Freight 25 Submissions to the inquiry regarding other Australian rail freight privatisations 26 The experience of the private rail freight operators’ sourcing of rollingstock, parts and maintenance 26 Conclusion of privatisation case studies 27 vi Report 6 - December 2000 GENERAL PURPOSE STANDING COMMITTEE NO 4 General discussion on the economic, social, safety, employment and environmental implications of any privatisation of FreightCorp. 28 The RTBU/PricewaterhouseCoopers report 28 The view of another private rail operator 32 The potential negative impacts of privatisation 32 The safety implications of a privatised FreightCorp 34 Implications of an independent NRC sale 36 Chapter 5 The effect on rural and regional New South Wales of the privatisation 38 Rail infrastructure and service improvements including the potential for reopening disused lines 38 Community service obligation payments and rural track infrastructure 39 Cutbacks in rail services, maintenance and staff 41 Cutbacks in staff 45 The potential for more freight to be transported by rail and less heavy vehicle use of roads 47 The economic and social impacts on country communities 51 Chapter 6 Options for achieving fairer competition between road and rail freight transport operators 54 Infrastructure investment 55 Track and control infrastructure 58 Rollingstock 62 Taxes and charges 63 Accounting for externalities 65 Regulations and procedures 69 Employment conditions 69 Reform and innovation 69 Chapter 7 The implications of possible monopoly ownership of FreightCorp and Australian National Rail Corporation and vertical integration of the freight business 72 Arguments supporting the notion that a merged FreightCorp/NRC entity would have few ramifications for competition 72 Arguments against a merged FreightCorp/NRC 74 The importance of an open rail access regime 76 The Australian Competition and Consumer Commission response 82 Appendix 1 84 Appendix 2 86 Appendix 3 89 Appendix 4 92 Report 6 - December 2000 vii LEGISLATIVE COUNCIL Appendix 5 113 Appendix 6 115 Dissenting Report 118 Figures, Tables and Charts Table 1 - Publications, position and insertion date of committee’s terms of reference 2 Table 2 - Number and percentage of total submissions by organisation type 2 Table 3 - Number and percentage of witnesses by organisation type 2 Figure 1 - FreightCorp operating centres in New South Wales 15 Table 4 - Location and number of FreightCorp staff 16 Figure 2 - FreightCorp Operating Profit before interest and tax ($ millions) 17 Figure 3 - FreightCorp Cash Returns to Government 17 Table 5 – FreightCorp operating revenue and tonnes hauled 1999-00 and 1998-99 18 Table 6 - NSW Government CSO payments to FreightCorp (actual) 1996-97 to 1999-00 ($m) 42 Table 7 - Commonwealth Department of Transport and Regional Services funding for construction and maintenance of National Highways in New South Wales (actual) 1995-96 to 1999-00 ($m) 56 Table 8 - Rail Access Corporation expenditure for construction and maintenance of the New South Wales rail network (actual) 1995-96 to 1999-00 ($m) 57 Table 9 - NSW Government CSO payments to Rail Access Corporation (actual) 1996-97 to 1999-00 ($m) 57 Figure 4 - Tracks filled with waste and disappearing into undergrowth at Enfield site with abandoned overhead electrification standard. 81 viii Report 6 - December 2000 GENERAL PURPOSE STANDING COMMITTEE NO 4 Chair’s Foreword In a unanimous decision of this bi-partisan committee, Members agreed to self-refer terms of reference to consider the implications of the New South Wales Treasurer’s announcement of the Government’s intention to privatise FreightCorp. Some two and a half months later the committee has heard evidence from 27 witnesses over three days of public and private hearings, received 40 submissions from a diverse range of industry groups, other freight operators, government agencies, individuals and community groups and prepared its report containing 15 recommendations. Although there was a wide cross-section of views on whether or not FreightCorp should be privatised, the committee identified that there was a lack of independent publicly available information. The committee was very concerned about job losses that may flow from privatisation. Hence, the committee’s first recommendation was for the Government to commission an independent rural and regional impact statement before any final decision is made on the privatisation of FreightCorp, such statement to be tabled in Parliament and made public. If privatisation proceeds, the committee recommends that 50% of the proceeds from the sale should be directed to upgrading rail infrastructure in rural and regional areas to enable rail to better compete with road freight travel times. Apart from making significant improvements to rail infrastructure, implementation of this recommendation would help offset job losses which may be lost upon privatisation. Further, the committee recommends that a condition of any sale of FreightCorp be that the successful bidder must quarantine, for a minimum of two years, redundancy of any staff who