Building Trains In NZ

A Winner for Everyone Except National Government

- Mike Regan

Mike Regan is a Wellington editor and journalist.

The battle to keep the Hutt and Hillside (Dunedin) workshops open, viable, productive and profitable will continue, according to Rail and Maritime Transport Union (RMTU) General Secretary Wayne Butson - despite decisions against the work from the National government’s Transport Minister, Steven Joyce, and KiwiRail Chief Executive Officer (CEO) Jim Quinn’s prophylactic pronouncement banning Hillside from contesting the contract to build Auckland’s new rolling stock.

In 2010 the RMTU launched a nationwide campaign from its head office seeking more than 40,000 signatures on a petition to Government aimed at reversing these decisions and to keep the work in New Zealand for New Zealand workers. The campaign was supported by Dunedin and Hutt Valley businesses and their chambers of commerce. The call for bids was for construction of up to $500m of rolling stock for Auckland commuter rail. The union and its partners wanted to see the bulk of that work handled at Hillside and Hutt, preferably with KiwiRail taking the leading role. “This was a no-brainer,” said Butson, who added that building the rolling stock in New Zealand benefits everyone. “Not just the workers, but the taxpayers too”.

Economic Benefits

The campaign group amassed a body of evidence showing that the two workshops were immediately capable of doing the work and, indeed, had a track record of doing so. A significant aspect of their evidence came from a specially commissioned report from economic consultancy group Business and Economic Research Limited (BERL) titled: “Business Case For Building Rolling Stock In New Zealand”. In putting forward their business case BERL stated:

“Some stakeholders question whether New Zealand has the capacity to build the rolling stock in the timeframe suggested in Kiwirail’s Industry Engagement Document. We have therefore estimated impacts for two scenarios: a ‘mandated’ scenario and a ‘constrained’ scenario. The key benefits of producing the rolling stock in New Zealand, at a national level, include:

- an average of 1,270 full-time equivalents (FTEs) employed across New Zealand over a period of 45 months (mandated scenario) or 770 FTEs across New Zealand over a period of 69 months (constrained)

- $250 million (mandated) or $232 million (constrained) added to total GDP (Gross Domestic Product), including $117 million (mandated) or N$108 million (constrained) in direct GDP.

“Our research suggests that overseas manufacturers would need to produce the rolling stock at between 29% and 62% less than the price of manufacture in New Zealand to offset the benefits to New Zealand GDP of producing the trains here. The range is dependent on whether we consider only the direct benefits (29%) or total benefits (62%) to New Zealand GDP of building the rolling stock here. Our research suggests that at these prices, the rolling stock is unlikely to be sourced from quality Western suppliers. It may be possible for Asian sources to supply at prices close to these. However, the quality and expected life could be less than those from Europe and North America, and we suspect from New Zealand. It is possible also that total operating costs could thus be higher. It therefore makes business sense to produce the trains here, not only from a national perspective, but also from a commercial (Kiwirail) perspective.

“There are a number of further economic benefits of building the rolling stock in New Zealand that are discussed in this report. These include developing and maintaining skills in New Zealand; the opportunity to capture part of a $15 billion rolling stock industry; opportunities for innovation and technology spillovers to other industries; ongoing maintenance contracts with associated jobs and contribution to GDP; reduced exchange rate risk or risk-minimisation costs; and Crown revenue and trade balance benefits”.

However, Minister of Transport Steven Joyce dismissed the Report’s conclusion during an interview with Morning Report on Radio New Zealand National, saying it compared apples with oranges with pears. He said he was disappointed with the BERL case and that the report was “once over lightly”. He said he had little faith in the KiwiRail workforce at Hutt and Hillside, adding that suggestions made about “costs per unit of the trains and the comparisons they have made internationally compare apples and oranges and quite possibly pears”. He also said that the Report didn’t provide details of the comparisons that were being made.

Keeping Jobs In NZ Not Allowed Under Free Trade Deals

He was unsympathetic that New Zealand could compete successfully for such a contract saying, in effect, that New Zealand should stick to what it does best - grass-based industries. Indeed, he appeared to bend over backwards to ensure New Zealand couldn't be tarred with the “discrimination” brush nor jeopardise any trade deals. In a story in the Otago Daily Times (Stu Oldham, 17/12/2010) he said: "If we gave preferential treatment to local tenders, then we wouldn't be able to have free trade agreements with countries like Australia and China. The reality is that it is largely our exports to those countries that keep us afloat".

Rather than acting strategically in favour of New Zealanders Joyce firmly placed his Government’s stance in the short-term camp. Never mind that investment in this sort of heavy industry would provide work for generations and retain hard-won skills and workers in the country. Far better, says this Government, to grab the cheaper quote. However, he praised the working capabilities of both workshops and saw a continuing role for them in maintaining and refurbishing the new units. He said “you need to pick your battles” and in this case considered New Zealand companies couldn’t compete.

KiwiRail Chief Executive Jim Quinn also poured cold water on the proposal and expressed an equal, if not more, damning indictment of his workforce, by saying it was unlikely they would make a bid as they are unlikely to be competitive internationally and that they simply would not be able to gear up to supply them on time. Butson slammed both comments saying these did nothing to give New Zealand workers confidence in their bosses. “We are not running a political campaign here,” he said. “We believe it will succeed and when it does it can only reflect positively on the owners, which is 100% the New Zealand government”.

Dunedin Chamber of Commerce CEO John Christie told Morning Report that if New Zealand could compete successfully on this contract it could then begin to bid for some of the billions of dollars worth of contracts overseas. Meanwhile, he says getting this work would be a welcome economic boost and “go way beyond the boundaries of the workshops”. “We do have the skills and expertise in New Zealand,” Butson told Morning Report. “I’m sick of New Zealand money going out of New Zealand. It’s about time New Zealand dollars were spent in New Zealand”.

While he admited that some $8m might need to be spent to bring both workshops up to speed he wasn’t as concerned about the tight deadlines as Quinn. He, and the BERL report, also pointed out the added advantages of the work being completed here. “If you just look at the cash price we will struggle,” he said. “However, if you look at the peripheral benefits, we win hands down. There’s more tax being paid, fewer people becoming beneficiaries, healthier productive workers, happier families and the money stays here”.

Joyce and Quinn argued that New Zealand workshops could not do the whole job and would, in effect, become assemblers of parts brought in from overseas. “Not true,” says Butson. “First of all most overseas manufacturers do exactly that themselves. We want as much local production as we can get. We recognise that there are components that we cannot build in New Zealand, like the motors, but we can produce almost all of the components in New Zealand”. RMTU president Jim Kelly said it was already being done. “We are currently building brand new rolling stock for the (Christchurch-Picton) TranzScenic route and all 17 units will roll out, on time, at the end of this year (2010)”. “It is time to show trust and confidence in New Zealand workers who, I’m convinced, will show they can produce best world-practice product right here,” said Butson. He added that there are about 550-600 skilled heavy engineers in rail, almost all of them at the Hillside and Hutt workshops.

“The fact is that unless we can get these types of programmes we will not be able to hold on to them,” he said. “They’ll add to the flow of New Zealand workers heading for Australia where they are also in the midst of a major rebuild of their rolling stock”. And, he added, that the Australian government provides substantial subsidies for those industries. “Why is it that New Zealand is alone flying the hands-off flag?” he said. “New Zealand companies can do this work,” said Council of Trade Unions’ Secretary Peter Conway, “and we are seeking to show Government and KiwiRail bosses that they should not dismiss bidding for the contract at the get-go”. “It seems that Quinn and Joyce are the only two people in New Zealand who think that the Hutt and Hillside workshops can’t build the trains,” says Butson.

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