OETT Proposes Joint Operation of Taieri Gorge Railway with GVR

Otago Excursion Train Trust has proposed a joint operation with Glenbrook Vintage Railway to operate Dunedin Railways. Currently, Dunedin Railways is operated on behalf of its sole shareholder, Dunedin City Holdings Ltd, which in turn is owned by Dunedin City Council. OETT was a founding shareholder of Dunedin Railways (then called Taieri Gorge Railway Ltd, a separate entity from the Taieri Gorge Railway itself, which is a 60 km railway line from North Taieri to Middlemarch). TGR Ltd changed its name to Dunedin Railways Ltd in December 2017. The statement from OETT put on their Facebook page reads as follows:

Two New Zealand rail groups are in talks to secure the future of the internationally renowned Taieri Gorge Railway, and its operator, Dunedin Railways. The venture is between the Otago Excursion Train Trust (OETT) and Auckland-based Glenbrook Vintage Railway (GVR). It follows months of discussion between OETT and GVR to save operations through the gorge, after Covid put an end to regular services. The proposal is an exciting opportunity to save one of the most unique rail trips in the country, OETT chair Murray Schofield says. “Taieri Gorge Railway is an Otago treasure, and a new community-based model is being proposed so it can operate successfully in a post-pandemic world. This model combines knowledge from OETT – the founder of Dunedin Railways – and Glenbrook.” Despite the distance between the two groups, the partnership is a natural fit, Mr Schofield says. “GVR has much in common with Dunedin Railways. In terms of scale, it is the next-largest heritage rail operator and brings mainline knowledge and business expertise. Like Dunedin Railways, it has its own branch line, maintains a large vehicle fleet, and operates regular long-distance excursions. “We are incredibly excited to have Glenbrook involved in this effort to preserve the operation. “Train travel through the Taieri Gorge is an experience that has brought people from across the world to our city, and we cannot afford to lose it. Once it is gone, it is gone forever.” Under the proposal, OETT and Dunedin City Council would retain ownership of Dunedin Railways assets and would contract out the “above-rail” services to an entity formed by the OETT and GVR, allowing it to carry on running the great rail journeys and trips that have been so popular under Dunedin Railways. Glenbrook Vintage Railway general manager Tim Kerwin says it is an exciting prospect. “This is an opportunity to retain one of New Zealand’s longest privately owned rail lines that runs through some of our country’s most spectacular scenery. “This is only the beginning. A lot more work must be done but it is a privilege to be involved in helping to save this one-of-kind Kiwi experience and keep it here for future generations to enjoy.” The focus will now turn to establishing the proposal’s framework and legal requirements. OETT has commissioned consultancy firm Linqage International to prepare a business case and the joint bid to operate Dunedin Railways will be put to the Dunedin City Council in the next couple of months (source).

Otago Excursion Train Trust was formerly a 28% shareholder in Dunedin Railways Ltd. As is generally known, DRL encountered operational problems when the Covid pandemic hit New Zealand in 2020 resulting in a closing down and mothballing of its operations. OETT then chose to sell down its shareholding, which was valued on its books at around $500,000, and also at the same time write off a loan of over $300,000 to Dunedin Railways. The total book loss to OETT from selling its shareholding was therefore more than $800,000, the shares being purchased by Dunedin Railways for about $10,000. This transaction was registered with the Companies Office in April 2020. Dunedin Railways has since that time operated on a limited basis with trains only to Hindon in the Taieri Gorge, and to other destinations on the Kiwirail network, as essentially a more limited scope of their previous operations, with fewer staff than in their heyday. OETT was formed as an excursion train operator which ran passenger trains on the NZR network as it was at the time. Their fleet of carriages ran the length and breadth of the New Zealand network filled with passengers. OETT sold their carriage fleet to Dunedin Railways and that became their sole interest, although there were occasionally trips outside Dunedin, mainly to Seacliff and Oamaru, but the full scope of the old OETT excursion fleet operation essentially ceased at that time. The matter of the shareholding is of interest because of its context; since that time three years have passed and DCHL have increased the total shares in DRL four times, so that the approximately 2.5 million shares held at the time it became the 100% shareholder have been increased to over 10 million. It is not immediately clear why it was necessary to make these continual increases in shareholding since DCHL continually has held 100% of shares during that time.

In the 30 years of operation of Dunedin Railways, most train services have run to Pukerangi, which is 41 km from North Taieri. There is still track all the way from there to Middlemarch, but services on the full length have been infrequent. Over time, this has led to the concern being expressed that the section from Pukerangi to Middlemarch is becoming uneconomic to maintain. This views was formed by Dunedin Railways after the 2017 Otago floods. Specifically, it was signalled that a mothballing of the Pukerangi to Middlemarch section of the line should take place as of December 2019 on OETT’s website. Significant maintenance work was required to repair the Taieri Gorge Railway after those floods, and the Railway was closed for a period to allow for this. As an inland isolated rural area, the Taieri Gorge and the plains further inland around Middlemarch do not have any significant flood control works. There have been many instances of significant flooding in the Taieri Gorge over the decades. Dunedin Railways after that major flood and carrying out repairs suggested that the Middlemarch section of the Taieri Gorge line be mothballed. The entire railway from North Taieri to Middlemarch is within the boundaries of Dunedin City. However, it is not clear if services were still being operated to Middlemarch at the time the Dunedin Railways operation shut down due to Covid. Since then, the railway facilities at Middlemarch have been established as a historic precinct, with Project Steam of Dunedin, another railway heritage group, moving their rolling stock collection into the sidings.

It is unclear why OETT chose to sell down their shareholding in Dunedin Railways and what advice they received prior to arranging the sale. However it is clear that OETT have backpedaled on this decision ever since because they have been conducting a campaign against the situation of their non involvement with Dunedin Railways since that time. This has involved engagement with the news media and Dunedin City Council among others. These efforts are largely geared at seeking to take over the operation of Dunedin Railways which it is implied is not being managed properly by the DCHL staff. The historical interest of OETT in Dunedin Railways was primarily in the Taieri Gorge Railway being the 60 km from North Taieri to Middlemarch. As noted above, this has been primarily operated by Dunedin Railways under DHCL majority control for the past 30 years, ever since the formation of TGRL/DRL in 1993 with the shareholding split which existed at that time. OETT have therefore not been involved directly in running TGRL/DRL since that time, although they did have directorial involvement on the board of the Company and did have an arrangement to provide extra volunteer staff to help operate some of the Dunedin Railway services. Over the years there has been evidence of some level of disquiet within OETT at what they stated was a gradually diminishing role in the Dunedin Railways operation. An example of this can be seen in a April 2016 edition of the “Telepgraph” (OETT newsletter) that is available via the Web Archive site. The article essentially notes in particular the lack of ability of OETT to run excursions as it did in the past, and lack of involvement in the name change from Taieri Gorge Railway Ltd to Dunedin Railways Ltd. This, however, must be in part a natural consequence of a number of factors, including the position of OETT as a minority shareholder; and the sale of its carriage fleet to Dunedin Railways at some point since the establishment of the company. There is no information that could be found anywhere for this article on how it was arrived at for OETT to be a minority shareholder compared to the position it could have had as a 50% shareholder if that had been a possible option. Since it had sold its rolling stock to the company, it would have had income that could be input as share capital to create its shareholding. It is possible, of course, that this was already done and was part of the 28% shareholding it actually had at the time the company was established. The sale of the rolling stock and loss of ability to operate its own excursions might have been addressed if it had chosen to lease rather than sell its rolling stock to the company. But ultimately the position of OETT as a shareholder is still a limited one no matter how it is examined because the role of shareholders is to appoint directors to the Board of the company. Those directors then appoint the CEO of the company and the CEO appoints the staff. The operations of the company are separate from the strategic governance that the Board provides. It is then a question of whether the Board is involved to any extent in deciding issues such as the involvement of OETT which is a separate organisation from the Company in this case. But this is evidence of background to the current campaign to change the operations of Dunedin Railways.

Commenting specifically on the press statement above there are a few points that stand out:

  • The inference is that the Taieri Gorge Railway trip is under threat. Since the Company’s statement of intent, a publicly available document, declares they are putting a case before the Council for reopening the Taieri Gorge line as far as Pukerangi, it is unclear that the TGR trip is under substantial threat under Dunedin Railways. What is reasonably clear is that the operation of the line from Pukerangi to Middlemarch has been under a cloud for some time, but trains to Middlemarch have never been a substantial part of the operation of the Taieri Gorge Line in the past 30 years. This is because the return trip to Middlemarch is too long for the cruise passengers that make up much of the summer passenger traffic on the Taieri Gorge line. The operation of this section could be done under heritage auspices or different ownership in the future if maintenance funding is available. The alternative being to convert the section to an extension of the rail trail.
  • OETT and Dunedin Railways would retain ownership of the assets. This has never been the case in the past 30 years in fact. The assets were all owned by Dunedin Railways, and OETT was a part owner of Dunedin Railways, but not a direct owner of the assets. This point may seem obtuse but the issue is that this point would place the ownership of the assets on a separate footing from where they have been under the DRL model. This requires a change in Dunedin Railways ownership of those assets. The second point, also somewhat obtuse, is that there is nothing to be currently retained by OETT. Since selling their shareholding, DCHL has been the 100% shareholder in the company. This has not changed in percentage terms since then.
  • GVR has much in common with OETT in terms of scale. GVR does not actually have the scale of track ownership and operations that Dunedin Railways has. In particular, GVR has only 7 km of operational track, a far cry from the 60 km that Dunedin Railways owns, and it is all in easy to maintain flat terrain, compared to the line through the narrow and unstable Taieri Gorge. Furthermore, Taieri Gorge trains are currently operated from Dunedin Railway Station, which means the first 16 km of a journey to Pukerangi must be operated over the Kiwrail network. GVR operates from its own base at Glenbrook and their regular trains do not run on Kiwirail’s tracks.

So the current status is that OETT/GVR working ahead are doing the business case that they will present to DCC. It then very much depends on whether DCC think the Company should allow OETT to be a shareholder again and to contract out the operations to OETT/GVR as suggested. At this stage TSBNZ believes the Council will be reluctant to sell down any part of the shareholding. Other commentary in the Otago Daily Times and elsewhere tends to suggest the option for converting Pukerangi to Middlemarch into an extension of the rail trail is favoured to some extent. This would of course mean the end of trains operating on that section, which seems to be the primary catalyst for the OETT proposal – along with their long held angst about their lack of ability to influence the operations of Dunedin Railways over the years. There are pros and cons for the rail trail extension proposal. At present, rail trail users have to meet the train at Pukerangi most of the time because very few trains have been operated to Middlemarch and it is difficult to get there on gravel roads with no direct access for rail trail users. To get a train running even just to Middlemarch will cost about $1 million a year for the next 10 years. This appears to be about the same for either DRL on its own or the arrangement OETT proposes, and in both cases the money will have to be found by Council. TSBNZ will keep an eye on developments over the coming months and inform readers as new information becomes known about this proposal. As it stands it is difficult to see how a heritage-focused operation can achieve a more economical operation of Dunedin Railways’ trains in the future and how the long term future of the train service the full distance to Middlemarch could be maintained as it is not of benefit to cruise ship operations. The only real way of making significant economies in operational costs is by reducing the wages bill. It is unlikely that many paid staff could be replaced by volunteers to be able to maintain the busy cruise season trains if these continue to operate. Directors fees could be eliminated, but these are not a significant amount as the directorship of the Company is not a significant effort and most directors are not paid more than $15,000 annually.