Taieri Gorge Railway vs Otago Central Rail Trail Saga [2]

Welcome to Part [2] of this series about the TGR-OCRT saga currently playing out in Dunedin and national local governance and rail heritage circles. Part 1 was an introduction to the saga that looked at how the Taieri Gorge Railway was established, its recent history, and a comparison with its nearest pure-rail-heritage equivalent, the Weka Pass Railway in North Canterbury. This Part will continue looking into the current saga in more depth. Part [3] will be focused on the future options for the Taieri Gorge Railway.

It is unclear at this time when it became the case that the operation of the Taieri Gorge Railway in its present form might prove to be financially unviable. A significant catalyst for the present situation was found in the Taieri Floods of 2017. These caused the railway to be closed because of the large amount of damage that was caused in the Taieri River Gorge where the railway runs. Flooding has always been a problem in this area and is one of several factors in the maintenance costs of the entire TGR. After that time, although operation of the line was restored to Pukerangi, concerns about deferred maintenance became evident, and in 2019, Dunedin Railways announced it would close down the running of trains beyond Pukerangi. Prior to that, the services through to the terminus at Middlemarch were becoming infrequent – a 2014-2015 season timetable brochure shows one trip weekly (Sunday) in the low season and up to two returns weekly (Friday and Sunday) in the high season, although in practice, 31 Middlemarch services were scheduled for the first four months of 2015. This was reduced to 18 services in the first four months of 2018, and timetable information beyond that period has not been able to be obtained for this article. Middlemarch has never been a prime destination for Taieri Gorge Railway passenger services at any time because of the increased distance, and thus turnaround time, of the services. A typical timetable in the past, when Pukerangi and Middlemarch both appeared in the timetable schedule, specified a return time of four hours for Pukerangi and six hours for Middlemarch. This 50% increase made Middlemarch unattractive as a tourist destination particularly for the visiting overseas tourists from cruise ships that contribute significantly to total passenger traffic during the summer season, and accounts for the low timetable frequency of Middlemarch services. The earliest season for which timetable information can be obtained for this article is 2000-2001, and shows that Middlemarch was an available destination only on Sundays, and only between October and March. The 2018 annual report of Dunedin Railways Ltd shows quite a change in the financial situation of the railway which was majorly influenced by the Taieri Plans floods of 2017, which in reality was the first of several significant events culminating in Covid that significantly impacted the railway’s operation. In reality, Dunedin Railways had a relatively short “honeymoon period” of about 10-12 years from 1995 to 2007 until all sorts of world and local events started to derail it somewhat. There have been periods of good times interspersed with periods of challenge, as is normative in life throughout the world as a whole. The company’s annual report for 2018 showed that it ran up a substantial loss as a result of the floods due to a repair bill of nearly half a million dollars as well as substantial revenue loss due to being unable to operate trains to the same extent during the period that the repair work was being carried out. Up until that point Dunedin Railways generally operated on a break-even basis, with either a small profit or a small loss being recorded in the annual accounts, and generally no dividend would be payable to the Council, unlike most of its other trading corporations.

Dunedin Railways announced its intention to stop running to Middlemarch altogether late in 2019 – as noted in the previous article on this blog, this was announced in OETT’s December newsletter to its members. This was undoubtedly majorly influenced by the company’s detrimental financial position as a result of the repair work needed to re-open the Taieri Gorge Railway after the 2017 floods. Worse was soon to follow. In April 2020 the company announced that work to mothball its operations would begin, due to the tourism-related impacts of the Covid-19 pandemic worldwide. OETT sold its shareholding to DCHL at a huge loss, and it was suggested that the TGR had racked up a tally of around $10 million in deferred maintenance that would need to be addressed within a decade. DRL was effectively closed down and most of its staff laid off. It Incurred considerable controversy in rail heritage circles in January 2022 when a quantity of old rolling stock was put up for sale that included all of its remaining fleet of old wooden carriages. DRL had at that time already disposed of some of these carriages in previous years. Although the sale process was closed down after a public outcry, a number of rolling stock items subsequently departed the DRL site – it’s not clear if these were those actually owned by DRL or by other organisations such as Rail Heritage Trust and Diesel Traction Group, which had one of its locomotives on lease to DRL. Dunedin Railways had also leased a Silver Fern railcar for a time from Kiwirail, which it returned in the same year as it closed the Middlemarch section of track.

As we know from the comparison in Part [1], there is no real equivalent for the Taieri Gorge Railway in pure-rail-heritage circles as far as New Zealand goes. The Weka Pass Railway with just 13 km of track is the closest equivalent, and that after it shortened its original track length by more than 50% just six years after coming into existence. Notwithstanding that there is strong support for OETT in its efforts to preserve the full length of the Taieri Gorge Railway’s entire 60 km of track from North Taieri to Middlemarch from the rail heritage community, most rail heritage organisations in Aotearoa are relatively small insular groups that often have fewer than a thousand metres of track they can call their own. Out of the more than 70 groups which have affiliated with the Federation of Rail Organisations NZ (FRONZ), the recognised national body for the rail heritage and tourism industry, those which have substantial track lengths include the Bay of Islands Vintage Railway (Northland), Driving Creek Railway (Coromandel), Glenbrook Vintage Railway (Auckland), Goldfields Railway (Bay of Plenty), Gisborne City Vintage Railway (Gisborne), Waitara Railway Preservation Society (Taranaki), Blenheim Riverside Railway (Marlborough), Weka Pass Railway (Canterbury), Kingston Flyer (Southland), and Dunedin Railways (Otago). Shorter lengths of around a kilometre are operated by the Museum of Transport and Technology (Auckland), Whangarei Steam and Model Railway Club (Northland), Silver Stream Railway (Wellington), Ferrymead Railway (Canterbury), Nelson Railway Society (Nelson), Oamaru Steam and Rail Restoration Society (Otago), Ocean Beach Railway (Otago), West Coast Historical and Mechanical Society (Westland), Plains Railway (Canterbury); and there are many others who either operate on other groups’ tracks, operate excursions on the national network, or do not operate public services at all. Hence it can be readily understood that a heritage/tourist railway running 60 km of track is well out on its own in NZ. Its position is, of course, substantially different from the 3500 km of operating track of the national railway network – and that is because the nature of heritage train operations are generally limited to passenger services that at best break even for direct operational expenses such as fuel and staffing costs, and often struggle to contribute very much to long term overhaul and maintenance costs of major rolling stock items like locomotives and carriages, and the track that the trains operate on. A typical scenario for any heritage railway in New Zealand is that its officers (practically all of them, like their other active membership, unpaid volunteers) are constantly applying for financial assistance to allow restoration projects to proceed. Funding is the major issue that dictates the duration of a restoration project of any substance, or the construction of major restoration facilities such as storage, working and maintenance buildings. Much of this income is obtained from the rail heritage organisation’s membership; some comes from public appeals and a great deal comes from grants from external organisations. Nothwithstanding that rail heritage societies in NZ have achieved some impressive outcomes – the very large rolling stock collection at Ferrymead Railway in Christchurch, or that 13 km of track on the Weka Pass Railway 60 km to the north at Waipara – it remains a fact that rail heritage societies are limited in their abilities and compete for resources and talent with many other voluntary associations in the community – and that rail heritage, rightly or wrongly, is very much seen as a niche interest with relatively little application into wider society, its membership considered to be insular and inward-looking. One part of the problem that rail heritage societies in general face is that there is quite a strong association in society between neurodiversity and rail enthusiasts’ communities, and these associations filter down into rail heritage itself, so that notwithstanding wider support from a more diverse group of industry professionals and the general public, rail heritage often struggles to find a wider relevance in society as a whole. But for the most part, the voluntary and part-time nature of rail heritage as a hobby adjunct to most of its members’ lives dooms it implictly to a very minor part of the wider rail community in New Zealand, and with that, the ability of rail heritage groups to be a major force in railways in New Zealand or to operate very long lengths of trackage like Dunedin Railways does, is severely constrained. This is a key component in deciding the merit or viability of OETT’s current proposal to take over the running of the Taieri Gorge Railway.

The insularity, parochialism and inward-looking natures of rail heritage, moreover, often conspire against the greater good of rail heritage as a whole in New Zealand. Whilst the prospect of the Taieri Gorge line being torn up to extend the Otago Central Rail Trail has resulted in strong antipathy from across the rail heritage to any track being removed, in the reverse type of scenario the position of rail heritage is much more confused and fragmented. Many rail heritage groups across NZ have faced antagonism from their close counterparts in the same city and geographical region as a result of competition for resources. In the Wellington region, this came to a head in 2011 when a new rail heritage group, the Rimutaka Incline Railway Heritage Trust, applied for resource consent to convert an existing cycle trail over the Remutaka Range – which had been a historical railway line in New Zealand until 1955 – into a steam passenger railway. The RIRHT proposal was, and still is, quite well researched and resourced, and pulled in resources from all across the Wellington region and further afield, drawing some appropriate comparisons with similar railways that have been re-established after lengthy absence worldwide; and yet almost universally, every existing rail heritage organisation in or near the Wellington region rose up in opposition to it. The full trackage needed by the RIRHT proposal as presented a decade ago would be in the vicinity of 20 km, so not insurmountable in comparison with other rail heritage organisations in NZ that operate on their own trackage, although definitely in second place only to the Taieri Gorge Railway. But the public antagonism to the RIRHT proposal from other groups in the rail heritage community, particularly in Wellington, did immense damage to the greater cause of rail heritage across New Zealand, and none more-so than the example of a prominent rail society member who donned a second hat as a member of a cyclists’ advocacy group to campaign against the RIRHT. And so we must arrive at the conclusion that the OETT proposal to convert the Taieri Gorge Railway to a heritage operation and keep it operating will implicitly create contention and disquiet in rail heritage circles. OETT would succeed mainly because it became the largest such group in the Otago region over a period of time, with the historical excursion train operations becoming quite major and consuming significant resources since they were inaugurated in the late 1970s. OETT grew out of Dunedin’s only other major rail heritage group, the long-established Ocean Beach Railway at St Kilda, and has become dominant at the expense of the latter. The diminished stature of OETT in recent years has been more of a case of a decline in community adherence and support of rail heritage across New Zealand since the late 1980s, and a revised role for OETT in operating the Taieri Gorge line, particularly in partnership with an Auckland based group such as Glenbrook Vintage Railway, will inevitably come at a cost to the other groups which operate around Dunedin, few as they are. Most of the publicly stated support for the revitalisation of OETT to date appears to be coming from outside Otago notwithstanding that they have some very loyal members and onlookers campaigning in Dunedin as evidenced by recent letters written to the Otago Daily Times and submissions made in support of the TGR retention proposals to Dunedin City Council. It is not clear how much support OETT has within Dunedin itself across the board from the rail heritage community there however.

If OETT were to regain control of the Taieri Gorge Railway it would be like turning back the clock to TGRL’s founding. The establishment of the Taieri Gorge Limited train back in 1987 was a notable undertaking, although it has to be seen in a different context more applicable to that time than today. The TGL train was able to go into operation with the indirect support of the national railway network in a period in which large-scale implicit subsidisation of heritage activities was possible because of the long-established nature of the national network at the time, notwithstanding that a major restructuring process ultimately culminating in privatisation was close to reaching its zenith. In the late 1980s, the stature of the national railway system as a state service operated primarily for the public good rather than as a profit source was still a recent enough situation that a group like OETT faced relatively limited, although still substantial, barriers in setting up its new operation, which although it was able to readily obtain timetable slots on the Otago Central Branch between the handful of trains that still ran regularly at that time, also needed to run on the main line between Dunedin and Wingatui, where traffic levels were much higher. This also demanded that the rolling stock, which was all owned by OETT met mainline operating standards – although these were still then much lighter than they are today. Of note, at that time the use of the wooden heritage carriages that made up the bulk of the OETT fleet was still accepted without question or much reference to safety concern despite their well-known limitations – as were those owned by the other two heritage-owned mainline-certified excursion carriage fleets operating in NZ at that time. OETT did construct three new carriages of its own from steel framing in order to help launch the TGL service and these are still part of the fleet to the present day. It was after the Otago Central Branch was closed down and NZR was privatised, in the mid 1990s, that the challenges that OETT had taken on at that time really began to be sheeted home – and it was not possible to get the TGRL operation to its present state without substantial capitalisation from Dunedin City Council ratepayers, which leads to the situation that OETT and the Taieri Gorge Railway are now in. The former TGRL/DRL CEO Murray Bond, who was appointed in 1993 and retired in 2017, reflected on this situation in an article about his impending departure in the Otago Daily Times.

OETT’s main contribution to the establishment of TGRL was in the form of the rolling stock that it provided, and it leased the track and locomotives off Dunedin City Council which had purchased the North Taieri to Middlemarch section off NZR before the remainder was lifted for conversion into the Rail Trail. At that point, even with the large fundraising effort that OETT had concluded two years earlier to help purchase the major assets, the Council had still contributed over a million dollars on its own account to that part of the operation. To get the company to where it is now meant that the present Dunedin Railways structure of a council-owned company was required with almost three quarters of the share issue held by the local government body. It is surmised that DHCL’s share of the company apart from the existing assets was likely made up of additional capital that was need to create the required operational structure, whilst OETT at that time mainly financed its own proportion by the sale of all of its rolling stock assets to the new company. This probably explains the low percentage shareholding that OETT was able to achieve at the time Dunedin Railways (DRL/TGRL) was formed, as OETT would have needed another major fundraising effort to be conducted were it to achieve a greater percentage share, and no such activity appears to have been carried out then or since. As of the date of the 2018 Dunedin Railways annual report, the financial equity of the company was listed as a total of $1.9 million made up of about $1.4 million from DHCL and $0.5 million from OETT. The operational loss incurred by DRL in the wake of the Taieri Plains floods had diminished the total value of this equity from $2.2 million the previous year as each shareholder’s proportion of this capital had to be reduced by applying its proportion of the total accounting losses experienced that year. Dunedin Railways at the time that the 2018 report was produced had total liabilities of $2.4 million, the major proportion of which was made up of a $1 million loan from Dunedin City Treasury and OETT’s shareholder advance of $0.33 million at that time, along with the more usual trade payables and other operational expenses carried over from the current operations as at balance date. The amount borrowed from DHCL was significantly increased from the previous year’s annual report which recorded term borrowings at balance date as $0.33 million (about at parity with OETT’s advance). This clearly implies that DHCL provided most of the additional funding needed to cover the flood repair bills by way of extra loans to the company in the 2017-2018 financial year. As funding of this magnitude would have required ratepayer input, it can be seen that DHCL would have wanted to limit the prospect of further financial exposure to future substantial costs of this type from DRL even though DRL was paying interest on the Dunedin City Treasury loans. 2018 was also a year in which OETT arrived at the conclusion that they wanted to sell down their shareholding and receive the repayment of the advance from DRL. This took place because DCHL wanted to become a 100% shareholder in DRL as a result of a business case being advanced to operate a third train on the busiest days. Just exactly why it was necessary for DCHL to hold 100% of the shareholding to achieve this has not been explained in any public statement that could be located for the period concerned. A possibility is that expansion of the company’s operations would have required significant share capital investment that could not be readily achieved by OETT resulting in its holding percentage being majorly diluted, to the point where it would have made more sense for OETT to sell out altogether. Given its previously expressed angst from being only a 28% shareholder to that point, further reduction in shareholding would have created additional dissatisfaction for OETT were it put in a such a position. However, no publicly released information about this business case proposal has been produced by DRL or DHCL that could be located at the time of writing this article so the above information is at best speculative. The selldown of OETT’s financial investments in DRL did not actually go ahead for unclear reasons, but probably it was because by the time that negotiations had been completed, the flooding scenario had trumped earlier expectations and the cost of repairs then took priority. The later post-2020 decision to sell down is a completely different set of circumstances that resulted in a book loss of over $800,000 to OETT. This was done when it was clear the company was closing down operations, but subsequently OETT experienced seller’s remorse, claiming in a business case for the future of the line it submitted to DCC late 2021 that trustees were “cornered and pressured” into making the decision to disburse. However, the decision to sell out the OETT shareholding was taken to a special members’ meeting, so it was not a spur of the moment situation. Regardless, OETT, has clearly sought to place a considerable distance between itself and the decision, referred to in Part 1 as a strategic mistake – but perhaps not if OETT would have been exposed to any sort of financial liability that it could not meet in the case of operational losses at DRL resulting from its shutdown. What is notable in this regard is that since gaining 100% control over DRL, DCHL has massively increased the total number of shares issued in DRL. At the time of the 2023 annual report into the company being released, the total share issues had increased from 1.5 million, which it was essentially fixed at since the year 2000 and possibly earlier (records from any period from any period before 2000 are not held in the publicly available Companies Register documents), to 9.75 million as of the end of the 2022/2023 financial year. This appears to be reflected in the financial statements in an assessment that the share capital held in DRL has been substantially increased assuming the value of each share is about $1 – just as it was in the days of shared ownership. DHCL has used the mechanism of share issuance to achieve the ongoing subsidisation of DRL at a time when the company has operated at substantial losses over several years. There are, however, some curious features of this report, namely that relatively few assets now appear to be held in the company, or ones that have any book value. Notably, track and buildings are recorded as having no book value in the schedule of property, plant and equipment, and the main contribution to this area comes from rolling stock and plant/equipment. In total, PPE is valued at only $266,000 in the statement. The non appearance of any value for track and the major structures of bridges and tunnels suggest they are considered to be a major liability as far as the Railway is concerned, as significant expenditure in them is forecast for the future of the railway. However, anyway it can be looked at, this situation shows a major deterioration in the condition or value of the railway’s significant operational assets. The PPE category of assets was recorded as having a net book value of $3.9 million in 2018, the last full year of normal railway operations, vs a gross book value of $6.9 million. The valuations recorded at that time included $4.3 million for rolling stock and $0.5 million for track. Therefore a very important question which remains to be answered is the writedown in net value of the railways’s rolling stock by more than ten times over the last five years. One reason is that accumulated depreciation in the rolling stock asset amounted to $2.2 million dollars by 2018 – and without reading all of the statements since that time it must be assumed that further writedowns have occurred in succeeding years.

In 2021, Dunedin Railways was able to resume operations on the TGR railway line, but only as far as Hindon. It was noted in an article published in the Otago Daily Times in that period that substantial investment was needed in the railway tracks in the longer term to keep up the operation of the Taieri Gorge line. Costs for doing this were estimated to be $6.5 million to Hindon, $11.8 million to Pukerangi and $14.8 million to Middlemarch. To some extent the basis of these costings can be implied in the nature of the track assets throughout the various sections. The track from Wingatui to Hindon is 23 km from North Taieri and incorporates six tunnels and five major bridges, among them the Wingatui Viaduct, which is the longest bridge at 197 metres, whilst the longest tunnel is No.2 at Salisbury, length 437 metres. From Hindon to Pukerangi there are another four tunnels, and most of the major bridges on the line are in this section, which adds another 19 km of corridor length. From Pukerangi to Middlemarch, the line has exited the Taieri Gorge outright (the exit itself being achieved just before arriving at Pukerangi) and another 19 km of track distance is covered. There is only one major bridge and no tunnels in this section which is all within the Strath Taieri plains, remaining close to the Taieri River in a more open section of the waterway. The cost per kilometre of the Middlemarch section is considerably lower than those sections which are within the Taieri Gorge or leading up to it (the Taieri Gorge proper is entered just beyond Taimoa, being achieved by way of the Wingatui Viaduct). But as the Taieri Gorge sections are made up of a combination of possible expenses both from track structures and the nature of the earthworks needed by way of embankments and cuttings, it is difficult to form a conclusive view about which of these different items the costs could be responsible for, especially since little if any detail has been published to date. Likewise it is unclear at the present time what the costs would add up to for the line from Pukerangi to Middlemarch. Normally, TSBNZ would seek to obtain recent aerial photography of a route to attempt to discern what is happening there to some extent. That which is available for the main line corridor of the Taieri Gorge Railway dates from 2017-2019 and yields few clues – far less than post-Gabrielle coverage of the East Coast of the North Island, for example, possibly because much of the Taieri Gorge section in particular was shot before the flooding took place, although some sections closer to Dunedin do show evidence of significant earth movement (slips or washouts). Most of the expenditure is also expected to be able to be spread over a 10 year period, implying it is made up of many small jobs rather than a few big ones, or else that the major ones can themselves be spread out over time. In the absence of corroboratory information, it must therefore be noted that there is very little clear information about the nature of the required works – the most recent information about the condition of the Railway is said to be contained in an expert engineering report commissioned by DCC provided to Councillors which was “heavily redacted” for “commercial reasons”. It was known in 2018 that a refurbishment programme involving “Bridge Five” – presumably the Wingatui Viaduct – was being carried out at that time. This is probably ongoing but whether it features significantly in future railway costs is unknown. Elected representatives have called for the report to be released in order that all stakeholders can have an informed debate about the Railway’s future. It is highly contentious as to whether the commercial interest which DCHL feels must be protected is the threat of OETT regaining control of the railway operation from DRL. There has hardly been anything less than full blown angst expressed by OETT at times over the lack of control it is has been able to bring to bear over DRL operations in the last decade or more, and this has certainly multiplied in the past three years. On the other hand, OETT is not seeking to take over the maintenance of the tracks rather it is campaigning to operate railway services. But given that detailed assessments into a similar Kiwirail situation in 2012 on the Napier Gisborne Line have been readily available for a decade, and have been further scrutinised extensively in a series of reports advocating reopening of the line produced by BERL, it is really hard to see why DCHL is withholding the detailed engineering assessment of the Taieri Gorge Railway. The best that can be read into the current condition of the railway is an utterance in DRL’s Statement of Intent for 2023/2024 is a proposal that investment will be made into the line between Hindon and Pukerangi so as to enable passenger services to the latter location to be resumed; and that DCC will be willing to provide funding to enable this to take place.

Well that is the end of this Part [2] article about the present TGR-OCRT saga. Part [3], which should probably be expected to appear within the next week, will look mainly into the future of the Taieri Gorge Railway – particularly in light of the suggestions it should either operate with alternative motive power and rolling stock, or be converted in part or whole into a full cycle trail.