Summary (continued)
KiwiRail
On 27 June the Government announced that KiwiRail's balance sheet would be restructured.
There will be two main parts to the restructure:
- New Zealand Railways Corporation will continue to hold the 18,000 hectares of rail network land, from which no financial return would be expected.
- From 1 January 2013, KiwiRail's freight, passenger, infrastructure and ferry businesses, together with freight rolling stock, rail infrastructure and plant and equipment, would be transferred to a new State-owned enterprise.
As part of the restructure, the assets transferring to the new state-owned enterprise used to generate profits have now been valued on a commercial basis (representing the cash that can be recovered from the asset) rather than on a public benefit basis (representing the cost of replacing the asset, assuming the asset will be replaced). This strengthens the accountability regime as the state-owned enterprise's performance will be measured by changes in its commercial health.
In the Government's financial statements public benefit assets are those held for social or community use and are valued at Optimised Depreciated Replacement Cost[2] (ODRC). Commercial assets are measured at recoverable amount. The changes to the valuation methods are outlined in table 3.
| Year ending 30 June |
2011 Basis |
2011 Valuation method |
2012 Basis |
2012 Valuation method |
|---|---|---|---|---|
| Land | Public benefit | ODRC | Public benefit | ODRC |
| Rail Infrastructure | ||||
| Freight only | Public benefit | ODRC | Commercial | Recoverable amount |
| Dual use | Public benefit | ODRC | Commercial | Recoverable amount |
| Metro only | Public benefit | ODRC | Public benefit | ODRC |
The rail infrastructure assets being transferred to a new state-owned enterprise can be summarised into three asset categories: freight only assets, metro only assets, and dual use assets (which are used for both freight and metro services). From a whole-of-government perspective the metro only assets will continue to be valued using ODRC to reflect the public benefit aspects of those assets (eg, impact on travel times). The freight only and dual use assets will now be valued at recoverable amount reflecting the move to achieve a commercial return on those assets.
The valuation of the metro only assets at ODRC differs from KiwiRail's own valuation. In KiwiRail's financial statements all rail infrastructure (including metro assets) is valued at the recoverable amount, reflecting the Government's arrangement with it. It is only at a whole-of-government level that the public benefit perspective applies. As a result, the value of the rail infrastructure assets is $489 million higher in the financial statements of the Government than in KiwiRail's books (table 4).
| Year ending 30 June | KiwiRail $m |
Whole-of- Government $m |
|---|---|---|
| Rail infrastructure | ||
| Freight only | 144 | 144 |
| Dual use | 10 | 10 |
| Metro only | 10 | 499 |
| Total | 164 | 653 |
In addition to the change in valuation method from ODRC to the recoverable amount, there has been a reduction in rail-related assets caused mostly by a combination of methodology changes and market conditions. Overall, rail-related land and rail infrastructure has been revalued down by $8.6 billion this year. Of this revaluation, $7.2 billion was covered by revaluation reserves (a component of equity) while the remaining $1.4 billion was recognised as an impairment expense in the current year and charged to OBEGAL (table 5).
| Year ending 30 June |
2011 $m |
2012 $m |
Additions/ Disposals/ Depreciation $m |
Devaluation $m |
Reduction in revaluation reserves $m |
Charge to OBEGAL $m |
|---|---|---|---|---|---|---|
| Asset type | ||||||
| Land | 5,641 | 3,260 | (23) | (2,358) | (2,358) | - |
| Rail Infrastructure | 7,100 | 856 | 49 | (6,293) | (4,884) | (1,409) |
Further discussion on KiwiRail's rail infrastructure can be found in note 20 of the financial statements (page 86).
Notes
- [2]Optimised depreciated replacement cost represents the gross replacement cost of the asset, less allowances for physical deterioration (depreciated), and for obsolescence and relevant surplus capacity (optimised).
