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The President of the Inter-State Commission outlines the costs and advantages of the proposed national freight system; privatisation of the airlines raises questions about the use of the resulting revenue

PRU GOWARD: While everyone's been worried about Telecom, the indefatigable Minister for Transport and Communications, Kim Beazley, has been busily working behind the scenes to convince the ALP that, yes, it would be a very good thing, indeed, to privatise Qantas, Australian Airlines and Aussat. The carrot he's holding out to the left, in particular, is rail reform, specifically, a national rail freight system. If it worked, wouldn't it be wonderful, after all those years when rail transport has been a major problem for our country - some light at the end of the tunnel, at the end of the track, perhaps.

The proposal for a national freight system is one which has been of great interest to the Inter-State Commission, and I'm joined now by its President, Ted Butcher. Thanks very much for being here. Mr Butcher, it sounds good - this is if reports are correct, but there have been a number of stories - it sounds good, but what is it? I mean, how much money does rail freight need to get back on the track?

TED BUTCHER: Well, I think that was the pleasant surprise that everyone found when we looked at this matter again. These days, of course, everybody talks in billions, but when we did the study, we had Booz Allen and Travers Morgan do the study for us, and then we had a task force went into the numbers. We found that the interstate rail freight organisation could be set up for approximately $200 million.

PRU GOWARD: And how would it work?

TED BUTCHER: Well, of course, at the moment, the problem with our rail freight system is that the various parts of it are run by the different rail organisations. Under the proposal, we would have a national rail freight corporation. Its shareholders would be the existing railways but, of course, one would be able to sell a service Australia wide. There would be one management team and, of course, we would be able to have much greater reliability than at present.

PRU GOWARD: The sort of reform, then, you're talking about isn't so much in the hardware but in the organisation of freight.

TED BUTCHER: When we looked at it, many of the things that need to be done are fairly straightforward. There is, of course, a need for improvements in the hardware, notably the terminals, for example. One needs to get the freight on and off rail much more efficiently, and approximately $50 million would be required for that task. It is also necessary to run longer trains so that one needs longer passing loops, and the Victorian end of the Sydney-Melbourne line certainly needs some money spending on it, and that's about another $50 million.

PRU GOWARD: But how much upgrading of the track is really necessary over Australia?

TED BUTCHER: Well, quite a lot has been done, of course. Australian National is responsible for the central part of this network, and Westrail - who are responsible for the Western Australian end - they have spent quite a lot of time and money on upgrading the track, and the Americans who came over to look at it were agreeably surprised, I think, at the standard of the track, generally. But the Sydney-Melbourne track does need money spending on it.

PRU GOWARD: And if you spent $200 million on it, what would the benefits to Australia be calculated at?

TED BUTCHER: Well, the figures we've got show that, at the present time, that part of our rail network is losing approximately $300 million a year, and we are confident that we can turn that into a small profit in five years if we spend this sort of money.

In addition, of course, there are other flow-on effects. It's been estimated that the improvement, as far as the gross domestic product is concerned, would be approximately a billion dollars a year.

PRU GOWARD: Overall? A billion dollars.

TED BUTCHER: A billion dollars.

PRU GOWARD: That's not a bad return, 5 : 1, is it?

TED BUTCHER: No. I wouldn't imagine the Government's got many more attractive projects than this one, at the present time.

PRU GOWARD: It does require the co-operation of the State Governments, though?

TED BUTCHER: Yes, it does, but of course, the task force - which I've been chairing - does have representatives of each of the State authorities and, at this point in time, they are in favour, in principle, of going ahead with this proposal.

PRU GOWARD: Now, I appreciate that politics isn't your job, but if this turned out to be a proposal that required a fair amount of private commitment, for example, as you know there's one proposal that the depots be run by private companies. How much of it, then, would be a private concern if you allowed those depots to go private?

TED BUTCHER: Well, at the moment, the proposal is that certainly the permanent way would be owned by the corporation, and the corporation would also own the major terminal in each of the capital cities.

PRU GOWARD: By corporation, you mean government-owned corporation - right?

TED BUTCHER: Yes. Certainly, it would be necessary for the private sector to be involved with their own terminals alongside the main corporation terminals, but we're most anxious that we shouldn't sort of create a two or three freight forwarder rail network. What we want is to enable anyone who wishes to use rail to be able to get on to it, and so initially, anyway, the corporation would own the vast majority of the infrastructure and the rolling stock.

PRU GOWARD: So the $200 million that you're talking about being needed, would any of that go to these private parties who would be setting up the freight ....

TED BUTCHER: None at all, none at all. What's happening is that if this initiative goes ahead, there've been clear indications that the private sector would also go ahead and spend money on their own terminals, so that there would be an additional investment - as far as we can gather - that could be in the order of $50 million from the private sector, into quite separate, additional terminals which would feed into this system.

PRU GOWARD: So although the Government owns it, they're basically spending $200 million to improve a service that would be used, then, entirely by private freight forwarders and for their profit?

TED BUTCHER: No. I think it would be wrong to assume that the improvement would go solely to the private freight forwarders. There are a lot of people out there, I think, who would like to use rail, and they could do so without going through freight forwarders.

PRU GOWARD: Oh, really. They could go directly through the corporation.

TED BUTCHER: That's right. That's right. The other involvement of the private sector, of course, would perhaps be in the leasing arrangements. I can well imagine the corporation may wish to lease its locomotives and rolling stock, so that would be one way the private sector could be involved. There's also the possibility, of course, that much of the work which is done in-house at the moment could also be contracted out, not only to the private sector. I'd like to stress that that work could, in many cases, be contracted out to the existing railway workshops and so on.

PRU GOWARD: Does the Inter-State Commission entertain the view, at all, that the rail, the hardware, could possibly be sold, privatised?

TED BUTCHER: Well, I think the expertise that's needed to run a railway and because of the complications of running, the national freight corporation is going to have run over track which also carries large volumes of passenger services and so on, and the advice that we got from the consultants - the American consultants and Travers Morgan - was that at this point in time, it would need to be a public corporation.

PRU GOWARD: And remain so.

TED BUTCHER: Well, in the future, of course, once the shareholding has been worked out, it could be that part of the shareholding might be private, but that's, I think, a fair way down the track.

PRU GOWARD: As it were. Ted Butcher, thank you for your time this morning. Ted Butcher from the Inter-State Commission.

And I'm being joined, now, by Milton Cockburn from the Sydney Morning Herald. Good morning, Milton.

MILTON COCKBURN: Good morning, Pru.

PRU GOWARD: Milton Cockburn, your reading of this story - has it got legs?

MILTON COCKBURN: Well, it's a very difficult thing, Pru. As you described it in your introduction, it's holding out a carrot to some of those factions who have been strongly opposed to selling off any parts of Australian Airlines and Qantas and Aussat - well, not so much Aussat, actually, but certainly the airlines. The problem there is it assumes very much that the left - or the hard left, anyway, those who are bitterly opposed to any sale - you know, are acting from fairly venal reasons rather than from strongly ideological commitment to the retention of the these bodies in government ownership, and I don't really think that's the case. I think that's where any sort of carrot in the form of being suggested - if it's being suggested by Mr Beazley - would fall down.

PRU GOWARD: Because no carrot is going to get over the ideological commitment the left has to public ownership.

MILTON COCKBURN: That's right. There's another major problem with this, of course, which is not clear. I doubt very much whether any detailed consideration has been given to the Government as to precisely how you would spend any money that would be gathered from privatisation. Now, if the money, of course, is being spent on projects that would normally be funded from the Budget, then that really comes under the classic definition of privatisation being selling off the family jewels in order to buy the groceries. Most people would believe that if you are going to privatise government-owned corporations, then the money that you receive from the sale should be used to pay off government debt. Now, it would only be if the sorts of projects Mr Beazley had in mind would be projects that would normally be funded by new borrowings would you be able to get around that objection. If they, in fact are, you know, things that would be funded out of the Budget normally, then obviously there'd be objections from a whole lot of people, not just from the left.

PRU GOWARD: So in other words, even though it's for health services and we need a few hospitals - although I take it that we're oversupplied at the moment but down the track we do - and certainly we need an improved rail freight service. They wouldn't see those as socially acceptable exchanges?

MILTON COCKBURN: Well, they see them as socially acceptable, but they see them as things that would normally be funded largely from the Budget. Some of them, of course, some of the ones you've nominated, would be ones that would be funded from borrowings, but they would see things that would normally largely be funded from the borrowings, so they would really feel that they've been a bit short-changed on the deal. But as I said, the other problem about, well, not so much a problem, but the other thing about the objections coming from the left - and when I say the left here, you've got to make a distinction, of course, between - there are many members on the left who do recognise the inevitability of privatising Qantas and Australian Airlines ....

PRU GOWARD: The George Campbells of the world.

MILTON COCKBURN: Sure. Although even George Campbell, himself, in recent times, has indicated he is much more flexible. But I suppose I'm thinking of people like Peter Duncan and others who seemed to provide the major opposition at the meeting last Sunday. And that is that they object very strongly to the focus on the public sector borrowing requirement which, in many ways, is what is driving this whole argument. They believe it is a wrong focus and if you've got people who have such a fundamental disagreement ....

PRU GOWARD: Just explain that, Milton, before I let you go. Why do they feel that it is wrong to focus on the public sector borrowing requirement? Isn't that basically Australia's problem?

MILTON COCKBURN: Well, many of us think that's basically Australia's problem and they argue strongly that one of the reasons why the Government's got to do these things, of course, is to bring down the level of borrowing by governments so that you're, in effect, boosting the level of savings throughout the community. Now, if they have a fundamental opposition to that approach, mainly because they just don't agree with it, they argue that that's a wrong approach to the economy, then it's very hard to convince them that this is the way to go.

PRU GOWARD: Milton Cockburn, thanks very much for your time this morning. Milton Cockburn from the Sydney Morning Herald.