Dunedin City Council Votes To Mothball Dunedin Railways As Complete Close Down of Business

We have already blogged twice recently about the direction Dunedin City Council is taking with Dunedin Railways, which has suggested the closure of Dunedin Railways in its current form. This week we obtained the minutes of the DCC meeting a month ago where they discussed the options for Dunedin Railways and made the decisions.

Dunedin City Holdings Ltd (DCHL) prepared a special report for this meeting and presented it to the full Council. The meeting was conducted via audio visual link due to Covid-19 restrictions.

The report has stated that DRL’s revised financial forecasts for the year ending 2020 show a net loss of $1,332,862, compared with a pre-Covid forecast loss of $578,579. DCHL had investigated future business prospects with the view that the impacts of both international and domestic tourism market collapse would be substantial. It determined that the Council should consider 3 options as follows:

  1.     Close the business (DCHL Recommendation)
  2.     Mothball for around 18 months with a view to re-opening train services on the Taieri Gorge line.
  3.     Mothball with  view to exploring alternative options for company assets.

Option 2 would entail retaining only 7 staff, to maintain track and rolling stock assets and perform administrative functions, at estimated cost of $900,000 per year, which shareholders would have to fund

DCHL expressed its concern that Option 2 did not address the significant deferred maintenance bill on the Taieri Gorge line, estimated at $1 million per year for all of the next 10 years (total $10 million). This would also have to be funded by shareholders.

Option 3 would see the Taieri Gorge line closed permanently to heavy rail trains. This removes the need to fund the $10 million maintenance bill. Five staff would be retained in the short to medium term for asset maintenance.

The report clearly states with Option 3 that “A key component of this option is to discontinue rail activity on the Taieri Gorge line in view of the cost of deferred maintenance”.

The Council voted for option 3 on a 14-1 division, committing to provide the ongoing funding for the next 18 months to support the close down of the company. DCHL indicated that their next steps included engaging with OETT. Following that conversation, OETT chose to sell their shareholding of the company to DCC. We do not know anything at this time as to the significance of the OETT decision but it would appear likely they wished to recover some of their investment in DRL and exit their involvement in the business. It is not clear whether they recovered their full equity or capital from the sale or took a loss.

The question now is as to the future of the operation. We expect that DCHL will look to dispose of most of its existing rolling stock on the open market, or as scrap. There is likely to be little interest in Dunedin in any other organisation acquiring this rolling stock, given the small rail heritage community there.

The bigger questions relate to the in ground assets – the Taieri Gorge track and structures, the stations at Pukerangi and Sutton, and the railway precinct at Middlemarch. We are of the view that there is a future possibility for an alternative ultralight rail tourist operation over the Taieri Gorge line, similar to Forgotten World Adventures’ business on the former SOL. Since sections of the DCHL report that was released have been redacted, we do not know if this has been one of the alternative options DCHL is exploring. And since OETT has sold their shareholding in the company, we do not know if they have an interest in any alternative uses of the Taieri Gorge line. If an ultralight rail operation is not possible, then converting the corridor to an extension of the existing Rail Trail is a possibility that will keep it accessible to the public forever. The railway precinct at Middlemarch is well developed and it should be possible to retain it as part of Middlemarch as a whole. Our impression is that DCHL are focused on future options for Dunedin Railways whilst at the same time closing down Taieri Gorge, so we do not think they are looking at any particular option for the TGR.

Currently DCHL / DRL are still going through a staff consultation process and discussing possible options for the future of the line and it is difficult to know if any of the alternatives that are being considered will become viable. We are not commenting on these for now.