Railway Profit Challenged

Press, Volume CVIII, Issue 31753, 9 August 1968, Page 20

Railway Profit Challenged

(New Zealand Press Association)

WELLINGTON, August 8.

Complaints by shipowners of unfair competitive practices by the Railways Department included the advantage the railways obtained through not being required to service the capital employed in its operations, the Shipowners’ Federation said today.

The federation challenged an announcement by the Minister of Railways (Mr Gordon) that the railways had made a profit of slm last year.

“According to our understanding of the position this sum is required to pay interest on money borrowed from the International Bank for Reconstruction and Development.

“It is a most unusual accounting procedure to arrive at a ‘profit’ before deducting interest charges. In any normal commercial undertaking these charges on borrowed funds are deducted before a draft can be arrived at.

“If any private-enterprise undertaking is to remain in business it must be in a position to pay interest on borrowed moneys and provide a dividend for shareholders after making provision for taxation liabilities.

“One of the competitive advantages accruing to the railways is that as a Government trading organisation it does not take these items into account in costing. “If the railways were required to adopt commercial practices and pay even a modest return on capital this amount, with taxation liability, would require an additional s2om per annum to be earned from its operations—in other words a revenue increase of about 23 per cent.” The shipowners said that this favoured situation gave the railways an unfair competitive advantage over pri-

vate enterprise transport operators, and that the Railways Department was manipulating freight rates to attract cargo from private competitors within limited areas where there were opposing services or where the cargoes were attractive. “This is the situation to which shipowners have been objecting for many years,” the statement said.