Meeting of the Corporate and Strategic Committee



Date:                 Wednesday 18 February 2015

Time:                9.00 am


Council Chamber

Hawke's Bay Regional Council

159 Dalton Street





Item       Subject                                                                                                                  Page


1.         Welcome/Notices/Apologies 

2.         Conflict of Interest Declarations  

3.         Confirmation of Minutes of the Corporate and Strategic Committee held on 11 February 2015

4.         Matters Arising from Minutes of the Corporate and Strategic Committee held on 11 February 2015

5.         Call for any Minor Items not on the Agenda                                                                 3

Decision Items

6.         Business Case - Napier-Gisborne Rail                                                                          5

Information or Performance Monitoring

7.         Minor Items not on the Agenda                                                                                     9  




Corporate and Strategic Committee  

Wednesday 18 February 2015

Subject: Call for any Minor Items not on the Agenda        


Reason for Report

1.      Under standing orders, SO 3.7.6:

“Where an item is not on the agenda for a meeting,

(a)   That item may be discussed at that meeting if:

(i)    that item is a minor matter relating to the general business of the local authority; and

(ii)   the presiding member explains at the beginning of the meeting, at a time when it is open to the public, that the item will be discussed at the meeting; but

(b)   No resolution, decision, or recommendation may be made in respect of that item except to refer that item to a subsequent meeting of the local authority for further discussion.”

2.      The Chairman will request any items Councillors wish to be added for discussion at today’s meeting and these will be duly noted, if accepted by the Chairman, for discussion as Agenda Item 7.



That the Corporate and Strategic Committee accepts the following minor items not on the agenda, for discussion as Item 7



Leeanne Hooper


Liz Lambert






Corporate and Strategic Committee  

Wednesday 18 February 2015

Subject: Business Case - Napier-Gisborne Rail        


Reason for Report

1.      The purpose of this report is to receive and consider the business case from the Napier-Gisborne Rail Establishment Group Council to support a potential decision by HBRC to lease the Napier-Gisborne section of the Palmerston North - Gisborne Rail corridor from KiwiRail, and to update Council on the development of a business case for Council consideration.


2.      In its 2014-15 Draft Annual Plan Council consulted upon a proposal initiated by the NGR Shortline Rail Group (NGR) to become a shareholder in an operating company to re-establish the Napier-Gisborne rail line for rail freight, following the mothballing of the line by KiwiRail in 2012.  Council’s support is based upon its recognition of the need for alternative transport routes to the northern parts of the region for the transport of freight.

3.      During the Draft Annual Plan consultation period it became apparent that the Government had decided not to fund the repair of the line to a ‘fit for purpose’ operating condition.

4.      Following the hearing of submissions Council resolved to retain in principle provision to invest in the proposal and indicated it would consider a revised proposal and business case from the NGR establishment group.

5.      In July 2014 HBRC wrote to KiwiRail seeking a response on its proposal to consider leasing the rail corridor. A reply was received from KiwiRail on 17 November 2014 offering to HBRC the option of leasing the Napier-Gisborne rail corridor in its entirety. The offer to HBRC is made on the following conditions:

5.1.   KiwiRail will not commit any funding to support the completion of this proposal, or the reopening, operation and/or maintenance of the Rail line;’ and

5.2.   The business case must allow for the HBRC assuming full responsibility for the safety obligations and maintenance of the Rail Line. HBRC and/or the proposed operator must also assume full responsibility for the acquisition and maintenance of any rolling stock required.

6.      HBRC has until 1 March 2015 to advise KiwiRail of its decision whether or not to take up the lease. HBRC resolved at its November Council meeting to fund the preparation of a business case on an investment in the lease of the Napier-Gisborne rail corridor to be considered by Council prior to 1 March 2015.

7.      In order to be in a position to response to KiwiRail HBRC needs to assess the proposal from NGR case.

Revised business proposal

8.      The NGR business proposal will be circulated under separate cover.

9.      The business proposal concludes:

9.1.      That the reopening of the line between Napier and Wairoa is feasible

9.2.      That the tracks and bridges are in reasonable to good condition

9.3.         That any rail service on the line should be concentrated on the movement of logs to Napier Port

9.4.         There is sufficiently large resource of logs to sustain (subject to continuation of comparative cost advantages of rail over road) the operation of a sustainable log based rail service for at least thirty years.

9.5.         That the development of a log hub (a type of inland port for logs) at Wairoa, in conjunction with Napier Port, will produce benefits and costs savings for both the forestry sector and Napier Port

9.6.         A key factor in the financial viability of a line, where HBRC is leasing the line, is negotiating appropriate and sustainable arrangements with KiwiRail in relation to all matters where any proposed Napier Wairoa rail operation will involve an interaction with KiwiRail (including initial purchase of surplus KiwiRail locomotives and wagons).


Financial Implications

10.    While the 2014/15 Annual Plan consultation sought public input on HBRC becoming a shareholder in an operating company, Council’s final decision was based on a revised proposal from NGR which sought the following:

10.1.       That regional interests without central government funding will fund the full cost of the “fit for purpose” repair of the line and establishment of the Napier-Gisborne Railway operating company including provision of a $3m Disaster Contingency Reserve funding facility.

10.2.       The total establishment costs are $ 15m to $ 17m, including “fit for purpose” repair of the Wairoa to Gisborne section of the line washouts estimated at $ 3.5m to $ 5m, a $ 3m Disaster Contingency Reserve, purchase of locomotives and rolling stock, and working capital.

10.3.       Private sector investment of $ 10m to $ 12m will complement the HBRC’s Annual Plan provision of $ 5.5m to provide the total capital required. The HBRC investment will focus on infrastructure and the private sector on the operating company.

11.    The NGR business proposal does not incorporate any non-Council funding. NGR have advised that their discussions with potential private sector investors have been frustrated by the lack of certainty in relation to the KiwiRail related costs.  Unless these issues can be finalised at commercially sustainable levels then securing private investors will remain difficult and any interest in providing investment is likely to be conditional upon satisfactory resolution of these matters.

12.    The NGR business proposal recommends that HBRC takes the lead in matters relating to KiwiRail costs. If the Council cannot finalise an acceptable lease agreement that enables an operator to be viable financially and operationally, then the matter must be abandoned.

13.    At the time of writing this agenda paper the amount of money sought from HBRC by the NGR business proposal and the purpose for that funding is unknown. As a requirement of any investment in the rail line HBRC requires a return of 6% per annum. It is unclear whether returns to HBRC have been incorporated in to the operating accounts.

Council Role

14.    The business model that is expected to be included in the business proposal from NGR raises a fundamental question for Council. HBRC could be asked through the NGR proposal to take the fund the acquisition of equipment and rolling stock in addition to the leasing of the corridor.

15.    Does Council envisage that any investment in the Napier-Gisborne rail corridor would be for the provision of infrastructure only or would it extend to investing in the operating capability?

16.    The answer to that question will essentially determine HBRC’s response to the NGR business proposal. In the event that NGR are not able to be a stand-alone operating company HBRC may need to explore other possibilities if it wishes to retain its objective of preserving an alternative freight transport route between Napier and northern Hawke’s Bay.


17.    The NGR business proposal is not a final business case upon which HBRC can base a decision on leasing the line. If HBRC wishes to allow time for further refinement in to a business case it has the option of providing a provisional response to KiwiRail that in principle HBRC agrees to a lease of the line subject to the terms of the lease and a number of operational matters involving KiwiRail being resolved to the satisfaction of HBRC.


18.    It is important to acknowledge that any decision made on the NGR proposal is made because it makes sense as an investment. The importance of the line as an alternative method of freight transport and the non-rail benefits  of the line  (such as improved road safety and lower road maintenance costs) are acknowledged by Council, irrespective of whether or not HBRC chooses to take up the KiwiRail offer to lease the line.

19.    The final business proposal has not yet been received, but will be available after the agenda has been published. Under these circumstances I am unable to make any recommendations for inclusion with this paper. I will however circulate recommendations prior to the meeting next Wednesday.

Decision Making Process

20.    Council is required to make a decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements contained in Part 6 Sub Part 1 of the Act in relation to this item and have concluded the following:

20.1.       The decision does not significantly alter the service provision or affect a strategic asset.

20.2.       The use of the special consultative procedure is not prescribed by legislation.

20.3.       The decision does not fall within the definition of Council’s policy on significance.

20.4.       The persons affected by this decision are ratepayer of the Hawke’s Bay region and potentially residents of Gisborne district. 

20.5.       Council has previously consulted upon its proposal to invest in the Napier –Gisborne line in its 2014-15 Annual Plan. This work will assist Council to make a final decision on whether or not to proceed with the investment.

20.6.       The decision is not inconsistent with an existing policy or plan.

20.7.       Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.



1.      That the Corporate and Strategic Committee receives the “Business Case – Napier-Gisborne Rail Corridor” staff report.

The Corporate and Strategic Committee recommends that Council:

2.      Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted policy on significance and that Council can exercise its discretion under Sections 79(1)(a) and 82(3) of the Local Government Act 2002 and make decisions on this issue without conferring directly with the community and persons likely to be affected by or to have an interest in the decision due to the nature and significance of the issue to be considered and decided.

3.      (to be circulated)



Liz Lambert

Chief Executive




NGR Business Case              Attached Under Separate Cover     


Corporate and Strategic Committee  

Wednesday 18 February 2015

Subject: Minor Items not on the Agenda        


Reason for Report

This document has been prepared to assist Councillors note the Minor Items Not on the Agenda to be discussed as determined earlier in Agenda Item 5.



Councillor / Staff