Part 1: Introduction

Maintaining and renewing the rail network.

This report is the result of our performance audit of Ontrack (officially, the New Zealand Railways Corporation), the State-owned enterprise that owns and manages the rail network.

In this Part, we describe:

Why we did our audit

We wanted to know whether Ontrack had effective systems for maintaining and renewing the rail network.

The rail network is a national infrastructure asset of significant value. In 2006, the rail network, along with associated land, buildings, and mechanical plant and equipment, was valued at $10.6 billion. In recent years, the Crown has committed more than $1 billion to upgrading parts of the rail network. The rail network is used to transport freight, provide urban passenger transport, and, to a lesser extent, provide longer-distance passenger journeys.

The management of major infrastructure assets is a core area of interest for our Office. This is the first of a series of performance audits we intend to carry out in this area.

About infrastructure assets

Infrastructure assets take a long time to establish. They often last a long time, so the way they are managed has long-term implications for their ability to sustain a particular level of service, and the cost of sustaining that level of service. This is the case for the rail network.

There are several aspects to physically managing infrastructure assets. These include:

  • maintenance – activities that keep an asset in good working order;
  • renewal – work that replaces an asset that has reached the end of its life with a modern equivalent asset;
  • upgrades – totally new assets, or replacing an asset with something better; and
  • disposal – decommissioning and removing assets.

Maintenance and renewal work are core "business as usual" activities for an infrastructure manager wishing to manage an asset so it remains capable of providing a consistent level of service over time.

For any infrastructure manager to have effective systems for maintaining and renewing assets, they need to:

  • have a long-term plan, to identify and prepare for work needed on the infrastructure asset over the long term;
  • manage day-to-day work, with systems, plans, policies, and procedures to put the long-term plan into action; and
  • carry out checks and evaluations to make sure that planned work has occurred in keeping with policies and procedures, and that it has the desired effect.

It is also important that there are clear links between these three areas. It needs to be clear how the infrastructure manager is implementing long-term planning. Checks need to be in place to make sure that long-term and day-to-day work is proceeding as planned. Feedback loops need to be built in so that the infrastructure manager can evaluate whether long-term planning and day-to-day management activities can be improved (see Figure 1).

Figure 1
Links between long-term planning, managing day-to-day work, and checks and evaluations

Figure 1: Links between long-term planning, managing day-to-day work, and checks and evaluations.

Our audit approach

We began our audit by forming expectations of the systems, plans, policies, and procedures that an established infrastructure manager should have for managing day to-day work, long-term planning, and checking progress with that work and against those plans.

In forming our expectations, we drew on:

  • guidance on best practice in infrastructure management;1
  • a report by the Victorian Auditor-General in Australia on maintaining rail assets;2 and
  • work the Commerce Commission did when reviewing asset management plan disclosure requirements for electricity lines companies.3

We used our expectations to review the completeness and effectiveness of the systems, plans, policies, and procedures Ontrack had in place for managing maintenance and renewal work. Appendices 1-3 set out our expectations.

In forming our views on Ontrack's performance, we were mindful that Ontrack is not an established infrastructure manager. When it took responsibility for the rail network in September 2004, it took on new responsibilities, and there were new commercial arrangements for managing the rail network. Ontrack has needed to increase staff numbers significantly, and adopted a new accounting treatment for fixed assets. None of these activities has been straightforward.

We anticipated that Ontrack's top priority in taking responsibility for owning and managing the rail network would have been to ensure that operational systems were in place for managing day-to-day work on the rail network. We set out our findings for this in Part 3. We expected that Ontrack could demonstrate that it was following its plans and procedures in managing the day-to-day work. We set out our findings for this in Part 4.

We expected Ontrack to have started preparing a long-term plan while it was establishing effective systems, plans, policies, and procedures for day-to-day work. Preparing a long-term plan is a significant task that draws on skills and information from throughout an organisation. We did not necessarily expect the plan to be complete. However, we did expect Ontrack to have identified the work it needed to do to prepare a long-term plan, and to have a clear and disciplined approach for doing so. We set out our findings for this in Part 5.

How we carried out our audit

We reviewed operational plans, policies, and process information for directing day-to-day work. We looked at analysis, reports, and information Ontrack had prepared to check that work was carried out in keeping with Ontrack's requirements. We reviewed the work Ontrack had done to prepare a long-term plan.

We interviewed staff from Ontrack's Head Office, Regional Offices, and the Hamilton East, Kaiwharawhara, and Greymouth Area Offices. We made several field visits to familiarise ourselves with various rail network assets, including one site visit where significant emergency works were under way.

We also met with representatives from Toll NZ Consolidated Limited (Toll NZ), which is a company providing freight and passenger services on the rail network, and staff from Land Transport New Zealand, the Ministry of Transport, and the Treasury.

We appointed an independent rail expert to review our work in planning, conducting, and reporting on the audit.

Outside the scope of our audit

The main focus of our audit was Ontrack's systems, plans, policies, and procedures for maintenance and renewal work on the rail network. We did not consider the specific commercial arrangements in place for the Auckland urban rail network. We did not review any of Ontrack's upgrade projects.

We provide information about commercial arrangements for the rail network as context in this report. We also set out information about Ontrack's views on the effect the commercial arrangements have had on its business. However, we have not commented on the effect the commercial arrangements have had on Ontrack's ability to carry out its responsibilities.

We did not examine rail network safety. Land Transport New Zealand is the regulator of rail safety in New Zealand. It is responsible for checking and approving rail participant safety cases and issuing rail licences for activities on the rail network. The Railways Act 2005 requires that any safety case is underpinned by, and consistent with, safety systems. Land Transport New Zealand regularly assesses whether Ontrack complies with its safety systems.

1: Association of Local Government Engineering New Zealand Inc. (INGENIUM) and the Institute of Public Works Engineering of Australia (2006), International Infrastructure Management Manual Version 3.0, ISBN 0 473 10685 X.

2: Victorian Auditor-General (2007), Maintaining Victoria's Rail Infrastructure Assets, PP No 15 Session 2006-07, Victorian Government Printer, ISBN 1 921060 35 2.

3: The Commerce Commission's information disclosure regime requires electricity lines businesses to disclose asset management plans. The Commerce Commission has done work (in particular Commerce Commission, 2006, Regulation of Electricity Lines Businesses Asset Management Plans: Revised Information Disclosure Requirements and Handbook Decision Paper) to identify best practice for asset management plans.

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