Picton will remain as the southern terminal for the interisland ferries, Transport Minister Gerry Brownlee announced today.
Shifting freight and passenger services to Clifford Bay, 35km south of Blenheim was estimated to cut the road-ferry journey between Wellington and Christchurch by almost an hour and a half and shorten the rail trip by nearly two hours.
However, local business owners said the move would be devastating for Picton's economy.
Over the past year the Ministry of Transport-led expert team had been studying whether Clifford Bay could be delivered as a fully privately funded project, Mr Brownlee said.
"We have been delivered a thorough and robust report which clearly shows Clifford Bay is not commercially viable as a fully privately funded project, and the level of investment required at Picton over the next decade to extend its life would be substantially less than previously estimated.''
The project team estimated a ferry terminal at Clifford Bay could be delivered by 2022, at a cost of $525 million, leaving a gap the Government would have been required to fill to induce private sector investment in the construction and operation of the terminal.
The study also found Picton's facilities were not expected to fail or become constrained due to asset age or condition, or growth in freight volumes, over the next 30 years.
The level of investment required at Picton by its owner Port Marlborough over the next decade to extend its life and adapt its facilities was approximately half the cost estimated in 2012.
A number of significant financial risks would exist in the development and early operating phase of a ferry terminal at Clifford Bay, Mr Brownlee said.
"While it was expected these would be manageable, mitigation and management cost would have fallen to the Government.
"In the end, the government cost, remaining risks, and the lack of a compelling constraint at Picton have led us to decide the Clifford Bay option should be set aside at this time.
"I hope this announcement will provide some planning certainty for Marlborough communities.''
Clifford Bay has been considered as an alternative location for a ferry terminal many times.
A ferry terminal was proposed there in the 1920s and in 1997 TranzRail (now KiwiRail) did everything bar build it.
It got the necessary 39 consents, the Marlborough District Council rezoned the area a "port zone'', and the transport company bought adjacent land for ferry and rail-associated businesses.
Financial difficulties were the likely reason TranzRail didn't proceed, a KiwiRail spokeswoman told the New Zealand Herald in March.