Last month a deal was announced that will see the introduction of two all-electric ferries for Auckland Harbour commuters and sightseers.
It's the first time a government entity has purchased a vessel that would decarbonise what is currently a diesel fleet. It means environmentalists will rest easy with each ferry displacing around 1000 tonnes of carbon emissions annually.
What's more, the complex nature of the $27 million contract is a world-first in terms of maritime procurement. I spoke to EV Maritime's leading commercial lawyer, K3 Legal's Chris Lee, to get some insight into what could be a game-changer for New Zealand.
In April, the Government announced plans for the 200-person ferries to be built for Auckland Transport's inner and mid-harbour services, which will be launched in 2024.
The Labour Government promised a funding grant of $27m to cover about 75 per cent of the construction costs of the ferries. While Auckland Transport doesn't currently own any ferries, it will own the electric fleet and lease them to an operator. (Energy Minister Megan Woods says the operator "could be Fullers, it could be AT. Fullers is supporting the $27m build but also has its own electric ferry under construction, which will launch before AT's.)
The vessels will be built by long-time Auckland boat builder, McMullen & Wing. Its principals, David and Terry Porter, also own two-thirds of EV Maritime (EVM). EVM's driving force is its chief executive (and 1/3 owner) Michael Eaglen. EVM is responsible for the design of the vessels and will administer the build and commissioning process.
Intellectual property elements
Unusually, EVM will own all the intellectual property related to the ferries – not just the design but also all technical data that will flow from the ferries' performance.
Lee says EVM has relative freedom to publicise the project - an untraditional move, given the connections to government, but indicative of the trust and respect the parties have for each other.
The deal wasn't straightforward, however, as Auckland Transport would need to own the vessels (and all componentry) through the build, as well as having clear access to the technical data necessary to operate and maintain the vessels.
To accommodate these elements the deal needed to specifically address principles from the outset - namely who owned physical assets as opposed to intangible assets, and the licensing of intangible assets, Lee says.
The number of contractual hurdles induced by the current state of the world is another reason why this deal is extraordinary, Lee says. Nickel is a key component of batteries and the market has been hugely impacted by the Ukraine war and sanctions imposed on Russian exports.
The London Metal Exchange suspended its nickel trading in March after it hit a record of US$100,000 per tonne, for example. The historic figure had almost tripled in value in a week.
The prices of other critical raw materials have been highly volatile and supply chains have been impacted as a result of Covid-19, too. On the issue of the pandemic, one of the questions was how to structure the force majeure clause so that it wasn't a deal-breaker.
In light of these concerns, questions were raised as to how responsibility could be fairly attributed among the parties while also keeping the price as low as possible.
"The usual process of ordering materials and components as the project progresses may go out the back door. Here, it may make more sense to procure the bulk of the materials and componentry at the outset and store them until needed," said Lee.
"We had to include a level of flexibility that would cater for that. And then there's the issue of retaining quotes from massive overseas suppliers - a startup in this case had little bargaining power."
Given the level of commercial complexity was extremely high, it took months to conclude the Terms Sheet, which clarified roles, responsibilities, risk allocations, and how those affected timing and price, Lee says.
"As EVM is a start-up lots of creativity was required. For example, because it didn't have the balance sheet of other big companies, it was harder to guarantee the security of its performance," said Lee.
"So, other security was created – for example, a proportion of each contractor's fees (decreasing over time) will remain at risk until the contract is performed and any warranty obligations are met.
"It was perhaps the most extensive heads of terms I've ever seen. But it was good in the long-term as once the principles were hashed out, it meant we had gotten through the grunty stuff and the final contract was fairly straightforward."
However, once the principles were agreed, it was then a race to translate those into binding contractual provisions in order to hold prices and beat funding deadlines, he says.
"It's amazing to help get this deal across the line and it will be fantastic for New Zealand. EVM's long-term aim is to develop these electric ferries for sales throughout New Zealand, and offshore. It could be a huge New Zealand success story."
The electric ferries have a range of 40km, so they will be able to travel the approximately 30km distance to Waiheke. The vessels will be constructed from carbon fibre and have a top speed of 25 knots - on par with the diesel ferries.