Coalition sets aside $300m for Hyundai ferry contract break fee

By Jo Moir of RNZ

New documents reveal the coalition has set aside $300 million to cover broken infrastructure contracts and a break-fee with Hyundai, after the Government ended a contract with the Korean company to build two new Interislander ferries.

The Cabinet paper was released by Treasury just half an hour after Finance Minister Nicola Willis had repeatedly refused to confirm that figure to reporters.

She also said she didn’t know how much the cost of two new ferries will be, as a new contract hasn’t yet been signed.

On Friday, however, Rail Minister Winston Peters met with Hyundai in Seoul, and confirmed to RNZ the company was back in the running to build the two new ferries needed.

The contract, known as iRex, was cancelled with Hyundai shortly after the Coalition came to power, citing a $3 billion cost blowout associated with the ferries and the required port upgrades.

Peters has since embarked on a worldwide tender to find – by the end of March – a builder for two cheaper and smaller rail-enabled ferries, and have them running by 2029.

The Kaitaki Interislander ferry leaves Wellington Harbour. Photo / KiwiRail

He said Hyundai was open to a bid to build the new smaller ferries and had indicated it could meet the size specifications involved in that.

“I’ve got a serious contender back in the ring of potential contenders for the tender for two replacement ferries for the Cook Strait,” he told RNZ in Seoul on Friday.

Willis, as recently as Tuesday morning, insisted the new cost - including the break-fee and the two new ships - would be less than the almost $4 billion the iRex project had risen to.

The Cabinet Paper, dated December 9 of last year, noted officials had assessed if the iRex ferry contract could be “renegotiated with different ferry specifications to reduce landside costs” but concluded “this is not possible”.

As a result the $300m already set aside by the coalition to exit the iRex contract would need to be paid out regardless of whether Hyundai wins the bid to build the new ships.

Peters has pointed out to RNZ that South Korea is the “world number one ship builder”, and that needs to be remembered when considering any new contracts.

The Cabinet Paper released on Tuesday also outlines the expectation that the ports fund “as much of the landside development as possible” for any new ferries.

“The ports will, where possible, pass these costs on to operators in user charges, which in turn will likely be passed on to ferry customers,” the paper noted.

- RNZ