For a while, it looked like KiwiRail had the Government backed into a corner with that $551m fixed-price contract with Hyundai Mipo Dockyard for the mega ferries.
The project’s cost increases were being driven by the landside infrastructure that the mega ferries, which had already been ordered, needed to operate.
KiwiRail’s position was also strengthened after Kaitaki lost power in Cook Strait with 864 people on board, started drifting towards the south coast, and narrowly avoided disaster. The incident alarmingly illustrated the need to replace the ageing Interislander fleet.
Robertson was becoming increasingly frustrated, not prepared to give KiwiRail a blank cheque, but wanted to find a way through.
The Interislander fleet is ageing and more prone to breakdowns. Photo / Mark Mitchell
The mega ferry project was announced in 2019 when KiwiRail was given $35m by the Labour-led Government to progress the design and procurement of two rail-enabled ships.
Therefore it wouldn’t have been as easy for Robertson, who had that prior attachment to the project, to pull the plug as it was for Willis, who came in cold.
Robertson went back to KiwiRail and ministry officials for more information, including whether smaller non-rail-enabled ships would reduce costs.
Cabinet didn’t decide on the request for more money until September 2023, when it agreed in principle to increase the contingency fund by $750m.
KiwiRail chairman David McLean was not happy with the result or the amount of time it took.
“We have provided substantial information on the case for proceeding and the pitfalls of alternative options to officials and their consultants, often re-answering the same questions while months have passed on a time-critical proposition,” McLean said in a letter to Robertson.
KiwiRail was hardly in a position to complain about those many months that had passed. A request for an extra $1.2b is not one to be taken lightly and calls into question the viability of the project.
It wasn’t clear whether KiwiRail could work with the extra $750m considering it was less than what it asked for and would require the landside infrastructure to be scaled back.
While the SOE was working that out, Robertson said Cabinet could not make any more decisions on the project given the imminence of the general election.
Yet on the eve of the election, October 13, KiwiRail deputy chairwoman Sue McCormack wrote a letter saying KiwiRail urgently needed $145m.
It’s unclear what KiwiRail thought such a letter at the 11th hour would achieve.
Although Willis, yet to be sworn in as a minister, would soon be brought up to speed that project costs had ballooned to $2.6b. That year’s paper trail of KiwiRail’s funding requests would in itself have given her compelling reasons to cancel the project.
As it turned out, by the time she was further briefed on the project, the cost had escalated to $3b.
Finance Minister Nicola Willis was briefed on the mega ferry situation before she was sworn in as a minister. Photo / Mark Mitchell
If Willis wasn’t already convinced the project needed to be dumped, she would have been by then.
“Ministers do not have confidence that there will not be further increases and are concerned about the continued significant cost blow-outs and the changing nature of the investment they are being asked to make,” Willis said when she announced it was all over.
It’s no wonder Ministry of Transport officials have raised the question of KiwiRail’s suitability to run the Interislander business in the medium to long term.
KiwiRail already threatened a review of the Interislander business if it did not get the money it wanted from Robertson.
This included whether the business could remain in KiwiRail’s ownership if it could not reasonably meet the costs of capital to renew the ferry fleet and portside infrastructure.
“This would be a sad end for the Interislander as an integral part of the KiwiRail story dating back to New Zealand Railways. It would also have serious adverse implications for the rest of the rail network, particularly in the South Island,” McLean said.
In a statement after the document dump, KiwiRail chief executive Peter Reidy said they remained committed to operating the Interislander service.
“We have run the service for over 60 years, and we want to continue to run it for another 60 as part of an integrated rail network supporting New Zealand businesses, passengers and our visiting tourists.”
They have mulled over whether the Interislander business could be separated into another SOE or sold via a trade sale.
The ripples of this failed project are already being felt beyond Cook Strait.
It is no longer only a question of what will replace the Interislander fleet but also whether KiwiRail should have anything to do with running the business.
Senior journalist Georgina Campbell’s A Capital Letter column takes a deeper look at issues in Wellington, where she is based. Georgina has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.
