The Government has declined KiwiRail’s request for an extra $1.47 billion for portside infrastructure needed for Cook Strait’s new mega-ferries.
KiwiRail says it cannot proceed without further Government funding and its board will now oversee the wind-down of the project and review plans for the vital transport connection.
The state-owned enterprise was replacing its increasingly unreliable and ageing Interislander fleet of three ferries with two new rail-enabled ferries under the Inter-island Resilience Connection project (iReX).
The stakes were high after Kaitaki narrowly avoided disaster this year when it lost power in the middle of Cook Strait with 864 people on board and started drifting towards Wellington’s rocky South Coast.
A $551m contract was signed with a South Korean shipyard back in 2021 to build the new ferries. KiwiRail has confirmed this contract will be terminated.
The last publicly available cost estimate for the new ferries and the portside infrastructure was $1.45b.
Finance Minister Nicola Willis revealed this afternoon that the cost has doubled.
She said KiwiRail had requested an additional $1.47b, a component of which had been agreed to in-principle by the previous government, to address cost escalations related to harbourside infrastructure.
Willis said the Government has declined the request to contribute the significant additional funding.
”The Government remains committed to a resilient, safe and reliable Cook Strait connection, but the cost of this project has almost quadrupled since 2018 to approximately $3b,” she said.
Only a fifth of the total cost was now associated with the core project of replacing the ageing three ferries, she said.
”Ministers do not have confidence that there will not be further increases and are concerned about the continued significant cost blowouts and the changing nature of the investment they are being asked to make.
”Furthermore, agreeing to KiwiRail’s request would reduce the Government’s ability to address the cost pressures that are impacting on New Zealanders, fund other essential projects and get the Crown’s books back in order.”
KiwiRail board chairman David McLean acknowledged the disappointment of its team and stakeholders involved in the project.
“We sought a strong outcome for New Zealand through this project for a more resilient State Highway 1 across Cook Strait for exporters, domestic freight forwarders, tourism and domestic commuters.
“We will work with the Government, our customers, ports and other stakeholders on the way forward. An alternative suitable long-term solution could take years to develop.”
McLean said KiwiRail will continue to invest in the safety and reliability of the existing Interislander fleet, through strong asset management practices, in the interim.
Green Party transport spokesperson Julie Anne Genter said on social media she agreed the project got too expensive.
“This decision will have negative impacts on New Zealanders and freight ability to travel between islands. Might be a death knell for rail freight on the main trunk.”
Last week the Herald revealed Willis met KiwiRail’s top brass about the financial problems before she was even sworn in as the Finance Minister.
Willis confirmed she met McLean and chief executive Peter Reidy about the matter on one occasion during the coalition negotiations.
She received written briefings from KiwiRail regarding the iReX project on Thursday, November 30, and met McLean and Reidy again later that evening.
Greater Wellington Regional Council chairman Daran Ponter said last week KiwiRail “must be s***ting themselves” over the escalating costs.
Ponter described today’s decision as a brave call by ministers but declined to comment further.
Marlborough Mayor Nadine Taylor said she is shocked and disappointed by the news that KiwiRail is cancelling the inter-island ferries project, called iReX.
She said while the decision will not directly impact Marlborough’s ratepayers financially it will have an impact on New Zealand’s long term inter-island infrastructure.
“This will come as a particular shock to the Picton community who are most directly affected by this decision. The town has been very engaged in the new ferries project and have been a great supporter of it.
“A large number of workers had been expected to work on the iReX project over the coming years.
“I want to emphasise to Kiwis and overseas travellers that Picton is open for business. The Interislander and Bluebridge ferries are working as normal across Cook Strait.”
Taylor said she would like to sit down with the Government and talk through what the future looks like for inter-island infrastructure.
“There is no doubt that we need to invest in this national transport connection for the long term. The question now is how and when we will do that.”
The mayor said Port Marlborough, which is wholly owned by Marlborough District Council, has robust agreements in place with KiwiRail that require the completion of early works at the port of Picton and the reinstatement of any affected assets.
Wellington Regional harbourmaster Grant Nalder said there are reliability issues considering the current ferry fleet is an ageing fleet.
“From my point of view, that’s a concern over continuing safety of the service with the elder ships,” he said.
“I don’t know whether this was a surprise to all those involved but I’m sure there’s some thinking going on about the future of the ferry fleet.”
Nalder said new infrastructure was needed with the existing plan to cope with the volume of freight and passenger but also just the size of the new ships themselves.
“I’ll be watching with interest to see what the next iteration of the replacement plan is,” he said.
He said the cost of the projected seemed to be quite a steep rise.
Nalder said at the moment there would be “quite a large degree of uncertainty” as to what will happen in 2026.
In the short term the decision, he said, will not make a difference for the travelling public as KiwiRail were planning to keep the existing ferries for the next three years.
“But Interislander will have to be looking quite clearly at what plan they will have in place for 2026.”
Treasury and the Ministry of Transport advised the Government not to agree to the funding request, Willis said.
It was a “very difficult situation” for the incoming Government to find itself in, she said.
”It is absolutely one of the financial states that was left behind by the outgoing government.
”We want a resilient, safe and reliable Cook Strait service and we are committed to ensuring that is available to New Zealanders.”
Willis said it would be “irresponsible for us to continue funding the project” after it “diverted so widely in scope and cost from the original proposal”.
”A resilient ferry service should not be an open chequebook paid for by the taxpayer,” she said.
”We have a responsibility to ensure the public gets good value for money.”
Willis said it was a hard decision but the right one.
Ministers will now work with KiwiRail and officials on alternative options.
“The Government will have to invest more money in the future to ensure a reliable ferry service and we are up for that.”
Willis said she has received advice that made her confident there was a range of alternative options that would deliver value for money as well as a reliant and resilient service.
Meanwhile, four transport unions representing maritime and rail workers have condemned the Government’s decision and are demanding Willis’ resignation.
Maritime Union of New Zealand national secretary Craig Harrison said it was not tenable that such a major decision with massive implications for the economy should be made in such a “fast and loose” manner.
“This is far more than a fiscal decision – this decision shows poor judgment and a total lack of understanding of the importance of a functioning Cook Strait connection to New Zealand’s supply chain.”
Ongoing technical issues with Cook Strait ferries were a result of end-of-life vessels being used on a notoriously challenging crossing, resulting in a spate of serious incidents in recent years, he said.
“This Government campaigned on getting our transport infrastructure sorted and their first move is to basically jeopardise the future of road and rail transport between the North and South Island.”
Georgina Campbell is a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.
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