KiwiRail finally cancelled Cook Strait mega ferry contract after letter from Nicola Willis

KiwiRail only terminated its mega ferry ship-building contract after receiving a letter from Finance Minister Nicola Willis and two months after the Government pulled the plug on the project.

A scheme to replace the current ageing Interislander fleet with two larger ships was left dead in the water in December after costs for the overall project, including new terminals and wharf upgrades, ballooned to almost $3b and the new Government refused to fund the blowout.

However, KiwiRail took until February 14 to announce it was terminating the $551m fixed-price contract with Hyundai Mipo Dockyard to build the ferries.

Correspondence released to the Herald under the Official Information Act (OIA) reveals a senior KiwiRail government relations adviser emailed Beehive staffers confidentially on February 12.

“On Friday evening, KiwiRail responded to a letter from the Minister of Finance, confirming that we will terminate the shipbuilding contract with Hyundai Mipo Dockyard (HMD).

“We have advised HMD to stop all ship design and production activities. We understand that HMD have in turn given notice to their many international suppliers to stop work.

”There is now a negotiation process to go through with HMD around cancelling the contract, which will also determine any costs KiwiRail is liable for.”

The Herald has asked for a copy of the Minister’s letter under the OIA and asked Willis to summarise what she said while that request is considered.

Willis said the matter was subject to ongoing consideration and was commercially sensitive.

“I do not consider it in the public interest to comment further at this time. The Government is still considering potential options for replacing Kiwirail’s ageing ferries.

“Our goal is to secure safe, reliable ferry services across the Cook Strait in a way that delivers good value for taxpayers.”

In the email, the Government relations adviser continued to say that KiwiRail would not proactively announce the contract was being cancelled but warned there was potential for the news to “get out”.

This was because there were dozens of suppliers involved and HMD was likely to announce to the market at some point, they said.

KiwiRail had prepared a reactive statement quoting chief executive Peter Reidy should the media raise the cancellation.

KiwiRail chief executive Peter Reidy. Photo / NZME

The adviser sent another email at 9.50am on Wednesday to confirm HMD had issued a brief market statement that had been covered by Korean media.

As the information was now “out”, KiwiRail would notify affected staff about the termination and advise key stakeholders.

KiwiRail expected to make a public statement at about 10.30am if everyone else had been told by this time.

Another email at 10.37am said: “We are now getting a lot of domestic media queries so will be issuing our statement momentarily.”

The statement landed in the Herald’s inbox one minute later.

Reidy has previously floated the idea the ship-building contracted could be salvaged and the mega ferries could be built and sold or a different model explored.

He has confirmed two members of his team visited the shipyard as recently as January.

“We have a long-standing relationship with Hyundai,” Reidy said.

“When you do business with Korea, it’s about face-to-face and we’ve got a very professional relationship with them.”

Reidy said they discussed various options including exiting the contract.

The Herald has asked government departments, including Treasury and the Ministry of Transport, for more information on the decision to cancel the mega ferry project and the subsequent fallout.

A proactive release of information was being worked on and would be released with relevant redactions towards the end of February, the Herald was originally told.

The information is yet to be released.

Descriptions of some of the relevant documents include“KiwiRail – resolving Project iReX obligations”, “Next steps to ensure Cook Strait services”, and “Project iReX - advice from AECOM”.

A ministerial advisory group (MAG) has been appointed to provide independent advice on the future of the ferry service.

The Ministry of Transport was also asked to lead an assessment of the long-term requirements for a resilient connection across Cook Strait.

Officials will investigate how the market might respond to the hypothetical exit of KiwiRail from providing a Cook Strait service, including whether rival operator Bluebridge could provide more capacity across Cook Strait. They will also look at whether the Government could subsidise ferry operations.

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.