KiwiRail faces a cost blowout of at least $11.5 million for stretching its Cook Strait ferry Aratere with a 29m insert to carry more rail wagons, trucks and passengers.

The vessel arrived back in Wellington on Friday from the five-month upgrade in Singapore, almost three weeks late, after electronic problems during sea trials delayed its departure.

It has also returned with a bill for the upgrade of $53.8 million, $11.5 million more than what was provided for in the Government's "turnaround" plan for investment in KiwiRail.

The $4.6 billion plan includes a Government contribution to the state-owned company of $750 million in three annual instalments.


Although KiwiRail says increasing capacity for rail between Auckland and Christchurch is integral to the plan, the Aratere cost blowout has been lambasted by marine consultant Rod Grout, a former long-time chief executive of Pacifica Shipping.

He says heads should roll. "If this had occurred in the real commercial world, the project managers and advisers would be sent packing," he said. "This episode casts serious doubt on the ability of rail ferries and their operator to provide a realistic investment return on Government funds."

Mr Grout said in an earlier letter to Transport Minister Steven Joyce that overseas ships looking for easy business on New Zealand's coast carried 60 per cent of all domestic containers sent in 2009 from Auckland's main port to Lyttelton.

"Despite efforts to match or better the rates offered by international ships, KiwiRail has not been able to stem the decline, even though they have ample capacity."

The ratio had grown steadily since deregulation in 1994, which had also adversely affected other domestic shipping companies.

He said KiwiRail should concentrate on improving its railway networks, including the line between Auckland and Northland, which the company says it will have to mothball unless it can find more customers.

KiwiRail chief executive Jim Quinn said the Aratere upgrade stood up commercially even with the extra costs. He said his Interislander subsidiary was not just a freight service but remained the largest transporter of passengers and their vehicles between Wellington and Picton.

"The Interislander provides an essential service, linking New Zealand's North and South Island rail and road networks."


It moved 800,000 passengers, 210,000 cars and 54,000 rail wagons across Cook Strait each year, and extra capacity to keep up with growing demand was needed urgently.

"The fastest and most efficient way to get that is by stretching the Aratere when it was in for its scheduled refurbishment," Mr Quinn said.

KiwiRail would manage the extra costs within its budget. These were caused partly by changes to the design of extra generators, transformer and power management system. Project management costs had also risen and extra strengthening of the vessel was needed.