Cost blowout warnings years before Interislander project keeled over

Friday, 15 December 2023

Multiple warnings were raised over a number of years about the cost dangers of Interislander’s ferry project – and now KiwiRail’s boss admits risks could have been more clearly identified.

Finance Minister Nicola Willis this week dropped the bombshell that the Government would not fund the extra $1.47 billion requested by the state-owned enterprise for the Cook Strait ferry overhaul, now expected to cost about $3b – almost four times the projected cost in the first business case five years earlier.

As KiwiRail’s dreams of two new, purpose-built, larger ferries – complete with new terminals – sank, chief executive Peter Reidy was back to the drawing board.

The planned terminals would have meant 100-year resilience. Now KiwiRail was looking at options, including just 10 years, he said. Instead of owning new ferries, it may have to just lease ferries to replace the ageing, failing fleet.

Reidy was not in the top job when the contracts were signed but said, had he been, he would have made it clearer to ministers the costs then were just an early estimate and could go up. He refused to say if information at the time was lacking.

Greater Wellington Regional Council chairperson Daran Ponter on Thursday confirmed he privately raised concerns with then-Finance Minister Grant Robertson in 2020.

“We could see at the time, the large ferries were going to present potential issues for the government and KiwiRail,” he said.

This was because KiwiRail had “ambushed” the council and CentrePort with a plan to ditch all cargo handling in Wellington, and to put a new ferry terminal where the current container area is. This meant Ponter became aware of the extent of building needed for a new terminal to handle the larger ferries.

At the time, talk was always of a multi-user terminal for all Cook Strait ferries but KiwiRail’s final plan at Kaiwharawhara was for just its use. Ponter said he would now reignite talks for a multi-user terminal for Interislander and Bluebridge at Kaiwharawhara but to accommodate ferries of a similar size to the current ships.

A Ministry of Transport briefing to then-Transport Minister Michael Wood in 2021 expressed concern that an upcoming signing of contracts for the ferries locked in the new terminal builds.

“We are concerned that the terminal costs estimates may not be robust at this time and that there is a high risk of continued cost escalation,” the briefing warned.

It put forward two options: “Accept the risk and fund the full amount sought (subject to further advice from Treasury)”, which was then a further $565m, or defer the project.

The Government, which had appropriated $435.1m in earlier budgets, declined the extra funding request in 2021 due to a lack of an approved detailed business case and “relatively uncertain” costs, Treasury documents show. A Beehive timeline shows Cabinet did, however, tag some contingency funding to meet the funding shortfall.

Treasury in June 2021 gave its advice on the iReX project to government ministers in which concerns were raised about a “lack of external quality assurance for KiwiRail’s forecasts” and “a lack of clearly measured benefits”.

Documents released by the Beehive this week show the total cost of the project was estimated at $775m in 2018, $2.6b in February, and closer to $3b in late-November.

Reidy said on Thursday that $400m had been spent to date on the iReX project.

“This includes $78 million on the ships – for design, procurement and the initial deposit for the ships build. $276 million has been spent on the two terminals – for design and consenting plus enabling and early construction work.”

Grant Robertson was approached for comment