Government pulls further support for controversial ferry project

Wednesday, 13 December 2023

Finance Minister Nicola Willis has sunk KiwiRail’s planned acquisition of new Interislander ferries, pulling the Government’s financial support.

Willis announced on Wednesday afternoon the new Government had rejected a request from state-owned enterprise KiwiRail for more funding to cover a serious cost escalation in the now multi-billion dollar project to acquire two new ferries and build portside infrastructure.

KiwiRail had requested an additional $1.47 billion, some of which had been agreed to in principle by the prior Labour Government, to cover the blow-out of the project, which originally received funding of $435 million in the 2019 and 2020 Budgets.

“What was meant to cost less than a billion dollars is now set to cost $3 billion. The project was meant to be about ferries, it turned into a port redevelopment. I want to be more careful.”

After Willis’s announcement, KiwiRail said that without Government funding the project would be wound down and it could take “years” to provide an alternative solution to the increasingly troubled Cook Strait ferry service.

Willis said it was a “hard decision” but right to make as a resilient ferry service “should not mean an open cheque book paid for by the tax payer”.

The existing ferry services would not be compromised, she said, because the new ferries were not due for delivery until 2026.

“We want a resilient, safe and reliable Cook Strait service, and we are committed to ensuring that is available to New Zealanders. But it would be irresponsible for us to continue funding a project that has diverted so widely in scope and cost from the original proposal.

“This was a very difficult situation for the incoming Government to find itself and in the last place we wanted to be.”

She said the Labour Government decided four weeks before the election to, in principle, put more money into the project, but she would not say how much, citing commercial sensitivity.

Willis had since been advised by both the Ministry of Transport and Treasury not to fund the project further.

She said the cost of the new ferries was now only 21 per cent of the total project’s cost.

The contracted ship building, Hyundai Mipo Dockyard, was not expected to start building the ferries until March next year.

'It is up to KiwiRail to determine how they best deal with their residual contractual obligations, and I'm advised they have a number of options for how they do that,“ she said.

Asked whether Hyundai could instead be commissioned to build smaller vessels that fit existing port facilities, or whether KiwiRail could buy second-hand ferries like those used by competitor Bluebridge, Willis said that 'those are all options that obviously have been floated'.

“I want to be really clear that Government will have to invest more money in the future to ensure a reliable ferry service and we are up for that.”

KiwiRail chairperson David McLean said in a statement the organisation’s team and stakeholders were disappointed as the project would have to be wound down.

“Unfortunately, we cannot proceed without further Government funding. We respect the Government’s role as shareholder and funder to make this decision.

“The board will now oversee the wind down of the project and review our plans for the Cook Strait connection.”

He said KiwiRail would work with the Government on “alternative suitable long-term solution” but this “could take years to develop”.

Labour’s finance spokesperson Grant Robertson said it was is vital that the Government provide certainty on how they intended to ensure there is a sustainable and reliable Cook Strait ferry service.

“Leaving New Zealanders without a clear plan as to how this vital connection will be maintained will create enormous uncertainty and instability. The Government needs to move with urgency to tell New Zealanders what their new plan is and when it will be delivered.”

Greater Wellington Regional Council chairperson Daran Ponter said the Government was 'brave' to make Wednesday's decision 'when contracts have already been signed'.

'A lot of people would have thought they are past the point of no return,' he said.

The regional council provided the new Government with a “briefing” on the region’s issues, made public this week, which detailed the problem with the current ferries and terminals and described Government funding as “critical”.

“The current Interislander ferries are nearing the end of their 30-year working lives and this replacement programme is now time critical. As the fleet ages, the ferries struggle to meet modern safety requirements, there are rising maintenance costs, high carbon emissions, sub-standard crew conditions and no capacity for growth or increased profitability,” the report said.

Wellington harbourmaster Grant Nalder said the current Interislander ferries could operate safely until the end of their operating window in 2026.

'They are an ageing fleet - you can't run them forever.'

It was still too early to say what the Government’s announcement meant in the longer-term and a plan would be needed for after 2026, Nalder said.

'They can't have new ships without new infrastructure.“

Dom Kalasih, interim chief executive transport industry body, Transporting NZ said he believed the project to build the new ferries and ferry terminals would still go ahead.

'That would be our expectation. To be honest, we suspect all this cost blow-out stuff is a bit of posturing by Interislander trying to get more money,' he said.

Kalasih said that if the Interislander upgrade did not go ahead in its original form, that would be of concern to the association's members.

Infrastructure NZ chief executive Nick Leggett said a reliable Cook Strait ferry service was “vital” for the country’s supply chain.

“It is very concerning for us that the previous Government didn’t budget for this.

“We need a guarantee of reliable ships running that route.”

Wellington mayor Tory Whanau said in a statement she knew how important the Interislander was important for many Wellingtonians and the city’s economy.

“It’s vital that KiwiRail work through interim solutions with the Government so that these important services can keep running.”

Marlborough mayor Nadine Taylor said she was shocked and disappointed by the announcement.

She said this was not only an issue for Marlborough, but for the whole country.