No plan ahoy for Cook Strait link

Sunday, 18 February 2024

Vernon Small is a journalist and former advisor to the Labour government.

OPINION: Becalmed. Two months on from its precipitate decision to scrap Interislander ferries and terminal upgrades, the Government has yet to unfurl its Plan B.

But this week we got a chance to see inside the engine room of Plan A during KiwiRail chair David McLean and CEO Peter Reidy’s Cook Strait-crossing-length three-hour appearance before the Transport and Infrastructure select committee.

As becomes professional directors in their relationship with shareholders, the pair emphasised they respected the Government’s decision to scrap the plan, after the estimated cost escalated to almost $3 billion.

Yet it was hard not to come away from the hearing feeling KiwiRail’s disappointment and the sense it still believes the project was unfairly maligned and its decommissioning was ill-advised.

The Interisland Resilient Connection (iRex) project was, they said, all about growth and capacity.

Ministers keen to paint the previous government as fiscally irresponsible have talked about a quadrupling of costs.

Reidy and McLean said the initial estimate of $750 million was a very early pie-in-the-sky, wet-finger-in-the-air number and the June 2021 detailed business case, putting the price at about $1.45b, was the better starting point to assess cost escalations.

The blow-out in costs by more than $1.2b (so a rough doubling) was not about the design of the ships or the land-side improvements. It was more about inflation exacerbated by delays, supply chain issues and extra costs to deal with added flooding risk and seismic threats at the Wellington end. Opposition saw the location of the new terminal shunted from Kings Wharf near the CBD to Kaiwharawhara – which is on a seismic rupture zone.

In fact, the $551m contracted price of the two ships was a bargain, because few buyers approached shipyards during the height of the Covid pandemic. Two ships was the least-cost, best-growth option, they said.

The 220-metre-long vessels were custom-built for the difficult Cook Strait conditions and to reduce wake damage in Tory Channel. They could carry twice as many passengers as the current three ships, 300% more rail wagons and almost double the number of trucks and other vehicles, meeting 30 years of freight and passenger growth.

Being hybrid-electric, they would have helped the company meet its emission reduction targets and would have been quieter.

The price to buy them today would be up to 40% higher than the cancelled $551m contract, so closer to $770m.

Even so, the Government has baulked at the option of taking delivery of the new ships and on-selling them at a profit – a decision that is not entirely silly, given the small market these days for ferries with roll-on roll-off rail capability.

But buying second-hand ships for New Zealand may not be as easy as the “Toyota Corolla” option mentioned by ministers Nicola Willis and Chris Bishop last year.

Reidy and McLean said there were only 22 ferries in the world that would be suitable and none are for sale, though they conceded to media after the hearing that sellers might emerge once it was known New Zealand was in the market.

There will come a time when the current ships are just not safe or fit for purpose, and Norwegian experts have been engaged to report on how long the current vessels can be kept going.

It is, however, important not to replace them with vessels with similar problems. That would risk a rerun of the crisis that left Kaitaki unable to return to port under its own steam for seven hours after its engines failed with 880 people on board, leaving it floating close to Red Rocks off Wellington’s south coast.

But if there is any scrappers’ remorse on the part of the Government, there is no sign of it.

This week State Owned Enterprises Minister Paul Goldsmith named the group to advise on the “short to medium-term while longer-term solutions for the Cook Strait connection are developed”.

They are Nelson airport chief executive Mark Thompson, Freightways and Auckland Airport director Mark Cairns and former National Cabinet minister Roger Sowry.

But it is those longer-term issues that are the most problematic, after the demise of the iRex project.

Onshore, they include the future shape, development and ownership of the terminals.

KiwiRail won’t build them unless the Government pays it to. And in any case, why was a ferry and train business building wharves and terminals in the first place?

It is unlikely the port companies in Picton and Wellington would risk going it alone, so who else?

The inter-island link is of crucial economic importance, and the strong public good and national interest component means the spotlight will inevitably come back to the Government as the funder of first and last resort.

The best option would be multi-user terminals, as airports do, perhaps part-owned by central and local government, rather than by a single ferry operator.

That might also address future issues for private-sector ferry-operator Bluebridge if its leased facilities come to the end of their life. Not to mention the option of taking international cruise ships away from the compelling tourist attractions of logging facilities at both Wellington and Shakespeare Bay in Picton.

But if such issues are ‘long-term’ the Government would be wise to make the decision in ‘the short-term’ - or ‘quickly’, as we say outside the advice bubble.

KiwiRail has the consents and all the information that could allow development to move with speed.

If a course isn’t plotted soon, as KiwiRail rightly warned, we face at least 18 months more of “wheel-spinning” before an enduring solution can be landed.

What do you think? Email sundayletters@stuff.co.nz.