Breaking Cook Strait ferry contracts to cost Govt $300m

Tuesday, 4 March 2025

After a year of delays, the government confirmed plans to buy two new Cook Strait ferries but offered few details on their costs, rail compatibility, or who's building them. Winston Peters, as Minister for Rail, faces pressure to deliver answers.

The Government will pay an expected $300 million to break the Cook Strait ferry contracts that Finance Minister Nicola Willis cancelled in December 2023.

A Cabinet paper behind the December decision, published Tuesday, showed the cost to exit the iReX ferry contracts was expected to be $300 million, but it was expected the overall cost of the new project would compare “favourably” to the project’s blow out to $3 billion. The two new rail enabled ferries were to cost $550m.

The $300m was to resolve all ship and infrastructure exit costs, including exiting infrastructure contracts, completing some near-finished items like the mechanical depot in Picton, and the yet-to-be finalised ship contract with Hyundai.

The paper also showed the Government ruled out acquiring second-hand ferries after a year analysing the second-hand market, and contacting 21 ferry owners who all declined to sell their ferries.

The Government has for the past year declined to say how much it expected to pay for cancelling the order for two new Cook Strait ferries from Korean shipbuilder Hyundai Mipo, as KiwiRail continues to negotiate an exit of the contract.

However, a Cabinet paper published by Treasury on Tuesday shows the Government has put aside $300m to pay for breaking contracts associated with iReX.

The new detail comes after Rail Minister Winston Peters returns to New Zealand from a visit to South Korea, where he met with Hyundai Mipo to discuss its involvement in a new replacement ferry project.

Peters on Tuesday said he had a “charming” meeting with the shipbuilder which proved they were “seriously interested” in a new ferry building contract.

Willis said that breaking the contract and acquiring new ferries -- including possibly from Hyundai Mipo -- was a good use of money.

Nicola Willis said breaking the contract and acquiring new ferries was still a good use of money.

“We will be saving the billions of dollars that would have been wasted under the iReX project due to the blow-outs of the last Government,” she said.

She said she had approached Hyundai Mipo herself about changing the previous Hyundai Mipo ferry order, but had been advised it was not an option. When she pursued it further “the option that came back was very expensive”.

She was now “delighted that Winston Peters has followed that up with face-to-face engagement”.

Willis cancelled the prior iRex project to replace the ageing InterIslander ferries with two large “rail-enabled” ferries in December 2023 due to the escalating cost of port-side infrastructure, bringing the total project cost to $3b. Such ferries allow for rail freight to roll on-and-off the vessel.

The finance minister in 2024 put together a funding “envelope” for two 200 metre “rail-compatible” ferries, meaning rail freight would be trucked off the rail-line and onto the ferry for the crossing, and then trucked back onto rail.

Winston Peters recently travelled to South Korea and talked to Hyundai.

But, due to Cabinet disagreement over the decision, Peters was appointed Rail Minister and given until the end of March to produce an alternate plan. In February, a tender process was opened and the Government hired BRS Shipbrokers to seek out shipyards that might be interested in the project.

Renegotiating the former iRex contracts to reduce port-side costs for different ferries was also considered, but deemed not possible.

However the Cabinet paper also indicated rail-enabled ferries, which Peters has previously said he favoured, could be more costly.

“We have been advised that the need for rail-enablement in Project iReX drove landside cost increase through the need for customised linkspans and berths with low-tolerance for movement when loading and unloading,” the paper read.

“KiwiRail has advised that, with appropriate investment in equipment, the Auckland to Christchurch rail freight service would be resilient and reliable with non-rail-enabled ferries.”

Though, port-side infrastructure could not be costed “with confidence” until more detailed design work was done.

The Cabinet paper also made the case for why the Government needed to intervene and acquire new ferries: allowing the existing InterIslander ferries to cease operation without replacements “could conceivably lead to a gap in the market”.

This would lead to a “very high likelihood of untenable extended disruption to businesses and households”.

There had been “multiple informal approaches from third parties” suggesting the involvement of private capital in the running of the ferries -- however none of these third parties could provide the actual ferries.