Finance Minister Nicola Willis speaks about KiwiRail cancelling its mega Cook Strait ferry contract with the South Korean shipyard Hyundai Mipo Dockyard.
Video / Mark Mitchell
A ministerial briefing says the cancellation of KiwiRail’s mega ferries leads to the possibility the state-owned enterprise may not be best placed to provide an inter-island service in the future.
Officials will investigate how the market might respond to the hypothetical exit of KiwiRail, including whether rival operator Bluebridge could provide more capacity across Cook Strait. They will also look at whether the Government could subsidise ferry operations.
KiwiRail chief executive Peter Reidy has pointed out the Interislander service is run as a commercial entity and has not required a subsidy to operate but said he would work with ministers on any discussions they wish to have.
The Ministry of Transport was also asked to lead an assessment of the long-term requirements for a resilient connection across Cook Strait.
The ministry’s proposed approach for this assessment, which Transport Minister Simeon Brown has signed off on, has been released under the Official Information Act.
“The cancellation of Project iRex [the mega ferries] leads to the possibility that KiwiRail may not want to, or may not be best placed to, provide an inter-islander ferry service over the medium to longer term,” the document said.
Market forces have been relied on to provide a resilient Cook Strait connection in recent times, the briefing said. KiwiRail, as a state-owned enterprise, is required to run commercially.
Transport Minister Simeon Brown said the terms of reference for the assessment are yet to be finalised and the Government will have more to say on this in due course. Photo / Michael Craig
However, the experience with KiwiRail’s mega ferry project suggests it may need a government subsidy to operate ferry services, the document said.
“This means there is a risk KiwiRail may exit the interisland business without one.
“Therefore we need to explore the market dynamics underpinning inter-island services, to understand whether the current arrangements (including ownership and governance of KiwiRail’s ferry services) are optimal.
“This work would also inform whether any subsidy is required, if supported by a robust value for money analysis, and to whom and how this subsidy could apply.”
Officials will assess the ability of StraitNZ, which owns Bluebridge, or other potential operators to provide more capacity across Cook Strait in the hypothetical event of KiwiRail’s exit.
They will evaluate the minimum level of service required across Cook Strait to meet the needs of New Zealand’s transport system and support the economy.
“What is the current state of the infrastructure to support this level of service?”, the document asks.
The ministry proposed dividing its work into two phases with the first report to ministers due in May and the second in early August.
The final question was: “Does the analysis in phase one, and any relevant consideration from the Mag raise any questions about the appropriateness of relying on KiwiRail to deliver ferry services beyond 2026/2027?”
Transport Minister Simeon Brown told the Herald the terms of reference for this assessment are yet to be finalised.
“The Government will have more to say on this in due course.”
Reidy said Interislander was run as a commercial entity and has not required a subsidy to operate.
“We are incredibly proud of our Interislander team, who move on average $14 billion of freight and more than 800,000 passengers between the islands each year, and are an essential part of the New Zealand supply chain.
“Our key priority now and into the future is ensuring the best possible experience for all of our customers and in the meantime, we will work with Government on all discussions they wish to have with us.”
This provision excludes settlement costs relating to the termination of the shipbuilding contract.
Discussions are continuing with Hyundai Mipo Dockyard (HMD) to exit this contract, which includes HMD working through any termination fees with suppliers.
KiwiRail has said the details of these discussions are “commercial in confidence”.
Georgina Campbell is a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.
