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
Treasury has proactively released documents relating to Interislander’s cancelled mega ferries.
Letters reveal trust issues and concerns about information leaking into the public domain.
Ministers have yet to announce what their new plan is to replace the ageing fleet.
More details were also disclosed about why Willis had problems trusting KiwiRail’s advice href="https://www.nzherald.co.nz/nz/exclusive-kiwirail-ceo-peter-reidy-on-future-of-cook-strait-interislander-ferries-after-turbulant-week/SCQBJJ5I3RHXJLCUPCZQVUE53M/" target="_blank">on the future of Cook Strait.
The Government refused to give KiwiRail more money for the mega ferries, known as Project iReX, soon after it came to power – leaving the plan to replace the ageing Interislander fleet dead in the water. This was after overall costs had ballooned to almost $3 billion due to the portside infrastructure required.
Willis sent McLean a lengthy four-page letter on December 22.
Ministers’ immediate concern was KiwiRail’s management of its ongoing ferry operations, in particular their expectation it maintained safe ferry services in the coming months and years, Willis wrote.
“We expect you to execute a maintenance programme that is aligned with international best practice and responds to the reviews into serious issues that have arisen in recent years, alongside lessons learnt from KiwiRail’s many decades operating the Interislander fleet.”
KiwiRail's new mega ferries were cancelled after the Government refused to fund the project's latest cost blowout.
McLean responded the same day saying safety was KiwiRail’s highest priority and “substantial effort” had been put into lifting capability and performance in this area, along with reliability, that year.
The pair agreed to a meeting in the New Year.
“I hope you enjoy a relaxing break, notwithstanding Summer Bags from officials, and we look forward to working with you all in 2024″, McLean said.
“If you are travelling with us during the break, we look forward to welcoming you on board our safe and reliable Interislander ships.”
‘There is a limited level of trust’
In the same letter from December, Wilis referenced a report from infrastructure advisory firm Aecom.
Aecom was called in after KiwiRail had asked the previous Government for more money for the mega ferry project, again.
In her letter, Willis said: “The information provided makes it clear that Aecom had concerns about the quality of the information and underlying assumptions KiwiRail had used to assess Project iReX options, and that officials have discussed similar concerns with KiwiRail throughout 2023.”
It was vital for ministers to have assurance that KiwiRail was robustly considering all options, she said.
Finance Minister Nicola Willis. Photo / Mark Mitchell
Willis said she was therefore establishing a ministerial advisory group to assess KiwiRail’s advice and provide the Government and the public with independent assurance.
She expected KiwiRail to co-operate with the group and provide information in a timely manner.
McLean said he looked forward to working with the group.
In a later letter in February, McLean acknowledged: “We recognise, rightly or wrongly, that there is a limited level of confidence and trust in us as an organisation. That is our reality which we need to manage through an open, transparent process that you and your colleagues are comfortable with.”
A copy of the letter Willis sent on February 8 has now been published but unfortunately, the first part of it is redacted.
The letter McLean wrote back to Willis is also partially redacted but confirmed KiwiRail’s board would terminate the contract and had advised HMD to stop all design and production activities.
“KiwiRail will now seek to enter a commercial negotiation with HMD to reach a termination agreement, and we will be supported in this negotiation by international experts.
“The aim will be to reach an agreement which will limit the termination costs payable by KiwiRail to HMD and avoid litigation by HMD as a consequence of KiwiRail’s repudiation of the contract.”
KiwiRail’s long list of potential leaks
Both Willis and McLean agreed they wanted to keep public commentary and speculation about the contract negotiations to a minimum, particularly because the situation was commercially sensitive.
However, KiwiRail said Willis should be aware there was a high degree of risk it would enter the public domain.
McLean said KiwiRail was strictly limiting internally held information to a “need to know” basis.
“However, there are a large number of international and domestic external parties across the design and build supply chain who are aware of the decision to terminate.
“For instance, as well as NZ-based design and build contractors, there were approximately 150 components to be installed on the ships by more than 80 global suppliers, who are each likely to have received stop-work notices from HMD, and the bank syndicate has also been advised by us that we will be cancelling their facility.”
Any statements HMD might make were outside of KiwiRail’s control, McLean said.
Then there were the KiwiRail employees directly affected by the termination, like those who were likely to lose their jobs or having to relocate their families.
Finally, there was the media.
“Two or three journalists have taken a close interest in KiwiRail and the iReX project and have at times demonstrated that they seem to have access to well-informed sources”, McLean said.
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.
