How the Government could remove Interislander ferry business from KiwiRail – The Front Page

KiwiRail chief executive Peter Reidy has previously said the state-owned enterprise is committed to running Interislander in the future.

The future of KiwiRail hangs in the balance as the Government considers whether it should still run the Interislander Cook Strait ferry business.

KiwiRail has been under intense scrutiny in recent months after its plan to replace its ageing ferry fleet with two mega ferries was left dead in the water. The Government refused to fund a cost blowout of $1.47 billion for the portside infrastructure needed to support the larger ships.

The Aratere grounding was the latest in a string of high-profile breakdowns involving Interislander. There has been an exodus of directors from the board following the early retirement of chairman David McLean. Government ministers have raised “serious questions” about KiwiRail’s financial outlook and its safety record.

A ministerial advisory group (MAG) has reported back to the Government behind closed doors on future options for Interislander.

BusinessDesk infrastructure editor Oliver Lewis told The Front Page it “strongly sounds like” the MAG has recommended the Interislander component of the business shouldn’t necessarily sit with KiwiRail in the future.

“What I’ve heard is that ministers are considering setting up a Schedule 4A company, which is slightly different from a state-owned enterprise, to procure the new vessels and then potentially to also operate them once they arrive in two, three, four years,” Lewis says.

“There are a lot of smoke signals and a lot of vagaries to go through but it sounds like the Government may be moving towards trying to reposition the Interislander and remove it from KiwiRail – and that would be a very major step.”

Lewis explained the Government can sell some of its shares under a Schedule 4A framework but it must retain a majority shareholding in the company.

“It just gives you flexibility if you’re the Government to potentially seek some outside investors as well, which may or may not be a good thing depending on your view of private operators, but potentially it could introduce some commercial discipline into a state-owned company like Interislander, as well as a bit more capital.

“So, not a full-scale privatisation, I don’t think anyone’s talking about that but definitely you could see the ownership mix change over time.”

If the Government were to remove the Interislander business from KiwiRail, it would be seen as a real blow in terms of the state-owned enterprise’s competence, Lewis said.

Lewis said he wouldn’t be surprised if the Government set up a Schedule 4A company to procure the new ferries but he felt removing the Interislander service from KiwiRail was an election issue.

Listen to the full episode to hear more from Oliver Lewis about the types of ferries the Government could be considering to replace the Interislander fleet with.

The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. The episode is presented by Georgina Campbell, 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.

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