MFAT warned of risk to relationship with Korea over Cook Strait mega ferry cancellation

Ministry of Foreign Affairs and Trade (MFAT) officials advised the Government on the risk to New Zealand’s relationship with Korea if KiwiRail’s $551 million mega ferry contract was cancelled.

In documents obtained by the Herald under the Official Information Act (OIA), MFAT advised that “careful and deliberate communications with the Korean Government would be required in advance of any public announcement” if Cabinet decided not to give KiwiRail more money for its project to replace the Interislander fleet.

The Government eventually left the project dead in the water on December 13 after overall costs, including new terminals and wharf upgrades, ballooned to almost $3 billion.

A $551m fixed-price contract to build the new ferries was signed with Hyundai Mipo Dockyard (HMD) in 2021.

MFAT provided advice on the implications of exiting the contract in an aide memoir on December 8.

Parts of the document have been heavily redacted “to avoid prejudicing the security or defence of New Zealand or the international relations of the New Zealand Government”, among other reasons.

Parts of the advice noted that Korea was New Zealand’s sixth-largest trading partner and a source of potential international investment, expertise and collaboration.

It was noted that Hyundai previously built the HMNZS Aotearoa for the New Zealand Defence Force.

“New Zealand has invested in enhancing our bilateral relationship with Korea in recent years building on our economic links and shared interests in the Indo-Pacific, including through the Indo-Pacific Four grouping [New Zealand, Japan, Australia and Korea] and co-operation in the Pacific, including participation in Korea’s inaugural Korea Pacific Island Leaders’ Summit held earlier this year.”

Officials said mitigation could include “careful and deliberate communications” with the Korean Government.

They noted Finance Minister Nicola Willis had already spoken to media about the cost of the ferry project. The day before the MFAT advice was written, the Herald had revealed the potential cost to the taxpayer was “many times” what the Government initially signed up to.

Finance Minister Nicola Willis has praised Hyundai Mipo Dockyard and said the company was not the one at fault. Photo / Mark Mitchell

Willis told the Herald ministers proactively sought advice from MFAT about any potential impacts on New Zealand’s relationship with Korea.

“We were advised to emphasise in public statements that declining to provide further funding for Project iREX was not related to the ships and was not a reflection on shipbuilder HMD in any way.”

Shortly ahead of the public announcements, MFAT advised representatives of Korea that further funding for the mega ferry project had been declined, Willis said.

“The Government values our close bilateral relationship with the Korean Government including our important trade and economic relationship. Korea is a close and trusted partner.”

Willis has been asked previously how international companies could trust the New Zealand Government to stick to future contracts.

“I’d simply praise Hyundai Dockyard - they are not the ones at fault here,” Willis said.

“New Zealand respects contract law. We will be negotiating the exit of this contract in accordance with that. New Zealand is a good reliable partner both to Korea and to many countries around the world.”

The Herald first requested the information from MFAT on December 15. One month later, the request was refined. On February 14, MFAT extended the response time for the request by another 35 working days to allow time for consultation.

This meant it took four months for the information to be released.

Trade expert and former diplomat Stephen Jacobi said Korea was a vibrant economy in Asia, making it a target for New Zealand exporters, particularly high-value beverage products.

“We’ve got a free trade agreement with Korea that was negotiated... it wasn’t entirely the easiest negotiation to have with them. They are generally very protectionist about their food sector, about their own agricultural industries,” Jacobi said.

“But we got a trade agreement that delivered a number of benefits.”

Jacobi said the ferry issue was a commercial matter and not one of trade policy.

“It’s very wise, however, for the Government to discuss these things with the Korean Government so there’s no misunderstanding about what has happened.”

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.