Prime Minister Christopher Luxon fields question from media over Cook Strait ferries announcement.
Analysis by Georgina Campbell
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.
A deal with Hyundai Mipo Dockyard to build two mega ferries was cancelled in December 2023 due to cost escalations associated with the portside infrastructure.
An attempt was made to renegotiate that contract to build two smaller ships but that option was deemed too expensive.
Just three months after Finance Minister Nicola Willis announced the Government was cancelling a deal to build two new mega-ferries, she was told the contract should be urgently renegotiated.
Reports from the Ministerial Advisory Group (MAG) tasked by Willis and other ministers to find a solutionfor the future of Cook Strait were proactively released today.
In December 2023, Willis announced the move to cancel KiwiRail’s plan to replace its ageing Interislander fleet after costs for the associated portside infrastructure increased exponentially. The forecast project cost increased from $775 million to at least $3 billion despite the mega-ferries costing $551m.
The MAG was in place by mid-February 2024. It took those experts one month to report back and recommend the contract should be urgently renegotiated.
Interislander and Bluebridge are two operators that currently service the Cook Strait. Photo / Mark Mitchell
He recommended the ship specifications should be renegotiated to build two medium-sized, roll-on, roll-off passenger (Ropax) ferries instead.
These ships would be rail-compatible, unlike the mega-ferries which were rail-enabled, meaning containers would need to be removed from rail wagons by a vehicle that then loaded them on to the ferries.
Thompson said these types of ships were the most viable and cost-effective option, given they could operate using the existing infrastructure in Wellington and Picton.
“Rail-enabled ferries and consequent rail infrastructure landside is a significant driver of portside infrastructure costs and inefficiencies but is unnecessary for servicing the Cook Strait and drives portside costs to a far greater extent than Ropax,” Thompson said.
This also presented the opportunity to mitigate some of the exit costs with the HMD contract.
The MAG recommended ministers “ask KiwiRail to urgently re-engage directly with HMD to negotiate a counter-agreement that retains the two build slots for two ships that can be accommodated within the existing port infrastructure as far as possible”.
“As HMD will require assurance that any renegotiated contract will not fall through... ministers [should] consider the parameters and commitments they may be willing to make to secure a revised contract.”
The next MAG report arrived one month later in April.
“KiwiRail is continuing to work with HMD to progress claim negotiation and explore new ship options,” Thompson said.
There was a sense of urgency to his advice about the need to “proceed as quickly as possible with arrangements to procure two new ships”.
Finance Minister Nicola Willis says she is not party to discussions Minister for Rail Winston Peters has had with Hyundai Mipo Dockyard. Photo / Alex Burton
There was concern that ensuring the safety and reliability of the current Interislander fleet would become more difficult as the ships reached the end of their working lives.
The MAG sought advice about whether charter services could be contracted to fill any gap in services until new ships could be delivered.
“The indication we received is that charter services over the peak season would be unlikely but if they were possible, would be prohibitively expensive,” Thompson said.
Market contacts advised new ships could be delivered by 2027 or 2028 if a contract could be signed by October 2024, he said.
Ministers received another report from the MAG in June.
“Our advice is that ministers should operate from the default position that two new ships can be procured and delivered by the end of 2027, which is the earliest advised timeframe from the market soundings and evaluate timeframes and options from this default position,” Thompson said.
As for any deal with HMD, the group observed that KiwiRail had a “tendency” for missed timeframes and slow or insufficient responses to information.
“We are concerned that potentially advantageous options could be taken up by other operators and lost to the Crown while KiwiRail works to settle the HMD claim.”
The group was also concerned about the length of time any comprehensive full open tender procurement process would take.
“We consider that ministers will need to be prepared to prioritise certainty and the earliest reasonable dates for the delivery of replacement ships over a protracted procurement process.”
The next document that was proactively released is a Cabinet paper from December last year – almost six months on from the last MAG report and after the October deadline to get ships in place by 2027.
The paper said it was “not possible” to renegotiate the mega-ferry contract with Hyundai to build smaller ships.
Minister for Rail Winston Peters says his meeting with Hyundai Mipo Dockyard last week was charming. Photo / Mark Mitchell
After the Cabinet meeting, Willis announced the Government would establish a Schedule 4A company called Ferry Holdings to procure two medium-sized, rail-compatible ferries as the MAG had recommended.
But it was also revealed Winston Peters was now in charge of delivering the new ferries as the Minister for Rail and that he was on the hunt for a better option than the one Willis had put on the table.
It was also announced the Government would invite the private sector to submit alternative proposals for a ferry service, including for rail-enabled ferries, which will be assessed alongside the procurement process in March.
This is a far cry from the suggestion by the MAG that a contract for new ferries could be signed in October 2024 to deliver the ships in 2027.
Especially since Peters announced in February this year that the Government was engaging with shipyards across the world to deliver new ferries by 2029.
HMD is also back on the scene.
Peters visited HMD last week while he was in South Korea for a bilateral meeting with South Korean Foreign Minister Cho Tae-yul.
He said the meeting with HMD was “charming”.
Peters was asked about it by Labour’s transport spokesman Tangi Utikere in question time today.
“We had a very amiable and profitable discussion and we were delighted to learn of their renewed interest in this tendering process,” Peters said.
Utikere asked if he consulted Willis before inviting a new bid from HMD.
“In this Government, we are famous for consulting with each other and she wished me the very best and hoped that I could fix up the Labour Party’s mess,” Peters said.
Utikere questioned whether HMD could have confidence that Willis would not “pull the rug out from under them again” if a new contract was signed.
“The reality is that no responsible Finance Minister could not take the action that the Minister of Finance took,” Peters said.
“The responsibility of a good Government is to be as careful about spending taxpayers’ money as they are about spending their own.”
Willis said they were initially told renegotiating the contract was not an option and when they tried to pursue it, it turned out to be expensive.
“Mr Peters has obviously taken further steps and those questions are best put to him.”
Willis said she was not party to the discussions Peters had with HMD.
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.
