The stranded Interislander ferry Aratere earlier this year. Photo / Tim Cuff
In February, the Government established a Ministerial Advisory Group to help it decide what to do about replacing the Interislander ferries.
The group provided its advice “some time ago”, according to Finance Minister Nicola Willis - so long ago, when she was asked about the advice in the post-Cabinet Press Conference on Monday, she couldn’t remember exactly when (it was 19 June).
The clock is ticking. The three Interislander ferries need to be replaced by the end of the decade. Since the Government refused additional money for project iRex, the $3 billion Labour-backed scheme to replace the fleet with two rail-enabled mega-ferries, there has been uncertainty around the future of the Interisland connection, what ferries will run on it and when they will be delivered. Estimated annual maintenance costs to keep the three ageing ferries running could almost double to $65 million by next year, according to official advice.
One of the big sticking points is whether the new ferries need to be rail-enabled, allowing trains to shunt freight directly on to the ferries. One of KiwiRail’s three Interislander ferries is currently rail-enabled, and both of the iRex ferries would have been rail-enabled. This came with challenges; much of the $3b cost for the iRex ferries was to be spent on portside infrastructure which would have serviced additional rail.
Transport Minister Simeon Brown even told Parliament earlier this year rail-enablement had led to “significant cost escalations on the port-side infrastructure”.
Willis is keeping her cards close to her chest. She hinted to RNZ’s First Up earlier this year that she was not too concerned about whether the ferries were rail-enabled or not, noting that many ferries around the world were not rail-enabled with rail freight being taken off trains and put on to boats without the need for tracks on the ships themselves.
“It happens around the world, it happens in New Zealand, there’s nothing too unusual about it,” Willis said.
However, Deputy Prime Minister Winston Peters does not share those thoughts.
When told the Government appeared to be leaning towards non-rail-enabled ferries last month, Peters responded, “who said that’s going to happen? Let’s see what happens in the end.”
Asked whether he would prefer rail-enabled ferries, Peters said: “Well, of course I would. Because for 100 years that’s what we’ve been planning to do.”
Asked if it was a bottom line, Peters said: “We don’t have bottom lines like you do - this isn’t our first rodeo”.
The Herald understands the Beehive has been briefed on challenges that KiwiRail would face if the ferries were not capable of handling rail with some warning of severing the connection between the North and South Island rail networks.
Since the Aramoana entered service in 1962, KiwiRail and its predecessors have operated rail as a single national network between both islands.
That would be severed without rail-enabled ferries. Locomotives, which could not be put on to a non-rail-enabled ferry, would be unable to easily be transported from the North Island to the South Island for servicing at KiwiRail’s Christchurch workshop or at Dunedin’s reopened Hillside. In May, BusinessDesk reported that the previous Government had been warned by then-KiwiRail chairman David McClean that a “lack of rail-enabled ferries would mean that NZ’s single rail network would be broken in two ... with a separate network in the North and South Islands”.
He added there was a high risk of “stranded assets” on either side of the strait.
The Herald understands that the new Government has also received advice along the same lines. Some agencies are not overly concerned with this outcome. The Treasury is long known to favour a “radical” slimming down of KiwiRail’s operations, including shutting down rail in the South Island.
Advice from 2015, released under the Official Information Act showed the Key Government considered KiwiRail’s future including shutting down its South Island operation. Faced with tipping yet more money into the troubled state-owned enterprise, ministers sought and received advice on “radical” and “bold” options for its future.
Those two options included radically downsizing KiwiRail which would mean reducing freight operations to “golden triangle only” (Auckland to Hamilton to Tauranga). The other option was to fully close KiwiRail, reducing rail services in New Zealand to a small amount of freight as well as just commuter rail in Auckland and Wellington.
“A viable alternative to closing rail down might therefore be to close down everything except the golden triangle,” Treasury advice said at the time.
Treasury initially said subsidies required by KiwiRail would not be justified in the long term. The Government decided against that advice and sought further less “pessimistic” advice on the public good KiwiRail provided which was less well reflected in the initial advice. Ministers soon decided they would not be shutting KiwiRail down or reducing its scope.
Instead, they gave it $210m in Budget 2015, and a $190m pre-commitment against the next Budget, although as late as March 2015, two months before the Budget, the Treasury was still using language like “in the event the Government wishes to retain KiwiRail over the medium term”, suggesting ministers and officials were still toying with a shutdown or major restructure.
The Herald understands some of those ideas have been circulating again, although it is not clear how seriously the three parties of Government are taking it. Shutting down the South Island network still seems unlikely. NZ First is on record backing rail-enablement, Act is likely to favour a market-driven solution involving few or no subsidies to KiwiRail, leaving National’s position the one that’s least clear.
The Herald asked State-Owned Enterprises Minister Paul Goldsmith whether KiwiRail would continue to service the South Island in the same way it does now. Goldsmith said: “That’s something for them [KiwiRail] to work their way through”.
Willis was asked whether there was a hold-up on Monday, and whether NZ First was the cause of that hold-up. She said: “We’re continuing to take advice as ministers, ministers are all engaged in the process across the three parties in the coalition. They are testing proposals, asking questions, making sure that the decisions we make are based on good information and advice.”
Asked whether the coalition partners were aligned, Willis said: “We haven’t had a final Cabinet discussion so it would be premature to make any assessment”.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
Expectations tempered around return to surplus in 2027/28.