Officials warned the Government against an $85m budget investment in to effectively reopen the Hillside rail workshops in Dunedin, saying rail wagons would still need to be sourced from overseas and that properly equipping Hillside would cost as much as $305m to $400m.
Budget 2021 included $85 million for Kiwirail to effectively reopen the century-old railway workshops at Hillside. The workshop, which had once employed 1200 people, was effectively scuppered in 2012 and reduced to a staff of 27.
The funding will allow Hillside to assemble 1500 railway wagons, despite protests from officials who warned that local assembly was costly and risked delays.
Papers obtained by the Act Party, under the Official Information Act, show Kiwirail officials were sceptical about the merits of re-establishing the workshop, saying the bid was "not supported" by the Ministry [of Transport].
Instead, they acknowledged the choice to reopen the workshop was a political one based on Labour's desire to fulfil a manifesto pledge to reopen the workshop.
"The final bid for Developing Domestic Rail Workshops is a Labour Party Manifesto Commitment.
"This bid is not currently supported by the Ministry. We consider that given the significant constraints on the Budget allowances and the higher priority of other Future of Rail bids that it is not a priority to progress at this time," officials said.
Treasury was also against the bid, recommending it received no budget funding.
Kiwirail warned that assembling the wagons at Hillside would cost 30 per cent more than 'existing wagon procurement practice" based on its cost estimates.
According to a redacted section of the briefing, the text of which was revealed using a "copy and paste tool" the recommended prioritisation of rail funding in the budget was: $771 million for the National Land Transport Fund to be spent on rail, $197.9m in capital for resilience, and a further $1.27b in capital for new rolling stock and mechanical depots.
All those bids were whittled down by about $800m - the NLTF injection was $300m less than what was requested, the core asset spend was trimmed by $100m and the investment in rolling stock was culled by $500m.
The Hillside investment, however, came through the budget process intact, with every dollar requested being allocated in the final budget. Hillside was also the beneficiary of a $20m cash injection from the Provincial Growth Fund to establish a mechanical workshop.
Act's Transport spokesman Simon Court said the advice showed the Hillside project was "a political decision and not based on sound economic advice".
He called it "cynical".
"New Zealanders are asking their government, when are you going to actually build infrastructure we need, rather than this series of political vanity and vote buying nonsense projects," Court said.
But Transport Minister Michael Wood said the facility would "bring back good, high-paying engineering jobs in Dunedin after the last government shut the workshops down.
"We believe that the investment stacks up when these wider benefits are considered and I note that we carefully made the decision to proceed with local assembly, but not full manufacture," Wood said.
According to the briefings, Kiwirail reckons it can have the first wagons running off the assembly line in two years' time. That delay means Kiwirail will still have to import 780 wagons needed to maintain freight services, before it is in a position to build its own.
The Budget bid only provides for the assembly of wagons at Hillside - they are not made from scratch. Officials briefly considered re-establishing a foundry at the site, to build the wagons almost entirely at Hillside, but this was ruled out as being too costly (costing as much as $400m), and for the fact that Kiwirail no longer has expertise in this area, making it very risky.
Officials also said that even a local foundry would rely on some imported parts from overseas and it would be four years before the first wagons entered service.
"We believe that the investment stacks up when these wider benefits are considered and I note that we carefully made the decision to proceed with local assembly, but not full manufacture"
Officials were not totally against the idea, saying it would create around 100 civil construction jobs while building the main workshop and 150 jobs while building shared offices and workshops.
Kiwirail hoped that wagon assembly itself would create 45 new jobs, with 10 per cent of them apprentices. The briefing noted that around 910 "niche engineering and manufacturing industry jobs" had been lost in Dunedin in the last decade.
"An injection of capital to upgrade Hillside provides opportunities for talent in the area to be brought to use again".
Court noted that the local assembly had disappeared from New Zealand in the 1980s because of high costs.
"New Zealand stopped assembling cars and TVs here in the 1980s because it made no sense to import boxes of parts, when fully assembled high quality equivalents were available at a fraction of the cost," Court said.
But Wood said Act's attack on the Hillside workshop showed the "extreme, narrow free-market ideology" of the party.
"As a significant player in any prospective government of the right, they would take us back to the doctrinaire approach of the 1980s and 90s, and our regions would suffer again," Wood said.
State Owned Enterprises Minister David Clark - who is also MP for Dunedin - said that "for more than 100 years, Hillside Workshops has been a cornerstone of Dunedin's strong manufacturing economy".
"In choosing to assemble at least 1500 wagons at Hillside, this Government is investing directly in local engineering jobs, rebuilding expertise, and boosting Otago's economy as well as making our railway more self-reliant.
"Opposition parties want to see the domestic rail industry and its people derailed once and for all. Meanwhile, this Labour Government is committed to getting it back on track," he said.
The Act leader says the law would encourage a new entrant.