This Government has its work cut out making decisions and legislative changes to counteract the appalling financial legacy of the previous Labour Government’s loose spending habits, increases in public debt, budget deficits lasting years and poor commercial decision making, without the media running interference for the opposition.
Case in the point: upgrading our ailing interisland ferries requires more careful scrutiny than the previous ferry purchase allowed, the $100-million-plus Spanish-built ferry first entered service in 1999 with so many issues it was dubbed “El Lemon” by the crew.
James Ball
The Ardern government, “through Budget 2019 and Budget 2020, agreed to fund KiwiRail's purchase of two large rail enabled ferries to replace its current fleet of three ageing vessels (KiwiRail’s Inter-Island Resilient Connection (iReX) project) and required terminal infrastructure upgrades in Wellington and Picton.”
NZ Govt Treasury Oct 2021
The government gave KiwiRail $35m for the design and replacement cost of two new ferries when the projected cost was $775m.
Newstalk ZB record the unhappy history from 2019 to December 2023, when Nicola Willis pulled the pin because ministers had zero confidence there would be no further budget blowouts.
In November of that year [2019], KiwiRail submitted another bid for more money to deliver what has come to be known as the Inter-island Resilience Connection project (iReX).
However, by this time, the cost of the project was forecast to be $1.389 billion, up from $775m.
KiwiRail’s budget bid was successful, and in May 2020 the Government announced a further $400m for the project.
The Government expected this would be the final amount of Crown funding and the remaining costs would be privately funded.
The Government was in for a nasty surprise.
KiwiRail gets a stern letter from a ‘disappointed’ Grant Robertson
KiwiRail went on to submit another bid for more money ahead of Budget 2021, this time for an additional $565m.
Treasury and Ministry of Transport officials were not happy.
Costs for the overall programme had ballooned to $1.76b in March 2021. Portside costs alone had almost quadrupled to more than $1b.
Officials raised concerns about the increasing scale and cost of the project, including that its latest business case was still in draft form at that time and yet to be finalised by KiwiRail’s board.
Ministers agreed the Budget bid should be deferred.
The decision was not without risk. KiwiRail warned that without the $565m, the arrival of the new fleet would be delayed and the Interislander service would be compromised.
KiwiRail had signed a letter of intent with Hyundai Mipo Dockyard for the two new ferries, which was due to expire in a few months.
If it expired without a formal contract being signed, the terms and price could be renegotiated.
Eventually, Cabinet agreed to a contingency fund in June 2021, and by that time KiwiRail had progressed the design of the port infrastructure and estimated the cost to be $1.45b instead of $1.76b.
On July 1, KiwiRail issued a press release saying it had signed a now binding contract with Hyundai Mipo Dockyard for the state-of-the-art ferries.
But KiwiRail deputy chairwoman Sue McCormack also received a stern letter from a “disappointed” Grant Robertson, who told her significant risks regarding the project remained.
Nicola Willis meets with KiwiRail’s top brass before she’s sworn in
In October 2022, KiwiRail advised ministers there was yet another cost escalation associated with the terminals, but said the worst-case scenario was that the tagged contingency would need to increase by $280m.
As it turned out, this was not the worst-case scenario.
In February 2023, KiwiRail told the Government the overall cost had escalated to $2.6b.
Ministers wanted the state-owned enterprise to provide further information and work with officials to look at different options.
KiwiRail went on to review all aspects of the iReX project to make sure costs were being managed prudently.
In September 2023, Cabinet made an in-principle funding decision to help plug some of the cost escalation, but it was not enough to complete the full project.
The 2023 general election brought a change of Government and Willis was informed of the new $2.6b cost during coalition negotiations.
She received written briefings from KiwiRail regarding the iReX project on Thursday, November 30 and met McLean and Reidy again later that evening.
By then, the cost had escalated to $3b.
On December 13, Willis issued a statement saying the Government had declined KiwiRail’s request for an extra $1.47b for portside infrastructure.
The ailing ferries will be replaced.
Willis appointed a working group to assess the long-term requirements for a resilient connection across Cook Strait.
"The group will help to ensure that there are robust plans in place to support safe, resilient and reliable services in the coming years. The establishment of the group also recognises that the Crown has interests that may be wider than KiwiRail’s commercial interests," Willis said.
Newshub Dec 2023
In June, this year, the working group recommended “the ferries be smaller than the proposed iRex ferries and not rail-enabled, although rail would still be able to be shunted onto the vessels as often happened now. It’s understood secondhand ships were not an option on the table. But ministers were said to be considering whether KiwiRail would buy the ferries or a different entity would handle the purchase.”
Last week, 1News, in full support of the previous Government, took full advantage of keeping the public ignorant about the way money slipped so easily through the fingers of the previous government by claiming that half of New Zealanders think the Labour government’s ferry replacement project should proceed and Nicola Willis was wrong in canning iReX.
“The poll asked: “Do you think the government made the right or wrong decision to cancel the replacement Interislander Cook Strait ferries?”
Around half (51%) of the respondents said it was the wrong decision, one-quarter (26%) said it was the right decision, while a little under a quarter (22%) didn’t know or wouldn’t say.”
I News Poll 24 August 2024
Would you proceed with a project where the expected costs blew out from $775M to $3.2B and the previous ferry purchase was an abject disaster?
