Reviewing the Cook Strait Ferry fiasco

Written By: - Date published: 1:07 pm, January 16th, 2025 - 35 comments
Categories: act, climate change, david seymour, Deep stuff, Economy, Environment, infrastructure, national, nicola willis, nz first, same old national, science, uncategorized, winston peters - Tags:

I have spent some of the holidays reading various documents relating to the Cook Strait Ferries contract which was somewhat ignominiously brought to a shuddering halt in December 2023 just after National gained power.

The documents provide interesting background.

The project started well enough. A vision for an improved and more resilient and more rail sympathetic Cook Strait crossing was devised by Kiwirail and approved by the Labour/NZ First Government.

The rationale was clear. The two existing ferries were approaching the end of their useable lives and needed replacing. And the Wellington and Picton terminals were in poor shape and needed major renovations.

So through some deft negotiations two brand new ferries were contracted for, to be built by a reputable South Korean boat constructor Hyundai Mipo Dockyard.

The original project costs in November 2019 were $1.389 billion including the ships and landside costs.

The Crown allocated $400 million to the project. The balance was expected to be funded by Kiwirail itself as well as the ports companies and some of Kiwirail’s contribution was to be by way of debt.

In June 2021 Kiwirail completed the detailed business case and this suggested a slight increase to $1.45 billion. The project had a Net Present Value of $207 million, suggesting that it represented a good commercial investment. It also had a benefit cost ratio (BCR) of 4.4 which is outstanding. This included not only fiscal returns but also allowances for emissions, reliability and resilience.

As an example of the benefits getting trucks off the road through diverting freight to rail is good not only for the environment but also for road maintenance and congestion. If you really want to understand the benefits of a project these are relevant matters to include.

And the reduction in emissions were not to be sneezed at. On day one emissions would be lowered by 40% and it was anticipated that this would increase to 100% by 2050, presumably through the use of Hydrogen.

The BCR should be compared to some of the Government’s roads of National Significance. The likely BCR of the previous version of the East West Motorway in Auckland was very likely well below 1.9. And the Warkworth to Wellsford Motorway’s BCR has been estimated at just 0.7.

To add to this the ships would provide stronger performance, better reliability and a more comfortable journey for passengers across a strait that can get really rough.

In February 2023 Kiwirail went to the Government and advised that the total program cost had increased from $1.45 billion to $2.609 billion.

They requested a further $1.97 billion from the Government and proposed to repurpose other funding to cover the balance.

Some of the increase, an estimated 10%, was because of building inflation which was rampant at the time. The rest was primarily in the terminals programme which needed larger piles, stronger sea walls and greater structural rigidity that what was estimated in 2021.

Some of it was due to the need to meet higher seismic standards. 70 tonne piles that are 1.5 metres in diameter were now needed. This not only increased material costs but also required larger safety zones to ensure safety during construction.

The project still had a positive benefit cost ratio of 2.1. The overall return was twice the amount to be spent.

There was some push back from the then Labour Government to the increase.

By letter dated 19 December 2023 Grant Robertson wrote to David McLean, chair of the board, and said “[w]e note that Kiwirail under-scoped the landside infrastructure in 2021 meaning the decision to procure two large rail-enabled ships at that time was premature. To date, we are yet to see a satisfactory explanation for why this was the case.”

Robertson also expressed his disappointment at how challenging the process to get adequate information was, and that the vessel delivery terms were renegotiated at a time when the Government was considering future funding.

The Government agreed in principle to increasing the tagged capital contingency for the project by $750 million with a clear expectation that the scope and staging of the landside infrastructure would be altered to reduce costs. There were to be discussions on what form the tagged funding would take, whether by debt or equity.

Clearly Labour did not authorise or agree to the full amount of the increased spend. Instead there was a sense of concern that a project that had been sold to them on the basis the associated wharf work would cost a relatively settled amount. But they were still prepared to proceed with the project, albeit on a changed basis.

National’s election in 2023 change of Government meant that everything was up for grabs.

Treasury clearly did not support the project and adopted a cautious commercial approach to valuing benefits. In presenting to the new Government it took the opportunity to rail against the project and attempted to disrupt it.

In its report to Willis dated December 5, 2023 Treasury referred to the negative Net Present Value of the proposed investment and concluded that the project “no longer represents good value for money”.

About rail it stated:

The Crown needs to respecify its objectives for the project and ask KiwiRail to go back to the drawing board and focus on delivering a more cost-effective level of resilience, to remove rail enablement unless it is demonstrated to deliver marginal commercial benefits, and minimise, and transparently identify, connection costs (freight and road transport). KiwiRail should prepare a programme that has a positive NPV, is as commercial as possible, and minimises calls on shareholder funds.

On December 11, 2023 Cabinet effectively decided to kill the project by rescinding its previous decision increasing the available contingency. It did this knowing that the cancellation of the very beneficial ferry construction contract was almost inevitable. The Cabinet Minute also noted that Treasury “will engage with the Ministry of Foreign Affairs and Trade” to work out the diplomatic implications of the move. The Minister of Foreign Affairs had previously been warned that if the contract was cancelled then “careful and deliberate communications with the Korean Government would be required in advance of any public announcement.”

But the communication to the Korean Government was shambolic and appears to have comprised two text messages. From Radio New Zealand:

New Zealand officials notified their Korean counterparts they were scrapping the Interislander ferry project via text message less than an hour before the public announcement.

That’s despite the Ministry of Foreign Affairs and Trade (MFAT) earlier warning ministers cautious talks with South Korea would be required.

Asked for evidence of that communication under the Official Information Act, MFAT provided two text messages.

The decision to reject KiwiRail’s funding request had been made by Cabinet on Monday 11 December, KiwiRail was informed on the 12th, and it was publicly announced at 3.30pm on Wednesday 13 December. Ministers had been warned it would likely mean the end of the contract with Korean company HMD to build the large new rail-enabled ferries.

Despite the warnings the handling of the announcement was ham fisted. The damage to the country’s relationship with South Korea is not currently clear but it cannot have helped. And the negotiations with Hyundai Mipo Dockyard cannot have been advanced by the ham fisted way that the contract was cancelled.

The Government promised that a cheaper and better solution would be found.

It appointed a Ministerial Advisory Group dominated by road interests and recommendations were reported back in June 2024.

MUNZ National Secretary Carl Findlay said this about the Group:

Given the advisory group’s antagonism of key players in the freight and shipping industry, and their dismissal of the importance of a rail system that delivers $3.3 billion in worth to NZ Inc each year, it’s not surprising their recommendation has stalled. It is surprising they still seem to be on the payroll although nobody seems to know what they are doing. The rumour in the sector is someone from the Government is talking to Chinese shipyards on the quiet.

Despite repeated promises no announcements were made about the future of the project until December last year when an announcement of sorts was made.

Three details were provided.

  • Winston Peters became Minister for Rail
  • A company would be set up to buy two new medium sized ships to replace the ageing fleet of three ferries.
  • The ports would be asked to bear more of the cost of the port build.

But we were not told where the ferries were coming from, how much they will cost, who will pay for them, how the port infrastructure will be delivered or what the fiscal or economic impact would be.

We also do not know if they will be rail enabled. Although Christopher Luxon’s use of the phrase rail compatible hints strongly at a walk back from the original commitment to rail.

The issue has opened up fissures between NZ First and Act.

Shortly after the December announcement there was this incredible attack on David Seymour’s credibility by Winston Peters over the issue. About Seymour Peters said:

He’s wrong on the figures that he’s used, he’s wrong on the question of privatisation and he’s wrong on the question of what it’s going to cost”.

From the article:

The new Minister of Rail Winston Peters has poured scorn on ACT leader David Seymour’s hopes of privatising the Cook Strait ferry service, and says Seymour was “wrong” about the cost of the new project.

On Wednesday, Seymour said indicative costings were “approximately half the at least $3 billion cost” of Labour’s proposal.

He shared that information despite Minister of Finance Nicola Willis’ caution about disclosing costs.

Asked on Morning Report if the government had a sum in mind, Peters said it would be “stupid” and “imprudent” to name the price.

“I said [on Wednesday] it would be most imprudent, politically and business-wise, stupid, to start saying what you’re going to buy them for, because that’s the bottom line. They’ll start from there and up it will go.”

As I said previously this is going to get sticky. National’s and Act’s reflexive opposition to rail is going to meet head on with NZ First’s realisation that rail has a major role to play in the issue. Winston has previously agreed strongly with Mainfreight’s Don Braid view that not having rail-enabled ferries will be inefficient and more costly for businesses like his and could lead to 10,000 more trucks on the country’s roads.

I predict that Peters, who supported the original decision to commence IREX, will insist that the ferries are rail enabled, despite National’s and Act’s complete indifference to rail.

And this is a good issue for NZ First. It lets them differentiate themselves from National and Act, will embarass the hell out of Nicola Willis and will attract working class support.

And we should remember that back in 1998 Winston Peters led NZ First back into opposition when he rebelled against the privatisation of Wellington Airport.

At a time where the country is scrambling to meets its climate change goals cancellation of the ferries contract is unforgiveable. The new ferries had the potential to run on 100% renewable energy. These opportunities should be seized.

And the ferry contract was a really, really good one. As pointed out by Mountain Tui Nicola Willis has engineered a situation where we are replacing next generation, size appropriate, and full functionality Mercedes for a Toyota price and is now trying to buy a basic, no-frills Toyota Corolla for the price of a Mercedes.

The issue is a nightmare for the Government and especially for Nicola Willis. She could have costed the country $1 billion dollars through her anti rail impulse.

Time will tell if this is a coalition ending issue.

35 comments on “Reviewing the Cook Strait Ferry fiasco ”

  1. tWig 1

    Excellent sleuthing, but the text apoears doubled up.

  2. Gillian 2

    "A company would be set up to buy two new medium sized shops to replace the ageing fleet of three ferries."

    ships ?

    [Yep now fixed thanks – MS]

  3. Ad 3

    Surely this would be a great time for Infratil, NZSuper and ACC to co-invest in a new Crown entity that is also partly owned by CentrePort, Kiwirail and Port Marlborough?

    Where's a great dealmaking Prime Minister when you need new infrastructure?

    They can write deals through legislation for hundreds of projects, but they can't broker a deal for their own one?

    If Winston gets to win this one by forming a new rescue-Crown-entity, I hope he buries Willis with it and crows over Luxon for all he's worth.

    • Patricia Bremner 3.1

      100%. Ad. Winston being a Lawyer, he can see this was a knee jerk by Willis et al. and was short term thinking.

  4. cathyo 4

    thanks for this, very clear.

    I cannot understand the anti-rail bias from the government. the advantages of more rail usage are so clear, in terms of better usage of resources, much less truck traffic on the roads, giving better roads management, so much less congestion and safer roads as well as cheaper freight costs.

    Rail is so much more efficient and climate friendly. the only thing that could be improved is to allow for fully loaded trucks to be loaded onto rail for the long-haul part of their journey but i understand that is due to the norrow guage of our system.

    • Brent Efford 4.1

      Many commentators miss how much anti-railism is part of the Tory agenda. 10,000 more trucks on the road is not a downside to them but a desired outcome – truck operators are major National Party funders. The narrow gauge of the NZ rail system (without which we probably wouldn't have a national rail network at all) is a red herring – South Africa, Japan and Queensland (among others) all have the same gauge and carry much more freight and/or more and faster passenger trains than NZ!

  5. thinker 5

    Unless I'm missing something, I keep wondering at the naivety of making Winston the guy to buy the replacement ferries.

    He's got skin in the game, previous form, whatever buzz phrase you want to use, but he's not going to want the previous decision, which he was a part of, to appear to have been a poor decision.

    • Ad 5.1

      Peters and Jones are the only guys in this government who have any industry cred with Kiwirail. That senior team and NZF get on really well.

      • Tiger Mountain 5.1.1

        Winston and NZF via PGF helped with restoring the rail track network to Northland. Lines under bridges were lowered to allow containers to pass rather than build new bridges, a freight depot in Moerewa was planned etc. Plus, there was a plan to use the Kaipara again for maritime transport linked to jettys and rail. A number of the jettys in small communities were actually restored or built.

        I went to a meeting in Whangarei that was meant to be about Willow Jean Prime’s then campaign, but Winston turned up and trumpeted how he had got landowner approval for the rail link to North Port/Marsden Point.

        So I buy that NZF do support rail. Winston has form and is not afraid of any PM or Cabinet.

        • Matiri 5.1.1.1

          Also the redevelopment of Hillside Workshops in Dunedin which is just nearing completion.

  6. adam 6

    Nicky No Boats!

    Get the t-shirt it's a ripper.

  7. barry 7

    If the boats had been finished they would have been worth much more than we were to pay for them. Even if we sold them and bought cheaper boats we would be better off.

    How is the government planning to build new port infrastructure more cheaply. They will still have the same earthquake resilience and inflation problems.

    It is debateable if the current fleet can survive much longer without a major disaster. the government may have blood on their hands, or a major disruption to transport.

    • alwyn 7.1

      Who was going to buy them?

      If you are really sure of you statement I'm sure you will be able to give the name of at least two companies that would buy them and could use them. You will be able to tell us how many rail enabled ferries they have and what was the last one of that kind they bought.

      It can't be that hard to come up with the information can it? After all you wouldn't make such a bold statement as "they would have been worth much more than we were to pay for them" if you can't tell us the names of prospective purchasers

      • satty 7.1.1

        There has been talks abut buying 2nd-hand ferries instead, so there's a 2nd-hand market for ships:

        Reidy [KiwiRail chief executive] said they also met with a shipbroker in South Korea to discuss the market for second-hand ships.

        KiwiRail has previously reported shipbrokers estimated just 22 such ships in the world would be suitable to traverse the Cook Strait and none of them were for sale. Reidy said they wanted to reconfirm that while on the trip to South Korea.

        NZ Herald

        Not really a big market for large ferries. On a positive side, if they can make the Cook Strait, they can probably make it anywhere laugh

      • Incognito 7.1.2

        Are you sure you’re not a sealion?

        • alwyn 7.1.2.1

          No, my dear chap. I am not "trolling" as you suggest. I had originally thought the it might be a good idea to finish and sell them but when I looked at it there didn't seem to be any way of doing it as the market for the completed ships didn't seem to exist. Do you have any idea where the ships could be sold if we went ahead with them? Rather than spend your time disparaging my comments you might, possibly, be able to come up with a viable method. God knows, nobody else seems to be able to.

          You seem to have a wide variety of ideas. Why not help Barry out?

          • Cinder 7.1.2.1.1

            You are a sealion and a troll Alwyn – see my reply to you re: cycleways.

            Alwyn has never heard of Google or the internet as he has never exercised his personal responsibility and become an informed individual

            Oh look! It took me 5 seconds!

            https://shipselector.com/offers/sale/passenger-vessel/ro-ropassenger-ship/15309-71m-570-pax-passenger-roro-ship

            https://www.seaboats.net/seaboats-main/commercial-vessels/cargo/roro

            Now Alwyn will magically transform into an expert on maritime engineering, logistics and integrated transport networks using the power of "questions".

            • Cinder 7.1.2.1.1.1

              In fact, Ali Baba sell ferries!

              And have a filter for "tankers" cool

              https://www.alibaba.com/showroom/used-ferry-for-sale.html

              Can someone explain Ali Baba to Alwyn?

            • alwyn 7.1.2.1.1.2

              Well I looked at your first link.

              We have someone wanting to sell a 70 metre long 480 tonne ferry with RORO for cars. There is no provision for rail wagons.

              Please explain to me what this has in common with a 220 metre long, 50,000 tonne rail enabled ferry?

              This is like suggesting that a cherub is a suitable vessel for someone who is planning a non-stop round the world sailing trip.

              • northern Wah

                Train ferries are easily adaptable to ro-ro ships. It's the other way around that is more tricky. There would have been a market to sell these ships, no doubt, although probably not at a vast profit on their construction costs.

                They're probably going to end up with rail-enabled e-flexer vessels built in China for Stena to charter to Kiwirail. A fine solution but nothing like as good as the original proposal and probably with minimal savings.

          • Incognito 7.1.2.1.2

            You’re not setting homework here, you hypocritical sealioning troll – from now on let’s call you Mr Disparagus or Trollus Maximus.

  8. Christopher Randal 8

    Nothing will happen to Nicky No Boats because the Nats seldom discipline their own.

    "Time will tell if this is a coalition ending issue." I would really like to think that this would come to pass but Winston in too interested in his "baubles of office"

  9. SPC 9

    It is cost us, not costed (last paragraph) us ***.

    1B might be conservative.

    About $200M on the contract exit, and they will find nothing comparable to the 2 Korean vessels for less than c$1B.

    They got a good deal for $500M back then. A good deal now would be higher.

    The alternative supply is from the Chinese (they made a slightly shorter and slimmer vessel rail enabled ferry for Sweden).

    Can we find leverage to get a good price – promise not to sign AUKUS Pillar 2 in return for a face saving price? Or find someone else to build so the price can stay below a $B (Japan?).

    But they are running out of time – the Koreans worked with KiwiRail on power (could be modified to be more electric etc) and also design (to reduce wash). It was good on more than price.

    The government might try and reduce onshore costs – but the new ports rising cost was based on appreciation of risk from rising sea levels and earthquakes. This is a decades long investment.

    Luxon @ team the Unready,

    We three of Orient and R, walking our way up the Wellington Street because no one ordered an uber and Bishop fell off the scooter, when trying to toot her, that someone from Korea had responded to the text with an emogi

    ㅂㅂ / ㅃㅃ (Bye-bye).

    • mickysavage 9.1

      Yep and there will be a cost to the efficiency of the Rail network and the cost to ratepayers who have to fund the ports improvements and the cost to all of us because containers are going to become more expensive to move.

      It is a shame this Government is totally focussed on what cost they can trumpet and ignore the real cost to all of us.

      • KJT 9.1.1

        "This Government" is totally focused on party election funding and, rewards with after politics directorships, from the trucking industry.

        I suppose our politicians are "honest". They only get their bribes after leaving office!

  10. Binders full of women 10

    "will attract working class support." what does mean? Does it mean Lech Walensa is froffing over it?

  11. Adrian 11

    A few points. An acquaintance who has first hand knowledge of the Picton port infrastructure said that the existing wharf is buggered with a lot of broken piles through years of vessels nudging them on berthing, and movement when berthed from wind and tide and it’s on the point of collapse.
    The second one is one we rarely hear about and that is the cost of SH1 South Island maintenance because of thousands of more big truck and trailer journeys annually. The 10 billion dollar SH1 rebuild post Kaikōura and Ward earthquakes is already showing huge amounts of damage after less than a few years use. I’ve not seen any figures for this factored into the overall cost to the country.

    Thirdly I have seen estimates of 7 to 10 thousand new trucks required, which I think is a misjudgement but even if only 3 to 4 thousand new truck and trailer units are required if rail is dismissed or the rail- enabled option is taken, multiplied by $500,000 per unit it would cost the country another huge amount of money. The freight companies don’t mind , strangely it doesn’t cost them as they are generally leased and the costs easily passed on.
    Another huge cost not even contemplated here is the millions and millions needed to bypass the towns just in the South Island for the extra traffic. SH1 passes through the centre of every town from Picton to Dunedin as a single lane road and already when a ferry empties out Blenheim goes into gridlock, as laughable as that seems.
    Fourthly, we are already seeing repercussions from the post election tantrums, for years every ferry has crossed Cook Straight in greater than 3 metre swells, but not now. Strange!, what have we not been told, nor the media investigated? Has NZR been told that if they sail these old tubs in conditions greater than this that their insurance will be voided, or have the Maritime authorities put restrictions on, that we haven’t been told about?

    It is entirely possible that overall the Nikki No- Boats option could cost up to 2 billion more than the previous option. Added up that’s nudging 5 billion dollars.

    The question is not how did she get the MoF job but how is she still in it.

    • PsyclingLeft.Always 11.1

      we rarely hear about and that is the cost of SH1 South Island maintenance because of thousands of more big truck and trailer journeys annually. The 10 billion dollar SH1 rebuild post Kaikōura and Ward earthquakes is already showing huge amounts of damage after less than a few years use. I’ve not seen any figures for this factored into the overall cost to the country.

      Nor will there be. Does not fit the NAct1 agenda. Their trucking lobby group definitely does not want it known !

      I certainly, and many others, both here on the Standard and NZ , have tried to highlight this. I personally have put up many Links to Parliamentary Submissions, petitions etc etc…

      Rail, Coastal Shipping…got to be the answer. But its never going to be until we get a Govt that …gets it.

      Anyway…you maybe a local of that area? Keep up the awareness. Thanks.

      Re Willis. The mind boggles. Im sure she makes it up as she goes….

      So much damage.

  12. KiwiFail 12

    Just love it how KiwiRail can hobble the size of the new ferries for rail enabled freight, create a shit fight about not using Kaiwharawhara only being told to, then spending $347M on the just the planning and design of landside infrastructure that was NEVER going to be built, and conveniently provide a basis for the cancellation estimate, and continues to stay behind the protection of being an SOE – with continued taxpayer handouts. All this but no one puts KiwiRail under any scrutiny for their self sabotage of IREX project. They set it up to fail after they (mistakenly) bought future proofed vessels. It’s KiwiRail real objectives that need scrutiny above all else. Don’t get fooled by the name.

  13. If new ferries are not rail-enabled then the NI an SI will each have isolated rail networks. Getting anything between islands using rail will require transshipment to and from road or specialized ship. Think goods, rail locomotives or wagons, whatever. Both islands will need lots more road transport with associated construction, maintenance and safety risks and costs.

    Both islands have difficult terrain for road or rail. Narrow 1067 gauge better for steep country and relatively long distances and modest traffic volumes. I think Aus and SA use 1067 because cheap and OK for freight or easy country. NZ has those motivations plus the steep terrain. The issues that push rail to narrow gauge also make roads expensive and prejudice road safety. Given that rail-enabled ferries for our gauge are not a commodity item, and that the rail network is of strategic importance, I would have preferred three smaller vessels. In the unlikely event of losing one you still have two and therefore some resiliency left. and port costs

    Not suitable for privatisation. That is just a recipe for less control over costs and a cost-plus mentality for operations. Every public good required will be an opprtunity to charge huge prices.