New documents reveal the Government has set aside $300 million to cover broken infrastructure contracts and a break-fee with Hyundai, after the coalition ended a contract with the Korean company to build two new Interislander ferries.
The Cabinet paper was released by Treasury just half an hour after Finance Minister Nicola Willis had repeatedly refused to confirm that figure to reporters.
The broken contracts for associated infrastructure costs — for example, port upgrades — have been resolved, but the exact amount to be paid to Hyundai was still being negotiated, which meant the contingency fund of $300m set aside might not be enough to cover all the costs.
Willis also said she did not know how much the cost of two new ferries will be, as a new contract hasn’t yet been signed.
On Friday, however, Rail Minister Winston Peters met with Hyundai in Seoul and confirmed to RNZ the company was back in the running to build the two new ferries needed.
The contract, known as iRex, was cancelled with Hyundai shortly after the coalition came to power, citing a $3 billion cost blowout associated with the ferries and the required port upgrades.
Peters has since embarked on a worldwide tender to find — by the end of March — a builder for two cheaper and smaller rail-enabled ferries, and have them running by 2029.
He said Hyundai was open to a bid to build the new smaller ferries and had indicated it could meet the size specifications involved in that.
“I’ve got a serious contender back in the ring of potential contenders for the tender for two replacement ferries for the Cook Strait,” he told RNZ in Seoul on Friday.
Willis, as recently as this morning, insisted the new cost — including the break-fee and the two new ships — would be less than the almost $4 billion the iRex project had risen to.
The Government’s under pressure to let Kiwis know what Plan B is. (Source: 1News)
The Cabinet paper, dated December 9 of last year, noted officials had assessed if the iRex ferry contract could be “renegotiated with different ferry specifications to reduce landslide costs” but concluded “this is not possible”.
As a result, the $300 million already set aside by the coalition to exit the iRex contract would need to be paid out regardless of whether Hyundai won the bid to build the new ships.
Peters has pointed out to RNZ that South Korea was the “world number one ship builder”, and that needed to be remembered when considering any new contracts.
The Cabinet paper released on Tuesday also outlined the expectation that the ports fund “as much of the landside development as possible” for any new ferries.
“The ports will, where possible, pass these costs on to operators in user charges, which in turn will likely be passed on to ferry customers,” the paper noted.
‘Another humiliation’ for Finance Minister – Labour
Labour leader Chris Hipkins said New Zealand’s bargaining position with Hyundai would be much stronger if the Government had not cancelled the ferries.
He said it was a kneejerk decision to cancel the ferries, without knowing how much the replacements would be or who was going to build them.
“We still don’t know what the replacement option’s going to be, how much it’s going to cost or who’s going to build them, and yet we’re on the hook for at least $300 million to cancel the deal with Hyundai when the Government might actually go back to Hyundai and get them to build the new ferries anyway.”
Hipkins said it was “another humiliation for Nicola Willis”.
Rail Minister Winston Peters said he could not comment on negotiations between Hyundai and KiwiRail at this time.
Peters said he had an “excellent” meeting with Hyundai, and confirmed it was back in the running for the tender to build two smaller replacement ferries, but that was separate to the break-fee.
New documents reveal the coalition has set aside $300 million to cover a break-fee with the Korean company tasked with building two new Interislander ferries and associated infrastructure costs. Peters said he was still analysing the port infrastructure costs.
“I haven’t got them at the top of my head at the moment, because there’s a whole lot of infrastructure — some of it 10% started, some are 90% started, some with the roof yet to go on. There’s a whole lot of things being done at the moment in terms of sorting that out.”
Peters said Hyundai was “seriously interested” in bidding for the new contract, and he said he knows their “timeframes” and “capacity”.
“They are the biggest shipbuilders in the world after all, and so it was a great meeting.”
But he also mentioned he had been looking at “other options” as “far as Finland”.
The coalition would announce by the end of March a new plan to build two cheaper and smaller rail-enabled ferries, and have them running by 2029.
“We will have the framework promised to you at the end of March this year, yes,” Peters said.
Willis said the money set aside by the coalition was “just good budgeting process that we put aside funds that we know will be required”.
The Finance Minister said the coalition attempted to renegotiate the contract when it made the decision to cancel.
“We were advised of two things, one, that that initially wasn’t an option, and two, when we then tried to pursue that, the option that came back was very expensive.”
She said Peters had “obviously taken further steps” and further questions should be directed to him.
“I have not been party to the discussions he has had with Hyundai.”
rnz.co.nz