KiwiRail contracted McKinsey and Company on December 6, 2023, for a strategic review on how to lift performance for rail freight and the ferries, less than a week before the government’s announcement it was scrapping the Interislander replacement project iReX.
Finance Minister Nicola Willis had said the fee was “excessive and not justifiable”. KiwiRail had refused to make the cost public, citing commercial sensitivities.
After complaints from the NZ Herald, the Ombudsman investigated whether the payment amount should be released under the Official Information Act, and initially ruled KiwiRail did not need to.
However, that decision was reversed on Friday after a further complaint – backed by former Kāpiti Coast District Councillor and government relations consultant Gwynn Compton – prompted the Ombudsman to reconsider.
In a statement, Minister for Rail Winston Peters said KiwiRail had not told the government it had contracted the firm until two months after engaging them.
He said the payment was unacceptable, and would not have happened if KiwiRail had informed the government of its plans.
“We are not criticising McKinsey, whose services were tendered in a lawful and competitive manner. We are criticising the decision to pay that sum,” Peters said.
“The response to a difficult balance sheet should not be to bring in management consultants. This would not have happened had they told us their plans. The response should be to tighten spending, lift service quality and build the customer base, and that is exactly what KiwiRail is now doing.”
Peters said freight is about schedule reliability.
“If you can prove to customers that you turn up when you say you will, then loyalty will grow and volumes and earnings will follow. We are pleased KiwiRail is focused on this,” he said.
“Reliability is strong, especially for major industry customers, and Interislander is delivering near 100% reliability. Safety is heading in the right direction too.”
Peters said earnings were on target and the company had achieved $30m in savings so far this year.
“KiwiRail has firm targets to attract more volume from existing and new customers, and we were pleased to see a real customer strategy laid bare in recent discussions with KiwiRail’s senior management,” he said.
The government is under pressure to deliver on its promise of a cheaper replacement for the Interislander ferries than under iReX, where costs of portside infrastructure ballooned the total project out to about $3 billion.
