Why Cook Strait mega-ferry contract cancellation is taking so long

KiwiRail’s half-yearly report to the end of December said the closure of the mega ferry project was underway and expected to be “substantially complete” by the end of March this year.

It is now the end of June and the contract is not yet settled.

THE Herald asked KiwiRail chief executive Peter Reidy in an exclusive interview this week why it had taken so long to terminate the contract.

Mr Reidy said KiwiRail had terminated the contract and HMD had lodged a claim.

“It’s very complex, so the claim has a number of elements. We have international experts, maritime law experts, who are going through the claim with us line by line – assessing what’s reasonable, what’s fair.

“There are certainly items that we have already recommended to be addressed, there are also other items that we are currently going through and discussing with Hyundai.”

KiwiRail needed a lot of information from HMD, which in turn needed information from more than 140 suppliers involved in building the mega ferry, Reidy said.

“I think it’s taking longer because it’s all about getting information and assessing it, but we’re making good progress, we’re talking to them regularly, we’re working closely with the Treasury and we’re moving as quickly as we can.”

Asked about the new deadline for finalizing the contract, Reidy said KiwiRail’s internal commitment was to have a “recommended range” finalized by the end of the month and then sit down with ministers to discuss the cost .

Industry sources estimate the cost could be between $200 million and $300 million. KiwiRail maintains the details of the negotiations are commercially sensitive.

Reidy said they were trying to separate the claim from any other discussions KiwiRail and the government might want to have with HMD.

Earlier this week, Willis revealed there were questions about whether HMD would be appropriate to build smaller vessels for KiwiRail in the future.

Reidy said HMD had requested that the two issues be separated and had established a separate workflow within KiwiRail to address that request.

“You can imagine that sometimes it can get a little murky, but we try to keep it very separate.”

Reidy visited South Korea in April this year with KiwiRail’s director of vessel programmes Massimo Soprano, Treasury’s director of finance and commercial projects Chris White and Mark Thompson, chair of the Ministerial Ferry Advisory Group.

Reidy said the trip was intended to sit down with HMD and tour the shipyard to understand their claim.

It was also important to discuss the cancellation of the mega ferry contract face to face with HMD, particularly to explain that it was not about their relationship, nor the ships, but rather the associated cost explosion to port infrastructure.

THE Herald reported that officials from the Ministry of Foreign Affairs and Trade informed the government of the risk to New Zealand’s relationship with Korea if the contract was canceled.

Reidy said they also met with a ship broker in South Korea to discuss the used ship market.

KiwiRail previously reported that shipbrokers estimated only 22 such ships worldwide would be suitable to cross the Cook Strait and none of them were for sale. Reidy said they wanted to reconfirm this information during the trip to South Korea.

KiwiRail confirms cost of exit from shipbuilding contract as ministerial advisory group assessing alternative options to replace Interislander fleet provides report to ministers.

Department for Transport officials investigating how the market might react to KiwiRail’s hypothetical exit from Interislander have also released their report.

Georgina Campbell is a Wellington-based journalist with a particular interest in local government, transport and earthquake issues. She joined the Herald in 2019 after working as a radio journalist.