Interislander: Ministers warn ‘cautious’ talks with Korea needed over ferry cancellations

Russell PalmerDigital political journalist

Despite warnings from officials that cancelling the Interislander ferry replacement would require “careful and deliberate” communication with Korea, this did not happen until the afternoon the announcement was made.

Finance Minister Nicola Willis appeared on RNZ on Friday (December 8) warning of cost overruns on the ferry replacement project known as iReX.

The Department of Foreign Affairs and Trade (MFAT) later today provided advice at its request on the potential impacts if the government chose not to continue funding the project.

The ministry’s note stresses that failure to continue funding would likely result in the project being cancelled.

“Under Option 2 STOP, committed government funding for the IREX project (new electric ferries and terminals in Picton and Wellington) would be significantly reduced, likely resulting in the cancellation of the two ferries that have been ordered from Hyundai Mipo Dockyard (Hyundai) in the Republic of Korea (hereinafter Korea).”

Several points from the MFAT’s December 8 opinion were removed from the published document, but at least one line was quite clear.

“Careful and deliberate communications with the Korean government will be necessary before any public announcements are made,” he said.

The following Monday, the Cabinet decided to cancel the interim funding promised by the previous government. Willis announced this in a press release at around 3:30 p.m. on Wednesday, December 13.

MFAT has now confirmed to RNZ that discussions with the Korean government did indeed take place – on the same afternoon of the 13th.

“Discussions took place in Wellington and Seoul between New Zealand Ministry of Foreign Affairs officials and their respective counterparts on the afternoon of the announcement to provide advance notice of the New Zealand Government’s decision,” the ministry said.

“The confirmation of the announcement was on December 13, 2023.”

The ministry declined to comment on the content of the discussions or whether further such discussions took place.

Willis was unable to speak to RNZ. Public Enterprises Minister Paul Goldsmith – the other minister who is a shareholder in KiwiRail – made a statement through a government spokesman.

He did not directly answer questions about whether the formal discussions with the Korean government met MFAT’s advised threshold of “careful and deliberate communications,” but said it was “in the public interest” to make the announcement Wednesday.

“Following Cabinet’s consideration of the request for additional funding, KiwiRail was informed on 12 December of Cabinet’s decision to reject the request. Ministers then publicly announced the decision the following day, 13 December, as it was in the public interest to do so.”

The December 11 Cabinet paper also shows that ministers were briefed on the risks associated with the decision to close the iReX project. These include reputational risks to KiwiRail, New Zealand, and risks to New Zealand’s relationship with Korea.

“There is a risk that the Republic of Korea will express concerns about the cancellation of contracts with HMD,” the newspaper said.

“Clear reasons for the decision, such as affordability and value for money, must be communicated. From a commercial perspective, this risk should be manageable if KiwiRail conducts its negotiations in accordance with the contracts and on a reasonable basis.”

The decisions also came after a Treasury briefing in late November, which warned Willis against making any premature statements that could jeopardise KiwiRail’s ability to trade.

“If the KiwiRail board decides to terminate the vessel contracts with HMD, this will need to be negotiated by KiwiRail. We advise that communications from any party do not compromise KiwiRail’s negotiating position,” Treasury said on November 29.

“We do not recommend making any public statements regarding the details of the iReX project at this time. This includes the specific cost increases that have occurred or the level of Crown funding that has been provided to the project, or may be provided in the future.”

The government spokesman defended Willis’s statements in light of the warning.

“As set out in the Treasury briefing to ministers on 29 November, it was common knowledge that the iReX project is facing escalating costs and that KiwiRail is working with its partners, including the port companies and the Crown as a shareholder, on how these escalating costs can be managed and funded.”

“Minister Willis’ comments on December 8 were deliberately general in nature. For example, she told the media, ‘I’m not going to get into the details of those numbers today…’ in reference to specific details of the escalating costs. This approach is consistent with the advice of officials on this issue.”

On Tuesday, RNZ will examine how Labor’s decision to provide $750 million for the iReX project has left KiwiRail in limbo and driven up costs.

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