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Officials warned the Government against an $85million Budget investment to effectively reopen Hillside Workshops in Dunedin, saying rail wagons would still need to be sourced from overseas and that properly equipping Hillside would cost as much as $305million-$400million.

Budget 2021 included $85million for KiwiRail to reopen the century-old workshops.

The facility, which once employed 1200 people, was essentially scuppered in 2012 and reduced to a staff of 27.

The funding will allow Hillside to assemble 1500 railway wagons, despite protests from officials who warned that local assembly was costly and risked delays.

Papers obtained by Act New Zealand under the Official Information Act show KiwiRail officials were sceptical about the merits of re-establishing the workshop, saying the bid was "not supported" by the Ministry of Transport.

Instead, the officials acknowledged the choice to reopen the workshop was a political one, based on Labour’s desire to fulfil a manifesto pledge to reopen Hillside Workshops.

"The final bid for ‘Developing Domestic Rail Workshops’ is a Labour Party manifesto commitment.

"This bid is not currently supported by the ministry.

"We consider that given the significant constraints on the Budget allowances and the higher priority of other ‘Future of Rail’ bids that it is not a priority to progress at this time," officials said.

The Treasury was also against the bid, recommending it receive no Budget funding.

KiwiRail warned assembling the wagons at Hillside would cost 30% more than "existing wagon procurement practice" based on its cost estimates.

According to a redacted section of the briefing, the text of which was revealed using a "copy and paste tool", the recommended prioritisation of rail funding in the Budget was $771million for the National Land Transport Fund to be spent on rail, $197.9million in capital for resilience and a further $1.27billion in capital for new rolling stock and mechanical depots.

All those bids were whittled down by about $800million.

The NLTF injection was $300million less than what was requested, the core asset spend was trimmed by $100million and the investment in rolling stock was culled by $500million.

The Hillside investment, however, came through the Budget process intact, with every dollar requested being allocated in the final budget.
Hillside was also the beneficiary of a $20million cash injection from the Provincial Growth Fund to establish a mechanical workshop.

Act transport spokesman Simon Court said the advice showed the Hillside project was "a political decision and not based on sound economic advice".

He called it "cynical".

"New Zealanders are asking their Government ‘when are you going to actually build infrastructure we need, rather than this series of political vanity and vote-buying nonsense projects?’," Mr Court said.

Transport Minister Michael Wood said the facility would "bring back good, high-paying engineering jobs in Dunedin after the last government shut the workshops down".

"We believe that the investment stacks up when these wider benefits are considered and I note that we carefully made the decision to proceed with local assembly, but not full manufacture."

According to the briefings, KiwiRail reckons it can have the first wagons running off the assembly line in two years.

That delay means KiwiRail will still have to import 780 wagons needed to maintain freight services before it is in a position to build its own.

The Budget bid only provides for the assembly of wagons at Hillside.

Officials briefly considered re-establishing a foundry at the site, to build the wagons almost entirely, but this was ruled out as being too costly — as much as $400million — and because KiwiRail no longer has expertise in this area, making it risky.

Officials also said even a local foundry would rely on some imported parts from overseas and it would be four years before the first wagons entered service.

Officials were not totally against the idea, saying it would create around 100 civil construction jobs while building the main workshop and 150 jobs while building shared offices and workshops.

KiwiRail hoped wagon assembly itself would create 45 new jobs, with 10% of them apprentices.

The briefing noted that around 910 "niche engineering and manufacturing industry jobs" had been lost in Dunedin in the past decade.

Mr Wood said Act’s attack on Hillside showed the "extreme, narrow free-market ideology" of the party.

State Owned Enterprises Minister David Clark, who is also MP for Dunedin, said that "for more than 100 years, Hillside Workshops has been a cornerstone of Dunedin’s strong manufacturing economy".

"In choosing to assemble at least 1500 wagons at Hillside, this Government is investing directly in local engineering jobs, rebuilding expertise and boosting Otago’s economy as well as making our railway more self-reliant.

"Opposition parties want to see the domestic rail industry and its people derailed once and for all.

"Meanwhile, this Labour Government is committed to getting it back on track," he said. — The New Zealand Herald