Tertiary Education Minister Penny Simmonds said the national model in place was not financially sustainable and "difficult choices" had to be made.
The minister said in her second letter of expectations to mega-polytechnic Te Pukenga, obtained by the Otago Daily Times yesterday that urgent work was required to preserve vocational training in the regions.
Her first letter, released late last year, ordered Te Pukenga to disestablish itself.
The mega-polytechnic brought together the country’s 16 Institutes of Technology and Polytechnics (ITPs) and nine industry training organisations about four years ago, but Ms Simmonds has since signalled a return to a more regional-based model.
The second letter, issued last month, suggested even more shake-ups were to come.
"I am aware that some difficult choices may need to be made to ‘right-size’ operations and their associated capital assets", Ms Simmonds said.
"For some business divisions, this may require significant change to how they operate and deliver into their communities."
The letter reaffirmed her desire to "support as much regional decision-making as possible" but said "given that many of the former ITP business divisions are not financially sustainable, urgent work is needed to preserve the viability of regional provision".
"For the avoidance of doubt, I do not consider that actions to improve the financial position of the network, or of individual business divisions, would be inconsistent with the government’s plans or with my letter of expectation."
The fact Ms Simmonds had decided to send a second letter was confusing enough, not least because it seemed to "signal an entirely different direction".
"It is essential to consider not only the short-term financial health of individual institutes within that sector, but also the broader and longer-term contribution of the sector to the national economy", he said.
"Sustainability is also about responsibility to our long-term needs as a country", Mr Benson-Guiu said.
He was particularly concerned Ms Simmonds had raised the issue of capital assets.
"Our campuses are public assets and community hubs that are important to the educational and training needs of people from all walks of life, used by ākonga [students] and employers alike."
Former Otago Polytechnic chief executive Phil Ker said the letter was "clearly a rark-up telling Te Pukenga management to get on with it".
But it missed some "fundamental underlying problems".
"The financial problems are historical and ones that successive governments failed to address.
"Previous ministers have freely admitted that the polytechnic sector was under-funded and not fit for purpose."
When Te Pukenga was formed, a "whole lot of cash" went into establishing the head offices — money that could have been used to improve the sector, Mr Ker said.
"Until the funding system and quantum is addressed, pain will continue to be inflicted upon the people working in the sector."
Mr Ker said Otago Polytechnic’s natural size was about 3000 fulltime equivalent students.
"I can assure you there is no institution under the existing funding model that can be long-term viable at that number."
Otago Polytechnic was viable because it attracted more than 1000 students from outside the region and it had an international campus based in Auckland, he said.
Ms Simmonds told the Otago Daily Times she was "committed to taking decisions to disestablish Te Pūkenga and consult on a proposed replacement model this quarter".
"It is critical that the industry have input into the design of the new Vocational Education and Training system.
"We need to take the time to get this right and ensure that we have a sustainable system that delivers on the needs of the learners, industry, and communities."
In a briefing to Ms Simmonds, the Tertiary Education Commission considered Te Pūkenga to be at "high risk" financially.
