Finance Minister Nicola Willis has revealed the potential cost to the taxpayer is now many times what the Government initially signed up to and said the situation was "deeply troubling".
"I am concerned that this blow-out reflects casual incompetence by the outgoing Government in its approach to the scoping, management and delivery of major infrastructure projects.
"Our Government will be much more careful stewards of taxpayers’ money," Willis told the New Zealand Herald last night.
Today, Labour finance spokesman Grant Robertson said Willis was wrong and it was KiwiRail that owned and managed the project.
As a state-owned enterprise, KiwiRail had an independent board that had made decisions about the project, he said.
"The previous Government acknowledged the commercial sensitivity around this project and has not sought to speak publicly about these matters.
"Ms Willis knows all of this and has instead chosen to play cheap politics with this important national infrastructure project."
KiwiRail is replacing its increasingly unreliable and ageing Interislander fleet with two new rail-enabled ferries under the Inter-island Resilience Connection project (iReX).
A $551 million contract was signed with a South Korean shipyard in 2021 for the new rail-enabled ferries but it’s not the ferries that are the problem, it’s the portside infrastructure, including new terminals.
The extent of the budget blowout for this part of the project has not been disclosed. The last publicly available cost estimate for the new ferries and the landside costs was $1.45 billion.
Previous Government raised concerns with KiwiRail about mega-ferry project
In light of Willis’ public comments, Robertson confirmed KiwiRail asked ministers in the previous Government for more money over the past couple of years.
Ministers regularly raised concerns about the project directly with KiwiRail and worked to limit the impact of cost escalations that were outside their control, Robertson said.
"This will be clear to Ms Willis from briefings she has had from the Treasury."
iRex was funded after Labour and NZ First formed a coalition Government in 2017.
Robertson said advice from officials at that time was that the project could be largely debt-funded, given the Cook Strait route was a profitable part of KiwiRail’s business.
The Government contributed $435m for initial scoping work and to help secure the shipbuilding contract.
"As with all infrastructure projects in a time of high inflation, there have been cost escalations," Robertson said.
"There have also been ongoing discussions with the respective port authorities about portside infrastructure."
There were ongoing discussions between Treasury and KiwiRail this year about what the Government should do to continue to support the project, Robertson said.
"It was the view of the previous Government that the interisland ferry represents core infrastructure for New Zealand and we considered that KiwiRail operating the link was essential to the country’s resilience.
"We have been working with Treasury and KiwiRail to find an agreed way forward that maintained the network, protected the investment made in the project to date while also ensuring that it was financially sustainable."
The previous Government, based on advice from Treasury, proposed additional support for iRex but the situation remained unresolved at the time of the election, Robertson said.
Short-term funding was provided during the caretaker Government period after the election.
This was to "maintain parts of the contract that would be necessary regardless of any changes to the approach to give the incoming Government time to decide what it wanted to do," Robertson said.
KiwiRail must be s***ting themselves
Ia Ara Aotearoa Transporting New Zealand acting chief executive Dom Kalasih was frustrated by yet another government project going over budget.
"What we struggle with most is our members couldn’t continue running their business if they managed finances like these government projects.
"It’s just bloody sad that, actually, we just come to expect this and it’s got to change because it is unacceptable."
Kalasih said people didn’t fully appreciate the flow-on effects of ferry unreliability to the freight sector.
He said he was aware of transport operators facing significant fines because truck drivers had been working too many hours in one shift because of service disruptions.
Infrastructure New Zealand chief executive Nick Leggett said a strong and reliable Cook Strait ferry service was vital to New Zealand’s supply chain.
"It’s very concerning that the previous Government did not budget for this significant capital investment, but sadly that is indicative of the way infrastructure has been treated in New Zealand.
"We don’t face up to our responsibilities and our infrastructure deficit continues to grow as a result."
Greater Wellington Regional Council chairman Daran Ponter said KiwiRail "must be s***ting themselves".
In a briefing to incoming Transport Minister Simeon Brown, Ponter said delivery costs for the new ferry terminal in Wellington have "skyrocketed" since initial funding was agreed.
"We understand that lower service standards are now planned," Ponter said.
"Government needs to be eyes wide open to what is being delivered and commit the necessary funding to ensure reliable passage across Cook Strait as a critical part of New Zealand’s transport and tourism infrastructure."
But iReX programme director David Warburton said the new purpose-built ferries would cater for 30 years of tourism and trade growth, increase passenger capacity by 50 per cent, carry 40 per cent more trucks, and increase rail capacity by almost 300 per cent.
"This is not a reduction in service."
KiwiRail keeps CentrePort waiting
The new ferry terminal in Wellington is being developed mainly on existing land owned by KiwiRail, CentrePort and NZ Transport Agency Waka Kotahi.
CentrePort acting chief executive Stefan Reynolds said details of the port’s financial commitment to the iRex project were commercially sensitive.
The port had no comment to make regarding what Willis had said about the project’s cost escalations and continued to work positively and constructively with KiwiRail and the Government, Reynolds said.
"CentrePort is waiting for information from KiwiRail about its funding and the status of the iRex project.
"Once we understand the outcomes of discussions with the Government we will be able to continue our negotiations with KiwiRail about next steps."
Wellington mayor Tory Whanau said she shared concerns about ballooning costs.
"However, I urge the Government to fully acknowledge the importance of the Interislander ferry service to the country and see the project through in its current form."
On the other side of Cook Strait, Marlborough mayor Nadine Taylor is taking a wait-and-see approach.
She had not been given any reason to believe the portside infrastructure would not be ready in time for the arrival of the new ferries in 2026.
While construction had started in Picton, it was only enabling works, she said.
"What I’m interested in now is to make sure that work on the Picton side continues because it’s all very well to do the enabling works, but we want to make sure we get the full project delivery out of it."
KiwiRail maintains the infrastructure will be ready in time for the new ferries.