The Kaitaki Interislander ferry leaves Wellington Harbour. Photo: KiwiRail
New documents reveal the coalition has set aside $300 million to cover broken infrastructure contracts and a break-fee with Hyundai, after the government ended a contract with the Korean company to build two new Interislander ferries.
The Cabinet paper was released by Treasury just half an hour after Finance Minister Nicola Willis had repeatedly refused to confirm that figure to reporters.
The broken contracts for associated infrastructure costs - for example, port upgrades - have been resolved, but the exact amount to be paid to Hyundai is still being negotiated, which means the contingency fund of $300m set aside may not be enough to cover all the costs.
Willis also said she did not know how much the cost of two new ferries will be, as a new contract hasn't yet been signed.
On Friday, however, Rail Minister Winston Peters met with Hyundai in Seoul, and confirmed to RNZ the company was back in the running to build the two new ferries needed.
The contract, known as iRex, was cancelled with Hyundai shortly after the Coalition came to power, citing a $3 billion cost blowout associated with the ferries and the required port upgrades.
Peters has since embarked on a worldwide tender to find - by the end of March - a builder for two cheaper and smaller rail-enabled ferries, and have them running by 2029.
He said Hyundai was open to a bid to build the new smaller ferries and had indicated it could meet the size specifications involved in that.
"I've got a serious contender back in the ring of potential contenders for the tender for two replacement ferries for the Cook Strait," he told RNZ in Seoul on Friday.
Willis, as recently as Tuesday morning, insisted the new cost - including the break-fee and the two new ships - would be less than the almost $4 billion the iRex project had risen to.
The Cabinet Paper, dated 9 December of last year, noted officials had assessed if the iRex ferry contract could be "renegotiated with different ferry specifications to reduce landside costs" but concluded "this is not possible".
As a result the $300 million already set aside by the Coalition to exit the iRex contract would need to be paid out regardless of whether Hyundai wins the bid to build the news ships.
Peters haspointed out to RNZ that South Korea is the "world number one ship builder", and that needs to be remembered when considering any new contracts.
The Cabinet Paper released on Tuesday also outlines the expectation that the ports fund "as much of the landside development as possible" for any new ferries.
"The ports will, where possible, pass these costs on to operators in user charges, which in turn will likely be passed on to ferry customers," the paper noted.
'Another humiliation' for finance minister - Labour
Labour leader Chris Hipkins said New Zealand's bargaining position with Hyundai would be much stronger if the government had not cancelled the ferries.
He said it was a kneejerk decision to cancel the ferries, without knowing how much the replacements would be or who was going to build them.
"We still don't know what the replacement option's going to be, how much it's going to cost or who's going to build them, and yet we're on the hook for at least $300 million to cancel the deal with Hyundai when the government might actually go back to Hyundai and get them to build the new ferries anyway."
Hipkins said it was "another humiliation for Nicola Willis".
Rail Minister Winston Peters said he could not comment on negotiations between Hyundai and KiwiRail at this time.
Peters said he had an "excellent" meeting with Hyundai, and has confirmed it is back in the running for the tender to build two smaller replacement ferries, but that is separate to the break-fee.
New documents reveal the coalition has set aside 3-hundred-million-dollars to cover a break-fee with the Korean company tasked with building two new Interislander ferries, and associated infrastructure costs.
Peters said he was still analysing the port infrastructure costs.
"I haven't got them at the top of my head at the moment, because there's a whole lot of infrastructure - some of it 10 percent started, some are 90 percent started, some with the roof yet to go on. There's a whole lot of things being done at the moment in terms of sorting that out."
Peters said Hyundai was "seriously interested" in bidding for the new contract, and he said he knows their "timeframes" and "capacity".
"They are the biggest ship builders in the world after all, and so it was a great meeting."
But he also mentioned he had been looking at "other options" as "far as Finland".
The coalition will announce by the end of March a new plan to build two cheaper and smaller rail-enabled ferrries, and have them running by 2029.
"We will have the framework promised to you at the end of March this year, yes," Peters said.
Finance Minister Nicola Willis said the money set aside by the coalition was "just good budgeting process that we put aside funds that we know will be required".
Willis said when they made the decision to cancel the contract, the coalition did attempt to renegotiate the contract.
"We were advised of two things, one, that that initially wasn't an option, and two, when we then tried to pursue that, the option that came back was very expensive."
She said Peters had "obviously taken further steps" and further questions should be directed to him.
"I have not been party to the discussions he has had with Hyundai."
