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• The  has established a new company to procure replacement ships for  today.
• Costs for the original plan to replace  with two  , leading to their cancellation.
•  is preparing to extend the life of its current fleet until 2029.

The Government has revealed the next steps for replacing the ageing Interislander Ferries, but failed to answer key questions that have been looming since December 2023 when the coalition scrapped Labour’s project iRex, which would have replaced the ferries with two large rail-enabled ships costing more than $3 billion if you include the necessary portside upgrades.

Finance Minister Nicola Willis and newly appointed Minister for Rail Winston Peters revealed the Government would establish a new schedule 4a Crown company to procure two new ferries to begin service by 2029.

The company would likely be involved only in procurement, transferring the ferries back to KiwiRail when they begin operating. The Government has invited the private sector to put up alternative proposals for a ferry service during the first stage of the procurement process.

“Any alternative proposals received will be assessed along with the results of the first stage of the procurement process in March, after which final decisions on next steps will be taken,” Peters said.

Willis said the company will have two purposes: first, procuring the new ferries and reporting back to ministers on final decisions, and second, supporting officials to work with ports, KiwiRail and other stakeholders to ensure landside development planning is sufficiently advanced for Cabinet to make final decisions on ferry procurement with confidence.

Two of the biggest questions, how much the total project will cost, and whether the ferries will be “rail-enabled” (meaning trains can drive on and off the ships avoiding the need for costly and slow transferring of freight from trains to boats) and how much the ferries will cost.

The Government says ferries will be “rail capable” but not necessarily rail-enabled and the Government has agreed a funding envelope for the project, but will not say what it is, citing commercial sensitivity.

Act Leader David Seymour might have given away the cost, taking to X/Twitter to post the solution would come in at “approximately half the cost of Labour’s proposal”.

This would mean about $1.5b based on a cost of $3b.

Labour leader Chris Hipkins and Finance Spokeswoman Barbara Edmonds attacked the Government for taking so long to come up with a solution.

“[Willis] has taken a whole year to come up with smaller ferries that are going to cost the country more money in the long run. The portside infrastructure will still have to be built, she’s just burdening future New Zealanders with the cost,” Edmonds said.

Willis denied there had been a blow up. She said that Ministers had worked “collaboratively behind the scenes”.

However, she added, “it’s fair to say that the three partners in the coalition, there were some who started with divergent views, there were some who didn’t think an investment in ferries was necessary at all.

“The decision that Cabinet has reached is that that investment is necessary, it will happen, and we will deliver safe reliable ferries,” Willis said.

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How did we get here?

Labour, in coalition with NZ First, began Project iRex in 2018. The plan, which was to buy two large rail-enabled ferries, was then estimated to cost $775 million, including the cost of building portside infrastructure.

By December 2023, the estimated cost of the project had grown to $3 billion thanks to a blowout in portside infrastructure, with one joint Ministry of Transport and Treasury paper estimating the cost could escalate to $4b.

Willis denied a request from KiwiRail for further funding to plug the shortfall, forcing the cancellation of iRex and forcing KiwiRail to exit a contract for delivering the two ships themselves. Unlike the portside infrastructure, the ferries at $550m, had not gone over budget.

“Ministers do not have confidence that there will not be further increases and are concerned about the continued significant cost blowouts and the changing nature of the investment they are being asked to make,” Willis said at the time.

“Furthermore, agreeing to KiwiRail’s request would reduce the Government’s ability to address the cost pressures that are impacting on New Zealanders, fund other essential projects and get the Crown’s books back in order.”

After the decision was made to cancel iRex, a ministerial advisory group was appointed to consider the future of the strait’s notoriously treacherous waters.

The group’s three members were paid more than $80,000 between them, just two months into the job. Willis has defended this cost, saying it was inappropriate to rely on KiwiRail’s advice given the state-owned enterprise “got us into this mess”.

The Ministry of Transport was also tasked with considering whether KiwiRail should even be providing a Cook Strait ferry service in the future.

Reports from the advisory group and ministry were delivered to the Government in June.

There is speculation the Government has considered setting up a Schedule 4A company to procure the new ships and potentially operate them.

The Government can sell some of its shares under a Schedule 4A framework but it must retain a majority shareholding in the company.

The Interislander ferry Aratere after it ran aground in the Marlborough Sounds.

KiwiRail bosses revealed last week they had advised the Government on the implications for their business if a separate entity ran the ferries.

They also disclosed that negotiations to exit the mega-ferry ship-building contract with Hyundai Mipo Dockyard will extend into next year.

Engine parts had been built and tested by the time KiwiRail officially cancelled the contract in February.

KiwiRail staff members travelled to South Korea in January before chief executive Peter Reidy also travelled there in April.

Willis has not committed to getting new ships by the time the mega-ferries were due to arrive in 2026.

KiwiRail is now preparing to extend the life of its existing Interislander fleet until 2029 after receiving new advice from global maritime experts Det Norske Veritas.

The peer-reviewed advice suggested there were no systemic issues that would prevent the life of the ships from being extended, subject to investment and enhanced maintenance.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.