KiwiRail visited a South Korean shipyard contracted to build its new Cook Strait mega ferries even after the Government called time on the project, the Herald can reveal.

In December last year, the Government declined KiwiRail’s request for an extra $1.47 billion for the Inter-island Resilience Connection (iReX) after the project’s total cost escalated to almost $3b.

Despite this, KiwiRail chief executive Peter Reidy said two members of his team visited the shipyard in January.

A $551m fixed-price contract to build the new ferries was signed with Hyundai Mipo Dockyard (HMD) in 2021.

“We have a long-standing relationship with Hyundai,” Reidy said.

“When you do business with Korea, it’s about face-to-face and we’ve got a very professional relationship with them.”

Reidy said they discussed various options including exiting the contract.

“In my professional career, I’ve never ever terminated a contract by text or a letter. You have a negotiation, you have a discussion, you sit down with them - that was the best decision.”

KiwiRail announced today it has officially started discussions to terminate the contract with HMD.

Reidy said HMD has a complex supply chain including 80 suppliers providing up to 150 components such as engines and lifeboats.

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The negotiation to exit the contract could take a good month, Reidy estimated.

Asked whether the recent trip to the shipyard was disappointing, Finance Minister Nicola Willis said: “We asked KiwiRail to take the next steps to wind down project iRex and we asked that they did that in a way that was consistent with providing good value for money for taxpayers.”

Willis said she has confidence in Reidy and KiwiRail board chairman David McLean.

Finance Minister Nicola Willis. Photo / Mark Mitchell

Before Christmas, Reidy suggested the HMD deal could be rescued and the ships could still be built and then sold instead.

Willis said this would have been a risky strategy.

“There would be the question of whether there would be a buyer and we did not judge that it would be a good use of public money to be funding a train organisation to be procuring and selling ships.”

There were ongoing negotiations regarding the cost of exiting the contract, Willis said.

“Those matters are of a commercial nature and we are doing all that we can to minimise the impost on taxpayers.”

HMD was not the one at fault, Willis said.

“New Zealand respects contract law, we will be negotiating the exit of this contract in accordance with that. New Zealand is a good reliable partner both to Korea and many countries around the world.”

Willis said she was sympathetic to KiwiRail’s board and management who would have seen the cost of the project “spinning out of control.

“It’s regrettable that the last government didn’t intervene earlier. We are where we are and we are resolutely focused on solutions for the future.”

The Government has announced it will appoint a ministerial advisory group (MAG) to provide independent advice and assurance to ministers on future options for a Cook Strait connection.

The Ministry of Transport will also lead an assessment of long-term inter-island service requirements.

KiwiRail expects replacement options for the Interislander ferries will be part of these broader reviews.

Reidy said they will be working with customers and international shipbrokers on options to source suitable replacement ferries.

“KiwiRail will be working closely with the Government, MAG, and all stakeholders on options for a safe, reliable and resilient Cook Strait connection to transport freight and passengers,” KiwiRail said.

“KiwiRail would like to thank our people, contractors, our port, Mana Whenua and union partners, and all those who have worked tirelessly on this project up to this date, but, unfortunately, we cannot proceed without further Government funding. We respect the Government’s role as shareholder and funder to make this decision.”

He thanked HMD for their partnership through the design phase of the ferries.

“HMD has continually shown its value and professionalism as one of the world’s leading shipbuilders, with work delivered to the highest quality.”

KiwiRail bosses will front the Transport and Infrastructure select committee tomorrow for the state-owned enterprise’s annual review.

Georgina Campbell is a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.