Ministerial Statements — KiwiRail—Interislander Ferry Fleet, Funding

I wish to make a ministerial statement. Yesterday, I announced that the coalition Government has declined a request from KiwiRail to contribute significant additional funding to address cost escalations in the project to replace the Interislander ferry fleet. This was a very difficult decision for the incoming Government to have to make, and the last thing we wanted to have to do.

This is a matter that was first brought to our attention during the post-election caretaker period. At the time, we were asked to authorise a draw-down of contingency funds to keep the project going. When we asked questions about the project, massive cost blowouts were revealed, and there were significant questions about the deliverability of the project. On taking office, a briefing from KiwiRail revealed a further cost blowout and a request for additional funding.

It is important for the House to hear the scale of this blowout because this is a project that under the previous Government’s watch not only became far more expensive than was originally projected but also veered far away from its core purpose. We were advised that the project to replace the Interislander ferries had almost quadrupled in cost since it began, to now reach a staggering figure of approximately $3 billion, and only 21 percent of those costs relate to the core project of replacing ageing ferries.

At the same time as KiwiRail was asking for the additional funding to be provided urgently, officials were advising us that putting more money into the project would make it harder to withdraw. KiwiRail advised that there were no options it would recommend to reduce the scale of the project, while Treasury and the Ministry of Transport advised us not to agree to the funding request.

Let me be clear: this Government—our coalition Government—is committed to having a resilient, safe, and reliable Cook Strait ferry service, but that cannot mean that we have an open chequebook to provide whatever is asked in whatever circumstances that might arise. It would be irresponsible for us to continue funding a project that has diverted so far in scope and cost from the original proposal. We have a responsibility to ensure the public gets value for its money, and that is why the coalition Government has declined a request from KiwiRail to contribute additional funding to this project.

Members will have seen that KiwiRail is now looking to wind down the project, and will work with the Government, including my colleague the Minister for State Owned Enterprises, Paul Goldsmith, to look at alternative options. I want to acknowledge that a lot of people have put a lot of time into this project, and they will be disappointed by this news. I thank them for their work and I want to assure them that the coalition Government is committed to a resilient, safe, and reliable Cook Strait ferry service, and from here, we will be working with KiwiRail and with officials on alternative options for ensuring that connection. We will be looking at a full suite of options and drawing on expertise from a wide range of experts. We will be looking to learn lessons from what has happened here and ensuring it cannot happen again.

One thing is for sure: we will not be repeating the cavalier approach taken by the former Labour Government towards spending taxpayers’ money. We have been advised that the outgoing Government knew in February 2023 that the cost had blown out to $2.6 billion, but that was never made public—

💬 Hon Grant Robertson: So that’s what we use ministerial statements for now?

💬 SPEAKER: Just hold on.

—and we all saw yesterday the Controller and Auditor-General’s report into the previous Government’s investment in infrastructure. It highlighted how—

💬 SPEAKER: Yeah, just keep the ministerial statement to the Government decisions.

Yep. It highlighted the need for Ministers to be careful with taxpayers’ money.

The coalition Government will be different from the last lot. We will be disciplined and we will tidy up the mess that has been left behind by Labour. We will give taxpayers’ money the respect it deserves.

Point of order, Mr Speaker. I’m conscious that you did make comment in regards to the purpose of ministerial statements. Nevertheless, riddled throughout that and after your advice to the Minister, she continued to use a ministerial statement to comment on a previous Government’s—not their Government’s—decisions.

Well, in the context of why the decision was made. In the last particular bit, I agree there was an inappropriate comment prior to that, and I referenced that with the Minister.

Mr Speaker, in the spirit of the way in which ministerial statements are now done, I’m going to begin by asking the member two or three specific questions before going on to my more detailed comments on her statement.

The first of those questions is to ask the Minister to confirm that in October 2022, KiwiRail wrote to Ministers noting “in a ‘worst case scenario’ the tagged contingency for the project would need to increase by $280m”.

That information is new to me. I think what the member may be referring to is a pattern of cost escalation that occurred with this project while he was the key shareholder of KiwiRail.

I raise a point of order, Mr Speaker. I know this is an unusual course of action, but I seek leave of the House to table a time frame regarding the Interislander ferry replacement project that was actually released by the Minister yesterday, but—I quoted from it just before. She obviously hasn’t seen it.

Well, that’s true. But if it was released by the Minister yesterday, there’s no point of putting it on the Table today.

So the timetable released by the Minister in her own press release yesterday includes the statement from October 2022 that KiwiRail noted that “in a ‘worst case scenario’ the tagged contingency would need to increase by $280m”. So I just note, for the member, the answer to the question I asked is contained in the time line she released yesterday.

The second question I have for the member is: can she please explain in what way the project “veered away from its core purpose”?

I want to address the member’s questions sincerely which is to say I am looking at the timetable I released yesterday and the date that the member has used, which is 2022—I’ve got dates on my time line of 2021 and 2023. So I think the challenge that I’m having is with that time line. So I wish to assure the member—

💬 Hon Grant Robertson: Perhaps I should table it because that way we might be able to—

💬 SPEAKER: You haven’t been granted a point of order, so please sit down. Just trying to work out where we’re at here—would the Minister continue with the answer to the question.

Yes. The undertaking I make to the member is that I will ensure that I address this question once I’ve worked out why I can’t find the date on the piece of paper in front of me. And I accept that the question is sincere, and I will give it a sincere answer.

To the second part of your question which regards my statement that the project had veered wildly from its original intent, I based that on the fact that as I understand it, when the Government first agreed to fund this project, it was in order to replace aging ferries, and that was to be the bulk of the infrastructure investment. As I have been advised, that now only comprises around 21 percent of the actual infrastructure project. The other 80 percent or so is for significant marine development and port-side development.

In light of the answer to that question by the member, I would just refer her to a media release dated 27 May 2020 by the Rt Hon Winston Peters, which includes the following paragraph: “The funding for the land-side new terminal infrastructure, including rail and vehicle marshaling yards, will create hundreds of local construction jobs in Picton … along with hundreds of service supply jobs right across New Zealand”. So it is absolutely clear that the statement that the Minister made—that this project had somehow “veered off course from its core purpose”—is incorrect. The core purpose of the project, agreed by the Labour Party and the New Zealand First Party, was for both the construction of new ferries and, indeed, portside infrastructure, as Mr Peters stated in his statement of 27 May 2020.

The third question I wanted to put to the Minister was to get her to confirm that the request made in February 2023 by KiwiRail to fund the cost escalation—which had now reached $2.6 billion by that point—was not agreed to by the previous Government.

Yes, in two parts.

💬 Hon Grant Robertson: Right. So we didn’t agree to that.

No, no, no. I’m not agreeing to that; I’m saying I’m prepared to answer your questions. The first question that you asked was about whether or not the project had veered off. It is absolutely the case that the project today is four times what it was when the Government originally committed to it. And its core purpose was to replace an ageing ferry fleet, and yes there was an acknowledgment—not that the ferries would only be 20 percent of the project.

To the second question: yes, I have been advised that when the former Government learnt that the project had blown out to $2.6 billion, the Minister at the time then spent a significant number of months trying to work out what to do. And then I got handed the baby.

So, to—[Interruption]

💬 SPEAKER: Well, hang on, is this a point of order?

💬 Rt Hon Winston Peters: No, it’s a question; he’s had his turn.

💬 SPEAKER: No, he hasn’t—no, he hasn’t. We’ve got the new rules that allow the interchange leader by leader, so we’ll go right through his—

💬 Rt Hon Winston Peters: Yeah, but you want the facts, don’t you?

💬 SPEAKER: No, no, he hasn’t finished just yet.

So, to clarify, the Minister of Finance’s statement says that the project veered away from its core purpose when it hadn’t. The Minister’s statement also says that the cost had blown out to $2.6 billion under the Government’s watch when that money had not in fact been agreed. In fact, in my first question I pointed out that in October 2022, KiwiRail told the then Government that the worst-case scenario would be a need to increase the tagged contingency we’d put aside by $280 million.

For the record, making sure that we have a sustainable and resilient Cook Strait ferry crossing is essential for New Zealanders. We all agree that the cost escalations that KiwiRail proposed were unacceptable, and they were not accepted by the previous Government. What we did was attempt to safeguard the investment that had already been made, the sunk cost that will now be lost to New Zealanders, and ensure that there would be a ferry crossing. We did spend a considerable amount of time between Treasury and KiwiRail and the Government this year to find a way forward, and before we left Government we made an in-principle offer to KiwiRail for part of that construction cost, because we did believe that it was important that New Zealanders did have confidence that there would be an ongoing, sustainable Cook Strait ferry network. KiwiRail rejected that offer, and that was the position we were in going into the election.

The position the Government now leaves New Zealanders in is with no idea as to how they will be able to ensure that there is a future sustainable Cook Strait ferry crossing. I urge the Minister to do two things: find some certainty for New Zealanders, and release the full documentation about this project so that New Zealanders can see how hard the previous Government worked to keep a ferry crossing going for them in the future.

I think if the point that the former Minister wishes to make is that this sorry saga dragged on for months under his watch, then, yes, that is correct and, yes, he did oversee multiple cost blowouts and, yes, there was engagement with KiwiRail about it. But, actually, what then happened was that he decided, four weeks out from an election, to put aside money for the project, knowing full well that in the form that he was choosing to fund it, KiwiRail had recommended it not proceed and that, for example, passengers would not have been able to get on the ferry unless they caught a bus on to the ferry. That was the solution that was thought viable.

💬 Hon Grant Robertson: No ferry—that is your solution. No ferry.

But if the member will just give me a moment of patience, I wish to apologise to the House, because when the member asked me about 2022, I had in front of me an old timetable, and not the one that I have released publicly. I regret that error. The member is correct that the timetable I have released publicly says that in October 2022, “KiwiRail [advised] Government of cost escalation in the terminals, noting market engagement with construction partners [would] result in initial price estimates for the terminals programme in December 2022. KiwiRail noted that in a ‘worst case scenario’ the tagged contingency would need to increase by $280m.”

Under Standing Order 365(1) and 365(1)(a), could I just say to the Minister, well this is a fact: that when this matter was under control, as quoted by Mr Robertson, in 2020 it was under control, but when experience and common sense left the room and the handbrake left the room—it was in 2021 they made that stupid decision without being able to see what it would cost eventually. That’s why it blew out. A 21 percent cost project for ferries became the kind of thing that they did over and over and over again, and the other project is in Antarctica where it’s blown out as well—90 percent under their watch.

Tēnā koe, Mr Speaker. I’d also like to start with a series of questions to the Minister. Thank you for your ministerial statement. Has the Government received any advice that quantifies the risk to New Zealand of not having replacement ferries if current vessels fail?

Point of order. Mr Speaker, if you go to Standing Order 365(1)(b), can you tell us how it is that that member is speaking on behalf of that party? She’s not the leader, and that’s the qualification that’s required.

💬 SPEAKER: No. So, if you read a bit further, you’ll find that in all these matters, I think the words are “at the Speaker’s discretion”, and that party leaders notify who they intend to have speaking on behalf of their party. That’s a process that got well established in the last Parliament.

Well, just, when you say, “If you read further”—I’ve read further, and I do not find those magic words “at the Speaker’s discretion”. So I’m asking for the Standing Order to be enforced.

Speaking to the point of order, perhaps I can help the House by reading out Standing Order 365(1): “Following a ministerial statement, the leader of each party with six or more members, or a member authorised by the leader”.

Yeah. Where’s the authorisation?

I am assuming—assuming—

💬 Rt Hon Winston Peters: You don’t assume.

Yes, I can. I can do a lot of things, and assuming is one of them. And I’m assuming that the Green Party wish to be represented by their transport spokesman, as the Labour Party were represented by their infrastructure and finance spokesperson, and others will come. I’m not sure on what basis the member was speaking, but that’s OK—as the leader.

Point of order, Mr Speaker. I can assure you of the basis, because we have more than six members—and we’ll have many more in the future—and because we know what we’re talking about.

💬 SPEAKER: Righto. OK, we didn’t want to introduce new debating topics, so I’ll call Julie Anne Genter.

I’ll just repeat my question, which was to the Minister: has the Government received advice that quantifies the risk to New Zealand of not having replacement ferries if the current vessels fail while we’re waiting for this replacement process?

I don’t need advice to know that New Zealand needs a reliable, safe ferry service between our two islands. Our Government is committed to ensuring that is the case and we are confident that that will be the case.

Notwithstanding that the chair of KiwiRail has mentioned that the choice that the Government has made to completely start over in this process will mean that there’ll be considerable delays, potentially, to the replacement ferries, how much of the cost that the Minister has been referring to is related to necessary upgrades to port infrastructure, particularly to address seismic risk?

The member will be aware that there are a number of options for how we proceed in terms of replacement ferries, and I’m confident that we can get a timely solution.

Can the Minister let us know—because she has mentioned that only 21 percent of the current cost is related to the vessels themselves—how much of the cost is related to necessary upgrades to poor infrastructure, particularly to address seismic risk?

I don’t have that figure to hand, but I would note that the member herself said, on X, that the project had become too expensive.

Yes, that’s true, and thank you for referring to my very reasonable comments, because I’ve long been a critic of Government spending in the transport sector inflating too fast and not being good value for money. But I guess the relevant point for the Minister that I’m interested in drilling down for the benefit of the House is whether or not the cost inflation is out of line with other cost inflation we’ve seen in infrastructure, particularly in the building space, because of changes made—I believe by a previous National Government—to earthquake standards and our awareness of the risk of seismic risk and whether in fact quadrupling of price is pretty standard certainly for the highways that this Government will be trying to deliver.

Well, a cost blowout of four times the size of the original project may have been pretty standard under the last Government, but it’s not going to be pretty standard under this Government. In fact, this project was an outlier, and the point I would make is this: the cost of the infrastructure that needed to be developed at port and on the land side and the marine side, I understand, was a lot more expensive because of the size of the boats—ships—that had been committed to. And that is relevant here because the pattern under the previous Government was that they would commission an infrastructure project without first doing the appropriate due diligence to fully understand the design implications and implications of it. Don’t take it at my word; read the Auditor-General’s report.

Two more quick questions: will energy efficiency and carbon emissions be a consideration in any new vessels that are commissioned, given that they do have ongoing implications for the cost of running the vessels?

Yes, it’s my understanding that modern ferries are less emissions intensive than the ferries we are currently using.

Will continuity of rail freight services be a consideration in the necessary port-side infrastructure?

We will continue to want the ferries to support good freight connections between the North and South Island and we continue to support rail as a means for transporting freight around New Zealand.

Cabinet has made the right decision. KiwiRail’s project iReX was hugely wasteful, had already faced cost blowouts, and was facing larger significant cost blowouts. We are a Government that wishes to ensure that we deliver value for money for all New Zealand taxpayers. This move will also send a clear signal to the public sector that we will not tolerate cost blowouts and a lack of value for money.

Tēnā tātou e te Whare. Look, just a couple of questions, please. We’ve been concerned—in fact, last night, we were debating how we protect small to medium sized businesses. So it’s a unique position Te Pāti Māori finds itself in, asking the Government about economic questions and, surely, productivity. So we’ve now got a decision that will axe and limit the economic ability within Te Wai Pounamu and its aspirations and ability to grow. We have been extremely concerned with the messages that we’ve had from businesses in Te Wai Pounamu. So we have a couple of questions.

If we are continuing down this “cancel culture” approach economically, can you please explain what the Government is doing to connect—has it communicated with those businesses who are in shock, who have had aspirations to grow their economy, and what is it that you are doing (1) to contact them; (2) what is the solution that you’re providing them instead of, because their aspirations have been built around this project—rightly or wrongly; we’re certainly not sticking up on either side. What we are more focused on is how their economic aspirations will be realised, when you will be able to support them, and, most importantly, what degree of investment is the Government going to provide so that the businesses, the very grassroots people who have been relying on this project and this solution to happen, will happen?

I thank the member for her question and her appreciation that, actually, the wellbeing of all New Zealanders is dependent on businesses being able to thrive, employ people, grow, and innovate. I can assure the member that our Government is committed to a range of policies to assist in that.

When it comes to this specific project, I repeat the assurances in my initial ministerial statement: we know that there are people who are impacted by this decision, but we wish to reassure them that we remain 100 percent committed to reliable interisland ferry services and that we will make decisions that allow those to continue to be delivered. We appreciate the importance of that connection for freight and for passengers.

Tēnā koe. Can I seek clarity, please, on which businesses, which sector within the business sector have been communicated with or consulted, bar the release that came out?

We have asked that KiwiRail engage its contract partners and stakeholders in communicating this information, and we anticipate further engagement in the days and weeks ahead.

Can I please seek clarity: have Ngāi Tahu, Wakatū, the Māori business sector, who are extremely successful and prominent in Te Wai Pounamu—what has been the engagement with them and how are they being supported to realise their aspirations economically that they’ve had on hold for a very long time?

I thank the member for her question, and I would welcome further engagement with that group. I think the point here that we can agree on is that there are a number of stakeholders with an interest in ferry services across the Strait. Those stakeholders include businesses, the port, and KiwiRail itself. I wish to re-evaluate this project not just from the perspective of KiwiRail but actually from the perspective of all port users, ferry users, and freight users, to ensure that we’re coming up with a solution that best delivers value for all New Zealanders, not just for the KiwiRail business.

Just one last question. Have the regional and local government authorities been engaged, and what has been their feedback to the Government about this change of direction?

We will be carrying out engagement with those entities in the coming days. I wish to be clear with the House about the challenge that we found ourselves in, which is that we had a financial situation on our desks that required urgent resolution due to requests to draw down funding. At the point that Cabinet made a decision, responding to the urgency of that, we then knew that we had made a very market-sensitive decision. What we thought was important to do was communicate that to KiwiRail as quickly as possible so that they could then make the appropriate engagement with their contractual partners. We moved quickly to do what we said we would, which was as soon as was possible to make open to the whole public, to all New Zealanders, the decision we’d made and the reasons for it.

I don’t think it’s conscionable that the previous Government knew since February last year that this project blew out to $2.6 billion and chose not to do anything to allow people awareness of that problem.

💬 SPEAKER: No, sorry—

We got given a basket case—

💬 SPEAKER: Sorry, the member—

—we took action—

💬 SPEAKER: The member doesn’t appear to be listening. Ministerial statements need to stay tightly to the matter being dealt with, without the added speculation. I might just offer that advice to all Ministers who might be listening now.