David Farrar: What Labour did about the ferry cost blowout?

The answer is basically nothing, but write some sad letters.

The Herald reports:

Robertson wanted more information from KiwiRail on the cost and risk of alternative options to the mega ferries.

He specifically wanted to know: “The extent to which seeking to renegotiate the shipbuilding contract to procure ferries that are more like-for-like with respect to the current fleet and/or are not rail-enabled would allow for landside infrastructure costs to be reduced and forecast with greater certainty”.

McLean replied to Robertson on June 6 saying KiwiRail had considered three alternative options.

The option of three new medium rail-enabled ships was estimated to cost $3.02b, two new large ships which were not rail-enabled was $2.59b, and a “do minimum” scenario of procuring and running three second-hand ships was $1.34b, KiwiRail estimated.

All options, including retaining the mega ferries, were Net Present Value (NPV) negative, meaning the cost of capital exceeds the long-term revenues it enables.

So all three options didn’t make economic sense, yet the Government decided to carry on with the $3 billion one instead of the $1.3 billion one!

On July 12, Treasury and Ministry of Transport officials warned ministers the mega ferry project was still relatively early in its life, with detailed design work yet to be finalised and without contractually agreed costs.

They warned the final cost of the project could approach $4b.

Do I hear $5 billion? Quite conceivable.

A reminder that Bluebridge crosses the Cook Strat eight times a day and the cost to the taxpayer isn’t even $5.

David Farrar runs Curia Market Research, a specialist opinion polling and research agency, and the popular Kiwiblog where this article was sourced. He previously worked in the Parliament for eight years, serving two National Party Prime Ministers and three Opposition Leaders.