The PM was elected on the basis that his previous career as CEO meant he had a much greater business acumen than Labour's leaders - that he knew the "Art of the Deal", as Donald Trump's famous book once described it. However, yesterday it was revealed by the accountant, Peter Reidy, who is the Chief Executive of KiwiRail, that the builder of the now cancelled new ferries, Hyundai Mipo Dockyard (HMD), in South Korea, has put in a claim stemming from the terminated $551 million contract, since the shipyard has already started work on them.
When asked, it emerged that KiwRail don't know what will be the size of the claim that the NZ taxpayer will ultimately end up paying. “There's lots of complexity .. there are a number of elements of the claim. We’ve got .. legal experts, just going through the claim with us line by line - assessing what’s reasonable, what’s fair". Well, it's not up to Kiwi Rail's lawyers to decide what is "fair" - it depends on what HMD's lawyers also believe what is fair - and should the two not agree, it ultimately must be decided in court. Furthermore, the government cannot tell anyone what will be the cost of smaller, scaled-down ferries.
The crux of the matter is that finding out the cost of pulling out of the contract and the cost of replacement ferries over the next few months is irrelevant - the question is how could PM Luxon & Finance Minister Willis pull out of a billion dollar deal with no idea of the legal consequences? With no idea of the costs of the claims that will arise? With no idea of the price of a replacement deal? PM Luxon talks a big game but has he ever done a three billion dollar deal before? No. Has he ever pulled out of a billion dollar deal before? No. Elon Musk tried pulling out of a multi-billion dollar deal to buy Twitter. It was a nightmare - so costly that he ended up going ahead with it. If Luxon and Willis don't smarten up and prove they know how to do deals - show they know how to break-up the cartels running NZ - headed by folks the PM calls "A-listers", yet are the primary reason behind our high-cost-of-living - and show they know how to do a quality-enhancing health-care reform (rather than pretending abolishing the Māori Health Authority is a reform plan) then we will know in quick order that both are not the real deal. On present form, Luxon is looking like a watered down version of John Key, and Willis a watered down version of Bill English. Labour were so bad that anything is an improvement. But these two are so far looking like not much of one.
Sources:
https://www.nzherald.co.nz/nz/why-cancellation-of-cook-strait-mega-ferry-contract-is-taking-so-long/ZGVRCFA5I5F3PE3DFMYS3XN7QA/
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
The crux of the matter is that finding out the cost of pulling out of the contract and the cost of replacement ferries over the next few months is irrelevant - the question is how could PM Luxon & Finance Minister Willis pull out of a billion dollar deal with no idea of the legal consequences? With no idea of the costs of the claims that will arise? With no idea of the price of a replacement deal? PM Luxon talks a big game but has he ever done a three billion dollar deal before? No. Has he ever pulled out of a billion dollar deal before? No. Elon Musk tried pulling out of a multi-billion dollar deal to buy Twitter. It was a nightmare - so costly that he ended up going ahead with it. If Luxon and Willis don't smarten up and prove they know how to do deals - show they know how to break-up the cartels running NZ - headed by folks the PM calls "A-listers", yet are the primary reason behind our high-cost-of-living - and show they know how to do a quality-enhancing health-care reform (rather than pretending abolishing the Māori Health Authority is a reform plan) then we will know in quick order that both are not the real deal. On present form, Luxon is looking like a watered down version of John Key, and Willis a watered down version of Bill English. Labour were so bad that anything is an improvement. But these two are so far looking like not much of one.
Sources:
https://www.nzherald.co.nz/nz/why-cancellation-of-cook-strait-mega-ferry-contract-is-taking-so-long/ZGVRCFA5I5F3PE3DFMYS3XN7QA/
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
5 comments:
Luxon & Willis’ real-world experience showing through, yet again. This and the recent cancer drug debacle highlight their incompetence, albeit still way better than the appalling situation inherited from the Labour universal incompetents.
Our PM needs to realise we do not view him as some kind of business-world wonder, but more as someone steeped in corporate double-speak and something of an invertebrate when real decisions need to be made.
Respectively, their backgrounds are marketing and PR.
Say no more.
Ok. Really easy to critise a cancellation by focusing on the legal cost of canning a ship building contract.
BUT, you can not authorise the build to commence without knowing the cost to dock, off/on load, maintain and navigate ships of these sizes.
KiwiRail try to coerce via the Sunk Cost argument an open cheque book with cheques sign by the NZ tax payer until such time as the complete project was done.
If you sink 2.5 Billion (3 billion minus the 1/2 Billion ship contract) with most of that in Wellington - what is the insurance cost of the the new landside investment? The Wellington fault runs right by the current Wellington terminal. Move north - meh, the fault runs up the West side of the harbour. Move into town.... you attach to reclaimed land (everything from Lambton Quay to the waterfront is reclaimed) which is highly likely to liquify and sink - see Christchurch
Stopping the project and scoping is the correct call under any project management framework.
Re the ship contract - an option is to enter into a new contract with Hyundai to build small ships with a simplified design - no one knows what that cost could then be in terms of the 1/2 Billion plus new ship cost (doing a deal here is not a big stretch and happens in projects often)
So overall I would say this post by Robert is a little ott given an out of control project could not be let to run out of control because of sunk cost concerns
A couple of things I'm unclear about. Did the government actually pull out of the contract themselves or did they just tell Kiwirail that they wouldn't give them a further billion? Also, what were the terms of the contract? Were Kiwirail contractually obliged to pay another billion on the contract in which the price was initially 700 million?
Anon July 1 3.28
Your questions are valid without the confusion of legal investigation. Remember the media are hellbent on scuttling the Coalition Government and will obfuscate any document for jounalism gotcha moments. However
There is a huge difference between Hyundai ship building sueing the NZ Govt and litigating for damages against Kiwirail who havent got two bob to rub together .
As to Mr Luxon and Nicola Willis , the time is fast approaching where all decisions should be vetted and signed off by the two other Coalition parties whwere some real world experience is available in spades.
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