Let’s start with the Aratere. Our only rail-enabled ferry was built in Spain and began service in 1998. It earned the nick-name “El Lemon” for its persistent breakdowns. It is scheduled to cease service in 2025.
In case you were wondering; that is next year.
KiwiRail has two other ferries. The MS Kaiarahi; formerly a Turkish car ferry, as old as the Aratere and often makes the news for unscheduled maintenance. The third ship is the Kaitaki, built in 1994 and her long journey to the scrap-metal yard is overdue.
Since 2020 KiwiRail has been pressing a case that new ferries are needed and an upgrade proposal, iRex or Interisland Resilience Connection program, has been circulating.
It isn’t only the boats that are getting tired. In 2020 Treasury wrote; “The current port facilities at both Picton and Wellington are aging and have limited remaining economic life. Irrespective of iReX, they will both require infrastructure investment soon.”
Although KiwiRail is obligated to act commercially, like any good board they take into consideration the wishes of the shareholder; the Crown.
The Crown wanted to maintain a rail network. A 2021 cabinet paper reiterated; “the Government has previously signaled the importance of a resilient and reliable rail system.” This, presumably, includes a rail-enabled ferry.
With the knowledge of the relevant ministers KiwiRail executives ordered two ships from Korea for $550 million. In 2021 Grant Robertson and David Clark were advised by Treasury that; “Contract signing will effectively commit KiwiRail, and contributions to portside costs, to a project now estimated at $1.76 billion.”
But iRex was more than just getting new boats to sail the Cook Straight. In a 2022 document Treasury made the point that iRex “…has a much broader scope than simply replacing the existing ferry service. In particular the program will be delivering benefits that include;…” building resilience in State Highway One, growing capacity for tourists, climate change and addressing KiwiRail’s strategy for growth.
Treasury also foreshadowed that the cost estimates are likely to be insufficient due to a perfect storm of “…a constrained supply chain, constrained people resources and escalating costs of critical materials, especially steel.”
Then, with a change of government, Treasury and the Ministry of Transport sent to cabinet two remarkable documents. The most delightful example of willful blindness since Horatio Nelson pulled a lens up to eye patch.
Treasury acts surprised at the cost increases. Blames KiwiRail for selecting larger ships. Now thinks Bluebridge, the private operator competing across the straight, could handle the extra custom. Ignores the fact that in 2022 they wrote there was no second-hand market for the sort of ferries KiwiRail requires and wants to explore such a market.
Worse; they base their analysis on what is now a negative NPV of the iRex project and fails to consider both a counter-factual nor take into account the sunk-cost aspect of much of the spending. To work out the net-present-value of a project at a point in time you consider the future spending; Treasury appears to have used capital already spent.
Treasury concludes; “We do not consider it credible that the additional public benefits from KiwiRail’s preferred option are substantial enough to justify the gap between the level of costs to meet the primary objective and the higher level of investment proposed by KiwiRail.”
The counterfactual counts up the cost of the break-fee for the cancelled boats, necessary port upgrades and new boats against the cost of completing iRex. This does not appear to have happened.
This is, it needs to be emphasised, mostly the officials’ project. It is disgraceful to see them deflecting by laying responsibility at the board and management of KiwiRail. On any objective reading of the documents available this is a failure caused by bureaucratic empire building, economic incompetence by the civil service and a change of political priorities.
The current CEO, Peter Reidy, and recently retired Chair David McLean both took up their respective roles in 2022. For Reidy, it was his second term as CEO but he was not involved in the decision to purchase the new ships nor the estimates for the port upgrades.
He was, however, at the helm when accurate costings were presented to cabinet and has fronted at every juncture in a way that no Treasury or Ministry of Transport civil servant has elected to do and at no point sought to deflect responsibility. He has shown more leadership in a week than any civil servant has in a generation.
The buck, and indeed, the ferries, stop with him.
The political and bureaucratic class were using a State-Owned Enterprise to pursue a wider economic program. They were trying to run a trucking business when they should just have built the road. It has ended badly.......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
Since 2020 KiwiRail has been pressing a case that new ferries are needed and an upgrade proposal, iRex or Interisland Resilience Connection program, has been circulating.
It isn’t only the boats that are getting tired. In 2020 Treasury wrote; “The current port facilities at both Picton and Wellington are aging and have limited remaining economic life. Irrespective of iReX, they will both require infrastructure investment soon.”
Although KiwiRail is obligated to act commercially, like any good board they take into consideration the wishes of the shareholder; the Crown.
The Crown wanted to maintain a rail network. A 2021 cabinet paper reiterated; “the Government has previously signaled the importance of a resilient and reliable rail system.” This, presumably, includes a rail-enabled ferry.
With the knowledge of the relevant ministers KiwiRail executives ordered two ships from Korea for $550 million. In 2021 Grant Robertson and David Clark were advised by Treasury that; “Contract signing will effectively commit KiwiRail, and contributions to portside costs, to a project now estimated at $1.76 billion.”
But iRex was more than just getting new boats to sail the Cook Straight. In a 2022 document Treasury made the point that iRex “…has a much broader scope than simply replacing the existing ferry service. In particular the program will be delivering benefits that include;…” building resilience in State Highway One, growing capacity for tourists, climate change and addressing KiwiRail’s strategy for growth.
Treasury also foreshadowed that the cost estimates are likely to be insufficient due to a perfect storm of “…a constrained supply chain, constrained people resources and escalating costs of critical materials, especially steel.”
Then, with a change of government, Treasury and the Ministry of Transport sent to cabinet two remarkable documents. The most delightful example of willful blindness since Horatio Nelson pulled a lens up to eye patch.
Treasury acts surprised at the cost increases. Blames KiwiRail for selecting larger ships. Now thinks Bluebridge, the private operator competing across the straight, could handle the extra custom. Ignores the fact that in 2022 they wrote there was no second-hand market for the sort of ferries KiwiRail requires and wants to explore such a market.
Worse; they base their analysis on what is now a negative NPV of the iRex project and fails to consider both a counter-factual nor take into account the sunk-cost aspect of much of the spending. To work out the net-present-value of a project at a point in time you consider the future spending; Treasury appears to have used capital already spent.
Treasury concludes; “We do not consider it credible that the additional public benefits from KiwiRail’s preferred option are substantial enough to justify the gap between the level of costs to meet the primary objective and the higher level of investment proposed by KiwiRail.”
The counterfactual counts up the cost of the break-fee for the cancelled boats, necessary port upgrades and new boats against the cost of completing iRex. This does not appear to have happened.
This is, it needs to be emphasised, mostly the officials’ project. It is disgraceful to see them deflecting by laying responsibility at the board and management of KiwiRail. On any objective reading of the documents available this is a failure caused by bureaucratic empire building, economic incompetence by the civil service and a change of political priorities.
The current CEO, Peter Reidy, and recently retired Chair David McLean both took up their respective roles in 2022. For Reidy, it was his second term as CEO but he was not involved in the decision to purchase the new ships nor the estimates for the port upgrades.
He was, however, at the helm when accurate costings were presented to cabinet and has fronted at every juncture in a way that no Treasury or Ministry of Transport civil servant has elected to do and at no point sought to deflect responsibility. He has shown more leadership in a week than any civil servant has in a generation.
The buck, and indeed, the ferries, stop with him.
The political and bureaucratic class were using a State-Owned Enterprise to pursue a wider economic program. They were trying to run a trucking business when they should just have built the road. It has ended badly.......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
1 comment:
Are the ferries inerently flawed or is the ability of maintenance workers lacking? Do electronic monitors trigger shutdowns which staff are unable or unskilled to (promptly) override?
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