Government warned operating Aratere ferry until 2029 'simply not possible'

• A leaked report warns the Aratere ferry should be retired next year to accommodate a new wharf at Picton
• The report was written in June and shows ministers missed the recommended July deadline
• The report says operating Aratere until 2029 is simply not possible
• That's because wharf and linkspan upgrades will need to be completed for the arrival of the new ships

Stuff has obtained a leaked report authored by the government's expert ministerial advisory group which warns the Aratere ferry should be retired next year to accommodate new wharf construction at Picton.

The report shows that ministers missed the recommended July decision deadline and contains a list of ferry replacement options with the cheapest coming in at $282 million per ship.

The government last week announced it would establish a new company to procure two new ferries to be operational by 2029, the decision came nearly a year after Finance Minister Nicola Willis made the call to cancel the previous government's iReX ferry replacement project.

The report obtained by Stuff was written mid-June and shows ministers missed the recommended July decision deadline, along with the recommended October contract deadline, and its estimated delivery date is at least a year later than its expert group advised was possible.

The cancelled iReX project involved the purchase of two new rail-enabled ferries from Hyundai Mipo Dockyard for $551m but the cost of landside infrastructure needed to dock the new ships blew out, with the total cost of the project totalling $3.2 billion at the time of cancellation.

Willis nearly immediately convened a ministerial advisory group to advise on future ferry services.

In the leaked report from the group, ministers were advised that they should operate on the default position that, based on market soundings, two new ships can be procured and delivered by the end of 2027 - at least a year before the 2029 operation date announced last week.

Ministers were provided a commercially confidential list of indicative ship prices and potential delivery dates.

The cheapest option was $282m per ferry with delivery dates of September 2027 for the first vessel and December 2027 for the second while the most expensive option listed was $688 per ship with both to be delivered in the second half of 2028.

Stuff revealed last week that Cabinet had agreed to set aside $900m as a tagged contingency to buy new Cook Strait Ferries.

However the group was concerned the government ran the risk of missing out on some options due to delays caused by KiwiRail working to settle a claim with Hyundai - the suggested mitigation was to ensure a decision on whether to proceed with a closed tender by the end of July so as a contract could be agreed by the end of October.

The group's report also raised concerns about the delays in setting up a new entity to procure the ships.

"We are concerned that advice on and work to establish a new entity may be slipping behind other workstreams and could create delays in implementing a ship procurement decision and increase the already significant transition risks to bring new ferries into operation," he said.

Its recommendation was for the new entity to not only procure the ships but to take on the operation of them, however the government has not adopted this recommendation.

"In the medium-term, to manage the transition to new ferries and infrastructure transition with a view to the entity assuming responsibility for operating the Interislander service safely and reliably and driving improved commercial performance," it says.

As part of its assessment over KiwiRail's business case it warns many assumptions are based on the Aratere not being retired until 2029 however this was "simply not possible" according to the report.

"For instance, construction needs to start on the Picton wharf, meaning the Aratere needs to be retired as soon as possible i.e. 2025."

"Operating Aratere until 2029 is simply not possible as the wharf and linkspan upgrades will need to be completed for the arrival of the new ships.

"With the Picton wharf at end of life in 2029, work needs to start in 2024 on agreeing requirements for construction of a new wharf including retiring the Aratere in 2025."

Luxon told media on Monday he was confident Kiwis were getting a better deal than iReX.

Asked why the decision took so long, Luxon said they were working backwards from when the ferries needed to be replaced and "if we make that decision on procurement, final decision, in March we have plenty of time".

- Stuff