KiwiRail boss travelled to South Korea in mega ferry contract negotiations with Hyundai Mipo Dockyard

KiwiRail chief executive Peter Reidy travelled to South Korea last month as part of the ongoing wrangle to exit a shipbuilding contract for Cook Strait’s cancelled mega ferries.

The project to replace
Interislander’s ageing fleet was left dead in the water at the end of last year after overall costs, including new terminals and wharf upgrades, ballooned to almost $3 billion and the new Government refused to fund the blowout.

KiwiRail took until February 14 to announce it was terminating the $551 million fixed-price contract with Hyundai Mipo Dockyard (HMD), based in South Korea, to build the ferries. This only happened after KiwRail received a letter from Finance Minister Nicola Willis and two months after the Government pulled the plug on the project.

The Herald can now reveal Reidy travelled to South Korea in early April as part of discussions with HMD.

KiwiRail would not say whether this trip was at the request of one of its shareholding ministers or the board’s chairman.

The state-owned enterprise did not provide further details about the purpose of the trip or whether any attempt was made to renegotiate the existing contract to build smaller ships.

KiwiRail chief financial officer Jason Dale said discussions were continuing with HMD to exit the ship-building contract, and those discussions included all aspects of the contract including termination fees and agreements with suppliers.

“The details of those discussions are ‘commercial in confidence’. Peter Reidy travelled to Korea in early April as part of the discussions with HMD”, Dale said.

KiwiRail has previously confirmed two staff members visited the shipyard in January to discuss various options including exiting the contract.

“We have a long-standing relationship with Hyundai,” Reidy said in February.

“When you do business with Korea, it’s about face-to-face and we’ve got a very professional relationship with them.”

There is concern about the cost of scrapping the ship-building contract, considering how much money could go down the drain to walk away empty-handed.

There is also speculation, including by former Labour Transport Minister Michael Wood, that the exit cost could be as high as $200m.

The Government has previously declined to answer questions about this speculation or whether there was a budget for exiting the contract. Ministers have stressed negotiations are commercially sensitive.

For the same reason, Willis has also declined to provide a summary of the letter she sent to KiwiRail that appears to have spurred contract exit talks.

The Herald asked for a copy of it under the Official Information Act. Two documents were found to be in the scope of that request: the first from February 8 titled “Project iRex Ferry Contracts” and the second from February 9 titled “Confirmation of Hyundai Mipo Dockyard Contract Exit”.

However, the documents were withheld because they would soon be publicly available.

Willis was also asked for details of any meetings she had with KiwiRail bosses during February.

Willis attended one meeting with Minister for State Owned Enterprises Paul Goldsmith, Reidy, and KiwiRail chairman David MacLean on February 15.

“At this meeting, KiwiRail provided an update on its business and trading environment, work underway to ensure the Interislander fleet remains resilient and discussed its appearance in front of a Parliament Select Committee earlier that day”, Willis said.

This was the select committee where KiwiRail bosses said they were now in the market for second-hand ships to replace the fleet. Indications from shipbrokers were that there were only 22 second-hand ships in the world that would meet KiwiRail’s criteria, including the capability to cross Cook Strait’s notorious waters, and none of them were for sale, McLean said at the time.

They also revealed if the same fixed-price contract to build the new ferries was signed today, the cost could increase by as much as 40 per cent.

Georgina Campbell is a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.