Photo: RNZ/ Rachel Thomas
The Inter-Island Resilient Connection (iReX) project to build new ferries and redevelop the ports would not have broken even, even after three decades, while the Transport Ministry has questioned whether KiwiRail is capable of continuing to run the service.
The information comes from a proactive release of dozens of government and ministry briefings and correspondence by KiwiRail today.
The documents revealed that due to spiralling cost - a quadrupling - the project would still be $1.3 billion in the hole after 2050.
The project would have had a positive net value if it was just the ships but the escalating costs of the port works and terminal infrastructure sank it.
Meanwhile, while the cost of cancelling the ship building contract remains unknown.
The iReX project was set to deliver two rail-enabled ferries by 2026, co-funded through a deal agreed with the previous government, and then axed by the current coalition.
It said the cost blowout meant it did not stack up.
Transport Ministry questions whether KiwiRail up to task of running ferries
The Transport Ministry questioned whether KiwiRail was the right entity to run the ferry business.
It said KiwiRail's costs continue to grow while its competitor Bluebridge operates commercial services without a subsidy.
The ministry said a more commercially viable option should be possible if a new approach was taken: "especially by someone other than KiwiRail".
"Given the difficulties KiwiRail have had with Project iReX, and the fact they have a range of core rail issues to address, raises the question of KiwiRail's suitability to run the Interislander business in the medium to long term."
"The Interislander business could be separated into another State-Owned Enterprise or sold via a trade sale.
"KiwiRail would be expected to contract with this business to provide freight services across the Cook Strait, but how this is achieved would be left as a commercial decision between parties.
Treasury documents acknowledged the risk KiwiRail would quit the ferry business altogether if it could not go ahead with the project, but the Treasury deemed this "overstated".
"We have not seen any substantive evidence that not progressing KiwiRail's preferred big ship approach to Project iReX would materially impact KiwiRail's ability to continue with its current Interislander operating model."
"Even if KiwiRail did indicate its preference to exit the market, ministers could, at that time, consider options to ensure an ongoing resilient inter-island connection, either involving KiwiRail or other providers."
KiwiRail chief executive Peter Reidy said in a statement it was looking at ways to carry on with its existing fleet, or source replacement ships secondhand.
"KiwiRail remains committed to operating the Interislander service. We have run the service for over 60 years, and we want to continue to run it for another 60," he said.
Break fee question remains unanswered
Although the two ferries, commissioned from Korean manufacturer Hyundai Mipo Dockyard, were not yet under construction, the documents discuss the risk of KiwiRail being hit with a fee for breaking the contract.
The government had accepted some responsibility to pitch in saying "some level of Crown support would be required to assist KiwiRail in exiting the project and pragmatically".
But the final cost was as yet unknown, but documents show the government considered the break fee to be the main risk.
KiwiRail chief financial officer Jason Dale said it was still in discussions with Hyundai Mipo Dockyard, "and those discussions include all aspects of the contract including termination fees and agreements with suppliers" and the details were "commercial in confidence".
A Treasury document said it recommended ministers also consult with the Ministry of Foreign Affairs and Trade to understand how best to mitigate this risk prior to confirming its decision to end the project.