Photo: RNZ/ Rachel Thomas
KiwiRail has begun discussion to cancel its contract for an overseas firm to build it two new ferries.
Late last, year the government declined a request for additional funding for the project to buy two new ferries and upgrade two ports because of cost overruns.
KiwiRail says it cannot proceed without the government funding.
It says in a statement it has now started discussions with Hyundai Mipo Dockyard (HMD) to enter a termination agreement for the $555 million contract for the build of two new Interislander ferries.
The government will appoint a Ministerial Advisory Group to give advice on the future options for a Cook Strait connection.
Replacement options for the Interislander ferries are expected to be part of these broader reviews.
KiwiRail said it would work with customers and international shipbrokers on options to source suitable replacement ferries.
It thanked HMD, its staff, contractors, our port, mana whenua and union partners, and all those who had worked tirelessly on the project up to this date.
'KiwiRail will never get the chance again to get the ships at this price'
The Maritime Union has said the government's decision to decline the request for additional funding for the ferry iReX project is a waste of taxpayer dollars.
KiwiRail had requested an additional $1.4 billion, a component of which had been agreed to in principle by the previous government.
This was to address cost escalations for new port infrastructure in Wellington and Picton, including to accommodate new larger ferries.
To date, $435.1 million of Crown funding has been assigned for the iReX project, of which about $63m remains.
Maritime Union national secretary Craig Harrison said the government needed to be transparent about how much the penalty was for KiwiRail to terminate the agreement with HMD.
"You would hate to think that we are going to pay millions of dollars to cancel the ship orders and not see any ships at the end of it," he said.
Harrison said buying secondhand ships may cost more than buying new ones.
"There is a danger that New Zealand will end up with a cheap, sub-optimal ferry option that will see ongoing disruption and safety issues," he said.
"KiwiRail will never get the chance again to get the ships at this price.
"We might end up spending more money to get something that is less adequate."
Harrison said the two ships were also designed to meet New Zealand's net-zero carbon objectives and that secondhand ships may not meet these goals.
KiwiRail will face questions tomorrow at Parliament at the Transport and Infrastructure Select Committee.