On Making Profits From The Ferries Fiasco

Finance Minister Nicola Willis has taken a ton of flak for not having a Plan B in place before she cancelled Kiwirail’s contract for the new Cook Strait ferries. Yet maybe her own Plan A all along has been to use a public private partnership (PPP) to fund the project, rather than having the state fund it directly. In a not-unrelated move in June, the government’s “independent” advisory group floated the option of creating an entirely new entity to run the ferries.

By heading down the PPP route – even a PPP where the state remains the major stakeholder - Willis would (a) take a multi-billion dollar commitment off the government books and (b) create more fiscal headroom for other coalition priorities. She would also (c) kick all the extra costs for an inferior service down the road by (d) saddling future generations with paying the annual profit margins that the project partner will be demanding for the next 30 years, or more. If that’s the plan, Willis is putting the ferries on a credit card, and expecting taxpayers to pay it off with interest.

Since December, secrecy has surrounded the ferries project. That’s been somewhat incredible, given that we’re talking about the future cost, shape and reliability of New Zealand’s most important trade and tourism link. You’d think open debate and a range of socio-economic analyses would be being encouraged, not bypassed. In all likelihood, a fait accompli will be sprung on us. In the meantime, what future role Picton will play, if any, in the provision of the Cook Strait ferry service remains totally up in the air. Picton should be worried.

Smaller, inferior, Swedish

All we do know is that in late June, the same independent advisory group recommended that the government should build new, but smaller ferries than those proposed by Kiwirail, and – crucially – it said that these new ferries need not be rail capable. In a solidly argued article on the Newsroom site earlier this week, Maritime Union national secretary Carl Findlay outlined some of the consequences of Willis shunting New Zealand down that path:

The implications of this for our economy and our freight market are far-reaching and range from longer loading times and thus reduced capacity across the strait, to eliminating rail’s competitive advantage in the market – and potentially KiwiRail’s viability as a competitive nationwide freight company altogether. Figures we’ve worked up show that just the cost of double-handling a container at each end of the strait rather than rolling it straight onto and off of a rail-enabled ferry will add $150-$200 per container. Kiwi businesses will be paying millions of dollars a year more to move rail freight between the islands. This is an additional cost that would be locked in for a generation.

As Findlay adds, no contestable cost/benefit analysis has been undertaken, and no warning was given before Willis announced her cancellation decision:

...Nobody seems to know what the cost of removing an entire mode of freight transport from the domestic market will be to freight customers and our economy. It would probably make sense to model that economic scenario before cutting rail from the Strait. I’m sure the many New Zealand businesses that rely on domestic freight, rail or otherwise, would appreciate at least that small amount of due diligence and forewarning.

Reportedly, the new government cancelled the original deal because of a “blowout” in the cost of the port handling facilities for the large Hyundai ferries envisaged by Kiwirail. Yet as widely reported, hundreds of millions in sunk costs have already been incurred, and that’s not counting the as-yet unknown costs of breaking the original contract with the South Korean shipyard. All up, the total may come out very close to the additional funds that Willis baulked at paying. That money will now be flushed away without achieving any benefit whatsoever.

As Findlay said, how many extra nurses could that money have hired, and how many school lunches could it have bought, for years to come. Incredibly though, it gets worse. As the Newsroom article also pointed out, the replacement vessels that the government is rumoured to have in mind (to build or to lease) are among the range of E-Flexer ferries built by the Stena shipyards in Sweden. (This is the same company that built the Strait Feronia ferry operated by Bluebridge.) Again, only the insiders know what exact Stena ferry type is being contemplated, but you can scan the range at this site.

Point being, while the Stena E-Flexer ferries are smaller than Kiwirail’s Hyundai ferries, they are still going to be significantly larger than the current Cook Strait ferries. As a consequence, New Zealand will still have to spend the additional money on upgrading the ferry terminals and port turnaround facilities, anyway. All of this makes sense only if – from the outset - the coalition government had no interest in economic efficiency, but was viewing the ferries replacements as a profit opportunity for a private sector partner.

As mentioned above, the PPP option would take the investment figure off the government’s books, and unload the additional costs involved in providing an inferior Cook Strait service onto taxpayers, in all likelihood for the next three decades.

Footnote: The new ferries lack of rail capability will not only increase delays and impose “double handling” costs on business, which will inevitably be passed on to customers. In addition, as Arena Williams has pointed out, the lack of a rail capability will negatively affect our ability to reduce the costly climate change emissions being generated by the transport sector:

As we look to decarbonise our transport networks and bring down the cost and impact of freight, it is also hugely important that there is a clear strategy linking up our rail systems with our national infrastructure around the ferries.

A co-ordinated road/rail strategy of climate change mitigation from this government? No chance.

Song for the leader

During his latest stream of semi-consciousness, PM Christopher Luxon tried to justify the latest example of his government’s hostility to the public use of te reo.... by insulting our nearest neighbour and closest ally. In case you missed the context… Arts Culture and Heritage Minister Paul Goldsmith had removed all expressions in te reo – including the greeting “tēnā koe” and the word “ Aotearoa” from the invitation sent out to diplomatic guests attending the Matariki celebration. Luxon’s subsequent “explanation?”:

Luxon said the invitation was to an Australian and “it always pays to be incredibly simple and clear - and use English” when dealing with our trans-Tasman cousins.

Foreigners must be quietly astonished that this doofus now occupies the position once graced by Jacinda Ardern. Can’t tell if the track below reflects what the world thinks of Luxon, or what Luxon thinks of people who have to struggle to make ends meet. Maybe a bit of both:

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