July 29, 2024 • 19 mins
The future of KiwiRail is at risk of going off the rails.
There has been an exodus of directors from the Board following the early retirement of chairman David McLean, and the company has been under intense scrutiny of how it’s handled the Cook Strait ferry business.
So, what does the future hold for a state owned enterprise responsible for a significant part of our transport network? And is there a way to get its fortunes back on track?
Today on The Front Page, we’re joined by BusinessDesk Infrastructure Editor Oliver Lewis to dive into KiwiRail’s problems.
Follow The Front Page on iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts.
You can read more about this and other stories in the New Zealand Herald, online at nzherald.co.nz, or tune in to news bulletins across the NZME network.
Host: Georgina Campbell
Sound Engineer: Paddy Fox
Producer: Ethan Sills
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Kyoda.
Speaker 2 (00:05):
I'm Georgina Campbell in for Chelsea Daniels and this is
the Front Page, a daily podcast presented by The New
Zealand Herald. The future of Kiwi row is at risk
of going off the rails. There has been an exodus
of directors from the board following the early retirement of
(00:27):
chairman David McLain, and the company has been under intense
scrutiny of how it's handled the cook straight faery business.
So what does the future hold for a state owned
enterprise responsible for a significant part of our transport network
and is there a way to get its fortunes back
(00:48):
on track. Today on the Front Page, we're joined by
a business desk Infrastructure editor Oliver Lewis to dive into
Kewi Rowl's problems. Ollie, who has resigned from the board
and what reasons did they give?
Speaker 3 (01:07):
So we've got quite a few resignations now. David maclain
is obviously the big one. His resignation was announced shortly
after the ARTA Teddy grounded. It was two days later.
He was going to be leaving in October or his
term was up in October. That's been brought forward to
the very in of July. Then you had a double
kind of header of a man called Ed Simms, who's
an aviation expert, very well respected, and another person called
(01:32):
Rachel Plimmer who's a transport consultant. The most recent one
is Marion Street, who was a former labor minister and
kind of staunch trade unionist. So perhaps no surprises they
are given the current government and her desire to stay
on the board. So four down so far, would you.
Speaker 2 (01:47):
Say that's a bit of an exodus.
Speaker 3 (01:49):
I mean, personally, Georgia, I love to use the word
exodus in stories like this, and I think it's justified
to say that here and this is four in the
space of about a month. I think it's possible that
you might see the departures and changes so the board
when your refresh still doesn't appear to be complete.
Speaker 2 (02:05):
I don't think what did David McClain say when he
resigned and was there anything that sort of pointed to
some tension, if you like, behind the scenes with the government.
Speaker 3 (02:16):
Yeah, so his letter was quite circumspect. He led out
a number of achievements accomplishments that he felt the Board
and Carol had achieved whist he had been there. So
he picked up the role a fairly difficult time when
the previous ce Greg Miller had departed amidst a blitz
of kind of middle management resignations and discontent at the company.
Speaker 1 (02:36):
So he appointed Peter Reedy.
Speaker 3 (02:38):
That was one of his big accomplishments, and he pointed
to that and his letter that fact had resetted the
kind of managerial culture at Kibi Rail and had presided
over some kind of continuation in its infrastructure kind of strategy.
And of his reasons, we have a full accounting for those,
and I think it's probably fair to say that there
would be some tension with Nikola Willis and Paul Goldsmith.
(03:00):
There was some curious language used in terms of the releases.
I think that McClain noted in his explanation for why
he was leaving that had bought his announcement forward because
he undertood that the ministers were essentially getting the drop
on him and doing it first. There's been no kind
of public comments about there being a bad or a
tense relationship, but I think it's fair to say that
(03:21):
ministers we're not entirely confident in the board and Kerell
at the time under his leadership, and he felt that
perhaps he hadn't mentreated well either, so it ended on
fairly kind of blunt terms.
Speaker 2 (03:31):
I think we know that Finance Minister Nicola Willis expressed
displeasure with the board in the weeks before David McLain
handed and Nosius of his early retirement. She was specifically
unhappy about spending on consultants. Can you explain why Willis
(03:52):
was so annoyed?
Speaker 3 (03:53):
So, yeah, it's laid out under McLain and ready Qirell
has commissioned this kind of strategic transformation plan. So they
want to kind of reset the business, focus on where
they can make money, what is perhaps not profitable, and
look to kind of streamline their operations. To do that,
they bought in that great name of the consultant world,
(04:14):
mackenzie and Company to get in there and produce a
transformation plan for them. So we don't one hundred percent
know this because Key Rails refuse to release the figures
based on commercial sensivity causes, which I think is not
actually that kosher in this case. But what has been
reported is that that report costs about eight million dollars,
which is a very high cost for a bit of
(04:35):
work like that. So Willis was very taken aback in
her public comments I think to you and made a
number of assessments that she felt that it was work
that the company could have done itself and that the
cost wasn't justifiable. So that was seen as a bit
of a shot across the bout. Although I think q
Rail's position is that that eight million could be recouped
(04:56):
purely through the savings identified by the report.
Speaker 4 (05:00):
Outgoing board chair David McLean says it's the board's expectation
that Keevy rowl lifts its commercial performance and so requires
a business transformation, and mckinsley had the right experience on
how to advise them on how to do that. However,
that has been openly criticized by the Finance Minister, who
questioned why an extremely well paid executive weren't the right
(05:21):
people to ensure that the business was running efficiently.
Speaker 1 (05:28):
And quite funny two events.
Speaker 3 (05:29):
Actually, Treasury is now listing ads for new board members
and one of the calling cards they're pointing to is
the fact that if you get to be a new
board director, you get to put into action these kind
of mackenzie sanctioned transformation plans. So they're obviously pretty pleased
they like it.
Speaker 2 (05:43):
I thought the same thing. I thought that was really
interesting that you had Nikola Willis criticizing the spend on
consultants and then Treasury kind of advertising it as something
that might be appealing to potential future board members. Look,
what is the government looking at doing with QI rail?
You know, they're clearly unhappy. Have they given any indication
(06:06):
of what their priorities are for the state owned enterprise?
Speaker 3 (06:10):
There is a bit of a pausitive detail at the moment.
So there are two key reports that are with ministers
and have been for the last several weeks. One of
those is the Ministerial Advisory Group Report, which was put
together to kind of provide advice on what the next
step should be for the Terrelander and the ship procurement,
and the Ministry of Transports also provided its kind of
(06:31):
long term view of what it thinks the requirements should
be for the cookstraight in terms of key Rail's involvement
in that or not. What it strongly sounds like is
that a recommendation has come through that mag report that
the Interilander component of the business perhaps shouldn't necessarily sit
with q Rail in the future. And what I have
(06:51):
heard anyway, is that ministers are considering stapp a schedule
for a company which is slightly different from a state
on enterprise, to procure new vessels and then potentially to
also operate them once they arrive in two, three, four years.
So there's a lot of smoke signals. And if they
agrees to go through a bit, it sounds like the
government may be moving towards trying to reposition the entirelander
(07:14):
and remove from Kerral and that would be a very
major scept.
Speaker 2 (07:17):
If that did happen, and obviously this is speculation at
this point. Would that mean that Interrelander is essentially privatized?
Speaker 1 (07:25):
Not quite.
Speaker 2 (07:26):
So.
Speaker 3 (07:26):
The importance of that Schedule four a company is that,
unlike a state or an enterprise which is a hundred
owned by the state, if you set up a Schedule
four a framework, it means that the government can sail
down it's shareholding, but it can only sail down to
about fifty one percent, so it always maintains a majority share.
But it just gives you flexibility if you're the government,
to potentially seek some outside investors as well, which may
(07:49):
or may not be a good thing, depending on your
view of private operators, but potentially it could induce some
commercial discipline into a staate own company like inter Islander,
as well as a bit more capital.
Speaker 1 (08:00):
Not a full scale privatization.
Speaker 3 (08:01):
I don't think anyone's talking about that, but definitely you
could see the ownership max change over time.
Speaker 2 (08:06):
And what are some of the other options that Ministry
of Transport officials have been looking at when they're considering
the future of entire islander.
Speaker 1 (08:14):
Yeah, it's a bit tricky with those ones.
Speaker 3 (08:16):
So we know that they undertook extensive engagement with Bluebridge,
obviously the only other competitor on that Cook Straight route.
There was some kind of indication that they'd ask them
around what was their capacity to scale up in the
event that Keyral kind of exited the market suddenly. I
think realistically any kind of work into the future of
that crossing would have looked at landside infrastructure as well.
Speaker 1 (08:37):
So how do for.
Speaker 3 (08:39):
Instance, center Port and Wellington Port Marbel impact and how
do they work together with those groups as well as
key Rail and the Interlander and Bluebridge to try and
get some better facilities on both sides. Unfortunately, it's all
very shrouded in mystery. As you know, getting any information
out about this process has been very, very tricky. It's
often been rejected the grounds of commercial sensitivity, and we
(09:02):
just haven't had that flow of information. So there's a
lot of speculation but not many facts at the moment.
Speaker 2 (09:18):
What does Kimi raw have to say about the idea
of its entrel under business potentially being taken off it.
Speaker 3 (09:25):
I think they'd be rather annoyed, to be fair, Today
Kirel obviously operates the Israelan Is one of its business units,
alongside kind of freight rail and its Great Journeys kind
of section. It does make money, from my understanding, and
you can see that in the annual reports. But they've
been quite open in public comments that they are operating
(09:45):
the business now, they have no plans to cease operating
the business and they want to keep doing that. Although
that's a slight change of tune from when they were
negotiating over the I Rex shipbuild when there was some
kind of brinksmanship where Hera was suggesting pat they would
exit the market themselves if they didn't have reliable ships.
But I think it's fair to say that they definitely
(10:05):
want to retain that business and it would impact them
materially if it was taken out of their hands.
Speaker 2 (10:11):
Yeah, they've certainly doubled down on it, I think, sort
of saying that following this Mackenzie work, they actually want
to increase their capacity on Cookstrait, which is quite a
stark contrast to the government saying well, we're looking at
actually taking into island or off you. Do you have
any insight into how that would affect kirbe Row's business though,
(10:34):
if it didn't have control of those fairies.
Speaker 3 (10:36):
Yeah, only things that have been said in the heat
of trying to convince ministers to part with hundreds of
millions of dollars, So it's unclear whether or not that's
totally believable. But there was some suggestion that if there
weren't rail fairies and KIRO didn't have that component of
a crossing, that that would start to undermine the viability
of the South Island rail network and potentially you'd see
(10:57):
KIRA or retrench either out of the island or to
get or to only one key line. They would certainly
make it harder for them to grow rail freight I
think across the strait if they had no control over
the business that was connecting those two islands. It's tricky actually,
because the other thing that would happen is that you
would have essentially two separate rail networks as opposed to
(11:19):
one interconnected one. So you'd have to think quite hard
about the logistics of how many locos you had in
one island versus the other, for instance, and how you
kind of kept both of those separate rail networks running optimally.
It's a little bit hard to say at the moment
about the impacts of their business, but there would definitely
be harder for them to operate a cohesive national rail service.
Speaker 2 (11:39):
I think, irrespective of whether Kibi Rail is running into
islander or not, that fleet of three aging firies needs
to be replaced, you know. The government's effectively canceled that
plan to replace the Interntato fleet with two mega firies.
Speaker 5 (11:56):
The concern will be as if this aging fleet leads
to further disruption in the coming years. This is a
huge transit link linking the South Island and the North Island.
It's an extension of State Highway one, and the decisions
made will have huge implications for the tourism sector and
for the nationwide economy.
Speaker 2 (12:18):
When will we hear what the new plan is.
Speaker 3 (12:22):
I think many many people would love to know that
as well. There's been some suggestions that it's being held
up by coalition politics. Perhaps not everyone in the government
is on board with this idea of a schedule for
a company, or if they're not, that there's details to
kind of iron out. But yeah, we haven't really had
any clear stare. I think Nicola Willis told the Nelson
Chamber of Commerce not too long ago to expect announcements
(12:45):
relatively soon around the future of the fleet. But again,
it's just so tricky to peer behind the curtain on
this one that there's just no visibility about when we
should expect an announcement.
Speaker 2 (12:54):
Any idea about what kind of ships might be under
consideration or.
Speaker 3 (12:59):
In the Yeah, so we're pretty sure about this one.
So it sounds very much like The Swedish company called
Stena Roro produces a type of ship called the E Flexer,
so it's not a rail enabled ship, it's a passenger
and freight only vessels.
Speaker 1 (13:13):
They're very popular.
Speaker 3 (13:14):
They've produced ten so far with another fifteen under order,
and the reason that people like them is that essentially
it's a standardized design. You can tweak it slightly to
accommodate different customer preferences. They actually did pitch for the
i Rex kind of mega fury contract, but Stena was unsuccessful.
They didn't get that. I understand that there might be
(13:34):
some concern within Kira around whether or not the stener
e flexes are suitable for the cook straight in terms
of their ability to kind of deal with a rough
body of water, but they certainly sound like a relatively
affordable option. I think the ministerial Viazoo group was quite
into them as a concept.
Speaker 2 (13:51):
All of the potential options that I've heard of, none
of them are rail enabled. Do you think that the
government is not keen on rail enablement.
Speaker 3 (14:02):
Yeah, I think that's pretty safe to say that any
new fairies won't be rail enabled. The government's made it
pretty clear that it doesn't view that as necessary. There's
a lot of contenture around this, but it's kind of
pointed to the fact that it doesn't think that they
are in common usage anymore around the world. To that point,
people tell me, well, actually, the reason that it's the
case is that in other advanced stations we've got a
(14:22):
segregated rail network. It's actually a lot easy to build
tunnels and bridges to kind of connect those sections, whereas
in New Zealand, I think the idea of kind of
tunneling under the cook straight, whilst appealing to some, would
be a bit of a full's Errand.
Speaker 2 (14:33):
The government also has a bit of luck here in
terms of time. It has more time than was initially
thought in terms of how much longer the current fleet
can keep going for there's been some new advice suggesting
that the current ferries can keep running until twenty twenty nine.
Can you tell us a little bit more about what
(14:55):
their advice said.
Speaker 3 (14:57):
Yes, so that's from DNV. I'm not going to train
and pronounce the name properly, because I will I almost
pronounce it. But they are a very well respected kind
of global certification company that Kiral has contracted to come
in and take a look at their maintenance practices and
regime on the antrail and the ferries. What was quite
interesting to me was that Kirol decided to kind of
proactively release a summary of that advice from d and V.
(15:20):
I think was last week, and the advice was very
flattering to them. Essentially, DNV had found that maintenance practices
were quite good on the existing fleet, that the whole
age of most of the ships was significantly younger than
the actual kind of physical edge of the boats, and
that they believed that with a proper maintenance regime they
could safely and reliably be operated through to twenty twenty nine,
(15:43):
albeit at a slightly high cost. So I think it's
about twenty nine million dollars a year currently that Kirell
spends on the three vessels. That's expected to go up
to about thirty six million under this kind of enhanced
maintenance plan to keep them going. What's quite funny to
me about that is that Kirel had previously been telling
ministers and government through its business case for the i
REX project that actually maintenance cost would be something like
(16:05):
sixty five million a year. So we appear to have
found some significant saving somewhere, which is always very welcome
in type fiscal convironments.
Speaker 2 (16:14):
The fairies are not kb Rowl's only problem. They've also
got the state of our rail network to look after,
and there have been ongoing issues with failures leading to
network wide cancelations. How is kivy Raul dealing with those problems?
Speaker 1 (16:30):
Yeah?
Speaker 3 (16:31):
I actually took the train the first time on a
weekend in Auckland yesterday and Longhold. It actually worked. It
was very reliable, and I was quite pleased because there
has been, as you say, extensive disruption on that Auckland network.
Kirio definitely has a very hard task ahead of it
to bring these very very aging networks back up to
a serviceable standard, especially in Auckland because you've got this
(16:52):
multi billion, five billion dollar investment into the city rail Link,
which is it kind of jeopardy or at risk of
being undermined if the overall network isn't good enough by
the time it opens. There was a positive signal from
the government and the budget this year they put aside,
i think things about like four hundred and forty million
for rail and the big focus of that was to
improve networks in Auckland and Wellington. So there's a very
(17:16):
clear message and focus coming through from this government, which
is that it values rail as part of a wider
ecosystem where it makes sense, and it's drawn the line
at where rail makes sense primarily on a key freight corridors,
but also on those two metropolitan networks. So not such
a bad thing for rail lovers. I'm sure they would
like more, but key rail has a mandate to deliver
(17:37):
a lot more maintenance and renewals and improvements over the
next few years in our big cities.
Speaker 2 (17:42):
Getting the crystal ball out. What do you think will
happen with KPI rail in the long term.
Speaker 3 (17:49):
It's a great question because sometimes it does feel like
it's the kind of whipping boy of state owned enterprises
in New Zealand, particularly at the moment because it has
had such a terrible run with the plans around the Terimo.
Speaker 1 (17:58):
I think that's a bit of a crunch point.
Speaker 3 (18:00):
So if the government were to remove that business from
QI Rail, I think that would be seen as a
real blow in terms of their competence, but also their
ability to deliver on other promises. It wouldn't surprise me
if the government does set up the schedule for a
company to procure the fairies. But I think any decision
around taking the service off q ROW I kind of
feel like that's an election issue. So again, it wouldn't
(18:21):
sppose me if this becomes an election kind of campaign
or promise in the next couple of years where the
government says we want to kind of reconfigure key Rail
to focus on basics and delivering profitability on its freight services.
Here's our propositions in the New Zealand public which to
set up a new operator which may or may not
be capitalized by private interests to do that, ultimately, it
depends on the politics. You've got New Zealand first, which
(18:43):
was previously a massive rail advocate under the last government,
have been very surprisingly quiet on the state of key rail.
I think this term it's possible that they will rediscover
their love for rail, but they do need a kind
of political champion, I think for them to have a
very safe future. And they also need to prove that
they're competent and that they can actually make a return
on the capital deployed by the government. So they really
(19:04):
do need to demonstrate over the next couple of years
that they can focus on their knitting and get better
returns to their shareholder, which is the government.
Speaker 2 (19:12):
Thanks so much for joining us, Ollie. That's it for
this episode of The Front Page. You can read more
about today's stories and extensive news coverage at inzidherld dot
co dot nzid. The Front Page is produced by Ethan
Sills and sound engineer Patti Fox. I'm Georgina Campbell. Subscribe
(19:35):
to the front page on iHeartRadio or wherever you get
your podcasts, and tune in tomorrow for another look behind
the headlines.
Kyoda.
Speaker 2 (00:05):
I'm Georgina Campbell in for Chelsea Daniels and this is
the Front Page, a daily podcast presented by The New
Zealand Herald. The future of Kiwi row is at risk
of going off the rails. There has been an exodus
of directors from the board following the early retirement of
(00:27):
chairman David McLain, and the company has been under intense
scrutiny of how it's handled the cook straight faery business.
So what does the future hold for a state owned
enterprise responsible for a significant part of our transport network
and is there a way to get its fortunes back
(00:48):
on track. Today on the Front Page, we're joined by
a business desk Infrastructure editor Oliver Lewis to dive into
Kewi Rowl's problems. Ollie, who has resigned from the board
and what reasons did they give?
Speaker 3 (01:07):
So we've got quite a few resignations now. David maclain
is obviously the big one. His resignation was announced shortly
after the ARTA Teddy grounded. It was two days later.
He was going to be leaving in October or his
term was up in October. That's been brought forward to
the very in of July. Then you had a double
kind of header of a man called Ed Simms, who's
an aviation expert, very well respected, and another person called
(01:32):
Rachel Plimmer who's a transport consultant. The most recent one
is Marion Street, who was a former labor minister and
kind of staunch trade unionist. So perhaps no surprises they
are given the current government and her desire to stay
on the board. So four down so far, would you.
Speaker 2 (01:47):
Say that's a bit of an exodus.
Speaker 3 (01:49):
I mean, personally, Georgia, I love to use the word
exodus in stories like this, and I think it's justified
to say that here and this is four in the
space of about a month. I think it's possible that
you might see the departures and changes so the board
when your refresh still doesn't appear to be complete.
Speaker 2 (02:05):
I don't think what did David McClain say when he
resigned and was there anything that sort of pointed to
some tension, if you like, behind the scenes with the government.
Speaker 3 (02:16):
Yeah, so his letter was quite circumspect. He led out
a number of achievements accomplishments that he felt the Board
and Carol had achieved whist he had been there. So
he picked up the role a fairly difficult time when
the previous ce Greg Miller had departed amidst a blitz
of kind of middle management resignations and discontent at the company.
Speaker 1 (02:36):
So he appointed Peter Reedy.
Speaker 3 (02:38):
That was one of his big accomplishments, and he pointed
to that and his letter that fact had resetted the
kind of managerial culture at Kibi Rail and had presided
over some kind of continuation in its infrastructure kind of strategy.
And of his reasons, we have a full accounting for those,
and I think it's probably fair to say that there
would be some tension with Nikola Willis and Paul Goldsmith.
(03:00):
There was some curious language used in terms of the releases.
I think that McClain noted in his explanation for why
he was leaving that had bought his announcement forward because
he undertood that the ministers were essentially getting the drop
on him and doing it first. There's been no kind
of public comments about there being a bad or a
tense relationship, but I think it's fair to say that
(03:21):
ministers we're not entirely confident in the board and Kerell
at the time under his leadership, and he felt that
perhaps he hadn't mentreated well either, so it ended on
fairly kind of blunt terms.
Speaker 2 (03:31):
I think we know that Finance Minister Nicola Willis expressed
displeasure with the board in the weeks before David McLain
handed and Nosius of his early retirement. She was specifically
unhappy about spending on consultants. Can you explain why Willis
(03:52):
was so annoyed?
Speaker 3 (03:53):
So, yeah, it's laid out under McLain and ready Qirell
has commissioned this kind of strategic transformation plan. So they
want to kind of reset the business, focus on where
they can make money, what is perhaps not profitable, and
look to kind of streamline their operations. To do that,
they bought in that great name of the consultant world,
(04:14):
mackenzie and Company to get in there and produce a
transformation plan for them. So we don't one hundred percent
know this because Key Rails refuse to release the figures
based on commercial sensivity causes, which I think is not
actually that kosher in this case. But what has been
reported is that that report costs about eight million dollars,
which is a very high cost for a bit of
(04:35):
work like that. So Willis was very taken aback in
her public comments I think to you and made a
number of assessments that she felt that it was work
that the company could have done itself and that the
cost wasn't justifiable. So that was seen as a bit
of a shot across the bout. Although I think q
Rail's position is that that eight million could be recouped
(04:56):
purely through the savings identified by the report.
Speaker 4 (05:00):
Outgoing board chair David McLean says it's the board's expectation
that Keevy rowl lifts its commercial performance and so requires
a business transformation, and mckinsley had the right experience on
how to advise them on how to do that. However,
that has been openly criticized by the Finance Minister, who
questioned why an extremely well paid executive weren't the right
(05:21):
people to ensure that the business was running efficiently.
Speaker 1 (05:28):
And quite funny two events.
Speaker 3 (05:29):
Actually, Treasury is now listing ads for new board members
and one of the calling cards they're pointing to is
the fact that if you get to be a new
board director, you get to put into action these kind
of mackenzie sanctioned transformation plans. So they're obviously pretty pleased
they like it.
Speaker 2 (05:43):
I thought the same thing. I thought that was really
interesting that you had Nikola Willis criticizing the spend on
consultants and then Treasury kind of advertising it as something
that might be appealing to potential future board members. Look,
what is the government looking at doing with QI rail?
You know, they're clearly unhappy. Have they given any indication
(06:06):
of what their priorities are for the state owned enterprise?
Speaker 3 (06:10):
There is a bit of a pausitive detail at the moment.
So there are two key reports that are with ministers
and have been for the last several weeks. One of
those is the Ministerial Advisory Group Report, which was put
together to kind of provide advice on what the next
step should be for the Terrelander and the ship procurement,
and the Ministry of Transports also provided its kind of
(06:31):
long term view of what it thinks the requirements should
be for the cookstraight in terms of key Rail's involvement
in that or not. What it strongly sounds like is
that a recommendation has come through that mag report that
the Interilander component of the business perhaps shouldn't necessarily sit
with q Rail in the future. And what I have
(06:51):
heard anyway, is that ministers are considering stapp a schedule
for a company which is slightly different from a state
on enterprise, to procure new vessels and then potentially to
also operate them once they arrive in two, three, four years.
So there's a lot of smoke signals. And if they
agrees to go through a bit, it sounds like the
government may be moving towards trying to reposition the entirelander
(07:14):
and remove from Kerral and that would be a very
major scept.
Speaker 2 (07:17):
If that did happen, and obviously this is speculation at
this point. Would that mean that Interrelander is essentially privatized?
Speaker 1 (07:25):
Not quite.
Speaker 2 (07:26):
So.
Speaker 3 (07:26):
The importance of that Schedule four a company is that,
unlike a state or an enterprise which is a hundred
owned by the state, if you set up a Schedule
four a framework, it means that the government can sail
down it's shareholding, but it can only sail down to
about fifty one percent, so it always maintains a majority share.
But it just gives you flexibility if you're the government,
to potentially seek some outside investors as well, which may
(07:49):
or may not be a good thing, depending on your
view of private operators, but potentially it could induce some
commercial discipline into a staate own company like inter Islander,
as well as a bit more capital.
Speaker 1 (08:00):
Not a full scale privatization.
Speaker 3 (08:01):
I don't think anyone's talking about that, but definitely you
could see the ownership max change over time.
Speaker 2 (08:06):
And what are some of the other options that Ministry
of Transport officials have been looking at when they're considering
the future of entire islander.
Speaker 1 (08:14):
Yeah, it's a bit tricky with those ones.
Speaker 3 (08:16):
So we know that they undertook extensive engagement with Bluebridge,
obviously the only other competitor on that Cook Straight route.
There was some kind of indication that they'd ask them
around what was their capacity to scale up in the
event that Keyral kind of exited the market suddenly. I
think realistically any kind of work into the future of
that crossing would have looked at landside infrastructure as well.
Speaker 1 (08:37):
So how do for.
Speaker 3 (08:39):
Instance, center Port and Wellington Port Marbel impact and how
do they work together with those groups as well as
key Rail and the Interlander and Bluebridge to try and
get some better facilities on both sides. Unfortunately, it's all
very shrouded in mystery. As you know, getting any information
out about this process has been very, very tricky. It's
often been rejected the grounds of commercial sensitivity, and we
(09:02):
just haven't had that flow of information. So there's a
lot of speculation but not many facts at the moment.
Speaker 2 (09:18):
What does Kimi raw have to say about the idea
of its entrel under business potentially being taken off it.
Speaker 3 (09:25):
I think they'd be rather annoyed, to be fair, Today
Kirel obviously operates the Israelan Is one of its business units,
alongside kind of freight rail and its Great Journeys kind
of section. It does make money, from my understanding, and
you can see that in the annual reports. But they've
been quite open in public comments that they are operating
(09:45):
the business now, they have no plans to cease operating
the business and they want to keep doing that. Although
that's a slight change of tune from when they were
negotiating over the I Rex shipbuild when there was some
kind of brinksmanship where Hera was suggesting pat they would
exit the market themselves if they didn't have reliable ships.
But I think it's fair to say that they definitely
(10:05):
want to retain that business and it would impact them
materially if it was taken out of their hands.
Speaker 2 (10:11):
Yeah, they've certainly doubled down on it, I think, sort
of saying that following this Mackenzie work, they actually want
to increase their capacity on Cookstrait, which is quite a
stark contrast to the government saying well, we're looking at
actually taking into island or off you. Do you have
any insight into how that would affect kirbe Row's business though,
(10:34):
if it didn't have control of those fairies.
Speaker 3 (10:36):
Yeah, only things that have been said in the heat
of trying to convince ministers to part with hundreds of
millions of dollars, So it's unclear whether or not that's
totally believable. But there was some suggestion that if there
weren't rail fairies and KIRO didn't have that component of
a crossing, that that would start to undermine the viability
of the South Island rail network and potentially you'd see
(10:57):
KIRA or retrench either out of the island or to
get or to only one key line. They would certainly
make it harder for them to grow rail freight I
think across the strait if they had no control over
the business that was connecting those two islands. It's tricky actually,
because the other thing that would happen is that you
would have essentially two separate rail networks as opposed to
(11:19):
one interconnected one. So you'd have to think quite hard
about the logistics of how many locos you had in
one island versus the other, for instance, and how you
kind of kept both of those separate rail networks running optimally.
It's a little bit hard to say at the moment
about the impacts of their business, but there would definitely
be harder for them to operate a cohesive national rail service.
Speaker 2 (11:39):
I think, irrespective of whether Kibi Rail is running into
islander or not, that fleet of three aging firies needs
to be replaced, you know. The government's effectively canceled that
plan to replace the Interntato fleet with two mega firies.
Speaker 5 (11:56):
The concern will be as if this aging fleet leads
to further disruption in the coming years. This is a
huge transit link linking the South Island and the North Island.
It's an extension of State Highway one, and the decisions
made will have huge implications for the tourism sector and
for the nationwide economy.
Speaker 2 (12:18):
When will we hear what the new plan is.
Speaker 3 (12:22):
I think many many people would love to know that
as well. There's been some suggestions that it's being held
up by coalition politics. Perhaps not everyone in the government
is on board with this idea of a schedule for
a company, or if they're not, that there's details to
kind of iron out. But yeah, we haven't really had
any clear stare. I think Nicola Willis told the Nelson
Chamber of Commerce not too long ago to expect announcements
(12:45):
relatively soon around the future of the fleet. But again,
it's just so tricky to peer behind the curtain on
this one that there's just no visibility about when we
should expect an announcement.
Speaker 2 (12:54):
Any idea about what kind of ships might be under
consideration or.
Speaker 3 (12:59):
In the Yeah, so we're pretty sure about this one.
So it sounds very much like The Swedish company called
Stena Roro produces a type of ship called the E Flexer,
so it's not a rail enabled ship, it's a passenger
and freight only vessels.
Speaker 1 (13:13):
They're very popular.
Speaker 3 (13:14):
They've produced ten so far with another fifteen under order,
and the reason that people like them is that essentially
it's a standardized design. You can tweak it slightly to
accommodate different customer preferences. They actually did pitch for the
i Rex kind of mega fury contract, but Stena was unsuccessful.
They didn't get that. I understand that there might be
(13:34):
some concern within Kira around whether or not the stener
e flexes are suitable for the cook straight in terms
of their ability to kind of deal with a rough
body of water, but they certainly sound like a relatively
affordable option. I think the ministerial Viazoo group was quite
into them as a concept.
Speaker 2 (13:51):
All of the potential options that I've heard of, none
of them are rail enabled. Do you think that the
government is not keen on rail enablement.
Speaker 3 (14:02):
Yeah, I think that's pretty safe to say that any
new fairies won't be rail enabled. The government's made it
pretty clear that it doesn't view that as necessary. There's
a lot of contenture around this, but it's kind of
pointed to the fact that it doesn't think that they
are in common usage anymore around the world. To that point,
people tell me, well, actually, the reason that it's the
case is that in other advanced stations we've got a
(14:22):
segregated rail network. It's actually a lot easy to build
tunnels and bridges to kind of connect those sections, whereas
in New Zealand, I think the idea of kind of
tunneling under the cook straight, whilst appealing to some, would
be a bit of a full's Errand.
Speaker 2 (14:33):
The government also has a bit of luck here in
terms of time. It has more time than was initially
thought in terms of how much longer the current fleet
can keep going for there's been some new advice suggesting
that the current ferries can keep running until twenty twenty nine.
Can you tell us a little bit more about what
(14:55):
their advice said.
Speaker 3 (14:57):
Yes, so that's from DNV. I'm not going to train
and pronounce the name properly, because I will I almost
pronounce it. But they are a very well respected kind
of global certification company that Kiral has contracted to come
in and take a look at their maintenance practices and
regime on the antrail and the ferries. What was quite
interesting to me was that Kirol decided to kind of
proactively release a summary of that advice from d and V.
(15:20):
I think was last week, and the advice was very
flattering to them. Essentially, DNV had found that maintenance practices
were quite good on the existing fleet, that the whole
age of most of the ships was significantly younger than
the actual kind of physical edge of the boats, and
that they believed that with a proper maintenance regime they
could safely and reliably be operated through to twenty twenty nine,
(15:43):
albeit at a slightly high cost. So I think it's
about twenty nine million dollars a year currently that Kirell
spends on the three vessels. That's expected to go up
to about thirty six million under this kind of enhanced
maintenance plan to keep them going. What's quite funny to
me about that is that Kirel had previously been telling
ministers and government through its business case for the i
REX project that actually maintenance cost would be something like
(16:05):
sixty five million a year. So we appear to have
found some significant saving somewhere, which is always very welcome
in type fiscal convironments.
Speaker 2 (16:14):
The fairies are not kb Rowl's only problem. They've also
got the state of our rail network to look after,
and there have been ongoing issues with failures leading to
network wide cancelations. How is kivy Raul dealing with those problems?
Speaker 1 (16:30):
Yeah?
Speaker 3 (16:31):
I actually took the train the first time on a
weekend in Auckland yesterday and Longhold. It actually worked. It
was very reliable, and I was quite pleased because there
has been, as you say, extensive disruption on that Auckland network.
Kirio definitely has a very hard task ahead of it
to bring these very very aging networks back up to
a serviceable standard, especially in Auckland because you've got this
(16:52):
multi billion, five billion dollar investment into the city rail Link,
which is it kind of jeopardy or at risk of
being undermined if the overall network isn't good enough by
the time it opens. There was a positive signal from
the government and the budget this year they put aside,
i think things about like four hundred and forty million
for rail and the big focus of that was to
improve networks in Auckland and Wellington. So there's a very
(17:16):
clear message and focus coming through from this government, which
is that it values rail as part of a wider
ecosystem where it makes sense, and it's drawn the line
at where rail makes sense primarily on a key freight corridors,
but also on those two metropolitan networks. So not such
a bad thing for rail lovers. I'm sure they would
like more, but key rail has a mandate to deliver
(17:37):
a lot more maintenance and renewals and improvements over the
next few years in our big cities.
Speaker 2 (17:42):
Getting the crystal ball out. What do you think will
happen with KPI rail in the long term.
Speaker 3 (17:49):
It's a great question because sometimes it does feel like
it's the kind of whipping boy of state owned enterprises
in New Zealand, particularly at the moment because it has
had such a terrible run with the plans around the Terimo.
Speaker 1 (17:58):
I think that's a bit of a crunch point.
Speaker 3 (18:00):
So if the government were to remove that business from
QI Rail, I think that would be seen as a
real blow in terms of their competence, but also their
ability to deliver on other promises. It wouldn't surprise me
if the government does set up the schedule for a
company to procure the fairies. But I think any decision
around taking the service off q ROW I kind of
feel like that's an election issue. So again, it wouldn't
(18:21):
sppose me if this becomes an election kind of campaign
or promise in the next couple of years where the
government says we want to kind of reconfigure key Rail
to focus on basics and delivering profitability on its freight services.
Here's our propositions in the New Zealand public which to
set up a new operator which may or may not
be capitalized by private interests to do that, ultimately, it
depends on the politics. You've got New Zealand first, which
(18:43):
was previously a massive rail advocate under the last government,
have been very surprisingly quiet on the state of key rail.
I think this term it's possible that they will rediscover
their love for rail, but they do need a kind
of political champion, I think for them to have a
very safe future. And they also need to prove that
they're competent and that they can actually make a return
on the capital deployed by the government. So they really
(19:04):
do need to demonstrate over the next couple of years
that they can focus on their knitting and get better
returns to their shareholder, which is the government.
Speaker 2 (19:12):
Thanks so much for joining us, Ollie. That's it for
this episode of The Front Page. You can read more
about today's stories and extensive news coverage at inzidherld dot
co dot nzid. The Front Page is produced by Ethan
Sills and sound engineer Patti Fox. I'm Georgina Campbell. Subscribe
(19:35):
to the front page on iHeartRadio or wherever you get
your podcasts, and tune in tomorrow for another look behind
the headlines.
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