Two rail-capable ferries have been cancelled. Rising costs and management concerns have been cited by the New Zealand government. Analysis says the projected demand could not make the project financially viable in the long term. The loss of the Inter-Island Resilient Connection (iReX) leaves the nation divided over the future of its economic development.

New Zealand’s North and South Islands are connected by a frequent ferry service between the capital, Wellington, and the southern port of Picton. However, the one thing missing from the mix is a rail link across the Cook Strait. That is not a situation likely to be rectified now that a multi-billion dollar project to revamp the service with rail-capable ships has been cancelled.

Change of heart and government

New Zealand’s government has decided to cancel the Inter-Island Resilient Connection (iReX) project. The ambitious plan would have unified the nation’s rail freight network. The plan involved the commissioning of two new rail-capable ferries and redeveloping the port facilities. However, a change of heart (and a change of government) put paid to the proposition.

NZ Finance Minister Nicola Willis pulled the plug when the estimated cost went four times over budget, at something over NZ$3 billion. The cost escalation has been driven by delays and inflation, which has seen the 2018 project stalled on the drawing board for six years.

Escalating costs and financial viability

National carrier KiwiRail has gone through several private and public iterations over the decades. Currently, the railway is in public hands and, like the nation, is divided into two halves, with the Cook Strait between the North and South Islands. To rectify that situation, one ageing rail ferry, operated by KiwiRail, was slated to be replaced by a pair of new Korean-built vessels. However, documents revealed in media in New Zealand revealed that the iReX project would not have broken even until after 2050, with a projected deficit of $1.3 billion.

The project’s budget ballooned, primarily due to the escalating expenses of port works and terminal infrastructure. It seems that despite the potential positive net value of the project to the overall economy of New Zealand, the overall financial burden is untenable in the medium term.

Alternatives and contingencies

The NZ Ministry of Transport suggested exploring more commercially viable options, potentially involving a different operator. The Government acknowledged the risk that KiwiRail might exit the ferry business if the project was halted. It proposed that even if KiwiRail chose to leave the market, other options could be considered to ensure a resilient inter-island connection.

Project iReX is just one of a number of core rail issues to address, including the commissioning of an order of new locomotives, currently being built by Stadler in Spain. There is the potential of a break fee with the Korean ship manufacturer, although the ferries had not yet begun construction. While the vision of a unified rail freight network remains compelling, supporters of iReX remain hopeful it may still be resurrected, even at this late stage.