Kyoda.
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 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 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?
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
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.
Say that's a bit of an exodus.
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.
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.
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.
So he appointed Peter Reedy.
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. 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 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.
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 was so annoyed?
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, 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
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 purely through the savings identified by the report.
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 people to ensure that the business was running efficiently.
And quite funny two events.
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.
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 of what their priorities are for the state owned enterprise?
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 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 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 and remove from Kerral and that would be a very major scept.
If that did happen, and obviously this is speculation at this point. Would that mean that Interrelander is essentially privatized?
Not quite.
So.
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 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.
Not a full scale privatization.
I don't think anyone's talking about that, but definitely you could see the ownership max change over time.
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.
Yeah, it's a bit tricky with those ones.
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.
So how do for.
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
just haven't had that flow of information. So there's a lot of speculation but not many facts at the moment.
What does Kimi raw have to say about the idea of its entrel under business potentially being taken off it.
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 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 want to retain that business and it would impact them materially if it was taken out of their hands.
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, if it didn't have control of those fairies.
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 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
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.
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.
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.
When will we hear what the new plan is.
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
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.
Any idea about what kind of ships might be under consideration or.
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.
They're very popular.
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 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.
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.
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
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.
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 their advice said.
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. 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, 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 sixty five million a year. So we appear to have found some significant saving somewhere, which is always very welcome in type fiscal convironments.
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?
Yeah?
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 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 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 a lot more maintenance and renewals and improvements over the next few years in our big cities.
Getting the crystal ball out. What do you think will happen with KPI rail in the long term.
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.
I think that's a bit of a crunch point.
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 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 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 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.
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 to the front page on iHeartRadio or wherever you get your podcasts, and tune in tomorrow for another look behind the headlines.