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