HD Hyundai Group’s shipbuilding subsidiary Hyundai Mipo Dockyard is facing a risk of cancellation of the order for two 53,500-ton roll-on/roll-off passenger vessels (RO-PAX) with New Zealand’s national railroad group Kiwi Rail. Kiwi Rail is considering canceling the contract with Hyundai Mipo Dockyard to build RO-PAXes after an offer of financial assistance from the New Zealand government was rejected.
On December 13, New Zealand Finance Minister Nicola Willis announced the rejection of NZ$1.47 billion (approximately $914 million) in funding for the inter-island resilient connectivity (iReX) project, which will see two 53,500-tonne RO-PAXes constructed in the Port of Wellington, as well as the construction of new terminal infrastructure.
Although the New Zealand government has been committed to connecting the Cook Strait between Wellington on New Zealand’s North Island and Picton on the South Island, and has allocated NZ$435.1 million (about US$270 million) for the iReX project. But since 2018, the cost of the iReX project has doubled to NZ$3 billion (about $1.866 billion). And only 21% of that is for the core project of replacing existing passenger vessels. In response, Nicola Willis said, “We are concerned about the continued growth in costs and the changing nature of the investment. Agreeing to KiwiRail’s funding request will increase domestic cost pressures and undermine the ability to fund other capital projects.”
After the New Zealand government refused financial assistance, Kiwi Rail said it could only terminate the iReX project and reconsider plans for a Cook Strait connection. In response, Kiwi Rail is considering a range of solutions, including canceling the order for the two roll-on/roll-off vessels or reselling them to other owners. Peter Reidy, the company’s chief executive, says: “Kiwi Rail will need to purchase less efficient second-hand passenger roll-on/roll-off vessels rather than ordering new vessels or rebuilding to meet the requirements of the Cook Strait route.”
It is understood that Hyundai Mipo Dockyard signed a contract with Kiwi Rail for the construction of two 53,500-tonne class passenger roll-on/roll-off vessels in 2021, with a contract value of US$370 million at the time and a single-vessel cost of about US$185 million.
Construction of the new vessel is scheduled to begin in March 2024, with the keel being laid in August of the same year, and delivery is planned for 2026 on completion. It will then be operated by Kiwi Rail subsidiary Interisland and will be used to replace three older vessels (Kaitaki, Aratere and Kariarihi) that have been in service for 26 years. The vessel will utilize a hybrid propulsion method that can use both electricity and diesel fuel, and its fuel cells and generators will produce electricity that can be used to power the vessel as well as electricity in the ship’s cabin. The ship can carry more than 40 trains, 180 cars and 40 trailers simultaneously.
Although the construction of the new vessels has not yet commenced, Kiwi Rail has committed NZ$400 million (approximately US$249 million) in funding for the project. If the cancellation is confirmed, Kiwi Rail will enter into discussions within the company’s management and with Hyundai-Moepo Shipbuilding regarding a breach of contract for the cancellation of the order.