First-half surplus in service division despite Interislander setback

Kiwirail has written off $382 million in costs associated with the cancelled Interislander replacement project, and provisioned a further $60m for winding it down.

The $442m in costs, detailed in the 2024 half-year results released on Thursday, doesn’t include the cost of exiting the shipbuilding contract with South Korean shipyard Hyundai Mipo Dockyard, which was contracted to build two new ferries for $551 million.

The coalition Government declined a bid by Kiwirail last December for nearly $1.5 billion in extra funding for the project, called irex, which was plagued by cost escalations largely related to the terminals and other landside infrastructure.

According to the half-year results report, Kiwirail was working with the Government on options for exiting the shipbuilding contract, including the potential for the Government to fund costs tied to ending the deal.

“Potential costs, over and above the provision recognised in the interim financial statements, that may be incurred in reaching a settlement with the counterparty to contracts cannot be estimated with any certainty at present,” the document said.

As well as the Interislander write-down, Kiwirail booked costs of $1.9m associated with severe weather events. Combined with $211m in impairments, the rail operator posted a net deficit after tax result of $407m for the half-year, a 525.2 per cent decline on the $65.1m deficit recorded in the prior comparable period.

But if the irex costs and impairment for both periods were stripped out, the result was only $12.4m down on the first-half result for the 2023 financial year, Kiwirail noted.

While the infrastructure side of the division was hit with writedowns, Kiwirail still reported an operating surplus for its service division, albeit a materially reduced one.