The Cook Strait ferry Arahura is being retired and will be replaced by the Stena Alegra, with sailings beginning in the middle of next year, KiwiRail announced today.
KiwiRail said the Arahura would be decommissioned after 31 years' service because it could not meet future freight demand and it was too costly to bring up to scratch.
The Stena arrived late last year and spent seven months carrying passengers and vehicles between Wellington and Picton, as a replacement for the damaged Aratere ferry.
But it suffered its own problems: in January it broke down in Wellington Harbour, and a few months later it lost a propeller blade and then it hit a wharf. In bad weather, it was either unable to sail or it took longer to cross the strait.
KiwiRail chief executive Peter Reidy said contrary to what some people believed, the Stena Alegra was not a lemon and today's announcement ended a three-year search for a replacement to the Arahura.
"A revamped Stena Alegra in this country is the right decision for New Zealand. It's the right decision for passengers and vehicles, it's the right decision for our freight customers so we can manage their growth and it's a better ship for trucks and their drivers."
The ship would be dry docked while the repairs and upgrades were undertaken by the ship's owners, probably in Singapore, he said.
The upgrade - expected to be completed by mid-March - would include the fitting of stabilisers, similar to those on the other two Cook Strait ferries which could sail in up to 6m swells.
The navigation equipment and passenger accommodation would be upgraded, increasing the ship's capacity from 380 to 520 passengers, and improvements would be made to lifesaving equipment, Mr Reidy said. The Stena would manage in two sailings the volume of freight it took the Arahura to carry in three.
The Stena would also be repainted and renamed after consultation with Maori, which would begin next year.
KiwiRail had listened to feedback from crew and independent experts and was confident all the issues which arose when the ship was last in New Zealand would be addressed by the upgrade, Mr Reidy said.
He would not disclose the cost of the lease, citing commercial sensitivity. But he said the country could not afford to buy a new ferry - something he estimated would cost between $250 and $300 million.
No decision had been made on the Arahura's future but it could either be sold for scrap or sold for use in another setting, he said.
New Zealand First leader Winston Peters said KiwiRail was making a bad situation worse by bringing back the Stena, and that KiwiRail staff believed it was a lemon.
"This is not a built-for-purpose in any way boat ... and it is not appropriate for that service across the Strait," he said.
The Stena is expected to enter service in the middle of next year.