State-owned rail operator KiwiRail has chosen Chinese company China CNR Corporation as the preferred bidder to build 300 wagons, ahead of a bid from its own Dunedin workshops.
The 300 wagons, the first stage in a process to replace more than 3000 wagons, would cost about $29 million and be delivered by mid-2011, KiwiRail chief executive Jim Quinn said.
"The average age of container flat wagons in our fleet is almost 30 years," Mr Quinn said.
"Their age and condition is compromising our ability to meet the growing needs of our customers."
A bid from KiwiRail's Hillside Workshops was about 25 percent more expensive than CNR's bid, and was the third-best of the nine bids but too expensive to justify a local build, Mr Quinn said.
Hillside was also not considered able to create the capability needed to deliver the wagons on time.
The bids were evaluated on a range of financial and non-financial considerations, he said.
"The decision reflects our need to get the best possible value for the limited money we have to rebuild our business and to apply that money to the projects that will improve our relevance to our customers."
KiwiRail would begin early next year looking at options for local assembly of wagons in future, and it was possible Hillside could import components and undertake assembly.
However, the workshops would need to significantly lower costs if they were to be an option.
KiwiRail would also continue to use an overseas supplier for new locomotives, as engines from Hillside would cost 70 percent more than current supplier CNR.
"We will not be pursuing local build or assembly for future locomotive orders as this shows that the gap is simply too great to close."
CNR built 100 wagons which went into service in late 2008, and was building KiwiRail's 20 new diesel electric locomotives.
The union representing rail workers said KiwiRail's decision risked sending skilled trades people overseas.
"Of course New Zealand workers will never be able to compete on cost with China but our quality of work is second to none," Rail and Maritime Transport Union general secretary Wayne Butson said.
"Rail workers who negotiate in good faith for their terms and conditions at KiwiRail are now effectively being told that their wages are the main barrier to New Zealand getting its own rail manufacturing work."
In May, KiwiRail decided it would not bid to build $500m worth of new electric trains for Auckland, a project that was estimated would have created up 1270 jobs and added up to $250m to gross domestic product.
"What needs to change is KiwiRail's tendering rules, and this change needs to come from Parliament, to make it clear for crown entities like KiwiRail that buying local must always be the first option where possible," Mr Butson said.
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