Otago construction firm Calder Stewart has been awarded the construction contract, and the facility is on track to be running by early 2024.
The redevelopment was funded through $85 million in Budget 2021, to enable wagon assembly, and close to $20 million through the Provincial Growth Fund to upgrade maintenance and other facilities.
Once the rebuild is complete, more than 170 people will be working at Hillside, including about 45 new staff needed to assemble about 1500 wagons.
Ten percent of any new staff will be apprentices and trainees.
The facility, which once employed 1200 people, was essentially scuppered in 2012 and reduced to a staff of 27.
Minister for State Owned Enterprises David Clark said over the past nine months there had been a lot going on at Hillside, as unfit buildings had been torn down and demolished, but now the rebuild would really get going.
A new, modern mechanical and assembly workshop would begin to take shape later this year.
That will be followed by new offices, a track depot and new rail layouts.
“We are committed to reinvigorating the country’s railway after decades of under-investment.
"This helps us get more of our growing freight volumes off the roads and on to rail, reducing congestion and transport emissions," Dr Clark said.
KiwiRail construction delivery chief operating officer Robert Gibbes called it "a very significant step".
"This is the main construction piece of the overall Hillside project ... Now we can get started on actually creating the new physical assets which will support a resilient and reliable railway for Dunedin and the wider South Island."
Rail and Maritime Transport Union South Island rail representative Dave Kearns said the announcement was another step forward in a positive development for the site.
The union was in frequent consultation with KiwiRail about the project, he said.
