The decision by KiwiRail to award the tender contract for 300 container flat-deck wagons to the China CNR Corporation against its own Dunedin Hillside Engineering workshops is a savage blow to the city and the province and leaves the Government vulnerable to accusations of "short-termism".
The $29 million manufacturing contract, had it been acquired locally, would have guaranteed Hillside's future and ensured that at least one outpost of heavy manufacturing capacity remained in the country.
Further, in providing a long-term bread-and-butter base, it would have provided the ideal platform from which to grow this sector of the local and national economy; and it would have given certainty to, and confidence in, a future for the skilled labour required for this kind of work in the South.
Without it, once again the future of Hillside - and of KiwiRail's and the Government's commitment to it - is under a cloud.
Hillside engineering workers were on Tuesday told that CNR would build the first 300 of an expected 3000 wagons that KiwiRail needs to replace its ageing fleet. The state-owned company also affirmed that it will not build or assemble locomotives in New Zealand after a review found it would cost 70% more to do so locally.
KiwiRail chief executive Jim Quinn indicated that Hillside's was the third-best tender for the wagons, but was still 25% more costly than CNR's, which is also building the new fleet of DL locomotives. Not only was the difference too great, but there was doubt Hillside would be able to meet the mid-year delivery deadlines.
He confirmed the tender process had raised the possibility of Hillside assembling wagons from imported components, but re-emphasised that the workshops would have to close the cost gap significantly if the option was to be pursued in the future: all of which amounts to either a damning lack of confidence in Hillside on the part of its parent company KiwiRail, an indication of Government policy, or both.
Arguments, particularly those bolstering short-term objectives, can be made that the China option for the flat-deck wagons is pragmatic.
It fits with the Government's cost-savings priorities, the need to reduce debt as a proportion of gross domestic product (GDP) and is understandable as a response to those immediate objectives and the state of the country's books.
Tuesday's economic and fiscal update confirmed that the Government is expected to run a deficit of $11.1 billion - 5.5% of gross domestic product - in the current financial year, up from the $8.6 billion predicted in May.
The update promised continued restrained increases in spending and a new approach to the management of government assets - as observed in this week's announcement on the privatisation of Mt Eden prison management.
But while pragmatism and hard-headed fiscal restraint is necessary in today's tight economic climes, there is a balance to be struck between short- and long-term outlooks.
A 70% cost differential for the production of locomotives offshore is too great and is rightly rejected, but the 25% which has counted against Hillside for the flat-bed wagons is much more marginal when considered against the future costs of a potentially failed engineering workshop and a large number of unemployed skilled workers ending up on the growing benefit heap - or heading overseas.
There is also the knock-on effect on the local associated engineering sector to be considered - with companies such as Farra Engineering and EB Engineering Solutions warning of significant negative downstream impacts on manufacturing in the South.
As has been pointed out, the difference in the cost between the Chinese and Dunedin tenders could be said to come down to a difference in wages and living standards, and if this is the basis on which Hillside must compete then it is on a hiding to nothing, however efficient and innovative it might prove to be.
The signals from KiwiRail and the Government over this matter are demoralising, unconvincing and short-sighted.
