Saudi farm deal 'a shabby affair'

  • 07/08/2015

The Saudi farm deal was a shabby affair, under even the most benign assessment, writes NZ Newswire political columnist Peter Wilson.

Nearly 1000 documents covering the $11.5 million investment, released this week, disclose nothing to the credit of either the previous or current government.

What they do show is that both of them wanted to continue exporting live sheep for slaughter to Saudi Arabia after the 2007 ban but decided it wasn't worth risking a voter backlash.

They looked for bilateral agreements, which the Saudis appear to have believed were going to come off.

"We have previously received assurance from the New Zealand authorities that there was nothing standing in the way of finalising a government-to-government MOU (memorandum of understanding) to enable the trade to resume," Saudi businessman Hmood Al Ali Al Khalaf wrote to New Zealand's ambassador in Riyadh in November 2007.

After National won the 2008 election, its ministers began investigating ways to resume the exports under strict animal welfare requirements.

Negotiations resumed but were aborted when the then agriculture minister, David Carter, gave an assurance that the live sheep trade wouldn't resume under his watch.

In 2010 the National government renewed the ban.

Khalaf, a very wealthy and extremely influential sheikh, was upset.

He had bought farms in New Zealand and stocked them with sheep for export to Saudi Arabia.

He was going to lose millions, and no doubt made the Saudi government aware of his plight.

"Even the king may be watching this," MFAT nervously noted.

The king probably was. A free trade agreement which had been concluded but not signed was put on hold.

From MFAT's perspective, this was a very bad scene.

It had to do something to appease the Saudi government and Khalaf in particular.

So it came up with the farm deal, euphemistically described in documents as "a food security agreement" and "a partnership".

It involved the government and NZTE investing $11.5m in Khalaf's desert farm. Of that, $4m went to Khalaf for access to his expertise and trade networks.

Making it look worthwhile was the creation of an agricultural hub on Khalaf's farm which would showcase New Zealand equipment.

Treasury didn't buy that and nor did the auditor-general.

"It's unclear what the benefits of this proposal are," the Treasury told ministers.

"Treasury was not consulted... we recommend not supporting this proposal."

Auditor-General Lyn Provost, whose opinion was sought by the government, decided the business case she had been presented with raised more questions than answers.

"We consider the financial case to be weak," she responded.

"There was insufficient information on the financial benefits accruing."

In other words, neither the Treasury nor the auditor-general could see how the deal was going to deliver value for money.

The truth may be that it was never intended to.

Labour, the Greens and NZ First believe $11.5m of taxpayer money was used to appease a disgruntled businessman and get the Saudi government onside.

It didn't work. The free trade agreement is still unsigned, despite Prime Minister John Key visiting Riyadh in April and trying to move it along.

The most dubious part of this sorry saga was the $4m payment to Khalaf.

Labour's David Parker says it was a straight out bribe, a "facilitation payment" to secure a free trade agreement.

Such a payment, he says, would be illegal in other countries.

Parker might be stretching that a bit, but he says foreign diplomats in Wellington were "stunned" and one told him "in my government the minister would be gone".

Murray McCully, the foreign minister in question, vigorously defends the deal.

He says Labour created the mess and National had to clear it up. So does Key, who describes it as a pragmatic solution.

McCully initially justified the deal by saying it was necessary because diplomatic relations had been "poisoned" and the government had been under threat of a law suit seeking $30m compensation for Khalaf.

The legal threat is mentioned in just one document.

"The Saudi parties indicated they had received legal advice suggesting they pursue a claim for between $20m and $30m," the note says.

Parker says there's no way a government can be sued for anything that results from legislation passed by parliament (the 2007 ban) and in any case there's a six-year limit to proceedings under the Commerce Act.

By the time the Saudis got around to considering it, that limit had passed.

"The government has sullied New Zealand's reputation and wasted more than $11m," Parker concluded.