Auditor-General on Saudi sheep deal

The Auditor-General reports:

I found no evidence that the arrangements entered into as part of the Saudi Arabia Food Security Partnership were corrupt. To understand whether there was corruption, we looked at whether there had been an abuse of power for private gain or an offence against the Crimes Act 1961 by a Minister or an official. The payments did not amount to bribery or facilitation payments. Instead, they were made as part of a legally valid contract for services. Public money was spent within the necessary financial approvals.

So nothing illegal.

That said, I share many New Zealanders’ concerns about the arrangements. I found significant shortcomings in the paper put to Cabinet in support of the decision to enter into the Saudi Arabia Food Security Partnership. The contract’s benefits to New Zealand were unclear in the Cabinet paper, the business case, and its subsequent implementation.

It is not clear on what basis the amounts paid to the Saudi Arabian investor’s company under the contract were arrived at. A key objective of the Saudi Arabia Food Security Partnership was to remove a perceived obstacle to a free trade agreement with the Gulf Cooperation Council. That agreement remains unsigned, although in two recent joint statements (in April and September 2016) New Zealand and Saudi Arabia have indicated progress, including towards completion of the free trade agreement.

In my view, settlement of a grievance was provided under the guise of a contract for services. The Saudi Arabia Food Security Partnership was the result of a need to resolve a diplomatic issue and, in the view of Ministers, to settle a Saudi Arabian investor’s grievance. The situation was complicated by views about live sheep exports. The contract does not outline those different policy objectives or the complexities. Importantly, the contract does not specifically reflect the settlement component relating to the grievance.

This lack of transparency, both at the time of the decision and subsequently, has led to the concerns from the New Zealand public about the nature of the payments made. To date, explanations from Ministers or officials have not resolved those public concerns. Without transparency, people will speculate. This report is an opportunity for the complete story to be told.

At a lower level, but still important, we found that:

• Ministers and officials gave mixed messages to Saudi Arabia;
• there were shortcomings in the contract for services; and
• the timing of a payment was not best practice.

To date, slightly more than $8.7 million has been spent. There are some benefits, such as an improved diplomatic relationship and business opportunities, but whether those benefits are a good return on investment is unclear to me. Given the level of public interest, and that the benefits of the spending remain largely uncertain, I expect the Ministry of Foreign Affairs and Trade (the Ministry) and New Zealand Trade and Enterprise (NZTE) to assess and report on what the Saudi Arabia Food Security Partnership has achieved once all of the $11.5 million (increased from $10 million for the additional cost of exporting pregnant ewes) has been spent.

And this has been my criticism of it. It is bad wasteful spending that has produced few benefits. The deal was sold as settling a legal dispute, but there was no serious threat of legal action.

I hope the Government takes the criticism on board and says it won’t do any such deals again, and especially one so lacking in good analysis.

I found some significant shortcomings in the Cabinet paper, including that it:

• did not clearly explain that the Al Khalaf Group would own the goods and services costing the New Zealand Government $6 million;
• did not identify how the $10 million figure was arrived at (a figure that has since risen to $11.5 million);
• signalled the risk of a claim against the Government based only on the $20-$30 million figure that the Cabinet paper said was suggested by the Al Khalaf Group (there was no assessment by Ministry officials of the substance of that legal risk);
• did not include any analysis about whether there were any other potential obstacles to the signing or ratification of the free trade agreement, apart from the concerns of the Al Khalaf Group about the export of live sheep or the assertion by the Gulf Cooperation Council that this was the only obstacle to the free trade agreement; and
• identified that New Zealand exports could double to $3 billion in five years if a free trade agreement was signed with the Gulf Cooperation Council, without including any analysis.

Based on these significant shortcomings, I am concerned at the lack of robust analysis and the quality of information that was provided to Cabinet on this matter.

Pretty shoddy quality to say the least.

The Government may see this as an exoneration as the AG found it was legally sound. They should not. The criticisms of the AG are significant and the quality of the decision making something that should be unacceptable no matter who is in Government.