Saudi sheep deal not corrupt, had 'significant shortcomings', report finds

Last updated 16:41 02/11/2016

Auditor General Lyn Provost has released her report into the Government's Saudi sheep deal.

A fat-tailed Awassi ram. 900 sheep were sent to Saudi Arabia as part of a controversial deal with a businessman.
Saudi Arabia businessman Hmood Ali Al Khalaf, left, was at loggerheads with the Government over its live sheep exports ban.
Foreign Minister Murray McCully has been under pressure over the Saudi sheep deal.

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A report into the Government's controversial $11.5 million deal to set up a sheep farm in Saudi Arabia has found "significant shortcomings" in how the deal was presented to Cabinet ministers.

While Auditor General Lyn Provost has found no evidence of corruption, she says a contract the Government signed with Saudi businessman Hmood Al Ali Al Khalaf "does not tell the full story" about the reasons for the deal.

However, Foreign Minister Murray McCully has refused to say what he would do differently if he had another chance, while claiming "there is no doubt in my mind" the deal smoothed troubled relationships with Saudi Arabia and other Gulf states.

McCully and the Government have been embroiled in controversy for more than a year over allegations in Parliament they paid off a Saudi businessman in order to avoid legal action and secure the support of Gulf states for a free trade deal.

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In her report, Provost said she shared the concerns of many Kiwis about how the deal was put together.

"I found significant shortcomings in the paper put to Cabinet in support of the decision.

"The contract's benefits to New Zealand were unclear in the Cabinet paper, the business case, and its subsequent implementation."

The Cabinet paper did not clearly explain that the Al Khalaf Group would own $6m of goods and services paid for by the Government, while was also unclear how the $11.5m cost was arrived at.

"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."


Provost also expressed concerns about the contract for services signed between Mfat and the Al Khalaf Group after Cabinet gave its approval, saying: "I was surprised that it was decided to use a contract with a private individual's business interests to resolve a diplomatic issue between governments.

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"It is difficult to reconcile the words of the contract with the unstated objectives, which included resolving a complex diplomatic issue and removing a perceived obstacle to the signing of the free trade agreement."

The contract was "a convenient mechanism" to achieve objectives which were not spelled out in the deal, she said.

"It does not tell the full story."

Provost said there was no evidence of corruption, while the payments "did not amount to bribery or facilitation payments".​


McCully said the report made clear that "some very strong, colourful and defamatory statements" about the legality of the deal were not true.

However, he acknowledged criticism about the transparency of the process, responding, "I would simply say that we'll take that on the chin."

"This was a very difficult and lengthy process, we did our best with it, and at the end of the day what we've achieved is to put in place a much better relationship with Saudi Arabia and the Gulf states, we've removed the blockage to the FTA discussions."

However, McCully would not comment on what he would do differently if he had another opportunity, saying he did not want to undermine the Auditor General's findings.


There was "no question in my mind" that the deal had smoothed the way for a free trade agreement with the Gulf states, McCully said.

"I didn't have very many non-problematic options available, and the options of just letting things stay as they were with the relationship festering and the FTA ruled out, and actually clear risk to our existing trade with the Gulf states, that was also problematic."

Asked whether his approach to negotiations was responsible for problems with the deal, McCully replied: "I will take the credit and the criticism."

He said he had not obtained any legal representation during the investigation, contrary to rumours.


Labour's shadow attorney general David Parker said the bar for ministerial conduct had been lowered by the National Government. 

"[Provost] is explicit that she is making no comment on the morality, of using a contract with a private individual - benefiting [Al Khalaf] to the tune of millions of dollars is an appropriate way to secure a free trade agreement, and she discloses that is what has happened.

"I accept that Mr McCully hasn't done anything illegal, but the standards of conduct of ministers in New Zealand are now so low, that so long as you're not locked up or charged with a criminal offence you can stay on as a minister." 

He said the deal  was "tawdry and shabby", and was only revealed because MPs began digging. 

"The Government tried to cover that up initially, then they tried to blame the prior Labour Goverment and others. 

"They have only now been forced to accept responsibility for what is a very, very tawdry state of affairs." 

But Parker stopped short of calling for McCully's resignation. 

"But I make the point today, that the Government will claim that this report exonerates them because McCully is found to have not been guilty of the criminal act of corruption - that is not the test by which a minister should be judged.

"He acted immorally, he acted improperly, he mislead parliament, he mislead his Cabinet, he mislead the public, he mislead the media."  


Green Party co-leader James Shaw said McCully should be sacked. His actions may have been legal, but that was "not the same thing as ethical".  

"I think Murray McCully has to go. We can't tolerate this level of incompetence - this cavalier attitude towards public funds, and this lack of transparency in Government ministers."

The report cited "numerous instances where the behaviour was rogue", Shaw said. 

"Where there is clear incompetence, in that they didn't make their business cases, had no method of measuring effectiveness. 

"And they were doing some pretty dodgy stuff. At one point, the report says that she was 'suprised to learn' that a contract for services to a private individual's business was used to settle a diplomatic dispute between countries."

It was "highly unusual practise" and it brought New Zealand's reputation into "disrepute", Shaw said. 

"That's why I believe the Foreign Minister has to be stood down".


​The Government spent $11.5 million on establishing a sheep farm and agri-business hub in Saudi Arabia in partnership with influential businessman Al-Khalaf.

The business deal with Al Khalaf, which included $4m for him to run the agri-hub, about $6m on establishing the farm and $1.5m to fly 900 pregnant breeding ewes from New Zealand, was alleged to be offered to appease him and get a trade agreement across the line.

Al Khalaf was allegedly unhappy with New Zealand's ban on live sheep exports for slaughter leaving him out of pocket, which had a negative effect on trade talks, leading to McCully's claims the agri-hub was to help avoid legal action over the ban.


- Stuff

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