Prime Minster John Key says the Government will consider a Waitangi Tribunal finding on Iwi rights over water "in good faith".

The Tribunal said today the Government must halt its asset sales programme until Maori water rights can be sorted out.

Speaking from Northern Hawke's Bay this afternoon, Mr Key said the Government would hand the report over to officials and Crown lawyers to assess before giving its response.

"In good faith we'll go through the merits  of the argument and in the fulness of time we'll come back with a response.''

Mr Key confirmed he was yet to discuss the report's findings with coalition allies the Maori Party.

It is understood he is due to meet co-leaders Tariana Turia and Pita Sharples on Monday.

Mrs Turia and Dr Sharples  said they would not be making any comment on the report till it had discussed the findings with claimant groups and the Government.

Maori ownership of water has thrown a spanner in the Government's privatisation plans and may yet cause further delay with the damning report released today.

"In the national interest and the interests of the Crown-Maori relationship, we recommend that the sale be delayed while the Treaty partners negotiate a solution to this dilemma."

The Maori Council took a claim to the tribunal in which they said Maori had ownership rights over water and the sale of state owned assets would prevent them from seeking redress.

The Government plans to sell up to 49 per cent of Mighty River Power, Genesis Energy and Meridian Energy.

In a draft interim report released today by the tribunal said the Crown would not be able to recognise Maori water rights following the sale.

"The Crown will be in breach of Treaty principles if it proceeds to sell shares without first providing Maori with a remedy or rights recognition, or at least preserving its ability to do so," Chief Judge Wilson Isaac said in the report.

While it was not impossible for Maori rights to be remedied following the sale there were other issues for Maori relating to their guardianship of the resource.

"We agreed with the claimants that, in practical terms, the Crown will not be able to provide such recognition after it sells shares to private investors.

"We consider that the sale must be delayed while an accommodation is reached with Maori."

Shares in the power-generating state-owned companies would go some way to remedying Maori rights but not all affected groups wanted shares, Isaac said.

The tribunal found that Maori do have residual proprietary rights, the exact detail of those rights will be established in the second stage of the tribunal's inquiry.

"In our view, the recognition of the just rights of Maori in their water bodies can no longer be delayed."

The Crown admitted the issue of Maori water rights had been around for sometime.

Lawyers for the Crown suggested it was a "deal breaker" but it need not be, he said.

"Maori are the Crown's Treaty partner, and not just another interest group."

Property rights were central to the legal system and Maori had every right to take this latest claim, Isaac said.

"This is not an opportunistic claim."

The tribunal said the Government should call an urgent hui at Waiwhetu Marae in Lower Hutt, where the original tribunal hearing was held, with the Maori Council and iwi leaders.

While there may not be time to devise a comprehensive solution to the issue of Maori water rights, the Crown should work with claimants to develop an appropriate scheme in respect to the three power-generating companies.

The tribunal provided the interim report today to meet the deadline set by the Government.

A fuller report will be released later in the year.

Maori Council deputy chair Rahui Katene said the tribunal's report was a "total vindication" of the claim.

She was delighted and impressed with the report.

"It's not one sided, that's the great thing about it."

But it did find that the Crown's argument did not stack up, Katene said. The Government should stop the asset sales.

If it insisted on going ahead it should at least wait for the full report, she said.

Labour leader David Shearer said the Government should put an immediate stop to the asset sales process.

"The decision today by the Waitangi Tribunal means that the Government's asset sales plan has descended into a complete fiasco.

"The situation is entirely of National's making. It has ignored the overwhelming majority of New Zealanders who are strongly opposed to asset sales and is now facing the consequences.
 
"The finding that Maori may have certain rights and interests in water needs to be worked through by the Government in a way that results in a fair outcome. Whatever it does, it is likely to come at a significant cost to taxpayers.
 
"In similar situations in the past, governments have had to negotiate settlements. That is a complicated process and takes a long time. But it has led to fair and enduring outcomes. 
 
"That may not be the case in this situation because National's self-imposed deadline for the asset sales gives it limited options. The only sensible solution is to stop the asset sales," Mr Shearer said.

Mana Party leader Hone Harawira said the Government should halt the sale of State owned power company shares immediately.

"Unless John Key wants a messy battle in the courts he needs to listen. 

"He has tried every trick in the book to derail this claim to the Waitangi Tribunal - from saying that he will ignore the Tribunal's findings, to trying the strategy of divide and conquer when it came to dealing with Maori, to holding 'secret hui' with selected iwi corporates who he believes would like to see the colour of the Crown's money".
 
Mr Harawira also questioned how the Maori Party would respond.

"Today's findings by the Tribunal throw a serious spanner in the works when it comes to the 'first-class' relationship between National and the Maori Party. 

"Following their late-night crisis meeting last month Key made it clear that the government wouldn't legislate against any court decision regarding Maori water rights so long as ownership was not on the table. 

"Today the Tribunal have likened Maori proprietary rights in water to ownership".
 
"Maori stand united on this issue.  Water rights need to recognised and the sale of state assets stopped until those rights are sorted. 

"The question is will the Maori Party stand united with Maori, even to the point of walking away from National?  If the past is anything to go by then the answer is no."

NZ First leader Winston Peters said the country was in chaos because of the asset sales.

"This whole mess tells you volumes about John Key's incompetence over the Government's ill-conceived flagship policy which was never a solid idea."

Green Party co-leader Russel Norman said the Waitangi Tribunal's report meant there was no way the asset sales could go ahead this year.

The Government would now "go through a charade of pretending to consider" the report but would eventually ignore it.

"If the Government then decides to carry on like a bulldozer regardless then I think the Government will find themselves in court because the Waitangi Tribunal report provides a very strong basis for the claimants to take the Government to court."

Norman said the report was unequivocal and strong and showed why the asset sales programme should not go ahead.

"Really the Tribunal couldn't have spoken more strongly and more clearly."

State Owned Enterprises Minister Tony Ryall thanked the tribunal for the interim report and said ministers would consider it over the coming days.

"Ministers will consider this material as they prepare to make decisions in early September about the proposed Mighty River Power share offer."

- © Fairfax NZ News