Foreign Minister Murray McCully could face further questions from the Auditor General over his role in the Saudi sheep farm deal.

Parliamentary sources are saying that the papers released under the Official Information Act last week raised questions about whether Mr McCully might have breached conventions that apply to the appropriation of Government money.

The money was paid to establish a sheep farm in Saudi Arabia to which breeding stock would be sent from New Zealand.

The farm would then supply sheep for slaughter for the Muslim Haj in the kingdom.

When it came to power in 2008 the National Government had begun discussions with Saudi Arabia about resuming the export of live sheep for slaughter from New Zealand.

But because of what Trade Minister Tim Groser would later describe as “duplicity” by New Zealand, there was never any intention evident in papers on the matter released last week that the new Government intended that the live sheep exports go ahead.

Once Saudi Arabia realised this its relationship with New Zealand deteriorated even further.

In Parliament yesterday Labour’s David Parker asked the Prime Minister about a Cabinet meeting on February 18, 2013 when Cabinet noted the initial $4 million payment to a “Saudi investor”, and did he ask why Cabinet approval was not being sought.

As POLITIK pointed out last week at  that meeting Mr McCully said $4 million was being spent from the Ministry of Foreign Affairs budget to acquire the “components  of the platform to conduct a three year pilot’ and another six million dollars for a project to use the platform.

He said the four million dollar figure had been established after negotiations with the parties who have invested in the trade in live sheep between New Zealand and Saudi Arabia.


“While the Saudi parties would have preferred to enter discussions on the basis of seeking compensation for commercial loss as a result of Government decisions (and indicated that they had received legal advice suggesting they pursue a claim for between $20 and $30 million) the Government has made it clear we would not be a party to such discussions.”

Papers released last week under the Official Information Act, show that Mr McCully concluded his Cabinet presentation by saying that the deal had the potential to unlock a huge source of badly needed capital “and there is a serious prospect of getting the Gulf States Co-operation Council Free Trade Agreement across the line with “billions of dollars of advantage for New Zealand.”

Now, two years later, though the farm has been established and the payments made to the Saudi investors, there is no sign of the Free Trade Agreement.

In August 2013 the Auditor General wrote to MFAT CEO John Allen expressing reservations about the proposal.

In a note to Mr Allen advising him how to respond to the Auditor General, an MFAT team headed by Mr McCully’s special appointee, Alex Matheson, said that the business case was unusual in that MFAT was seeking to implement a decision already made by Cabinet “based on a diplomatic settlement with our Saudi partner.”

The issue has become a tangle of technicalities but more questions and possibly more investigations seem inevitable.