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Auditor-General clears Saudi sheep deal

NZ Newswire logoNZ Newswire 2/11/2016

Auditor-General Lyn Provost has cleared the government's controversial $11.5 million deal with a wealthy Saudi Arabian sheep farmer.

She says in a just-released report it was not corrupt, did not amount to bribery and the money was spent within the rules.

But she wasn't happy about the way the government went about it and says in her report there were "significant shortcomings" in the paper that was put to cabinet supporting the deal.

Benefits to New Zealand were unclear and there was a lack of transparency.

"In my view, settlement of a grievance was provided under the guise of a contract for services," she said.

"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."

Foreign Minister Murray McCully made the deal with Hmood Al Ali Al Khalaf, who lost millions when the previous government banned the export of live sheep for slaughter in 2007.

The money was used to set up an agrihub on Mr Khalaf's desert farm to showcase New Zealand equipment.

Part of the deal was a $4m payment to Mr Khalaf.

The export ban soured diplomatic relations with Saudi Arabia and a free trade agreement was put on hold.

Mr McCully has said the investment was necessary to repair the diplomatic damage and to head off the risk of Mr Khalaf suing the government for up to $30m.

No evidence of a legal threat has ever been produced.

Opposition parties have accused the government of paying a bribe, and asked for the inquiry.

Prime Minister John Key, speaking to reporters before the report was released on Wednesday, said he still had complete confidence in Mr McCully.

"And I remain extremely confident we acted in a way that was totally appropriate," he said.

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