The billion dollar leak

By Ainsley Thomson, Mike Houlahan, Ruth Berry

Telecom has destroyed the top-level Cabinet paper which was apparently leaked to the company from a minister's office, as a furious Prime Minister initiates an inquiry.

"The billion-dollar leak" - as National described it yesterday - of such a commercially sensitive document is the most serious in modern New Zealand history.

The paper outlined the Government's secret Budget plan to open Telecom's network to competitors, a move designed to lead to better and faster phone and broadband internet services.

Prime Minister Helen Clark - already twitchy about caucus leaks and described as "apoplectic" when told about it - is understood to be intent on discovering Telecom's high-level source, which forced the Government into an early announcement about its plans.

Telecom spokesman John Goulter confirmed yesterday that the Cabinet paper was prefaced by a letter from Communications Minister David Cunliffe to Helen Clark.

This makes it likely it was one of the Cabinet papers - or more likely a copy of one of the papers - sent to a minister's office, rather than one of the few held in a Government department from where they originate.

Helen Clark yesterday directed the State Services Commission to oversee the inquiry and also issued a cast-iron guarantee that none of her ministers was responsible for the leak - an indisputably sackable offence.

"There is an extremely high level of trust among the Cabinet members and there's no reason or motive to do such a thing because the policy was totally supported," she said through a spokeswoman.

This means that despite initial speculation that the Government was looking at the Economic Development Ministry, it is now likely to set its sights on a group of 30 or 40 political advisers, private secretaries or officials seconded from departments who work in ministers' offices.

Select officials from Economic Development and the Treasury would also have had access to the paper, but not with the accompanying letter.

Telecom announced an inquiry of its own after destroying the Cabinet paper that fell into its hands.

Mr Goulter said "that was the proper thing to do, that's what our legal advice was to do, so there was no question it could be distributed any further".

Telecom would co-operate with the Government inquiry, Mr Goulter said, but he refused to answer when asked if the company would disclose the source of the leak if it discovered it.

Telecom chief executive Theresa Gattung said last night that the company did not seek the information. "It came to us unsolicited."

It emerged yesterday that the leaked paper was signed off by Ministry of Economic Development manager Reg Hammond on April 26 and by Communications Minister David Cunliffe the next day. It was then circulated to all Cabinet ministers to take home and read over the weekend, before Monday's Cabinet meeting.

The paper was then discussed at a Cabinet policy committee meeting on Wednesday, where the plan was finally signed off. By then the paper, set to be unveiled with fanfare in the Budget, was already in Telecom's hands.

Terms of reference for the inquiry are not expected to be made public for several days and it may be undertaken by an independent appointee, such as a retired judge.

Relevant Government departments drew the curtains yesterday, refusing to give details of which officials had access to the information and how many.

Last night, the New Zealand Exchange said that on the basis of information available to it, Telecom had not breached its continuous disclosure obligations. It found that Telecom, by contacting Mr Cunliffe's office when it received the Cabinet paper and by trying to ascertain the status of the document, had fulfilled its obligations in the lead-up to the announcement.

Jonathan Boston, professor of public policy at Victoria University, said the leak was serious.

"I'm not aware of anything comparable in New Zealand's recent history."

He said if it was linked to the office of the Minister of Communications, there would be cause for the minister to resign. The leak suggested there was a rat in the system and the question was just how high it had reached.

"For something as sensitive as this, I imagine they had absolutely top security on it."

A spokesman for the Prime Minister said it was a matter for the New Zealand Exchange and the Securities Commission to investigate if they had any concerns.

A commission spokeswoman said: "At the moment we are not commenting."

The commission would be responsible for examining any insider trading implications.

National MP Bill English said the only similar leak had been when former Finance Minister Roger Douglas' office accidentally sent out Budget material hours before their official release.

Mr Douglas (now Sir Roger) offered his resignation, but it was not accepted.

Deputy Prime Minister Michael Cullen told TVNZ it was the most serious leak the Labour Government had faced since coming to power in 1999.

Telecom shares dived to 2-year lows on massive turnover yesterday after the Government's shock announcement.

Shares plunged 10 per cent from $5.55 to $5.06, stripping almost $1 billion from Telecom's sharemarket capitalisation.

More than 81 million Telecom shares with a combined value of $408 million changed hands - equivalent to about three times the entire New Zealand market's average daily turnover.

- Additional reporting Ainsley Thomson, Mike Houlahan

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