A master plan to turn the picturesque Waiwera thermal resort into an international destination with jobs and other economic benefits became bogged down in red tape.

Of the many schemes dreamed up for the thermal resort town of Waiwera, the plans outlined by Russian oil mogul Mikhail Khimich were the most grandiose yet.

In his application for Overseas Investment Office approval to buy the Waiwera Holiday Park, Mr Khimich outlined a "master plan" development that promised to put the picturesque bay near Auckland on the international spa resort map.

He admitted the plans were "embryonic" and would involve other landowners and public authorities.

But the concept plans matched the bold ambition in the names of Khimich registered entities - Waiwera Global and Waiwera Infinity. They called for:

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• Dredging the Waiwera estuary to create a 100-berth marina and yacht club with a public boat ramp and boardwalks.

• A ferry wharf extending hundreds of metres into the shallow tidal bay, with a bar/cafe, information centre and waiting area.

• A pedestrian suspension bridge across the estuary to Wenderholm regional park.

• Refurbishment of the Waiwera thermal pools.

• Retail developments in a swept-up main street.

They were never more than paper schemes but the drawings by architect Chris Hume were nevertheless sent to the OIO.

Mr Khimich told the OIO plans were more concrete for the campground site on the beachfront, where a five-star spa resort estimated to cost $30-50 million would unfold. Concept plans showed a lodge with spas, lounges, restaurants and bars; accommodation including 30 three-storey studio apartments and 24 villas; and a restoration of the historic bath house in the corner of the site. The resort would create 150 construction and 100 permanent jobs, and a stream of international visitors would bring economic benefits for Waiwera.

It was June 2011. Mr Khimich said he hoped the campground development would be the catalyst for other parties to become involved in his "wider vision" for Waiwera. As the application progressed, residents in the cabins and caravan sites were given notice and the site cleared. The residents were rehoused in units.

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The 1.8ha beachfront site was owned by tourism entrepreneur John Brown, former owner of the hot pools and Waiwera Water bottling operation. Mr Khimich had taken a 60 per cent stake in the two Brown businesses and soon took full ownership. He signed a sale and purchase agreement for the shares in Seaside Land Ltd - Mr Brown's ownership vehicle for the camping ground - but the deal needed OIO clearance because coastal land was at stake.

Mr Khimich's application ticked key criteria for approving foreign investments - jobs, increased export earnings from tourism, and further investment for development. But it would take the OIO 20 months to decide on the application, during which the deadline on the purchase agreement was twice extended.

Throughout, Mr Khimich's legal team pressed hard for progress, reminding the OIO at an early stage of its 70 working days' performance target for processing such applications.

One year later, inquiries grew more frequent as the second deadline on the sale and purchase agreement loomed: March 1, 2013. Though the land was heavily mortgaged to the BNZ Bank, correspondence shows the OIO assumed a third extension was likely. On February 26, 2013, the OIO notified Mr Khimich's lawyers that it had approved the purchase and forwarded the decision to two Cabinet ministers for sign-off. But days later - as the approval awaited the signatures of the Minister for Lands Information and Associate Minister of Finance - Mr Khimich pulled out. His lawyers advised the OIO on March 4 he had terminated the purchase agreement and decided to "consolidate his other Waiwera business interests". The OIO application was withdrawn and Mr Khimich resigned as a director of Seaside Land.

There were two focuses to the OIO's long consideration of the deal. One involved requests for more details on the benefits - the jobs, export earnings, etc.

Mr Khimich was often in Moscow and would feed back more information through his lawyers: 150 construction jobs and 100 permanent jobs were promised. They pointed to his investments in Waiwera Water, the hot pools and another Khimich entity - the Robert Graham Institute for Natural Waters - which promised to boost New Zealand's thermal resort industry.

The OIO's other main need was to satisfy itself that Mr Khimich was a person of good character who had committed no offences - a requirement of overseas investors. The OIO found newspaper investigations online which linked Naftasib, the Russian oil company in which Mr Khimich held senior roles until 2010, to two alleged scandals (see panel). Correspondence over the allegations would drag on for 14 months before the OIO finally concluded Mr Khimich was a person of good character.

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While responding to the specific allegations, Mr Khimich's legal team mounted a broader defence of his character. He had not committed any offences or contravention of the law. He had shown significant commitment to New Zealand with sponsorships and investments providing job opportunities.

The OIO's final approval gave little weight to Mr Khimich's vision for Waiwera. It was more persuaded by his business background, experience at the hot pools and the jobs the campground redevelopment promised. "Although there is some uncertainty around the specifics of the resort project, it is clear that a development of this type would generate a substantial number of jobs ..."

Sadly for Waiwera, and for vendor John Brown, it never eventuated. The sequel came this year when the property changed hands in a mortgagee sale. Mr Brown had previously obtained resource consent to subdivide the campground into 10 residential lots but says he was unable to progress alternatives after handing control of Seaside Land to Mr Khimich. He is considering a lawsuit over the collapsed deal.

The OIO has eight assessment staff who analyse around 130 applications a year. They are also responsible for post-consent monitoring and other work. In 2011, the Government introduced changes aimed at streamlining the processing of applications.

The agency makes no apologies for the drawn-out consideration of the Khimich application. "The OIO goes to considerable lengths to examine the good character of investors, or those who control them," OIO head Annelies McClure says.

"While the OIO always endeavours to meet any contractual deadlines for applications, it is not responsible for any commercial decisions that an applicant may make - including whether to seek an extension to a contractual date."

Character test: Officials questioned mogul about reports

The Overseas Investment Office's long consideration of the Khimich applications is explained in part by allegations in overseas newspapers about Naftasib, the Russian oil supply company that Mr Khimich part-owned from 1999 to 2006.

The oil buyer and processor supplies customers mainly in north and east Russia and has ties to the Russian Government through its emergency aid ministry.

Mr Khimich told the OIO in February 2012 he was a 50 per cent shareholder in Naftasib from 1999 to 2006, general director (responsible for day-to-day operations) from 1991 to 1999 and deputy general director from 1999 to 2010.

Naftasib and the US Family NetworkInternet trawls by OIO analysts found newspaper reports of two alleged scandals in which Naftasib was named.

One involved an alleged US$1 million donation from "Russian oil and gas executives" to a United States congressman, Tom DeLay, in 1998. At the time, Russia was on the verge of financial collapse and seeking emergency funding and debt relief from the International Monetary Fund (IMF).

DeLay (who later became leader of the US House of Representatives) visited Moscow in 1998 and was entertained by Naftasib president Alexander Koulakovsky and vice-president Marina Nevskeya.

A Washington Post inquiry later claimed that the US Family Network, an advocacy group with links to DeLay, received a US$1 million payment in 1998 from Russian oil and gas executives. The alleged intent was to influence DeLay's vote on legislation the IMF needed to finance a Russian bailout.

The allegations were strongly denied by Naftasib. In a series of exchanges, Mr Khimich's lawyers told the OIO that no payment was made by Naftasib or any of its associates to the US Family Network or to a London law firm through which the payment was allegedly channelled.

Mr Khimich said any contact Koulakovsky and Nevskeya had with US politicians and lobbyists was in their personal capacities, not on behalf of their company. He would have known if a US$1 million payment had been made to the US Family Network and no such payment was made.

In 2009, the US Justice Department dropped its inquiries into alleged political favours involving DeLay (although it pursued unrelated charges of money laundering).

Asked for yet more information, Mr Khimich supplied a statement Nevskeya gave to the Washington Post denying the US$1 million was ever given.

Mr Khimich and Nevskeya remain close - she has visited New Zealand several times and was his guest at the gala opening of his Waiwera Spirits venture and, in April, attended the opening of the national velodrome in Cambridge by the Duke and Duchess of Cambridge.

Naftasib, Emercom and SaddamThe OIO also questioned Mr Khimich over reports in the Guardian and Russian business daily Kommersant about alleged Russian payments to the Iraqi regime of Saddam Hussein under the United Nations oil-for-food programme. The 1996-2002 scheme allowed Iraq to sell oil through the UN if the payments were used for food or other humanitarian purposes.

But an inquiry found Saddam's regime generated illicit income through secret "surcharges" in return for preferential treatment. Emercom, the Russian Federation's emergency aid ministry, was named in a subsequent inquiry as paying surcharges through the Iraqi Embassy in Moscow, a charge it denied.

Mr Khimich's company Naftasib had shareholdings of up to 49 per cent in four Emercom subsidiaries. But his lawyers at first mistakenly told the OIO Naftasib was a shareholder in the government ministry itself.

Mr Khimich later explained he was not involved in Naftasib's investment in Emercom subsidiaries, which were independently managed. He knew nothing of the allegations, which were a number of years old.

The OIO continued to raise questions but in August 2012 - 14 months after it first raised the allegations - it concluded that Mr Khimich was "a person of good character".

The series
Saturday: Mikhail Khimich: promise vs delivery.
Today: Mr Khimich's plans and the Overseas Investment Office.
Tomorrow: Where to now for Waiwera?