Key Points:

It is disturbing that Foreign Affairs Minister Murray McCully resorted to a political fix over the so-called Saudi sheep affair instead of dealing upfront with a sensitive diplomatic impasse between NZ and Saudi Arabia over a free trade deal and a separate but related commercial grievance. This whole saga has been a convenient figleaf for a major point of contention between the Saudis and New Zealand: Prime Minister John Key's decision to abandon his leadership of a business mission to the Gulf States in April 2010 and return home. Saudi anger over what was seen as an insult to the Kingdom was conveyed to business members of the mission which continued under the substitute leadership of then Trade Minister Tim Groser. There were clear expectations that a FTA with the Gulf Co-operation Council - Bahrain, Oman, Kuwait, Saudi Arabia, the UAE and Qatar - would be signed on that trip. And if the standoff with the Saudi Arabians over a $5 billion free trade deal was purely due to a $24-$30 million dispute over the live sheep trade ban, then it would have been simple enough to make financial compensation. After all, the Government has bent the rules in foreign corporates' interests before as was displayed when it changed NZ's employment laws in response to a Warner Brothers shakedown. It has also been happy enough to help out the Tiwai Point owners on the financial front. Why resort to an elaborate subterfuge in the Saudi case when there were better - if still distasteful - options? Any political embarrassment would have been transitory and explained away as serving a greater good; a skill in which Key is well-versed. It's important to note here, that it was not until the Prime Minister's departure from the trade mission that the Saudis conveniently elevated a lingering commercial dispute with the Al-Khalaf Group to the status of an FTA deal-breaker. But instead of proceeding down a direct compensation route, McCully and the Cabinet opted to form a so-called Saudi Arabia Food Security Partnership with the Al-Khalaf Group as the prime beneficiary. It has been dogged in controversy ever since. Auditor-General Lyn Provost has clearly seen through the political device saying it amounted to trying to settle a commercial grievance "under the guise of a contract for services". Provost has justifiably slapped the politicians within her report on the Inquiry into the Saudi Arabia Food Security Partnership. It is a master of understatement. The Auditor-General has made sure her findings could not be attacked on "natural justice" grounds.

Why resort to an elaborate subterfuge in the Saudi case when there were better - if still distasteful - options? Any political embarrassment would have been transitory and explained away as serving a greater good; a skill in which Key is well-versed.
She has given what in the legal trade is commonly referred to as a "comfort statement" by saying, "I found no evidence that the arrangements entered into as part of the Saudi Arabia Food Security Partnership were corrupt. To understand whether there was corruption, we looked at whether there had been an abuse of power for private gain or an offence against the Crimes Act 1961 by a Minister or an official. The payments did not amount to bribery or facilitation payments. Instead, they were made as part of a legally valid contract for services. Public money was spent within the necessary financial approvals." Some have seized on this statement as saying it vindicated McCully. It does nothing of the sort. Provost's findings are a scathing assessment of the lack of transparency around this deal. I am not going to traverse the findings in her report which can be found at But she notes that in 2009, negotiations on the complete and the final text for the free trade agreement between New Zealand and the Gulf Co-operation Council had been agreed, subject to legal verification by each participating state. Al-Khalaf's grievances did not emerge until Groser met with the then Saudi Arabian Minister of Agriculture in Riyadh on April 24, 2010. The report notes that at this meeting, Groser was made aware of the tensions in the relationship between the two countries, and the obstacle to the signing of the free trade agreement, as a result of New Zealand's position on exporting live sheep to Saudi Arabia. Frankly, I don't believe that NZ's foreign officials are so inept and out of touch that they organised a Prime Ministerially-led mission to sign an already negotiated deal when it was about to come unstuck at a prime point on the trip. This stretches credulity. It is more believable that the Saudi Arabian Minister's decision to make Groser aware of tensions in the relationship was more to do with Key's decision to return after air force personnel were killed in an early morning crash of an RNZAF Iroquois helicopter near Wellington. The trade mission had, by then, turned into a disaster. Groser represented the New Zealand Government and performed the official duties arranged by the Saudi Arabian Government for the Prime Minister, as well as the specific trade activities scheduled as part of his responsibilities. But the free trade deal that was to be signed at that point, wasn't. I earlier wrote that the documents the foreign minister took to Cabinet relating to the partnership with the Al-Khalaf Group "did not shed sufficient light on why McCully spearheaded an initiative which at its kindest interpretation resulted in a sweetheart deal to look after Saudi businessman Hamood Al-Ali Al-Khalaf. Nor did the documents - which are very carefully constructed - pass the smell test for a Government that has become rather too easy a prey for commercial shakedowns by aggrieved foreign investors." This remains my view. Groser and McCully were played. They would have known that. But they did not want to disaggregate the diplomatic and commercial issues because it would have forced them to front on the sensitive issue around Key's actions. Instead the two issues were conflated. As for the Al-Khalaf group: Under the partnership, pregnant breeding ewes from New Zealand were flown to a "farm" in the desert which was so inhospitable that 75 per cent of the lambs died. Yet this was hailed as a success. The free trade deal is said to be on track again following the successful visit by the Prime Minister to Saudi Arabia last year; subsequent bilateral meetings at major levels of the Saudi Arabian Government and the establishment of a Saudi Arabia-NZ Business Council.