The Government is defending the ethics of a Transpower deal that involved the South Island's power grid being leased to secret United States investors, who in turn leased it back through the Cayman Islands.

The arrangement, called a cross-border lease, was agreed in 2003 and saw the state-owned grid operator get a one-off fee of $34.6 million for the $550 million asset while the US investors got a tax advantage.

The Airways Corporation also entered a similar deal with a group of US investors - for a $29.5 million fee.

The Corporation's latest annual report said the deal was the "largest single financial transaction in Airways' history" and had significantly added to the company's value and strengthened its balance sheet.

But cross-border leasing has been criticised by Canterbury University accounting academics Alan Robb and Sue Newberry, who said it was shonky and, in the case of the Transpower deal, had put ownership of the grid at risk.

Dr Newberry said the concept - called "lease-in, lease-out" in the US - had been subject to a big tax inquiry in that country and the authorities were now shutting such schemes down.

"I think all cross-border leases are shonky - why would you lease out your assets only to lease them back? Would you do that with your car?"

Transpower got only $34.6 million in a long-term arrangement that remains secret.

"That's not unlocking some sort of hidden value for goodness' sake, it's just a dodgy deal," Dr Newberry said.

She questioned the ethics of helping people in another country avoid paying tax.

Dr Newberry also questioned the refusal of Transpower and Airways to release information on the deals, including the lengths of the leases.

National finance spokesman John Key said he had heard the South Island grid lease was for 100 years. Transpower denied that, but would not say what length it was.

However, Finance Minister Michael Cullen defended both deals, saying they were legitimate tax instruments under US law.

In 2002 he wrote to the US Ambassador in New Zealand seeking assurances the US Government was comfortable with the Transpower transaction proceeding.

His office also released a Cabinet paper yesterday afternoon that listed countries where Government-owned firms had signed similar leasing deals, including Britain, Germany, Belgium and Switzerland.

Dr Cullen said such leasing deals were also a common financing technique in the private sector.

Mr Key, a former London-based foreign exchange trader, acknowledged such deals were done all over the world, but still criticised Dr Cullen for risking New Zealand's long-term international reputation for a "mere $34 million".

He said deals involving the Cayman Islands could be summed up by the word shonky.

"It has the look and feel of Michael Cullen's winebox."

Mr Key also questioned what sort of message the deals sent to other New Zealand companies about paying tax.

He said that in the US, such deals had been slated as tax scams and cost hundreds of billions in lost tax revenue.