The Government's asset sales programme is descending into a "shambles'' as it faces inevitable delays while Maori rights over water are decided, a process that that will prove costly to the taxpayer, Labour Leader David Shearer says.

Prime Minister John Key's Government was this morning warned it may face legal action if it ignores the Waitangi Tribunal's interim recommendation to delay the sale of Mighty River Power shares until later this year while the water rights issue is examined.

But Mr Key won't rule out continuing with the sale as scheduled.

The Waitangi Tribunal issued the direction yesterday for the Government to halt its asset sales programme at least until the tribunal delivers its full findings on a water rights claim in September.


The tribunal said selling shares in state assets before it delivered its full findings could "cause a significant disadvantage to [Maori] claimants'' if their claims were subsequently found to be well-founded.

Mr Shearer said the Government could either ignore the tribunal's findings and then probably face court action or it could delay the Mighty River sale and wait for the final outcome.

"Either way this is a shambles that's continuing to just roll on. The Government's going to have real problems in getting its asset sales programme out in the amount of time it's got available to it.''

It was increasingly likely the Mighty River sale, scheduled to take place some time in September or November, would have to be delayed.

"My feeling is the Government will face inevitably court action that will mean costs for New Zealanders in terms of lawyers' fees possibly costs in compensation and more delays. Whatever happens it's going to be costs for taxpayers.''

If the sale was delayed at all, it was likely it would then have to be done next year he said.

Mana Party leader Hone Harawira labelled the tribunal's ruling a "victory for the New Zealand Maori Council for challenging the Crown in the face of a mean-spirited attack by the Prime Minister''.

He told Radio New Zealand today he believed the tribunal's final report would be in line with the interim recommendation and the Government would face legal action if it didn't follow the ruling.

"I expect that recommendation to be followed up in a formal ruling from the tribunal I then expect the New Zealand Maori Council will have said that they intend to take it to the High Court at which time the New Zealand Government will be formally stopped from its asset sale programme.''

Maori interest in water was related to "our history as a people'' and needed to be formally resolved before asset sales were continued, said Mr Harawira.

However, John Key this morning would not rule out action on asset sales before the tribunal's final recommendations.

He said the Government would take advice from the likes of Treasury and Crown Law before considering the tribunal's interim recommendations "in good faith''.

The Government would also talk to the Maori Party, as it had committed to do.

"So in good faith we'll look at what they're saying, we'll go through the process but in time we'll come back with what our next step is, if you like. So that could be obviously before a final recommendation, it might not be - we'll see over time,'' he told TV3`s Firstline.

Mr Key said it would not be helpful to speculate on whether the partial sale of Mighty River Power might be delayed.

"It's better to say that the Waitangi Tribunal has delivered us a decision point, if you like,'' he said.

"I think the respectful way of dealing with this process now is not to try to re-litigate all those things.

"The Government's made its feelings very clear on that and we stand by those previous statements, but we also now have a requirement to go and assess what they've said to us and what they believe should happen next, and give a genuine and thoughtful response.''

He didn't know how long it would take his Government to respond to the tribunal's findings but meanwhile he was to meet with the Maori Party early next week to discuss the matter.

Constitutional law expert Mai Chen said the Waitangi Tribunal still had the power to exercise binding powers over the Crown, with respect to certain memorialised state-owned enterprise land.

The issue could also go to court by the end of the year, she said.

The tribunal's final report was due back in September, and the Government could take a couple of months to consider it fully.

If the Government then decided to "plough on full steam ahead'', the Maori Council has said it would go to court.

"The courts have generally said that when the Crown is required to act consistently with treaty principles, they really have to take it into account - give it real consideration,'' she told Newstalk ZB.

Ms Chen said the Crown had reason to be concerned, if what it needed for financial investors was certainty.

In its memorandum, the Waitangi Tribunal rejected the Crown's argument that the sales would not affect its ability to recognise Maori rights and interests at a later stage.

The report said that although the Crown had argued it could re-purchase shares if needed, that would only happen if there was a willing seller and could be prohibitively expensive or require compulsory acquisition.

Its fuller findings in September will address what rights and interests in water and geothermal resources were protected by the Treaty of Waitangi, and whether the sale of minority stakes in SOEs affected the Crown's ability to recognise those rights and remedy them.

- Additional reporting Adam Bennett