Council acting group manager operations Henry Weston suggested media coverage of the mud purchase had been both "incomplete and misleading" and potentially "put some funding streams at risk".
A new "optimistic" forecast suggests the event could make a profit in its first year of $95,885, the "realistic" forecast shows a deficit of $234,381 while a "pessimistic" forecast suggests the deficit could be up to $575,871.
The original business case presented to the council suggested there would be a surplus of $38,290 in the first year of the event.
In response to Rotorua Daily Post questions after the meeting, Mr Weston said the matter had been widely publicised by many media. He claimed some reports had only partially used comment and information provided which had in some cases "been taken it out of context".
Mr Weston said there had been no apparent attempt by media outlets to clarify misinformation or misunderstanding on social media.
He also pointed to confusion over who paid for the mud. The Rotorua Daily Post originally reported it was taxpayer money on the basis of what was said in a council meeting last week and repeated by councillor Trevor Maxwell. Mayor Steve Chadwick had also originally stated it was "not council spending".
Mr Weston said a clarification that ratepayer money was also involved was made to the Rotorua Daily Post the same day but the error was inadvertently repeated.
The Rotorua Daily Post accepts the error should have been corrected straight away.
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"The cost of purchasing and importing the Korean cosmetic mud powder is coming from the overall budget for the event - which includes funding from council, government, sponsorship and ticket sales - not specifically from the government funding," a council spokeswoman said.
Rotorua MP Todd McClay today said he had written to Primary Industries Minister Nathan Guy seeking urgent clarification over the importation of the mud powder.
He said he'd been contacted by a number of concerned constituents, predominantly from the rural sector.
"We have some of the highest standards for bio-security in the world, but given the importance of agriculture, horticulture and forestry to the Bay of Plenty, I have asked MPI for more information relating to this import and certainty around processes and procedures for assessing any risk," Mr McClay said.
He said the festival had the potential to further promote Rotorua as a tourist destination but it was important local people retained confidence in the event so he had asked MPI to deal with this request as a matter of urgency.
The topic was also the subject of debate during the council meeting.
Rural Community Board chairwoman Shirley Trumper said there had been significant concern from the rural community about the potential for the South Korean mud to carry foot and mouth disease.
She said the most recent outbreak of the disease in South Korea was in February.
"The Republic of Korea have diseases that we don't have in New Zealand and nor do we need them.
"I've spoken with the chief veterinarian at Fonterra about potential risks. She has assured me there are minimal risks. My point is there should be absolutely no risk. No one can give me a 100 per cent guarantee this product is safe from either a virus or a disease."
However committee chairman and councillor Charles Sturt said it was not fair to ask for a 100 per cent guarantee, with Mr Weston adding the cosmetic-grade South Korean mud was shipped globally and the council was being guided by MPI throughout the process.
Board member Bob Martin added he was "bloody nervous" about the situation.
"I'm basically praying we use the Korean mud and nothing comes out of it, because if it does, all hell will break loose."
Mr Kent, who made the motion to cancel the South Korea deal, said a mud festival was not worth any risk of foot and mouth disease to the agricultural economy.
"Unlike most around this table, I've had a family go through foot and mouth. I've seen what can actually happen when every farm around you and your entire livelihood is destroyed because of an organism that is very difficult to control.
"I am not going to be held liable for that possibility."
Mr Kent argued that the Rotorua mud festival could be held without the South Korean mud.
However, Mrs Chadwick, who signed the mud deal on behalf of the council while in Boryeong, said to cancel the deal would be a "diplomatic embarrassment".
"I'm supporting something that is fantastic ... I have been out and about at many events since the media kerfuffle over this and actually people want justification ... about the council spend. Once they hear the real story, they say 'this is quite exciting'.
"We've got to be confident, we've got to be brave, we've got to do the next big thing for our destination. This is it."
The presentation of a certificate from the Taxpayers Union to the council earlier this week relating to this deal was also raised, with an angry deputy mayor Dave Donaldson making a motion "to investigate legal remedies to address the loss of sponsorship revenue arising as a result of the actions of the Taxpayers Union".
However after discussion Mr Donaldson retracted the motion.
The Taxpayers Union responded saying it was "stunned" by the threat of legal proceedings in response to its "legitimate protest".
Councillors voted unanimously to confirm their support for the event, noting the risk profile had increased, which had a potential to impact on the bottom line of the event's first year.
