Part 1: Introduction

Inquiry into the Saudi Arabia Food Security Partnership.

Why we carried out this inquiry

On 28 May 2015, 29 May 2015, and 10 August 2015, the Auditor-General received letters from James Shaw MP, Jordan Williams (of the New Zealand Taxpayers' Union Incorporated), and Hon David Parker MP. These letters requested an inquiry into the Saudi Arabia Food Security Partnership (the Partnership) and associated matters. On 24 June 2015, Mr Shaw also forwarded to the Auditor-General a petition from about 10,000 New Zealanders asking for a similar inquiry.

The Prime Minister's visit to the Kingdom of Saudi Arabia (Saudi Arabia) in May 2015 contributed to media interest in the proposed free trade agreement with the Gulf Cooperation Council1 and New Zealand's exporting of live sheep. Details of the Partnership, including the involvement of Sheikh Hmood Al Ali Al Khalaf (Sheikh Hmood) and related activities, progressively emerged in the media and were the topic of questions asked in the House of Representatives.

On 4 August 2015, the Ministry of Foreign Affairs and Trade (the Ministry) released documents that could have provided enough information for people to make their own assessment of some of the questions raised about the Partnership and associated matters. However, considerable public interest remained.

We decided to carry out an inquiry under the Public Audit Act 2001 into the spending of public money on the Partnership.

We use the term "Partnership" to reflect its usage by the parties, not because we consider that there was a legal partnership. The contract for services specifies that "nothing in this Contract constitutes a legal relationship between the Parties of partnership, joint venture, agency, or employment".

How we carried out this inquiry

In our terms of reference, we said that we would look at:

  • the amount of public money budgeted for, and spent on, the Partnership, how it has been used, and the outcomes achieved with it;
  • whether the spending on services was within the appropriations of Vote Foreign Affairs and Trade, as authorised by Parliament;
  • the procurement and contract management practices the Ministry and New Zealand Trade and Enterprise (NZTE) used to purchase services relating to the Partnership;
  • whether the services received were in keeping with the business case and contract specifications; and
  • any other related matter the Auditor-General considered it desirable to inquire into and report on.

The main public entities involved were Ministers, the Ministry, the Ministry for Primary Industries (MPI),2 NZTE, and the Treasury. We met with, spoke to, or otherwise communicated with a range of former and current Ministers, officials, private sector individuals, and the Serious Fraud Office (see Appendix 1).

We requested and reviewed unredacted documents provided by the Ministry, NZTE, MPI, the Treasury, Cabinet Office, and the office of the Minister of Foreign Affairs. We also considered information private individuals provided to us.

When reviewing this information, we were mindful of Cabinet conventions, particularly the confidentiality of Cabinet meetings and discussions. Agendas and minutes of decisions can be obtained, but they do not record the details of the discussions at the meetings. Our inquiry also included countries and individuals about whom it is outside our mandate to comment.

We have considered how to achieve an appropriate balance between natural justice issues, diplomatic sensitivities, and the public interest.

We sought comments on draft elements of this report from those we interviewed. We sought the assistance of a barrister, Jane Meares, in conducting this inquiry. We also engaged Dr John Larkindale, an expert adviser in the field of international relations and diplomacy.

Structure of our report

In Part 2, we provide a timeline of the main events and decisions leading up to the Partnership, including an explanation of the contact between Sheikh Hmood and his companies (the Al Khalaf Group) and successive New Zealand Governments. We explain how the Partnership came to be seen as a way to improve New Zealand's diplomatic relationship with Saudi Arabia.

In Part 3, we describe how the Partnership was set up, including the communication between Sheikh Hmood and his companies' representatives and the Ministry. We also discuss the main information put to Cabinet for it to make a policy decision about implementing the Partnership.

In Part 4, we explain the first steps to implementing the Partnership – signing a contract for services between the Ministry and Sheikh Hmood's Saudi Arabian company, Hmood Al Ali Al Khalaf Trading and Transportation Establishment (HAATT Est). We also discuss the roles of other agencies and provide our comments on the contract for services.

In Part 5, we address the question of alleged corruption and bribery. We also explain what financial approvals were required for the Ministry and NZTE to spend the public money allocated to the Partnership.

In Part 6, we discuss the procurement practice the Ministry used to implement the contractual obligations of the Partnership under the contract for services.

In Part 7, we explain how the goods and services were delivered and the management of the arrangements. We also discuss the decision to send pregnant ewes to Saudi Arabia and how that was managed once people knew about the high mortality rate of the lambs born in Saudi Arabia.

In Part 8, we explain what the Partnership has achieved, to the extent that it can currently be assessed.

1: Formally, the Cooperation Council for the Arab States of the Gulf. It is a regional political and economic union that includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

2: This report also refers to the Ministry of Agriculture and Forestry, which became part of MPI in April 2012.