The New Zealand Government has been embroiled in the long running saga known as the Saudi sheep deal. The auditor-general, Lyn Provost, has taken about a year to investigate the deal, principally looking at whether all the facts about the transaction were sufficient. Finally, she acknowledged that although there were “significant shortcomings” in the report to Cabinet about the deal it was not corrupt.

Please see the newspaper article http://www.stuff.co.nz/national/politics/86005911/what-you-need-to-know-about-the-governments-controversial-saudi-sheep-deal

Last year I wrote to Prime Minister, John Key, who passed the letter on to Hon Murray McCully, Minister of Foreign Affairs, who was the person in charge of the Saudi deal.

Below is a copy of the letter I wrote.

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20 August 2015
To: Mr John Key
Prime Minister of New Zealand

Saudi sheep deal

Dear Mr Key

I’m writing to you in respect to the above deal and from the perspective of an “informed” observer. I lived and worked as an investigative journalist/editor in the Middle East for nearly nine years, the last six of which was as head of a newswire service focused on mergers and acquisitions and investments and owned by the Financial Times Group.

As a consequence, I have interacted with many businessmen of Sheikh Al Khalaf’s ilk and have myself been involved in some rather tricky negotiations with companies and the UAE government.

I have a number of questions to put to you, as well as some observations.

First, you say that a deal to export live sheep to the Al Khalaf Group farm in Damman, Saudi Arabia, was agreed in order to avoid the New Zealand Government being sued for NZ $30m. If so, under which jurisdiction could the claim be made?

Since the law in Saudi Arabia is Sharia and the country is not a signatory to any convention binding it to English Common Law, there would be no organisation under which a claim could be filed. A Saudi company could not legitimately file a claim under NZ law unless the possibility of such an eventuality had been stated in an already agreed contract between the Al Khalaf Group and the NZ Government. Had such a contract been signed between the parties?

Second, it would seem that the NZ $30m for which you say Sheikh Hamood Al-Ali Khalaf would have sued, could be part compensation for a US $80m deal struck in 2011 with Drydocks World, a UAE owned company. The deal was to convert a large ship to transport livestock from Australia, NZ and other countries to Saudi Arabia and the rest of the Gulf, according to an article in The Saudi Gazette. This ship was to be called the Awassi Express and a draft agreement for either a second conversion or the building of a second vessel had also been signed.

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentID=2011010690695

A copy of the article also appears on the Drydocks World website dated January 6, 2011.

http://www.drydocks.gov.ae/en/news/saudi.al.khalaf.conversion.aspx

Why would Sheikh Hamood Al -Ali Al Khalaf do a deal with Drydocks World if he were not certain that the New Zealand Government would go ahead with live sheep exports? The existence of such a deal also suggests that the government had confirmed that live sheep exports would go ahead, either verbally or in writing, to Sheikh Al Khalaf as far back as 2011. Was this the case?

Third, why did the New Zealand Government pay a total of NZ $11.5m (SAR 28m) to the Al Khalaf Group, especially when it is highly probable that the group receives subsidies from the Saudi government for establishing an agri-business hub in the count

ry?

The King Abdullah Initiative for Saudi Agricultural Investment Abroad, a SAR 3bn (USD 800m investment fund), that was set up in January 2009 by King Abdullah bin Abdulaziz subsidises private sector companies that invest in food security programmes. Is the Al Khalaf Group being subsidised in this way? Has the New Zealand Government looked into this?

The purchase of overseas land by Gulf Co-operation Council (GCC) countries, Saudi Arabia and the UAE in particular, is also important for achieving food security. But since the aim of GCC governments is to send as much produce as possible back to the home country what, therefore, are the benefits to New Zealand of Saudi land ownership?

Moreover, NZ $11.5m is likely to be a small sum for the Al Khalaf Group, which is a probably a multi-billion dollar company, made up as it is of several companies, as are most investment groups in the GCC. (But being a privately owned company, an exact company valuation will not be available).

Fourth, Murray McCully has also said that agreeing a deal with Al Khalaf was necessary to ensure a free trade deal with Saudi Arabia and that “furthering FTA ambitions with Gulf States was a ‘key consideration’ in establishing the hub” (May 28, 2015: stuff.co.nz; “What you need to know about the Government’s deal with the Saudi businessmen”.)

The same article also states: “In April when Prime Minister John Key visited Saudi Arabia, it was suggested a free trade deal between New Zealand and the Gulf States was put on hold because of Al Khalaf’s influence. The deal has still not been concluded.”

How significant is Al Khalaf’s influence? I would suggest that since he is not well known in Saudi circles, that his influence is not as great as is implied.

And to blame the opposition for stalling the talks in earlier years is disingenuous. As senior correspondent at Khaleej Times, a UAE-based newspaper, I interviewed Phil Goff in 2006. At that time he was having talks with the Minister of Economy, Sheikha Lubna Al Qasami. (http://www.khaleejtimes.com/article/20060329/ARTICLE/303299973/1036 UAE, NZ continue to strengthen ties)

Moreover, everyone in the GCC knows that for Gulf States to reach an agreement on anything whether between themselves or with another country, like New Zealand, can (and usually does) take years. The failure to reach an agreement on a common currency is a case in point, negotiations having gone on for at least a decade.

As a matter of record, in June 2007 I also interviewed Mike Moore, as ex-chief of the WTO where he commented that FTA’s provide privileges but distort trade.

http://www.khaleejtimes.com/article/20070604/ARTICLE/306049991/1036

Fifth, in negotiating with the Al-Khalaf Group, how many people were confident, competent and used to dealing with Arabs? The approach to negotiation seems to have been from a very New Zealand perspective, failing to take into account the cultural differences between the two countries.

Anyone who has lived and worked with Gulf Arabs for some time knows that their tactics are to negotiate hard and loudly, to threaten rather than to cajole, take the opponent to the brink, and make them capitulate, just as New Zealand has done. When the opponent plays just as hard, more often than not the Arabs will step back and become more reasonable. And when there’s money on the table, the Arabs will take any money. Negotiating is a game. The aim is not to get a “fair deal”, but to win.

Sixth, do you know whether Sheikh Al-Ali Khalaf is a member of the Royal family (of which there are about 50,000) or whether his christian name is Sheikh? As my former colleague in Saudi Arabia said: “Sometimes businessmen pretend to be a royal family member just to scare people off”.

I would welcome an immediate response to my questions and look forward to hearing from you.

Yours sincerely

Lucia Dore
Former head of the Gulf Co-operation Council (GCC),
Middle East and North Africa (MENA).
Mergermarket (part of the Financial Times Group)