20 Apr 2018

Officials failed to do background checks on energy scheme

6:31 pm on 20 April 2018

A review has found government officials failed to do background checks on the people behind a proposed waste-to-energy scheme that was to be given hundreds of thousands of dollars in taxpayer money.

Shane Jones

Regional Development Minister Shane Jones. Photo: RNZ / Rebekah Parsons-King

The funding for the feasibility study was put on hold by the Regional Development Minister Shane Jones after RNZ told him the scheme's chief executive, Gerard Gallagher, had been referred to the Serious Fraud Office.

The internal review found officials working on Provincial Growth Fund projects failed to carry out due diligence on Renew Energy's directors and shareholders.

If basic due diligence had been carried out then Gerard Gallagher's referral to the Serious Fraud Office would have quickly been detected, it found.

The head of the Provincial Development Unit Nigel Bickle apologised.

"We fell below prudent standards of due diligence and we have apologised to the Minister for not getting this right," Mr Bickle said.

"The public quite rightly expects government agencies to run a robust process before awarding contracts or approving funding - in this case we made a mistake by not completing appropriate checks on personnel associated with the Waste to Energy project."

Mr Bickle said changes had been made and the unit would now carry out due diligence before applications were considered by ministers and announcements were made.

He told RNZ the officials who failed to do their jobs properly were not facing "a major employment investigation".

"But I've certainly sat down with the team and stressed the expectations that we have, and clearly we have got some different processes that are in place now that are going to be followed."

The internal report, by the Business Ministry's director of legal services, Chris Mathieson, also shows that two days after RNZ ran the story linking the new funding with Mr Gallagher's referral to the Serious Fraud Office - he quit.

"On 2 March 2018, (Renew Energy director and West Coast Economic Development Manager ) Kevin Stratful advised MBIE, that following an emergency board meeting Mr Gallagher has resigned as CEO of Renew Energy and would be selling his shares in Renew Energy. That has now occurred," the report reads.

The report also shows that on 7 March West Coast mayors wrote to MBIE expressing support for the waste-to-energy scheme.

"Recent changes of the director, and chief executive, clears the way for Government support and we look forward to confirmation of funding to be made forthwith," the Mayors wrote.

Mr Mathieson said it was now up to the Provincial Development Unit to do due diligence on Renew Energy's other owners before deciding whether the feasibility study should go ahead.

In April, RNZ revealed the Environment Ministry had advised the government that the project was a lemon.

Mr Jones said he just plain forgot about that advice.

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