Kristina Keneally’s office was warned about doctored cabinet minute, ICAC told

Joe Tripodi allegedly doctored a cabinet minute in 2010. Photo: Janie Barrett Eddie Obeid allegedly had a secret 30 per cent stake in AWH. Photo: Kate Geraghty

Former Premier Kristina Keneally’s office was warned it needed to “drive a stake through the heart” of a doctored cabinet minute supporting a proposal by the Obeid-linked company Australian Water Holdings, a corruption inquiry has heard.

Tom Parry, then chairman of Sydney Water, told the Independent Commission Against Corruption on Tuesday he cautioned an adviser to Ms Keneally, Pat Garcia, that he would consider making a corruption complaint if the cabinet minute was approved.

The commission is examining allegations that the family of corrupt former Labor minister Eddie Obeid had a secret 30 per cent stake in AWH.

Mr Obeid’s political allies, Joe Tripodi and Tony Kelly, allegedly doctored a cabinet minute in 2010 so that it was “completely opposite” to the recommendations of experts from the Department of Premier and Cabinet to reject a proposal by AWH.

The inquiry has heard that if the minute was accepted, the Obeid family stood to make up to $60 million.

Mr Parry said the company was “a commercial albatross around our neck”.

The premier’s department took steps to have the draft minute withdrawn around May 2010.

Mr Kelly allegedly tried to bypass cabinet by submitting the minute to its powerful budget subcommittee, before re-submitting it to cabinet in August 2010.

“I thought this had been killed off,” Mr Parry said he told Ms Keneally’s office when the minute re-emerged.

“Obviously we need to put a stake through the heart.”

Ms Keneally, who is not accused of any wrongdoing, subsequently advised Mr Kelly to withdraw the minute and not to resubmit it.

Earlier, the barrister for Liberal heavyweight and former AWH chairman Arthur Sinodinos challenged the evidence of a key witness.

Tony Bannon, SC, put it to former Sydney Water boss Kerry Schott that she did not warn Senator Sinodinos, after he joined the board of AWH, that the company “may have been dishonest”.

Dr Schott conceded she may not have used the word “dishonest” but said she would have used another term conveying the “same meaning”.

“It was a personal warning to Mr Sinodinos, who I thought very highly of,” Dr Schott said.

“I hope I left him with the impression that there may be dishonest behaviour going on.”

Dr Schott said she was “voicing a suspicion” based on the fact AWH was charging excessive costs to Sydney Water and stonewalling attempts by the public utility to inspect its books.

Sydney Water had contracted AWH to manage the installation of water and sewerage infrastructure in the north-west and had agreed to cover its administration costs.

The commission has previously heard it was secretly charging Sydney Water for millions of dollars, including for limousines, donations to the NSW Liberal Party and legal fees.

Senator Sinodinos, who stepped down as Assistant Federal Treasurer last week, has denied any wrongdoing.

Mr Bannon suggested on Tuesday that the meeting between Dr Schott and Senator Sinodinos may have taken place in early 2009, after he was appointed deputy chairman of AWH, rather than after November 2010, when he became chairman.

Despite the warnings, Senator Sinodinos remained as chairman until November 2011.

Mr Bannon asked why Sydney Water considered it “entirely appropriate” to do business with AWH when it believed the company could be dishonest. It had signed a fresh agreement with AWH in November 2008.

“I had a contractual relationship … to continue to deal with Australian Water Holdings,” Dr Schott said.

The inquiry heard that disgruntled AWH investor Rod De Aboitiz, a former chief financial officer of Rothschild Australia, will be recalled to be questioned by Mr Bannon.

Mr De Aboitiz gave damaging evidence last week that he warned Senator Sinodinos in 2010 that the company was racking up millions in expenses, including donations to the Liberal Party.

The lawyer for Mr De Aboitiz said it would cause his client “enormous stress” to return to the witness box but Commissioner Megan Latham ruled it was necessary.

Senator Sinodinos has denied he was aware of the donations. He also maintains he was unaware of the Obeids’ alleged financial involvement.

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