Costa, Obeid and the water firm
Date December 15, 2012 60 reading now
Linton Besser, Kate McClymont
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Happier times …Michael Costa and Eddie Obeid at the NSW ALP conference in 2008. Photo: Jon Reid
A WATER services company linked to the family of ALP kingpin Eddie Obeid gave shares worth as much as $3.75 million to the former treasurer Michael Costa three years after he stopped a public tender that threatened the company’s future.
The share package came with his appointment last year as chairman of the company, an appointment brokered by Mr Obeid and one of his sons.
A Herald investigation has also established that Mr Obeid lobbied his colleagues on behalf of the company, Australian Water Holdings, as it pushed for a billion-dollar privatisation of part of the state-owned Sydney Water Corporation.
The revelations come as an inquiry by the Independent Commission Against Corruption continues to unearth evidence to suggest the Obeids ran a vast but secret enterprise that capitalised on Mr Obeid’s political power.
The family’s multimillion-dollar interests in coal leases, harbour-front cafes and even a health services company were all furthered by Mr Obeid, who used his influence as head of the ALP’s dominant parliamentary faction to lobby ministers.
As a cabinet minister, Mr Costa was lobbied by Mr Obeid in relation to two of these ventures – and now he has confirmed that Mr Obeid also approached him in relation to Australian Water Holdings, a private water company.
Since the mid-1990s, it has received about $580 million from Sydney Water to manage the installation of infrastructure in Sydney’s north-west growth centre. The Herald has learnt that the Obeid family has a close association with the company courtesy of its boss, Nick Di Girolamo, a former partner at the Obeids’ law firm of choice, Colin Biggers & Paisley.
Mr Di Girolamo is a close friend of Eddie Obeid jnr and has known the Obeid family since childhood when he went to school with Mr Obeid’s sons at St Patrick’s College in Strathfield.
He denied that any of the Obeids had any interest in Australian Water: ”I have never been involved in a transaction with the Obeids. I have never had anything to do with the Obeids.”
But Mr Di Girolamo conceded he had met Mr Obeid snr several times to discuss the company, that he had employed Eddie Obeid jnr for up to 18 months and at the end of 2010 had received a personal loan from Eddie jnr for an undisclosed sum.
He said that at first he saw Mr Obeid snr ”to say, mate, I have an issue with Sydney Water” but later said they discussed the potential for a public private partnership.
”I was running it past him [Eddie Obeid snr] in terms to say, from a policy perspective [a PPP] was something that your government would see favourably, you know,” Mr Di Girolamo said.
”He said, ‘I think it’s good
policy’.” Mr Obeid jnr had been employed ”helping us with some developers” because ”he has contacts up in Queensland”, Mr Di Girolamo said.
ICAC has heard evidence that before a coal tender was announced for the Bylong Valley (where the Obeids had bought a farm), the Obeids nominated Mr Di Girolamo at a meeting to act as a front for their stake in a company designated to win the tender.
Mr Di Girolamo said he had never been asked to act in this way by the family. In the end, it was another Colin Biggers & Paisley lawyer, Greg Skehan, who acted as a front for the family in a coal company that won an exploration licence.
Mr Skehan is also a shareholder in Australian Water Holdings, but says: ”As the public records show, I am a non-executive director and a very minor shareholder of Australian Water Holdings”.
Another shareholder is Joseph Georges, a Strathfield real estate agent who has elsewhere acted as a front for the Obeids, disguising the Obeids’ interest in the Elizabeth Bay Marina. Mr Georges declined to say whether his investment in Australian Water was on behalf of the Obeids: ”I will keep you guys guessing.”
In a recent book, the former planning minister Frank Sartor wrote that Mr Obeid’s son Moses ”had been a paid consultant to a company called Australian Water Holdings” and that ”Obeid and his son lobbied in support of AWH for some years”. Mr Di Girolamo said Moses Obeid had never been associated with the company.
From about 2006, a dispute erupted between Sydney Water and the company over the project management fees it was charging, and the company’s claim that its original 1992 agreement ensured the government could not award this work to anyone else.
Executives at Sydney Water became increasingly concerned at the enormous fees Australian Water was charging. For example, its management fees for the month of October 2008 accounted for about 87 per cent of the $750,000 Sydney Water paid the company. ”The real problem was that there was this ongoing obligation on Sydney Water to give this one company all the work in the north-west,” a source said.
”[The government] wanted to go to market. It was outrageous.”
In April 2008, Sydney Water advertised a public tender for a contract that would traditionally have been awarded to Australian Water, posing a direct threat to the company.
Mr Di Girolamo immediately met Mr Costa, who as treasurer had ultimate responsibility for Sydney Water.
Sydney Water had advice from Clayton Utz that the work should be publicly contested. Mr Costa then sought another legal opinion from the solicitor-general.
It said a court was ”more likely” to find for AWH and, in line with its recommendations, Mr Costa ordered the parties attend mediation. The tender never proceeded.
Three years later, in November last year, Mr Costa was appointed chairman of AWH, replacing Liberal Party heavyweight Arthur Sinodinos, and issued with 6,250,000 shares, or 5 per cent of the company.
He said: ”This notion that there is some nexus between activity that occurred in 2008 and then subsequently [when I was approached] in 2011 is absurd,” and the Herald does not suggest otherwise.
Mr Costa said his appointment came about after Eddie Obeid jnr called him and asked him to meet him and Eddie Obeid snr to discuss the opportunity. They urged him to call Mr Di Girolamo and take the job, he said. ”Eddie junior was the one talking … obviously they think [sic] it is a good idea.”
Mr Costa paid only $1 for the shares but other investors, who had previously bought convertible notes, were issued shares a short time later valued at between 16¢ and $1.92 a share. But on Wednesday, Mr Di Girolamo told the Herald: ”The valuation that we always thought the company was fair was about $75 million”. This would value Mr Costa’s shares at $3.75 million.
Mr Costa and the company’s chief financial officer, Robert Groom, have since disputed their chairman’s valuation, claiming Mr Costa’s shares are worth only $500,000.
Mr Costa resigned from the company in early November.
Nathan Rees said that in 2008, when he was the water minister, Mr Obeid asked him to meet Mr Di Girolamo.
And his successor in the portfolio, Phillip Costa, said that during a Parliament House dinner in 2009, Mr Obeid ”told me that his son had an interest in it [Australian Water Holdings]”.
He said Mr Obeid’s comments led him to assume ”there was some moves afoot to try to avoid us going to tender.
”As a consequence I didn’t want to pursue it any further. I shut down the conversation. I didn’t want to go any further down that path. I knew at that stage there was some legal procedure [on foot] by Sydney Water.”
The real potential to earn serious money was AWH’s repeated attempts to persuade the government to privatise Sydney Water’s activities in the north-west of the city.
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