Sinodinos warned over 'company he kept'

Liberal Arthur Sinodinos was warned the men running Australian Water Holdings might be "dishonest". Source: AAP

FORMER NSW Premier Nathan Rees thought they were a "bunch of crooks" and Liberal powerbroker Arthur Sinodinos was warned the men running Australian Water Holdings might be "dishonest", a corruption inquiry has heard.

And that was before anyone knew the Obeids might be involved.

The Independent Commission Against Corruption (ICAC) is probing claims the infrastructure company charged state-owned Sydney Water for hundreds of thousands of dollars in administration fees including limousine rides and Liberal Party donations.

It has also been alleged the family of former NSW Labor minister Eddie Obeid had a secret 30 per cent holding in Australian Water Holdings (AWH).

Senator Sinodinos became an AWH director in 2008 and was later appointed chairman.

Counsel assisting, Geoffrey Watson SC, has told the inquiry that Senator Sinodinos, who is due to give evidence to the ICAC next week, was paid $200,000 plus bonuses for about 100 hours' worth of work as an AWH director.

Shortly after he was made chairman of the company, he met with Sydney Water's then-managing director Kerry Schott and another public servant, the ICAC heard.

"We suggested to Mr Sinodinos he might be careful about the company he was keeping," Dr Schott said.

"We thought that they may be dishonest ... There was no reaction to that."

Senator Sinodinos last week stepped down as federal assistant treasurer pending the outcome of the ICAC investigation.

Dr Schott told the commission that Sydney Water's relationship with AWH became fraught as she sought justification for the expenses AWH submitted to Sydney Water for reimbursement.

Mr Rees "used to refer to them as a bunch of crooks", she said.

"As it went on and on and on I became more suspicious about the nature of the company I was dealing with," Dr Schott said.

It has been alleged that Mr Obeid tried to have her fired, urging then-water minister Phillip Costa to "sack the bitch".

Dr Schott has also given evidence that she believes a NSW government cabinet minute submitted to then-infrastructure minister Tony Kelly's office was redrafted with the help of AWH executive Nick Di Girolamo.

Mr Watson has told the ICAC the original cabinet minute recommended the rejection of a public-private partnership that would have netted a "massive windfall profit" of up to $200 million for AWH owners.

But the cabinet minute that was submitted to cabinet was a "doctored" document reversing the original recommendation, Mr Watson said, though this document was ultimately withdrawn.

Dr Schott on Monday agreed that rewriting the cabinet minute in that way would be tantamount to fraud.

"I think it was a terrible abuse of public process," she said.

The inquiry continues.

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