The government has put on hold one of its brand new regional development initiatives after realising it is linked to a businessman in the sights of the Serious Fraud Office.

Photo: RNZ / Rebekah Parsons-King

Officials at the Ministry of Business Innovation and Employment have apologised to their Minister for not alerting him to the matter.

RNZ revealed this morning that the government was looking to spend $350,000 on a feasibility study for a waste-to-energy plant.

It would be run by Renew Energy, whose chief executive, Gerard Gallagher, was referred to the Serious Fraud Office last year.

A State Services Commission report found Mr Gallagher and another official abused their positions at the Canterbury Earthquake Recovery Authority for personal gain last year and referred them to the Serious Fraud Office.

This morning, before being briefed by officials, Regional Economic Development Minister Shane Jones said he was not going to jump to conclusions.

"But I'm not from the school of thought that wants to boot officials, until I know what the facts are but there's inevitably, in this sort of stuff, there's a bit of political rubber-necking.

"But I don't think it's a train-wreck - if anything it's a road-kill and if it's a hedgehog I'm going to strike a few pricks on my journey."

Officials from New Zealand Trade and Enterprise, the Ministry of Business, Employment and Innovation and the State Services Commission were then called to the Beehive for a 'please explain'.

Some hours later, Mr Jones told reporters the funding was now on hold until he could be sure the project was fit to receive government funding.

"So MBIE officials have gone away, obviously I've reflected to them that there's a character test that they should be thinking about when various applications come forward.

"They've apologised that they didn't make me aware of this chap," Mr Jones said.

"But until the officials can assuage me - it's essentially on ice."

He also revealed money had been paid to the company by New Zealand Trade and Enterprise, an agency the new National Party leader Simon Bridges was responsible for when he was a minister in the previous government.

"Well the difficulty I've got is that money has already changed hands," Mr Jones said.

"Up to $50,000 has already been paid to this group and it was paid by Simon Bridges when he was Minister of Economic Development."

However, Mr Bridges said the payments were not big enough to come across his desk as a minister, and were for work done in 2016, before there was any publicity about Mr Gallagher.

Mr Bridges said it was the government's mess to clean up.

"I think it's a train wreck and I think him acknowledging it's roadkill shows that it is right.

"What this shows in relation to this $350,000 is that the government takes taxpayers' money very very lightly - frankly this is incompetence."

Papers provided to the Prime Minister from New Zealand Trade and Enterprise show there were payments of $21,000 in March last year, and then a second of $24,000 in April 2017 for a feasibility study.

The money was paid to the company run and owned by Mr Gallagher.

The second lot of money was approved on the same day Mr Gallagher was referred to the SFO.

That was about three months after the State Services Commission had publicly confirmed it was investigating him for a conflict of interest.