Explosive new documents obtained under Freedom of Information show Regional Development Minister Alannah MacTiernan was warned Carnegie Clean Energy was a financial risk — scoring just 1.6 out of 10 for its economic viability — before the company was paid $2.6 million in taxpayer funds.

Key points: Carnegie was given a $16 million Government contract to build a wave energy project

Carnegie was given a $16 million Government contract to build a wave energy project A damning external assessment of Carnegie's finances urged caution

A damning external assessment of Carnegie's finances urged caution It was paid $2.6 million before it lost the contract over major financial problems

A briefing note obtained by Nationals MP Terry Redman after an appeal to the Information Commissioner shows this warning was made six months before the WA Government had to terminate its $16 million contract with Carnegie.

The company's contract to build a wave energy project near Albany, which was a key 2017 election promise, was cancelled because the company did not have the finances to complete it.

Documents obtained through Freedom of Information revealed the department's warnings to the minister over Carnegie. ( Supplied )

Financial position 'unsatisfactory'

Mr Redman used the documents to call on Premier Mark McGowan in the WA Parliament on Thursday to remove Ms MacTiernan from Cabinet, saying she had ignored important independent financial advice.

"This Minister clearly thinks that 1.6 out of 10 is a pass mark because she then went on to pay the company $2.625 million," he said.

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The briefing note shows Department of Primary Industries and Regional Development (DPIRD) bureaucrats were so concerned about the company's finances in September last year that they sought an external opinion.

"Seeking an independent assessment, DPIRD commissioned a Financial Viability Assessment (report) on Carnegie, which rates its financial position to be 'unsatisfactory' and scored it 1.6 out of a possible 10," the September 2018 briefing note said.

Carnegie Clean Energy has been looking to develop wave power technology. ( Supplied )

"The findings of the report highlight the need to proceed cautiously in order to protect the interests of the state while continuing to work productively with Carnegie to deliver the project."

This opinion was sought not long after Carnegie had requested the WA Government make a $5.25 million first milestone payment for the Albany project and also after it had released alarming financial figures.

These figures showed the company had recorded a big drop in its cash reserves, a $64 million loss and a $35 million write down of its most important asset, its wave energy technology.

To receive the milestone payment, Carnegie had to submit evidence that it had started developing the wave energy site and begun procurement.

The documents show the bureaucrats were satisfied Carnegie had met the first requirement but not the second, prompting Carnegie to propose that it receive a partial milestone payment of $2.6 million.

The WA Government later agreed to this proposal, although an October 2018 briefing note to Ms MacTiernan showed the company had only provided evidence of spending $1.3 million on developing the site.

Around this time, Ms MacTiernan told the ABC the company had spent many times this amount on the project.

"They have spent in the order of $4 million on both capital and staff and personnel to do the detailed design for the common user infrastructure," she said.

Sandpatch is the location of Carnegie's proposed Albany wave farm. ( ABC News: Benjamin Gubana )

Payment followed legal advice: MacTiernan

On Wednesday, Ms MacTiernan disputed she had ignored her bureacrats' advice, saying the department also had legal advice that there was a risk to the state if it did not pay Carnegie for work done.

"We took steps to manage the risk," she said.

"We halved the first payment and requested a funding plan. We required our funding to be placed in a separate account.

"We terminated the project when Carnegie didn't produce an acceptable funding plan."

She said the WA Government had since recovered $1.3 million of the money paid to Carnegie.

Carnegie blamed its problems on changes to a federal research and development tax incentive. ( ABC News: Courtney Bembridge )

Tax incentive blamed for financial woes

Both Carnegie and Ms MacTiernan blamed the company's financial problems on the Federal Government's plans to change the research and development tax incentive.

But company records at this time show there were also other reasons why it was in a financially precarious state, including a big executive salary budget, the consequences of a poor decision to buy a solar microgrid company, as well as difficulties in competing with more affordable technologies like solar and wind energy.

The company went into administration soon after the WA Government cancelled its contract, but was last month reinstated to trading on the ASX.