Corrupt former Labor minister Eddie Obeid and his ally Joe Tripodi agreed to oust former premier Morris Iemma in return for a favourable deal for Obeid-linked company Australian Water Holdings, an inquiry has heard.
Peter Phillips, an independent certifier, told the Independent Commission Against Corruption on Tuesday he was pressured by AWH not to question excessive costs being billed by the company to the state-owned Sydney Water.
He said former AWH chairman John Rippon told him ''political pressure was going to be applied very heavily to Sydney Water'' to give AWH contracts to run the installation of water and sewerage infrastructure in the north-west.
Mr Phillips said the ''clincher'' for him was being told by AWH employee Vass Kuznetsov around July 2008 that ''the Terrigals were going to move on Morris Iemma and have him removed as premier, and that part of the payment for their support of this was going to be a water licence for AWH''.
''I didn't pay that a lot of attention at the time but when it actually happened I realised there were very powerful influences being wielded about the place,'' he said.
The Terrigals were a powerful sub-faction of the Labor Party's dominant Right faction, led by Mr Obeid and Mr Tripodi.
Mr Phillips said later that he was not ''100 per cent sure'' that the term Terrigals was used, but he believed ''it was actually stated it was Mr Obeid and Mr Tripodi''.
Mr Iemma was forced to resign on September 5, 2008, after he tried to dump Mr Tripodi from the ministry. He was replaced by Nathan Rees, whom the inquiry has heard called AWH ''a bunch of crooks''.
Mr Phillips said the term ''water licence'' meant a public-private partnership between AWH and the state government. The commission has previously heard the Obeid family had a secret 30 per cent stake in AWH and could have made up to $60 million from the PPP.
The inquiry is examining allegations AWH secretly billed Sydney Water for millions of dollars under an existing contract, including for limousines and donations to the Liberal Party.
Mr Phillips said the conversation took place about six or eight weeks before Mr Iemma's resignation.
''At least Mr Iemma now knows he didn't lose his premiership for nothing,'' counsel assisting the inquiry, Geoffrey Watson, SC, quipped.
Counsel for Mr Obeid, Stuart Littlemore, QC, insisted Mr Iemma was ''not removed [from office]; he resigned''.
''With respect, I think I know those events pretty well,'' Mr Watson replied.
Documents tendered to the commission suggest AWH saw political influence as crucial to its success.
The subsequent sacking of Mr Tripodi in November 2009 prompted AWH director and Obeid associate Nick Di Girolamo to email fellow directors, including Liberal heavyweight Arthur Sinodinos.
''I have been liaising with both senior ALP members and our political adviser, John Wells*, to ascertain what the axing of Joe Tripodi means to our PPP,'' he wrote.
Mr Girolamo noted that Kristina Keneally and Michael Daley's new ministries are ''key appointments for us - both are from the Right and thus share the policies that Tripodi advocated''.
As premier, Ms Keneally rejected a forged cabinet minute Mr Tripodi and his colleague Tony Kelly allegedly tried to submit to cabinet to advance AWH's cause. Their actions have been described as ''tantamount to fraud.'' Former Sydney Water chairman Tom Parry gave evidence he told Ms Keneally's office to ''drive a stake through the heart'' of the minute.
Earlier on Tuesday, former Sydney Water chief executive Kerry Schott insisted she warned Senator Sinodinos to be careful of the company he was keeping on the board of AWH. She agreed the conversation may have taken place as early as 2009, almost three years before he resigned in November 2011 to take up a Senate vacancy.
Challenged by Senator Sinodinos' barrister, Tony Bannon, SC, about whether she told him AWH ''may be dishonest'', Dr Schott said she may have used the term or words ''that meant exactly the same thing''.
''It was a personal warning to Mr Sinodinos, who I thought very highly of,'' Dr Schott said.
Clarification: This refers to ALP adviser John Wells, not the husband of Liberal senator Concetta Fierravanti-Wells who shares that name.