The WA Government was warned that Carnegie Clean Energy was a big financial risk before giving is $2.6 million in taxpayer funds, reports say.

Documents obtained under Freedom of Information suggest WA’s Regional Development Minister Alannah MacTiernan knew that the wave power firm had scored just 1.6 out of 10 for its economic viability before awarding the grant.

The warning came just six months before the WA Government terminated its $16 million contract with Carnegie over its financial failings.

The government cancelled Carnegie’s contract to build a wave energy project near Albany, because the company did not come up with the finances to complete it.

The documents obtained last week shows Department of Primary Industries and Regional Development (DPIRD) bureaucrats sought an external opinion about Carnegie’s finances.

“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.

“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.”

The department sought outside advice after Carnegie had requested the WA Government make a $5.25 million first milestone payment for the Albany project.

It was also after figures showed the company had a huge drop in its cash reserves, including a $64 million loss and a $35 million write down of its most important asset - wave energy technology.

In order to get the milestone payment, Carnegie was required to show that it had started developing the wave energy site and begun procurement.

Bureaucrats were satisfied that Carnegie had met the first requirement but not the second, which is why Carnegie proposed that it receive a partial milestone payment of $2.6 million.

The WA Government agreed to this proposal

However, despite some warning of the company’s dire situation, Ms MacTiernan told the ABC that 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.

The discovery was made following a request by Nationals MP Terry Redman, who has called on Premier Mark McGowan in the WA Parliament to remove Ms MacTiernan from Cabinet.

“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.

Ms MacTiernan disputes the claim that she ignored her bureaucrats’ advice.

“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 has in fact recovered $1.3 million of the money paid to Carnegie.

The company went into administration after the WA Government cancelled its contract, but more recently has been reinstated to trading on the ASX after being bailed out by investors.