Former NSW Premier Morris Iemma has told the criminal trial of his former colleague Ian Macdonald that the then mining minister did not seek cabinet approval to grant a multimillion-dollar coal licence to a company chaired by a political associate.
Mr Iemma said the state's finances were in a "tough" position when the lucrative exploration licence was awarded by Mr Macdonald in 2008 without a competitive tender.
Major mining projects would have been considered by cabinet's powerful budget subcommittee "because of the financial impact", he told the Supreme Court in Darlinghurst on Wednesday.
"It was emphasised very strongly by myself ... that we faced challenging financial circumstances," Mr Iemma said.
Mr Macdonald is on trial on two counts of misconduct in public office for inviting private company Doyles Creek Mining to apply for, and later awarding it, a lucrative coal exploration licence.
The company was chaired by former Construction, Forestry, Mining and Energy Union boss John Maitland. The Crown has alleged Mr Macdonald misused his power to favour Mr Maitland because the two men were "mates".
Mr Maitland is charged as an accessory before the fact.
Both deny the charges and their lawyers have told the court they were not friends.
The court has heard the Doyles Creek proposal included a plan for a "training mine" attached to a commercial mine.
Mr Iemma said he believed Mr Macdonald had raised the concept of a training mine with him and said it had the support of the industry and the unions.
But Mr Iemma said he believed this was "not in a formal cabinet setting".
Asked if he had told Mr Macdonald the proposal should be raised in cabinet, Mr Iemma said: "I don't recall saying that."
He could not recall if all proposals to grant exploration licences came before cabinet.
Mr Iemma, who served as premier from August 2005 to September 2008, said ministers were under pressure to find budget savings in 2007-08 and Mr Macdonald had proposed "driving increases in revenue by getting ... mining sites out into the marketplace".
Former treasurer Michael Costa, who gave evidence after Mr Iemma, echoed his former leader's claims about the state of the budget at the time.
The court has heard a BHP subsidiary paid $91 million in 2006 to explore for coal at Caroona in NSW while China Shenhua Energy Ltd paid $276 million in 2008 for its Watermark licence.
Mr Iemma said he held a press conference with Mr Macdonald about either or both the Shenhua and Watermark projects, announcing the state had secured a "significant fee" from the successful bidder.
Doyles Creek Mining made no such payment.
The trial continues.