The lawyer for Tim Koelma, a former policy adviser to Mr Hartcher, told the ICAC on Friday that her client was ''the source'' of an anonymous letter alleging corruption against former Sydney Water executives Kerry Schott and Ron Quill.

ICAC is examining claims that Mr Obeid was involved in an attempt to ''destroy'' Dr Schott and Mr Quill because they were blocking a lucrative public-private partnership between Sydney Water and Australian Water Holdings, a company in which his family allegedly had a secret shareholding.

The inquiry has heard that Mr Obeid told a Labor colleague ''you need to sack that bitch'', in a reference to Dr Schott. He allegedly predicted a corruption complaint against her would ''emanate from Chris Hartcher''.

''Eddie Obeid was right on the money. An anonymous complaint was made to ICAC,'' counsel assisting the ICAC, Geoffrey Watson, SC, said in his opening address. ''Of all Mr Obeid's machinations, the most foul is his involvement in an attempt to ruin the reputations of [Dr Schott and Mr Quill].''

Mr Koelma set up a company called Eightbyfive, which was allegedly used as a slush fund by Mr Hartcher and fellow Liberal MPs Darren Webber and Chris Spence. AWH allegedly made ''regular payments'' to Eightbyfive in exchange for favourable treatment by Mr Hartcher. The payments, totalling more than $180,000, will be examined in a separate inquiry into Eightbyfive starting on April 28.

Mr Watson said the anonymous letter would be examined in that inquiry.

Giving evidence on Friday, Mr Quill said he and Dr Schott had become concerned about excessive costs being charged to the state-owned Sydney Water by AWH.

Sydney Water had agreed to cover AWH's costs under a contract to supply water and sewerage infrastructure in Sydney's north-west, but ICAC has heard AWH was charging for thousands for chauffeur-driven limousines, a corporate box and donations to the NSW Liberal Party.

Mr Quill said it appeared the company was ''asking for money they were not entitled to''.

''That sounds like a nice man's way of saying fraud,'' Mr Watson said.

''OK,'' Mr Quill replied.

Arthur Sinodinos joined the board of AWH in October 2008 and became chairman in November 2010. He resigned in 2011 to take up a Senate position and is expected to give evidence at the inquiry in the coming weeks.

He denies any wrongdoing.

AWH's costs allegedly escalated after Liberal fund-raiser Nick Di Girolamo, an associate of the Obeid family, joined the board full-time in 2007.

Mr Quill said AWH ''stonewalled'' attempts by Sydney Water to inspect its books to find out how the money was being spent.

Mr Watson quipped that Sydney Water wasn't asking for ''the colonel's secret herbs and spices'' but a breakdown of costs.

Mr Quill said AWH's costs started to ''escalate quite dramatically'' when it had finished a project.

''At that point I decided that without any justification we couldn't agree to pay those costs,'' he said.

Between July 2007 and May 2008 AWH's costs exceeded its approved budget by $6.5 million.

Dr Schott is expected to give evidence on Monday.