UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1275-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

TRADE AND INDUSTRY COMMITTEE

 

 

ECGD Support for the Baku-Tbilisi-Ceyhan Pipeline

 

 

Tuesday 16 November 2004

ECGD

MR JOHN WEISS, MR ROGER GOTTS and MR DAVID ALLWOOD

Evidence heard in Public Questions 1 - 74

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Trade and Industry Committee

on Tuesday 16 November 2004

Members present

Mr Martin O'Neill, in the Chair

Linda Perham

Sir Robert Smith

________________

Memoranda submitted by the Export Credit Guarantee Department

 

Examination of Witnesses

 

Witnesses: Mr John Weiss, Deputy Chief Executive, Mr Roger Gotts, Director, Business Division II, and Mr David Allwood, Head of Business Principles Unit, Export Credit Guarantee Department, examined.

Q1 Chairman: Good morning, Mr Weiss, perhaps you can introduce your colleagues and then we will get started.

Mr Weiss: Good morning, Chairman. I am John Weiss, Deputy Chief Executive of the ECGD. On my right is Roger Gotts, who is the Director of Business Division II in ECGD, and on my left is David Allwood, who is Head of our Business Principles Unit.

Q2 Chairman: Can I start off perhaps by issuing something which might appear like an apology but it is not really. We should have started at 9.30 but we only got some papers we had requested in the summer this morning and we felt that it was appropriate that we should spend some time reading them before we started the proceedings. I realise that little blame attaches to yourself in this respect, it is to others that responsibility must be directed, but we are a bit disappointed that given the length of time we have had to wait that the information to which we are going to have to refer came to hand so late in the day. Perhaps we could start. As you know, we were looking earlier in the year, Mr Weiss, at the operation of ECGD, particularly the new financial basis upon which the Department is operating, and the indication seems to be that it is not altogether unhappy and things are moving on. I think it is premature to pass judgment on it, and we are not really here this morning to look at that so much as one of the areas of your activity, in particular the question of the transparency of ECGD and its operations. In our previous report we noted that a key feature of your business principles is your commitment to transparency in your operations and decisions. We were therefore a wee bit disappointed that the review of the BTC application by the Business Principles Unit was supplied to us on a confidential basis. It does seem to us that if you are applying principles which are broadly accepted then the application of these principles should be in a transparent manner, but we will come on to that in a moment. This document, however, has gone a long way to answering a number of questions about your actions which were put to us by NGOs and other witnesses. Perhaps I could start off by just asking a very simple question: why is there this degree of secrecy about the application of principles which one would have thought would have embodied "motherhood and apple pie", amongst other things, against which no‑one can complain?

Mr Weiss: Thank you, Chairman. We hoped that by providing you with a copy of Mr Allwood's advice to the underwriting committee we would demonstrate the thoroughness and the depth with which we had analysed the environmental, social and human rights aspects of the BTC project which I had emphasised when we came here in May. I think the problem is that because of the nature and the content of that report we did feel obliged to provide it to you on a confidential basis. This is because it was an element of our own internal decision‑making which ultimately formed the basis of advice to ministers when we recommended to them that they endorse the decision of the underwriting committee to support the BTC pipeline. Clearly the document was not written with an eye to subsequent publication and I think it does contain a few, but not perhaps very many, items which are sensitive in that they have got information about third parties or indeed comments by third parties and there might be some sensitivity about publishing that, particularly as those third parties may often be governments of the countries involved in the pipeline. The code of practice on access to information does provide for an exemption on disclosure for that sort of document. The reasons given are that perhaps if there is an idea that the document might ultimately be published then the frankness of the advice in the document might be tempered in some way and that the Committee and the Minister might not get full and frank advice if there was an eye to subsequent publication, so it was for those reasons that we gave it to you on that basis.

Q3 Chairman: Thank you very much, Mr Weiss. I will be at pains to point out to you that we are not endeavouring to shoot the messenger here. The person who wrote the message is in the shape of the Government and we will be talking to them later. As I say, that was just to get the point on the record. Perhaps what we could say here is one of the things that you have indicated is that, quite understandably, people would wish some of the advice they give not to be made public but, on the other hand, is the policy of ECGD driven by the attitudes of other export control agencies in the Lenders Group in this project? Does the lead country lead or is it a kind of consortium‑based, consensual process that has the effect of policy making way?

Mr Weiss: One point I did want to emphasise to the Committee is that whenever I talk to you about decisions which we reached in relation to the BTC pipeline these decisions were always taken as part of the so‑called Lenders Group, which includes a number of export credit agencies, the EBRD, the IFC and commercial banks. Indeed, ECGD was a relatively minor player in the total lending to the project so I do not think this is a case of ECGD being the lead on these decisions; they were consensus decisions on the whole. On the issue of disclosure of information to you, we did put in the public domain a note of our decision on the project which we had hoped would go some way to assuring interested parties that we had addressed the issues that they had raised, but I think the involvement of other parties was nothing to do with that decision about non‑disclosure.

Q4 Chairman: Thank you. Just one last point on this. Freedom of Information legislation will make the incidence of this less frequent in the future hopefully. Do you think it will in some way require a change in position? Is it going to be one of these classic cases that Freedom of Information in fact requires less disclosure than before, or some form of redaction, for want of a better expression?

Mr Weiss: I hope not, Chairman. We are in ECGD preparing ourselves for January and Freedom of Information. We will of course want, as we always have done, to be as open as possible about how we have reached our decisions, and I can see in this instance that there is perhaps a gap between what we set out in our Note of Decision in December 2003 and what is contained in Mr Allwood's document and whether there is scope for us in the future to offer some document which is halfway between, which is not the internal advice gone public, but which is some statement by ECGD which perhaps says in more detail how we address the various issues that interested parties had raised, that might be something the Committee might wish to consider.

Chairman: I think we will perhaps raise that with one of the Ministers when we have them after the New Year when the legislation is in place. They may by that time have finished wrestling with it. I realise that in some ways it is a wee bit unfair to encumber you with that responsibility this morning, but, as I say, we are not in the business of shooting the messenger. We may well shoot the person who wrote the message later but we will wait on that. Linda?

Q5 Linda Perham: I would like to focus on the exercise of due diligence, if I may. Your evidence this time round clearly has not satisfied the group of NGOs led by the Corner House ‑ and I hope you have seen their evidence ‑ about the effectiveness of your due diligence procedures in your assessment of the technical specification of the BTC pipeline, particularly in respect of the selection process for the pipeline coating and the assessment of the suitability of the chosen material, and that includes the consideration of Derek Mortimore's advice. Paragraphs 6 to 14 and 21 to 30 of the NGOs' submission provide a list of complaint. Are you able to respond to their accusations?

Mr Weiss: I think perhaps the first comment I should make is that the document that we gave you in confidence does I hope demonstrate the level of due diligence we took on a whole range of issues connected with the project. On the specific issue of the pipeline coating, the fact is that this was an issue that was under consideration for I think a period of something like a year, from October 2002 to October 2003. In October 2002 the interim design appraisal report by Parsons Energy highlighted an issue surrounding the coating of the pipeline. In March, Parsons produced a report which highlighted, among many other things, an issue concerning their ‑ and this is a quote from their report ‑ "ability effectively to repair coating damage and to coat field joints in a manner that will meet the 40‑year design life". What Parsons ‑ and Parsons was the independent engineer appointed by the lenders to advise them on these technical issues ‑ actually recommended was more frequent monitoring and inspection of the pipe in high groundwater right‑of‑way areas of the pipeline. In September 2003, Parsons confirmed to the lenders that they were then content with the way in which the BTC Company was intending to monitor the integrity of the pipeline in those high‑risk areas. So by October having had that advice the lenders concluded that this issue of the coatings had been satisfactorily resolved.

Q6 Linda Perham: You say that the Parsons report was an independent study. What do you reply to the fact that Parsons told Michael Gillard, the journalist, that its assessment was not an in-depth study? They are obviously independent but are you satisfied that they investigated sufficiently?

Mr Weiss: Yes we are fully satisfied with what Parsons (who became WorleyParsons over this period) did for us. I think what you are referring to is the desk‑top study which the lenders commissioned from WorleyParsons in February 2004, and this was commissioned by the lenders following the advice to us that there were problems about the way in which the coating was being applied in the field during the pipeline construction. This was a quickly commissioned study by Parsons to get urgent advice to the lenders on this serious issue. What we asked for them to do was a desk‑top study of documents, documents which would demonstrate that the BTC Company had undertaken proper tests on the coating in order that we could get a quick handle on the problem, and that report came through in March 2004. I think the comments from WorleyParsons were emphasising the fact that that is what they had been commissioned by the lenders to do and not to undertake a whole range of tests themselves. They were saying we did an audit of what the BTC Company had done in reaching its own decision on the coatings. The fact is that shortly after that desk‑top study was done the independent engineer did visit the site and gave us further advice, which was satisfactory to us, about the coatings issue. So we do remain content with the quality and independence of the advice we have had from WorleyParsons.

Q7 Linda Perham: When you say "quickly commissioned" it rather smacks of you not being thorough enough in your desk‑top study. It does sound as if it was something done rather quickly. Anyway, if I could move on to one of the NGOs' other criticisms that I just wanted to run past you. One of the recommendations in their criticisms is that ECGD's due diligence procedures be revised to require that all technical reports are requested from the project sponsors and investigated. What is your reaction to that recommendation about all technical reports?

Mr Weiss: I will ask David to answer.

Mr Allwood: I think it is part of our normal due diligence. I am not sure we legally require but we certainly expect the project sponsors to provide us with all relevant reports that contribute to their knowledge of the project whatever project it is so that our independent consultants and our specialists in‑house can review those reports and assess whether or not the project has been designed and will be constructed and operated in an appropriate manner.

Q8 Linda Perham: Did BP supply you with the Mortimore report?

Mr Allwood: It is a bit difficult to ask for something that you do not know whether or not it exists but we do ask them to provide us with all relevant reports.

Q9 Linda Perham: Did BP supply you with that report?

Mr Gotts: It did not supply us with the Mortimore report. BP were obviously aware of this at the time. WorleyParsons were certainly aware of the issues surrounding the coating at the time because that was an issue which was raised in one of the reports which we have supplied to the Committee, but we did not see the Mortimore report. I think we do rely on our independent advisers to investigate these things thoroughly and not necessarily would we expect them to show us every report and every piece of paper.

Q10 Linda Perham: So were you aware of the existence of that report?

Mr Gotts: No.

Mr Weiss: We were not aware of it. Essentially it was a piece of internal advice to the BTC Company and in the end the Lender Group has to accept a collective BTC view on their decision about the coatings, and I believe that the BTC Company had a range of expert views on what was appropriate. The next step for the lenders is to scrutinise that decision through the advice of its independent advisers.

Q11 Linda Perham: Okay, can I ask you about something else the NGOs allege, which is failure of due diligence in your monitoring of the quality of the implementation of the project, in particular serious quality assurance failures in Turkey. Have you any comment on that?

Mr Weiss: This is the post construction one? Yes, we ‑ and I emphasise all the other lenders ‑ have instructed independent consultants to monitor the project on our behalf and we believe it is a fairly rigorous and thorough process. During the construction period an independent environmental consultant called D'Appolonia has been and will be carrying out site visits on a quarterly basis and WorleyParsons, who are the engineering consultants, will make twice‑yearly site visits and both companies will be producing quarterly reports to the Lender Group. When we get those reports, along with all of the other lenders, we review them and discuss them with the consultants and, where necessary, if we think there is an issue, we will instruct the consultants to further investigate during subsequent site visits so there is a regular programme of visits to the site. We are intending to join one of those visits ourselves in the later stages of construction and I think the EBRD joined the environmental consultant on the most recent site visit, so there is a quite extensive programme of monitoring of the work which we believe is of a good standard.

Q12 Linda Perham: But are you aware of any concerns about the quality of work in Turkey?

Mr Allwood: The technical engineering consultant WorleyParsons is aware that there have been quality control problems within the Turkish pipeline and it regularly reviews that for us and reports back to us. They have not raised that as such a major issue that we should be taking any more stringent action with the company, but we are aware of that, and it is being monitored regularly.

Q13 Linda Perham: So how frequently are the reviews done?

Mr Allwood: They visit the site every six months.

Q14 Linda Perham: Do you think that is frequent enough? Six months seems a long time.

Mr Allwood: But when they go they review all the quality control documentation that has been produced during those preceding six months so they get a good knowledge of the actual construction activity that has occurred during that six‑month period. It is not that they just see it for the week that they happen to be there.

Mr Weiss: And we perhaps should stress that the BTC Company itself is clearly responsible for monitoring the construction and making reports and the engineering adviser to the Lender Group is making quarterly reports to us, but obviously, in a sense, a couple of those quarterly reports are based on paper documents or advice it has had from the BTC Company. The other two would be based on its own experience during its on‑site visits.

Linda Perham: I will leave it there.

Q15 Chairman: Just for the record so I can get it clear in my mind, what we are saying is BTC had work done, they then had Mortimore giving them advice on the quality of it; is that correct?

Mr Gotts: I think Mr Mortimore advised them at the time that they were purchasing this coating.

Q16 Chairman: Right, and then after that when you come in and you start your due diligence you got WorleyParsons to do a kind overview of the existing evidence which took the form of a desk‑top study?

Mr Weiss: As I said, from October 2002 Parsons, as they then were, were commenting on the coatings issue and I think it was around that time or just before then that Mr Mortimore may have been giving his advice, and then throughout that period, from October 2002 to October 2003, Parsons were working on this issue and became satisfied with the coating decision because of the monitoring that the company was going to do of the pipeline in practice after that.

Q17 Chairman: It is after that there was a subsequent visit ‑ and this is what I want to get clear in my mind - and the subsequent visit was part of the monitoring process. It was not a response to the criticism of what had happened before?

Mr Weiss: No, this is the regular six‑monthly visits to the site. I think it is fair to say, subject to correction by my colleagues, that the desk‑top study was commissioned because this issue of the cracking of the coating while the pipeline was being laid appeared in the press as an issue. That occurred between site visits so almost certainly this issue would have come up during the subsequent site visit by Parsons in March/April 2004.

Q18 Chairman: So the site visit was not a consequence or an implied criticism of the adequacy or otherwise of the desk‑top study?

Mr Weiss: No.

Q19 Chairman: So we have it in our minds because it has been suggested that one follows as a consequence of the perceived inadequacies.

Mr Allwood: The desk‑top study was an addition to an existing monitoring regime which started off with 18 months/two years' due diligence of the ramifications of the design proposals, not just the coating but obviously the coating was an important part of it. Then once construction started WorleyParsons started the currently on‑going series of on‑site visits every six months with an intervening three-monthly report based on documents. Once we got the Sunday Times article, we wanted to be absolutely sure that we had all of the information to hand, so we asked for that in addition to the on‑going monitoring.

Q20 Chairman: Do you think that in retrospect there should have been better quality assurance for the quality of the coating at an earlier stage?

Mr Weiss: I think, Chairman, there are possibly two separate issues. There was all the work that went on over that year to satisfy the lenders that the proposed coating was appropriate. The issue that arose in early 2004 was a problem of the coating cracking during the conditions at that time of the year on‑site where there was a particular problem of getting the material not to crack and it was a problem of the temperature, I believe, at which it was applied. So it was a rather separate issue which was particular to the on‑site conditions, and the BTC Company has found a way to resolve that problem. I think that has to be regarded as rather separate from the more general decision taken by the company about the appropriateness of that coating.

Q21 Chairman: I do not want to pursue this any further. I am not clear whether this is a brand new coating which has never been tried before or whether there is industrial experience of it and it then begs the question why did they not anticipate that the climatic or other conditions on the site would have resulted in the coating being shown to be not as good as it should have been?

Mr Gotts: The coating has been used before. We are told it has been used on pipelines in Canada and the USA. I understand that the problem was, as Mr Weiss says, not so much with the coating itself but with the way in which it was applied during cold weather. It should have had heat applied as it was being applied.

Q22 Sir Robert Smith: Has it been used on this kind of pipe with this kind of exterior?

Mr Gotts: The factory coating? I understand not. It is the first time it has been used.

Q23 Sir Robert Smith: So this is the first time it has been used in this way?

Mr Gotts: It is the first time it has been used on a pipe with the polyethylene coating.

Q24 Sir Robert Smith: Have you been reassured that that is an effective bond?

Mr Gotts: Our independent engineer has said that it is.

Q25 Sir Robert Smith: There is one last thing in terms of your evidence on this issue. In 1(c) on page 4 in your letter of 19 July, you talk about what you have just mentioned, that it does not really matter if the coating does not work because an intelligent pig will spot the corrosion, but it does seem a bit ‑‑‑

Mr Allwood: -- It will not stop it, it will identify it.

Q26 Sir Robert Smith: It will identify the corrosion but presumably this means a lot of after care and intervention and re-exposing of the pipe and maintenance work. If the coating was more robust, the intelligent pig would just reassure you that it was working. But it seems from your submission that the reassurance is that it does not matter too much if the coating fails because they are going to spot it.

Mr Gotts: I hope we did not imply that it does not matter if the coating fails. Our advice is that it should not fail but if it does it has been suggested that the coating will fail and the pipeline will then corrode. If the coating fails then the monitoring process would identify that the coating had failed and that there was a risk of corrosion, so there is a monitoring process.

Q27 Sir Robert Smith: So there would be intervention before it went to a leak?

Mr Allwood: I am not sure, not being a pipeline engineer, and I would not want to put my life on the line, but a 40‑year life with no interventions whatsoever seems remarkably optimistic. They put in the protection to slow down the advent of any corrosion, plus they have internal inspections with the intelligent pigs and they have other monitoring systems that monitor the status of the pipeline with a view that when it gets to a stage where they consider there is a potential for a slight rupture, then in advance of that they will intervene and repair the pipeline so there is an expectation that some maintenance will be required.

Q28 Sir Robert Smith: I do not think you get "slight" ruptures. I think once ruptures start in a pipeline like that it is fairly dramatic. Moving on, the NGOs have repeated their earlier criticism that you have not released an analysis of the project's environmental impact assessment as you did for the Ilisu Dam project application. Why have you not done this?

Mr Weiss: I think there is a difference between the way in which the Ilisu Dam project was taken forward and this, in that the owners of that document on the Ilisu Dam would not approve its publication. We therefore in a sense as compensation published our own advisers' review of that document. In the case of the BTC pipeline, the sponsors have made a whole range of information available and that obviated the need for us to do what we did on the Ilisu Dam, so I think they are two different sets of circumstances.

Q29 Sir Robert Smith: Having established you could put your own assessment in the public domain, what were the reservations that restrained you this time?

Mr Gotts: The documents which we put in the public domain on Ilisu were not internal ECGD documents, they were documents which we commissioned with external advisers and we therefore put those in the public domain. I think the document which we are referring to here is an internal ECGD document which for reasons Mr Weiss explained, we were not willing to put in the public domain.

Q30 Sir Robert Smith: What was the reason again?

Mr Gotts: It was the Business Principles Unit assessment of the project, it is an internal ECGD document.

Q31 Sir Robert Smith: What would be the harm of it being publicly scrutinised?

Mr Gotts: For reasons which Mr Weiss explained the ECGD internal assessment is an internal assessment.

Mr Allwood: ECGD policy is that information about environmental, social impacts, and human rights impacts must be in the public domain. Our case impact analysis process description on our web site makes it clear that we expect the owners of that of information, the project sponsors, to put it in the public domain at the appropriate time in the project's development which is very early on, usually before we become involved. BTC Co did that so we have no quarrels with their transparency. For the Ilisu project the owners of the draft environmental impact assessment would not put that in the public domain. They only did so after several years of discussions with them. The owners of the re‑settlement action plan refused to put that in the public domain. To get round that and to ensure that the information, although not the actual document, was in the public domain, we commissioned external consultants' reports on it and published those.

Q32 Chairman: What we are really saying is that when an external independent assessment is published it is as much in the possession of the people who write the report as the people who receive it but when it is done by people like you, if you so wish, it can assume the status of advice to ministers, and advice to ministers is not supposed to be allowed into the public domain?

Mr Weiss: I think, Chairman, as I said right at the beginning, the particular document we were talking about was internal advice and it was used as the basis for subsequent ministerial advice. Whether there is some halfway house between what we did publish in the Note of Decision and that document which would obviate the need for publishing internal advice but would give reassurance to interested parties that all issues had been fully taken into account that may be something that we could consider for the future.

Q33 Chairman: We realise that in some respects this is a fruitless discussion with you because the decision does not rest in your hands. What we are trying to do is to establish the status of the relevant documents whereby some of them can be published and discussed and other ones, which might equally be the substance of advice to ministers, but because they are advice to ministers are deemed as such by the authorities then they cannot be published and people do not want them published.

Mr Allwood: For the Ilisu project because we were commissioning them specifically to get round the fact that the project sponsor would not do it, we told the consultants as well as obtaining the information that we were using their report to put the information out, but that was a one‑off that we do not expect to be repeated. We clearly tell project sponsors for the future it is up to them to be sure that information is in the public domain.

Q34 Sir Robert Smith: If we could move on to the assessment of the impact of the project on human rights. Things have happened - I think you sent us something yesterday - but up until then as far as the NGOs were concerned you had not responded to their accusation of a failure of due diligence in the assessment of the impact of the project on human rights and in the investigation of a number of serious abuses of human rights, particularly in Turkey. In presenting your submission to us in the summer you conceded that you had not addressed these issues and promised to submit further evidence on this after the summer. It is well after the summer now and I think yesterday we received a letter of 9 November from the Foreign Office to the Kurdish Human Rights Project, which they are happy to be published as evidence. Where was delay in the "after the summer" promise and the fact that this is what has appeared now? Was it in the Foreign Office?

Mr Allwood: As you will see from the letter, it is quite a long letter with a great deal of detail and we and the Foreign Office, who take the lead on human rights issues, wanted to be absolutely confident that we had addressed all of the issues raised by the NGOs and that we had addressed them fully. It took a long time to put that information together, for which we can only apologise.

Q35 Sir Robert Smith: Obviously we need to do a bit more studying as it only arrived yesterday. In the case of Mr Ferhat Kaya they are saying in the letter that they are not confident of a link between his treatment and his connection with the cases to do with the pipeline. Has the Foreign Office accepted that he is involved in cases to do with the pipeline?

Mr Weiss: I am sorry?

Mr Allwood: Yes, I have met Mr Kaya on two occasions and he has been lobbying on behalf of some of the local people against the pipeline.

Q36 Sir Robert Smith: But the Foreign Office's view at the moment is that whilst he may be being maltreated it is for something else rather than his connection with the pipeline?

Mr Allwood: That is right.

Mr Weiss: I think the key point from the Foreign Office letter is that there is not a link or at least they have not established a link between his arrest and his BTC activities.

Q37 Sir Robert Smith: Have they managed to establish what he has been arrested for then?

Mr Allwood: Yes, the Embassy in Ankara is aware of the circumstances of his arrest. It is not to do with the pipeline.

Q38 Sir Robert Smith: Although obviously when human rights are being abused people do not necessarily say "we are doing this to you because ..."

Mr Allwood: I do not think it is our position to speculate about potential linkages.

Q39 Sir Robert Smith: Thank you.

Mr Allwood: What we can say is that as far as the project and its concept was set out, the pipeline route was very carefully selected to avoid any settlements so no people have been physically moved from their homes in order to establish the project. Some people have had their land acquired for a short period of time while the pipeline is put in place and then they will have that land use back again whereas the above ground installations, the pumping stations, have been acquired for the life of the project.

Q40 Sir Robert Smith: Presumably when the land comes back it comes back with restrictions on use?

Mr Allwood: It comes with minor restrictions that you cannot build over it, you cannot do any deploughing, and you cannot plant any trees, but the use that it was previously in use for can continue.

Q41 Sir Robert Smith: Presumably there is a rental paid for that way leave?

Mr Allwood: I do not think there is any rental paid for the on‑going lifetime of the project. They are compensated for three years' use of that land while the project is being implemented although in practice the actual time they are unable to use that land is significantly less than three years.

Q42 Sir Robert Smith: Despite putting restrictions on there is no compensation for the restrictions?

Mr Allwood: I am not aware of any.

Q43 Sir Robert Smith: It seems slightly unusual, because obviously if you are restricting ‑‑‑

Mr Allwood: It is not a use you would expect them to want to apply to that area.

Sir Robert Smith: Thank you very much.

Q44 Chairman: If I could just go back for a minute to tidy up one or two issues on the WorleyParsons report. We were looking initially at the procedures, but on some of the content of it, it has been suggested that the consultant who carried out the initial study did not independently verify BP's information and did not verify that it was comprehensive, accurate or up‑to‑date. Do you think that is a valid criticism?

Mr Weiss: Chairman, it is the point I made earlier in that we are talking here of the desk‑top study which was commissioned in early 2004.

Q45 Chairman: Before we were really talking about it in the context of a procedure. Now, we are talking about the quality of the report in the sense of was there a rigour attached to this report to ensure that the evidence that was being considered was sufficiently up‑to‑date and relevant?

Mr Weiss: WorleyParsons made that comment because I think they were making it clear to readers of the report that they had done what they had been asked to do which was to review documents rather than to conduct tests themselves, so I think this is just emphasising that point to readers.

Q46 Chairman: Yes, but I am sorry, it is the quality of the information that is included in the documents. That is the issue with which there is some concern.

Mr Weiss: They were fully satisfied with the quality of the documents that were being made available to them by the BTC Company and in fact I think they concluded that the testing and evaluation of the coating of the project was very thorough, based on the information they had been provided with, but clearly they were working off information provided to them by the BTC Company.

Q47 Chairman: Mr Gillard of the Sunday Times does not seem to agree with that, does he?

Mr Weiss: I think the phrase that WorleyParsons used, which is they had not independently verified that this information was comprehensive, complete, accurate or up‑to‑date, is what has caused some concern, but I think it can be explained by reference to the nature of the report that the lenders commissioned of WorleyParsons at that time. Clearly the subsequent site visits would have enabled WorleyParsons to see the issue first hand, so I think we need to emphasise that this was an interim report commissioned, as I said, quite urgently because of the press coverage of the issue to satisfy the lenders whether or not there was a major problem, but then they have been obviously checking and reporting on this issue to us following their subsequent site visits.

Q48 Chairman: Just one last point, the report has never been published, has it?

Mr Weiss: A redactive version of that report was published.

Q49 Chairman: Could you explain to me what does the verb "to redact", because it is a comparatively new word for someone like myself? We know what "to reduce" means and we know what "to delete" means. When is a deletion not a redaction?

Mr Weiss: I think, Chairman, you are testing my legal or language knowledge extensively here.

Q50 Chairman: It is you who used the words. It is not one that my constituents use: "Have you any redactions from the housing department relating to my confidential files at the moment?"

Mr Weiss: As far as I understand it, it is a term used to reflect the removal from the document of certain parts of it and in this instance the BTC Company, in consultation with our independent advisers, did remove certain items which were largely of a personal or commercially confidential nature. ECGD has seen the total document and I can assure the Committee that the redaction which, as I say, means pulling out a few pages and some names, has not altered materially. The document you have seen has got all the material issues in it for you to consider.

Q51 Chairman: It certainly has enough in it to maintain its status as being commercially in confidence? Or can we publish this?

Mr Weiss: You can publish that, yes.

Chairman: Okay, thank you. Linda?

Q52 Linda Perham: Keeping on the report, apparently the original WorleyParsons report contained an entire section devoted to BP's dismissal of the views of Derek Mortimore who, as we know, is very critical of the pipeline's coating assessment and procurement process. In the redactive report we have got there is still a whole section referring to his comments. I just wonder whether it was really necessary to retain them in the document that you sent to us. One of the NGOs' criticisms is that keeping them in was a "grave injustice to a brave and honourable professional whose views deserve respect not baseless denigration". Do you think it was legitimate to keep that section in given that he has challenged the original report?

Mr Weiss: This was a WorleyParsons report and I think they would want to explain and stand by and justify what they wrote. The material removed from it was, as I say, really between them and the BTC Company, so it is their report and we wanted to be as transparent as possible about the conclusions they reached on this rather serious issue.

Q53 Linda Perham: So do you agree with the conclusions in this report?

Mr Weiss: Well, we were satisfied by the advice that they gave us on this issue.

Mr Gotts: We have obviously read the allegations about the project and were concerned to have our advisers' advice on them and they provided their advice. I am not sure whether we would regard this as being a denigration of his views or simply our advisers did not agree with another expert. I suppose this is always the problem when you have experts. They are always going to disagree with each other and we have to try and find a way through.

Q54 Linda Perham: It is very, very difficult if somebody who is an expert on something disagrees with another expert. I suppose doctors do that as well and it leaves the lay people still wondering and having to take difficult decisions. Just finally, does the way in which the original report and the redaction is produced give credence to the belief that you are too dependent on the applicants for information and assessment of the project, and that you have perhaps too few resources to assess such important issues properly?

Mr Weiss: Well, I think that we do need to be clear that we do depend quite a lot on information that is supplied to us by the sponsors of projects and I do not think there is any way of saying otherwise. They are responsible for it, they have most of the information available, and we do rely to a large extent on what they provide us as being fair and accurate. I think the issue for us at the outset is to be satisfied with the credentials and reputation of the sponsors of the project. That is a key issue for us. Are these companies experienced in this area? Can we rely on the information they give us? We have to rely to a large extent on the advice we get from them. Our way of verifying and checking as far as we can that that information is correct is through the use of independent advisers like WorleyParsons and D'Appolonia that we are using at the moment, but hopefully that combination of sponsors who know what they are doing and have got a good track record and whose information we can trust, plus independent expert advice, is the best compromise. I do not really see an alternative to that and it is a basis of proceeding which is shared by us with the other export credit agencies, the other multi‑lateral lenders who were involved in the project, plus the commercial banks. I think this is a standard approach to these problems. So I hope it would not be said that we were unduly dependent on advice from sponsors, but clearly we must rely upon it to quite a large extent, verified as far as we can by the appointment of expert, independent consultants.

Q55 Linda Perham: Just for information, asking as a lay person in these matters, would you generally or would export credit agencies generally appoint independent consultants or only in cases where you were perhaps unsure about some evidence from the sponsors? Would you always want to verify the proposition they put forward to you or would it only be where you perhaps had concerns?

Mr Weiss: It is a general feature of major projects such as this to have independent advice. If we were into a more straightforward contract for the supply of goods where it was just a straightforward sale we would not do this, but in major infrastructure projects like this it would be almost the normal thing to have independent advice. It was not anything to do with BTC particularly. That would be a normal feature of the way we handle this.

Q56 Chairman: Would the other national credit agencies that would be in a lenders group adopt roughly the same approach as yourselves?

Mr Gotts: Yes and WorleyParsons were an independent engineering adviser to the Lender Group which included us and the other export credit agencies, EDRB and IFC. We did have a very intensive series of meetings with them over the period that we were considering the project. For ECGD that was a period of over a year and there were intensive meetings with WorleyParsons and with other advisers who were then meeting with the project sponsors, and examining documentation, so it was an in-depth analysis over that period.

Q57 Chairman: We are going to move on to another topic that you have notice of, Mr Weiss, but I want to make it perfectly clear that there is no relationship between what we have just been looking at and the new topic. I do not want to put you in any difficulty on that. We want to put you in difficulty on other respects but not in relation to the sponsors of the BTC project. Now that we are moving on to something else that chapter has closed but we have a few questions which we are grateful to you for being prepared to answer. We come with them more in sorrow than in anger because when you last came before us I think a small cheer went up on this side of the Committee room on the basis that on 1 May there were new anti‑corruption measures introduced. However, they are now going to be changed with effect from 1 December. Why has there been this step change from rigorous opposition to corruption to a softer or is it a lighter touch, which is the cliché that is normally applied when regulation becomes less offensive to certain parties?

Mr Weiss: I hope I can explain, Chairman. First of all, I think I must emphasise that our anti‑bribery and corruption procedures are rigorous and remain so and, indeed, have been enhanced by comparison with those that applied before May. We announced the new anti‑bribery corruption regime in March at the beginning of the year of its introduction and it was May I think when we appeared before you. What happened subsequently was that our major customers and their trade associations, as well as the banks, expressed serious concern that the new rules were unworkable for them, and the word perhaps you were trying to recall was "workability" which is the term we use for what has happened. Some of the customers actually felt that they could not apply for ECGD cover because they were so concerned by the new requirements placed on them by the new procedures, and indeed some of the compliance officers at the banks felt that the risk to the banks of potentially giving us wrong answers to our questions because they were so searching might have prejudiced the unconditionality of our guarantee. So there was a real practical workability issue that we were confronted with. Just for example, one of the issues was that the regime that we announced in March required applicants to provide undertakings that corrupt practices had not been undertaken by affiliate companies of the applicant. They did very strongly make the point to us that they could not give undertakings in respect of companies which they did not control so one of the changes we have made over this period is to change "affiliates" to "control companies". We have tried to change the system so that it is more workable for companies so that we are only asking them to give assurances about things within their control. We have got a new set of procedures but the outcome of this is that by comparison with what prevailed before May we still have a position where the warranties and undertakings which companies give us are enhanced by comparison with what went before. We have enhanced ECGD's audit rights to look at documentation related to the contract and we have now got a right to look at those documents that relate to the period up to the award of the contract. We have brought money laundering within the scope of the procedures and we have got greater scrutiny of companies' own internal anti‑bribery systems. So although there are changes from what we had announced would apply from 1 May, as a consequence of what has been quite long discussion with industry, the outcome is a set of procedures which is still more rigorous than the ones that applied during the previous year.

Q58 Chairman: Was this a complete surprise on 1 May? Had people not anticipated it? Did you just pluck these ideas out of the air and put them down as a new regime and everyone said, "Oh goodness gracious, this is different from April. I wonder why they didn't tell us before"?

Mr Weiss: I wrote round to all our customers with the new procedures at the very beginning of March saying that they were going to come into force in May.

Q59 Chairman: Prior to writing, had you not already consulted them and discussed it with them?

Mr Weiss: No, we had not. We had expected that if our customers had seen anything that was going to cause them real difficulty in that period between March and May we could have altered the system, but we did not believe that the changes were so major that we needed to go through formal consultation. I would have to say in retrospect, given the long period we have had to reach an understanding with customers as to what it is reasonable for us to ask them, that we probably should have engaged in a more formal and longer consultation. I had hoped that this short-ish period from March to May would have given time for making any adjustments if they had been necessary.

Q60 Chairman: You have already told me several times that what is happening on 1 December is different from what was expected to happen on 1 May, but it is still more than you had on 1 May. Could you explain to us in relatively brief terms what you offered on 1 May and what you are going to offer on 1 December? Do not tell us that it is a wee bit better or a wee bit harder than it was on 30 April. Can you give us a clear description of what you are withdrawing as proposals as of 1 December?

Mr Weiss: I will do my best, although it may be helpful for me to confirm this in a note to you.

Q61 Chairman: That is fine, but it would be useful to have a flavour of the nature of the change because it will then help us with subsequent questions we might want to ask.

Mr Weiss: A lot of the issues were legal issues which we changed. Let me give a set of examples rather than the whole thing. I think I mentioned to you that we have moved from a requirement for undertakings to be made about affiliates. Every company in the group the applicant for ECGD had to give certain assurances and undertakings about. We have now pulled that back to controlled companies rather than affiliates. In the case of applicants who are in a joint venture with another company, rather than ask them to give undertakings and make declarations about the joint venture, which again they said to us they could not do, it was not within their control to do that, that has been changed to reporting to us if they become aware that the joint venturer has engaged in a corrupt activity. We have limited the requirement to make a declaration about the blacklisting of employees. There was a rather wide requirement for them to tell us whether any of their employees had been engaged in corrupt activity. That is now limited to directors of the companies rather than just all employees. The extended audit rights were general in our May proposals, the rights to audit documents relating to the period up to the end of contract, but those rights only exist in the new system if there is an allegation of bribery around which gives us the right to go and inspect those particular documents. In relation to information about agents, we ask our applicants for the name of the agent involved in a transaction, but the new procedures give the possibility to the applicant not to disclose the name of the agent so long as they can justify that to us and they would have to give us a written explanation of why they felt unable to disclose the name of the agent. That may not be all the changes, it is quite an extensive array of changes, but those are some of the major ones.

Q62 Chairman: How long have you worked for the ECGD, Mr Weiss?

Mr Weiss: Since 1964, Chairman.

Q63 Chairman: So you know all about affiliates, you know about joint ventures, you know about the blacklisting and I am sure you have ideas about the desirability or otherwise of extended audit rights and the whole question of the need to disclose the names of agents where there may well be concerns. You were not really working in a vacuum when you put your name to these changes, were you?

Mr Weiss: No, Chairman. With hindsight I think it would have been advisable for us to have consulted industry before launching the new procedures. What we have learned in discussions with industry is that those requirements that we had imposed from May were extremely difficult for very large firms with thousands of employees to comply with. If you have got 50,000 employees and you are being asked to the best of your knowledge and belief to tell ECGD ‑‑‑

Q64 Chairman: That is a bit much. Let us face it, you have got plenty of resources and not all of the 50,000 are going round with brown paper bags giving them to people to do particular jobs. I can understand that it is maybe a little bit more difficult to police in some ways, but the old line "They would say that, wouldn't they?" comes to mind. We know there have been a number of British companies against whom charges have never been made but who have been fingered. There is a sense in which a lot of people feel that they are getting away with it. I am not putting words in your mouth. I am merely saying that some of us who have looked at these things over the years are a bit disappointed that what seemed to be a sensible and rigorous approach now seems to have been discarded.

Mr Weiss: I think I should emphasise that we accepted in the negotiations with industry - and I regret this - that some of the requirements we had imposed on them had gone a step too far just in terms of the sheer ability of the company to give us reliable answers to those questions. I accept that what we have got now is more workable without reducing the overall rigour of the procedures.

Q65 Sir Robert Smith: What was the reason for bringing them in on 1 May? Was there any particular trigger for that?

Mr Weiss: No. We had been conducting a review of the procedures and we had put proposals to ministers for enhancing them. That was the earliest possible date for it.

Q66 Sir Robert Smith: There was not a great system before, then there was what we thought was quite an attractive system and now you have come down from what we welcomed to a system you still claim is better than what was there in April.

Mr Weiss: ECGD has had rigorous anti‑bribery systems in place for some time now and we were intending to change them from 1 May. Most of the changes we have made are just making them more practical and workable. There has not been a step change in the quality of our procedures.

Q67 Sir Robert Smith: You have emphasised in the announcement and in answers so far that what has driven this change is discussions with your customers and the CBI. What discussions have you had with other interested parties on these new changes?

Mr Weiss: We did not go in for a public consultation on this.

Q68 Sir Robert Smith: Having thought you did not need a consultation and launched new procedures and discovered they do not work with your customers, you are then launching another change and you have not thought to consult the other interested parties who welcomed the original change.

Mr Weiss: The changes we made and the discussions we had with industry were all around what was possible for companies to provide us with by way of information. It was a very detailed negotiation with a lot of legal issues. For example, there was a long debate about what does "to the best of your knowledge and belief" mean and we produced a legal text on this which we then agreed is our expectation of our customers when they sign to the best of their knowledge and belief. There was an enormous amount of detailed negotiation around specific points in the documentation which I do not think would have been of any interest to other parties.

Q69 Sir Robert Smith: They have written saying they are upset. Is it up to you to decide who should be interested? Having found the first time round that by not consulting it did not work from your point of view, to then change the goalposts without saying let us have a proper consultation this time and see what people feel about the changes we are making seems peculiar.

Mr Weiss: We had a situation where the new procedures were preventing us giving support to a whole range of companies because their own legal advisers were telling them they could not enter into business with the ECGD on that basis. We did need to reach agreement urgently on something that could unblock that problem. As I have emphasised, these changes were on the whole very, very specific issues around the meaning of the documents and their interpretation. We are due this very week, the day after tomorrow, to meet with interested NGOs and I hope that we can explain to them what the changes are and why we have made them and I would be very happy to report back to the Committee on the outcome of that discussion.

Q70 Sir Robert Smith: That would be helpful. If they think they have spotted a loophole you have created that you could close, are you still open to refinement in the light of your meeting with the NGOs?

Mr Weiss: We are always willing to consider improvements to our systems as long as they are practical and can be put into place.

Q71 Linda Perham: Some of the larger firms felt they would not be able to comply and others felt they could not apply perhaps because of legal difficulties. Would you accept that you have watered the proposals down in response to your largest customers not being happy about it?

Mr Weiss: No, I do not think that is the right description of the changes. We have had to accept ‑ and I regret this in the sense that I was the person who launched the new procedure ‑ that for many of our customers they were unworkable and those customers were refusing to complete our new application forms or accept our new documentation because it was not possible for them to meet the requirements. We have made them workable without, I hope, reducing the rigour of our procedures and indeed the deterrent value of our procedures. I do not think I would accept that as a description of the change that has happened.

Q72 Linda Perham: If there were companies, particularly larger ones, who felt they could not apply, would that actually matter in the long run because the taxpayer would not be subsidising their activities?

Mr Weiss: It would not be an acceptable outcome for ECGD, whether in the bribery and corruption area or in other areas, to impose requirements on its customers which they could not reasonably be expected to meet, we would be failing in our duty and I think that was the situation we had here. For example, in the banks their own compliance officers were telling the managers who deal with us they were not permitting them to sign these documents with ECGD because they risked changing the ECGD guarantee from being an unconditional guarantee to being a conditional one. They were genuinely fearful of the consequence of the change we had made. I would argue that it would not be appropriate for us to leave something like that on the shelf and say to our customers "Well, just put up with it" because I think that would be unreasonable. We have done a fairly thorough review of the practices of the major export credit agencies. We are very much in the lead on this still despite our changes and we have a very rigorous procedure in place.

Q73 Chairman: Is it more rigorous than Etredius, the Dutch equivalent?

Mr Weiss: I do not think I could comment on that.

Q74 Chairman: We have had evidence which has suggested that you should get full marks for trying but you are still not as good as the Dutch.

Mr Weiss: I think our review included the G7 agencies on the whole.

Chairman: Thank you very much. Obviously you are going to have your consultations with the NGOs and the NGOs will be interested to get your note of the meeting and it would not surprise me if we got notes from other interested parties as well and we will raise them and other issues with the Minister when we see them in the New Year once the Freedom of Information Act is in place as well, which may help us. Mr Weiss, Mr Gotts and Mr Allwood, thank you very much. I realise that not all of the decisions to which we have had to refer this morning have necessarily been of your making, but we are very, very grateful for your frankness and we looked forward to the supplementary notes you are going to provide us with as well as that relating to the NGO meetings and the like. Thank you very much.

Mr Weiss: Thank you, Chairman.