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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 506-iv House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TRADE AND INDUSTRY COMMITTEE
EXPORT CREDITS GURANTEE DEPARTMENT
Tuesday 11 May 2004 MS HANNAH GRIFFITHS, MS HANNAH ELLIS and MS NAOMI KANZAKI MR JOHN WEISS, MR TOM JAFFRAY and MR JOHN ORMEROD Evidence heard in Public Questions 369 - 500
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Trade and Industry Committee on Tuesday 11 May 2004 Members present Mr Martin O'Neill, in the Chair Mr Michael Clapham Mr Nigel Evans Mr Lindsay Hoyle Judy Mallaber Linda Perham Sir Robert Smith ________________ Memorandum submitted by Friends of the Earth Examination of Witnesses Witnesses: Ms Hannah Griffiths, Corporates Campaigner, Friends of the Earth, Ms Hannah Ellis, International Financial Institutions Campaigner, Friends of the Earth International, Ms Naomi Kanzaki, Campaigner, Friends of the Earth Japan, examined Q369 Chairman: Good afternoon. Miss Griffiths, since you are in the middle, you have been elected as the person who introduces your two colleagues, and then we will get started. Ms Griffiths: I am Hannah Griffiths. I am Corporates Campaigner for Friends of the Earth England, Wales and Northern Ireland. The other Hannah, Hannah Ellis, is Financial Institutions Campaigner for Friends of the Earth International and Naomi Kazanki, who is a campaigner for Friends of the Earth, Japan. Q370 Chairman: It must be about four or five years ago since you last gave evidence to us on related matters. The impression we get is that plus ça change in the ECGB has not made an awful lot of difference. This would seem to be the gist of your memorandum. Am I being unfair to you when I say that or am I being unfair to ECGD? Do you think that after the overhaul very much has changed? Ms Griffiths: I think the overhaul was significant in that ECGD recognised the importance of taking environmental and social factors into consideration, and I think it would be slightly unfair to say that nothing has changed since then. The business principles have been a good first step in the right direction, but I think it is important to separate what has changed in theory and what may or may not have changed in practice on the ground. Since the introduction of the business principles I am fairly certain in saying that no projects have been screened out; so no projects have been rejected on the basis of the business principles. Support for the defence sector, for example, has remained the same, proportional support for fossil fuels has remained about the same since we were last here and I am sure ECGD will argue that some projects will have been improved as a result of the business principles. I would be interested to hear from them what specific concrete improvements they think have been made as a result of the business principles. I think, in summary, I would say we have seen a good first step in the right direction, but it is very much a first step and we need to now translate that into concrete tangible changes on the ground in terms of the projects we are supporting. Q371 Chairman: Do you think that the business principles have had a deterrent effect in the sense that some consortia who might have approached ECGD have looked at the business principles and said, "I do not think we can really come to this table with this scheme"? You have said not so many schemes have been screened out. Could it be that they were never going to be screened in as a consequence of the business principles? Ms Griffiths: Again, I would be interested to see some analysis of whether the business principles have made a difference in terms of the applications ECGD is receiving, but my guess, the answer to that question, would be, no, it has not put any businesses off. The business principles, frankly, are not so radical that they would be likely to put most British companies off. I think they are probably weaker than some companies own environmental and social standards. I cannot see that it would put anyone off, but I do not have any evidence on that. Q372 Chairman: So the horse frightening qualities are not very apparent? Ms Griffiths: I am sorry? Q373 Chairman: The horse frightening-- Ms Griffiths: No, I would not say so. Q374 Sir Robert Smith: On the issue of what has changed and what has not in terms of transparency, in section 3 of your submission, 3.1 to 3.3, you talk about the problems you had in the run up to 2002 in terms of obtaining information. You go on to say, "The department's attitude has not changed since then." Have you any more recent examples of obstructive behaviour? Ms Griffiths: Of obstructive behaviour? Q375 Sir Robert Smith: Yes? Ms Griffiths: Not to hand, I do not, no. The environmental impact assessment for the Baku pipeline, we were able to obtain a copy, although I do not think that was directly from ECGD, and we have not had an example as fundamental as the Yusufeli example since then, although I do know from my colleagues at the Corner House that they have requested some information relating to the specificity of the Baku pipeline, and this is an issue I would like to come back to later. A report by Parsons was turned down by ECGD. I will go back to my colleagues, if you will allow me, and submit anything else in writing. Q376 Sir Robert Smith: This may be something else you will have to write about, but have you experienced difficulty obtaining impact assessments after a project has been approved for support rather than during the approval process? Ms Griffiths: I do not think there have been any cases where we have asked for impact assessments after a project has been approved. Q377 Sir Robert Smith: Okay, but if you can write to us on the others? Ms Griffiths: I will. Q378 Mr Evans: May I stick with the BTC pipeline for a second. It is an area you have put a submission in, other people have referred to it also and we are going to talk to others as well about it. You say that with this the Government ignore their own international policies that they have set down for themselves. You have clearly talked to ECGD about this. What sort of response have you had from them to your concerns? Ms Griffiths: ECGD are obviously satisfied that they are meeting government policy and that the standards of the World Bank, for example, have been met by the pipeline, whereas our evidence and our view is opposite to that. Q379 Mr Evans: What sort of things are you saying to them then where they are not listening? Ms Griffiths: What sort of things are we saying? Q380 Mr Evans: Yes. Ms Griffiths: We are raising... For example-- Q381 Mr Evans: Are you doing this all through written submission, by the way, or do you go and sit down with them at any stage? Ms Griffiths: Mostly through written submissions. I personally have not sat down with them. Unfortunately, the campaigner who has was not able to come today. I am sorry; I have lost the thread of the question. Q382 Mr Evans: Basically, when you write to them about your concerns, what do you say and are they able to rebut each point individually and say, "No, we think you are wrong on this, we think you are wrong on that"? Ms Griffiths: No, the typical format is that we write with very detailed concerns and they respond in a relatively generic way to those concerns. Q383 Mr Evans: So it has not changed at all over the period. They have not warmed to anything, they have not conceded anything that you have put up on the points that you have raised? Ms Griffiths: No, I cannot think of any examples where they have conceded. I think perhaps what has changed is that we have had more constructive dialogue with the ECGD since we last met you in terms of things like consultation on the business principles. So we are meeting with them more regularly, but we have not got to the stage of discussing detailed matters. Q384 Mr Clapham: I am just reading your paragraph 5.3. You say the ECGD should not offer support for any projects which have no demonstrable development benefits. Why should that be? Would it not put British industry in an uncompetitive position, particularly in areas where British industry has been successful? Ms Griffiths: It is our view that public subsidies should be used in areas where industry cannot manage alone and that the British Government should be supporting those areas of UK industry, such as those that might be involved in sustainable development, that do not necessarily have the competitive advantage of more established industries; and we think that the ECGD would be the ideal place to do this to enable the British Government to promote sustainable British Industry abroad. Q385 Mr Clapham: Have you put that view to them? Ms Griffiths: To? Q386 Mr Clapham: To the ECGD? Ms Griffiths: Yes, we have. ECGD's response to that has been that it is their defining act that is the limiting factor in them absolutely pursuing a sustainable development mandate or, indeed, in screening out any projects which do not contribute to sustainable development. Initial conversations with some of our legal friends would take a different view of what that act is, but, either way, we do not think the Government should be hiding behind that as a reason to not move this issue forward. Q387 Mr Clapham: In developing that view have you discussed it all with British industry that does export its skills, such as, for example, power station building, the Malaysian project? Have you talked at all with any of the contractors on those projects? Ms Griffiths: No, we have not talked with contractors on that project. We have not been involved in that project. I think that is a "no" to that question. Q388 Mr Clapham: So you have not discussed these ideas with British industry? Ms Griffiths: No. I very much think this is a role for the British Government to be helping the newer sustainable British industries rather than for existing industries, such as the fossil fuel industry or the nuclear industry. I think this is a matter for the Government to take in hand, not industry. Q389 Mr Clapham: It would be good if you could cultivate a view with British industry. Certainly it would be helpful? Ms Griffiths: It would. Ms Ellis: Just on that point, I think that most British industry when they are operating overseas would claim to have development benefits to that local economy, i.e. local employment or providing some service to the local economy. This point at 5.3 which you were referring to is about ensuring that the ECGD is investing in projects which are promoting development. That does not mean screening out all projects, unless they are windmills; it is screening in projects which ensure sustainable development and are not harmful to local and regional economies. Mr Clapham: I understand that. Q390 Chairman: How do you draw a distinction between what is a legitimate project in respect of sustainable development? I ask this because the major function of the ECGD is, you might say, to deal with issues and projects above a certain size and the value of the project is very often the reason why it gets on to the ECGD's agenda, because they are, as it were, the credit and assurers of last resort. The kind of projects you are talking about, would they not fall within the purview of a department like the Department for International Development? Ms Griffiths: I see no reason why large projects cannot contribute to sustainable development. Q391 Chairman: That is not the point I am making. I am saying that the ones that you think should be supported, by and large, are usually of a smaller size, and to the extent to which they do get government backing it is often through DFID. So it is the ones that are left. I think, with respect, what you are almost suggesting is that ECGD just packs up its bags and goes: because there are not very many sustainable development projects of the kind that you are hinting at that seem to be around at the present moment? Ms Griffiths: For one, I would not like to see the Department for International Development and the ECGD working at cross-purposes on this issue; it is very important that they work together in the same direction. I think the key point here is that a shift in ECGD's portfolio is needed in order for the UK to be supporting the sustainable development, and it is not satisfactory, in our view, to just sit back and wait for those projects to come along, ECGD needs to take a much more proactive role in seeking out projects and understanding what factors would make those companies offering sustainable solutions more able to expand their projects and apply, with confidence, the ECGD. Ms Ellis: Sustainable development is not seen as something by Friends of the Earth that can be done by financing from the Department for International Development and then all the nasty economic projects done by ECGD. That is not how we view it. All development must be sustainable and all projects financed by the ECGD must fit under that mandate. Q392 Chairman: It was just the question of science. I am not disputing the point you are making, but it tends to be the case that the size and the scale of the project is much a determining factor of arriving at the desk of an export credit agency in the first instance and then, after that, the relevant considerations can be-- Ms Griffiths: Can I add one point to that? I think this is where the role of ECGD comes in in terms of going beyond just screening out or screening in projects but improving projects or ensuring that projects do contribute to sustainable development. There are several key things which we think would form the basis of projects if they were to be sustainable projects, and I could go through those if you wanted. Q393 Chairman: Quickly? Ms Griffiths: The first point would have to be about mandatory standards. What we are seeing in the business principles at the moment is that there are more aspirational statements rather than mandatory standards and guidelines that companies would have to follow, and we would need to see a clear and transparent internal process for implementing these standards. I think, fundamentally, this has to be backed up by a compliance and monitoring mechanism, making sure that ECGD is following through projects throughout the duration of the life-cycle of the project and picking up problems and responding to problems when and where they arise. If I can just give one very recent example where we think ECGD is failing to do this. It is about the Baku-Tblisi-Ceyhan pipeline. I assume that the Committee has seen the report of 1st May in Red Pepper Magazine. If you have not we could point you in the direction of that, but I am sure you have. I will not go too much into the details, but this report refers to allegations that BP has kept some information about this pipeline from ECGD. This information on first glance sounds like a technical matter, but actually it relates fundamentally to the safety of the pipeline. To cut a long story short, it is about the choice of anti-corrosion paint used on the Johnson pipeline. Q394 Chairman: We are going to raise that subject? Ms Griffiths: You are going to raise that with us? Q395 Chairman: No, with them? Ms Griffiths: Okay. We have had some correspondence with ECGD about this which we think has been very unsatisfactory. Their response to our very detailed points was that the impact of this paint not being adequate is that it will not cause a materially adverse effect yet, and so it is not a matter that concerns them. We will be very interested to see your response and ECGD's response on this. Chairman: Thank you. We are not here to pass judgment today on the BTC pipeline, although it is a factor. I make the point that we will be looking at it in the way that we did other things on previous occasions. Q396 Mr Hoyle: In the case of ECGD's approach to the impact assessment, I think it would be fair to say you are not a great supporter, to say the least, from your paperwork. I just wonder: what would your strategic environmental impact assessment entail? Ms Griffiths: Our strategic environmental impact assessment would entail a much more hands-on and rigorous approach. I think it is fair to say that ECGD has still got a tick-box, bureaucratic, paperwork approach to impact assessment and, as far as I know, does not carry out strategic environmental impact assessment at all. I do not know if Naomi Kanzaki wants to talk about the Sakhalin project at all. Ms Kanzaki: Yes, I would like to make some points for Sakhalin. Do you know Sakhalin? Oil and gas development is going on in Sakhalin, and this would be a very good example why strategic environmental assessment is necessary to consider. For example, in Sakhalin - this is Sakhalin Island - they have Sakhalin I project and Sakhalin II project in the northern part, but from now on there are seven other projects all over Sakhalin; and some British companies are also involved in these projects and maybe, I think, ECGD might have more opportunity possibility to finance other projects in the future. I think why the strategic environmental assessment is needed is even if I see only Sakhalin I project and Sakhalin II project, they conducted different EIA, they have a separate project plan, like they are going to contract different pipelines and they have different litigation plans, they have different responsibilities. Everything is different. Q397 Mr Hoyle: Allowing for that and recognising that you have got some details there, in the case of your environmental impact and the way that you project your study, is it used by any other ECA? Ms Kanzaki: Strategic environmental impact assessment has not been done by any export credit agencies, but I think some ECAs have already recognised the necessity of the strategic environmental assessment. Q398 Mr Hoyle: Part of the impact assessment that you would like to take forward, would it be fair to say that you would have a 120-day stakeholder consultation period? Ms Griffiths: I think that would be a crucial part of the environmental impact assessment procedure; and before that, I would have to say, we have to see an absolute precondition that the environmental impact assessment will be disclosed, because, as we know, at the moment the ECGD has claimed often that commercial confidentiality is a reason for not disclosing environmental impact assessments. Q399 Mr Hoyle: In the case of this 120-day stakeholder consultation, what do the exporters say about that idea? Do you think it would work against UK companies if the competitors are using it or do you want not a unilateral but a multilateral approach by all competing countries? Ms Griffiths: I think, yes, a multilateral approach would be good, and I think the reason for conducting environmental impact assessment, part of the reason, is about addressing concerns of all stakeholders, and therefore it is very important and, indeed, becomes part of the discipline of doing environmental impact assessments that the public and other key stakeholders are involved in the process and consulted on it, both throughout the process and after the final documents are produced. I have not had extensive conversations with industry about this, but it should not result in threats to the competitiveness, and I see no reason why if there is specific commercially confidential information that cannot be screened out, but essentially environmental impact assessments are designed to be public documents. Q400 Mr Hoyle: Which UK companies and exporters have you been speaking to, so we get a feel for who is backing it? Ms Griffiths: I said I have not had extensive dialogue with the companies. Q401 Mr Hoyle: Would it be fair to say none? Ms Griffiths: We have obviously approached companies in the past to release environmental impact assessments. Q402 Mr Hoyle: I meant about your 120-day period, because it is quite a long period? Ms Griffiths: No, we have not had discussions with companies like that. Mr Hoyle: Okay; that is fine. Q403 Chairman: Is there any reason why you chose 120 days? Ms Ellis: The World Bank standard, I think, is that. If not that, it is 90 days, and the EBRD have a similar disclosure period (the European Bank for Reconstruction and Development). One other point on that: the idea of the environmental impact assessments being disclosed and them being created is to ensure the long-term sustainability of that project, including the business interest involved in that project. It is not meant to hinder. It is not intended and it does not hinder the business. Q404 Mr Hoyle: Would you agree, it would not be good to go unilaterally because people who are next to the market would still be doing their impact studies when everybody else has delivered theirs and got the contract; so it would have to be a multilateral approach and it would be one that maybe we ought to-- Ms Ellis: That is the purpose of strategic environmental impact assessment as opposed to environmental impact assessment. I think there is a misunderstanding there. Strategic environmental impact assessment would look, by definition, at a whole area and the development opportunities and options of a whole region or country, whereas an environmental impact assessment tends to look at a specific project in an area. So it would require-- Q405 Mr Hoyle: So that is what you have been pushing for; that is what you are suggesting? Ms Ellis: Yes. Q406 Chairman: I think the figure the World Bank has is 90 days, but you are asking for another 30 days on top of that? Ms Griffiths: I think that the most-- Q407 Chairman: The thing is, if I can just make the point, it could be perceived as being yet another obstacle, an obstacle in preventing British business from being able to get to the table to put in a bid if they are being saddled with a timescale which is longer than the World Bank or other international ECAs are requiring. If your organisation wishes to frustrate major British projects abroad, then that is fine; but if you do not say that, then surely it is better to get yourself on all-fours with the other countries so that you are not disabling British companies who might be prepared to go along with the objectives you have. The idea that you can be longer than someone else because it gives you something better: it may actually impede British business from getting the work that would create jobs. That is the point we are trying to get to here, the number of days, and there is a point to how many there should be, and I think may be that point has to be made by us as well? Ms Ellis: To go back to the 90/120-day issue, that came from the European Bank for Reconstruction and Development, who at the moment have a 90-day period of consultation, but often it ends up 120 days due to a recent piece of US legislation, which I cannot actually refer to at the moment but I can submit that later. Ms Griffiths: I think in some ways-- Q408 Chairman: The chances are if it is US legislation it will be to beat other countries, it will be nothing to do with US companies. Ms Griffiths: Our intent is certainly not to impede the British companies but to make sure that we are setting higher standards. We think that is our role on the global scene. I think in some ways the discussion "90 days or 120 days" is perhaps a slight side-issue. If ECGD came out with a statement tomorrow that it was going to require for all category A and all category B projects a 90-day period of consultation, we would be very supportive of that and we would not... I think what I am saying is that the more fundamental question is, firstly, that ECGD requires environmental impact assessments to be disclosed and, secondly, that there is a consultation period. 120 days might be best practice in the field, but 90 days would probably be accurate. Q409 Chairman: Thank you. I am conscious of the time. I wonder, Linda, if it might make more sense not to start your two questions. There is going to be a vote and we have to get across there to vote and come back. Could we suspend the proceedings now and come back immediately after the vote? Ms Griffiths: That would be fine. The Committee suspended from 3.15 pm to 3.33 pm for a division in the House Q410 Linda Perham: In paragraph 5.5 of your submission you are advocating the form of ECGD's investment policy for extracting industries and you are recommending the approach advocated by the World Bank in the Extractive Industry Review. Do you know if there are other ECAs that are following the World Bank's recommendations at the moment? Ms Ellis: I can answer that. Not at the moment, as I know, because the World Bank themselves have not responded to the Extractive Industry Review. I know at the moment the UK Government is still coordinating their response to the review in terms of what it will mean for the World Bank. After that we will expect a response from other international finance institutions, like the European Bank for Reconstruction and Development and the European Investment Bank, as to what they think it means to them and what impact it will have on their project portfolio and all the ECAs will definitely be questioned by a range of groups as to how many, if any, of the Extractive Industry Review recommendations they will be taking on. Q411 Linda Perham: The review, as you listed out in that paragraph, it is a phase-out of funding for all oil and coal projects. Quite drastic proposals, would you not say, or would you say they are ones that you fully agree with? Ms Ellis: First of all, Friends of the Earth, yes, definitely fully agree with them. With regard to the Extractive Industry Review, that has been endorsed by the European Parliament, by Desmond Tutu, hundreds of NGOs have supported this review, but it is important to consider that these recommendations of the review were considered against the World Bank's mission and mandate of poverty alleviation, and it came to these conclusions based on - you were talking about the phase-out - that oil and coal projects will... In fact, the review concluded that in the majority of cases all the extractive industry projects were not alleviating poverty and promoting sustainable development and therefore were not suitable use of World Bank funds; but in terms of the Export Credit Agency, it does not have that mission of poverty alleviation. Friends of the Earth believe that it needs to radically reposition its mission in terms of sustainable development, and if its mission was to be - even if it was not a primary mission, sustainable development, but a precursor to its investment, sustainable development, it could not fund oil projects because of international commitments on climate change. It is not a suitable use of funding. It should be financing and helping support renewable energies, and that is an area of business which is crying out for support and international subsidy. Just on that note, I think that the ECGD has a great opportunity coming up, because in June there is an international renewables conference in Bonn, which is a follow-up conference from the latest UN sustainable conference in Johannesburg on sustainable development, and at that conference there will be a strong push by international governments for greater investments by international finance institutions, including ECAs, to be financing renewables and not oil and mining projects; and for support of the renewables industry one of the big things that ECAs and other international finance institutions can do is not just a question of increasing lending from renewables projects, it is a shift in the project portfolio away from extractive industry's projects for renewable energy projects which promote sustainable development. Q412 Linda Perham: Going back to something you were talking about before the break about the strategic impact assessments, I do not know if you know whether any other ECAs have mechanisms in place for monitoring compliance inspection. They have got sanctions against companies for non-compliance? Ms Kanzaki: Yes, there are a few ECAs who have compliance mechanisms. Also Japanese ECA, Japan Bank for International Cooperation have their own compliance mechanism since October last year under its new guidelines, and with this mechanism, which this is, affected people can directly claim to the bank about their violation of its guidelines. It is very new, so they have not used yet, but I think it is necessary to have this kind of same kind of compliance mechanism in each ECAs? Q413 Linda Perham: Is it just Japan, or are there other countries? Ms Kanzaki: They have it in Canada, Canadian ECAs, and I think OPIC and several others, but not many. Ms Griffiths: I wanted to add to that that monitoring and compliance is incredibly linked to ECGD's own due diligence procedures. Friends of the Earth's view is that ECGD is not carrying out proper due diligence in the after financing stage perhaps as well as in the consideration for support stage. Again, to take two examples from the Baku-Tblisi-Ceyhan pipeline, a Turkish man called Ferhat Kaya has recently been arrested, detained and allegedly tortured in Turkey because of his activities of monitoring the Baku pipeline and documenting effective communities on the ground. I would like to know what due diligence procedures ECGD is invoking in investigating that case and investigating the risk to ECGD's own reputation in having supported a pipeline which has directly contributed to a campaigner being arrested in the host country, especially when one of ECGD's business principles is to ensure that ECGD does not contribute to human rights abuses or violations in providing cover for any project or investment. My second example is again this example of the paint used on the joints in the Azerbaijan and Georgia sections of the pipeline. I think it is imperative that ECGD looks at its due diligence policy and looks at how it is picking up problems such as these in the first place and how it is responding to them once they have been picked up. It seems to us that ECGD is overly reliant on NGOs and the press in documenting and finding these instances in these cases and then responding to them but not responding to them properly. I think that is one big area of concern. Q414 Linda Perham: So you think they should not be responding to you and other organisations in the press, that they should be proactively investigating themselves? Ms Griffiths: I think they should have a policy in place that enables them to proactively investigate, and, secondly, to respond in a much more comprehensive manner when NGOs and the press do raise things. We will continue to raise things, but we cannot monitor all of ECGD's projects. Q415 Chairman: Before we leave this question of international comparison, our understanding of the ECGD's international comparable role, as it were, is that it tends to be largely focused on the OECD and the range of assistance that can be given, the parameters of aid, and people usually complain that the ECGD is too niggardly by comparison with some of the other OECD members. I believe there are certain development criteria within the OECD criteria, and I think the ECGD played some part in getting this established. Do you pay any credence to what the OECD has set down, or is that not part of the-- Ms Griffiths: I think the OECD's guidelines on multinational enterprises provide a good starting point of looking at what are the appropriate standards for projects. The OECD's common approach on export credit, I think ECGD has played a role in developing those and they again provide a good starting point, but they are not the be-all and end-all and ECGD within that should be working to constantly and incrementally improve those. Q416 Chairman: So that I can get it clear in my mind, at the present moment the World Bank has put out for consultation, is that correct, a set of criteria which, if adopted, would be the yardstick for sustainability? I am using shorthand here, but the World Bank in its Extractive Industry Review and in other areas is trying to lay down ground rules for ECAs, but at the moment the membership of the World Bank has yet to underwrite it. Is that correct? Ms Ellis: Not exactly. In terms of the Extractive Industry Review, that was an independent review commissioned by the World Bank in 2000. The World Bank themselves are yet to respond to the EIR as to how those recommendations are going to be put in place. The World Bank regularly review many of their policies and at the moment are also reviewing their indigenous people's policy, their safeguard policies and then what used to be called their structural adjustment lending; but I think also what is important is to draw a distinction between international finance institutions' policies and the practice of what is happening on the ground. It is one thing to compare the ECGD's policy to other ECAs or other financial institutions; it is another thing to compare what is happening on the ground. Also, if you look at World Bank funded projects, projects which the ECGD has additionally been involved in, again, like Baku-Ceyhan, according to our research these projects have contravened a lot of World Bank policies and guidelines, I believe something like 192 in the Turkish section alone, of the Baku-Ceyhan project. Chairman: Thank you very much. I wanted get that clear on the record, because I think that when it is a wee bit woolly it needs to be sorted out. Q417 Judy Mallaber: Can I return to the question of renewables. Ms Griffiths: Yes. Q418 Judy Mallaber: In section 6 of your memorandum you recognise the ECGD's efforts to promote the exports of nuclear energy technology - this £50 million worth of exports that they are talking about making cover available for, particularly for renewable exports - but you are asking for a more proactive approach from the Department to encourage applications. What would such an approach involve? What exactly are you asking ECGD to do? Ms Griffiths: The renewables industry is a new stakeholder for ECGD, or would become one once they started applying for export credit, and I think it is incumbent upon ECGD to understand that community better than it does at the moment. I would suggest perhaps having a consultation with that industry and other stakeholders in terms of looking towards understanding what is preventing them at the moment from applying for export credit in order to adjust their policy or their procedures to make it easier for that industry to engage with ECGD and get some money from that fund. Again, returning to this issue, I would say that ECGD needs to think about screening out fossil fuels, because they are the main competitor for the renewables industry. If it truly wants to support the renewables industry, it has to do that in an incredibly proactive way. Q419 Judy Mallaber: Is it not ECGD's job to stimulate particular industrial sectors, as opposed to just supporting those that are seeking help? Ms Griffiths: We believe it should be ECGD's job to stimulate sustainable development and the export of sustainable development. Admittedly that requires a big shift in ECGD's role and its portfolio, but we think that the time has come for ECGD to stop supporting destructive industries; it is not an appropriate role for a developed country in the 21st century. ECGD recognises it has some commitments to sustainable development, but it is not at the moment translating those paper-based commitments into reality, and the transition to sustainability takes more than just words on paper; it means a definite change in direction in what the British Government, and ECGD in particular in this case, are actually doing to promote that and to support when it is in its infant stage. Q420 Judy Mallaber: The department launched this new customer service team in November 2002 which is expected to provide prospective customers with specialist advice and support about the ECGD and how to use them. Does that meet your requirements? Has it made any difference? Ms Griffiths: That is a good first step. I cannot tell you whether it has made any difference. I guess it is still very new, but again I think that is quite a reactive approach; that is still waiting for people to come and talk to you rather than explicitly going out and soliciting that constituent's views. It is very good if ECGD is developing in-house expertise on these issues and putting that there for people to access, but I think it needs to go the extra mile and be more proactive. Q421 Judy Mallaber: What would that involve them doing? Would it involve them going out and assessing the market and then going to companies? Ms Griffiths: As I said, perhaps consultation with the relevant companies in the relevant sectors and then, again, looking at screening out the competition and the unsustainable fossil fuels. Q422 Chairman: Could you give us any examples of relevant companies and relevant sectors of renewable energy technology in which there is any kind of proof that it works? Ms Griffiths: That renewable technology works? Q423 Chairman: Yes, on a scale that would require ECGD underwriting. You keep going on about renewable energy technologies. Apart from wind-power and bits of bio-mast, which you might not like, I am at a loss to know what energy technologies you talking about? Ms Griffiths: We are advocating a change in ECGD's portfolio; so we are advocating that ECGD supports these new industries. Q424 Chairman: Which new industries? Ms Griffiths: There is huge potential for wind-power, both on-shore and off-shore, and solar power. Q425 Chairman: But you cannot store the sun's power? Ms Griffiths: We are by no means under the illusion that ECGD tomorrow can stop supporting fossil fuels and start supporting renewables. That is why the extractive industry's review, for example, talks about a phase-out by 2008. It has to be an incremental thing, but it has to be undertaken more proactively if we are going to get anywhere; so we need to see some bigger steps forward on this. This is what we are basically saying. Ms Ellis: If you consider climate change is a serious issue, then what needs to be invested in is alternative energy and renewable energy. Maybe that energy source is not perfect and is not as advanced in its development as the traditional fuels like oil, mining and gas, and yet how does it develop, how does it improve, how does it become more efficient? Because of investment and because of subsidies. The question was asked earlier about is it ECGD's-- Q426 Chairman: I am sorry, you are suggesting that we sell untested technologies to other countries and that we use state funding to do that? Ms Ellis: No, we are suggesting that you invest in companies where technology is tested and renewable energy is effective in order to in the long-term allow those companies and-- Q427 Chairman: You have not been able to give me examples? Ms Ellis: --those industries to create a more level playing field for renewable energy in the energy market generally. If you let me finish on my previous point of subsidies, it was asked if it was ECGD's job to have a phase-out role of oil and mining projects-- Q428 Judy Mallaber: My question was whether it was their job to go out finding export markets? Ms Ellis: Exactly. I would turn that on its head and argue is it the ECGD's job or any international finance institution's job to continue subsidising an unsustainable energy sector which can find finance in the private sectors. I would argue that it is up to international finance institutions, as a subsidy, to assist in the energy sectors which are slow to develop, which need assistance to ensure a sustainable energy source for the planet. Q429 Judy Mallaber: I think we are just trying to pin this down: because the theory is fine and we can all be with the principles and what we want to do in terms of sustainability, but where I am having some difficulty is that the new customer service teams had 2000 inquiries from different companies, but those companies that might be getting into sustainable energy in this country are not developed, surely, very far in terms of the market they have developed in this country. Realistically, are the companies there at the moment that will be able to take advantage of any opportunities overseas, where therefore there might be a role for ECGD? That is what I am questioning. If they are not developed yet in this country are we a bit premature in suggesting that, whatever our principle about where we would want to go, those companies are there available to take advantage of opportunities overseas? Ms Griffiths: At the World Summit on Sustainable Development in Johannesburg the UK Government called for public financing of renewables, and so it is incumbent upon us to find mechanisms to do that. Q430 Judy Mallaber: It is not a mechanism. What kind of companies are we talking about? That is what I am not clear on? Ms Griffiths: We are talking about a whole range of smaller and medium sized enterprises, but also companies like Amec. They invest in wind-power. I would be interested to know what they say on the exporting of wind-power and how they see their portfolio changing over the next 20 years; and I think it is the Government's role to be leading that change rather than responding to it from industry, because industry is showing that the change is not happening enough. We all know about the whole complexity of political issues that are tied up with oil and we need to be moving away from that. We need to find ways to do that. I think if ECGD cannot find a way to move away from supporting unsustainable business and towards supporting sustainable business, including renewables, but also including many other things, then we need to think about whether there is a realistic role for ECGD in the 21st century. Q431 Judy Mallaber: My question is not whether ECGD should be prepared to support those companies, it is whether those industries and companies are in a position at the moment to be able to take advantage of opportunities overseas and to find them. It is not whether they should be supported if they are there and can be helped. I do not think there will be any problem about that? Ms Griffiths: I am not an expert on the UK's renewable industry, but it would surprise me if there were no companies ready to take advantages of overseas opportunities. We are a world technological leader in many areas and we also have many of the big companies living here in London. I know that all the big oil companies are investing in looking at renewables, as are companies like Amec, and I am sure that they will be ready, but you need to put those questions to them. Q432 Chairman: I have to say, with respect, it is incumbent on you as the advocate of this argument to give us examples of the kind of companies that would benefit from it. I truly appreciate you might not have to hand that information today, but if you could provide us with it, it would be of some assistance? Ms Griffiths: We will do our best. Q433 Chairman: Because we spend a fair amount of our time of looking at energy issues in the round, I have to say that we have not encountered these companies. You may have more luck than we have, because we are talking about companies that have technologies which are mature, or which are maturing, which are operating in markets where there is no element of risk at the present moment and therefore are capable of selling into these countries and, thirdly, having established both a market and a technical competence, that they would be prepared and willing to take the risk, and it is the risk which the ECA is prepared to ensure against and subsidise against, that these companies would be prepared to do that in the kind of countries that you think are necessary. If you can find these examples, I would be delighted, because I think we could then have an expert push. I have to say, I think we are going to find it rather difficult. Ms Griffiths: Okay. If we can, we will submit some evidence on that in writing, but I would say that I do think this is somewhat getting the cart before the horse, because until ECGD and other western ECAs show that they are going to be no longer willing to support unsustainable power projects the opportunity will not be created for British business to take advantage abroad. It is a bit of a chicken and egg situation, but I think it is incumbent upon ECGD to do everything it can to start creating those opportunities because, whilst ECGD is still supporting so much oil and fossil fuel projects the opportunities for alternatives just do not come up. Q434 Chairman: I think on that note we will finish there. Thank you for your information. If you could send us that additional stuff we would be grateful? Ms Griffiths: We will do our best.
Memorandum submitted by Export Credits Guarantee Department Examination of Witnesses Witnesses: Mr John Weiss, Acting Chief Executive, Mr Tom Jaffray, Risk Management Group Director and Mr John Ormerod, Director of Strategy and Communications, Export Credits Guarantee Department, examined. Q435 Chairman: Perhaps, Mr Weiss, in a moment you could introduce your colleagues. We have a copy of your opening statement here. We try to discourage these because we work on the basis that people provide us with written evidence after which we then ask questions. If you could introduce your colleagues, without any more ado we will get on with things. Mr Weiss: Thank you, Chairman. Introducing myself first, I am currently Acting Chief Executive of ECGD and I am in this position until probably early July until Patrick Crawford arrives, who it was announced at the beginning of April is the new Chief Executive of ECGD. On my right is John Ormerod, Director of Strategy and Communications. On my left is Tom Jaffray, Director for Risk Management in ECGD. Q436 Chairman: Thank you very much and thank you also for the various pieces of evidence you have already provided us with. If we could start with the capitalisation and progress towards the Trading Fund status. This has been something of an on-going saga. You missed the original target date by two years, we have evidence already from the SBAC who are not your greatest critics - if anybody is called fans of yours I think it may well be them - but both they and the CBI have told us that delay has created a degree of uncertainty amongst their members and customers and this has made their business more difficult. When are you guys going to get your act together and get the risk management systems into a shape which will be capable of having the operation of a trading system? What sort of timescale are we now thinking of? Mr Weiss: I think you are right to say it has taken a long time. We did originally envisage Trading Fund status two years ago for ECGD but undoubtedly the project has proved more challenging than we originally thought. You are quite right to say that the problem has been mainly in the area of setting up our risk management systems in a way which would be fit for the moment when, as intended, we become a Trading Fund. To explain that a little, ECGD as a Trading Fund will be the biggest Government Trading Fund in capital terms of all, indeed it will be five times larger than the rest put together. That does not mean we are the biggest business in terms of income, but in terms of capital that is what we are, and that is a very, very challenging and complex job, and we are very keen we should get it right and the framework is right. The position that we have reached at the moment is, with our colleagues in the DTI and the Treasury we have now reached a very advanced stage in discussing the future framework for the Trading Fund, to a point where our Ministers are now actively considering the emerging outcomes of that work, and issues such as the respective roles of the three departments under the Trading Fund and other issues which have been discussed before your Committee about the commercial rate of return and the level of capitalisation are currently on their agenda. We hope for some early conclusions. In fact what we are doing is working towards a ministerial announcement about the Trading Fund before the summer recess. Q437 Chairman: You tantalisingly quoted something of the order of five times all of the other Trading Funds added together. Mr Weiss: Yes. Q438 Chairman: Given a couple of weeks we could probably find out how much that amounted to. Could you tell us? Mr Weiss: I cannot tell you exactly because Ministers have to decide on that figure. Q439 Chairman: Would a figure of £1.7 billion be a million miles away from what we are talking about? Mr Weiss: Our working figure for this, between ourselves and our colleagues, is £1.8 billion. I know it has been put to you that that might be somehow an inadequate figure for British exporters. We have to get the balance right between enough capital to support the level of business we think we will be asked to do by British exporters, but on the other hand not having too much because if we have to remunerate it or cannot use it and just put it in the bank it will not produce enough return on the capital we need to achieve. So we are trying to get a good balance between these two pressures. We think on our best view of likely future business levels that something around £1.8 billion is possibly more than adequate but certainly not a constraint. There was a figure, probably two years ago, of £4 billion which was mentioned and this has caused some concern I think, that we have these two rather different figures and does this imply some cutting back. The fact is that was on a completely different basis from the concluded ECGD pre-1991 business in the capitalisation. This figure, which, as I say, ministers have yet to agree to and sign up to, this working figure of £1.8 billion, is intended just to get our new account, our Account 2, business capitalised. Q440 Chairman: That is very helpful. We appreciate that, we are not asking you to write it in blood although having given us that figure it may well have the same effect. Even allowing for the disparity between £4 billion and £1.8 billion, it has been suggested that nevertheless the responsible department will have to return to Parliament every year to get this figure increased and there is the possibility of Estimates Debates and things like that. Do you foresee this as a possibility? It is for others perhaps to pass comment as to whether or not it is a problem. Mr Weiss: No. I think the intention is that having agreed the capitalisation of the Trading Fund that ought to be a once-and-for-all event and that capital should suffice for ECGD for --- Q441 Chairman: Three or five years? Mr Weiss: Yes. Q442 Chairman: For a public expenditure review? Mr Weiss: Yes. So unless we have it badly wrong and we are immediately into a problem, there should not be any need to come back and revisit that figure. I should perhaps qualify that by saying the intention is to run a pilot Trading Fund for a period to be agreed by ministers, but possibly one to two years, ahead of the statutory Trading Fund, and I suppose it could be that if in that period problems occurred then there could be some revisiting of that number. Q443 Chairman: Would this pilot fund be for a particular part of the operations, or would it be the whole of the operation but done on a pilot basis? Mr Weiss: The whole of the operation on a pilot basis. Q444 Chairman: So you are expecting to have a ministerial announcement in the summer, likely to be a figure of in the vicinity of £1.8 billion, but with the possibility of it running for up to two years on a pilot basis? Would that be a reasonable summation? Mr Weiss: I think I need to be slightly careful about what that ministerial statement might include. Ministers are working to reach agreement on these issues as quickly as possible and I am hoping that agreement will have been reached to make that announcement then. Whether it will be possible for it to be as detailed as you implied in your question, I cannot be sure. It is worth adding that the other stated intention of ministers is to have a public consultation in advance of the pilot Trading Fund, and we see that as the moment when all the details of the framework which has been agreed between ministers for the Trading Fund will be exposed, so in this sort of timetable that might be around the autumn sometime. Q445 Chairman: If our report comes out at the right time, the ministerial response to our report could well be this, but I think I can say on behalf of my colleagues that in the event of the ministers, your political masters, making an announcement of this proposal on the last day of the session, which is the kind of time you are talking about, we will give notice that we have their telephone numbers and we know where they stay and we will be after them. So far we have not had ministers but we will have them once the statement is announced and we will cross that bridge. There is one other piece of the jigsaw which we need to look at before we go on to some of the other points, and that is the question of the return on capital expenditure. This is again an area in which figures have been kicked about, ranging from 18 per cent down to 4 to 6 per cent. Obviously the higher the rate of return, the less generous the terms are to those who are seeking cover. This is obviously something the potential customers would have a view on, but maybe you could tell us what the thinking is within the department at the moment on this question of the return on capital expenditure? Mr Weiss: Again I have to preface my comments with the statement that that is one of the items on which ministers are currently engaged and need to make decisions. Yes, there has been a lot of concern expressed about some of the higher figures you mention in your question, but we are currently working with the Treasury and DTI to agree on initially the appropriate methodology for arriving at a figure rather than just perhaps plucking figures out of the air. That is what the current debate is about, what is the appropriate methodology for determining the commercial rate of return and that is yet to be agreed, and then it is likely that will produce a range of figures and we will then have to decide what the appropriate figure is for that. Again, though, the key point which ministers have emphasised to our customers and stakeholders is that whatever that figure ultimately is, that will not actually determine ECGD's risk or pricing policy, we will maintain the same phrases - risk, reward, balance - as currently, and what will happen is, assuming for example ECGD achieves a natural 4 to 5 per cent return on capital as it does at the moment, any gap between that and this commercial rate of return will be filled by means of a notional voted resource into ECGD to fill the gap. The main point is that our prices and cover risk appetite will remain as it is at present. Q446 Chairman: What you have told us is that there is going to be, hopefully, a statement before the end of the year, that it probably will be around about £1.8 billion, it is maybe going to be for two years, there will be a consultative process, that the consultative process will test the water, as it were, and you are not in a position yet to make a clear statement on the return on capital expenditure, but by and large the approach you are taking in terms of risk and reward will be much the same as it is at present. When you were telling me at the beginning that this has been two, four years, I was thinking about the gestation period of an elephant but I now begin to think that the elephant is going to give birth to a mouse, because there seem to be so many question marks here. It must be pretty frustrating for you folk. Who is to blame? Is it the Treasury? Is it the DTI? Which of your political masters is the one that is not providing you with the ability to get out and do the business and enable British companies to cut the deals across the globe? Mr Weiss: This has created uncertainty and that has been worrying our customers, but the fact is - and in the statement I did not make at the beginning I have made the point in there - notwithstanding that we are still continuing to support quite high levels of business, and over the last three years we have done between 3 and 31/2 billion of guarantees. So this work on determining the right framework for the Trading Fund has not, I would suggest, actually got in the way of us doing our job, but it has undoubtedly created uncertainty and I know our customers would like to have clarity about the future of ECGD and we understand that need. That is why we are trying to reach some early conclusions on this. May I also say, Chairman, that you suggested the statement before the recess might include these figures, I cannot say that it will, I cannot say it will not. Chairman: We will not hold our breath. Q447 Mr Hoyle: Can I move on to customer service. Quite a lot of the evidence we have had brought before us goes on to state that other ECAs reach decisions quicker. What they are worried about is when they come to you to deal with applications, it is long-winded, bureaucratic and time has gone and everybody else has reached the decisions and in some cases have got the contract while you are still gesturing. Do you think that is fair? Are you guilty as charged? Mr Weiss: You will not be surprised to hear me say "not guilty". Q448 Mr Hoyle: Have you any evidence you can produce? Mr Weiss: It may be we should look at this in two respects. First of all, there is the stage at which exporters come to us, a very early stage when they have a bit of a gleam in the eye about a project and they want to know is ECGD on cover, what would the terms be and what would be the price be. We consider that an important part of our service to exporters. It tells them quickly whether or not they should spend their money pursuing a deal. So important that we have made this service part of our customer charter and we promise to turn these requests round in four days. Our ideal would be to do 100 per cent. We have probably been scoring 70 to 80 over the past year. We actually reached in February 93 per cent but I have to confess it fell back to the upper 70s last month. Overall it has been an improving trend and we have been doing a lot to improve our systems, streamline them, to get that performance better. The ones that fail to meet that target are very often more complex transactions, large transactions, ones which are under our regime going to be capital-hungry, and we have to spend more time examining those and deciding how we respond. This is the area where perhaps some of our export credit agency equivalents may not have the same issues to consider because they are not operating against this capital framework, notional or real in the Trading Fund, and they perhaps have less rigorous financial targets than we do. I think it is true at that stage sometimes they can give a quicker and more positive response than we can, but as I say we are trying to get that better and better. In the area of our relationship with our customers, once a transaction has become more advanced and we are actually negotiating the deal with them, I would reasonably argue that we provide a very efficient service for our customers. In my normal job I chair our underwriting committee where all the airline cases for Airbus come through with great regularity, and I am always sitting there and saying to my colleagues, "Where do the French and Germans stand on this?" and almost 100 per cent of the time I am told, "They have not made a decision yet." So my practical experience of the business that is advanced and we are negotiating is, I hope, quite positive and quite good. Q449 Mr Hoyle: So besides Airbus, which are pretty quick, everybody else suffers? Can I also say your customers, and that is the best way to describe them, claim you charge higher rates of interest than other ECAs. Is it true? If so, why is that? Mr Weiss: I would first of all say it is not a general case that we charge higher rates than the others. What we do is to charge prices which accurately reflect the risk we are being asked to underwrite, and this is something which in a sense we cannot compromise on if we are to meet the financial targets which ministers have set for us. In a limited number of countries this can come through in premium rates for us which are higher than the OECD minimum benchmarks, but we have that number of countries down now to about 17. I should emphasise this is for projects which are sovereign risk and of a medium size rather than perhaps buyer risks, corporate risks, or large size for example. There are now only 17 countries where we are above the benchmark. Many of our competitor export credit agencies purport to charge that benchmark, so there is a perception we are charging more than them in that situation, although in practice we find as we negotiate deals alongside them - because often we are in co-operation with them - we find they too charge more than the benchmark. So it is not something which is universal. It is interesting - and I did a little bit of research on this - that last year, in support of Airbus, 84 per cent of the guarantees we issued we did charge the minimum international 3 per cent rate, so it was 16 per cent of the cases where we charged more. I know that is quite a bit of business, 16 per cent, and it is quite a few, probably important, airlines for Airbus where we were possibly charging more than 3 per cent, but it gives you a feel for the extent to which we are possibly, rightly or wrongly, being charged, as you say, with over-charging. Q450 Mr Hoyle: You use the Airbus as a strong example in both cases, do we charge more than the French? Mr Weiss: It so happens that we, I think, always all charge the same but it could be that the ECGD has set out its stall, because as I said before we are often quicker off the mark than the others, and the others say, "If ECGD is going to earn that, so will we." We all charge the same. Q451 Mr Hoyle: It would be a bit odd to charge a bit more for the wings than you do for the body. That is why it is interesting. If I can get you away from Airbus, where the companies have put together one bid, what about if we are up against the Americans? The Ex-Im Bank in the United States would charge at the minimum OECD guideline level. Mr Weiss: Yes. Q452 Mr Hoyle: Where does that leave our customers? Mr Weiss: I think generally, and Airbus specifically, another point, perhaps controversial, I would want to make is that we have seen little evidence that this pricing differential, where it does arise between us and the other agencies, is actually damaging the competitiveness of British exporters. We would like it best if we could all be charging the same and be on the famous level playing field, but as I have said before our financial constraints do not allow us always to do that. Where we are charging more, there is not in my view evidence that has lost business for our customers or for the UK. Indeed, the NERA Report showed there was a high price elasticity here and these price differences did not really make that much difference. Where I have seen in my own personal experience business lost to the UK, which has often been not lost to a foreign competitor but a British company choosing to source it from the States or Germany or somewhere, it is where we have not had enough cover available. That is in ECGD's view, and in our customers' view through the customers' survey, the key issue, to get the cover available, ideally the price to be the same as everybody else's, but if it cannot be that is less of an issue in competitive terms than the price. So our strategy has been to make as much cover available on countries and buyers, for the price to be what the price should be from our risk assessment models, to try and be competitive but, in the end, to offer the exporter the cover at the price we think is a fair reflection of the risk; this, of course, reflecting that balance between supporting the exporter and not being a drain on the taxpayer, which is what is implied by our financial targets. Q453 Mr Hoyle: So you have no evidence, where the rates are slightly higher, this actually has an effect on contracts? Mr Weiss: Not in terms of seeing a transaction which has been put to us lost to foreign competition. What I would have to say is we do not know if the fact our price is known to be possibly higher deters companies coming to us in the first place. I do not have evidence of that. I think our customers, even Rolls Royce and Airbus, might say, "The fact you have been charging more than 3 per cent is not damaging today's sales but it may have a long term impact as airlines think, 'These people charge more'." But having said all that, we are talking of differences in relatively small elements in the total equation, in terms of the price of the equipment, we are talking of a 1/2, 1, sometimes 2 per cent difference in our rate, which when you take everything else into account is perhaps not a crucial competitive element. Chairman: Just before we start on the next item, we anticipate there being a vote at 4.35 so after this question we will adjourn and we will be back to complete the session. We will have to go over and do our democratic duty in a few minutes and we like to stop before the bells start. Q454 Sir Robert Smith: You provided us with a written follow-up paper following the evidence session we had on 20 April with the British American Security Information Council, where they were questioning some of the calculations on how you assess your costings. We have your paper, it has come quite close to our actual meeting but we have had a chance to look through it and it will be on the record. Is there anything you would like to say to that paper? Mr Weiss: I think we sent you a response to that. Perhaps I could ask Mr Jaffray to say a bit more. Mr Jaffray: The approach we use to price-risk is based on best commercial practice and in our case we use so-called value at risk and methodology. This is used by many enterprises in the private financial services sector and it is also a cornerstone of the Basle 2 Accord which is being promoted as a risk measurement tool for banks. We are comfortable we are not reinventing the wheel, as it were, and we are basing our practice very much on that. The key difference between the paper tabled by Mark and Paul Ingram and our own approach is that we look much more closely at a risk within the context of our own portfolio. A simple point about insurance is that the better diversified your portfolio, the greater the spread of risk, its predictability, the less capital you need for each pound of risk, and therefore ECGD holding, say, £1 of Chinese risk would necessarily have more capital than, let's say, HSBC, who would have a more diversified portfolio. The thing about the value at risk is that it focuses on your portfolio specifically, which, given the unique nature of ECGD's portfolio, seems a better technique and it has been endorsed by a number of consultants in the field working for us. Q455 Sir Robert Smith: I would put in a footnote that there is a flaw in their arithmetic which alters something from 9 million to 0.9 million in your favour. Maybe we will get back to them and check that. You point out another conflict with their analysis, where you are not a direct borrowing from the Government, you say you are a contingent liability on them. Surely, in a sense, in economics, a contingent liability must have some impact on the UK's economic situation? If all contingent liabilities had no cost ----? Mr Jaffray: In theory, economically there should be no difference between if you like giving a big guarantee and making a loan. The markets will perceive it differently and I think that is the point we are trying to make. We know of no empirical evidence to back up the contention made in the paper by Mark and Paul Ingram. Q456 Sir Robert Smith: As you say in your earlier evidence, the move to a Trading Fund and the rate of return is in a sense to try and establish for the Treasury what the real cost of providing export credit guarantees is, and therefore in a sense the cost benefit analysis will come in the political climate of working out, "Is it in our interests to spend this money for the protection of defence supplies or for the job creation which comes from the kind of work which comes from export credit guarantees". Mr Jaffray: The practical problem is that there is no right or wrong way to work out how much capital ECGD might need. To take a theoretical example, you could look at ECGD within the wider portfolio of all the Government's holdings, all the risks for example on nuclear liabilities, and in theory one might suppose the spread of risk would allow ECGD to be supported on a much lower capital. Calculating such a capital would obviously be an impractical task and managing that kind of portfolio would also present insuperable challenges. So there is a trade-off between having an ECGD in what is a very inefficient portfolio, because it is very narrow, highly correlated and unpredictable, and that means we need more capital per pound of exposure than we would otherwise need, and that is offset by the benefits of having a coherent management. But to arrive at what is the cost to the taxpayer is actually quite a difficult thing because it depends on which portfolio you pick. Therefore, although we will have a return on capital, to say the gap between that and what we can afford to pay from premiums at current rates is a subsidy, is a debateable point. What we are trying to do with capitalisation is show transparently all the potential costs associated with the Trading Fund, not just the cost of covering the claims and long-term losses and administration, but also the cost of supporting the capital base. But what is the cost to the taxpayer is actually quite a difficult thing to calculate. Chairman: We will finish there because there is every likelihood that your answer will be interrupted by the bells. The Committee suspended from 4.35pm to 4.46pm for a division in the House Q457 Sir Robert Smith: You outlined the process of establishing the Trading Fund idea and how there will be a statement and consultation, what is required to make it come about? Is there any legislation or regulations which have to come in? Mr Jaffray: The plan is to set up the Trading Fund under the Government Trading Fund Act. This is the piece of legislation which is being used to set up other Trading Funds and this can be done by means of secondary legislation using a Statutory Instrument. It takes about two or three months. Chairman: We know the procedure! Q458 Sir Robert Smith: That is all that is required, is it? Mr Jaffray: Yes. Q459 Linda Perham: Some witnesses we have had have commented favourably on the development of your policy on transparency with respect to applications and impact assessments, but others, notably Friends of the Earth, whom we have just interviewed, feel you are too selective over which impact assessments you publish. Could you not make it a condition of your support that all of them are published? Mr Weiss: On the specific point about publishing environmental impact assessments, following the revised OECD Common Approaches, which as you know we played quite a leading role in making happen, that now requires such assessments to be published for high potential impact cases, so that is now part of the rules of the game. I think the more controversial issue was in relation to a specific project a year or so ago where there was a demand from NGOs for the impact assessment to be made public, and in that particular situation - and this pre-dated the OECD Common Approaches - that assessment had been commissioned by the sponsors, paid for by them, was their document, and they were saying to us, "This is commercially confidential and we do not wish you to publish it." In a legal sense we had no choice in that matter. I think the position now under the revised OECD Common Approaches for high impact cases is that such reports must be made public. Q460 Linda Perham: What would be confidential about an impact assessment? For the sponsors of it, the people applying for the money, what would be confidential about it from their point of view? Mr Ormerod: I think it is an issue of where environmental impact assessments were in a draft stage and had not been considered fully by the project sponsors, and where they wanted to reserve their position. You have to remember that the impact assessment is the responsibility of the project sponsors, our job is to review that and to make sure the procedures have been undertaken properly and the environmental and other standards used are the appropriate ones. When Common Approaches was revised back at the end of last year, there was an attempt by us and the Americans to make it compulsory, to compel publication, but a couple of jurisdictions - I think Germany and Austria - felt they could not within their national law do that. So I think the wording you will find is something like "encourage". We, in fact, in the UK encourage very strongly the publication of environmental impact information, and when the Environmental Impact Regulations come into force, from 1 January 2005, you will find that takes the force of law. Q461 Linda Perham: You did say, and it is in your evidence, that high impact cases are listed on the website prior to the underwriting decision being made. Mr Ormerod: Yes. Q462 Linda Perham: First of all, how is a high impact case defined? Why cannot all of them be published? Why does it have to be high impact? Is that an international agreement? Mr Ormerod: That was the international agreement. The argument is that high impact cases are those which will attract most public interest and concern, that is the definition of why they are high impact because of the impact on the environment. Q463 Linda Perham: Who decides which those are? Mr Ormerod: We decide but the criteria we use are those in Common Approaches. We have on our website a document called a case handling procedure - in fact it is called "Case Impact Analysis Process" - and that tells applicants exactly how we go about assessing which projects are of high impact. Essentially we look at what is the nature of the industry or the context, ie is it a sensitive industry in the sense of likely to create pollution, is it in a sensitive area of the natural environment, et cetera, and if certain of these red flags go up then it becomes a high impact case. Q464 Linda Perham: Are you satisfied that your impact analysis meets the standard set by the World Bank? Mr Ormerod: Yes. The World Bank represents now - and this was one of the key achievements of the revision of Common Approaches - the base level standards for export credit agencies which they apply. Q465 Linda Perham: So you conform to those standards? Mr Ormerod: Yes, we do. Q466 Linda Perham: You say the impact assessments are commissioned by the sponsors, who carries out the assessments? You are relying on information which is provided by the people who want to carry out the work. I think you have forms, but would they just be a tick box thing, or would you go into detail and challenge what they are telling you? Mr Ormerod: The process is the project sponsors will commission the environmental impact assessment. Almost invariably nowadays they will use a professional consultant to do that and they will not use an in-house team. Our job is essentially to review that impact assessment, review the action plan which stems out of it, which is basically how the project sponsors are intending to mitigate any reservations raised by the impact assessment, for instance a resettlement action plan or something like that. We have a range of armoury, if you like, to bring to the issue. First of all, I have two people on my staff who are experts in environmental assessment and project engineering, and they are assisted by another person if we reach case overload. They are my in-house team. We may also use external consultants ourselves, particularly in tricky or sensitive cases or which may extend beyond their experience. We also conduct site visits, so we have been out to see the full length of the Baku-Tblisi-Ceyhan pipeline; we have been out to look at Sakhalin II and the impact that has had on the impact there, and to talk not only to the project sponsors and the consultants doing the environmental impact assessment but also to conduct our own investigation on the ground. Q467 Linda Perham: When you say "we" do you mean the people you referred to? Mr Ormerod: Yes, within ECGD. Q468 Linda Perham: Just those two people? Mr Ormerod: Those are the experts, yes. Q469 Linda Perham: So are they able to keep up with the amount of work? I think you said you would perhaps bring in other people, independent consultants, if they were over-stretched? Mr Ormerod: That is our reserve position, that we have consultants. Q470 Linda Perham: How often do you have to do that? Mr Ormerod: We have not had to yet, but we would be ready to do so. We have three major projects. We have just completed essentially the BTC one but there are two on hand at the moment. They can cope with that, if another couple came up simultaneously, we would have trouble. Q471 Judy Mallaber: How do you verify the accuracy and veracity of statements which are provided by the applicants? How do you make sure the information you are getting is accurate? Mr Weiss: Again, I think there is a distinction between low and medium impact and high impact cases. For the former category, I think it is probably true to say we rely quite heavily on information supplied by the applicant, but we do other checks - internet searches, use data bases - and of course we do have access to the Foreign Office post to verify information and to tell us more about the project if we need it. For high impact cases, as John has just said, we may well get an independent consultant to review the project information. Again, we can consult other government departments, and indeed engage with NGOs and other stakeholders for an independent view and again actually go there and see it for ourselves. Q472 Judy Mallaber: Some of my colleagues will ask more about the BTC project, but from the information we have had there does seem to be quite a saga of not being clear you were fully informed, for example, whether you know about the Mortimer Report on the coating, and a whole range of factors in the information you have been provided with. We will come on to that in more detail. How can you be sure you are being given the right information? You can easily get taken for a ride in a huge project and we have no way of knowing what steps you have taken and whether you do have the full information. Mr Ormerod: Essentially, we are relying on the skill and expertise of our people. One thing I should mention is that most of these very large projects are consortia, so for instance for BTC the total value of the project is about 3, 31/2 billion dollars, we are supporting about £150 million or dollars-worth of UK exports, so it is a relatively small fraction. The rest is made up of financing from the World Bank, EBRD, other export credit agencies, commercial banks, et cetera. What we tend to do in the export credit world is act together in respect of the environmental assessments. The reason for that is, there is no point in competing against nations on the quality of the environmental assessment and we may as well pool our resources where we can, so we will be using a common consultant to act on behalf of the ECAs. So it is not just the brains of ECGD brought to bear on the issue but those of our equivalent environmental specialists in other export credit agencies. Q473 Judy Mallaber: Who would take the lead on it? Who would you be relying on to show you had it right? Mr Ormerod: It tends to emerge in one of two ways. It can be that ECA which has more the developed expertise and, if you like, becomes first among equals. Or it could be structured as in some projects where other ECAs are in the role of re-insuring a lead ECA, and then the lead ECA would obviously take the lead in all respects. Q474 Judy Mallaber: What happens when you find you have been misled and, say, it has some environmental impact you were not told about, or some corruption or bribery or whatever else? What happens when you discover that is the case? Mr Ormerod: There is a broad distinction between the different events. In the case of environmental information, obviously that is moving at all times, very often new information comes to light, new allegations et cetera made in the press. Essentially, we have to make an assessment up to the point at which we provide cover, that is if you like the critical point for us. So our evaluation procedures are designed to reach a decision at that point. Thereafter, we are examining the project in a monitoring role, and basically saying, "Is there anything coming to light that would cast some doubt on that original decision?" The action we would take in those circumstances is that we would go back to the company and say, "This was not in the original mitigation plan, in the social action plan, whatever, what are you doing about it?" So it is bringing that kind of pressure. If it is an issue of bribery and corruption, that is much more serious. We refer allegations to the appropriate authority, in the UK in our case it is NCIS at the moment. Where a company faces the unfortunate position they were convicted under a competent jurisdiction of bribery and corruption, that could be the case where we could actually pull cover completely. Q475 Judy Mallaber: Do you feel confident you have the necessary expertise to be able to make those inquiries and be able to assess projects which come to you for funding or for cover? Mr Ormerod: We believe so, yes. Again, over the years since I have joined ECGD, which is since 2000, we have quite dramatically enhanced our procedures for considering environmental impacts, human rights aspects, social impacts, and it is a question of building up the knowledge-base. Similarly we have recently announced in April we were revising and enhancing our procedures for combating bribery and corruption, again in the light of experience, international best practice and working closely with NGOs such as Transparency International who recently, last autumn, reviewed the OECD export credit agencies and their overall performance on bribery and corruption issues. Q476 Judy Mallaber: Moving on to a related subject, a number of the organisations which have come before us have suggested you should not even consider, you should screen out, applications on the basis of the record of the performance of the country or the company on issues like environmental protection, respect for human rights, corruption and so on. You have a clear set of basic principles which we have in front of us, is there any reason why you cannot just screen them out where they do have a bad record rather than take a chance on a company or country? Mr Ormerod: We have to be careful of the terminology we use because our lawyers love this area. Basically we are here to provide a service to support exports from companies based in the UK, so we do not draw distinctions ab initio between different types of companies. What we would look for and what we say in our legal terminology is that if a company, for instance, had been convicted of bribery or corruption or appeared on a World Bank black list for instance, that would be a prima facie case why we would not provide support, but we have to be very careful about the language we use, so we consider applicants before we turn them down, if you like. Q477 Judy Mallaber: Even if they have been convicted, you would still have to consider them? Mr Ormerod: Relatively briefly. Q478 Judy Mallaber: Why? Mr Ormerod: Because that is the way the law is written. The other issue, and this is quite an important one, just because a company is convicted of - and we have an instance - or owned up to a corrupt act in a distant country, that does not mean the whole organisation is corrupt through and through. What we would do in those circumstances is say, "Okay, this is what happened in X, Y, Z whenever, we are in Country Y, what have you as an organisation done to enhance your procedures and make sure this never happens again and that was an isolated instance and not symptomatic of a disease running right through the organisation?" Q479 Judy Mallaber: Briefly, in light of the earlier discussions you heard with Friends of the Earth, turning it on its head, do you regard it as part of what you should be doing to positively promote positive goods in those areas, such as the discussion we had earlier relating to promoting renewables rather than what I was just talking about which was screening out bad practice? Mr Weiss: We did hear the Friends of the Earth talking to you. On renewables, I think the piece of key missing information there was that we have actually got a team in ECGD with responsibility for promoting that initiative and trying to get that £50 million used. It is quite true that ECGD is not perhaps ideally organised to know all the range of companies who might be interested and we too would be interested to see the information that Friends of the Earth provide. The key thing is, we have been working with UK Trade and Investment on something called an Outreach Programme to try and connect ECGD with those companies, and that is the best route for us to get to find out if they exist and, if they exist, whether they have the sort of business which would be appropriate to the ECGD guarantee. We have actually had a small number of inquiries as a result of that programme but unfortunately none of them has converted into real business yet. There is one project going round about using wave power which may come to something but they are all at a very early stage. That is the way we have tried to be proactive about that. Of course, we cannot go to the point of making renewables and sustainability our policy objective. As Friends of the Earth themselves said, our job is export promotion, our mission is to benefit the UK economy, and that means we must deal appropriately with all applications which come to us as long as they meet our business principles for environmental, human rights and social reasons, and for good sound financial reasons, but we are doing what we can to be proactive in the renewables area. Chairman: We would like to go on now to look at the Baku-Tblisi-Ceyhan pipeline project. Q480 Mr Clapham: Could I ask you some questions on the BTC. The one thing the BTC example gives us is the way in which the procedures work through. I note that the Baku-Ceyhan Campaign has made a number of allegations, in fact they allege there have been some 170 violations of international standards which relate to best practice. Given that situation in the case of BTC, what information relevant to the impact assessment, which would have been done by BP or certainly would have been done for BP by their consultants, did you consider apart from the assessment provided by their consultants? Mr Ormerod: Essentially, the lending group, which in ECGD was a relatively small proportion, commissioned consultants to provide a detailed review of the environmental and social aspects of the project, based on the assessments done by BP and the other project sponsors. There was a long series of meetings then with the consultants who had done the project, there were meetings with NGOs. One of the things we did do was log all the allegations which were made by NGOs in respect of the project and said, "What is the answer to these?" That included the issue of the coatings. We have to use our judgment as to whether we are receiving appropriate and relevant information. We share that with the other ECAs. So, for instance, my business principles adviser is a trained chemical engineer and he also has qualifications in environmental management, and it is that kind of professional expertise we rely on to do this kind of work. Q481 Mr Clapham: On a project the size of BTC there are bound to be disagreements between the applicants and the NGOs, but here we have some quite serious allegations which have been made. Have you made any attempt to clarify those at all? Mr Ormerod: Very much so, yes. When the coatings issue came up, we in the first instance encountered it through newspaper reports, and one of the first things we did was to discuss it with both the BTC company, which is the consortium, constructing the pipeline which has its own experts and press office, and with the principal UK sponsor, in this case BP. But we rely on them to give us the answer as to what they believe the circumstances of the case are, and then we assess whether their answer seems appropriate and correct. When we looked at the coatings issue there were two views from different engineers as to whether those particular anti-corrosive coatings were appropriate or not, and you rely on technical expertise to make that judgment. Mr Weiss: When the BTC project came forward for final approval or otherwise in the ECGD for underwriting the submission to the committee, which I chair, was about 120 pages long and half of it was addressing the environmental, social and human rights issues. What the team had done was to log every single issue that had been raised by stakeholders and NGOs and assess each of them independently, was there an issue, was there not an issue, if there was, what was being done about it, and in a number of them there were things being done and we wanted to see those things done. Our final conclusion was that the project did meet our standards quite successfully and we felt able to underwrite it quite comfortably. Subsequently our process for this has been looked at by the Export Guarantees Advisory Council and I think they also felt satisfied with the way we had handled it. Q482 Mr Clapham: The Caspian Development Advisory Panel was commissioned by BP to evaluate the project. They were quite praising of BP's efforts, but they made it quite plain that the Turkish pipeline company, BOTAS, just was not meeting the kind of standards that they would expect. Have you taken on board that report of the Caspian Development Advisory Panel? I understand that a further report was provided by Mott MacDonald. Presumably you have those reports. What has your response been to those reports? Mr Ormerod: The precise response is a technical judgment. I do not know whether my colleague can provide me with precise information on that, but we did look at that and again an engineering judgment had to be made on the respective merits of the two plastic coatings, both of which are used regularly on pipelines, including in the Arctic and that is a professional judgment and not one that I am qualified to conduct. I have just been passed a note. Both reports were taken into account in making that judgment. Q483 Mr Clapham: Did you not feel that there was sufficient in those reports for you to withhold your support for the project? Mr Ormerod: No, absolutely not. As I understand it there are different ways of both laying pipelines and coating them against corrosion and, as it turns out, the judgment was that both methods were acceptable in the circumstances. Q484 Mr Clapham: I heard what you said there, Mr Ormerod, about taking the advice of experts, but do you not think you ought to have commissioned your own report as well? Mr Ormerod: In those circumstances we did not, we were confident that we were in a position to make a judgment. It is something we would consider and there may be circumstances where we would have to commission such a report. Q485 Mr Clapham: Given that BOTAS got such a scathing report, would you think twice about financing a project where BOTAS were involved, or is it possible that sufficient pressure could be put on that company to ensure that they did improve their standards to meet the best practice available? Mr Ormerod: The general principle we work on is that we are not in the business of trying to withhold or disrupt the financing, we are there to make sure that the project complies with World Bank and other standards. So our first course of action is always to say, "Look, this isn't good enough, better procedures should be applied". I should add that Mott MacDonald were working for the lenders and advising the lenders so in that sense there was an element of independent advice. In terms of bribery and corruption it is rather different, that is where we would say no, but the purpose of environmental scrutiny is to improve the quality of projects and make sure that they meet the appropriate international standards. Q486 Mr Hoyle: Is it not right to say that in December 2003 the ECGD stated that it had assessed the project's compliance with the UK's international policies and obligations, including the European Convention on Human Rights? Does the application to the ECHR by the Kurdish Human Rights Project change your assessment? Mr Ormerod: The way we look at social aspects, particularly human rights, is in consultation with other government departments, this is where we rely particularly on the expertise in the Foreign Office. The assessment on the underwriting of BTC was that everything was satisfactory. The latest comments that Friends of the Earth have made about a campaigner being arrested I cannot comment on, but we will look into that. Q487 Mr Hoyle: Do you feel that you got the right information and support from other government departments? Mr Ormerod: Yes. We work very closely. Q488 Mr Hoyle: Do you still feel confident about that now? Mr Ormerod: Yes. We will review the evidence. We also deal constantly with embassies and high commissions overseas and periodically they will advise us of developments and their commentary thereon, yes. Q489 Mr Hoyle: So there is nothing you would change, there are no other views you would take, you would still come up with the same answer as you did back in 2003? Mr Ormerod: Nothing has happened since the underwriting of that project which has given us cause to believe that we made the wrong decision at that time, no. Q490 Mr Hoyle: But now, with hindsight? Mr Ormerod: With hindsight? Q491 Mr Hoyle: Do you still hold that view? Mr Ormerod: Yes. John, I think if it came to the underwriting committee again you would probably make the same decision, would you not? Mr Weiss: I think so. Do you mean because of the information that Friends of the Earth gave you? Q492 Mr Hoyle: That is right, and the application to the ECHR by the Kurdish Human Rights Project. Mr Weiss: At the moment the Foreign Office are taking the lead in Government in looking at that particular issue, but at the moment we do not have an agreed Government position. We could not say now that that is of such significance that it somehow or other undermines the decision we took in December, but clearly we are very interested in getting to the bottom of it and understanding it. Mr Ormerod: Allegations are happening at that project all the time. Our job is to look at those allegations and see, along with our colleagues in other departments, whether they have substance and generally speaking on human rights issues the Foreign Office will take the lead on that. Q493 Sir Robert Smith: You mentioned that when there is a collective project involving several ECAs you pool your resources in a sense in assessing it when it comes to the environmental impact. Do all ECAs operate with governments who have the same environmental aspirations as the UK Government? Mr Ormerod: We are working within the context of the OECD. Yes, in the early days of negotiating the common approaches that was an issue that concerned us. By the time we came round to the revision of the common approaches I was very pleasantly surprised that all governments within the OECD had taken very significant steps to comply with the common approaches and had brought their procedures up to the levels of the leading group, being ourselves and the United States and France, Germany etcetera. Q494 Chairman: There has been a lot of dispute about the coating procurement process and the unsuitability of the product. How do you satisfy yourselves in every sense on this one? Mr Ormerod: Are you taking about procurement overseas of the purchase of UK goods? Q495 Chairman: I am talking about the pipeline epoxy coating procurement process. This is a detailed point, but is one that has emerged as something of a cause célèbre. Perhaps you talk us through this because I think it would be useful to get on the record your side of the story. One of the problems we have is that when something appears in the newspapers we end up being asked what we are going to do about it. Mr Ormerod: Let me give you the present ECGD position on procurement. It is not for us to say how a foreign government or a project sponsor should go about procuring goods and services. What we look for is evidence of whether there has been a competitive procurement process because we believe that that gives the best protection against there being any bribery, corruption or other under due influence in the process. However, from time to time you find that processes were conducted where there was a sole bidder and our job then is to make sure that underwriting staff, when they review the case, are very vigilant to make sure the right questions were asked and there was not anything untoward about the procurement process. I am not actually familiar with the details of the BTC one. John, did you know? Mr Weiss: No. Q496 Chairman: Maybe we could move on from the process as such. I can understand that you are several stages removed, but when you are laying down the standards obviously the question of the coating of the pipeline must be quite critical because it will have an impact on the life of the maintenance costs. Safety is obviously the paramount consideration. How do you satisfy yourself that the coating would be safe? Mr Weiss: A piece of advice we have had is that the quality of the coating of the pipeline in the BTC case was fully assessed by Parsons, the engineers, to meet the highest standards, as much of the way in which that project was approached did and clearly you can have a situation where, with a sponsor like BP, they are not going to be the sort of institution that would be likely to accept a quality of coating that was going to cause leaks in the pipelines. The pressures within that are such that we could feel confident that the right technology was being used. The fact that subsequently it was found that cracks were appearing in the coating - and that was indeed true, there is no doubt that that happened - was because there was a rigorous testing going on on-site of the quality of that coating. That was why the system was there, to make sure it was being done properly and reasons were found for it not being quite right and corrected and subsequently there has not been a problem. Q497 Chairman: It has been suggested that you have this faith in the good judgment and the practice of BP. There was a consultant who produced the adverse report on the coating. Did you discuss it with him? Did you meet these consultants? Mr Ormerod: I am not aware that we met him. We certainly looked at that report and compared it to the evidence from both the BTC company and from BT. The finding of that was actually not that the coating was at fault, as had been alleged originally. There are many different types of plastic coatings that apply to pipes, but in this particular instance the method of application was perhaps not exactly appropriate to the climate and circumstances at the time and that is why the pipelines had to be re-coated, which was the rectification process that the BTC company decided upon. Mr Weiss: Would it help, Chairman, if we gave you a more detailed note explaining that? Q498 Chairman: I think that would be helpful. We have had a number of allegations and the alligators are still swimming about! I think it would be useful to have it on the record. I do not want to prejudge the evidence you are going to give us in written form, but there has been the suggestion that you have got a little bit of egg on your face as a consequence of this insofar as the whole question of the coating is concerned because it was quite a significant element in the project. Do you think, in retrospect, you could have conducted a due diligence process rather more rigorously? Mr Weiss: My understanding of this issue is that, first of all, the significance of the problem was exaggerated. It was a problem that can arise. As John said, it was to do with the application of this coating on-site, with the ambient temperature and the way this was working. The checking system detected it as a problem and it has been put right. It is true that this was not reported to us at that time probably because I do not think it was an abnormal event and it was one that they could put right relatively quickly. On the procurement side my understanding is that although allegations were raised, they were not substantiated. I would hope that the note we give you, which will try and give all the facts as we see them, would prove that we have not got egg on our face on this particular point and although we are always looking at projects and willing to learn lessons from them this perhaps does not point to a fault in our process. Q499 Chairman: We will probably make the evidence available to those who have been making some of the allegations because an element of peer review would not be inappropriate here before we come to a conclusion. I should also say, Mr Weiss, that this is an example of a problem, it is not a criticism of the Export Credit Agency that you and your colleagues operate, although I have to say that the last time we looked at your activities I think we ended up getting snared, if that is the right expression, in the Ilisu Dam project which ultimately was never proceeded with by the British companies. I know that Mr Hoyle and myself trampled round bits of Turkey looking at it. I think there were problems there. It might almost be said that, when you are talking about investment projects in a country like Turkey, at times there is a tendency towards carelessness or a lack of attention in some respects certainly to human rights considerations and the way that we would do it. One would have looked at this a little more carefully even when you consider that a flagship UK company like BP was involved. If you were to look at a proposal of this nature again we would like to think that maybe due diligence might be even more rigorous than it was at the time. Do you agree? Mr Weiss: There was a view abroad that perhaps we had already committed ourselves to supporting Ilisu and I think we kept saying we had not. There were four key social impact conditions to be met and we never got anywhere near deciding whether they were likely to be met or not by the Turkish authorities, we just simply did not get there because Balfour Beatty withdrew. I hope I am not being complacent in saying that I feel comfortable that we underwrote BTC, it seemed to meet the standards quite comfortably and I doubt that we could have done any more in terms of due diligence on that. Whether this most recent event in any way undermines that I just do not know at the moment, but at this moment I do not think there are things that BTC are telling me we should do differently. Indeed, I think the way we handled BTC is an indication of how it is going to be in the future, so I am expecting more 120-page submissions to the underwriting committee! Q500 Chairman: We have covered all of our agenda for the moment. Your evidence will have contributed to our report in no small measure. We are very grateful to you for your efforts today. Thank you very much. Mr Weiss: Thank you, Chairman. |