Select Committee on Foreign Affairs Minutes of Evidence


Examination of Witnesses (Questions 106 - 119)

TUESDAY 13 APRIL 1999

MR FRANK CHAPMAN, MR GRAHAM BARR, MR DAVE RUSSELL and MR TERRY ADAMS

Chairman

  106.  Gentlemen, may I welcome you to our Foreign Affairs Committee. For the record, I will go through your names and positions and I am sure you will correct me if I am not correct. Mr Frank Chapman, Executive Director of BG plc; Mr Graham Barr, Vice President, International Regions, BP Amoco plc; Mr Dave Russell, Business Manager, BP Amoco plc, whose headquarters I understand is in the constituency of my colleague, Dr Phyllis Starkey (but we have decided that is not a declarable interest!); and Mr Terry Adams, Monument Oil and Gas plc, I am sure standing in very well for our former colleague, Tim Eggar, who I understand is in the region at the moment. Gentlemen, you know the terms of reference of our Committee—that is, to enquire into the FCO's role in promoting British interests in and relations with countries of the Transcaucasus and Central Asia. Our focus is essentially on the government machinery, specifically the Foreign Office and, hence, our embassies in the region, the British Council and the World Service. We want to find out—and we need your help as those in the front line who represent business and rely to a greater or lesser extent on our official representatives: where you think the official machinery could do better; your comments on the quality of that machinery; and the experience which you can give us, first, perhaps in terms of the embassies in the region. My impression in reading the documents is that one of the key expectations you have of our embassies is to open doors, to have good personal relationships with what are probably highly personalised political structures there, so that they can open doors for you and your business colleagues. Can you give us some indication of what you expect from a good embassy in that region, which is fairly unknown still to many people in this country?
  (Mr Chapman)  BG has been in the region for nine years or so, since 1990, so our interface with the FCO and with the embassy there in Almaty is rather different than a new entrant. We have already established very good relationships, and we do not really rely upon the embassy to establish those relationships for us. We do, however, use the FCO a great deal for its views on economic and political developments, and that was particularly of use in recent times when the Russian crisis was upon us. I think our view is that, on the whole, UK interests in Kazakhstan, where we are principally investing, have increased rapidly in recent years; and our feeling is that the weight and extent of the support of the missions has probably not increased in step with that increased investment. Particularly we would argue for a somewhat higher profile and larger contingent in Almaty, possibly more of the nature of the US type of involvement, which tends to overshadow a little bit the United Kingdom involvement. We would argue for some specialist energy presence there. I think that would serve greatly to improve the standing of British industry in Kazakhstan. To date we have not used the embassy to any great degree for lobbying. As I mentioned earlier, we have access to senior government officials through a long-term relationship. We do use social functions which they organise to great effect. We do use them for validation of the assumptions we make about events and how they will unfold, and they have been very useful in visa and consular services. I do think there is scope, if the embassy were strengthened, to use them more for lobbying issues which are of major import.

  107.  Such as?
  (Mr Chapman)  Although the liberalisation process is going very quickly, it is taking the government machinery quite some time to catch up; therefore things tend to get bogged down in government, and major decisions can take a long time to secure. Lobbying from the embassy may be of assistance in moving major issues ahead.

  108.  That is progressing particular projects rather than lobbying, say, on the legal structure—the commercial and financial structure which you think is inadequate?
  (Mr Chapman)  Yes. Specific issues, for example, a planning consent (which may hold up the progress of a $2 billion investment) can become entrenched in debate and rivalries between government departments, which very often take quite some time to unravel and require reference to a more senior authority. On those issues, which can impinge very seriously upon the commerciality of a venture, additional strength in the mission from the lobbying perspective would be helpful.

  109.  BP Amoco, you are a giant as well; are you so big you do not need the resources of our embassy so much?
  (Mr Barr)  On the contrary, we were one of the early movers in this region and we work closely with the embassies and the Office here; we find the help and support extremely important. I think philosophically our approach to the Office and to the embassies is that we form a team, in a sense; we work closely to ensure there are no surprises, and where help can be given it is given. I think the diplomatic skills of the Office and the embassies is highly valued by us. Perhaps before going further I should point out that BP Amoco is focused on Kazakhstan, Azerbaijan and Georgia, the last mentioned being a pipeline transit territory and that is the focus of our interest there. As far as the region itself is concerned, it is no secret that it is a highly sensitive region. It is also no secret it is of considerable geo-strategic and geo-political importance, and we welcome any focus by HMG on that area; because we believe one of the vital roles Britain can play in that part of the world is to help with the growth of institutions, and capacity-building which would bring them into the area of international norms in terms of governance and in terms of matters such as finance etc. etc. We believe there is a very important role for the United Kingdom government to play in that respect.

  110.  That means the Westminster Foundation, Know-How Fund and so on?
  (Mr Barr)  Absolutely. We believe the United Kingdom, with its influence in Brussels, could also be a very useful avenue to engage Europe more closely in this region and act as a bridge to the USA. We see it, in a sense, as a very important part of the European agenda, as well as specifically for the United Kingdom; and within the framework of a trans-Atlantic alliance it is also a very important area of focus. As far as the capacity of the embassies in the countries I have mentioned is concerned, I think our experience is that when we require help it is there; there is good liaison and rapport and good communication. From time to time it clearly stretches the resources of those posts, but they tend to manage. Any requirements by the Office, which they have identified as a resource need, we would support their views on that. One of the ideas which has been raised already of some specific energy expertise might be a very good idea. As far as we are concerned, things work extremely well and we have good relationships.

  111.  We have heard criticism that our system is not flexible enough to pay the salary for the job for locally engaged commercial officers. Do you have any comment on that?
  (Mr Barr)  I have no knowledge of that, I am afraid. I think what we do know is talent in those areas, which would fit into the framework of international norms within the commercial business frame, is not that plentiful. Perhaps they do come at a higher cost. I have no idea personally.

  112.  Perhaps I could call on Mr Adams for Monument?
  (Mr Adams)  Monument is very well represented throughout the Caucasus and Iran, so our focus is entirely on the South Caspian. In terms of our relationship with the Foreign Office, it is rather special—mainly perhaps because of our Chief Executive being an ex-Foreign Office Minister; as well as the fact I was the original President of the first AIOC Consortium. The intimate involvement of the Foreign Office in facilitating the success of the Consortium was critical, critical at a variety of levels. It was critical in terms of having well balanced regional and local political judgments and facilitating external governmental contacts. But perhaps one of the best representations of what they did contribute was when we reached a negotiating blockage with Moscow: high level pressure was brought by the British government through the Foreign Office to unblock that problem.

  113.  This would have been under the old Soviet Union?
  (Mr Adams)  That is right. It was when we were negotiating commercial contracts for transporting oil through the Russian pipeline system. Delays were becoming unacceptable, and the Foreign Office brought in the support of the Prime Minister's office to put a very strong statement to Moscow that this needed to be addressed. This was done in conjunction with the US State Department and Vice President Gore. From the evolution of AIOC, the oil developments in the Southern Caspian, the presence and the role of the Foreign Office was crucial.

Sir John Stanley

  114.  Could I ask each of the three companies to give us their views looking at other comparable countries' overseas representation in these seven countries; as to whether they see other countries in terms of their official representation including, if they exist, their use of their own national chambers of commerce—for example, the German chambers of commerce overseas do a pretty strong export promotion job for German business interests; and whether they see other countries doing things more effectively than we in HMG are doing in terms of promoting their own country's interests?
  (Mr Russell)  I think it is worth pointing out and re-emphasising the point that you are looking at three companies which were the early movers in three different countries, Kazakhstan, Azerbaijan and Turkmenistan. We have the luxury, in a sense, of having very high quality relationships on a day-to-day basis with the people who matter in the countries. What we see, for instance, with the Germans working very hard is a catch-up game. There may be an appearance of them working harder, but that reflects the work they have to put in to get to where we are. From my point of view, I do not see it having a negative impact on our business. Reflecting the comments by BG, the key we see is, unlocking some of the individual crunch points on decisions is where the value comes in, rather than trade missions and so on.
  (Mr Chapman)  Being in the country from a very early stage does give BG privileged relationships. BG's view is that one should not underestimate the great importance of having strong relationships. These are forged through direct contact and through the presence of a strong mission. In that respect I would suggest that comparing HMG's efforts with, for example, Italy and the US, one can see immediately we have a weaker presence, and I think that has an immediate effect in terms of the appearance of HMG's commitment to Kazakhstan and supporting UK businesses there.

  115.  You are saying that just in relationship to Kazakhstan?
  (Mr Chapman)  I am talking about Kazakhstan. We have three ventures in Kazakhstan and each of these ventures has already committed, or has potential to be committed, in the order of billions of dollars of investment. We are talking about extremely significant investment potential. I would say supporting UK investment of this scale is well beyond the capability of the mission as presently set up. Relationships, as I think Monument have submitted in their written submission, are extremely important in this region.

Chairman

  116.  Personal relations?
  (Mr Chapman)  Yes, relationships with key players. The role government has in strengthening these relationships, through for example senior ministerial visits, must not be underestimated. I think they have a great role to play in signalling commitment to an area. They can often trigger a series of events. For example, in the process of a negotiation, when a senior ministerial visit occurs, this can often be a catalyst or a trigger to accelerating through the final details and maybe the final sticking points before an agreement is consummated. I can give examples of that being the case when President Nazarbaev visited President Clinton in November 1997, which triggered all the activity leading up to the signing of the Karachaganak production sharing agreement. I can give an example in Egypt (that is a very good model for us to look at in terms of the government's involvement, the promotion of the Egyptian/British Business Council and so on) where Prime Minister Blair's visit was the catalyst to accelerating the conclusion to BG's Seti pipeline franchise aiming to take gas to upper Egypt. The role of senior ministerial visits is an extremely important one.

Sir John Stanley

  117.  What view are you conveying (apart from its importance) to the Committee?
  (Mr Chapman)  We need more support.

  118.  Are you saying we are doing not as well as other comparable countries?
  (Mr Chapman)  Yes.

  119.  Or are you saying we are doing as much as we reasonably could?
  (Mr Chapman)  I am saying two things: I am saying I do not think the pace at which this is building, in terms of ministerial involvement, is in step with the pace and magnitude of investments which one is considering; and I think other countries are doing better. I think Italy and the US are two cases in point. We have both Italian and US partners in Karachaganak and Kazakhstan and they are getting greater support from their governments.

Chairman:  Before asking Mr Adams to complete that question, I think Dr Starkey has a question specifically on this point.


 
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