Examination of witnesses (Questions 60
- 79)
TUESDAY 1 FEBRUARY 2000
THE RT
HON RICHARD
CABORN, MR
VIVIAN BROWN
and MR JOHN
R WEISS
60. How many of them have mentioned the preservation
of Hasankeyf in public as Stephen Byers did?
(Mr Brown) I do not know the answer to that.
61. The detailed plan of preservation is being
done by who exactly?
(Mr Brown) What is happening at present is that there
are discussions which we are taking part in with the Turkish authorities
about precisely what their plans will be both for recording the
existing sites at Hasankeyf and also for seeing how far it is
possible to move some of the monuments above the water line so
that they can be preserved. Those discussions are still going
on, it is not entirely clear what can be achieved. That is precisely
what lies behind this question of four conditions, discussions
and then to see how far we can make progress.
62. Can I ask Mr Caborn, who will determine
whether this precondition about Hasankeyf is met?
(Mr Caborn) As indeed on all four conditions, the
Secretary of State.
63. Could I move on to the Environmental Impact
Assessment and the environmental review which has been commissioned
by ECGD which lists a number of essential preconditions. If those
preconditions are not met will we refuse to support the dam?
(Mr Caborn) Could you repeat that, please?
64. A number of essential preconditions are
made for ECGD support. Will ECGD refuse to support the dam if
the six essential preconditions set out in the environmental review
are not met?
(Mr Caborn) It will not be ECGD that makes the decision,
it will be the Secretary of State who makes the decision. That
will be taken in the round as any political decision is taken
and we will obviously factor that in. We have laid down what the
preconditions are and we will look into the answers to that. If
they are not satisfactory then the thing does not go ahead, if
they are satisfactory then the thing does go ahead. That is a
political judgment at the end of the day and that is what we are
in government to do, to make political judgments. We will come
back and tell you exactly how we made the decision and this is
all part of the process of that, so we get an informed decision
at the end of the day.
65. If the Secretary of State were to make an
informed decision and allowed ECGD cover to go ahead, what would
happen if the commitments were later not implemented? Can we withdraw
the support half way through?
(Mr Caborn) These are areas that we are now looking
at in terms of standards and the implementation of those standards.
We have got to be reasonably satisfied. Can I just reiterate to
you that we are talking about a country that has just been accepted
for accession into the European Union, we are talking of a country
that was one of the founders of the OECD and we are saying that
there are international standards laid down and we are trying
to lift all the standards generally across the world in terms
of the environment, in terms of human rights, whatever, and step
by step we are doing that. This is one of those areas where we
believe progress can be made. The answer to your question is,
yes, we will be putting into place firstly the base lines and,
secondly, how they are implemented.
66. I agree with you. I happen to be quite a
fan of Turkey, however we are also talking of a country, particularly
a region, where there is a major conflict taking place which has
claimed a very large number of lives in the recent past and which
I think it would be unwise of this Government to ignore.
(Mr Caborn) We are not ignoring that. As I say, that
is why we consult all of our colleagues in various departments
and stage by stage we are trying to lift the standards in this
area and in other parts of the world. This is not to be taken
out of context with that, what we are doing on relieving the debt,
what we are doing trying to open the markets up as far as the
least developed countries are concerned, the development of economies
like Turkey, accession into the European Union, they are all part
of the moving scene. You can go back retrospectively and keep
looking back, as many people seem to have done in this particular
project, and make decisions on that or you can try to get the
best information available and move international standards upward.
That is what we are trying to do. We will come back and report
to this Committee, as we will to the House, when we have got all
that information available to us. This is an interim report in
that context.
Mr Robathan: I do not think we are looking
back, I think we are looking at the present and what may happen.
Chairman, I think I will leave it there
Chairman
67. Minister, can I just pin you down a bit
more on that. We do want to know exactly what would happen if
such commitments made to you and to other ECAs by the Turkish
authorities and on which you then decided to implement the project
were not honoured by the Turkish Government. Can ECGD then withdraw
their support?
(Mr Caborn) It depends on the enforcement criteria
you put down into the contract and these are areas that we are
looking at. As I said, we are going to look at the standards that
we believe need to prevail in terms of resettlement. If those
are not met then clearly one has got to have enforcement mechanisms
inside the agreement which allow you to trigger that. They are
areas that we will be looking at.
68. I urge you to make certain that this is
not just at the beginning of the project but during the course
of the project so that if no resettlement scheme is eventually
actually made you would withdraw ECGD support.
(Mr Caborn) As I say, we will want mechanisms in place
to make sure that the conditions that are laid down are carried
out and that would be in any contract. I think Mr Brown will want
to comment.
69. Just let me explain, the problem is you
have got to put your guarantee in place long before the resettlement
process takes place.
(Mr Caborn) Absolutely, and I think we are very mindful
of that. That is why we want to move the standards up. Let me
just put this in context. If you are going to close the energy
deficit that Turkey has got and also start the expansion of that
economy, you are talking about two Ilisu Dams every year for the
next ten years. I think those were the figures that were given
to me. That is the magnitude of the deficit that we are talking
about. It is important that if a country like this is going to
be able to close that deficit and continue to expand its economy,
which will demand energy, then we want to do it in the most sustainable
way possible to try to get a country like Turkey to accept its
international obligations. That is what we are doing.
Mr Robathan
70. Can I come in very quickly on that. I have
just had a series of questions that I have put to your Department—
(Mr Caborn) Wait for the answers then.
71. If you are going to pursue this line, Mr
Caborn, which I applaud, of using renewable energy, what suggestions
have you made to the Turkish authorities to make better use of
the sun, which is pretty much useful around there, both in terms
of solar heating in general and particularly in photovoltaics
which is being used across the world now?
(Mr Caborn) I am a Trade Minister, not an Energy Minister.
72. You raised the question.
(Mr Caborn) I did not raise the question, I just gave
you the facts. I have not got the solutions. I have got the questions
but I have not got all the answers.
Chairman
73. I think that takes us well out of the context
in which we are asking questions this morning. We have no method
and we have no information to make an assessment of how you meet
the Turkish Government's electricity needs, that needs another
set of questions and another session. We must leave that and go
on to general issues. May I open the general issues questioning.
What I want to ask is this: the Committee made a report on the
ECGD, as you will remember, Minister, and you rejected our recommendation
that an independent study commissioned by ECGD "concluded
that ECGD's remit should not be expanded to incorporate additional
aid or industrial policy objectives, as doing so would be likely
to undermine operational effectiveness." You can understand
that this Committee did not really accept that reply. Why, therefore,
according to the independent study should the inclusion of developmental
objectives in ECGD's Mission Statement undermine operational efficiency
and effectiveness?
(Mr Caborn) Can I ask Mr Brown to answer those points
and then I will come in.
(Mr Brown) The quotation which you have made, Chairman,
I think came from an independent report which we commissioned
from National Economic Research Associates.
74. Yes.
(Mr Brown) Obviously the Mission Statement review
which we are engaged in is looking widely at what our role should
be but our existing role as defined by statute is to be there
to facilitate UK exports whilst trying to safeguard the interests
of the taxpayer. In the discussions that we have had on Ilisu
and the comparisons between us and the World Bank and aid organisations
we have perhaps indicated that the sort of way in which we become
involved in projects is fundamentally different from the way in
which a development bank or an aid organisation would become involved.
They would have a role right at the beginning of a project, indeed
to initiate a project. They would have a source of funds to go
along to a developing country and suggest that as part of their
own country programme it might make sense to engage in a particular
project. In that way they can therefore try to determine precisely
what their own portfolio of grants or loans should be. We are
in an entirely different situation from that because what we exist
to do is to respond to possibilities which UK exporters have to
win business predominantly in developing countries. So before
we can become involved in a project a number of things need to
have happened. First, the overseas country, and if it is a public
sector contract the overseas Government or public sector buyer
or private buyer, has to initiate the project. Secondly, they
need to have gone through some form of procurement process in
which it is clear that there are going to be some opportunities
for UK exporters. Thirdly, where the UK exporter wants to pursue
that project and thinks he has a good chance of winning the contract
he and his bank will have to decide whether they want to have
insurance cover against the risks of payment. I am simply making
the point that in terms of the way we are structured, which is
to react to UK exporters who see opportunities either as prime
contractors or as sub-contractors to do business predominantly
in non-OECD markets, we have to wait for that project to be initiated,
we are not like an aid organisation or a developing bank initiating
the projects ourselves.
75. I think the Committee understands very clearly
that it is not your role to initiate or to create projects but,
on the other hand, once those have been created by other agencies
your Department very much comes into play because very often projects,
particularly in politically difficult regions, which is one of
the criteria which you are expected to meet under the Act which
you operate, need to be capable of being insured so that, in fact,
the two organisations, one concerned with development and one
concerned with insurance as you are, are related. Therefore, why
is it not possible to robustly apply criteria on commercial viability
and risk, which is your job, whilst also ensuring that the project
proposed does not undermine or run contrary to the Department
for International Development's policy in that country?
(Mr Brown) I think there is a very substantial overlap
between the interests which you and your Select Committee have
in development projects in developing countries and our interests
in ECGD and our Minister's interests in ensuring that those projects
are commercially viable. Firstly, I think you will be concerned,
as many NGOs and others are, that Export Credit Agencies like
ECGD should not unwittingly encourage poorer countries to build
up unsustainable levels of debt. Certainly we do not want to recreate
the problems of the 1980s and that was why we introduced our own
new risk assessment system in 1991, to strengthen our own procedures
for assessing country risks. What we do is we evaluate their creditworthiness
and we base our assessment substantially on the level of a country's
existing indebtedness. We have an explicit duty to protect the
UK taxpayer and that interest is identical with protecting the
Governments and citizens of developing countries from taking on
debts which they cannot afford to repay.
76. If for no other reason, Mr Brown, than when
you are dragged in front of the Paris Club and asked to write
off debts which have become unpayable, you then have to take a
loss, so you ought to have a very, very strong interest in making
certain that the projects you are ensuring are commercially viable
and capable of repaying the loans and/or equity that is invested
in them. You are very near to being in exactly the same boat in
terms of the developmental effectiveness that the Department for
International Development is trying to expand.
(Mr Caborn) That is exactly the point, Chairman, why
action has been taken in the round in terms of this Government.
The ECGD were one of the leaders, with the Treasury team in the
Paris Club, to reschedule that debt.
77. I know you were.
(Mr Caborn) We have a very close working relationship
with the Treasury. That is why we wrote off £1.9 billion
worth of debt. The condition that was laid down was to actually
get those countries to have sustainable economies. That is now
being factored into the review that we are doing and, unfortunately,
I do not think time is going to allow us to explore some of the
areas in terms of core development that I think ought to be explored
in terms of the review that is taking place on ECGD and how this
Government is now trying to approach that which our Secretary
of State, Stephen Byers, asked us to do in that review. There
is a whole series of areas both in terms of writing down debt,
in terms of access for least developed countries and HIPC countries
particularly into the developed markets, which we have been pursuing
through the EU and WTO in making sure that they have got access
to those markets, so we then get the virtuous circle of writing
down debt, getting investment to the sustainability of those countries
and getting them access for their products both quota and tariff
free into the developed markets. That is all part of it. ECGD's
role in that has been very much a proactive role both in terms
of the Paris Club and the expertise that has been able to be given
that has complemented the Treasury and, secondly, what we are
doing in terms of restructuring the debt and where we really want
to get involved as the ECGD in developing that. Just as an aside,
I think that ECGD is always seen as a force for evil and not a
force for good. Some of the support that we have given, for example,
in Pakistan in some of the areas there has meant that they have
been able to export some of their products rather than actually
importing. A lot of heavily indebted countries have been able
to use ECGD in a very proactive way in helping to restructure
their economies but it has got to be said that ECGD is not an
aid in itself, it is there to support and underwrite risk. People
come to us, we do not actually structure it.
78. I think we have agreed in this exchange
that in fact there is a very strong symbiotic, if I can use that
word, relationship between ECGD and developmental objectives of
the Department for International Development. I come back to the
first question which I put to you. Why have you rejected our proposal
in relation to developmental objectives in ECGD's Mission Statement?
Why have you rejected it by saying that they would undermine operational
effectiveness?
(Mr Caborn) Chairman, we have not said that. That
is an independent report.
79. That is an independent study that has said
that.
(Mr Caborn) Well, it may have—
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