Examination of witnesses (Questions 100-119)
Wednesday 21 May 2003
MR VIVIAN
BROWN, MR
JOHN WEISS,
MR JOHN
ORMEROD AND
MR DAVID
ALLWOOD
Q100 Joan Walley: Finally, you are
talking about the extra money that was available for extra applications
which might come forward, what about applications which are coming
forward where you have required a higher commitment to sustainable
development than there is in the original proposals? Can you give
us a composite example where that is the case, or a project?
Mr Brown: The case which was extremely
controversial at the time when I appeared before the International
Development Committee, with Mr Caborn[11],
was the Ilisu Dam Project, where what we were engaged in with
other export credit agencies was saying to the overseas buyer
there would need to be changes in the nature of that project,
the way in which the project was developed if it was to be in
a position to be considered for support.
Q101 Joan Walley: Was that a result
of your decision rather than the campaign? Do you see what I mean?
What role was your response to that application?
Mr Brown: The response to that
was one which was led by us and by other export credit agencies.
I said at the time we were not the only export credit agency being
asked for support for that project. There is a recognition amongst
export credit agencies that the quality of the projects they are
supporting is an important issue. The view which I expressed in
ECGD is one which is shared by most other export credit agencies,
although we would feel we were ahead of the field in many areas.
Q102 Joan Walley: You did not turn
the application down, did you?
Mr Brown: The application was
eventually withdrawn.
Q103 Joan Walley: It was not you
who turned it down?
Mr Brown: Your question was whether
we were able to exercise our influence to bring about change.
You asked me for a particular example and I am giving you one.
Q104 Mr Ainsworth: Going back to
the £50 million that was made available at the time of the
World Summit, this is in the context of £3.5 billion a year
of business which you guarantee, it is not a huge amount, is it?
Mr Brown: It is not additional
money. We would be ready to support viable projects which are
coming forward. The purpose of that was to try to indicate that
we were particularly open to projects of that kind coming forward
but if we had more projects involving renewable energy coming
forward then we would be very happy to consider support. £50
million is not a ceiling.
Q105 Mr Ainsworth: How much of that
£50 million has been taken up?
Mr Brown: None so far.
Q106 Mr Ainsworth: You have no applications?
Mr Brown: We have had, there are
three projects currently under consideration?
Q107 Mr Ainsworth: Would they in
total use up the £50 million?
Mr Allwood: No, they would not.
Q108 Mr Ainsworth: They are small
projects?
Mr Allwood: Renewable energy projects
by their nature tend to be small projects.
Q109 Mr Chaytor: Can I return to
the question of constructive engagement with projects, you referred
to the Ilisu Dam, can you give us examples of other projects where
you have constructively engaged with the supplier and exporters
and secured positive improvements for the project that was subsequently
agreed?
Mr Brown: There are a number of
cases where we have done that. We are likely to be more effective
if we can do that, if we can do that privately with the overseas
buyers.
Q110 Mr Chaytor: I appreciate the
issue of confidentiality, in terms of the nature of changes that
you have been able to negotiate, it would be useful to get a flavour
of the kind of constructive engagement you have been involved
in?
Mr Allwood: In terms of typical
things that we do we try in the project documentation to get the
commitment of the project owners to comply with the international
standards that we require them to meet. Not only do we get the
commitment up front that, yes, it is going to be designed and
operated that way, but we put that into the project documentation
so that we have some legal leverage over the company as we monitor
its performance at a later date. Another area that we have some
success in is ensuring that more of the benefits of the projects
are fed back to local communities and local communities have more
opportunity to talk and communicate with the project company to
ensure that their needs are being addressed as much as they can
be by the project company.
Q111 Mr Chaytor: What proportion
of projects that are screened in this way are subject to this
kind of negotiation as against those that are considered entirely
on the merits of the original application?
Mr Brown: Of the guarantees we
issue we have about 70 cases which we were looking at. I think
you know from our memorandum that we categorise those in three
areas, high, medium or low impact. Roundabout half of those cases
would have been low impact, of the remainder, 10% would have been
high impact and 40% medium. Perhaps I can ask Mr Allwood to say
what per cent of the high impact cases there would have been.
Indirectly through our requirement for a report, or in some cases,
a resettlement action plan to would be produced, that in itself
gives certain signals and produces certain pressure rather than
us saying: "These are the particular changes that need to
be made". In other words, there are ways our influence begins
earlier in the process. First of all I make it very clear that
this is an area that we take very seriously. There may be a whole
range of project improvements which take place precisely as a
result of people knowing they have financiers looking at these
issues. Likewise, our requirement that there should be particular
assessments and plans which are produced again may have other
impacts and effects on the project. Beyond that where there are
particular issues where we say: "At present this does not
met the standards", we would then engage more directly in
saying: "This is a particular aspect we find unacceptable".
I do not know whether Mr Allwood wants to add to that.
Mr Allwood: We look through all
of the projects in detail. The screening process screens out those
that have minimal impact on the environment and it is unlikely
that we would enter into any constructive engagement with them.
Apart from constructive engagement, we tell them what our standards
are very clearly and not unsurprisingly no applications come to
us that do not ostensibly met our standards. When we look at them
in more detail we identify whether or not they meet all of the
requirements and where they do not meet them we discuss how the
project can be improved to ensure it does meet them. Can I go
back to one point, one of the projects we are currently considering
is significantly bigger than the £50 million, so there are
a few around. Whether or not it goes forward will depend on all
of the commercial viability rather than our involvement.
Q112 Mr Chaytor: In terms of the
screening of projects all defence projects are examined for screening
and all aerospace projects are examined for screening, can you
give us an indication of the current portfolio within the aerospace
field and the defence field?
Mr Brown: Let me make one correction.
On the defence side we would exclude from consideration those
defence cases that require the production of an export licence,
which for the most part is sharp arms, but in cases where it is
non-sharp arms but it may be for defence requirements we would
look at those cases. Obviously in the aerospace area there are
substantial environmental international standards through the
ICAO and others, and that is what we rely on. In a typical year
we probably issue guarantees of somewhere between 150 and 200.
Roundabout half of those case are ones that fall into aerospace
and/or defence business. In particular the aerospace area is now
roundabout 30% of our portfolio including support for the aero
engine on the Airbus or Boeing, and some support for regional
jets. In terms of the numbers of guarantees it is mainly in the
aerospace field where we rely on the existence of strong, environmental
standards. We know that the aircraft that we are supporting all
have to meet these standards.
Q113 Mr Chaytor: In terms of the
development of guidance on the sustainability development criteria,
you refer in your memorandum to meetings with environmental international
trade, how productive have these been? What additional guidance
or clarification has emerged from those meetings?
Mr Brown: The meetings have only
just been established so I think you probably ought to ask the
minister rather than ask me when you look at ECGD and sustainability
issues in the future.
Q114 Chairman: How many of these
meetings have there been?
Mr Brown: Just one, the one which
agreed that meetings of this kind should be held in future. It
was the establishing meeting which took place.
Q115 Mr Chaytor: This is the very
start of the process. On the question of projects which have been
rejected or in this particular case withdrawn, the Ilisu Dam was
withdrawn following attempts by yourselves to bring about improvements,
how does that establish precedent for future applications? Does
that mean all large-scale dam projects will be automatically refused?
Mr Brown: No. I think it is important
that we should look at all cases on their merits. I made this
point about our legal position generally. There were particular
circumstances in relation to the Ilisu Dam the resettlement issues
and the location of the dam in Turkey which meant that it had
certain special features—just as other projects will also
have special features. We will look at a case in the round.
Q116 Mr Chaytor: Do you think your
organisation has acquired any new understanding of these projects
or is likely to change its attitude towards consideration of these
large-scale projects in the future? Do you think your attitude
will have changed because of the Ilisu Dam application?
Mr Brown: We are a learning organisation
so the fact that we are having to try and take these decisions,
often quite difficult balancing decisions, between quality and
the payment risk means we are building up greater experience,
not just in the Business Principles Unit but also amongst the
underwriters, for which John Weiss is responsible. We have training
programmes so that John's underwriters understand these issues
as they come forward. We are working as an effective team in the
Department.
Q117 Mr Chaytor: In the statement
of Business Principles it refers to taking into account government
policy on international development, including those on sustainable
development, if it said instead of "taken into account"
"act in accordance with" do you think that would bring
about a significant change to your operation?
Mr Brown: I think I would give
the same answer as I did to the question that came up about whether
or not if it was a legislative change would it be likely to have
a big impact? We take these issues seriously. The way that we
are doing it is in accordance with those policies. We recognise
that there will be tension sometimes between those policies and
therefore we have to make recommendations. Sometimes there are
issues where ministers themselves will take the final decision.
Q118 Mr Chaytor: You referred earlier
to the distinction between a reactive and proactive approach and
you defined yourself as a reactive organisation, from your knowledge
of other country ECAs[12]
are they equally reactive or are there examples else where of
proactive ECAs? How do you figure in the international league
table of reactive and proactive?
Mr Brown: All of us are in the
same position. We begin to function when there has been a procurement
process. Some Export Credit Agencies may be ready to say to particular
countries: "We are ready to provide finance for this country
provided projects come forward".
Q119 Mr Chaytor: Which would those
be? I think we are interested in international examples.
Mr Brown: There are a number of
agencies who would regard themselves as lenders of last resort
where there is a more overt political view about support, I would
quote the USA as an example of that.
11 Please see Minutes of Evidence in Sixth Report of
1999/2000, HC 211, `ECGD, Development Issues and the Ilisu Dam'. Back
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Export Credit Agencies Back
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