Examination of witnesses (Questions 120-139)
Wednesday 21 May 2003
MR VIVIAN
BROWN, MR
JOHN WEISS,
MR JOHN
ORMEROD AND
MR DAVID
ALLWOOD
Q120 Mr Challen: Do you think the
staff and the Advisory Council people you mentioned in your response
to Ms Walley are sufficient to deal with the extra demands of
sustainable development?
Mr Brown: Yes, I do. I think we
benefited greatly from the wisdom and the experience of the people
we had on the Council. We have been reviewing the focus of the
Council's work with them over the last year. I think they played
a particularly important role when we were drawing up the Business
Principles in the early stages when David and his team were looking
at cases and bringing forward to them cases where the guarantees
had been issued. If you looked at their contribution to our Annual
Report and Accounts you will see that there is a lot of focus
on the way in which they have satisfied themselves about the way
we meet our Business Principles and act in accordance with them.
Within the Department I think the resources are adequate at present,
it is not just the resources in the Business Principles Unit,
as I just alluded to in answer to Mr Chaytor. We are also making
sure we are training are underwriters, the 50 or so people handling
cases in the business group. So they also have increased expertise
in this area and know that it is an important area that has to
be addressed before cases come forward to the underwriting committee
which John Weiss chairs.
Q121 Mr Challen: Do you think you
have capacity for the future as well which is based on two or
three members of your staff? I do not know what proportion of
your entire staff that represents.
Mr Brown: The total number of
staff is 410. I think at present it is adequate, it fits broadly
with the resources which are being made available in other Export
Credit Agencies.
Q122 Mr Challen: Are other members
of staff being trained? What kind of training would they get?
Mr Brown: On the Business Principles
David and his team are professionally qualified in this area.
They have been responsible for providing training which does not
secure some form of professional qualification but wider training
for underwriters. Other colleagues in the Department are adequately
trained.
Q123 Mr Challen: Would you refute
the suggestion that was made last week to this Committee by one
of the NGOs present that you do not have the capacity to deal
with sustainable development?
Mr Brown: Yes.
Q124 Mr Challen: Looking at some
of the defence related issues, you said that you are a reactive
organisation, I do not understand how your budget is set, presumably
you do have a cap on what you can allocate or spend each year?
Mr Brown: The simple answer is,
no we do not have a budget, because that is not how we are operating.
We are not involved in public expenditure, we are not spending
money on particular projects, we are dealing with contingent liabilities
and those are limited in the Act to the extent that we can take
a limited number of liabilities both in sterling on the one hand
and in foreign currency and from time to time. We have raised
those limits.
Q125 Mr Challen: Does that mean you
can always meet any liability that you are asked to underwrite?
Mr Brown: Yes, because underlying
our guarantee there is an Exchequer guarantee so the United Kingdom
exporter knows that he has the full backing of the consolidated
fund and the United Kingdom Government, so the guarantees which
we give to banks to enable them to support financing packages
for exporters are zero weighted for capital adequacy purposes
because they involve our zero weighted for capital adequacy guarantee.
Q126 Mr Challen: In that sense there
is no competition between defence underwriting and civilian under
writing. It occurred to me in your memorandum you seem to pass
over the responsibility for certain defence sales and underwriting
to another department and if they give an export licence you have
no say in it, you automatically follow their lead?
Mr Brown: We are always taking
the decision about whether or not we regard a particular project
as representing an acceptable risk. We may be involved in quite
significant work on structuring those financial packages in a
way which gives us adequate security and enables me as accounting
officer to satisfy myself that whilst I am supporting a United
Kingdom exporter or investor I am also protecting the interests
of the taxpayer. In relation to these qualitative issues, in relation
to the questions about the use of defence equipment for the purposes
which may have an impact on overseas defence policy, humanitarian's
policy, and so on, those are issues to be addressed through the
export licensing process. It is a requirement of our guarantee
for projects which require an export licence that there is an
export licence in place otherwise our guarantees would not be
effective.
Q127 Mr Challen: This does mean a
large proportion of what you do can escape any screening process
at your end, does it not? I am just going to ask you about a possible
example, were you involved in the sale of air traffic control
systems to Tanzania?
Mr Brown: No.
Q128 Mr Challen: Where perhaps a
defence sale might not be the best thing in terms of the economy
of the country that is buying it, in that particular case the
system was too expensive, would you have any say over that or
would you simply take the lead from other departments?
Mr Brown: I just refer to the
opening remarks I made to the Committee. We are always taking
account of important aspects of sustainable development, which
is precisely the issue of affordability in the country and affordability
in the context of economic management by the government concerned.
We would have a view about whether or not a particular project
represented an unacceptable risk and therefore that is what you
refer to as a risk issue for us which would be squarely in our
responsibility.
Q129 Mr Challen: Have you made any
such representations?
Mr Brown: We turn cases down which
do not meet our risk standards.
Q130 Mr Challen: In the case of defence
sales would you do that?
Mr Brown: Absolutely.
Q131 Mr Challen: Is that risk assessed
purely on the ability to pay? What if a country was able to pay
but it was not a good idea if they did in terms of value-for-money?
Mr Brown: Our risk assessment
is essentially round the risk of default and our inability to
recover any claims we may pay on a particular deal, that is essentially
what we are looking at. Issues round, is it a good idea may either
border on to those risk issues, and that is why I have said that
you have to look at the circumstances of individual cases, or
in some areas it may raise some of those issues which would be
appropriate to raise for the export licensing system to address.
You need to look at individual cases to consider what aspect of
a particular defence sale it might be that would cause concern.
Q132 Mr Challen: Are you aware to
what extent the DTI's export licensing system takes into account
environmental sustainable development objectives? Do you discuss
those?
Mr Brown: No, we leave the export
licensing process to the DTI, to the Export Control Office.
Mr Challen: Thank you.
Q133 Mr Thomas: Can I take you back
to your staff training, what steps are you taking to look at international
standards like ISO 14001 on environmental management systems,
are you taking steps along that route?
Mr Brown: Yes, we are. I think
we said in our memorandum we were planning to enhance our procedures
so they comply with ISO 14001.
Q134 Mr Thomas: Do you have a timescale?
Mr Allwood: We are developing
the procedures. Whether or not we get them formally certified
is to some extent the next phase. What matters first is to get
the procedures in place, up and running to those standards. We
have been using that as the model for our environmental management
system. We are extending that to cover our direct impact on the
environment. The procedures will be in place over the next 12
months. At that stage it will be for our executive committee to
decide whether or not we go to the next stage, and we will report
on that process in our Annual Report.
Q135 Mr Thomas: You say within 12
months that you would feel confident you would be meeting your
standards and it is not a question of going outside accreditation.
Can I pick up on a couple of points raised by Mr Challen, round
the heavily indebted countries initiative we understand from Parliamentary
questions that about 95% of the debt owed by these countries is
owed to yourselves and the United Kingdom Government. Can you
give us an outline of what happens when the United Kingdom Government
proposes to write off some of those debts, which is happening
now and very welcome, what impact that has on your work? How is
that debt written off, presumably it is the United Kingdom taxpayer
who is meeting that but in what way do you deal with that internally?
Mr Brown: The management of the
debts that we have as an official creditor to countries is handled
internationally through the Paris Club. The Club takes advice
from the IMF and the World Bank on an individual country's debt
sustainability and its ability to service particular amounts of
debt. On that basis a country may be classified as HIPC. Where
proposals have come forward following some of the meetings and
decisions that particular levels of write-off should be applied
for, countries to be eligible, the IMF have taken a view about
an individual country's own economic position and the level of
debt and debt ratios. They make recommendations on the appropriate
level of debt write-off together with the cut-off point at which
that basket of debt would be written off. The Paris Club is the
process where the creditor countries themselves meet and ECGD
together with the Treasury are the United Kingdom representatives
on the Paris Club. The impact for us is that we operate to international
accounting standards in the accounts we produce, so we make provisions
against the contingent liabilities we are writing, either in cases
where we have not yet paid a claim or cases where we have paid
claims where we are making a judgment about recoverability. In
nearly all of the HIPC markets where the debts go back many years,
probably to the 1980s, we have already written down those debts
and the financial impact has, in a sense, been spread over a period.
Q136 Chairman: Where do those losses
appear?
Mr Brown: They appear in our own
accounts. In expenditure terms we have an annual estimate which
means we are drawing on the Exchequer to pay claims.
Q137 Chairman: Where does it appear
in the Exchequer account?
Mr Brown: I would need to let
you have a note on that.[13]
Q138 Chairman: It does not appear
in any departmental accounts?
Mr Brown: There are departmental
estimates for ECGD. We are a separate Government department so
there are separate departmental estimates.
Q139 Chairman: How much have you
lost over the last 10 years in write-offs?
Mr Brown: Written-off is not the
same as lost, written-off is—
13 See supplementary memorandum Back
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