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Written Ministerial Statements

Monday 12 July 2004

INTERNATIONAL DEVELOPMENT

CDC (Reorganisation)

The Secretary of State for International Development (Hilary Benn): Further to my written statement of 8 January 2004, I can announce that the reorganisation of CDC Group plc (CDC) was completed on 7 July 2004.

The purpose of CDC is to maximise the creation and growth of viable businesses in poorer developing countries, through responsible investment and mobilising private finance. The objective of the reorganisation is to enhance CDC's capacity to fulfil its purpose, in particular the mobilisation of private and other third-party capital for investment in the poorer developing countries. This will contribute to the achievement of the millennium development goals, as explained in DFID's submissions to the International Development Committee (HC 194 of Session 2002–03).

CDC is now an investment company, responsible for holding the cash and other assets of the former CDC and its subsidiaries, and contracting for its capital to be invested in accordance with the investment policy. As part of the reorganisation, DFID has restructured CDC's capital, replacing CDC's debts to DFID with shareholder capital, using powers in the CDC Act 1999.

The CDC investment policy has been improved in several ways. The previous aim of making 50 per cent. of new investments in sub-Saharan Africa and south Asia has been placed on the same mandatory five-year rolling basis as the requirement to make 70 per cent. of new investments in poorer developing countries (those with an annual per capita gross national income below $1,750). CDC will continue to observe, and set an example in, responsible ethical, environmental and social business principles.

A new independent management company called Actis Capital LLP (Actis) has been formed as a limited liability partnership between its management and staff and the Government. The purpose of Actis is to manage investments so as to promote the creation and growth of viable businesses in poorer developing countries, to mobilise private and other third-party investment, and to add value to the businesses in which investments are made by promoting responsible business principles and providing management advice. This purpose cannot be changed without my agreement. Actis will also follow best practice in corporate governance and business ethics, as set out in its business principles.

Actis is controlled and managed by its management and staff, who have 60 per cent. of the voting rights. DFID has 40 per cent. of the voting rights, and under claw-back arrangements will for the next 10 years receive 80 per cent. of the profits from Actis. DFID also has certain minority shareholder rights and protections
 
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set out in the members' agreement. These include the right to veto appointments of the chairman of the Actis supervisory board and the non-executive members of the supervisory board business principles committee, and the right to veto a sale of Actis.

CDC and Actis have entered into a five-year contract (the umbrella agreement) under which Actis will manage CDC's existing investments. The umbrella agreement provides for CDC to make commitments to certain funds to be managed by Actis for Africa, south Asia, Power, China and Malaysia. Investments in small and medium enterprises (SMEs) will be managed by a separate management company, Aureos, which will be a joint venture between Actis, the Norwegian Investment Fund for Developing Countries (Norfund) and Aureos's staff. CDC will have some reserved capital, initially £52.4 million, which can be committed to non-Actis funds, to develop its third party fund management capabilities and to stimulate activity, competition and fund management skills in private equity in the poorer developing countries. The umbrella agreement also sets out the minimum service levels to be provided by Actis, incentive arrangements, and reporting requirements.

The sale of Actis and the umbrella agreement were negotiated on market-based, commercial terms to achieve value for money. As is common in private sector corporate demergers and Government privatisations, no formal managerial competition was held, to avoid disruption to CDC's business. After the period of the umbrella agreement, CDC will award fund management contracts on a competitive basis.

The details of the reorganisation were finalised by an independent committee of the CDC Board, making recommendations to me as shareholder. These recommendations included proposals relating to the market value of Actis and the market value of the interests in Actis to be sold to its management and staff. The independent committee also reviewed the terms of the umbrella agreement and the incentive arrangements for Actis. Remuneration in CDC remains within public sector pay and subject to approval by the Government. I am grateful to the independent committee and the CDC Board as a whole for their care and attention throughout the reorganisation process. In future, DFID will also be advised and assisted in the performance of its shareholder functions by the new shareholder executive.

I am placing copies of the relevant documents, including the Actis members' agreement and the umbrella agreement (to which the new investment policy is annexed) in the Library of the House, and I am sending copies of these documents to the chairman of the International Development Select Committee.

TRANSPORT

Airport Master Plans Guidance

The Parliamentary Under-Secretary of State for Transport (Mr. Tony McNulty): The Department is today publishing guidance for airport operators on the preparation of master plans. The White Paper "The Future of Air Transport" indicated that we will expect airport operators to produce master plans setting out
 
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their proposals for future development. The guidance contains suggestions for the process of preparing master plans and the range of issues which they might address.

The guidance has been produced jointly with the Scottish Executive, the Welsh Assembly Government and the Department for Regional Development for Northern Ireland, and will be relevant to airports throughout the United Kingdom. Copies have been placed in the Libraries of both Houses, and the guidance is also available on the Department for Transport's website: www.dft.gov.uk

TREASURY

Devolved Administrations (Funding Rules)

The Chief Secretary to the Treasury (Mr. Paul Boateng): Copies of the updated statement of funding policy, which sets out the funding arrangements for the devolved administrations, have today been placed in the Libraries of both Houses.

FOREIGN AND COMMONWEALTH OFFICE

Iraq (Private Military and Security Companies)

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Jack Straw): Private military and security companies are entitled to conduct their business within the law. They should be given access to the support that Government Departments provide to British citizens and companies on the same basis as other companies.
 
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However, private military and security companies are also in a business that can in certain conditions have a direct and sensitive impact on international relations.

Following the Legg report into the Sandline affair in 1998 the FCO issued advice to all officials on contacts with private military and security companies (PMCs/PSCs). This required officials to request permission for contacts with PMCs/PSCs whenever possible and for the FCO to consider the impact of those contacts before granting that permission.

These guidelines have been reissued twice since. I have recently approved a revised set of guidelines to deal specifically with the situation in Iraq, where a large number of private contractors are employed in essential security work.

One of the contractors concerned is Aegis Defence Services Limited, whose chairman and chief executive officer is one of the individuals named in the Legg report. The contract in question was awarded by the United States Government. Her Majesty's Government is not a party to the contract, nor was it involved in any way in its negotiation.

The guidelines recognise that contact with the private security companies that protect our staff in Iraq is inevitable and that liaison with companies providing security elsewhere is an essential operational requirement. In these circumstances, permission will not be required. However all new contacts with PMCs/PSCs seeking commercial advice will still require permission and in all circumstances officials are required to report any activity that they suspect to be illegal or unethical to the FCO.

The Ministry of Defence is issuing similar guidelines to its personnel in Iraq.

I have placed copies of the general guidance and of the Iraq-specific guidelines in the Library of the House.