Examination of Witnesses (Questions 1-19)
16 NOVEMBER 2004
Mr John Weiss, Mr Roger Gotts, and Mr David Allwood
Q1 Chairman: Good morning, Mr Weiss,
perhaps you can introduce your colleagues and then we will get
started.
Mr Weiss: Good
morning, Chairman. I am John Weiss, Deputy Chief Executive of
the ECGD. On my right is Roger Gotts, who is the Director of Business
Division II in ECGD, and on my left is David Allwood, who is Head
of our Business Principles Unit.
Q2 Chairman: Can I start off perhaps
by issuing something which might appear like an apology but it
is not really. We should have started at 9.30 but we only got
some papers we had requested in the summer this morning and we
felt that it was appropriate that we should spend some time reading
them before we started the proceedings. I realise that little
blame attaches to yourself in this respect, it is to others that
responsibility must be directed, but we are a bit disappointed
given the length of time we have had to wait that the information
to which we are going to have to refer came to hand so late in
the day. Perhaps we could start. As you know, we were looking
earlier in the year, Mr Weiss, at the operation of ECGD, particularly
the new financial basis upon which the Department is operating,
and the indication seems to be that it is not altogether unhappy
and things are moving on. I think it is premature to pass judgment
on it, and we are not really here this morning to look at that
so much as one of the areas of your activity, in particular the
question of the transparency of ECGD and its operations. In our
previous Report we noted that a key feature of your business principles
is your commitment to transparency in your operations and decisions.
We were therefore a wee bit disappointed that the review of the
BTC application by the Business Principles Unit was supplied to
us on a confidential basis. It does seem to us that if you are
applying principles which are broadly accepted then the application
of these principles should be in a transparent manner, but we
will come on to that in a moment. This document, however, has
gone a long way to answering a number of questions about your
actions which were put to us by NGOs and other witnesses. Perhaps
I could start off by just asking a very simple question: why is
there this degree of secrecy about the application of principles
which one would have thought would have embodied "motherhood
and apple pie", amongst other things, against which no-one
can complain?
Mr Weiss: Thank you, Chairman.
We hoped that by providing you with a copy of Mr Allwood's advice
to the Underwriting Committee we would demonstrate the thoroughness
and the depth with which we had analysed the environmental, social
and human rights aspects of the BTC project which I had emphasised
when we came here in May. I think the problem is that because
of the nature and the content of that report we did feel obliged
to provide it to you on a confidential basis. This is because
it was an element of our own internal decision-making which ultimately
formed the basis of advice to ministers when we recommended to
them that they endorse the decision of the Underwriting Committee
to support the BTC pipeline. Clearly the document was not written
with an eye to subsequent publication and I think it does contain
a few, but not perhaps very many, items which are sensitive in
that they have got information about third parties or indeed comments
by third parties and there might be some sensitivity about publishing
that, particularly as those third parties may often be governments
of the countries involved in the pipeline. The code of practice
on access to information does provide for an exemption on disclosure
for that sort of document. The reasons given are that perhaps
if there is an idea that the document might ultimately be published
then the frankness of the advice in the document might be tempered
in some way and that the Committee and the Minister might not
get full and frank advice if there was an eye to subsequent publication,
so it was for those reasons that we gave it to you on that basis.
Q3 Chairman: Thank you very much, Mr
Weiss. I will be at pains to point out to you that we are not
endeavouring to shoot the messenger here. The person who wrote
the message is in the shape of the Government and we will be talking
to them later. As I say, that was just to get the point on the
record. Perhaps what we could say here is one of the things that
you have indicated is that, quite understandably, people would
wish some of the advice they give not to be made public but, on
the other hand, is the policy of ECGD driven by the attitudes
of other export control agencies in the Lenders Group in this
project? Does the lead country lead or is it a kind of consortium-based,
consensual process that has the effect of policy making?
Mr Weiss: One point I did want
to emphasise to the Committee is that whenever I talk to you about
decisions which we reached in relation to the BTC pipeline these
decisions were always taken as part of the so-called Lenders Group,
which includes a number of export credit agencies, the EBRD, the
IFC and commercial banks. Indeed, ECGD was a relatively minor
player in the total lending to the project so I do not think this
is a case of ECGD being the lead on these decisions; they were
consensus decisions on the whole. On the issue of disclosure of
information to you, we did put in the public domain a note of
our decision on the project which we had hoped would go some way
to assuring interested parties that we had addressed the issues
that they had raised, but I think the involvement of other parties
was nothing to do with that decision about non-disclosure.
Q4 Chairman: Thank you. Just one last
point on this. Freedom of Information legislation will make the
incidence of this less frequent in the future hopefully. Do you
think it will in some way require a change in position? Is it
going to be one of these classic cases that Freedom of Information
in fact requires less disclosure than before, or some form of
redaction, for want of a better expression?
Mr Weiss: I hope not, Chairman.
We are in ECGD preparing ourselves for January and Freedom of
Information. We will of course want, as we always have done, to
be as open as possible about how we have reached our decisions,
and I can see in this instance that there is perhaps a gap between
what we set out in our Note of Decision in December 2003 and what
is contained in Mr Allwood's document and whether there is scope
for us in the future to offer some document which is halfway between,
which is not the internal advice gone public, but which is some
statement by ECGD which perhaps says in more detail how we address
the various issues that interested parties had raised, that might
be something the Committee might wish to consider.
Chairman: I think we will perhaps raise
that with one of the Ministers when we have them after the New
Year when the legislation is in place. They may by that time have
finished wrestling with it. I realise that in some ways it is
a wee bit unfair to encumber you with that responsibility this
morning, but, as I say, we are not in the business of shooting
the messenger. We may well shoot the person who wrote the message
later but we will wait on that. Linda?
Q5 Linda Perham: I would like to focus
on the exercise of due diligence, if I may. Your evidence this
time round clearly has not satisfied the group of NGOs led by
the Corner House— and I hope you have seen their evidence—
about the effectiveness of your due diligence procedures in your
assessment of the technical specification of the BTC pipeline,
particularly in respect of the selection process for the pipeline
coating and the assessment of the suitability of the chosen material,
and that includes the consideration of Derek Mortimore's advice.
Paragraphs 6 to 14 and 21 to 30 of the NGOs' submission provide
a list of complaint. Are you able to respond to their accusations?
Mr Weiss: I think perhaps the
first comment I should make is that the document that we gave
you in confidence does I hope demonstrate the level of due diligence
we took on a whole range of issues connected with the project.
On the specific issue of the pipeline coating, the fact is that
this was an issue that was under consideration for I think a period
of something like a year, from October 2002 to October 2003. In
October 2002 the interim design appraisal report by Parsons Energy
highlighted an issue surrounding the coating of the pipeline.
In March, Parsons produced a report which highlighted, among many
other things, an issue concerning their—and this is a quote
from their report— "ability effectively to repair coating
damage and to coat field joints in a manner that will meet the
40-year design life". What Parsons—and Parsons was
the independent engineer appointed by the lenders to advise them
on these technical issues—actually recommended was more
frequent monitoring and inspection of the pipe in high groundwater
right-of-way areas of the pipeline. In September 2003, Parsons
confirmed to the lenders that they were then content with the
way in which the BTC Company was intending to monitor the integrity
of the pipeline in those high-risk areas. So by October having
had that advice the lenders concluded that this issue of the coatings
had been satisfactorily resolved.
Q6 Linda Perham: You say that the Parsons
report was an independent study. What do you reply to the fact
that Parsons told Michael Gillard, the journalist, that its assessment
was not an in-depth study? They are obviously independent but
are you satisfied that they investigated sufficiently?
Mr Weiss: Yes we are fully satisfied
with what Parsons (who became WorleyParsons over this period)
did for us. I think what you are referring to is the desk-top
study which the lenders commissioned from WorleyParsons in February
2004, and this was commissioned by the lenders following the advice
to us that there were problems about the way in which the coating
was being applied in the field during the pipeline construction.
This was a quickly commissioned study by Parsons to get urgent
advice to the lenders on this serious issue. What we asked for
them to do was a desk-top study of documents, documents which
would demonstrate that the BTC Company had undertaken proper tests
on the coating in order that we could get a quick handle on the
problem, and that report came through in March 2004. I think the
comments from WorleyParsons were emphasising the fact that that
is what they had been commissioned by the lenders to do and not
to undertake a whole range of tests themselves. They were saying
we did an audit of what the BTC Company had done in reaching its
own decision on the coatings. The fact is that shortly after that
desk-top study was done the independent engineer did visit the
site and gave us further advice, which was satisfactory to us,
about the coatings issue. So we do remain content with the quality
and independence of the advice we have had from WorleyParsons.
Q7 Linda Perham: When you say "quickly
commissioned" it rather smacks of you not being thorough
enough in your desk-top study. It does sound as if it was something
done rather quickly. Anyway, if I could move on to one of the
NGOs' other criticisms that I just wanted to run past you. One
of the recommendations in their criticisms is that ECGD's due
diligence procedures be revised to require that all technical
reports are requested from the project sponsors and investigated.
What is your reaction to that recommendation about all technical
reports?
Mr Weiss: I will ask David to
answer.
Mr Allwood: I think it is part
of our normal due diligence. I am not sure we legally require,
but we certainly expect the project sponsors to provide us with
all relevant reports that contribute to their knowledge of the
project whatever project it is so that our independent consultants
and our specialists in-house can review those reports and assess
whether or not the project has been designed and will be constructed
and operated in an appropriate manner.
Q8 Linda Perham: Did BP supply you with
the Mortimore report?
Mr Allwood: It is a bit difficult
to ask for something that you do not know whether or not it exists
but we do ask them to provide us with all relevant reports.
Q9 Linda Perham: Did BP supply you with
that report?
Mr Gotts: It did not supply us
with the Mortimore report. BP were obviously aware of this at
the time. WorleyParsons were certainly aware of the issues surrounding
the coating at the time because that was an issue which was raised
in one of the reports which we have supplied to the Committee,
but we did not see the Mortimore report. I think we do rely on
our independent advisers to investigate these things thoroughly
and not necessarily would we expect them to show us every report
and every piece of paper.
Q10 Linda Perham: So were you aware of
the existence of that report?
Mr Gotts: No.
Mr Weiss: We were not aware of
it. Essentially it was a piece of internal advice to the BTC Company
and in the end the Lender Group has to accept a collective BTC
view on their decision about the coatings, and I believe that
the BTC Company had a range of expert views on what was appropriate.
The next step for the lenders is to scrutinise that decision through
the advice of its independent advisers.
Q11 Linda Perham: Okay, can I ask you
about something else the NGOs allege, which is failure of due
diligence in your monitoring of the quality of the implementation
of the project, in particular serious quality assurance failures
in Turkey. Have you any comment on that?
Mr Weiss: This is the post construction
one? Yes, we—and I emphasise all the other lenders—have
instructed independent consultants to monitor the project on our
behalf and we believe it is a fairly rigorous and thorough process.
During the construction period an independent environmental consultant
called D'Appolonia has been and will be carrying out site visits
on a quarterly basis and WorleyParsons, who are the engineering
consultants, will make twice-yearly site visits and both companies
will be producing quarterly reports to the Lender Group. When
we get those reports, along with all of the other lenders, we
review them and discuss them with the consultants and, where necessary,
if we think there is an issue, we will instruct the consultants
to further investigate during subsequent site visits so there
is a regular programme of visits to the site. We are intending
to join one of those visits ourselves in the later stages of construction
and I think the EBRD joined the environmental consultant on the
most recent site visit, so there is a quite extensive programme
of monitoring of the work which we believe is of a good standard.
Q12 Linda Perham: But are you aware of
any concerns about the quality of work in Turkey?
Mr Allwood: The technical engineering
consultant WorleyParsons is aware that there have been quality
control problems within the Turkish pipeline and it regularly
reviews that for us and reports back to us. They have not raised
that as such a major issue that we should be taking any more stringent
action with the company, but we are aware of that, and it is being
monitored regularly.
Q13 Linda Perham: So how frequently are
the reviews done?
Mr Allwood: They visit the site
every six months.
Q14 Linda Perham: Do you think that is
frequent enough? Six months seems a long time.
Mr Allwood: But when they go they
review all the quality control documentation that has been produced
during those preceding six months so they get a good knowledge
of the actual construction activity that has occurred during that
six-month period. It is not that they just see it for the week
that they happen to be there.
Mr Weiss: And we perhaps should
stress that the BTC Company itself is clearly responsible for
monitoring the construction and making reports and the engineering
adviser to the Lender Group is making quarterly reports to us,
but obviously, in a sense, a couple of those quarterly reports
are based on paper documents or advice it has had from the BTC
Company. The other two would be based on its own experience during
its on-site visits.
Linda Perham: I will leave it there.
Q15 Chairman: Just for the record so
I can get it clear in my mind, what we are saying is BTC had work
done, they then had Mortimore giving them advice on the quality
of it; is that correct?
Mr Gotts: I think Mr Mortimore
advised them at the time that they were purchasing this coating.
Q16 Chairman: Right, and then after that
when you come in and you start your due diligence you got WorleyParsons
to do a kind of overview of the existing evidence which took the
form of a desk-top study?
Mr Weiss: As I said, from October
2002 Parsons, as they then were, were commenting on the coatings
issue and I think it was around that time or just before then
that Mr Mortimore may have been giving his advice, and then throughout
that period, from October 2002 to October 2003, Parsons were working
on this issue and became satisfied with the coating decision because
of the monitoring that the company was going to do of the pipeline
in practice after that.
Q17 Chairman: It is after that there
was a subsequent visit—and this is what I want to get clear
in my mind—and the subsequent visit was part of the monitoring
process. It was not a response to the criticism of what had happened
before?
Mr Weiss: No, this is the regular
six-monthly visits to the site. I think it is fair to say, subject
to correction by my colleagues, that the desk-top study was commissioned
because this issue of the cracking of the coating while the pipeline
was being laid appeared in the press as an issue. That occurred
between site visits so almost certainly this issue would have
come up during the subsequent site visit by Parsons in March/April
2004.
Q18 Chairman: So the site visit was not
a consequence or an implied criticism of the adequacy or otherwise
of the desk-top study?
Mr Weiss: No.
Q19 Chairman: So we have it in our minds
because it has been suggested that one follows as a consequence
of the perceived inadequacies.
Mr Allwood: The desk-top study
was an addition to an existing monitoring regime which started
off with 18 months/two years' due diligence of the ramifications
of the design proposals, not just the coating but obviously the
coating was an important part of it. Then once construction started,
WorleyParsons started the currently ongoing series of onsite visits
every six months with an intervening three-monthly report based
on documents. Once we got the Sunday Times article, we
wanted to be absolutely sure that we had all of the information
to hand, so we asked for that in addition to the ongoing monitoring.
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