Examination of Witnesses (Questions 40-59)
16 NOVEMBER 2004
Mr John Weiss, Mr Roger Gotts, and Mr David Allwood
Q40 Sir Robert Smith:
Presumably when the land comes back it comes back with restrictions
on use?
Mr Allwood: It comes with minor
restrictions that you cannot build over it, you cannot do any
deep ploughing, and you cannot plant any trees, but the use that
it was previously in use for can continue.
Q41 Sir Robert Smith:
Presumably there is a rental paid for that wayleave?
Mr Allwood: I do not think there
is any rental paid for the ongoing lifetime of the project. They
are compensated for three years' use of that land while the project
is being implemented although in practice the actual time they
are unable to use that land is significantly less than three years.
Q42 Sir Robert Smith:
Despite putting restrictions on, there is no compensation for
the restrictions?
Mr Allwood: I am not aware of
any.
Q43 Sir Robert Smith:
It seems slightly unusual, because obviously if you are restricting—
Mr Allwood: It is not a use you
would expect them to want to apply to that area.
Sir Robert Smith: Thank you very much.
Q44 Chairman: If I could
just go back for a minute to tidy up one or two issues on the
WorleyParsons report. We were looking initially at the procedures,
but on some of the content of it, it has been suggested that the
consultant who carried out the initial study did not independently
verify BP's information and did not verify that it was comprehensive,
accurate or up-to-date. Do you think that is a valid criticism?
Mr Weiss: Chairman, it is the
point I made earlier in that we are talking here of the desk-top
study which was commissioned in early 2004.
Q45 Chairman: Before we
were really talking about it in the context of a procedure. Now,
we are talking about the quality of the report in the sense of
was there a rigour attached to this report to ensure that the
evidence that was being considered was sufficiently up-to-date
and relevant?
Mr Weiss: WorleyParsons made that
comment because I think they were making it clear to readers of
the report that they had done what they had been asked to do which
was to review documents rather than to conduct tests themselves,
so I think this is just emphasising that point to readers.
Q46 Chairman: Yes, but
I am sorry, it is the quality of the information that is included
in the documents. That is the issue with which there is some concern.
Mr Weiss: They were fully satisfied
with the quality of the documents that were being made available
to them by the BTC Company and in fact I think they concluded
that the testing and evaluation of the coating of the project
was very thorough, based on the information they had been provided
with, but clearly they were working off information provided to
them by the BTC Company.
Q47 Chairman: Mr Gillard
of the Sunday Times does not seem to agree with that, does
he?
Mr Weiss: I think the phrase that
WorleyParsons used, which is they had not independently verified
that this information was comprehensive, complete, accurate or
up-to-date, is what has caused some concern, but I think it can
be explained by reference to the nature of the report that the
lenders commissioned of WorleyParsons at that time. Clearly the
subsequent site visits would have enabled WorleyParsons to see
the issue first hand, so I think we need to emphasise that this
was an interim report commissioned, as I said, quite urgently
because of the press coverage of the issue to satisfy the lenders
whether or not there was a major problem, but then they have been
obviously checking and reporting on this issue to us following
their subsequent site visits.
Q48 Chairman: Just one
last point, the report has never been published, has it?
Mr Weiss: A redacted version of
that report was published.
Q49 Chairman: Could you
explain to me what does the verb "to redact" mean, because
it is a comparatively new word for someone like myself? We know
what "to reduce" means and we know what "to delete"
means. When is a deletion not a redaction?
Mr Weiss: I think, Chairman, you
are testing my legal or language knowledge extensively here.
Q50 Chairman: It is you
who used the words. It is not one that my constituents use: "Have
you any redactions from the housing department relating to my
confidential files at the moment?"
Mr Weiss: As far as I understand
it, it is a term used to reflect the removal from the document
of certain parts of it and in this instance the BTC Company, in
consultation with our independent advisers, did remove certain
items which were largely of a personal or commercially confidential
nature. ECGD has seen the total document and I can assure the
Committee that the redaction which, as I say, means pulling out
a few pages and some names, has not altered it materially. The
document you have seen has got all the material issues in it for
you to consider.
Q51 Chairman: It certainly
has enough in it to maintain its status as being commercially
in confidence? Or can we publish this?
Mr Weiss: You can publish that,
yes.
Chairman: Okay, thank you. Linda?
Q52 Linda Perham: Keeping
on the report, apparently the original WorleyParsons report contained
an entire section devoted to BP's dismissal of the views of Derek
Mortimore who, as we know, is very critical of the pipeline's
coating assessment and procurement process. In the redacted report
we have got there is still a whole section referring to his comments.
I just wonder whether it was really necessary to retain them in
the document that you sent to us. One of the NGOs' criticisms
is that keeping them in was a "grave injustice to a brave
and honourable professional whose views deserve respect not baseless
denigration". Do you think it was legitimate to keep that
section in given that he has challenged the original report?
Mr Weiss: This was a WorleyParsons
report and I think they would want to explain and stand by and
justify what they wrote. The material removed from it was, as
I say, really between them and the BTC Company, so it is their
report and we wanted to be as transparent as possible about the
conclusions they reached on this rather serious issue.
Q53 Linda Perham: So do
you agree with the conclusions in this report?
Mr Weiss: Well, we were satisfied
by the advice that they gave us on this issue.
Mr Gotts: We have obviously read
the allegations about the project and were concerned to have our
advisers' advice on them and they provided their advice. I am
not sure whether we would regard this as being a denigration of
his views or simply our advisers did not agree with another expert.
I suppose this is always the problem when you have experts. They
are always going to disagree with each other and we have to try
and find a way through.
Q54 Linda Perham: It is
very, very difficult if somebody who is an expert on something
disagrees with another expert. I suppose doctors do that as well
and it leaves the lay people still wondering and having to take
difficult decisions. Just finally, does the way in which the original
report and the redaction is produced give credence to the belief
that you are too dependent on the applicants for information and
assessment of the project, and that you have perhaps too few resources
to assess such important issues properly?
Mr Weiss: Well, I think that we
do need to be clear that we do depend quite a lot on information
that is supplied to us by the sponsors of projects and I do not
think there is any way of saying otherwise. They are responsible
for it, they have most of the information available, and we do
rely to a large extent on what they provide us as being fair and
accurate. I think the issue for us at the outset is to be satisfied
with the credentials and reputation of the sponsors of the project.
That is a key issue for us. Are these companies experienced in
this area? Can we rely on the information they give us? We have
to rely to a large extent on the advice we get from them. Our
way of verifying and checking as far as we can that that information
is correct is through the use of independent advisers like WorleyParsons
and D'Appolonia that we are using at the moment, but hopefully
that combination of sponsors who know what they are doing and
have got a good track record and whose information we can trust,
plus independent expert advice, is the best compromise. I do not
really see an alternative to that and it is a basis of proceeding
which is shared by us with the other export credit agencies, the
other multilateral lenders who were involved in the project, plus
the commercial banks. I think this is a standard approach to these
problems. So I hope it would not be said that we were unduly dependent
on advice from sponsors, but clearly we must rely upon it to quite
a large extent, verified as far as we can by the appointment of
expert, independent consultants.
Q55 Linda Perham: Just
for information, asking as a lay person in these matters, would
you generally— or would export credit agencies generally—
appoint independent consultants or only in cases where you were
perhaps unsure about some evidence from the sponsors? Would you
always want to verify the proposition they put forward to you
or would it only be where you perhaps had concerns?
Mr Weiss: It is a general feature
of major projects such as this to have independent advice. If
we were into a more straightforward contract for the supply of
goods where it was just a straightforward sale we would not do
this, but in major infrastructure projects like this it would
be almost the normal thing to have independent advice. It was
not anything to do with BTC particularly. That would be a normal
feature of the way we handle this.
Q56 Chairman: Would the
other national credit agencies that would be in a lenders group
adopt roughly the same approach as yourselves?
Mr Gotts: Yes and WorleyParsons
were an independent engineering adviser to the Lender Group which
included us and the other export credit agencies, EDRB and IFC.
We did have a very intensive series of meetings with them over
the period that we were considering the project. For ECGD that
was a period of over a year and there were intensive meetings
with WorleyParsons and with other advisers who were then meeting
with the project sponsors, and examining documentation, so it
was an in-depth analysis over that period.
Q57 Chairman: We are going
to move on to another topic that you have notice of, Mr Weiss,
but I want to make it perfectly clear that there is no relationship
between what we have just been looking at and the new topic. I
do not want to put you in any difficulty on that. We want to put
you in difficulty in other respects but not in relation to the
sponsors of the BTC project. Now that we are moving on to something
else that chapter has closed but we have a few questions which
we are grateful to you for being prepared to answer. We come with
them more in sorrow than in anger because when you last came before
us I think a small cheer went up on this side of the Committee
room on the basis that on 1 May there were new anti-corruption
measures introduced. However, they are now going to be changed
with effect from 1 December. Why has there been this step change
from rigorous opposition to corruption to a softer or is it a
lighter touch, which is the cliché that is normally applied
when regulation becomes less offensive to certain parties?
Mr Weiss: I hope I can explain,
Chairman. First of all, I think I must emphasise that our anti-bribery
and corruption procedures are rigorous and remain so and, indeed,
have been enhanced by comparison with those that applied before
May. We announced the new anti-bribery corruption regime in March
at the beginning of the year of its introduction and it was May
I think when we appeared before you. What happened subsequently
was that our major customers and their trade associations, as
well as the banks, expressed serious concern that the new rules
were unworkable for them, and the word perhaps you were trying
to recall was "workability" which is the term we use
for what has happened. Some of the customers actually felt that
they could not apply for ECGD cover because they were so concerned
by the new requirements placed on them by the new procedures,
and indeed some of the compliance officers at the banks felt that
the risk to the banks of potentially giving us wrong answers to
our questions because they were so searching might have prejudiced
the unconditionality of our guarantee. So there was a real practical
workability issue that we were confronted with. Just for example,
one of the issues was that the regime that we announced in March
required applicants to provide undertakings that corrupt practices
had not been undertaken by affiliate companies of the applicant.
They did very strongly make the point to us that they could not
give undertakings in respect of companies which they did not control
so one of the changes we have made over this period is to change
"affiliates" to "controlled companies". We
have tried to change the system so that it is more workable for
companies so that we are only asking them to give assurances about
things within their control. We have got a new set of procedures
but the outcome of this is that by comparison with what prevailed
before May we still have a position where the warranties and undertakings
which companies give us are enhanced by comparison with what went
before. We have enhanced ECGD's audit rights to look at documentation
related to the contract and we have now got a right to look at
those documents that relate to the period up to the award of the
contract. We have brought money laundering within the scope of
the procedures and we have got greater scrutiny of companies'
own internal anti-bribery systems. So although there are changes
from what we had announced would apply from 1 May, as a consequence
of what has been quite long discussion with industry, the outcome
is a set of procedures which is still more rigorous than the ones
that applied during the previous year.
Q58 Chairman: Was this
a complete surprise on 1 May? Had people not anticipated it? Did
you just pluck these ideas out of the air and put them down as
a new regime and everyone said, "Oh goodness gracious, this
is different from April. I wonder why they didn't tell us before"?
Mr Weiss: I wrote round to all
our customers with the new procedures at the very beginning of
March saying that they were going to come into force in May.
Q59 Chairman: Prior to
writing, had you not already consulted them and discussed it with
them?
Mr Weiss: No, we had not. We had
expected that if our customers had seen anything that was going
to cause them real difficulty in that period between March and
May we could have altered the system, but we did not believe that
the changes were so major that we needed to go through formal
consultation. I would have to say in retrospect, given the long
period we have had to reach an understanding with customers as
to what it is reasonable for us to ask them, that we probably
should have engaged in a more formal and longer consultation.
I had hoped that this short-ish period from March to May would
have given time for making any adjustments if they had been necessary.
| 
