Examination of Witnesses (Questions 460
- 479)
TUESDAY 11 MAY 2004
EXPORT CREDITS
GUARANTEE DEPARTMENT
Q460 Linda Perham: What would be
confidential about an impact assessment? For the sponsors of it,
the people applying for the money, what would be confidential
about it from their point of view?
Mr Ormerod: I think it is an issue
of where environmental impact assessments were in a draft stage
and had not been considered fully by the project sponsors, and
where they wanted to reserve their position. You have to remember
that the impact assessment is the responsibility of the project
sponsors, our job is to review that and to make sure the procedures
have been undertaken properly and the environmental and other
standards used are the appropriate ones. When Common Approaches
was revised back at the end of last year, there was an attempt
by us and the Americans to make it compulsory, to compel publication,
but a couple of jurisdictions—I think Germany and Austria—felt
they could not within their national law do that. So I think the
wording you will find is something like "encourage".
We, in fact, in the UK encourage very strongly the publication
of environmental impact information, and when the Environmental
Impact Regulations come into force, from 1 January 2005, you will
find that takes the force of law.
Q461 Linda Perham: You did say, and
it is in your evidence, that high impact cases are listed on the
website prior to the underwriting decision being made.
Mr Ormerod: Yes.
Q462 Linda Perham: First of all,
how is a high impact case defined? Why cannot all of them be published?
Why does it have to be high impact? Is that an international agreement?
Mr Ormerod: That was the international
agreement. The argument is that high impact cases are those which
will attract most public interest and concern, that is the definition
of why they are high impact because of the impact on the environment.
Q463 Linda Perham: Who decides which
those are?
Mr Ormerod: We decide but the
criteria we use are those in Common Approaches. We have on our
website a document called a case handling procedure—in fact
it is called "Case Impact Analysis Process"—and
that tells applicants exactly how we go about assessing which
projects are of high impact. Essentially we look at what is the
nature of the industry or the context, ie is it a sensitive industry
in the sense of likely to create pollution, is it in a sensitive
area of the natural environment, et cetera, and if certain of
these red flags go up then it becomes a high impact case.
Q464 Linda Perham: Are you satisfied
that your impact analysis meets the standard set by the World
Bank?
Mr Ormerod: Yes. The World Bank
represents now—and this was one of the key achievements
of the revision of Common Approaches—the base level standards
for export credit agencies which they apply.
Q465 Linda Perham: So you conform
to those standards?
Mr Ormerod: Yes, we do.
Q466 Linda Perham: You say the impact
assessments are commissioned by the sponsors, who carries out
the assessments? You are relying on information which is provided
by the people who want to carry out the work. I think you have
forms, but would they just be a tick box thing, or would you go
into detail and challenge what they are telling you?
Mr Ormerod: The process is the
project sponsors will commission the environmental impact assessment.
Almost invariably nowadays they will use a professional consultant
to do that and they will not use an in-house team. Our job is
essentially to review that impact assessment, review the action
plan which stems out of it, which is basically how the project
sponsors are intending to mitigate any reservations raised by
the impact assessment, for instance a resettlement action plan
or something like that. We have a range of armoury, if you like,
to bring to the issue. First of all, I have two people on my staff
who are experts in environmental assessment and project engineering,
and they are assisted by another person if we reach case overload.
They are my in-house team. We may also use external consultants
ourselves, particularly in tricky or sensitive cases or which
may extend beyond their experience. We also conduct site visits,
so we have been out to see the full length of the Baku-Tblisi-Ceyhan
pipeline; we have been out to look at Sakhalin II and the impact
that has had on the environment there, and to talk not only to
the project sponsors and the consultants doing the environmental
impact assessment but also to conduct our own investigation on
the ground.
Q467 Linda Perham: When you say "we"
do you mean the people you referred to?
Mr Ormerod: Yes, within ECGD.
Q468 Linda Perham: Just those two
people?
Mr Ormerod: Those are the experts,
yes.
Q469 Linda Perham: So are they able
to keep up with the amount of work? I think you said you would
perhaps bring in other people, independent consultants, if they
were over-stretched?
Mr Ormerod: That is our reserve
position, that we have consultants.
Q470 Linda Perham: How often do you
have to do that?
Mr Ormerod: We have not had to
yet, but we would be ready to do so if we have three major projects.
We have just completed essentially the BTC one but there are two
on hand at the moment. They can cope with that, if another couple
came up simultaneously, we would have trouble.
Q471 Judy Mallaber: How do you verify
the accuracy and veracity of statements which are provided by
the applicants? How do you make sure the information you are getting
is accurate?
Mr Weiss: Again, I think there
is a distinction between low and medium impact and high impact
cases. For the former category, I think it is probably true to
say we rely quite heavily on information supplied by the applicant,
but we do other checks—internet searches, use databases—and
of course we do have access to the Foreign Office post to verify
information and to tell us more about the project if we need it.
For high impact cases, as John has just said, we may well get
an independent consultant to review the project information. Again,
we can consult other government departments, and indeed engage
with NGOs and other stakeholders for an independent view and again
actually go there and see it for ourselves.
Q472 Judy Mallaber: Some of my colleagues
will ask more about the BTC project, but from the information
we have had, there does seem to be quite a saga of not being clear
you were fully informed, for example, whether you know about the
Mortimer Report on the coating, and a whole range of factors in
the information you have been provided with. We will come on to
that in more detail. How can you be sure you are being given the
right information? You can easily get taken for a ride in a huge
project and we have no way of knowing what steps you have taken
and whether you do have the full information.
Mr Ormerod: Essentially, we are
relying on the skill and expertise of our people. One thing I
should mention is that most of these very large projects are consortia,
so for instance for BTC the total value of the project is about
3, 3½ billion dollars, we are supporting about $150 million-worth
of UK exports, so it is a relatively small fraction. The rest
is made up of financing from the World Bank, EBRD, other export
credit agencies, commercial banks, et cetera. What we tend to
do in the export credit world is act together in respect of the
environmental assessments. The reason for that is, there is no
point in competing against nations on the quality of the environmental
assessment and we may as well pool our resources where we can,
so we will be using a common consultant to act on behalf of the
ECAs. So it is not just the brains of ECGD brought to bear on
the issue but those of our equivalent environmental specialists
in other export credit agencies.
Q473 Judy Mallaber: Who would take
the lead on it? Who would you be relying on to show you had it
right?
Mr Ormerod: It tends to emerge
in one of two ways. It can be that ECA which has more the developed
expertise and, if you like, becomes first among equals. Or it
could be structured as in some projects where other ECAs are in
the role of re-insuring a lead ECA, and then the lead ECA would
obviously take the lead in all respects.
Q474 Judy Mallaber: What happens
when you find you have been misled and, say, it has some environmental
impact you were not told about, or some corruption or bribery
or whatever else? What happens when you discover that is the case?
Mr Ormerod: There is a broad distinction
between the different events. In the case of environmental information,
obviously that is moving at all times, very often new information
comes to light, new allegations et cetera made in the press. Essentially,
we have to make an assessment up to the point at which we provide
cover, that is if you like the critical point for us. So our evaluation
procedures are designed to reach a decision at that point. Thereafter,
we are examining the project in a monitoring role, and basically
saying, "Is there anything coming to light that would cast
some doubt on that original decision?" The action we would
take in those circumstances is that we would go back to the company
and say, "This was not in the original mitigation plan, in
the social action plan, whatever, what are you doing about it?"
So it is bringing that kind of pressure. If it is an issue of
bribery and corruption, that is much more serious. We refer allegations
to the appropriate authority, in the UK in our case it is NCIS
at the moment. Where a company faces the unfortunate position
they were convicted under a competent jurisdiction of bribery
and corruption, that could be the case where we could actually
pull cover completely.
Q475 Judy Mallaber: Do you feel confident
you have the necessary expertise to be able to make those inquiries
and be able to assess projects which come to you for funding or
for cover?
Mr Ormerod: We believe so, yes.
Again, over the years since I have joined ECGD, which is since
2000, we have quite dramatically enhanced our procedures for considering
environmental impacts, human rights aspects, social impacts, and
it is a question of building up the knowledge-base. Similarly
we have recently announced in April we were revising and enhancing
our procedures for combating bribery and corruption, again in
the light of experience, international best practice and working
closely with NGOs such as Transparency International who recently,
last autumn, reviewed the OECD export credit agencies and their
overall performance on bribery and corruption issues.
Q476 Judy Mallaber: Moving on to
a related subject, a number of the organisations which have come
before us have suggested you should not even consider, you should
screen out, applications on the basis of the record of the performance
of the country or the company on issues like environmental protection,
respect for human rights, corruption and so on. You have a clear
set of basic principles which we have in front of us, is there
any reason why you cannot just screen them out where they do have
a bad record rather than take a chance on a company or country?
Mr Ormerod: We have to be careful
of the terminology we use because our lawyers love this area.
Basically we are here to provide a service to support exports
from companies based in the UK, so we do not draw distinctions
ab initio between different types of companies. What we
would look for and what we say in our legal terminology is that
if a company, for instance, had been convicted of bribery or corruption
or appeared on a World Bank blacklist for instance, that would
be a prima facie case why we would not provide support,
but we have to be very careful about the language we use, so we
consider applicants before we turn them down, if you like.
Q477 Judy Mallaber: Even if they
have been convicted, you would still have to consider them?
Mr Ormerod: Relatively briefly.
Q478 Judy Mallaber: Why?
Mr Ormerod: Because that is the
way the law is written. The other issue, and this is quite an
important one, just because a company is convicted of—and
we have an instance—or has owned up to a corrupt act in
a distant country, that does not mean the whole organisation is
corrupt through and through. What we would do in those circumstances
is say, "Okay, this is what happened in X, Y, Z whenever,
we are in Country Y, what have you as an organisation done to
enhance your procedures and make sure this never happens again
and that was an isolated instance and not symptomatic of a disease
running right through the organisation?"
Q479 Judy Mallaber: Briefly, in light
of the earlier discussions you heard with Friends of the Earth,
turning it on its head, do you regard it as part of what you should
be doing to positively promote positive goods in those areas,
such as the discussion we had earlier relating to promoting renewables
rather than what I was just talking about which was screening
out bad practice?
Mr Weiss: We did hear the Friends
of the Earth talking to you. On renewables, I think the key piece
of missing information there was that we have actually got a team
in ECGD with responsibility for promoting that initiative and
trying to get that £50 million used. It is quite true that
ECGD is not perhaps ideally organised to know all the range of
companies who might be interested and we too would be interested
to see the information that Friends of the Earth provide. The
key thing is, we have been working with UK Trade and Investment
on something called an Outreach Programme to try and connect ECGD
with those companies, and that is the best route for us to get
to find out if they exist and, if they exist, whether they have
the sort of business which would be appropriate to the ECGD guarantee.
We have actually had a small number of inquiries as a result of
that programme but unfortunately none of them has converted into
real business yet. There is one project going round about using
wave power which may come to something but they are all at a very
early stage. That is the way we have tried to be proactive about
that. Of course, we cannot go to the point of making renewables
and sustainability our policy objective. As Friends of the Earth
themselves said, our job is export promotion, our mission is to
benefit the UK economy, and that means we must deal appropriately
with all applications which come to us as long as they meet our
business principles for environmental, human rights and social
reasons, and for good sound financial reasons, but we are doing
what we can to be proactive in the renewables area.
Chairman: We would like to go on now
to look at the Baku-Tblisi-Ceyhan pipeline project.
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