Examination of Witnesses (Questions 20-38)|
8 JULY 2008
Q20 Jo Swinson: Given that the amount
of business that ECGD has been processing since 2000 has fallen
off dramatically and it is much, much smaller than it was, how
important is this in the grand scheme of things?
Ms Streatfeild: In terms of the
benchmark it sets for other export credit agencies, and, where
it does finance a project, the standards that it may then require
other financiers to come up to or have to meet, from that point
of view, as an exemplar, it remains important. Yes, you are right,
the amount of business has decreased. We may see in the current
economic climate that things change somewhat. But this is a Government
Department giving guarantees to projects. I do not think you can
overestimate the importance of not meeting standards and the message
that sends to other private sector and public sector finance for
what is appropriate. I would say it remains important despite
the decline in ECGD's business.
Mr Leaton: It maybe raises a question
around the ongoing role if there is less demand for ECGD's activities,
as to whether it is appropriate to continue in the way it is and,
also, whether having this Department is good value for money,
as it were. I know the NAO has looked at that.
Q21 Mr Caton: You have already raised
question marks about the assessment methods that the Department
uses. Could we look in more detail at the Case Impact Analysis
Process? The Department works on the basis of information provided
by exporters and categorises these into low, medium or high impact,
and requests more information for medium and high impact cases.
For high impact applications, a full environmental and social
impact assessment is required. It publishes details of these so
that interested parties can make representations. On the face
of it, that seems a reasonable approach. How could it be improved
in terms of environmental issues and sustainable development?
Mr Hildyard: First of all, it
does not have to publish these details for anything other than
category A projects until after the guarantee has been given,
so there is not much possibility of intervening on those other
guarantees prior to the guarantee being issued. We have some concerns
about that. We looked or tried to look at as many of the categories
B and C or low and medium impact projects in 2005 and 2006 as
possible. We had considerable difficulties in getting hold of
the assessments that were made, the screening forms that had been
filled in. ECGD initially released to Friends of the Earth a batch
of about seven. When we put in for the entire block that had been
done that year, we were told it was too many; others put in for
five and were told that was too many. They have been coming in
dribs and drabs. But we do have some concerns for that particular
year and we will be looking at later years as well. I raised these
particular cases, not because we have analysed them in any great
detail, but, having looked at the fact that they were classified
as low impact and then done web searches and had some conversations
with colleagues in the countries where they are taking place,
there have been red flags that we certainly think ECGD should
have picked up on, but on the forms that we have seen they do
not appear to have done so. For Korea, you have two power stations
listed in the guarantees, as published in the report, as simply
"power stations"in fact nuclear power stationsand
classified as low impact. There may be good reasons for them being
classified as low impact. Details were not given at the time of
the exportit may just have been paperclipsbut there
was no real sense of analysis of the impact in the form that we
saw. I have the form hereit was part of the evidence we
there is a question: "Is the project in one of the following
potentially damaging business sectors, nuclear power generation
and/or fuel processing?" and the box for nuclear power has
been ticked. Against that, there is a remark as part of the form
which says: "If `yes' to any of these then probably Medium
or High impact" and you would have expected some explanation
on the form somewhere as to why that has not been put as medium
or high rather than low. Another one that we looked at is in the
Indian market. The buyer was Jindal. A very rudimentary web search
revealed there were concerns expressed about Jindal using child
labour in one of its sister mines that supplies its steel millsthis
particular export was for a steel mill. Was this picked up? Were
there any questions asked? When we received the form, Jindal had
filled in not only the questionnaire but also an impact form,
and none of the questions on child labour had been answered. Again,
what was going on? Why were more questions not asked about that?
Another that we looked at was for export to Iran. The buyer was
a client called KalaNaft. Under a very simple web search, KalaNaft
comes up as being listed by the Japanese Ministry of Economy,
Trade and Industry as a company suspected of involvement in procuring
biological, chemical, and nuclear weapons. What is this buyer?
Why is it being classed as low impact? There may be very, very
good reasons. The Corner House is a small group and we do not
have the resources to look into all these things in detail, but
I am saying that the forms that were filled in do not show any
evidence that a red flag came up at any point and, as we see here,
they were classified as low impact. The second thing I would say
about the questionnaires is that they are not a screening process
as most people would understand a screening process. They are
not screening anything out; they are only screening in terms of
categorisation. I think that is problematic. If it is going to
be a department that fulfils that duty that ministers have imposed
on it of its activities being in accordance with Britain's sustainable
development objectives, then an element of screening out is absolutely
Q22 Mr Caton: You paint a very negative
picture of the process, even when it is employed. What about coverage?
Are all the projects subject to the process?
Mr Hildyard: That is, again, of
concern to us. I think 71% last year was not screened at all.
It was either defence equipment or aerospace. ECGD argues that
one aeroplane is the same as another and there is no point going
through the screening process, but one aeroplane is not the same
as another. The cumulative impacts of aeroplanes are very different
and that ought to be screened for. The climatic impacts should
be screened for.
Q23 Dr Turner: I am looking at schematic
representation of the project appraisal process. If projects have
a high environmental impact, it is possible for them to be rejected.
Can you think of any single case that has been rejected?
Mr Hildyard: No. ECGD is on record
as saying that they never have rejected one. There is a project
we are looking into at the moment, which is an application for
category A, an application by Jindal for a steel plant in Orissa
in India. It has been posted on the web site. The posting is supposed
to be where concerned parties can get environmental information
on the project, so that they can put in comments and alert ECGD
to any problems. We wrote to the company which is listed as the
source of environmental information and had no reply. We wrote
to ECGD. ECGD says that they do have two assessments thatfrom
what we have in their replythey do not come anywhere near
to meeting the World Bank's requirements, but it is not clear
where those are available. Are they available in the local town?
Are they available in the local language? ECGD does not seem to
know that for sure. It is totally unclear where someone in Britain
would be able to obtain the environmental information. Again,
the system does not seem to be working. Our view would be that
Jindal should be told, "Do not apply until you have an environmental
impact assessment that meets the standards that we require of
an environmental impact assessment; one of which is to make it
publicly available in an accessible place."
Q24 Mr Caton: Is it fair to say,
given the size of the remit of ECGD, that there is a limit to
the level of information gathering and analysis that it can undertake?
Are we making unreasonable demands for information gathering from
the Department that should be the responsibility of exporters
and companies involved in the project?
Mr Leaton: If it is a British
company then you can expect certain responsibilities and that
they should have environmental and social policies and undertake
these processesin which case it should not be difficult
for ECGD to refer us to the right information or pass the information
on. Our concern stems from the fact that if we ask ECGD a question
they do not seem to have the answers at their fingertips provided
by the company. It is also of concern that the level of foreign
contact has been increased to 80%. We feel this increases the
potential risks to ECGD because it will open up increased off-shoring
of labour and materials. It could just be that you pay 20% as
an arrangement fee to a UK-registered company and everything else
happens overseas. One of the main reasons of ECGD is to benefit
British business and develop the British economy, and yet 80%
of the activities are going overseas.
Ms Streatfeild: Given their capacity
to investigate the meeting of environmental standards in what
already goes on seems quite limited, in imagining that they have
the capacity to do that for a large amount of business that is
taking place overseas in a supply chain that may be difficult
to monitor, we would question whether they might not end up supporting
further environmental and social damage as a result of that policy.
Q25 Colin Challen: Is this 80% a
fairly recent thing? What was the figure before?
Mr Leaton: 50% before.
Mr Hildyard: 50 plus 40% for the
I would have to check those figures. It was last year that they
brought it in. Interestingly, Corner House and WWF put in a submission
to the consultation they had on this. We opposed the extension
but proposed that if they were going to bring it in there should
be procedures brought in to check the supply chains of companies
that were being used abroad, particularly for the use of child
labour but also for environmental procedures in the plants which
were being used to manufacture the goods. Our understanding is
that the minister picked up on this and asked ECGD to look into
this specifically. We certainly met with ECGDit was a helpful
meetingand we have supplied them with some information
on the potential guidelines they can look at. I was disappointed
to see in the recent ECGD Advisory Council minutes that the ECGD
appear to have rejected introducing environmental supply chain
standards. They might look into some labour standards, but they
do not appear to have gone down that route. One of the arguments
that they have used is that it might disadvantage British industry.
The other argument is that it would be seen as colonialism, and
I think that does pinpoint one of the problems with the culture
of ECGD. It is not colonialist to impose standards on people who
are asking for public money. That is a huge difference between
that and Britain going out and imposing standards on other governments.
If you come and ask for publicly guaranteed money, there is no
reason on earth why Britain cannot impose whatever standards it
wants on a company getting that money. If one of the sustainable
objectives about which a minister has expressed concerns is the
use of supply chains that are not properly monitored, that do
not have procedures in place, then I think it is of concern that
those are not then fed into the procedures of ECGD.
Q26 Colin Challen: As you understand
it, at the moment these procedures are not being made more rigorous.
Mr Hildyard: That is my understanding,
and I am sure ECGD can answer that.
Q27 Colin Challen: Which leads to
a question abut this Jindal episode. Obviously that was an incomplete
application form that you are referring to. Do ECGD, to your knowledge,
routinely accept incomplete application forms?
Mr Hildyard: Perhaps I can clarify
that. Because it was deemed a low-impact project, the exporter
would only be required to fill in the environmental questionnaire
but Jindal also filled in an environmental impact questionnaire.
There are two different forms, but, because it was low impact,
it was not required to fill in the impact questionnaire. It was
incomplete but it would not have made any difference to the procedural
requirements. My point would be that if staff in ECGD received
a form on this, then it is a mystery to me why they did not pick
up on these issues of child labour and Jindalbecause they
are widely publicised within India, they are a major concernand
if they saw the boxes on child labour were not ticked, why this
did not raise a red flag. That is the issue. Whether rightly or
wrongly, the allegations have been denied by Jindal, but the activists
on the ground would say that they are very sure of their facts.
I am not in a position to judge one way or another. The issue
here is: What procedures were in place? Why was a red flag not
raised? Or, if it was, what justification does ECGD have for putting
it as low impact?
Q28 Colin Challen: ECGD employs the
international standards of the World Health Organisation, the
World Bank, International Finance Co-operation and so on to help
them assess the potential environmental and social impacts of
applications. Are these the right standards to use? I think I
heard earlier on in evidence that the World Bank does not really
have any environmental guidelines. Are these the right things
or should we have something else?
Mr Hildyard: The World Bank does
have environmental guidelines to safeguard policies, quite a number
of them, and ECGD does benchmark against them. It does not have
any climate policies and it does not have any human rights policies
and it does not have any labour policies.
So there are the benchmarks that ECGD uses, but my point is that
ECGD does not screen against UK development objectives. If one
of those objectives is the Millennium Development Goals, with
an oil and gas project I would expect ECGD to ask various questions:
Is this project going to help in eradicating absolute poverty?
It is a simple question. What evidence has the exporter given
to justify this? Not just in terms of maybe putting in a school
here or a community development project here but in terms of the
macro-economic effects of oil and gas. A big issue. There is a
lot of documentary evidence that oil and gas developments can
skew an economy in ways which have very large impacts in exacerbating
poverty through the so-called Dutch disease. These sorts of issues
do not appear to be assessed in the assessments that certainly
we have seen.
Mr Leaton: The World Bank and
IFC do have standards that are referred to by ECGD and we would
see them as the minimum requirements, but it is the discretionary
nature in which they are applied that concerns us. Equally, some
of those other institutions like the IFC have other facilities,
like an ombudsman, through which communities can go to seek compensation
or redress or resolution if they feel the project is not taking
into consideration their concerns or they are being dealt with
unfairly. ECGD has no such mechanism for people impacted on the
ground to come and say, "We don't think you are following
these policies," or "We have a concern and we would
like to raise it with you."
Q29 Colin Challen: Do you have any
evidence that ECGD has provided support to projects where exports
have not met the international standards, even given that these
international standards are not necessarily the best that we could
Mr Hildyard: ECGD has told us
that at in least one projectwhich from memory is South
Powers, a project in Iran, which I think is an oil and gas projectthat
there were derogations from the standards on that but they have
not disclosed what those derogations were. It is of concern to
us that the derogations are not publicly disclosed before the
guarantee is given, in order that they can be commented on and
tested by stakeholders. Certainly if it had gone ahead with Sakhalin,
it would have had to have derogated big time from the listed standards
Q30 Mr Caton: You have already made
reference to the constructive engagement approach. Do you agree
that ECGD should look at projects that do not meet their standards
in the original impact assessment to try to bring them up to scratch?
Mr Leaton: I think it comes to
the timing issue again. If you have already designed the project,
if you have already commissioned major pieces of infrastructure,
like platforms or pipelines, and half of it is already in the
ground, it is very hard to change those bits of the project, so
there is already a limit to what ECGD might be able to influence.
If I were ECGD and I felt I had had such a positive impact, I
would be shouting about it, yet I have never seen any examples
of evidence provided as to what that positive outcome or constructive
engagement has delivered. On the Sakhalin project, they could
not find their way through the diagrams to reject the option and
they had four years to try to bring it up to standard. During
those four years, there was never a point at which they felt they
could fund it because of the ongoing environmental problems. To
us, that demonstrates that they could not bring it up to standard.
Q31 Mr Caton: Others quoted Sakhalin
as a good example of positive impact of export credit agencies
and financial institutions. Even the National Audit Office seems
to have found that improvements were made as a result of the export
and credit agencies' involvement. What makes you think they were
Mr Leaton: As Nick alluded to,
they would not have been addressing those issues if NGOs like
WWF had not raised them; if they had not taken them to the highest
political level; if they had not lobbied other parts of government.
My question is whether it is ECGD within that group of financial
institutions and within government which took that initiative
or whether it was NGOs that suggested potential solutions, and
whether it was some of the other banks that did a lot more of
the environmental work that ECGD maybe rode on the back of because
they did not have the capacity to deliver on it. They may claim
some credit for that, but I do not see how it directly ties back
Q32 Mr Caton: The National Audit
Office think they should take some credit. Is it not the fact
that if they and other institutions had not intervened when they
did, the Sakhalin project would have gone forward and it would
have been much worse?
Mr Leaton: We raised live issues
during that project. We had a monitoring team in Sakhalin, so
we relayed back, for example, periods when the noise levels were
excessive in the gray whale feeding area and sent that to ECGD
within 24 hours of it happening, and we never even received a
response of, "Yes, we are very worried about this, we will
look into it," or "Yes, we'll get back to you on the
action we have taken," so how do we know that they are acting
on the information we provide?
Mr Hildyard: There are two issues.
One is that at the project level and one is at the broader level
of portfolio and so on. At the very beginning of introducing the
Business Principles there was scope for quite a lot of constructive
engagement. You need to bring people on board, you need to educate
people about the Business Principles and so on and so forth, but
we have had 10 years and it is not a policy that has resulted
in a change in the portfolio. I think that highlights a problem
which needs to be addressed. At the project level, certainly on
BTC, the Baku-Ceyhan pipeline, as I have said there were some
contributions that the export credit agencies generally and possibly
the banks also brought in changing the project. There were concerns
over the host-government agreements. Under pressure from NGOs,
particularly Amnesty International, and I suspect from some export
credit agencies, although I cannot say for certain ECGD was one
of them, BP were put under enough pressure to be able to make
some changes and some concessions on these host-government agreements.
They brought in a deed poll which said that they would not invoke
the most egregious clauses except under very specific circumstances.
So, yes, credit where credit is due, but I think James's point
is essential: that most of these issues are raised by NGOsand
we are talking about constructive engagement in the context of
issues having been raised outside of ECGD. I think it is very
telling when you compare different assessments for projects. WWF
have I think put in the Baku-Ceyhan assessment, and when you compare
that to some other assessments that we have and which we can supply
to the Committee, the number of issues that are dealt with by
the Business Principles' Unit really does reflect the issues that
are raised by NGOs. If they are not raised by NGOs, they are not
dealt with. That frames the extent to which ECGD can and does
make a difference.
Q33 Dr Turner: ECGD tell us that
they have been quite active in international fora and discussions
with other export credit agencies, particularly on the current
use of international standards for the wider analysis and assessment
of environmental and social impacts. How would you characterise
Mr Hildyard: Corner House, along
with a network of NGOs have been very active in monitoring the
discussions within the OECD on the so-called Common Approaches.
I think ECGD, along with a few other export credit agencies, have
played a positive role in trying to push for, certainly initially,
the adoption of the three World Bank standards and then the adoption
of a broader range of World Bank standards. Indeed, I think they
have pushed also for a tightening up on what is the biggest problem
with the Common Approaches, which is the derogation clausesand
you can derogate from many of the standards. Also, on a particular
initiative of the OECD on renewables, they did push, I believe,
for inclusion of the reference to the World Commission on Dams
in assessing dam projects. This is all commendable. However, that
said, the OECD process and the extent to which it is making any
difference internationally is extremely questionable. We, as Corner
House but also ECA-Watch, are extremely alarmed by the extent
to which, despite nominally committing ECAs to the 10 safeguard
policies of the World Bank and so on, these are being derogated
from left, right and centre. The Ilisu Dam projectwhich
the Committee will probably be aware of because ECGD in the event
did not fund it and after the applicant withdrew in 2001is
now picked up by three other ECAs; despite 150 derogations from
World Bank standards, they are still going ahead and there is
no process for holding these ECAs to account. The NGOs that have
been monitoring this walked out of the ECGD process last December,
partly because the engagement was a non-engagement. We would go
along, we would express our concerns, the ECAs would sit around
and say very little (and to its credit ECGD normally did say something)
some of the ECAs representatives even slept during the processand
there is a limit to which one can go on spending money going along
to these sorts of processes. We withdrew, saying that really we
are not interested in going back into that process until there
is some sort of clearer review process within the OECD. We have
written to ECGD outlining the recommendations for a peer review
process but have heard nothing back from them. I regret that because
it was a genuine attempt to move things forward. We do know that
within the OECD there have been some discussions but we do not
know where they have got to. To summarise: I think ECGD does play
a positive role; I do not think it uses the extent of its veto
to the extent that it could; the US has refused at times to sign
up to some of these agreements because they are not tough enough.
I think the ECGD could do more of that. It could also do more
to use its role particularly as a signatory to one of the renewables
initiatives to hold the other ECAs to account. They could say,
"Look, you've signed up to this agreement, you say you are
going to have the safeguard policies, how come you are funding
this dam with 150 derogations?" That is in the interests
of UK business, because this was a project that British companies
withdrew from because of the outrage over the fact that it does
not come anywhere close, even now, to meeting World Bank standards.
I think it could do a lot more. I really do regret that there
is seemingly no movement from the UK that we have heard of or
been informed of or been invited to have discussions about on
this issue of a peer review process, because, without a peer review
process, that OECD Export Trade Working Group is just a talking
Q34 Dr Turner: That is interesting
because the OECD and the World Bank tell us that among export
credit agencies ECGD is playing a leading role in helping to promote
the sustainable development agenda. Should that be read as a comment
rather more on the whole process and upon other export credit
agencies? What is your impression?
Ms Streatfeild: I would agree
with Nick that ECGD have taken a lead, beyond some of the export
credit agencies, with what they have been advocating in the international
process. We are not clear about the strategy ECGD has for what
they would like to see as further improvements. They have obviously
made some, but we do not know if they would like to see all export
credit agencies reporting on a sustainable benefit impact, for
example, and it would be interesting to know, in order to be able
to hold them to account, what they are trying to achieve, to know
what it is they go into the meetings looking for. For future years
do they have a plan for what they would like to see in the international
arena? Outside of the OECD there are obviously a number of other
export credit agencies operating. Increasingly developing countries
have them. We understand that ECGD has recently signed a memorandum
of understanding with the Chinese export credit agency Sinosure.
We did ask to see this document, because the press statement alluded
to the fact that they were sharing best practice and also there
may be some sort of products that could provide cover for UK and
Chinese businesses from the other export credit agency. We are
concerned about being able to see this, that this may allow UK
industries to receive support from a Chinese export credit agency
which may not have equivalent standards. While the press statement
did allude to ECGD and China sharing best practice, we do not
know if this includes advocating particular standards to be used.
As I say, we asked to see this document over two months ago now
and we still have not received it. Outside of the OECD, there
are also opportunities, as this may be, for influencing other
export credit agencies and we would like to know what ECGD are
doing in that respect to try to bring other export credit agencies
up to the standards that they are advocating and have achieved
in the OECD.
Mr Leaton: In terms of performance,
as well, when you look around the western ECAs there are certainly
examples of other ECAs going further than ECGD does; whether it
is setting a target for reducing the greenhouse emissions in their
portfolios, producing a sustainable report, funding renewables.
This is all going on in other ECAs but not in ECGD, so for ECGD
to take a leadership position we feel they need to be demonstrating
much more than they are doing that in their own institution.
Ms Streatfeild: It has to be said
that often within the OECD many of the changes that have happened
have been as a result of individual export credit agencies improving
their own standards, and then they are forced to try to create
a level playing field and to lobby and be active in trying to
achieve that. That happened with the UK productive expenditure
rules. Subsequently, after they were introduced at ECGD here,
similar rules were introduced at OECD level. The US had much higher
environmental standards than other export credit agencies. Obviously
the US fought very hard within the OECD to achieve those standards
and subsequently these improvements have been made. While there
is only so far that an export credit agency can go it alone, often
standards are improved by one being a first mover and taking the
lead, and it would be interesting to know what ECGD might be able
to do in terms of taking and improving its own standards and then
going to the OECD rather than just encouraging a fully multilateral
agreement before making any change.
Q35 Jo Swinson: Could I confirm that
it is your view that aerospace defence exports should go through
the same environmental screenings as other applications have to
Mr Leaton: Yes.
Q36 Jo Swinson: On aerospace, in
particular, the Government's view would be that they already have
to satisfy internationally agreed environmental standards anyway.
In your view, why are these insufficient? Why should they have
to go through additional environmental screening?
Mr Leaton: We have had a similar
response, that, yes, the planes that are supported meet regulations
on noise and emissions, but we would hope that the Government
would not support planes that did not meet regulations. Surely
that should be a given. What we are not seeing is where this supposed
constructive engagement takes what is supported beyond that. We
have had responses like: "We do not know what the planes
are used for." We assume they are used for flying, and you
could have some basic performance criteria for what is best practice
and what are we going to support. I would say that some of the
companies that receive support are already doing work along those
lines, so you are not asking them to start from nothing and you
can encourage what they are doing. There is certainly scope to
demonstrate that you are requiring above just what enables planes
to fly by meeting regulations.
Q37 Jo Swinson: What types of additional
screening would you carry out? What would you have in the environmental
appraisal, whether for engines from Rolls Royce or planes for
Mr Leaton: We have not gone into
that much detail. It is a question of whether that amount of support
should be given to that individual industry and it should dominate
the portfolio to that extent. But if it is going to, then I think
the climate change issue is the big one for us that does not get
addressed at all at the moment as far as we can see. There is
obviously a recognition globally that aviation is a growing contributor
to greenhouse gas emissions. It is not covered at the moment by
international processes. We are not clear whether these planes
are in addition to existing planes. Are you expanding fleets?
Are you replacing older planes? There is no way of assessing if
this is a benefit or just increasing the amount of emissions.
Q38 Jo Swinson: But you would accept
that in cases where a new plane is replacing an old plane that
gets retired, it could have positive impacts on the environment
by being more efficient.
Mr Leaton: If there is a proper
assessment done of that.
Ms Streatfeild: It can be the
case that old planes may be retired from one fleet but then sold
to another fleet, so in fact the net effect is expansion. But
all of these issues can and should be investigated to determine,
as we have asked for, that the overall sustainable development
impact and the impact on climate is assessed.
Mr Hildyard: Just going through
an environmental screening process such as the environmental screening
process is at the moment, would be completely insufficient. The
first tier of screening is: Does it accord with our sustainable
development objectives? Does it accord with our objectives on
sustainable consumption? Does it accord with our objectives on
the Millennium Development Goals? Does it accord with our international
obligationsindeed, international law obligationsunder
article 2 of the UN Climate Convention? Having asked those questions,
you can screen out certain projects and then you can have your
technical standards as to whether or not the noise levels are
right or the emissions are better or whatever. If you do not ask
those first tier questions, which are nowhere in any of the screening
processes, you are never going even to begin to meet what you
say you are intending to meet, which is our sustainable development
Chairman: We are out of time, I am afraid.
It has been a very useful session. Thank you very much indeed
for coming in.
25 See Ev 16. Back
Note by Witness: The figure before was 15%, not 50%. Back
Note by Witness: The figures are, in fact, 15 plus 40%
for the EU. Back
See Ev 38. Back