1 IMPROVING
OVERSIGHT
1. On the basis of a Report by the Comptroller and
Auditor General, we took evidence from the Department for International
Development (the Department) and from the Private Infrastructure
Development Group (PIDG) on the Department's oversight of PIDG
and the steps it is taking to assess and improve its performance.[1]
2. PIDG is a multilateral agency, founded in 2002
by the Department and three other donors. PIDG looks to mobilise
private investment in infrastructure projects in developing countries
in order to boost growth and combat poverty.
PIDG donors commit funds which are invested
through investment vehicles ('facilities'). These mobilise flows
of capital and expertise for investment in infrastructure. PIDG
currently operates through seven 'facilities', each managed by
a fund manager, providing a range of services and financial instruments.
The United Kingdom is now one of nine donors. Based on current
estimates the Department will fund PIDG up to a maximum of £700
million between April 2012 and March 2015. The Department is by
far the largest contributor of funding to PIDG. In the period
from its creation in 2002 to December 2013, the Department's total
funding of £414 million represented 70% of all contributions.
That level of contribution increased considerably to 88% for 2012
and 2013.[2]
3. We questioned the Department and the Private Infrastructure
Development Group on alleged links between investments funded
by PIDG with UK taxpayers' money and companies associated with
known criminal fraudsters. Frontier Markets Fund Managers Ltd
is the fund manager for two of PIDG's facilities, Emerging Africa
Infrastructure Fund and GuarantCo. We asked PIDG whether Frontier
Markets Fund Managers Limited had been part owned by Emerging
Capital Partners, a company that had links with a convicted fraudster
and money launderer, James Ibori.[3]
The Department and PIDG told us that at no point had Emerging
Capital Partners been involved with the ownership, management
or operations of Emerging Africa Infrastructure Fund, GuarantCo
or their current fund manager (Frontier Markets Fund Managers
Ltd).[4] However, neither
PIDG nor the Department provided us with all documentary evidence
necessary to support this assertion. PIDG also told us that in
March 2014 Emerging Africa Infrastructure Fund approved a €25m
investment in a power plant in the Ivory Coast in which Emerging
Capital Partners has an interest. It was not clear from the evidence
we received whether the Department was aware that Emerging Capital
Partners was involved in a project in which Emerging Africa Infrastructure
Fund was investing. The Department, along with the other donors,
is only required to approve Emerging Africa Infrastructure Fund
projects if they contradict the facility's investment policy.[5]
4. We also asked PIDG about the appropriateness of
another of its investments given that a connected party was linked
to allegations of looting of Nigerian oil revenues. The investment
was made by Emerging Africa Infrastructure Fund in a company that
itself invests in power plants in Africa, including a plant in
Nigeria, in which Seven Energy has an interest. Seven Energy was
named by the former Governor of the Central Bank of Nigeria in
a 2014 investigation he conducted into the allegations of looting
of Nigerian oil revenues. PIDG told us that in September 2014
Emerging Africa Infrastructure Fund decided to provide up to $30
million to Seven Energy Finance Ltd in support of the gas processing
and distribution activities of Seven Energy in Nigeria.[6]
Again, it was unclear from the evidence we received whether the
Department was aware of this investment.
5. Until July 2014, PIDG's travel policy allowed
fully flexible business class tickets to be purchased for flights
of more than four hours. The National Audit Office found that
between January 2011 and July 2014, PIDG employees booked 15 flights
which cost more than £5,000 each, at a total cost in excess
of £75,000. Subsequently, PIDG changed its travel policy,
although this occurred almost two years after PIDG had reminded
its directors of the need to seek permission to book fully flexible
tickets. The Department told us that the 'tightening up' of the
travel policy in 2012 had not gone as far as it had wanted. Despite
being the most significant donor, the Department did not consider
itself to be in a position to accelerate the pace at which PIDG's
travel policy evolved.[7]
6. Whilst PIDG itself is domiciled in the UK for
tax purposes, two of the facilities it funds—Emerging Africa
Infrastructure Fund and GuarantCo—are domiciled in Mauritius.[8]
The effective rate of tax in Mauritius is below 5%. We asked the
Department how it made sure that PIDG conducts itself in a way
that is in keeping with the Government's stated objectives and
policies on increasing the tax revenues of developing countries
to support their own development. PIDG
told us that the reasons these facilities were incorporated in
Mauritius were historic. At the time, over 13 years ago, Mauritius
had been the only location in Africa with adequate governance
and effective regulation for the location of public funds.[9]
The Department told us that it considered Mauritius a suitable
country in which to incorporate the Emerging Africa Infrastructure
Fund and GuarantCo because Mauritius had, for example, a relationship
with organisations in Eastern and Southern Africa, such as the
Southern African Development Community.[10]
7. The Department recognised that it had been too
'hands off' in its oversight of PIDG. The Department told us that
it was completing a review of PIDG's governance—its first
since 2011. It also told us that its future level of oversight
of PIDG would depend, in part, on the positions taken by the new
donors, such as Norway, that PIDG was looking to attract.[11]
8. Between January 2012 and February 2014, an average
of £27 million of the Department's funding sat in the bank
account of the PIDG Trust[12]
earning interest at a rate of just 0.016%.[13]
The Department acknowledged that it had been an error to allow
money to remain idle in bank accounts, as the funds were not available
to either the UK Exchequer or developing countries, at a cost
estimated by the National Audit Office to have been between £200,000
and £2 million. We questioned how it had been possible for
the Department, PIDG, and the bank (SG Hambros) not to have been
aware of this matter for 18 months. The Department noted that
it had commissioned a wider review of its multilateral agencies
to make sure that the same mistake had not been made elsewhere.[14]
9. Given that SG Hambros are likely to have made
a financial return on the money in these accounts we asked the
Department to write to SG Hambros to ask it to make a donation
to a charity working in regions affected by the Ebola outbreak
in West Africa. The Department subsequently wrote to SG Hambros
on the lines we requested.[15]
1 C&AG's Report Oversight of the Private Infrastructure
Development Group HC 265 Session 2014-15, 4 July 2014 Back
2
C&AG's Report, paras 1.10, 1.8, 1.25 1.27 and Figures 1 and
2 Back
3
Qq 6, 12, 21, 25, 34; C&AG's Report, Figure 2 Back
4
Written evidence supplied by the Private Infrastructure Development
Group, para 1.1.2 Back
5
C&AG's Report, para 2.30; Memorandum from the Private Infrastructure
Development Group, paras 1.2.1-1.2.4 Back
6
Qq 57-60; Memorandum from the Private Infrastructure Development
Group, para 3.4.1 Back
7
Qq179, 186, 187; C&AG's report, paragraph 2.19 Back
8
Q 135 Back
9
Memorandum from the Private Infrastructure Development Group,
para 4.7 Back
10
Qq 112, 113; C&AG's report, paragraph 2.19. Back
11
Qq 72, 168, 244; C&AG's report, paragraph 2.2 Back
12
The Trust moves funds between donors and facilities and act as
shareholder of the PIDG companies. It acts on behalf of PIDG's
governing council. Back
13
Qq 146; C&AG Report para 3.34 Back
14
Q 144, C&AG Report para 3.35 Back
15
Qq 123, 150, 247 Back
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