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Lord Tebbit: My Lords, perhaps I may speak at this stage. I find it slightly embarrassing because the Motion lists me as a member of the committee. I have given formal notice that, unfortunately, much as I would like to serve upon it, I am not able so to do.

The Chairman of Committees: My Lords, I am grateful to the noble Lord, Lord Tebbit, for mentioning that point. I was informed this morning, too late to alter the terms of the Motion itself I regret to say, that it was not possible for the noble Lord to serve on the committee. I can give him an assurance that steps are in hand to ensure that his name no longer appears as a member of the committee and that in due course his name will be replaced by the name of another noble Lord.

On Question, Motion agreed to.

Deputy Chairmen of Committees

The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.

7 Dec 1998 : Column 720

Moved, That, as proposed by the Committee of Selection, the following Lords be appointed as the panel of Lords to act as Deputy Chairmen of Committees for this Session:

L. Aberdare, V. Allenby of Megiddo, L. Ampthill, L. Brougham and Vaux, L. Burnham, L. Carter, L. Chesham, L. Cocks of Hartcliffe, B. Cox, L. Dean of Harptree, L. Elliott of Morpeth, L. Elton, L. Graham of Edmonton, B. Hooper, B. Lockwood, L. Lyell, L. McColl of Dulwich, L. McIntosh of Haringey, C. Mar, L. Murton of Lindisfarne, B. Nicol, V. Oxfuird, V. St. Davids, B. Serota, V. Simon, L. Skelmersdale, L. Strabolgi, L. Strathclyde, B. Turner of Camden.--(The Chairman of Committees.)

On Question, Motion agreed to.

Commonwealth Development Corporation Bill [H.L.]

3.6 p.m.

Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time. In introducing the Bill perhaps I may express my gratitude to those noble Lords who have indicated their willingness to speak in the debate and, in particular, to the noble Earl, Lord Cairns, who is the Chairman of the Commonwealth Development Corporation. Perhaps I may also express, on her behalf, the regret of the noble Baroness, Lady Chalker, that unfortunately she is not able to speak in today's debate, as she would have wished to have done as she is in South Africa.

Nearly one in four people in the world live on less than one dollar a day. That is both morally repugnant and a threat to world security and stability. The Government have committed themselves, in the first White Paper on development for nearly 20 years, to reducing the number of people in the world in extreme poverty.

We can reduce world poverty but it can be done only if economic growth benefits the poor and through measures which provide education and health care. It is

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only possible if economic growth is substantially higher than population growth. We can achieve that rate of growth. Many countries will need increased domestic savings and investment but they will also need capital from wealthier countries.

The Department for International Development aims to encourage these private flows to the poorer countries. We can do this by helping partner governments to establish sound economic policies, a well regulated environment for business and transparent, accountable, government. We also work with UK based companies to promote responsible business and ethical codes of conduct. It is also crucial for developing countries to mobilise private capital flows because, in volume terms, they are vastly more significant than official flows. But most private investment goes to the wealthier developing countries and excludes most countries in sub-Saharan Africa.

The Commonwealth Development Corporation is the Government's main instrument for directly mobilising investment in the poorer countries. This year it has celebrated its 50th anniversary. During those 50 years it has made a substantial contribution to development. It now has an investment portfolio which totals some £1.6 billion, with investments in more than 400 enterprises in 55 countries. It invests in a wide range of sectors including infrastructure, agri-business, manufacturing and financial services. Its long-standing expertise in developing countries and its ability to identify and manage good quality investments in difficult operating environments have given it credibility among governments, financial institutions and international investors.

But CDC is an under-utilised asset. As long as it remains in the public sector, CDC cannot expand significantly. Like other public sector bodies, it is bound by public sector financial controls. Even with a growing development assistance programme, financing CDC exclusively from public funds would always face firm limits, since more for CDC would automatically mean less in other areas.

The Government therefore considered how to enable CDC to make an even greater contribution to the sustainable development of the poorer countries and to help to mobilise other private capital. A dynamic CDC, successfully investing and mobilising private capital into the poorer countries, could have not only a direct effect on growth but also a strong demonstration effect, by showing that it is possible for investors to achieve attractive returns from investing in poorer countries.

The challenge is to ensure that CDC continues to focus on the poorer countries. Current levels of foreign investment show that the market perceives these countries as high risk. In 1996, less than 2 per cent. of total direct foreign investment was in least developed countries. We considered that a continuing government stake would ensure that CDC's development role is secured; and this link with the UK Government benefits CDC by helping provide access to local governments and by providing co-financiers with some comfort on country risk issues.

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We decided, therefore, that a public/private partnership, which benefits both from its association with government and from the participation of private capital, is the right way forward. CDC's opportunities are improving as more developing country governments improve the operating environment for business and increasingly seek private investment for industry. We believe that CDC is well placed to demonstrate that attractive returns can be made in these markets.

We see this as a long-term partnership. We intend to retain a substantial minority holding in CDC for the foreseeable future. In this way the Government will have a long-term stake in the success of CDC. The emphasis of the partnership will be on CDC continuing to do what it does best. The partnership's purpose can be summarised as: maximising the creation and long-term growth of viable businesses in developing countries, especially the poorer countries, achieving attractive returns for shareholders and implementing ethical best practice.

As well as its ordinary shareholding, government will have a "golden share", through which CDC's development role will be protected. This golden share will be of indefinite duration and will exist so long as government have a meaningful share in the partnership. I will return to that point later.

It is essential to ensure that all the provisions necessary to fulfil CDC's development role are clearly set out from the start in the partnership framework and the company's constitution. Those provisions will then be an essential part of the company's identity and will be known to potential investors, who, if they choose to invest, will do so in full knowledge of CDC's objectives, principles and methods.

The golden share rights will protect CDC's investment and ethical policies. The draft investment policy and a progress report on the development of CDC's business principles have been deposited in the Library of the House, along with the draft memorandum and articles of association for CDC plc, which set out the golden share rights.

The investment policy secures CDC's focus on the poorer countries. It sets out a "universe" of developing countries for whose benefit CDC may invest and requires that at least 70 per cent. of CDC's investments--over a rolling five-year period--are for the benefit of the poorer of those countries, defined as those falling below the weighted average of GNP per capita of lower middle income countries as defined in turn by the World Bank. The latest (1996) figures give a cut off point of 1,740 dollars per head. It also says that CDC will aim to ensure that 50 per cent. of its investments each year will be for the benefit of sub-Saharan African or south Asian countries, and it notes a number of sectors (such as manufacture of equipment for military purposes) in which CDC may not invest. The investment policy will be put in place before private participation is invited and the partnership established, and any subsequent changes to it will require the agreement of both a majority of ordinary shareholders and the golden shareholder. These business principles and policies will reflect international best practice in responsible business.

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I have described the key elements of the partnership framework which is proposed. I will now say a few words about who the partners might be, and about other issues related to the sale of a majority holding. Before the Prime Minister announced the proposed partnership in October 1997, the Government had commissioned and received external advice that, provided the partnership was designed satisfactorily, there was likely to be private sector interest in participating. Satisfactory design refers to matters such as setting a clear framework, as I have described, so that there is no fear of unpredictable government interference, and setting an appropriate capital structure for CDC.

We wish to encourage the widest possible participation in CDC, and this would ultimately mean a listing. Interest could be expected to come from those already targeting emerging markets and interested in moving into poorer frontier markets, or investors attracted by CDC's ethical stance. However, it will take time to prepare for listing and for CDC to establish a financial track record attractive to the market. Because of this, listing may not be possible at the time when other conditions are right for the creation of the partnership. In that case we would look at alternatives for a transitional period. Decisions will be taken on these matters in the light of advice nearer the time. The important thing will be to secure the greatest overall development impact and to ensure that capital is introduced at the right time for the business.

That timing depends on a number of factors, including market perceptions of pre-emerging markets and of CDC's track record and forecast performance. The Asian crisis, for example, has had a serious impact on current market perceptions of emerging markets. But as Asia recovers, appetite for investing in emerging markets is likely to return, although perhaps with more concern about the type of investment. Financial track record is also key. The Government's target for CDC's return on capital employed has been a three year average of 8 per cent. Adverse market conditions in 1997, which have continued into 1998, have had an adverse impact on returns but, in general, CDC has achieved the target with profitability levels comparable to or above those of other development finance institutions. But we are aware that returns at this level will be too low to attract private funds, and CDC will be seeking to increase profitability. This will come partly from continuing the shift to equity investments which provide a better balance between risk and reward than long-term loans, as well as doing more to help create and develop long-term sustainable business. CDC's method of working, which relies on close management of equity positions, puts it in a strong position to identify and pursue good investments.

The Bill is the first stage in the creation of this partnership. The text is in itself largely technical. The policy issues which I have outlined--other than entrenchment of the Government's shareholding--do not appear on the face of the Bill (though many of them are covered in the background papers which have been deposited in the Library).

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The Bill covers three main areas. First, there are the provisions needed to turn CDC into a public limited company. Initially the Government will hold all the shares. The intention is to proceed with this conversion soon after any Act resulting from the Bill becomes law, even though, as I have explained, the timing of the eventual sale of the majority holding will depend on a number of factors including market conditions.

Although the conversion of CDC is a technical issue, it is an important one that I should explain a little further. At the moment CDC is a statutory corporation which is not a suitable legal vehicle for the partnership. It cannot issue shares, for example. That is not like privatisations where, typically, legislation would transfer the assets of the public corporation to a newly formed "successor company". This Bill transforms CDC directly into a public limited company without creating a new legal entity. No transfers of assets are involved, because CDC retains the same legal identity, and remains in being, both before and after the transformation.

This legal route is being used because many of CDC's assets are inevitably held abroad. We were advised that, had the "successor company" method been used it would have been necessary also to make sure that all CDC's individual assets were successfully transferred under local laws applying in all the countries in which CDC operates. That could have been a costly and time-consuming exercise which would have diverted CDC's staff around the world from getting on with the real business of the corporation.

The second area of the Bill contains provisions needed to restructure CDC's balance sheet, to give it a financial structure that suits the needs of the partnership. This area of the Bill also makes provision for the continuation of government financial assistance in the period while CDC plc is wholly owned by government.

Thirdly, Clause 18 of the Bill entrenches the Government's role in CDC plc. The Bill is being presented on the basis that it will be used to create a partnership between the Government and the private sector, involving a substantial and long-term government interest. It is not a privatisation. We believe it would be right that, if a future Secretary of State wished to dissolve the partnership, he or she should be required to seek Parliament's approval before doing so.

Clause 18 of the Bill does this by entrenching the two key aspects of the Government's side of the partnership: first, a substantial economic interest and, secondly, the golden share, with the important rights it reserves to the Secretary of State. Clause 18 requires the Government to hold at least 25 per cent. of CDC's ordinary share capital and to continue to hold the golden share. The clause cannot be amended or repealed without the consent of Parliament. The clause also prevents a Secretary of State from agreeing to changes in CDC's constitution which would diminish their rights as holder of the golden share, except with the approval of Parliament.

Together the provisions of Clause 18 will ensure that the fundamental nature of the partnership as it is being presented to your Lordships' House today cannot be altered without Parliament's consent.

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This Bill has been well heralded in public policy statements for more than a year. I am very pleased to be able to commend the Bill and to present it to the House.

Moved, That the Bill be now read a second time.--(Lord McIntosh of Haringey.)

3.23 p.m.

Lord Howell of Guildford: My Lords, I am very pleased to have the opportunity to take part in this debate. I have been a passionate supporter of the Commonwealth Development Corporation for many years, going back to the time when it was called the Colonial Development Corporation. I remember discussing its aims and objectives with the marvellous Evelyn Baring, later Lord Howick, over 35 years ago. Even in those days it seemed to me the ideal instrument of the future, in terms of promoting development and enterprise, with qualities which, in the end, would prove superior to those of government-to-government aid, direct budgetary aid or donor aid which 35 years ago was in its high noon. It struck me that one day we should see much greater expansion of aid instruments, combined with private enterprise flows, which promoted private enterprise at a less spectacular level, namely, that of the small agricultural business, as the noble Lord, Lord McIntosh, mentioned, all over the developing world. I thought that it would work much closer to the roots of development without being caught up in the machinations of huge bureaucracies and vast infrastructure schemes where much of the finance often disappears in dubious directions. I have therefore been a passionate supporter for many years. I am delighted that we have an opportunity to discuss the next stage.

I have no specific interest to declare, but I declare a general interest in all matters that may lead to privatisation (although we are told that this is not a privatisation) or which involve flotations. These matters interest the financial sector in which I work.

Thirty-five years ago, indeed 20 or 10 years ago, the main instrument for promoting development was seen to be overseas aid. A huge industry had been built up on the back of it, and a number of institutions had developed whose job was to transfer resources to the developing countries in the hope that that would promote development. Over the past decade we have seen the picture change completely, with private direct investment and portfolio investment (although it is less related to development) growing by leaps and bounds. The figure I have for the developing countries for 1996 is 120 billion dollars. That is about 40 per cent. of the total foreign and direct investment flows throughout the world. In 1998, of course, the figure will look much worse. There will be a dip, as in 1992; however, I hope that the figure will revive again. Admittedly, the lion's share goes to the not necessarily richer but the bigger developing countries, with China taking the largest proportion. It is a country with a low per capita income but since changing its policies towards foreign investment it has become much more attractive to such investment. That figure of 120 billion dollars now dwarfs anything in the way of official aid, which runs at about a quarter of that level, maybe even less.

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So we have seen an enormous shift in the world's financial involvement in the development process from overseas aid to a position where private capital is now the driving engine. Somewhere in the middle of it all I had always hoped that the Commonwealth Development Corporation would emerge as a brilliantly conceived instrument for carrying forward the process. It has had its comparators. The International Finance Corporation is in effect an international version of the CDC, although it operates on a bigger scale. It has slightly different aims and missions but it too is concerned with promoting private enterprise through joint ventures and direct investment in projects around the world.

It is no surprise and no worry to me that the CDC appears to have a slightly ambiguous future. It is not to be fully privatised; nor is it to remain a statutory corporation. The absolute key is that it should have a strong balance sheet, one that is not undermined when the going gets rough again, as inevitably it will. There will be projects and big investments that go wrong; countries will close down; and capital controls will be slapped on by countries where there has been substantial CDC investment. All that will make for a bumpy ride. Investing in emerging markets is a risky business. I therefore hope that the balance sheet will be strong from the start. I hope that the support of the Government, who, to begin with, will be the only shareholder, and even after some time probably the biggest single shareholder, will be unwavering and that there will not be a sudden change of policy and view when matters turn difficult, as they will.

I am very interested in the concept of public private partnership. I wish to ask one or two questions about how it will work in this case. The noble Lord, Lord McIntosh, said that that is for the longer term. The idea is that there should first be a wholly owned equitised corporation and that the shareholding by the Government will eventually be wound down to 25 per cent., with 75 per cent. being held by investors. What happens to the guarantee regime? The guarantees in Clauses 10 and 11 are to underpin various projects and undertakings into which the CDC has entered. Is it right that, when CDC ceases to be a wholly-owned Crown corporation and the shares start being sold in the open market to other investors, all guarantees will be off? How will that affect the operations of CDC? The same question applies to the very large National Loans Fund interest-free loan commitment of £755 million already available to CDC. Presumably that can no longer be interest-free once CDC becomes a corporation, with risk equity available, and invites private investment.

There is a dilemma here. The idea of having the best of the public and private sectors combining in areas where the market will not necessarily deliver the goods is not a new one. It is a very old idea, with which people have wrestled for generations. There was always an intellectual conundrum; namely, how could a semi-public body be at the same time a private risk capital operation? Either it was backed by the Government in the last resort and could not go bust, or it was out on its own and could go bust in which case all

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the undertakings, guarantees and backing of government were off and the public purpose for which the body was created in the first place could no longer be fulfilled. It is interesting that those with ingenuity at the Treasury who for years sent messages to people such as myself saying that this could not be done now find that it can be done. I seem to remember someone--I think it was Sidney Webb--saying a long time ago when Britain left the gold standard, "They never told us we could do that".

I do not know whether someone has discovered some new voodoo or magic to make for a stable situation where 25 per cent. of the shares of CDC will be owned by the Government in due course, where there will still be some kind of concessionary finance, where there will still be some kind of guarantees, and where there will be a golden share. CDC is known to be a valuable instrument of public policy. Yet investors will be invited to put their money in. Investors will either lick their lips and say, "This is a bonanza because it cannot go wrong and we cannot lose; it is not risk capital at all but debt capital with a soupcon added", or they will put their money in and lose it, and a valuable instrument, if things go wrong, as they often do in business, particularly in emerging markets, will be lost.

I therefore have some queries as to how the corporation will run in the difficult grey area between being public and being private. I do not see how it can do so, but I hope that it can. As I said, I greatly treasure the role that the corporation has played over the years. It is very well run by excellent and extremely knowledgeable staff. I have visited many of its projects around the world. The corporation realised that in order to get development going it was necessary to support small projects and private enterprise at the humblest level rather than grand, vacuous and vague schemes by governments involving huge infrastructure development or massive programmes of education and social improvement which sounded very good but somehow never worked. The corporation always backed the small platoons, the smaller endeavours, and did so very well.

Private investment has its place; the CDC has its place; and straightforward aid still has a place in backing unfinanceable and non-market social projects, social infrastructure and public and political infrastructure, without which no investment or development can take place. I hope that the corporation will continue to have a powerful and effective place, that it will be well financed and that it will be able to live with this slightly strange, ambiguous role. Perhaps it will work in practice, but I confess that I remain puzzled as to the theory.

3.35 p.m.

Earl Cairns: My Lords, I have an interest to declare in that, as the noble Lord, Lord McIntosh, mentioned, I have been the chairman of CDC for some three-and-a-half years, a fact of which I am very proud. I am privileged to hold that office in an organisation with a record of endeavour in the field of development which is, I believe, second to none. CDC has played a major role in nurturing sustainable development in many

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countries and many industries over the past 50 years. It currently brings much needed wealth and employment to individuals and much needed revenue to governments in some 55 of the poorest countries in the world. In many of them we are the largest official investor and therefore provide an important lead to others. Perhaps as many as a million people depend directly or indirectly for their livelihood on the jobs that are created in the businesses in which we are currently invested. I am grateful to the noble Lord, Lord Howell, for his commendation of the quality of our management, with which, of course, I fully concur.

It may seem paradoxical that, at a time when private sector flows to the developing world are substantially reduced, the Bill should seek to increase private sector disciplines upon CDC. However, it is clear that most governments have come to recognise that the creation of commercial value is most effectively achieved by the use of the private sector financial markets via investing institutions which are prepared to take measured risk and appropriate rewards. It is against this background that I, with the support of the whole board of CDC, welcome the Bill.

CDC has been constrained from supporting as much development as it has the potential to do by the limits of government expenditure and the inability to raise further capital by virtue of the "least cost rule". In addition, many co-venturers from the private sector have perceived CDC as insufficiently financially motivated to make CDC a welcomed partner. I hope that the passing of the Bill will enable CDC to fulfil the Prime Minister's stated objective, when he first announced the public-private partnership, that CDC should play a much greater role in mobilising private finance for poor countries by giving CDC access to financial markets and by ensuring that it is a more attractive partner for others from the private sector. If that is achieved, this will be the acid test of success.

Until now CDC has been financed by loans from government and retained surplus derived from our own activities. These involve no servicing cost, although UK corporation tax is paid upon the profits that we repatriate. Much of our investment is in the form of loans. CDC has also applied an "additionality" test to investments, whereby we have left the private sector to operate where it could, leaving the most attractive opportunities to it. For these reasons, we have not achieved a full market return on our investments, nor have we been required to do so.

CDC derives considerable benefit from its close relationship with the British Government. The effective development contribution of successive governments is widely recognised, and the constructive relations which CDC enjoys in many countries crucially depend on that linkage. It is therefore an important plank in the future success that this association continues and is seen to continue.

The commitment to development is as fundamental to these parts of CDC as it is to the Department for International Development, although ours has a particular focus. It is enshrined in our investment policy and will remain as key to the future of CDC as it has in the past.

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CDC has also encodified its policy of fair business and high social standards, making explicit what has been implicit in our business practices in past years. I do not claim we have any monopoly of best practice, but I hope that we can act as a standard bearer for the way in which international investors behave in developing countries.

The challenge that will face CDC in the years to come is whether it can fully meet the requirements of the development objectives that have been the hallmark of its activities over the past 50 years while at the same time satisfying the requirements of the financial markets. CDC is determined to do so, but I cannot disguise that it is a challenge without a large margin for error. Nonetheless, I believe it is possible. The greatest contribution to development is in encouraging the most perspective and most profitable enterprises, which build on the comparative advantages of each economy. In this way we can enable sustainable businesses to compete successfully in an increasingly integrated international market place.

CDC will have to ensure that it can capture the rewards of success, perhaps more keenly than we have attempted to do in the past. It will involve a major shift in style and technique. The equity content of the portfolio will rise, as we seek to share more fully in successful ventures, even though that will mean more certain losses if businesses fail. It will require a much closer relationship with the businesses in which we invest, since we shall not merely be looking to ensure that our loans are repaid. That change is starting to take place. CDC will have to become more focussed and more demanding of itself. That should ensure that CDC's contribution grows in step with greater returns, in creating value and employment opportunities in poorer countries.

CDC has formidable competitive advantages. Its experience and knowledge of many developing countries are highly significant. Its reputation and its relationships, hard earned over the past 50 years, mean that it is a welcomed investor wherever it operates. Its continuing constructive relationship with the Department for International Development will be a major advantage and must remain a vibrant one. We operate in countries which have, on average, high long-term growth rates and scarcities of capital and skills that we at CDC can introduce. CDC will have to build on those advantages. It will not be an easy task to fulfil both the developmental and financial criteria. The challenge is a considerable one, but the prize is also considerable. My colleagues at CDC share with me the wish to accept the challenge because of our commitment to better and more development. For that reason I commend this Bill to the House.

3.43 p.m.

Lord Sandberg: My Lords, one only needs to speak briefly because all the previous speakers, and those who will follow, are great admirers of CDC and what it has done in the past. Perhaps I may say how pleased I am that the Government are pushing the activities of CDC which I consider has, and does, a vital job.

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As a banker I have followed the activities of CDC over the years and I have never found it advancing monies just because it sounded like a good cause. I have always found it to be pragmatic and sensible. It advances money to entities at rates and conditions which banks might not. I suppose it reaches parts of the world which others do not or cannot reach. On my investigation it has only become involved after proper due diligence. It is certainly no instrument of pure charity. I found only a sensible form of pragmatism when it has been involved.

CDC has spread its wings in recent years and is now serving countries which, when it was originally formed, it would not have gone into. I hope that that continues. As a longtime admirer I was pleased to hear the Minister say that it will continue in that vein. He was absolutely right in saying that for the poorer countries and poorer economies it will have to look more carefully, but there is absolutely no reason why we cannot advance monies and assistance to them and to find it profitable both to them and to the lenders. However, I hope that CDC will not concentrate too much on the sub-Saharan economies and south Asia. I should like to feel that there are other parts of the world where its help is much needed.

When we were discussing CDC last week in the debate on the gracious Speech, I said that I had seen activities in central America which are very necessary. We have had awful hurricanes that have affected Nicaragua and Honduras. That area of the world has such storms and it requires help. That applies not only to Central America, Latin America and the Caribbean, but specifically those places which have been hard hit such as Haiti, which one might consider to be a "no-no" area. One can advance money there and democracy as well as profit is helped by so doing. A special case is Cuba. Some form of assistance to that country will help it to rejoin the normal democratic community of nations.

As CDC moves from a structure dependent on loans into one based on equity, there is a need to scrutinise legislation very carefully as a change in structure requires a rather different approach. If CDC is going to cross this divide without falling at various hurdles one has to look at this carefully. I do not have the same gloomy thoughts as the noble Lord, Lord Howell. I do not believe that it is too difficult for governments and the private community to work together. We have seen governments build shares and other investments, but not quite the same as this. There are many instances around the world where governments and the private sector work together successfully.

I am sure that the Minister is well aware of all these potential problems. I am sure that he will give his confirmation that the Government are not unaware of the change that comes about when one goes from a loan structure to an equity one.

I conclude by saying that I hope CDC will continue as it has done in the past. I am sure it will and I wish it well.

3.49 p.m.

Lord Chorley: My Lords, I intervene in this Second Reading debate with some diffidence for in recent years my only forays into the world of development have been

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in connection with the affairs of the British Council. However, many years ago I made my maiden speech on the subject of the Brandt Report. My reason for intervening this afternoon--I am conscious that previous speakers know far more than I do about investment banking, third world development and the CDC--is that I have always had a high regard for the work of the Commonwealth Development Corporation. For example, many years ago I remember two major and successful projects undertaken by the CDC in Swaziland, where I was also involved in development work.

As has been said, the CDC was set up in 1948 as one of several interesting experiments by the Attlee government. This was prior to the days when overseas aid became a major cottage industry or, as the noble Lord, Lord Howell, said, before the high noon of development aid. Some of the Attlee experiments overseas were disastrous, for example groundnuts in Tanganyika and chickens in the Gambia. However, the essence of CDC was small and not mega projects. At the same time one remembers two other interesting experiments: the Finance Corporation for Industry and ICFC, which in due course merged and became "3I's" and it was very successfully floated. It is nice to know that the Attlee government's experiment is still proceeding.

I used to be sent the annual report and accounts of CDC and was interested to see how it was progressing. My impression is that for some time it has been bumping along on a plateau. The noble Lord, Lord McIntosh, explained some of the reasons why it had in a sense become stuck given the normal public sector constraints. In the meantime, in the development field the rest of the world--the private sector--has been pressing ahead. The flows into the third world from the private sector are now much larger than those from the public sector.

Almost everyone welcomed the announcement by the Prime Minister the previous autumn, which was followed by the White Paper to transform the CDC, which we are learning to call public private partnership, or PPP. I am not sure how many of us knew what that meant. At the beginning I believed that it meant privatisation. I am still not entirely clear what it will mean in practice, but it is an interesting and important idea. I still regard it as an experiment, but there is nothing wrong with experiments. Therefore, I welcome this Bill as the starting process.

I have hardly anything to say about the Bill itself. In essence all it does is to turn the CDC into a plc and in that sense it is a paving Bill. I believe that it is quite straightforward. I hope that noble Lords will feel able to agree the Motion to be moved later this afternoon by the Minister--it was originally suggested by the noble Lord, Lord Redesdale--that the Bill should follow the Grand Committee procedure. That is all I say about the Bill, except for two small subsidiary points. I have jotted them down but I believe that both have been dealt with. First, when is the filing date likely to be? I believe that

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the answer is quite soon. My second point concerns the memorandum and articles of association, which I am glad to hear have been placed in the Library.

I come to the big question that has been touched upon by all previous speakers: how easy will it be to attract private equity partners, and how will this partnership work? It is common ground that a prerequisite is that CDC should become in the main an equity financier as compared with currently one-third of its portfolio. Last July the House of Commons in a very interesting and useful report was sceptical about this, rather like the noble Lord, Lord Howell. It drew attention, for example, to a USAID review in 1996 which frankly had been pretty dismissive of the whole concept. That is the big question. I take great comfort from the experience of the noble Lord, Lord Sandberg, and the experience of the Hong Kong and Shanghai Bank. There should not be too great a problem. We also have the noble Earl, Lord Cairns, as chairman. That is quite a good starting point.

There are nevertheless a number of subsidiary but quite important questions. I listed four, some of which have already been touched upon by the noble Lord, Lord McIntosh. The first concerns the length of the transition period. We have been over that matter. Essentially, what is needed is a good solid track record. Secondly, the management will need to be refocused. I do not know whether that is a big problem. Perhaps the noble Earl can tell me following the debate. Thirdly, what will happen to the government loans? As I understand it, they are currently well below the statutory limit of £1.1 billion. It would be a great help to the CDC if they could be freed up to get it off to a good start. Fourthly and finally, the tax status of the CDC is extremely important. Evidently it was a matter of considerable concern to the Secretary of State when she gave evidence to the Select Committee of the House of Commons. Perhaps the Minister can tell the House what progress is being made on that front. These are just some of the points that occur to me.

The transition period will be a tremendous challenge for the CDC, but in the noble Earl and his colleagues we have an excellent team. If they can pull it off it will be a great achievement. It will mean that a fine institution that has done great work over the past 50 years has found a new role to take it into the next 50 years.

3.56 p.m.

Lord Redesdale: My Lords, we on these Benches welcome the Bill for the reasons quite clearly set out by the noble Lord, Lord McIntosh. We believe that it will have a positive implication for developing countries, especially those in sub-Saharan Africa. We wish the Bill all haste at every stage for reasons that I shall go into later. I am glad that all parties have now agreed that it should be subject to the Grand Committee procedure. I suggested as much in the reply to the gracious Speech. I am interested to note that it will be handled by the same Front Bench team who dealt with the National Lottery Bill last year and therefore I do not believe that this system will cause undue problems.

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We have been assured categorically that the Commonwealth Development Corporation Bill is not a privatisation but a move to a public private partnership. I am assured that that is the case. As one who is cynical to the nth degree, at the outset I believed that the privatisation, as it was then labelled, was being promoted so that the spending commitment set out in the White Paper could be met and the £1.5 billion realised from the sale of the CDC pumped straight into the DfID budget. That is not the case and it is something that we applaud. That assurance was made clear last week when the Secretary of State explained the purposes and ideas behind the Bill. That meeting was particularly useful and informative.

Because the Bill has come before your Lordships' House so quickly the reason behind it was explained to all Front Benches last Friday by the chief executive. Bearing in mind that I asked many questions of the chief executive of the CDC, I thank the Minister for the fact that he has not answered the questions before I asked them.

The CDC will change from a reactive to a proactive institution. On these Benches we understand that that is obviously not the easy option. The CDC will enter the harsh environment of the private sector and will have to prove itself. It will be judged on its share price and the dividend that it can produce, albeit not in the easiest of markets. The easy option would be to remain in the public sector, but that would take away one of the major options that the Bill gives to the CDC--to invest in equity, not debt.

The Bill to increase the borrowing requirement that passed through this House during the time of the previous government was a start, but this is the natural course that the CDC will have to take. The noble Earl, Lord Cairns, stressed the issue of looking at equity investment in companies. The importance of being able to invest in equity is that that will act as a lever on other private institutions, taking other companies into the area of investing in companies in emerging markets. The particular difficulties of investing in emerging markets can be seen at present in the City of London. The number of traders who have been investing in the emerging markets and who have found themselves without a job recently is quite substantial.

The Government's role in remaining in the CDC through their golden share is particularly important. The success of the CDC will ultimately rest on how it is perceived as a risk. The provisions in the Bill for bad debt and guarantees, and the fact that the Government are retaining at least 25 per cent. of the shares--although I believe the figure will probably be a lot higher--will give investors a great deal of confidence. The guarantees that will be put forward mean that the CDC will have to stay within a range of 54 countries that meet the criteria set out. I believe the Minister stated that it was $1,750 income per head of population.

There are certain drawbacks in remaining in those markets which are also perceived as the risks associated with investing in the CDC. As there is a higher perceived risk, the rate of return will also have to be slightly higher than in other markets. Will the Minister

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give some assurance that the rate of return and the figures put forward of around 15 per cent. are achievable?

In his introduction the Minister said that the guarantees set out in the Bill could not be changed except by Act of Parliament. Perhaps I am mistaken, but if that is not the case, would he give an indication that it will not be possible to change the guarantees which are going through at present in the area where the CDC will operate? Are those guarantees set by Act of Parliament? Could they be changed by any other method or by the company at a board meeting?

I now turn to specific questions that are raised by the sale. The Minister said that once it becomes a plc, the present assets of the company will be the assets of the new company. Does that include the £550 million in reserves currently held by the Commonwealth Development Corporation? Am I right in understanding that the DfID at present owns those reserves? Will Treasury rules affect the transfer of those moneys or will the Treasury still have a claim on those reserves?

The noble Lord, Lord Howell of Guildford, mentioned the National Loans Fund looking at the £750 million still outstanding. There has been talk of that figure being swapped from loan to equity in the present company. Will the Minister give an indication of how that would take place? Perhaps he could give further details of the implied implications of that transfer, if it could take place.

The timescale for the change from a public sector company to a private sector company will of course be critical. The noble Lord, Lord Chorley, used the word "experiment", but that is a rather risky word for such an important transition. The changeover, as I said earlier, must take place as quickly as possible because the company itself is changing direction. There must be a degree of uncertainty among the staff presently working in the company over the new direction that they will be taking and whether they will have the skills needed for that new direction. It will not affect just a small number of people. I believe there are 250 people affected in this country, 200 abroad and over 40,000 employees of companies in which the CDC invests at the moment. Can the Minister give the House some idea of the timescale for the transition?

Can the Minister also indicate whether there will be a time limit on the flotation of the company? I believe that the Secretary of State will trigger the flotation. Will there be a set period after which the flotation has to take place? I ask that to make sure that the CDC will not be left in limbo if there were continuing turbulence in the emerging markets, although I realise that that is not the Government's intention.

One implication of giving the Bill a hasty passage is that at the moment it is an offence for the Commonwealth Development Corporation to talk to like-minded investors. I believe it is an offence to discuss the break-up of a public body. Although the Minister will have some indication of who those like-minded investors are who will support the goals as set out in the guarantees, there will be certain limitations on having firm ideas of who those investors will be until the Act comes into force.

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It is an important Bill and one hopes that in Committee we shall be able to raise some of the issues in greater depth. I realise that the Minister will not be able to answer all of the questions at present, but he has the support of these Benches.

4.9 p.m.

Baroness Rawlings: My Lords, this has been a most constructive short debate. I wish to stress the importance that we on this side of the House place on the Commonwealth Development Corporation Bill and to express our appreciation of the opportunity for a full and thorough scrutiny of it. I am indeed grateful to the noble Lord, Lord McIntosh, for his detailed explanations, which are most welcome. Despite the consensus in the House on the Bill it is still vital to give proper consideration to the legislation and associated documentation.

The success of transforming a public corporation into a public private partnership depends crucially on how the details of the structure of the legislation, the memorandum and articles of association, and of the CDC at the time of the sale are handled. Your Lordships' House is in a particularly good position to give such consideration given the expertise on this matter among its Members. I think notably of the noble Earl, Lord Cairns, who made such an interesting speech, and the noble Baroness, Lady Chalker, who regrettably cannot be with us today.

The CDC is a success story, as we have heard from all noble Lords who have spoken today, making a valuable and distinct contribution to Britain's overseas development effort. The Minister's lucid introductory remarks have clearly demonstrated that, so I need not burden your Lordships' House with more facts and figures. However, I point out that it was successive Conservative governments which built on the CDC's success by widening its powers and increasing its potential for growth with the 1982, 1986, 1995 and 1996 Acts.

The Conservative record reflects, too, our continuing commitment to development and our belief in the importance of private investment to further the growth of the developing countries. Indeed, in recent years the development finance institutions such as CDC have played a critical role in laying the foundations for much of the dramatic increase in private capital flows to the emerging markets.

The environment in which the DFIs operate have, however, markedly changed. In response to such changes, the DFIs have adapted in a number of ways. One is to increase private sector ownership. The Netherlands Development Finance Company has already done that. The French Proparco and the German DEG are considering expanding private sector ownership, too. Here in the UK it is proposed that CDC brings the private sector into its capital structure in a substantial way.

I should like to state clearly that this side of the House welcomes the Bill and its spirit. We fully support the concept of less state involvement, and of privatisation.

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However, it is ironic that it is a Labour Government who seek to introduce a measure for the partial privatisation of a public body. Only 30 months ago the Labour Benches in another place were seeking assurances that the then Conservative government would not consider privatisation. In particular, at the Second Reading of what became the Commonwealth Development Corporation Act 1996, Mr. Foulkes, said:

    "The Opposition are worried about the dangers of progress towards privatisation ... We are worried that the Government might be testing the waters for fattening the company and selling it off".--[Official Report, 20/5/96; col. 67.]
I continue to marvel at the way in which realities of government lead Labour to adopt Tory ways.

I turn now to specific aspects of the Bill. It is essentially an enabling Bill. We shall have the opportunity at Committee stage to scrutinise the Bill in greater detail. However, I wish to flag up some areas of concern at this early stage which stem from one fundamental question. Are the provisions envisaged likely to make it sufficiently attractive to the private sector? That was mentioned, quite rightly, by my noble friend Lord Howell of Guildford, and the noble Lord, Lord Chorley.

In Clause 18 the Bill makes provision for a partial privatisation leaving the Government with at least 25 per cent. of the issued ordinary share capital and a special share. We accept the need to accept the entrenched development role of the CDC. However, we should like to ask the noble Lord to clarify a number of points. Have the Government considered alternative models; and, if so, which? Despite what the noble Lord, Lord McIntosh, said regarding privatisation, have they considered outright privatisation but with the development role entrenched on the face of the Bill? Why has the Crown Agents route not been considered appropriate? Is the public private partnership an intermediate step towards full privatisation? For how long do the Government intend to hold a golden share? The noble Lord referred to the foreseeable future, but what does that mean?

As part of enlarging the resources of the CDC, the Government propose in Clause 15 to raise the present limit of government assistance from £1.1 million to £1.5 million. But does that mean that the Government intend to make further loans for £745 million over the coming years? That was one of the questions asked by the noble Lord, Lord Redesdale.

If the provision is read in conjunction with Clause 9, is it the intention that the new loans will be interest bearing? After registration will government finance assistance, in particular new loans under Clause 9, score against the PSBR? That leads me to Clause 8 which provides that old loans, and advances in particular, remain non-interest bearing loans. That clearly suits CDC. During the International Development Committee hearings the Government gave the impression that they were inclined to convert some of the concessional advances into equity and to have some repaid. What considerations led to the changing of that declared intention?

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The Bill represents only one element of the operation to enable setting up the public private partnership. It provides a purely formal framework. I wish to raise some fundamental questions on the contents of the memorandum and articles of association as well as the CDC investment policy. Would any private sector investor wish to invest in a company where the Secretary of State has such extensive powers of control? They may be protected from unpredictable interference, but would they want to invest in a company where the control of the fundamental decisions is not in their hands?

I turn next to the investment policy. That requires the CDC to invest at least 70 per cent. in the poorer countries and 50 per cent. in sub-Saharan and South Asian countries. I note that in 1997 the CDC invested in 17 countries which are not classified as poorer by the World Bank. I note, too, that among the poorer countries there are seven eastern European countries. There is no legal barrier to CDC involvement in those countries, although it is not in its policy at present. As we well know, over the years the focus of British foreign policy has shifted away from the Commonwealth and towards Europe. We on these Benches recognise that development, and support further European enlargement. Indeed, the CDC investment in eastern Europe would realise a hope first expressed by the noble Baroness, Lady Chalker. Would this not be an opportunity to bring the CDC more into line with our foreign policy: by freeing the investment policy of the geographical requirement, increasing flexibility, maintaining the focus on the eradication of poverty and freeing funds for investment in eastern Europe?

The papers discussed so far are as much as the Government have seen fit to disclose. To complete the operation it is necessary, for example, to restructure the company's balance sheet, define its tax status and decide the method and size of sale and, most importantly, its timing. On those points the Government have left us completely in the dark. First, after registration, when the Crown fully own the CDC surely it will have to restructure the balance sheet to make it more attractive to investors? At present about 60 per cent. of the capital employed comes from government advances. Of course, market conditions at the time will be crucial. Depending on likely scenarios, how will the Government restructure the capital base of the CDC? If it is going to convert part of its substantial reserves into equity, would a company with a burden of over 60 per cent. of loans be attractive to the private sector? Would not the CDC become more attractive to private investors if the loans were converted into equity? Will the Government undertake to endow the CDC after registration with a strong, attractive balance sheet, as so rightly mentioned by my noble friend Lord Howell of Guildford?

Secondly, I turn to tax. We understand that provisions for the CDC tax treatment are to be included in the next Finance Bill. Has the Secretary of State been discussing with the Treasury the possibility of a special tax treatment of development investment organisations within the UK along similar lines to the treatment of pension funds? Do the Government intend to grant the

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CDC an advantageous tax status which may provide the necessary incentive to private investors, offsetting the potential commercial disadvantages represented by the Government's retention of a considerable degree of control? How will an advantageous tax treatment be so circumscribed that it will not amount to a tax loophole, encouraging invasion and possibly fraud? What progress can the Minister report on discussions with the Treasury? Will the Government proceed with the Bill even if they do not obtain a special tax treatment for the CDC or allow it to go offshore.

Thirdly, the Government have not disclosed anything about the method and size of sale and, in particular, its timing. What further advice about the evidence of private sector interests have the Government had and what indications emerge from it? What method of sale are they envisaging to adopt? What minority stake above the 25 per cent. do they intend to hold? What is the current valuation of the CDC? Will the Government give your Lordships' House assurances that proceeds of the sale will go to DfID? By what date do they think the CDC will be ready to be privatised?

I hope that the Labour Government are not intending to sell it prematurely to raise money. Paradoxically, that is precisely what Members of the Benches opposite accused us of doing when they were in opposition.

Earlier this year, the noble Lord, Lord Whitty, endeavoured to reassure this House. Of course it is privatisation in one sense, but the motives behind it are not the same as in the case of many privatisations in the past. Our concern is not so much the return on the equity sales which will be involved, but rather the ability to use that to extend access to additional funds. Four months later, DfID announced a comprehensive spending review for the next three years. I quote from the press release of 14th July:

    "The Commonwealth Development Corporation will receive an injection of private capital through the sale of a majority share. This will improve the CDC's ability to contribute to development by increasing the flow of investment to poor countries. It will also provide receipts for the DfID budget".
If one looks at the table in the same press release there is an interesting increase for the year 2000 to 2001 of about £500 million, which roughly corresponds to the crude estimate of the partial sale of the CDC.

Looking at the wider canvas, that raises important questions, especially in view of the deteriorating health of world markets. Are the Government going to sell the CDC in 18 months' time? If the current rate of return is decreasing, how can the CDC establish a credible trend towards a rate of return of 15 per cent. and at the same time maximise the development content. How can the corporation undertake in such a short time the necessary shift in management focus and skills base? At what cost will that be to its dedicated and highly expert staff? Should there not be in the Bill a date before which it is not possible to proceed with partial privatisation in order to ensure that the CDC has enough time to make the necessary adjustments? We are seeking assurances that, although the Government are unwaveringly committed to part privatising the CDC, they will not rush into the sale. Will the Government also come back to Parliament before issuing securities?

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As I said at the beginning, we welcome the Bill and its aims. However, we fear that there are still many aspects that have not been thought through in sufficient detail as yet. Therefore, we will need to give it a great deal of attention and time in order to ensure its success. I very much look forward to the answers to, I am afraid, my many, many questions.

4.24 p.m.

Lord McIntosh of Haringey: My Lords, I am grateful to all noble Lords who have taken part in the debate. As the noble Baroness, Lady Rawlings, rightly said, it is evidence of the expertise which is available to your Lordships' House from its Members in a number of spheres. I shall try to answer as many of the questions as I can, but it is right that I should start with the fundamental points raised by the noble Baroness, Lady Rawlings, who simply refuses to believe that this is a public private partnership but instead describes it as part privatisation.

I am afraid that the noble Baroness is very seriously in error in her analysis. That is a shame, since the noble Lord, Lord Redesdale, who was initially sceptical-- I believe that he used the word "cynical", which does not describe him to me--has been convinced by the arguments about public private partnership. The fundamental difference, as the noble Lord recognises, is that the proceeds from introducing private capital into the CDC will be used for development assistance programmes--in other words, for the purposes of a whole spectrum of the activities of the Department for International Development--and not go straight into the Treasury pot.

That is the fundamental distinction which I wish I could persuade the noble Baroness, Lady Rawlings, is the relevant consideration. It is not an intermediate step towards privatisation, as she suggests. It is a true partnership in which the Government will continue to be involved in the longer term for the benefit of government--in other words, their ability to carry out the objectives of the Department for International Development--and also of the private sector in that the expertise built up over 50 years by the CDC, its links, its offices in 27 countries and its expertise in a whole range of sectors, which are appropriate to poorer countries, will open up these markets to private capital. I hope it is fair to say that under these circumstances, despite the many difficulties which have been properly pointed out, not least and quite rightly by the noble Lord, Lord Cairns, the chairman, this is a win-win situation for the benefit of both sides.

Before going further, perhaps I may get rid of the false analogy which the noble Baroness, Lady Rawlings, raised with the Crown Agents. She asked why we were not following the Crown Agents' route. That is a company limited by guarantee. The Crown Agents cannot and do not have profits and therefore there is no question of attracting private equity capital. Therefore, there is no analogy of any kind between the Crown Agents and what we are considering today.

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A number of noble Lords asked whether the financial implications of the Bill have been taken into account in public expenditure figures. I can categorically say that they have and that the comprehensive spending review figures for the Department for International Development, to which the noble Baroness, Lady Rawlings, referred, take account of the provisions in the Bill.

The noble Lord, Lord Howell, made valid and perceptive points about guarantees. It is true that Clause 11 provides that the Government can guarantee third parties against default on financial obligations by the CDC. But he is also right in saying that after the CDC ceases to be wholly owned by the Crown that will no longer be the case for new projects. The whole point about going to private capital is the balance of risk and opportunity and it would be impossible to conceive of the Government guaranteeing individual projects after the change has taken place. Of course, the experience and expertise of CDC provides some comfort, as I said in my opening speech. And the links which the Government have with the governments in the poorer countries provide some comfort. But that cannot be in the form of financial guarantees.

The noble Lord also made an interesting and important point about the way in which the transformation of the balance sheet will take place. Perhaps I may try to explain it by example. I do not wish to be trapped into saying that the figures which I give are necessarily true figures. They are only exemplars. The present situation is that the balance sheet consists of £755 million of loans and reserves of £550 million. The example I give of a transformation is that in future £900 million would be equity and £400 million would be debt. That is more akin to a private sector balance sheet.

As the noble Lord suggested, interest-free loans must disappear. They have to be written down on the balance sheet. Calculations have been made of the effect on the total balance sheet of writing down those long-term loans. The calculation is that it is probably to the extent of 5 to 10 per cent. of the total balance sheet; in other words, it is manageable.

The noble Lord made a valid point, echoed by a number of other noble Lords, when he said that the activities of the CDC and of aid itself and other activities of the Department for International Development all have their place--I believe that that was the phrase he used--in government activity in relation to developing countries. That is the context in which we should see the matter. It is not that we see the new structure of the CDC as being the way in which the Government will approach their obligations to developing countries. That is one end of the spectrum. Relief aid for natural disasters, such as in central America, where no financial return is looked for, is the other end of the spectrum.

The noble Lords, Lord Howell and Lord Chorley, and the noble Baroness, Lady Rawlings, questioned whether the prospects are sufficiently attractive to the private sector. I take a quite upbeat view. I see it as a unique opportunity for investors to gain exposure to emerging

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markets, using the 50 years of experience of the CDC and, in particular, its experience of managing investments in those markets. This is in the context of global foreign direct investment in developing countries having increased from about 17 per cent. in 1990 to 37 per cent. in 1997. Africa is still low but there have been a number of increases and a number of success stories; for example, Ghana, Namibia, Mozambique, Uganda and Botswana. As those developing countries improve their operating environments for foreign investments--and that is part of what they are being urged to do by the IMF and the World Bank under the HIPC programmes--we expect to see further increases in the amount of foreign direct investment. We are certainly working to promote that. We are working to establish a technical advisory facility to assist governments to encourage wider private participation.

We also expect interest from ethical investors. A report in June of this year from the Ethical Investment Information Service indicates that more than £2 billion is now invested in ethical investment, a figure which has quadrupled in the past five years. So we are balancing the need for capital efficiency with the appropriate degree of risk and allowance for the business to grow in the future.

The noble Baroness, Lady Rawlings, seems to think that the Secretary of State maintains extensive powers of control and that that will be a deterrent to investors. The Secretary of State will not be able to initiate changes after the first phase is complete although changes in certain areas will require her approval. That is not uncommon. The framework which we have set covers the universe of countries for whose benefit CDC can invest. As the noble Lord, Lord Sandberg, rightly said, we have set a minimum which is 50 per cent. for sub-Saharan Africa and south-east Asia--that is the two combined--and 70 per cent. for the poorer countries more generally. But that does not rule out investment in central or South America or even in eastern Europe. I must make clear that decisions on individual investments are for the board and not for the Secretary of State. However, encouragement will be drawn from the fact that ethical best practice means that the CDC will be at the cutting edge of what many companies are now doing and not doing something different.

I should say to the noble Lord, Lord Redesdale, that there will be risks and there will have to be a substantial increase in the returns available which must go up from the average of 8 per cent. over recent years to something like 15 per cent. But part of that will be achieved by the change to the balance from a situation in which 70 per cent. of CDC's activity is in longer-term loans to a situation where nearly all of it will be in equity with the concomitant risks. We believe that the change in skills base which CDC is determined to implement makes that achievable.

It is not possible for me to say anything final about the tax situation, although I shall do so as soon as possible. Clearly, the CDC needs to be tax-efficient and we are still seeking a solution, together with the Treasury and the Inland Revenue, which will meet

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the need to encourage investment in the poorest countries through private public partnership and to prevent abuse of the tax system.

The noble Baroness, Lady Rawlings, accused the Government of keeping people in the dark about the timing, as did a number of noble Lords. Filing will be immediate and the restructuring of the balance sheet will take place as soon as possible thereafter. However, not only would it be wrong, it would also be quite impossible to say when the flotation will take place. That depends on a range of matters that we do not know and that no one could know. Therefore, it would be foolish were I to say anything other than it will take place early in the new millennium. We have not yet taken those decisions. The important issue will be to secure the greatest overall development impact to ensure that new capital is introduced at the right time. Market perceptions of emerging markets and the CDC's track record and forecast performance are significant in the decision which will be taken as soon as possible about flotation. But it will not be taken too soon.

We did not go into this matter without seeking professional advice. The indication has been that private sector interest in public private partnerships could come, as I said, from those interested in these emerging markets and in ethical funds and from general institutional stock market investors and international organisations such as development banks.

The noble Lords, Lord Sandberg and Lord Chorley, were keen that the Government should give an assurance that we are aware of the full significance of the change from loan to equity activity. I hope that what I have said and the speech of the noble Earl, Lord Cairns, gave them some reassurance. The noble Earl is well aware of the magnitude of the challenge--the challenge to the staff of the CDC and the need for additional skills in this new era. I have had the opportunity of meeting the principals involved in this significant change over recent days and I am confident that those concerned will do their best to bring about a successful venture and that their best will be good enough. I commend the Bill to your Lordships.

On Question, Bill read a second time.

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