§ Norman Lamb (North Norfolk)
It is appropriate to offer my condolences to the families of all those who died in the tragic rail crash in Tanzania that was reported yesterday. That is the last thing the country needs.
I shall set out in detail the results of my research into the extraordinary story of how a British arms manufacturer came to sell a totally inappropriate military air traffic control system to Tanzania. I shall give the history of the scandal, before dealing with the role of Barclays bank in facilitating the deal, and with the case for reforming Government procedures, which is long overdue.
Tanzania is one of the world's poorest countries. In 1998, its per capita gross national product was $220. In the same year, its external debt was $7,603 million. It became eligible for, and received, debt relief amounting to some $3 billion under the heavily indebted poor countries initiative. It first made enquiries about purchasing an air traffic control system in 1993, when it invited tenders, but it was not until 1997 that a part-owned subsidiary of BAE Systems made a slightly adjusted application through the preliminary advice process—the F680 procedure—for an export licence, to be agreed by the United Kingdom, for a military-capable system to be designed and manufactured by BAE Systems.
F680 is a preliminary advisory process for companies that want to export military equipment that requires an export licence. It is a Ministry of Defence procedure, despite the fact that a different Department—the Department of Trade and Industry—will consider the export licence application. According to the House of Commons Library, it seems that all sides consider a positive indication under this procedure to be "preliminary clearance". The Ministry of Defence gave advice and preliminary clearance on the BAE system in August 1997. The Department for International Development was not consulted, and did not even know about it. In effect, that gave the green light for the whole deal to proceed, despite the fact that the export licence application was not considered until December 2001. Tanzania and BAE Systems entered into a binding contract for the purchase of the military system, and the Tanzanian Government confirmed the financial package to the International Monetary Fund. In a communication to the IMF dated 18 July 2000, the Tanzanian Government claims thatwe were unable to finance it through bilateral or multilateral aid. We nonetheless were able to obtain bank and supplier financing of US $35 million on concessional terms that comply with the performance criterion on external borrowing".I shall return to those criteria.
As we now know, a loan from Barclays bank facilitated the purchase. Despite the Tanzanian Government's claim in the letter of intent to the IMF that financing came from "bank and supplier", BAE Systems claimed to me that it was not party to the financing arrangementswhich were entered into between Barclays Bank and the Government of Tanzania.229WH However, it is worth noting that, as at 12 September last year, Barclays bank plc held an interest in 93,632,529 ordinary shares in BAE Systems.
In a letter to me, the IMF confirmed that the 1999 financing packageyielded a weighted average grant element of 35.9%.Barclays bank has not explained why, as a commercial lender, it has seen fit to subsidise heavily an arms sale to a highly indebted developing country. Tanzania accepts that the system is designed, in part, for military purposes. In their letter of intent to the IMF dated 18 July 2000, the Tanzanian Government state:For safety reasons, we have acquired a new radar system to strengthen air traffic control in Tanzania…the system will also be used for military purposes".It is the military dimension of the air traffic control system that has been the cause of its considerable expense. David Rider of Jane's Air Traffic Control told the BBC that the BAE system was an air defence system under another name and was "far too expensive" for a civilian system. I have now been told that even the military capability of the system is inadequate. It covers only about one third of the country, and two more systems would be needed to cover the whole country. The civilian capability covers only the area around Dar Es Salaam and Mount Kilimanjaro airport.
In a preliminary report responding to questions from the World Bank dated 29 October 2001, the International Civil Aviation Organisation stated thatthese systems have been designed for military purposes…The high cost of these systems are related to the military components and sub-systems inherent in the design.The report also indicated that the system used ageing technology and wasnot adequate and too expensiveto be used primarily for civil air traffic control purposes. I understand that the further report prepared by ICAO following an in-depth study of the system will not contradict those conclusions. Indeed, it seems worse than that, as someone at the World Bank described it to me as a bombshell. It seems as if a modern civilian system could have been purchased for as little as $5 million, compared with the actual cost of this useless system of about $40 million. It is a white elephant, and there is no point attempting to adapt it because it would be cheaper to start again.
On the deal's finance, Barclays bank claimed in a letter to me on 8 April 2002 thatBarclays support for defence related exports is dependent on the appropriate export licence being granted".However, the Department of Trade and Industry Minister responsible for export control revealed that the Government only approved the export licences in December 2001, which was two years after Barclays had agreed subsidised financing, as reported to the IMF. In a further letter of 3 May 2002, the bank suggested that it had received "Government approval in principle" at an early stage, presumably under the F680 procedure. However, it refused to discuss details of the Tanzania deal.
Tanzania is part of the debt initiative for heavily indebted poor countries, so it had to satisfy the International Monetary Fund that the loan from Barclays was at concessional rates. A heavily indebted 230WH poor country that is receiving debt relief cannot secure a commercial loan for military equipment, so it had to show that the rates were concessional to fulfil its obligations under the HIPC initiative. The IMF confirms that it accepted that the loan was at concessional rather than commercial rates. It said thatthe terms of the financing package obtained by Tanzania in 1999 for its air traffic control system yielded a weighted average grant element of 35.9 per cent., which is consistent with the definition of concessionality under the terms of the IMF's concessional loan facility, the Poverty Reduction and Growth Facility".I have written to Barclays twice to find out why it got involved in the deal, but have so far received no explanation. Someone at the World Bank told me last week that he had never before come across a commercial organisation subsidising the purchase of military equipment by a heavily indebted poor country. It does not make sense. In the absence of a proper explanation from Barclays, others are inevitably trying to establish the truth. Various theories have been put forward. Barclays might simply have had a fit of generosity, but that seems unlikely. Perhaps it had something to do with the fact that, on 11 October 2000, Barclays secured a banking licence to operate in Tanzania. Was that the payback for subsidising the deal? The other more sinister explanation is that the contract price was fiddled and artificially inflated so that it looked to the outside world as if Barclays was providing a concessional loan, which was necessary to get the deal past the IMF.
Perhaps Barclays provided a commercial loan on a lower sum, which seems to be the view of the Secretary of State for International Development. On 15 May, she said in Parliament:Somehow, a loan from Barclays bank, which is funding the project—there is no way that Barclays can provide concessional funding—has been reported to the IMF as being concessional, so the project squeaked through, which is very odd."—[Official Report, 15 May 2002; Vol. 385, c. 763.]If that is correct, then it seems that there has been fraud. When a Secretary of State alludes to corruption, surely it is time thoroughly to investigate the financing of the deal. I have also been told that bungs were paid to oil the wheels of the deal.
Did the Secretary of State for Trade and Industry know of those bizarre financing arrangements when she decided to grant the export licence in December last year? If so, what inquiries did she make, and what did she discover? Furthermore, did she know about the allegations that bungs or bribes were being paid? I challenge Barclays to clear the matter up once and for all. The longer that it remains silent, the more suspicion will grow about the propriety of the deal.
The latest development is that the full ICAO report on the system has been completed and sent to the Tanzanian and U K Governments. I understand that the World Bank wanted Tanzania to publish the report, but so far it has failed to do so. It now appears that BAE Systems has produced six pages of comment on the report. The Tanzanian President has also questioned some of the technical details. Apparently, nothing will be published until those issues have been considered. I also understand that the president of the World Bank will visit Tanzania soon to discuss the deal. 231WH Furthermore, the Tanzanian President has written to the Prime Minister to ask for help in extricating Tanzania from that disaster.
§ Mr. Stephen O'Brien (Eddisbury)
As chairman of the all-party parliamentary group on Tanzania, I offer my sincere condolences to the Tanzanian people for the deaths of more than 200 people near Igandu.
We are aware of the privity of the contract between the Government and Barclays, and the procedures that the hon. Gentleman has so strenuously outlined. Given that, is he aware that a solution might have been for the Tanzanian Government to be responsible for, say, £9 million of the contract, which would have sorted out the Dar Es Salaam domestic air traffic control requirements, and on the back of the Dar Es Salaam bombing and particularly in the light of 11 September—
§ Norman Lamb
In response to what I understand the hon. Gentleman's question to be, the Tanzanian people must not be punished as a result of that disaster. The finger must be pointed at the Government and the role of Barclays bank and BAE Systems.
The Ministry of Defence's F680 application procedure must be re-examined. In response to every question that I put to the Ministry on the matter, I have been told that it provides guidance only at the marketing stage and that it in no way compromises the consideration by the Department of Trade and Industry of a subsequent application for an export licence. That is clearly not true in the BAE Systems case. The F680 clearance led to the signing of a binding contract, the finalising of a subsidised loan from Barclays, the building of most of the equipment and the payment of at least $15 million to BAE Systems before the application for an export licence was considered. Is that really how the system is supposed to work? Is the Secretary of State happy with being presented with a fait accompli in that way? If the F680 application process is not to undermine proper consideration of export licence applications, all relevant Departments must be consulted in such cases. Companies must surely be advised that, should they win the tender, they should apply for the export licence before entering a binding contract.
With regard to the rules on the granting of export licences, the Government's response to the Lords amendments to the Export Control Bill has weakened the sustainability test. Although the Bill is a step in the right direction, crucially, after its passage through Parliament, it will still be possible for that scandal to be repeated. The Secretary of State is supposed to have regard for the so-called consolidated criteria, no. 8 of which addresses development concerns. That criterion was clearly ignored in the case of BAE Systems. I understand that jobs and the interests of BAE Systems were the decisive factors. That means that we continue to have inconsistent Government policy across Departments. The International Development Act 2002 contains at its core the test of sustainable development. The Export Credits Guarantee Department has now built sustainability into its procedures.
232WH In a speech made by the Chancellor in 1997 in Mauritius, he said:We need to make sure that poor countries never again become saddled with insupportable debt burdens. The UK will ensure that export credits for poor, highly-indebted countries will only support productive expenditure.If only that were the case with this scandal. We have a much more relaxed approach to arms sales. The lobbying of the arms industry has presumably paid off. That needs to change.
It also worries me that there is such a close relationship between the Government and BAE Systems. First, we know that BAE provided £12 million in sponsorship for the mind zone at the dome, presumably not long after preliminary clearance was given by the Ministry of Defence. Secondly, on 16 May 2002, it was announced that Sir Richard Evans, chairman of BAE Systems, was to lead the new aerospace innovation and growth team, a joint Government-industry group, the purpose of which is tosecure agreement between government and the industry on a shared vision and strategy.Thirdly, I understand that BAE had eight staff working for free, on secondment, at the Ministry of Defence. Although I would not necessarily object to any of those initiatives on its own, a picture develops of an over-close, unhealthy relationship. I would like the Minister to respond to that concern.
I hope that the Minister will respond directly to the detailed points and questions that I have raised today. There is a real need for proper parliamentary scrutiny of the whole saga, which, so far, we have not had. I hope that the Minister will, at least, provide straightforward answers, so that we can start to understand how that outrage occurred and find a way of preventing its repetition. I hope that he will not be tempted to suggest that my concerns about wrongdoing are in any way irresponsible. It is clear from several parliamentary exchanges that the Secretary of State for International Development shares our concerns, and I urge the Minister to accept that to give debt relief and millions of pounds in aid to Tanzania while foisting a useless military system on that country makes absolute nonsense of Government policy.
§ The Minister for Employment Relations, Industry and the Regions (Alan Johnson)
I congratulate the hon. Member for North Norfolk (Norman Lamb) on securing the debate, and I add my condolences to the families of those who died in yesterday's tragic rail crash in Tanzania.
The Foreign Secretary made it clear in his oral evidence to the Quadripartite Committee on 21 March that the Government's decision to issue two export licences in December 2001 in no way obliged the Tanzanian Government to proceed with the purchase of an air traffic control system. That decision has always been for the Tanzanian Government. The question for our Government was whether the licence applications contravened the consolidated criteria announced to Parliament in October 2000, and whether the proposed export would seriously undermine Tanzania's economy or seriously hamper its sustainable development, contrary to criterion 8 mentioned by the hon. 233WH Gentleman. The decision to issue the licences stands, and the Government have no intention of revoking them.
I now turn to the issues raised in the recent International Civil Aviation Organisation report and the allegation that the system is a waste of money. I reiterate that our decision to issue the licences did not oblige the Tanzanian Government to proceed with the purchase of an air traffic control system. It is essentially a commercial transaction between Tanzania and a British company. The Tanzanian Government must decide which system best meets their needs, and the ICAO report raises several issues to be dealt with by them.
The UK Government have been at the forefront of international efforts to strengthen the regulation of the arms trade and to deal with proliferation. We were instrumental in obtaining agreement for an EU code of conduct on arms exports, including the sustainable development criterion, which is at the heart of this debate. As Ministers have made clear on numerous occasions, the Government will listen and respond to the concerns of the public and Parliament. With that in mind, the Government have put beyond doubt their continuing commitment to sustainable development by amending the Export Control Bill. During the recent debate on the Export Control Bill in the other place, my noble Friend Lord Sainsbury of Turville announced that the Government had also recognised the need to consider how criterion 8 can most effectively be applied in assessing relevant export licence applications, and had agreed that there was a need for clearer procedures within Whitehall for reaching decisions when sustainable development is an issue.
The Cabinet Office was asked to facilitate an interdepartmental discussion of the issue, involving all Departments with an interest. That discussion is under way and a statement will be made to the House as soon as possible.
The Government have opposed damaging Opposition changes to our amendment. Those changes would impose an unnecessary straitjacket on the administrative regime, forcing consideration of issues that are of no relevance to an export. They would have significant resource implications, are completely unnecessary and mechanistic, and would destroy our targeted case-by-case approach to export licensing. They would risk distracting advisers away from consideration of issues that really matter.
I would like to deal with the issue of corruption raised by the hon. Member for North Norfolk, not just today but in the House on 19 June 2002. As there has been an allegation of wrongdoing and criminal activity on the part of BAE Systems and Barclays bank, I want to put it clearly on the record that the Government have no evidence that the deal was in any way corrupt. We are committed to combating bribery and corruption in whatever sector of the economy it may occur. This is why we are working with our international partners and the business community to ensure that there is effective action both here and abroad to tackle the problem of corruption across industry, as the Organisation for Economic Co-operation and Development convention on combating bribery of foreign public officials and the Anti-terrorism, Crime and Security Act 2001 make clear.
234WH I turn to development aid to Tanzania. Since 1997, no Government have done more to increase international aid or ensure that the debts of the poorest countries are cancelled. We increased overseas aid to £3.376 billion in 2001–02, and we are working with our partners to cancel £100 billion of debt of the world's 42 most heavily indebted poor countries. The Government remain committed to supporting Tanzania's poverty reduction strategy. Our bilateral development assistance stands at some £80 million a year. Such assistance goes towards strengthening economic and political governance; improving public services, including health and education; and helping to provide key infrastructure, such as water and roads, in rural areas. That said, we and other donors want to be satisfied that mechanisms are in place to ensure that the resources provided are used effectively for the purposes intended and that they produce results. Tanzania has made impressive progress in many areas, and we want to build on that. We urge the Government of Tanzania to engage fully with the international community on wider issues of policy, prioritisation and the efficient use of resources. My right hon. Friend the Secretary of State for International Development is going to Tanzania to discuss the way forward.
There has also been a suggestion that the Government's lack of objection to the marketing of the BAE Systems air traffic control system, recorded through the Ministry of Defence F680 process, in some way forced their hand to issue the export licences relating to the eventual supply of equipment. That is simply not the case. I shall quickly explain the process in the hope that that will address such concerns once and for all.
The Ministry of Defence F680 process gives exporters advice on their proposals to market goods overseas. It is made clear when F680 advice is given that it emphatically does not constitute an export licence, nor does it prejudge a decision on the eventual consideration of an export licence application. That is made clear to exporters because, as in the case of the Tanzanian deal, several years can pass between the marketing stage and receipt of application. Obviously, the circumstances can change radically during that period. It is entirely feasible that, even when the Government advise no objection to a company marketing its product, when the time comes to sign the contract, an export licence may not be granted.
I understand that the Ministry of Defence has arranged for a copy of the guidance provided to industry on the F680 process form to be placed in the Library. It has been remarked that the company's decision to start production before an export licence was issued had a bearing on the Government's decision. That is simply not the case. Whether the company had started production or the fact that equipment had been part-manufactured was not remotely relevant to the application that came before Ministers. The assessment was made on the basis of the criteria announced in Parliament, not on how close the company was to exporting the system. It is a company's commercial decision whether to start production without an export 235WH licence. However, the Department of Trade and Industry's export control organisation advises exporters against entering into special production or a binding contract until an export licence has been granted in case the Government decide against issuing a licence or there is a delay.
Many critics have insisted that the decision on BAE Systems highlights the need for prior parliamentary scrutiny of export licence applications. The Government take great care when making such licensing decisions in the full knowledge that those decisions will be examined closely and that Ministers will properly be held accountable for them by Parliament through the annual reports on strategic export controls.
§ Norman Lamb
Is it not true that, prior to the export licence being granted, BAE Systems made the case to the Government that there would be potential job losses if the licence were refused? Can the Minister categorically state that BAE Systems did not make that representation?
§ Alan Johnson
I have no knowledge of any such representation being made. However, I can respond to one of the hon. Member's earlier points about whether the Department was aware of the terms of the loan between Barclays bank and the Tanzanian Government. We seek all the information that we need from an applicant to enable us to take a reliable export licensing decision against the criteria. The details of the information sought and provided in that case, as in others, is commercially confidential.
236WH Many critics have insisted that that decision highlights the need for prior parliamentary scrutiny. We are very careful. The Quadripartite Committee has acknowledged that few other EU member states approach the UK's level of transparency and that our annual reports arethe most transparent reports of their sort in Europe".In their response last July to the Quadripartite Committee report of 14 March 2001, the Government rejected prior parliamentary scrutiny of export licence applications on practical grounds and as a matter of principle. We believed that a system of prior scrutiny could not be made to work without having a materially adverse impact on the efficiency and effectiveness of the licensing process and without causing significant damage to the competitiveness of UK exports.
During the passage of the Export Control Bill in another place, Lord Campbell-Savours proposed a defence exports scrutiny committee to scrutinise export licence applications. On Third Reading of the Bill in the House of Lords on 20 May, my noble Friend, Lord Sainsbury made it clear that the Government were still concerned about several aspects of that proposal. However, Lord Sainsbury made it clear that Ministers intend for examination of the proposal to continue.
The hon. Gentleman has taken a great interest in the matter for some time, and at no stage have I suggested that that is in any way irresponsible. I assure him that decisions on export licence applications continue to be assessed on a case-by-case basis against the consolidated EU and national arms export licensing criteria announced in Parliament.
§ Question put and agreed to.
§ Adjourned accordingly at Two o'clock.