House of Commons - International Development

Select Committee on International Development Sixth Report

SIXTH REPORT

The International Development Committee has agreed to the following Report:—

ECGD, DEVELOPMENTAL ISSUES AND THE ILISU DAM

1. At the beginning of the current Session the International Development Committee published its First Report on The Export Credits Guarantee Department - Developmental Issues.[1] The Report examined the various submissions put in by developmental organisations to the current Review of ECGD's Mission and Status, and highlighted those issues which we wish to see addressed by the Review. We also stated that we intended to "return to these issues in the new year and hope that further consultation will take place before the finalisation of the Review".[2] An evidence session was, therefore, arranged for 1 February 2000.

2. In the weeks preceding the evidence session on 1 February 2000 there had been considerable discussion of proposed ECGD support to Balfour Beatty as part of a consortium brought together to build the Ilisu Dam in Turkey. This proposed project raises in an acute form some of the developmental concerns surrounding the work of ECGD. For that reason we concentrate on the Ilisu Dam in this short Report. On the more general developmental questions raised with ECGD, we for the most part content ourselves with the comments made in our previous Report of this Session, and look forward to the conclusions of the Review.

3. On 1 February 2000 we took evidence from the Rt Hon Richard Caborn MP, Minister for Trade, Department of Trade and Industry, Mr Vivian Brown, Chief Executive, ECGD, and Mr John R Weiss, Director of Underwriting Group, ECGD. We are grateful to our witnesses and to those who submitted written evidence.

4. We regret the decision of the Liaison Committee, following an objection by the Chairman of the Trade and Industry Committee, not to authorise a visit of the International Development Committee to the site of the proposed Dam. We remain strongly of the view that such a visit is necessary to inform parliamentary and public debate in this country of the social, developmental and human rights issues involved.

The Ilisu Dam

Conditions for Export Credit Support

5. During our previous inquiry into ECGD and Developmental Issues a number of the memoranda we received focussed on the Ilisu Dam in Turkey and the controversy surrounding possible ECGD support for the project. Soon after the publication of that Report, the Secretary of State for Trade and Industry stated, on 21 December 1999, that he was "minded to grant export credit ... conditional on the Turkish authorities agreeing to address the concerns we have about the environmental and social impact of the project". Four main concerns were listed, "areas where changes would be required before the British could consider export credit support. These are the need to:

(a) draw up a resettlement programme which reflects internationally accepted practice and includes independent monitoring

(b) make provision for upstream water treatment plants capable of ensuring that water quality is maintained

(d) produce a detailed plan to preserve as much of the archaeological heritage of Hasankeyf as possible".[

6. We do not intend to lay out in detail the background to the proposed Ilisu Dam project and the arguments over possible ECGD support. The issues surrounding the Dam have been considered by the Trade and Industry Committee in their Report on the Application for Support from ECGD for UK Participation in the Ilisu Dam Project[4] and we refer readers to that document. The Government Observations have been published in the Trade and Industry Committee's Fifth Special Report of this Session. The Trade and Industry Committee obviously has an immediate interest in the proposed support for the Ilisu Dam since the decision is to be taken by the Secretary of State for Trade and Industry and ECGD comes within the Committee's terms of reference. There is, however, also a developmental angle which should not be ignored. Although a relatively rich country, Turkey is nevertheless classed as an Upper Middle Income country in the OECD DAC List of Aid Recipients - this means it can receive official development assistance. Moreover, development indicators vary considerably between different regions of Turkey. In a report on Turkey published by UNDP in 1997 the authors noted the least developed areas of Turkey were the East and South East, with the highest poverty rates in the country.[5] Even in richer countries there are pockets and areas of poverty; the relatively poor can become the very poor once again as a result of misguided projects and programmes. As economies grow, sometimes rapidly, and as they move from development assistance to the sort of support offered by ECGD it is important to ensure that principles advocated and applied by development agencies are not then airily jettisoned by export credit agencies. This is not merely for the sake of governmental consistency. Good development criteria must remain in place, whoever the protagonist - it is important to maintain concern for such issues as human rights, sustainability, the impact on society. The Ilisu Dam is a high-profile example of the developmental issues to be addressed by ECGD in all its work.

7. We have three comments to make arising from our discussion with the Minister for Trade and the Chief Executive of ECGD on the Ilisu Dam project - the first concerns the way conditions are established and applied; the second concerns the human rights and conflict-related aspects of the proposal; and the third relates to corruption. As has been made clear by all the export credit agencies (ECAs) involved in the project, there are four key areas where conditions necessary for ECA support have not been met. This includes acceptable plans for resettlement which conform to agreed OECD Guidelines. In a report prepared by Dr Morvaridi for ECGD on 'Stakeholders' Attitudes to Involuntary Resettlement in the Context of the Ilisu Dam Project, Turkey', it is pointed out that implementation in Turkey of past resettlement projects has been "problematic ... there are consistent areas of weakness that could be addressed".[6] In August of last year the Movaridi report was pointing out that "International guidelines recommend that planning for resettlement takes place as early as possible in the project cycle. Yet the DSI [State Hydraulic Works] has not produced a detailed resettlement plan for Ilisu to date even though the final design of the Ilisu dam project was approved as early as 1982".[7] The report goes on to say that "No specific planning for the Ilisu resettlement programme has been undertaken"[8] and "No host areas have been identified for resettlement under the Ilisu project".[9]

8. There are similarly severe criticisms on the question of consultation, "The survey data indicates that ... there has not been any kind of consultation or communication between the DSI and the affected people despite the fact that the project has been discussed by planners for nearly 20 years ... Local people who are the most important stakeholders have not been consulted let alone been encouraged to participate in project planning. There are good reasons why development agencies encourage local participation in projects like Ilisu. Experience shows that development projects imposed on local communities often under-perform because they lack a sense of local ownership and public support. Local populations can contribute ideas and information that can help to avoid unforeseen problems and improve project design as well as contribute to monitoring".[10] The general conclusion is simply put, "Although a policy and legal framework for resettlement is in operation international guidelines are not being observed in the context of the Ilisu dam".[11]

9. A report was also prepared for ECGD by Environmental Resources Management (ERM) — "Independent Environmental Review of Ilisu Dam Project: Desk Review of EIA and Associated Documents".[12] The ERM report examines the original environmental impact assessment against international best practice as found in World Bank and OECD EIA Guidelines.[13] It identifies a number of significant environmental risks including, impacts on archaeological features such as the Hasankeyf site, the danger of poor reservoir quality, and possible downstream impacts. Thus the report concludes that essential pre-conditions for ECGD support include, amongst other items, a comprehensive Environmental Management Plan, an outline institutional review, agreement on a minimum outflow regime from the dam to be adhered to during both construction and operation. We note in passing that the list of essential pre-conditions contained in this report is longer than those outlined by the Secretary of State in his statement of 21 December 1999.

10. In response to the criticisms and reservations expressed not only in these two reports but by many individuals and organisations the world over, a revised Environmental Impact Assessment Report and a Resettlement Action Plan are now being prepared. The Government in its response to the Report of the Trade and Industry states that "Approval will only be given if the conditions are satisfied and can be effectively monitored".[14] We have here a project proposed for ECA support that, despite having been in preparation for many years, fails almost every internationally agreed test in terms both of consultation and planning for environmental and social impact. In response to such woeful inadequacy the various export credit agencies require detailed plans as to how the Turkish authorities propose to remedy their omissions and conform to these conditions. Once such commitments are made, approval, we understand, will be granted.

11. Much has been said of the need to monitor any commitments made. Certainly, the conditions must be public, clear and to internationally agreed standards. There must be independent monitoring procedures with the agreement that any cover becomes void should the monitors conclude that a commitment has been broken. But the unbiased observer must surely conclude that something has gone very wrong when conditionality is used in this way - with ECAs and Governments bending over backwards to secure the deal. The Turkish authorities had not complied with international standards - why was the project not simply rejected for cover? Is it always the case when such conditions are not met that ECGD simply asks for the required plans to be produced, and on that basis cover is given? How seriously can such commitments be taken? The Morvaridi report notes that Turkey has been particularly bad at implementing past commitments for resettlement. The threat of withdrawal of cover is of little value given the fact that the commitments last for many years whereas the financial exposure of companies such as Balfour Beatty is for a limited period only. There is good reason for the expectation that relevant international criteria should be met before a proposal is agreed and cover sought - it is a sign of political will, institutional capacity, developmental commitment and good faith. The shotgun wedding approach to export credit that we find in the case of the Ilisu Dam does not in our view bode well for the implementation of commitments but is rather the worst form of export credit practice. The Ilisu Dam was from the outset conceived and planned in contravention of international standards, and it still does not comply. For that reason cover should not be given.

Human Rights and Conflict

12. This region of Turkey has for years been troubled by severe conflict. Human rights abuses, particularly in relation to the Kurdish minority, large numbers of whom live in south eastern Turkey in the region of the proposed Dam, have been monitored and chronicled by such bodies as Human Rights Watch and Amnesty International.[15] A further conflict-related issue is the fact that Turkey's neighbours, Iraq and Syria, have both objected to the proposed Dam, citing concerns over downstream flows of the River Tigris.[16] We have in a previous Report on Conflict Prevention and Post-Conflict Reconstruction made the point that genuine development can only take place as conflicts are prevented and resolved, and as human rights are respected. In particular, the Report recommended that the Government, and the multilateral agencies to which it contributes, apply 'conflict impact assessments' to its projects to ensure that no intervention fuels or prolongs conflict.[17] In the Government response we were told that an initial methodology had been developed but that "progress is difficult due to the sensitivity of the subject, lack of cooperation from some agencies, and lack of access to conflict-affected groups and potential beneficiaries to gain their views and direct participation". The Government went on to emphasise that "Issues of social exclusion are central to DFID's work. DFID is developing ways of mainstreaming these issues and is also focusing on increasing the capacity of civil society to negotiate and lobby for the rights of those who are socially excluded".[18]

13. Even if the methodology of conflict impact assessment is in its early stages, the Government claims to be committed to the principle of conflict sensitivity in its operations - this must apply not only to the work of DFID but to all the operations of Whitehall in developing countries, including ECGD. Richard Caborn told us with regard to the Ilisu Dam that they had not done a conflict impact assessment though he promised to take the suggestion away to consider.[19] But this goes beyond the application of any formal "assessment" procedure. We have no sense that ECGD and the United Kingdom Government have at any point seriously considered what repercussions the construction of the Dam will have on the prospects for peace (and thus genuine sustainable development) and the rights of the marginalised in this region of Turkey.

14. The responsibility to provide advice on human rights in the case of the Ilisu Dam rested clearly with the Foreign Office - we have been told by Richard Caborn and Vivian Brown both that the FCO were consulted and that the question of human rights in relation to the Dam was not raised. Richard Caborn said that the Government had "taken what is the normal intelligence, which is fed into the Foreign Office. They have been consulted on this, as indeed all the Government departments have been consulted in the normal way. Nobody has raised a question so far as ECGD cover is concerned ... There is no one who has come back and raised the human rights question in terms of this dam and the awarding of ECGD".[20] If the Foreign Office was not raising human rights issues with ECGD in relation to the Dam, we are perplexed as to what they found to talk about. No details have been given of precisely what advice the Foreign Office did give to ECGD, although we have been told they are "in regular contact" regarding the project.[21] Further parliamentary questions have been asked concerning inter-departmental consultations on the Dam in an attempt to find out exactly what advice was given to ECGD by other government departments. In a generally unhelpful answer, it was made clear that consultation began in January 1999 and there was intensive consultation during November and December 1999 prior to the announcement of the Secretary of State for Trade and Industry on 21 December 1999.[22]

15. We are astonished that the Foreign Office did not raise any questions about the proposed Ilisu Dam and its effect on the human rights of those living in the region. The large-scale resettlement of a population, many of whom may well question the very legitimacy of the Government which moves them from their homes, must surely demand some detailed analysis from the Foreign Office. We would expect comments on the necessity of a genuinely transparent, free and fair consultation process; discussion of the relation between the removal of communities and drift to the towns on the one hand and on the other any conflict-related tactics and military strategy of the parties to the conflict; certainly an analysis of the human rights of the affected community and the extent to which the building of the Dam could possible infringe or affect them. We criticise the Foreign Office for failing to raise these issues in detail with ECGD and DTI Ministers. More generally, we recommend that the Foreign Office present an analysis to ECGD of the human rights implications of every project for which ECGD is considering cover.

16. Vivian Brown told the Committee of the three ways in which ECGD considers human rights, "The first is where human rights [abuses] lead to sanctions against countries, when ECGD will not provide cover ... Secondly .. we make an assessment of the creditworthiness of individual countries, which is looking at a wide range of social as well as economic and political factors. Human rights is undoubtedly one of the issues that we consider when we decide whether or not we can provide medium term cover for particular countries. Thirdly, when we are looking at individual projects such as this one, we will try to take account of a whole range of factors which influence the feasibility and viability of that project".[23] Whilst all these approaches are important, they fall short of an acceptable position on human rights. Putting aside the exceptional case of a sanctions regime, ECGD only considers human rights, be it at country or project level, from the economic perspective ("creditworthiness", "feasibility", "viability"). We infer that if a project infringed or ignored human rights in some way but appeared economically robust and sustainable, ECGD would be prepared to grant cover. Of course, taking a longer-term and wider perspective, human rights abuses could be said to render any activity inherently unviable and unsustainable. The sad fact is, however, that in the short to medium term human rights abuses can readily coexist with profits and economic growth. The reason to consider human rights is simply the fact that they are rights - universal and non-negotiable.

17. ECGD should not provide cover for any project which infringes the human rights of workers, local populations or other affected persons. Furthermore, for projects in areas where there is persistent human rights violation, ECGD should consider whether such abuses render compliance with other conditions (for instance, local consultation) impossible. We recommend a clear commitment from ECGD to respect and protect internationally agreed human rights in all its activity and for the United Kingdom Government to press within the OECD for all export credit agencies to agree a human rights policy.

18. We have, of course, been particularly interested in whether and how DFID has been consulted during this period. In a written answer Clare Short said that DFID was consulted "as part of ECGD's wider Whitehall consultation in January 1999. We commented on ECGD's terms of reference for an independent review of environmental and resettlement impact reports produced by the project sponsors. DFID has no engagement with Turkey other than our support for emergency relief following the earthquake in August and November 1999. We have therefore had no advisory input into the Ilisu Dam project".[24] This point was reiterated by Sir John Vereker, Permanent Secretary of DFID, in an exchange during the Committee's inquiry into the Departmental Report for 2000, "I think we have to ask where the limits are even of a Department which is spreading its wings as widely as ours in terms of where we can and should exert our influence. I think we have to say in a country which is technically an aid recipient, but it is an OECD member, it gets a miniscule amount of resource transfer from my Department, it would be wrong to suggest that my department has any significant influence there".[25] He went on to say that the responsibility for advice on human rights issues connected to the proposed Dam was with the Foreign Office.[26]

19. The direct responsibility of DFID is the elimination of poverty rather than a global monitoring of human rights - it is reasonable to expect a view on human rights from DFID in those countries where there is a DFID programme of any significance. We are certainly not proposing that DFID invent a position on human rights in Turkey where up to now it has not had occasion to take a view. We should also consider, however, the general question of ECGD's consultation of DFID prior to the approval of cover. It appears obvious to us that ECGD should consult with DFID on any project proposed in a country where DFID has a presence. Only thus can we ensure that ECGD is not undermining with UK taxpayers money the very work which another tranche of taxpayers' money is supporting. When pressed as to whether this happened at the moment, the Minister was rather unclear, "The answer is very close cooperation".[27] We recommend that all projects which ECGD considers for support in countries eligible for official development assistance be referred to DFID for an opinion on their developmental effect and consistency with DFID's country strategy. It should not, however, be the case that DFID simply becomes a rent-a-conscience for the rest of Whitehall. ECGD itself should also have the expertise in house to assess the developmental impacts of proposed projects and we recommend that ECGD ensure that appropriate social, environmental and developmental experts are employed for this purpose.

Corruption

20. We also touched briefly in evidence on a current case in Lesotho in which Balfour Beatty is part of a consortium now prosecuted for bribery in connection with the Lesotho Highlands Water Project. The consortium, and Balfour Beatty, strenuously deny the charges and we certainly do not pass any judgement on the foundation or merit of the case against them. The trial does, however, focus attention on ECGD's handling of corruption. In DFID's position paper presented to the Review on ECGD's Mission and Status the Department warned that "Corruption has a substantial effect on development and on effective risk management. It is also detrimental to honest UK businesses and therefore has a cost to the UK economy".[28] DFID notes that ECGD does make cover void if corruption by a UK company is discovered and urges consideration of how ECGD can bring greater focus to detecting cases of corruption in relevant projects. They also "encourage ECGD to implement a black listing system of UK companies found to have been involved in corrupt practices in a court of law".[29]

21. John Weiss for ECGD did not think that they had had in his experience any instances "of companies of whom we have had allegations, or indeed proof, of corruption or bribery that has led us to refuse cover".[30] This is in our view a cause for concern. We plan to consider the question of corruption more closely in a future inquiry. We do not, however, think that simply looking for corruption in the project being covered is adequate. It does not appear that a past record for corruption does much to damage ECGD's assessment of the track record and competence of a company applying for cover. A conviction for corruption or bribery should have consequences for future contracts, both to ensure such practice is not repeated by the company concerned and to act as a deterrent to other companies which might be considering similar practices. The World Bank has a list of firms ineligible to be awarded a World Bank-financed contract because they were found to have violated the fraud and corruption provisions of their Procurement or Consultants Guidelines. In the current version of the Listing, 36 of the 54 companies listed are United Kingdom companies. In a recent written answer the Minister of Trade said that "ECGD has no record of having provided support to any of the firms on that List".[31] This appears, however, not to be the result of any conscious blacklisting but rather circumstance. We recommend that ECGD blacklist companies convicted of bribery or corruption, at least those found on the World Bank Listing of Ineligible Firms.

22. There remains the question of what to do when a company seeking cover is being prosecuted for bribery or corruption. There are obviously difficulties in that charges can be unfounded or malicious, and in that in certain jurisdictions processes can take an extremely long time. Simply to refuse cover in such circumstances would obviously be unjust. As unjust would be the postponing of a decision until the trial came to a conclusion - in such circumstances the contract would invariably be won by a competitor. If, once ECGD cover has been granted, the company concerned is found guilty of corruption or bribery, we recommend that cover be void immediately. Recent written answers made clear that ECGD is to introduce new procedures to bring their practices into line with the OECD Bribery Convention.[32] We expect the issue also to be addressed in the conclusions of the Review of ECGD's Mission and Status. We will consider the adequacy of ECGD's new arrangements in the context of our current inquiry into Corruption.

1 First Report from the International Development Committee, Session 1999-2000, The Export Credits Guarantee Department - Developmental Issues, HC 73 Back

2 Ibid. para.5 Back

3 DTI Press Release 'Byers Releases Reports on Ilisu Dam' 21 December 1999 Back

4 Sixth Report from the Trade and Industry Committee, Session 1999-2000, Application for Support from ECGD for UK Participation in the Ilisu Dam Project, HC 200 Back

5 See www.undp.org/rbec/pubs/nhdr97/summary/turkey.htm Back

6 'Stakeholders' Attitudes to Involuntary Resettlement in the Context of the Ilisu Dam Project, Turkey' Report to ECGD August 1999 para.3.1 [henceforth referred to as the 'Morvaridi report'] Back

7 Morvaridi report para.3.6 Back

8 Morvaridi report para.3.6 Back

9 Morvaridi report para.8.0 Back

10 Morvaridi report para.5.1 Back

11 Morvaridi report para.8.0 Back

12 Henceforth known as 'ERM report' Back