19 September 1991
SECRET REPORT SHOWS GOVERNMENT HID THE TRUTH ABOUT AID FROM PARLIAMENT
Ann Clwyd MP, Labour's Shadow Minister for Overseas Development, today made public a secret government document that shows that government sponsored aid projects, costing over £130 million, were of little development value and broke international commitments on free trade. Development experts also believe that differences between the internal departmental document and the published report show the published report was doctored to remove statements embarrassing to the Government, and to prevent proper scrutiny of Britain's aid programme by Parliament and by international bodies.
The differences between the two documents appear to reveal that published evaluations of ODA aid to large power generating schemes, were heavily amended after consultation with British companies involves, whose names are omitted from the final draft.
The report deals primarily with projects sponsored by the ODA through the much criticised Aid and Trade Provision (ATP). The scheme has been the subject of controversy and allegations that ATP sponsored projects are often of little developmental value and have, at times, been used to provide hidden export subsidies to UK companies. To avoid these dangers and to ensure that international free trade commitments are not illegitimately breached the Development and Assistance Committee (DAC) of the Organisation for Economic Development and Cooperation (OECD) requires that tied aid projects meet strict criteria concerning the quality of aid provided. A key requirement for ATP projects is that they must pass a "minimum test of development soundness" in order to qualify as aid spending.
In one of the most significant of many amendments to the published document a paragraph from the internal document referring to the appraisal of projects was deleted, which read:
'For the three ATP projects it involved "a minimum test of development soundness". In practice for the three cases involved this does not seem to have been very meaningful...
....[in one instance]... no test was carried out.'
The British ATP programme has already come under fierce attack from DAC, who said, in a recent report (April 1991) that ATP spending leads to an increased risk of "inappropriate project identification and design... diverting aid away from high priority development programmes." it is not known whether, despite Britain's commitment to the fullest possible "transparency" regarding ATP, DAC had access to these internal ODA documents.
Ann Clwyd MP, a long time critic of the present ATP arrangements, said:
"The two documents appear to show that international bodies and Parliament have been deliberately misled to save the Government's face. These revelations call into question the validity of all the evaluations published by the ODA. The ATP programme costs British tax-payers £50 million a year. If the Government cannot own up to the full truth about ATP in its published reports it calls into question its own credibility. These revelations arise form sight of only one of many hundreds of internal ODA reports. It is now essential that, in the public interest, the Minister discloses all the other internal reports to independent evaluation in order to set the record straight."
1) The published report referred to is Overseas Development Administration Evaluation Report (EV470) A Synthesis of Six Evaluations of ODA Large Power Generation Schemes July 1990. The original internal report has the same heading but is dated September 1988.
2) Attached is a selection of some of the amendments made to the published report. Statements appearing in the internal document, but deleted from the published report, are in bold print. Where appropriate, the paragraphs that replace the omitted sections are also shown in italics. Taken together these amendments show a clear attempt to water down, and in some cases remove, damaging criticism in the original report. The significance of most of the amendments is readily apparent but where this is not the case a note of explanation has been added. (Page and paragraph references to the original report are prefixed by 'IR' and reference to the published report are, appropriately, prefixed 'PR.)
a) DELETED: The names of all British Companies mentioned in the internal report.
COMMENT: While it is legitimate to protect commercially confidential information it is questionable whether, in the interests of "transparency" the names of companies benefiting from ATP contracts should be hidden in the published reports. This is particularly so when this information is obtainable from other publicly available sources.
b) DELETED: The nature and tone of the conclusions are also watered down in some subtle amendments. The original report notes that projects had "frequent problems in identification and appraisal..." (IR page 4, para 4). This part of the sentence is omitted from the published report which uses only the second half of the statement to conclude that "the type, size and location of the plant was much nearer the correct choice than might have been expected." (PR page 6, para 5).
c)DELETED: The original report for both ATP and country programme, capital aid projects, said that the economic impact in the recipient country was "low or negative and a secondary or indirect commercial advantage to the UK has been negligible." (IR page 4, para 4)
ADDED: The published report ways that impact was merely "...lower than expected at appraisal" (PR page 6, para 5).
COMMENT: A central justification for the ATP programme is that it is designed to lead to an economic stimulus in the developing country and to follow on orders for the UK. That neither was achieved is hidden behind the oblique language of the published report.
d) DELETED: For the three ATP projects it involved a "minimum test of development soundness". In practice for the three cases involved, this does not seem to have been very meaningful: no test was carried out n the first part of the Burma project because no information existed and on the second part of the project the test was based wholly on an acceptance of an Asian Development Bank assertion that gas turbines were the least cost option." (IR page 14, para 37) cf (IR Annex page 33, para 55).
ADDED: "The arrangement for ATP involved the assessment of the industrial and commercial case by DTI and a test of economic viability by ODA. The framework for ATP sets out that: The industrial case includes the maintenance of UK industrial strength, the development of UK technological capability, the creation or protection of employment, the maintenance or increase of industrial throughput and the extent to which benefits are secured by sub-contractors in addition to the main contractor. The commercial considerations include the extent to which the project represents a market entry, or acts as a reference sale the possibility of specific follow-up business. While every effort is made to process ATP cases quickly, they are subject to the same appraisal criteria within ODA as the projects funded from the rest of the bilateral aid programme." (PR page 11, para 10)
COMMENT: -In order to qualify as development aid, and come within international free trade regulations prohibiting the use of subsidies – tied aid has to pass the "minimum test of development soundness," under DAC, OECD rules (see page 1 above, of this release).
e) DELETED: "The Department of Trade and Industry/Department of Trade appraisals provided in the case papers were described by the valuators as inadequate. They contained unsubstantiated and in the event incorrect assertions about sales prospects (Burma, Botswana, inconsistencies over the case for individual "reference plants", and had difficulty in identifying the nature of non-British competition. On some occasions important information available to DTI was not conveyed to ODA. If, as planned, the logical Framework System is introduced for ATP projects, future assertions will be tested and inconsistencies hopefully avoided." (IR page 15, para 41).
COMMENT: The published report hid the fact that, though, ODA had to sanction ATP spending, another government department (the DTI) withheld important information, without which ODA had to make decisions about supporting the project.
Further, the evaluators, even in drawing up the internal report, never had a chance to see the projects at first hand. They had to rely on written reports about the projects but they regarded these reports as inadequate. Though the internal report is very critical of the projects, it is likely that, had the evaluators seen the projects for themselves, the internal report would have been much more critical. Also, decisions to fund the project were clearly made on the basis of misleading and incorrect assertion about the prospects of follow up sales, one of the key justifications for the ATP programme. This appears to be a very serious omission from the final report.
f) DELETED: Though reference was made to the often inappropriate nature of plant design used in the projects, that the limitation of technical options was narrow, the statement that this may have been partly as a result of the need to pack the ATP programme "with adequate UK content" was also hidden (IR page 16, para 44) cf (PR page 14, para 17).
COMMENT: ATP projects must contain at least 35% UK produced goods and services in order to qualify for a subsidy. This part of the reason, that in many cases inappropriate technology was given to developing countries, in the name of development, was hidden in the published report.
g) DELETED: Referring to a non-ATP power plant provided by British companies in West Bengal, both reports (IR pages 5 and 6, PR pages 8 and 9) conclude that project aid provided "almost certainly inappropriate systems, with no appraisal by ODA), and with regard to public monitoring there was "virtually none". But the published report omits to says that:
"In the event the equipment is now hardly used as the tariff does not cover fuel costs. The only possible justification (and one which the Indian authorities may have found difficult to resist given the relative abundance of aid for power equipment) was that such plant best met the political pressure to expand generating capacity quickly." (IR page 17, para 45) cf (PR page 15, para 18).
COMMENT: This paragraph goes to the heart of the controversy over ATP – it shows how ATP has been used to subsidise the off loading of, often inappropriate, excess UK power plant capacity, on the developing countries, through a subsidy from the tax payer, in the name of aid. The message that the motivation was political, both in the UK and in the developing country, has been clearly recognised, but then deleted. The published report omits to say that such inappropriate considerations led to the whole plant hardly being used at all, clearly depriving other potentially more beneficial aid projects of resources.
h) DELETED: Regarding tendering and the appointment of contractors, "UK suppliers can no longer supply the full range of power equipment [and in one case UK content rules were blatantly broken]." (IR page 18, para 49)
ADDED: Competition between UK suppliers was not always possible to achieve "in view of the small number of specialist suppliers." (PR page 16, para 22)
COMMENT: It appears that even the ATP rules, stipulating that 35% of the value of goods and services exported in ATP projects should have UK origin, were broken. In that case it is hard to see how this project could legitimately qualify as an ATP project. It would also be interesting to lean what disciplinary action was taken against those involved in "blatantly" breaching these regulations.
i) DELETED: Regarding whether the projects were completed in time, a reference to the fact that an ATP funded coal-fired power station in Botswana was 6 months late was omitted. "The Botswana delay of 6 months resulted in part because civil works started before planned designs were completed, a not uncommon situation..." (IR page 19, para 51) cf (PR page 17, para 24).
The fact that there was a failure to "produce a work schedule almost two years after the start of the project" to build an oil-fired power station in the Sudan, was also omitted (IR page 18, para 51).
j) DELETED: "The evaluations did not examine the extent to which companies involved local people in all stages of the project cycle in order to enhance local capability." (IR page 20, para 54).
ADDED: "the evaluations pointed out the contrast between those countries in which local staff took the initiative and became involved in implementation with consequential benefits of enhanced local capacity, and those countries in which staff were not closely involved" (PR page 18, para 27).
COMMENT: One of the prime aims of aid is to ensure that it impacts on the most disadvantaged in the local community. This shows that apparently ODA did not properly consider the impact of aid spending in this way.
k) DELETED: Regarding tariff levels in paying for electricity, in all but one of the projects concerned the report indicates that "Low tariffs, high theft and poor revenue collection posed considerable difficulty in establishing the need for capacity expansion and the minimum test of development soundness." ' (IR page 23, para 65).
ADDED: The 'minimum test of development soundness' is replaced by the words "economic viability" (PR page 21, para 38).
COMMENT: This amendment appears to indicate a clear awareness on the part of the ODA of a breach of DAC, OECD rules.
m) DELETED: Regarding project impact and the need for the generating capacity to be supplied at all: "The ODA appears not to have sufficient time or resources to undertake adequately rigorous or critical analysis of the assumptions underlying forecasts presented to them" (IR page 24, para 68) cf (PR page 23, para 41).
COMMENT: This is a clear statement that the ODA, in the opinion of the author of the report, was under-resources and, therefore, unable to correctly analyse crucial information needed to assess the requirement for particular projects.
j) DELETED: Regarding the impact of the projects on women, "It was not investigated whether modifications of the project design [such as alterations in tariffs or subsidies to appliances] could have had a greater effect on women or other disadvantaged groups." (IR page 26, para 75).
ADDED: "The evaluations did not specifically examine the different categories of consumers" (PR page 26, para 50).
COMMENT: It is a key objective of development aid to reach women to enhance the development process. It appears that there were tools available to help women, often the poorest and the most vulnerable members of the community, but the objective of shifting resources to them was apparently never properly considered.
Perhaps the most significant difference between the original and amended document is that the whole annex to the internal report was dropped form the final published draft. The annex contains the "SUMMARIES OF POWER PROJECT EVALUATIONS". They reveal the full extent of problems with the British aid in this sector and the omissions largely speak for themselves.
a) In the summary of the provision of an oil-fired power station to Sudan, the published report omits to say that despite ODA providing £78 million for the project: "The choice of technology has been inadequate in terms of size and type... the diesel plant contains too complicated electronic controls currently disconnected and ignored" (IR page 29, para 20).
"[ODA had little effective power to prevent the breaking of UK content rules, to ensure effective UK competition, to eliminate unsatisfactory companies at pre-qualification, or to ensure implementation of essential elements of the project funded by other donors (eg training).]" (IR page 30, para 22).
COMMENT: Ministers should explain why this indictment of ODA's abilities by an expert chosen by ODA should have been deleted from the published report.
b) In the provision of a power plant in Botswana 1983-87, despite providing an ATP grant of £5.4 million and assisting with export credit guarantees of £12.7 million:
"No technical assessment was made by ODA" (IR page 30, para 28);
"The commercial case was based on [unsubstantiated] claims that the project will improve prospects for meeting orders elsewhere in Africa" (IR page 30, para 29);
"ODA did not monitor the project". (IR page 31, para 35).
Regarding environmental impact – despite the government's public policy regarding its purported concern for the environment:
"... the plant does not meet standards for the latest plant in Europe" (IR page 31, para 37).
c) UK Aided Generating Plant in Bangladesh (March 1981 – April 1986) ODA provided £4.671 million ATP grant, in support of a combined cycle gas turbine, and assisted with export credit guarantees worth £12.629 million. In spite of this:
"No technical assessment was carried out by ODA." (IR page 32, para 42).
"Plant operation has been dogged with teething difficulties." (Ir page 32, para 46);
"The sustainability of the project is in some doubt in that the local staff are unable to rued the equipment and are thought unlikely to learn to do so given its high level of automation the plant creates a heavy demand for spares (0.5 million per year) for which foreign exchange is in short supply." (IR page 33, para 50).
We are told, however, significantly:
"ATP did allow the contract to be won" (IR page 33, para 52).
d) UK Aided Power Generating Plant in Burma – ODA agreed to provide two ATP grants, £2.19. million in 1979 and £2.2 million in 1982.
"The projects were identified in conjunction with the utility. No details will seen of the Burmese appraisal. ODA did not carry out a minimum test of development soundness of the first grant and relied solely on the Asian Development Bank's view of the second. ODA did not make a technical assessment" (IR page 33, para 55).
"No monitoring was undertaken by ODA" (IR page 34, para 61).
"Sustainability is threatened by the lack of foreign exchange for spare parts and general weakness in financial viability" (IR page 34, para 64).
COMMENT: The original report shows that between 1982 and 1986 (at 1987 prices) ODA gave over £759 million in support to the power sector, of that over £172 million was given through the ATP. It appears that in many cases British aid monies have been spent on inappropriate technology, in countries where the generating capacity was often not needed, and the projects appear to have had relatively little positive impact on the development of the recipient economy, or that of the UK.
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