News of the base will fuel criticism of Pergau, described last week as an 'abuse' of the aid system by Sir Tim Lankester, a former permanent secretary at the Overseas Development Administration. The National Audit Office, the public spending watchdog, has condemned Pergau as uneconomic and a waste of money.
John Laing International, the construction company, has submitted plans for the site, at Mersing on the east coast, for approval by the Malaysian government. The original specification for the project comprised submarine docking facilities, landing strip, reinforced hangars for Hercules transport aircraft and accommodation for up to three battalions of special forces. Laing's contract is thought to be worth about pounds 200m.
As a signatory of the long-standing Five Power Defence Arrangement - with Malaysia, Australia, New Zealand and Singapore - Britain will be able to station troops and equipment there during joint exercises. Mersing is also likely to play a key strategic role in the region when Britain hands Hong Kong back to China in 1997.
Details of the project, including the cost and who is paying for it, remain confidential. Apart from confirming that a report had recently gone to the Malaysian government, a John Laing spokesman would say only that 'the company has been involved in it for several years'. A Ministry of Defence spokesman said: 'We don't discuss special forces operations.'
However, a former senior executive from Midland Bank, which was involved in the financing of the accompanying pounds 1.3bn sale of arms to Malaysia, said Mersing was raised at the very outset of talks in 1988. 'It was on a menu of transactions drawn up by the Malaysians. They'd selected a site and they wanted our help. It would be operated by the Malaysians but would contain our troops when Hong Kong goes.'
He said that Stephan Kock, a consultant to Midland who also advised the Government's Joint Intelligence Committee, was 'architect of the different strands' of the deal. Mr Kock is understood to have visited Malaysia with officials from the MoD and members of the Special Air Services.
A defence spokesman at the Malaysian High Commission in London was also unwilling to discuss Mersing. Asked if British Special Air Services and Special Boat Squadron personnel would be based there, he replied, 'they could well be'.
He did, however, confirm that Mersing 'was raised in discussion for the memorandum of understanding on the procurement of defence equipment from Britain'.
The Commons Foreign Affairs Select Committee will decide today whether to examine Pergau. Unlike the Public Accounts Committee, which last week questioned Sir Tim and is confined to quizzing officials, it has the power to call ministers. Douglas Hurd and John Major, who over-ruled Sir Tim, are likely to be in the firing line.
Last night the Government moved to defuse embarrassment by claiming Lord Younger, the former Secretary of State for Defence, was mistaken in linking aid with arms.
Replying to a parliamentary question from Jack Cunningham, Labour's foreign affairs spokesman, Mr Hurd said the military memorandum signed by Lord Younger 'included a reference to 'aid in support of non- military aspects under this programme' '. However, Mr Hurd said, 'after consultation with ministerial colleagues in London, (Lord Younger) wrote to the Malaysian Minister of Finance in June 1988 to say that aid could not be linked to defence sales'.
Mr Cunningham said it was plain that 'Lord Younger, who is no longer in the Government, is being made a scapegoat'. He maintained the answer showed the governments did discuss linking arms deals and aid.