Whitehall sources said yesterday that Lady Chalker was fiercely opposed to Pergau and gave full backing to her officials, notably Tim Lankester, at the time Permanent Secretary at the Overseas Development Administration, who objected in writing to Mr Hurd.
Baroness Chalker's role in the aid-for-arms controversy emerged as an MP said UK companies paid pounds 35m in 'bribes and backhanders' to middlemen and members of the Malaysian royal family. Using parliamentary privilege, Brian Sedgemore, Labour MP for Hackney South and Shoreditch, told a Commons select committee the allegations surfaced in October 1990.
Ann Clwyd, then shadow Minister for Overseas Development, wrote to the National Audit Office about the aid programme's 'misuse of large sums of taxpayers' money'.
Mr Sedgemore said the accusation centred on corruption by three companies: GEC, Trafalgar House and Balfour Beatty. Ms Clwyd had been told the cost of the pounds 400m project 'includes pounds 35m in bribes or 'fees' '. He made his claim to the sub-committee of the Treasury and Civil Service committee which was hearing evidence from Sir John Bourn, NAO head. Sir John said it was his office's job to audit the accounts of public bodies such as the ODA. There was no evidence of corruption in the ODA's books.
However, he emphasised that he did not look at where the administration's money had gone - the NAO did not have the power to follow public money once it had been paid to private contractors.
This is the first time the companies had been named in connection with possible corruption on Pergau. In Malaysia, opposition MPs have claimed bribes were paid, but have been unable, or unwilling, to substantiate such charges.
A press officer for Trafalgar House said last night that as far as he was aware it would not be involved in bribes. Balfour Beatty was unable to comment. GEC said Pergau was the responsibility of its subsidiary, GEC Alsthon. The bribery claims and Lady Chalker's opposition will add to government embarrassment over Pergau - described by Mr (now Sir Tim) Lankester as an 'abuse' of the aid system. Lady Chalker is understood to have been happy to grant aid to Malaysia but to have been against the dam, which she regarded as uneconomic and bad for the environment - a view shared by all her senior
So far, Lady Chalker has been quiet in public on a subject in which she was closely involved. She is believed to be furious about apparent parallels between aid payments and arms orders.
That silence may change if, as expected, she gives evidence to the forthcoming Foreign Affairs select committee inquiry.