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Major approved pounds 234m aid for 'wasteful' dam project

THE PRIME Minister took the final decision to overrule his own officials and pump pounds 234m of British aid into a

Malaysian dam project described by the Overseas Development Administration as 'a very bad buy'.

Until yesterday and the appearance before the Commons Public Accounts Committee of Sir Tim Lankester, the former ODA permanent secretary, it was widely assumed the green light for Britain's funding of the Pergau hydro-electric project came from Douglas Hurd, the Foreign Secretary.

Not so, said Sir Tim, pushing John Major, who spent yesterday giving evidence to the Scott inquiry less than a mile away, into further difficulty.

In a report in October, the National Audit Office, the public spending watchdog, condemned Pergau as uneconomic, environmentally unsound and a waste of taxpayers' money. The office pointed the finger at Mr Hurd, saying he ordered Sir Tim to spend the money - on 4 July 1991.

But under repeated questioning from MPs, Sir Tim said the decision was actually taken in Cabinet on 26 February 1991. He said that Mr Major was confirming an oral undertaking given by Margaret Thatcher personally in 1989.

Sir Tim, now Permanent Secretary at the Department for Education, also admitted for the first time that aid for Pergau was linked to a pounds 1.3bn sale of arms to Malaysia - something the Government has consistently denied.

His admission came the day after Lord Younger, then Secretary of State for Defence, told the Independent he had always assumed that to be the case.

After reading out a statement from Mr Hurd, in which the Foreign Secretary claimed increases in exports to Malaysia justified the expenditure, Sir Tim agreed he took that to include defence sales. 'Clearly there was a perception of linkage,' he said. Sir Tim's opposition to Pergau was contained in a memorandum for Mr Hurd. The Government drew accusations of a cover-up by refusing to release the document.

The initiative for British involvement in Pergau came from the Department of Trade and Industry, with the building work awarded to Cementation International and Balfour Beatty. Cementation is owned by Trafalgar House, which donated pounds 590,000 to the Tory party from 1979 to 1992.

A cheaper alternative gas turbine power station to be built by another company was rejected.

Tom Clarke, shadow Minister of State for Overseas Aid, said afterwards it was 'very serious, with the present Prime Minister agreeing to use our limited aid reserves in this way'. Mr Major's decision, claimed Mr Clarke, 'benefitted a small number of people closely associated with the Tory party'.

Frenetic days, page 2