Five more aid projects under fire: Pergau controversy deepens as minister admits formula linked assistance to arms sales

AS THE Pergau Dam controversy intensified yesterday, it emerged that five other overseas aid projects, one of them in Malaysia, have been criticised by the National Audit Office, the public spending watchdog.

Details of the schemes, which received pounds 215m from the Overseas Development Administration (ODA), are tucked away in the appendix of a relatively obscure NAO report published in 1992. They provide evidence that the pounds 234m Pergau Dam contract in Malaysia was not the only occasion when the Government used aid to attract orders for exports, including arms.

Yesterday, the Government made the astonishing admission that it did originally agree to base any aid to Malaysia on a percentage of arms sales. In a parliamentary answer, Alastair Goodlad, the Foreign Office minister, said Lord Younger, the then Secretary of State for Defence, agreed to the use of such a formula in a protocol with Malaysia in March 1988. This formula was rescinded three months later.

Alan Williams, Labour MP for Swansea West, who obtained the answer, said: 'This destroys the Government's pretence. Not only was there a link between aid and arms sales - that link was even quantified in the March 1988 protocol.' Mr Williams accused Douglas Hurd, the Foreign Secretary, of being 'miserly with the truth' in Parliament. Last month, Mr Hurd said that the protocol included a reference to 'aid in support of non-military aspects'. He made no mention of the aid-arms percentage formula.

The 42-page NAO report was produced before the World Earth Summit in Rio de Janeiro, Brazil. In what could be a re-run of Pergau, its appendix shows the Government overruled ODA opposition and put political considerations first; and that money was spent on schemes of questionable aid merit. Four projects involved Balfour Beatty, the firm that is building Pergau.

The five other Pergau-type deals attacked by the NAO are:

Karachi Water. This Pakistan project cost pounds 335m, with pounds 8m coming from the ODA. Balfour Beatty acted as consultants. Work was due to begin in 1988 but at the time of the NAO report, it had not started.

Malaysia Rural Water Supply. This pounds 489m deal, including pounds 62m of ODA money, was signed in 1986, before Pergau and shortly after Malaysia declared an end to its official 'Buy British Last' policy. The huge project, entailing the installation of 134 water schemes nationwide, has been dogged by problems, said the NAO, caused mainly by lack of urgency on the part of the Malaysian authorities.

Victoria Dam. The ODA gave pounds 117m of aid to this Sri Lankan dam built by Balfour Beatty. The project 'suffered from a rushed planning stage and had not taken proper account of its likely consequences, in particular social and environmental problems,' the NAO said.

Samanalawewa Dam. Also in Sri Lanka and built by Balfour Beatty, this dam cost pounds 256m, including pounds 19m in aid. The ODA and Treasury, said the NAO, had 'reservations' about giving aid because Balfour Beatty had just built the Victoria Dam, which gave it an 'outstanding reference for securing further business'. Balfour Beatty, said the NAO, was the second largest user of the ODA's money and was receiving support for another dam project in Indonesia. The ODA and Treasury 'therefore questioned what additional advantage could be gained from further aid assistance'. They were overruled because 'it could lead to commercial and employment opportunities'.

Mini Hydro-Power Stations. These were built in the Philippines by Balfour Beatty at a cost of pounds 25m, with pounds 5m coming from the British taxpayer. While the ODA 'questioned the long-term developmental value . . . the Department of Trade and Industry also believed that although benefits were difficult to assess, long-term commercial business would arise'.

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