Pergau Dam Affair: 'Sweeteners' row sparked trade ban: 'Sunday Times' story linking Malaysia's prime minister with bribery claims proved the final straw: Rhys Williams recalls the events that led to the trade embargo on British companies

THE SWEEPING trade ban on Britain imposed by Malaysia's irascible prime minister, Mahathir Mohamad, came after a long campaign in the British press suggesting 'sweeteners' were being paid to enable UK firms to win government contracts.

Most prominent was the contention that the British Government had paid pounds 234m in aid for a project its own officials considered unnecessary and 'a bad buy' - the Pergau hydro-electric dam scheme in northern Malaysia.

Sir Tim Lankester, the former permanent secretary at the Overseas Development Administration, told the Public Accounts Committee last January that aid for the Pergau dam was linked to a pounds 1.3bn sale of arms to Malaysia - something the Government had persistently denied. He also told the committee that final approval for the aid package had come from John Major, leading to charges against the Prime Minister of 'abuse of the aid system'.

Under fierce questioning in the Commons, Mr Major conceded that he had rejected the advice of senior civil servants.

The initiative for British involvement in the dam came from the Department of Trade and Industry, with the building work awarded to a company owned by Trafalgar House, which donated pounds 590,000 to the Tory party from 1979 to 1992.

But the crucial moment in press coverage came with an article in the Sunday Times which reported that Dr Mahathir himself was in line for a personal bribe. The newspaper suggested that Wimpey, the construction giant, was involved in negotiating special payments to Malaysian politicians at the highest level to secure a pounds 615m building contract for an aluminium smelter. The company was allegedly prepared to pay Dr Mahathir pounds 35,000.

Wimpey did not challenge the story and despite a last-minute intervention by Mr Major, an incensed Dr Mahathir severed commercial relations with Britain five days later, thus freezing negotiations for Malaysian government contracts worth billions.

Andrew Neil, then editor of the Sunday Times, said yesterday that the article was 'copper-bottomed', but insisted that it was the 'last straw' rather than the clinching factor in the trade ban.

But, as the weeks went by, it was not hard to work out the focus of Dr Mahathir's ire. In March, the Malaysian Prime Minister wrote an open letter to the Financial Times explaining in detail his reasons for calling the ban: 'Alleging, wrongly, that the Malaysian Prime Minister is corrupt may be part of British press freedom,' he wrote. 'But the Malaysian Prime Minister need not subscribe to that, even as Andrew Neil himself did not accept reports on his affair with Pamella Bordes.' It was a strangely tangential point, but left the reader in no doubt as to whom Dr Mahathir saw as the villain.

Six weeks later, a major upheaval in Rupert Murdoch's media empire saw Mr Neil leave the editor's chair at the Sunday Times and move to Fox Television in New York to launch a weekly current affairs programme.

One theory circulating at News International's Wapping headquarters was that the furore over the allegations may have had an adverse bearing on Mr Murdoch's plans to expand his satellite network, Star TV, in Malaysia and the Far East.

The suggestion is flatly denied by News International. Mr Neil said yesterday: 'If you want to create a conspiracy then you can. If there was some secret deal that I know nothing about between NewsCorp and the Malaysian government, then I wish they had struck it sooner - I'd have been a richer and happier sooner. If this (New York) is being sent to Coventry, then it's a pleasant, independent-minded, prosperous place to be.'

He maintains that discussions about a move from the Sunday Times after a decade as editor predated the Malaysian controversy by several months.

Yet when Mr Neil's move to New York was announced, Dr Mahathir said he hoped that British media reports of his country might improve.

How the story reached the pages of the Sunday Times in the first place is as tortuous as the whole arms-for-trade business. A story about alleged bribes from Wimpey to Malaysian politicians had been touted around a number of national newspapers, including the Observer and the Independent. A freelance journalist said he would offer supporting documentary evidence in return for pounds 5,000.

Both papers declined the offer and some weeks later the Sunday Times published a similar story. The paper says it had its own source, but one version of events from inside News International suggests that the allegations emerged by luck out of a Sunday Times Insight investigation into Derek Hatton, the former leader of Liverpool council, and irregularities in the award of building contracts.

Either way, Mr Neil stands by the article and his decision to run it: 'British journalism remains in tact. We cannot be intimidated by governments or big business.'

Leading article, page 13

(Photographs omitted)

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