Baroness Thatcher promised assistance at a meeting in London with Dr Mohamad Mahathir, the Malaysian prime minister. As Foreign Secretary, Lord Howe was responsible for the Overseas Development Administration.
His admission that he could not recall discussions before the leaders' meeting was greeted with incredulity by MPs on the Foreign Affairs Select Committee, which is investigating the granting of pounds 234m of aid for Pergau and its link with arms sales to Malaysia.
The former Foreign Secretary began by declaring to the committee that he was now a non-executive director of BICC, the parent company of Balfour Beatty, which is building the dam. He then said he did not recall being appraised about an ODA mission to Malaysia to assess the project shortly before Mrs Thatcher made her verbal offer. Nor could he remember how the price of the project rose, in just 11 days, from pounds 316m to pounds 397m.
He attributed his lack of knowledge to the sheer weight of paper he had to deal with. 'During my time as Foreign Secretary, during the night, I processed 24 tonnes of paper - that was three boxes a night, six nights a week, 40 weeks a year for six years.'
Earlier, Lord Howe painted a picture of a Whitehall machine plunged into crisis by a protocol signed in Malaysia in March 1988 by Lord Younger, the then Secretary of State for Defence, to base aid to Malaysia on a percentage of arms sales.
Lord Howe said his reaction was one of 'dismay' when he first became aware of the protocol. He was dismayed not just at the linking of aid with arms, but also at the scale of the offer. Lord Younger had proposed a 20 per cent aid-arms formula, meaning the Malaysians were expecting to receive pounds 200m in aid.
Meetings in London after Lord Younger's return were, Lord Howe said, 'animated'. The permanent secretaries at the Foreign Office and ODA, supported by Chris Patten, the then ODA minister, were 'astonished' at what Lord Younger had done. For three months officials tried to find a way of extricating Britain from the deal without creating what Lord Howe termed a 'breach of faith' with the Malaysians. In the end he accepted that even after a letter was finally sent to the Malaysians in June 1988 withdrawing the entanglement, 'a moral commitment' still existed.
MPs questioned whether the letter was only a withdrawal in theory - in reality, the formula still stood. Peter Shore, the committee chairman and a Labour MP, said that even after the protocol was changed, the Malaysians still ended up with 20 per cent or pounds 200m - pounds 70m in grant aid and pounds 130m in export credit guarantees. The pounds 200m figure, Mr Shore said, 'recurs like a water mark, an indelible stain through the whole negotiation'.
A Tory member, David Harris, said: 'The Malaysians still ended up with a lot of public money from this country, which some people might think facilitated the arms sales. The link was broken, but they got their money. We got our deal.'
Lord Howe said a link was first raised at a meeting in London between Lord Younger and Daim Zainuddin, the then Malaysian finance minister, shortly before Lord Younger's sales mission. In Malaysia Lord Younger and Sir Nicholas Spreckley, the British High Commissioner, feared the deal was 'slipping away'.