Richard Needham, the Minister for Trade, said deals worth pounds 2bn had been in the pipeline when Dr Mahathir Mohamad, the Malaysian Prime Minister, imposed the ban in February because of allegations that sweeteners had been paid to land the pounds 400m deal.
It is the first time the effects of the ban have been made public - and Mr Needham said the figures were estimated - but the extent of the loss goes some way to explaining the Government's keenness to restore relations.
'The amount of business that we were negotiating for the public sector, including defence, in Malaysia would be in the order of pounds 2bn,' he told members of the Foreign Affairs Select Committee.
'You could say that for every pounds 1bn worth of business of this sort, you are talking about 15,000 to 20,000 jobs,' he said.
But Mr Needham said the effects were unlikely to have been restricted to Malaysia. Business in Indonesia, Thailand and China may also have been affected by the Malaysian ban.
'There is a danger of crossover because these people talk to each other, meet each other and can be influenced by each other,' he said.
He added that there was a degree of sensitivity required when dealing with emerging countries that could be offended by suggestions of 'neo- colonialism'.
'When you are dealing with developing nations you understand their sensitivities and beliefs they have about their former masters and rich white cousins, and in those circumstances careless words cost jobs,' he said.
Mr Needham, who was not a trade minister when the Pergau deal was struck, staunchly defended the use of Aid and Trade Provision (ATP) subsidies which link overseas aid with business deals.
In the case of Pergau, allegations centre around a 20 per cent arms- aid linkage agreed in 1988 by Lord Younger, the former Secretary of State for Defence.
Britain subsequently paid pounds 234m in aid for Pergau and landed defence contracts in excess of pounds 1bn.
Mr Needham said the benefits to the British economy from ATP could not be quantified, but were many times the amount initially laid out.
'There are 170 sub-contractors on Pergau,' he said. 'Many of those will stay there, set up other companies there and take British equipment over there.'
The minister added that rewards, in the form of other contracts, often took years to filter through.
However, Mr Needham revealed for the first time that his predecessor, Tim Sainsbury, had argued in February 1991 that ATP relating to Pergau should stop. He was opposed to the hydro-electric plan and argued instead for alternative gas projects. But Mr Needham said neither the Malaysian High Commissioner, the Foreign Office, the Foreign Secretary, nor the Prime Minister shared his view.
'Would it have been realistic to have gone back to (the Malaysians) in February 1991 and said 'sorry, after two years we think you do not know what you're talking about and we will give you a gas-fired station instead'?' he said.
'They would have said 'thank you, goodbye' and gone to the Japanese.'Reuse content