Ministers approve £28m Tanzania defence contract

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The Government faced a torrent of criticism from aid agencies last night after it approved a controversial £28m deal to supply an air traffic control system to Tanzania.

Oxfam and the World Bank led the criticism when BAe Systems was revealed to have been granted an export licence for its Watchman system, despite a rift in the Cabinet over the project.

Both Clare Short, the International Development Secretary, and Gordon Brown, the Chancellor, expressed concern that the deal could push one of the world's poorest countries into further debt. Defence experts and development charities have also questioned its cost, arguing that a simpler system costing £7m would have been more appropriate.

Despite a heated meeting on the subject on Tuesday, Ms Short and Mr Brown were overruled by Downing Street, with the backing of the rest of the Cabinet. Mr Blair, supported by Geoff Hoon, the Defence Secretary, and Jack Straw, the Foreign Secretary, believes the deal is good for British jobs as well as Tanzania's economy.

The project, which will be funded by a $40m loan from Barclays Bank, is intended to raise $3m to $5m a year by charging airlines to fly over Tanzanian airspace, something the country cannot do at present.

In what appeared to be an attempt to defuse criticism of the deal, Patricia Hewitt, the Trade and Industry Secretary, is understood to have agreed a compromise with Ms Short. Government sources said the planned export control Bill, due to return to the Commons next year, will now contain criteria to ensure export certificates are granted only if "sustainability" can be proved.

Downing Street and the DTI both said government policy was not to comment on individual licence applications, but government sources said a commercial contract had been entered into. The system is understood to have already been built on the Isle of Wight.

Ministers dispute Oxfam's claims that the £28m could be used on health and education instead, pointing out that the Barclays loan is specifically for the air traffic project.

A government source said the Watchman was a "tried and tested" system and that the government of Tanzania believed it would bring benefits in terms of safety, security and tourism.

"The International Monetary Fund is satisfied that financing for the project is fully consistent with Tanzania's obligations under its debt-relief programme. Tanzania will not lose out in terms of their debt relief," he said.

However, the World Bank said last night that it opposed the deal because the system was designed for military use, saying a civilian system more suited to a country with only eight military aircraft would cost a quarter of the price.

Oxfam has said the cost of the system could pay for 3.5 million children in Tanzania to go to school, or provide health care for 2 million Tanzanians.

A spokesman said it was "deeply disappointing" that the export licence had been granted. "The more we learn about this deal the murkier and murkier it becomes, especially the news about the funding of this deal.

"What is now vitally important is that the Government includes development in the Arms Export Control Bill, so that fiascos like this never happen again."

Glenda Jackson, the Labour MP for Hampstead and Highgate, whose criticisms of the plan were endorsed by Ms Short in the Commons on Wednesday, attacked the deal.

"This is an absurd idea that this amount of money should be given to a country like Tanzania for an air traffic system which it clearly does not need," she told The World at One on BBC Radio 4.