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26 November 2001

A funny thing happened on the way to the Ilisu dam. Is the PM now delivering on international morality?

By Jon Norton

Until just this month, it looked as if the British government was going to support action that would have led to the destruction of 15 towns and 52 villages, and the displacement of nearly 30,000 people. This act was going to be not in Afghanistan, but in one of the countries most closely allied to Britain in the coalition against terrorism: Turkey.

The Ilisu hydroelectric dam scheme, part of the Turkish government’s South-Eastern Anatolia Project, has always been controversial. The Turks say they need the dam to meet their increasing energy needs. This may be true, but the people to lose their homes, the critics pointed out, would be the Kurds, who have the misfortune to be a minority not only in Turkey, but also in Saddam Hussein’s Iraq. In one country, they are treated as second-class citizens; in the other, they are terrorised and killed.

The other criticism was that the dam would have interfered with water supplies in Syria and Iraq, further down the River Tigris, perhaps even leading those countries to declare war in defence of their interests.

The British government got involved because a British company, Balfour Beatty, had been in talks with the Export Credits Guarantee Department (ECGD) about its bid to build the dam. Export credits – a very interesting instrument in these days of the free market – allow companies and banks to receive government guarantees and subsidies on export contracts.

When a company wants to build, say, a power station in some third world country (or, occasionally, not so third world, as in the case of Turkey), it goes with its bankers to see the ECGD at its offices in London’s Docklands. Over tea and biscuits, the deal is discussed and, if the ECGD thinks it a good one, it is likely (but not certain) to go ahead with the department’s help. Similar agencies exist in most developed countries – Hermes in Germany and Coface in France, for instance. The UK’s has been around for 80 years and it does about £4bn of business each year.

The interesting thing about the £1.2bn Ilisu dam project – with its prospects of considerable work and profit for Britain – was that it got past those early discussions in Docklands. The Balfour Beatty executives and their financial advisers must have been aware of an awkward statement in the ECGD’s “business principles”. Under a section on “sustainable development and human rights” appears the following: “ECGD will, when considering support, look not only at the payments risks but also at the underlying quality of the project, including its environmental, social and human rights impacts.”

You might think that the ECGD would have been able to say quite clearly: “Sorry, mate, doesn’t meet the criteria. Water wars, displaced people and the destruction of a few towns breach our sustainable development and human rights principles.” And it would have been hard for Balfour Beatty and the bankers to have objected.

But the ECGD did not say this. It did not give approval, but it certainly left the company with the impression that support would be there when necessary. If it had not, Balfour Beatty would not have wasted millions of pounds in preparing a bid.

The decision was obviously a political one, and indeed the government’s position on the issue was clarified by the hapless Stephen Byers when he was at the Department of Trade and Industry.

Basically, Byers said, the government was minded to say yes, although it protected itself with four unrealistic conditions. Everyone knew that these conditions, like the criteria for joining the euro, could ultimately be fudged.

And then, on 13 November, Balfour Beatty threw in the towel. It would not pursue the project; the money spent would be written off. It was just one of those things. This was accompanied by strenuous denials that there had been any change in the government’s attitude to the project; the decision had been the result, the company insisted, of an internal review.

No doubt Patricia Hewitt, the present incumbent at the DTI, was mightily relieved. She was spared a very difficult decision that might have caused all sorts of trouble with environmental and other groups. But I don’t think that the real reason for pulling the plug so suddenly was to save Hewitt’s blushes. A decision on this scale – big for the ECGD, big for the government – could have been made, some say, by only one man: the Prime Minister.

Tony Blair is often criticised for making great speeches but being pretty useless on delivery: all gong and no dinner, as it were. This time it looks as though he has delivered the goods, and that his talk of international morality is beginning to take effect.

Or perhaps it was just a bit of a cock-up. Either way, I am glad to see from the work of another part of government that old-fashioned foreign policy lives on. At the end of October, Baroness Symons, late of the Foreign Office and now a minister at the DTI, said that there would be significantly more support for UK exporters to Russia. It is amazing what can be achieved over a game of snooker with that nice man Vladimir Putin.

Jon Norton is a banker

Robert Peston returns next week

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