The Politics and Economics of Britain's Foreign Aid: The Pergau Dam Affair

209 Pages·2012·1.576 MB·English

by  Tim Lankester

The Politics and Economics of
’
Britain s Foreign Aid
The Pergau dam in Malaysiawasthemostcontroversialproject in the history
ofBritishaid.Becauseofitshighcost,itwasapoorcandidateforaidfunding.
It was provided in part to honour a highly irregular promise of civil aid in
connection with a major arms deal. After two parliamentary inquiries and
intense media coverage, in a landmark judgement the aid for Pergau was
declared unlawful.
Tim Lankester offers a detailed case study of this major aid project and of
government decision-making in Britain and Malaysia. Exposing the roles
played by key politicians and other stakeholders on both sides, he analyses
the background to the aid/arms linkage, and the reasons why the British and
Malaysian governments were so committed to the project, before exploring
the response of Britain’s Parliament, and its media and NGOs, and the
resultant legal case. The main causes of the Pergau debacle are carefully
drawn out, from conflicting policy agendas within the British government to
thepowerofthebusinesslobbyand theinabilityofParliament toprovideany
serious challenge. Finally, Lankester asks whether, given what was known at
thetimeandwhatweknownow,heandhiscolleaguesinBritain’saidministry
were correct in their objections to the project.
Pergau is still talked about as a prime example of how not to do aid. Tim
Lankester, a key figure in the affair, is perfectly placed to provide the definitive
account. At atimewhen aid budgets areunder particular scrutiny, it provides
a cautionary tale.
Tim Lankester worked at the World Bank and the British Treasury before
serving as Private Secretary (Economic Affairs) to Prime Minister James
Callaghan and then to Margaret Thatcher. He was later Britain’s Executive
Directoron the boards of the IMFand World Bank, and Permanent Secretary
of the Overseas Development Administration. After leaving the civil service,
he was Director of the School of Oriental and African Studies and President
of Corpus Christi College, Oxford. He was knighted in 1994.
‘This book is a very readable and fair-minded insider’s account of how government
occasionally goes badly wrong. It shows how brave and strong-minded civil servants
sometimeshavetobetopreserveintegrityanddecencyingovernment.’
LordPatten,ChancellorofOxfordUniversity;formerEUCommissionerfor
ExternalRelations;formerMinisterforOverseasDevelopment,UK.
‘This book is an excellent example of something too little practised – a rigorouspost-
eventevaluation.TimLankestershowedgreatcourageinspeakingtruthuntopower,albeit
unsucceessfully,andhehasalsoconfrontedthereasonsforODA’sfailuretostopapoor
project. Despite that, the Pergau Dam affair has generated many lessons and changed
UKaidpolicyforthebetter.
TheevaluationshowsthatthePergauDamwasnotthedisastermanypredicted(unlike
thegroundnutsprojectitactuallyworkseffectively).Butnorwasitthebestoptionatthetime,
andasawayofgeneratingBritishjobsitwasverypoorvalueformoney.Therealscandal
wastheimproperconfusionofdefenceanddevelopmentobjectiveswhichthegovernment
thentriedtocoverup.Thegoodnewsisthat,asresultofthisaffair,wewillnolonger
wastedevelopmentmoneyonmiddleincomecountriesasabackdoorindustrialsubsidy.’
LordTurnbull,formerCabinetSecretary,UK.
‘This is an unusual book. Very few senior civil servants, in the UKor elsewhere, are
either willing or able to write a scholarly analysis of a controversial policy issue with
whichtheywerecloselyinvolved.TimLankesterhasdonejustthatinhis bookonthe
Pergaudam.Theresultisafascinatingstudyofthepoliticalpressureswhichdrivedeci-
sionsaboutaidprojects.InthePergaucase,aidofficialstriedtouserationaleconomic
analysis to bolster their case against the project, but ran up against powerful vested
interestsinboththeUKandMalaysia.Thebookdiscussesthereasonsfortheresulting
controversyandexaminesthelessonsforBritishaidpolicy.Itdeservestobereadnotjust
bythosewithadirectinterestintheformulationandimplementationofaidprojects,butby
allthoseinterestedininternationaldevelopmentissues.’
ProfessorAnneBooth,SchoolofOrientalandAfricanStudies,UK.
‘AfascinatingaccountofoneoftheshabbierepisodesofthelateThatcherpremiership.…
acasestudyinbadgovernmentwhichshouldbereadbyanyoneseriouslyinterestedinthe
innerworkingsofWhitehallandWestminster.’
SimonJenkins,politicaljournalistandauthor,UK.
‘TimLankesterhaswrittenabrilliantinsider’saccountofapivotaleventinUKdevelopment
policy.ReaditforitsgrippingnarrativeofthislowwatermarkinBritishaid,inwhich
civilservantsandcostbenefitanalysisaretheunlikelyheroes.Butreaditalsotounderstand
how after foolishness can come wisdom. Following Pergau, politicians of all parties
decided–andenshrinedintheInternationalDevelopmentAct–thatpovertyreduction,
and not commercial interest, would be the sole objective of British aid policy, in turn
enablingtheUKtobecomeaworld-leaderininternationaldevelopment.TimLankester,
acentralandcourageousactorinthePergaudrama,writeswithflairandgreatskill.’
AndrewSteer,President,WorldResourcesInstitute,USA;
formerDirectorGeneral,DepartmentforInternationalDevelopment,UK.
‘Tim Lankester has provided a superb account of the most important turning point in
UK aid policy. It is comprehensive, objective and authoritative, as only an insider’s
reconstructioncanbe.“ThePergauDamAffair”isagrippingnarrativenotjustofaid
management,butofthewaythatpoliticaldisastershappenandthepeopleandinstitutions
thatmanagetoextractbeneficialchangefromfolly.Icannotpraiseittoohighly.’
ProfessorJohnToye,OxfordUniversity,UK.
The Politics and Economics
’
of Britain s Foreign Aid
ff
The Pergau Dam A air
Tim Lankester
Firsteditionpublished2013
byRoutledge
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SimultaneouslypublishedintheUSAandCanada
byRoutledge
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RoutledgeisanimprintoftheTaylor&FrancisGroup,aninformabusiness
©2013TimLankester
TherightofTimLankestertobeidentifiedasauthorofthisworkhasbeen
assertedbyhiminaccordancewithsections77and78oftheCopyright,
DesignsandPatentsAct1988.
Allrightsreserved.Nopartofthisbookmaybereprintedorreproducedor
utilisedinanyformorbyanyelectronic,mechanical,orothermeans,now
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withoutintenttoinfringe.
BritishLibraryCataloguinginPublicationData
AcataloguerecordforthisbookisavailablefromtheBritishLibrary
LibraryofCongressCataloginginPublicationData
Lankester,Tim.
ThepoliticsandeconomicsofBritain’sforeignaid:thePergauDamaffair/
TimLankester.--1sted.
p.cm.
Includesbibliographicalreferencesandindex.
1.Economicassistance,British--Malaysia--Casestudies.2.Economic
developmentprojects--Politicalaspects--Malaysia--Casestudies.
3.Hydroelectricpowerplants--Malaysia--Kelantan--Casestudies.4.Great
Britain--Foreigneconomicrelations--Malaysia.5.Malaysia--Foreign
economicrelations--GreatBritain.I.Title.
HC445.5.Z9E44532013
338.91’410595--dc23
2012011259
ISBN:978-0-415-52952-5(hbk)
ISBN:978-0-203-10958-8(ebk)
TypesetinTimesNewRoman
byTaylor&FrancisBooks
For Alex, Livy and Laura
and for my many former colleagues at ODA and the
World Bank who strove to secure from limited aid budgets
the maximum benefits for developing countries and
their peoples.

Contents
List of tables ix
Preface x
List of abbreviations xiii
1 Introduction 1
2 British overseas aid 8
3 The Pergau hydroelectric scheme 23
4 Politicians and bureaucrats 31
5 Dr Mahathir and the politics of Malaysia 48
6 Arms and aid entangled 54
7 Mrs Thatcher’s offer 68
8 ODA entrapped 74
9 Crunch time in Whitehall 83
10 Parliament steps in 98
11 Legal challenge 108
12 The British media and trouble with
Malaysia 117
13 ODA objections: Right or wrong? 124
14 A fairish nightmare 139
viii Contents
Appendix I: Pergau chronology 145
Appendix II: The economics of Pergau: technical note 149
Appendix III: Dramatis personae 169
Glossary 171
Notes 173
Bibliography 186
Index 190
Tables
1 Peak load – Peninsular Malaysia 150
2 Technical and cost assumptions for Pergau and gas turbines 155
3 Comparative NPV costs 156
4 TNB – optimal new plant sequences 157
5 Gas and coal prices – TNB model and actual 161
6 International LNG and coal prices 161
7 Gas price projections (2011 constant prices) 163
8 Traded carbonvalue projections (2011 constant prices) 165