The Pergau dam affair: will an aid for arms scandal ever happen again? 

(The Guardian) – Tim Lankester, the civil servant in charge during the aid for trade scandal in 1994, has written a revealing book about the scandal that redefined British aid

Nearly 20 years on, the Pergau dam affair remains Britain’s biggest aidscandal. Not only were hundreds of millions of pounds in UK aid linked to a major arms deal, but the project was deemed hopelessly uneconomic by officials in Britain and Malaysia. In late 1994, aid for the project was declared unlawful in a landmark case at the UK high court.

The Guardian ran more than 100 articles on Pergau that year, which dug into the secrecy surrounding the affair and asked how it was possible that so much could have gone wrong.

As the senior civil servant in charge of UK aid when the scandal broke, Tim Lankester found himself the centre of attention. It was a 1993National Audit Office (NAO) report – which noted his refusal to sign off the spending without formal, written instruction from ministers – that effectively blew the whistle on the project. His move raised the question: why had senior politicians approved £238m in aid – then the largest grant awarded for a single project – against the advice of civil servants?

Lankester has now written a fascinating but eye-wateringly expensive book on the affair. Uncovering forgotten documents and reconstructing the twists and turns of events, it offers a behind-the-scenes take on the controversy that would redefine British foreign aid.

“We were slipping in this direction for years,” he says, describing the “pessimistic” mood among UK aid officials at the time. The aid budget had been slashed, more was being directed through international organisations, and what was left was increasingly being abused by commercial interests. “Pergau was us drawing a line in the sand,” he says.

The UK aid programme at the time was managed by the Overseas Development Administration (ODA), a department of the Foreign Office. Without its own cabinet minister, the ODA was too weak to defend its corner, says Lankester. Meanwhile, the government’s controversial aid-for-trade policy brought increased pressure from business, which saw the aid budget as a honey pot.

The end of the cold war had ratcheted up competition in the global arms trade; British firms, along with some people in government, were after any opportunity to boost sales.

The trouble began in 1988 with a secret defence agreement linking the promise of civilian aid to Malaysia with a major arms export deal. Lankester, at the Treasury then, sent a memo to John Major warning that the linkage could “create acute embarrassment to ministers and wasteful public expenditure … I have little doubt that the press will eventually get on to this”.

However, it would take five years for details of the project to emerge. There were more people who knew about Pergau in business than in Whitehall, says Lankester, while NGOs knew nothing before the NAO report. He doubts the project would have gone through had more people known more about it earlier. Lankester cautions against solely blaming politicians, saying civil servants “gave way too easily”.

Looking back, he admits he had doubts about the legality of the project and should have sought formal legal advice. He also underestimated the power of the business lobby in Whitehall and the Malaysian prime minister’s own desire to push through the dam project, he says. On the UK side, he puts much of the affair down to the “extremely dominant” Margaret Thatcher, who was known to have views on aid and trade with Malaysia. “It was difficult for ministers to stand up to her.”

Lankester visited Pergau for the first time last summer, and contrasts the drama of the affair with what he found – immense natural beauty and the relatively well-functioning dam. “It does work quite well, but it came at such a high cost,” he says. The affair did leave some positive legacies: a cross-party consensus that aid should be officially “untied” from commercial interests, a new act enshrining in law its poverty reduction focus, and a cabinet minister for the new Department for International Development (DfID). Now, when a permanent secretary dissents from a spending proposal, parliament is immediately notified.

His book, however, ends with a warning: “It is impossible to say that something like this will never happen again with British aid.”

Revelations that £500m in UK aid is spent through a small group of, primarily British, consultants raised questions in September about who benefits – and who profits – from the UK aid programme.

Read more at: 

Read also: