Pergau doubts 'were ignored by ministers': Officials deemed use of aid 'ineffective'

Ministers ignored official misgivings and gave British aid to the Pergau dam in Malaysia, the Tory-dominated Commons Public Accounts committee said yesterday.

The influential 15-strong cross-party committee, which includes eight Conservatives, concluded: 'We accept that ministers were given clear advice from their officials in February 1991 about the economics of the Pergau project; and that they were told that to support it would not be an effective use of aid.'

Sir Tim Lankester, the former permanent secretary at the Overseas Development Administration, who opposed Pergau, is vindicated. 'We think it was right and in accordance with his responsibilities that (Sir Tim) advised ministers that he would require a direction before spending money on this project.'

Despite strenuous attempts by the Tory members to head- off censure, the report makes it plain that ministers over-ruled their officials and sanctioned the expenditure - condemned as 'an abuse' by Sir Tim and heavily criticised by the ODA and National Audit Office, the public spending watchdog.

In a reference to an oral promise made by Margaret Thatcher, when she was Prime Minister, the report notes 'that ministers decided to provide aid because they did not wish to renege on an earlier commitment given by the Government at the highest level'.

No mention is made of the alleged use of aid as a sweetener for arms purchases by Malaysia but it does refer to ministers' fears that if the money was refused, 'there might be serious consequences for British companies and exports'. In evidence to the committee, Sir Tim, now permanent secretary at the Department for Education, said he imagined exports to Malaysia to include arms.

Some of the harshest words are reserved for the way the aid was rushed through. 'In view of the prospective size of the Pergau project, we consider that it is essential that it should have been subject to a full economic appraisal.' A visit to Malaysia by officials lasted just two days, did not take in the site, and the offer was made from an interim report compiled after one day.

Sir Tim and his colleagues do not escape scot-free. Only two weeks after Mrs Thatcher met Dr Mohamad Mahathir, her Malaysian counterpart, the cost of the dam rose by over 25 per cent, from pounds 316m to pounds 397m. The rise was known to the ODA and the Committee regarded it as 'unacceptable' that her offer was made on the basis of the lower price.

Sir David Steel, the Liberal Democrat foreign affairs spokesman, welcomed the report. 'Pergau was a scandal and gross misuse of taxpayers' money. In days of more honourable government this would have led to ministerial resignation.'

Crucial aspects of the recent unprecedented report from the Commons Public Accounts committee on the proper conduct of public business have been rejected by the Government. A Treasury minute disputed the assertion that some of the failings identified had been caused by the Government's civil service reforms. The Committee's demand that the National Audit Office be allowed to examine the books of all quangos was also quashed.