Conflicting stories fuel suspicion of Downing Street cover-up

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Blair comes under new pressure on 'Garbagegate'

Tony Blair may have tried to dismiss the controversy over his intervention on behalf of the Indian businessman Lakshmi Mittal as "Garbagegate" yesterday, but the affair is far from being consigned to the Downing Street dustbin.

On 23 July last year, Mr Blair signed a letter to Adrian Nastase, the Romanian Prime Minister, saying he was "delighted by the news" that the country's state-owned steel plant Sidex was to be sold to the LNM group, owned by Mr Mittal. The letter took "no more than 30 seconds" of Mr Blair's time, Number 10 said.

But Mr Blair's act has taken up considerably more time than that after revelations at the weekend that Mr Mittal had donated £125,000 to Labour only two months before Mr Blair wrote his letter.

At first, Downing Street appeared to be riding out what Blair aides dismissed privately as "a storm in a teacup". But there has been a steady enough drip-feed of disclosures to keep the story running. It may not be Watergate, as Mr Blair told the Commons yesterday. But, as is often the case with allegations of sleaze, the response of the accused to media revelations often causes more problems than the original act.

The public may feel rather confused by the affair, but the twice-daily jousts between Westminster journalists and Mr Blair's official spokesmen have been dominated by it for the past three days.

Under this intense pressure, Downing Street has been forced to change its line, fuelling the suspicion that it has something to hide. The crucial question is whether Mr Blair knew Mr Mittal had given money to Labour. The Prime Minister is adamant that he did not know, and insists it would have not made any difference to his actions if he had been aware of it.

But his lack of knowledge about the recently made donation when he signed the letter has been undermined by the disclosure that Ispat International (UK) Ltd, another company Mr Mittal owns, had given Labour about £16,000 in 1997.

Surely, the Tories claim, a warning light should have flashed on the radar screen when the Foreign Office submitted to Number 10 a draft letter for the Romanian Prime Minister after the move was recommended by Richard Ralph, the British ambassador in Bucharest.

Downing Street insists that Mr Blair merely put his signature to the letter. But yesterday, the revelation came that Mr Mittal was described as a "friend" in the original draft and the word was removed before it was put in Mr Blair's in-tray.

The final version sent by the Prime Minister did not mention Mr Mittal. The removal of his name and the word "friend" has provoked claims that the change was made because someone at Downing Street – possibly Jonathan Powell, the chief of staff – knew Mr Mittal was a Labour donor.

Mr Powell was involved in raising funds for Labour before the 1997 general election and the Tories are now demanding to know whether he was involved in drafting the letter to Mr Nastase.

Another key question is just now crucial the Blair letter was in sealing the agreement for LNM to buy Sidex. The tone is one of congratulating a done deal. But yesterday there was evidence that the purchase was not a formality, as Downing Street suggested.

It appears that a French firm, Usinor, had made a rival bid, backed by Lionel Jospin, the French Prime Minister, during a visit to Bucharest. So Mr Blair's intervention may have been more important than Number 10 has maintained.

The plot thickened when the British embassy in Bucharest told the BBC yesterday the Blair letter was intended in part to "finalise" the contract. This appeared to contradict Mr Nastase, who told reporters earlier that his government had already taken the decision to go ahead with the deal when the Blair letter arrived.

Downing Street has played down the letter as a routine act in support of a British business, saying the Government wanted to encourage trade with Eastern Europe. Yet it has been unable to provide another example of a similar letter, pleading commercial confidentiality.

Then there is the "British test". In his letter, the Prime Minister told Mr Nastase: "I am particularly pleased it is a British company which is your partner." But fewer than 100 of LNM's 125,000 employees are in Britain. The company is registered in the Caribbean tax haven of the Dutch Antilles; Mr Mittal is an Indian citizen who lives in The Bishops Avenue, Hampstead, known as Millionaires' Row. Yesterday Mr Blair changed the line, describing the company as "British-based."

Although the affair dominated yesterday's Commons clashes between Mr Blair and Iain Duncan Smith, no killer fact or smoking gun has yet emerged. But the worrying thing for Mr Blair is that the storm has not died down.

As with any whodunnit, the key question is: who fired the gun? It was Plaid Cymru who successfully gave the story momentum, accusing Mr Blair of helping a foreign rival to Corus, formerly British Steel, which cut 6,000 jobs a year ago.

The timing, perhaps, is no coincidence: today there is a Parliamentary by-election in Ogmore in the heart of the South Wales valleys, in which Labour defends a majority of 14,574 over Plaid Cymru.

THE UNANSWERED QUESTIONS

* Did Tony Blair know Lakshmi Mittal had donated money to the Labour Party when he endorsed Mr Mittal's bid to buy a £300m steel plant in Romania?

* Was Mr Blair given a briefing note about the letter that mentioned Mr Mittal and did the note say that he was a Labour donor?

* Did Jonathan Powell, right, the Downing Street chief of staff, remove a phrase describing Mr Mittal as a "friend" before a letter drafted by the Foreign Office was submitted to Mr Blair to be signed?

* Was the Blair letter sent when the deal was already done or was it crucial in heading off a last-minute rival bid by a French firm?

* Was the letter a routine act, as Downing Street suggests, or did Mr Mittal receive any special help?

* Was Keith Vaz, a former Foreign Office minister, involved in securing Mr Blair's support for the steel deal?