‘No more money for arms deals’ – but what about fossil fuels?

3 Dec 2012 admin

Last week, a cross-party inquiry called for Parliament to review the use of public money to support arms exports. The all-party parliamentary group (APPG) on international corporate responsibility said Parliament should debate introducing a ‘prohibition list’ of projects that the Government refuses to underwrite. They suggested arms sales should be at the top of it.

The inquiry came after Jubilee Debt Campaign revealed that the Government body UK Export Finance (previously the Export and Credit Guarantee dept), gave £35mn to Zimbabwe dictator Robert Mugabe to buy five Hawk fighter jets from BAE systems between 1989 and 1992. Mugabe’s government used the jets in the 1998-2002 war in the Democratic Republic of Congo which led to 5.4m deaths.

Arms deals aren’t the only appalling funding choices that UK Export Finance (a part of the Department for Business, Skills and Innovation) have made. They have also supported an array fossil fuel projects with little regard for the wishes or rights of people living near sites of extraction or transportation.

Martin Horwood, member of the APPG and MP for Cheltenham, commented that private banks often had stricter environmental and human rights standards than the government, and that this meant “the taxpayer could end up funding business even the private sector cannot on moral grounds”

UK Export Finance (then the ECGD) backed loans for $150 million to help build the Baku-Tblisi-Ceyhan oil pipeline from Azerbaijan to Turkey, a crucial part of the Caspian oil road. This project breached more than 170 World Bank and European standards on human rights and the environment. Breaches included repression of critical voices, compensation not reaching the right people and the harassment and detention of local residents and international investigators. The BTC pipeline created a large militarised strip running across Azerbaijan, Georgia and Turkey that brought repression, fear and violence to people living along the route.

Platform’s The Oil Road discusses the role of the ECGD in constructing the BTC pipeline:

Located in a sixteen-floor glass-plated tower at Canary Wharf, the UK Export Credit Guarantee Department (ECGD) provides state-subsidised credit and insurance to British exports, which in cases like this include overseas construction projects. The ECGD guarantees that companies will not lose out if an overseas buyer fails to meet its payment obligations: any loss will be covered by the British taxpayer. The British state provides this support for ‘strategic sectors’ of the British economy that help further foreign policy aims – industries such as arms manufacturing and fossil-fuel extraction.

As head of the ECGD’s Business Principles Unit, David Allwood is responsiblef or ‘project impact screening and analysis’. His office is on one of the top four floors of the Exchange Tower in Harbour Exchange Square. It was Allwood who assessed the probable impacts of BTC’s construction and operation and, having done so, gave his public approval to over £80 million of ECGD support to the pipeline; the final total amount is not public, and it is possible that the sum could be double that figure. The export credit agencies provide a level of political guarantee and insurance to the oil companies, thereby reducing their risk exposure. Funding from the EBRD and the World Bank performs the same function.

Financing is theoretically supposed to go only to those projects that meet defined standards, and it is Allwood’s job to ensure these standards are met. He has two other staff members working on his team, but the ECGD finances many projects simultaneously, so in reality there was less than one full-time person assigned to making an informed recommendation on the credit line of between £80 million and £160 million for BTC.

Furthermore, Allwood’s report on BTC’s impacts was somehow deemed ‘confidential’. It took a protracted legal battle by Nick Hildyard of the Corner House to force the ECGD to disclose it. he department’s lawyers fought hard, combining personal attacks on Hildyard with legal argument.5 In the process, however, Hildyard also forced the ECGD to release the list of local environmental laws in Georgia, Azerbaijan and Turkey from which the oil companies had exempted themselves through the Host Government Agreements drawn up by George Goolsby. This was an important revelation: BP and the institutions lending public funds to the pipeline had always claimed that no local laws were bypassed.

Looking back on the years of meetings and letters between Hildyard and the ECGD, it seems that Allwood’s job was structured to present the Department’s support for BTC as principled, rather than to ensure that the project it financed actually followed sound human rights and environmental principles.

Despite the numerous human rights violations associated with the BTC, and the decline in oil extraction from Azerbaijan’ s oil fields, UK Export Finance are keen to lend money to a new oil and gas refining and petrochemicals complex planned for construction just south-east of Baku. Support for the project will further entrench the power of the repressive Aliyev regime.

Lisa Nandy MP, Chair of the Inquiry, wrote in the Huffington Post that

Our recommendations include the application of international social and environmental standards to all project applications, penalties on companies that violate standards, a grievance mechanism, and consultation on a prohibitions list for armaments.

A list very similar to the considerations that UK Export Finance already claim they judge projects on. Monitoring of the application of these standards will have to be very robust if the inquiry’s recommendations are to change UK Export Finance’s lending practice.

The arms industry will be lobbying against any prohibitions on UK money going to arms deals. Add oil into the mix and you’d have two of the most powerful lobby groups fighting the plans. Large oil and gas projects, where the profit flows straight into the coffers of multinationals, clearly belong on the list of projects UK citizens should not be financing. The oil and gas industry have violated the rights of indigenous peoples, attempted to drill the Arctic and profit everyday from pumping more carbon into the atmosphere. Why would we want to give them our money?

Last week also saw the publication of another parliamentary report: one penned by Lord Justice Leveson. The phone hacking scandal demonstrates that even the most powerful corporate interests can lose power, and influence, if public pressure mobilises against them. The government’s shameful record of supporting violence and repression has been exposed in the report on UK Export Finance. Can citizen pressure defeat the corporate lobby and stop public money flowing to military and fossil fuel projects?

The Clean Up Britain’s Exports Campaign is challenging the ECGD’s toxic lending.

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