British Transnational Biwater: Aid... Arms... Gags

by Greg Dropkin, LabourNet

25 April

Solicitors acting for Biwater plc have threatened libel proceedings against GreenNet, the service provider, over a press release issued in October by the South African Municipal Workers Union and placed on LabourNet. Biwater are bidding for a 30 year water privatisation contract with Nelspruit Council, while the unionopposes any attempt to sell off water services in South Africa.

SAMWU had referred to an article in the (South African) Mail & Guardian (11 April 1997) which sketched Biwater's role in UK aid-and-arms linkages during the 1980's. As the paper stated, "Biwater was among a select group of civil contractors and defence manufacturers which benefited from a secret network that controlled the supply of British aid and arms to, and trade with, overseas countries initiated at the start of former prime minister Margaret Thatcher's rule."

Last May, lawyers acting for Biwater complained to the Mail & Guardian. No apology was ever given and last week the paper's news editor Rehana Rossouw confirmed "the story stands". But the internet service provider Sangonet who manage the Mail & Guardian's archive were given 7 days to remove the article, just when GreenNet were instructed to delete the SAMWU press release from LabourNet.

Biwater's latest legal moves may have been intended to suppress any further discussion in South Africa or elsewhere of its involvement in aid-arms links. If so, the ploy seems set to backfire.


During the 1980's certain UK firms received hefty grants to support development projects under an Aid and Trade Provision originally initiated by the Labour Government in 1977. Such projects were often carried out in countries whose governments were considering major military purchases. Under Tory Prime Minister Margaret Thatcher, the ATP programme was used to encourage countries to buy British arms. It wasn't bribery, of course. But officials at the Overseas Development Agency weren't overjoyed to discover that their views on aid priorities were actually being over-ruled at the Department of Trade and Industry.

The link between a proposed Biwater project in Thailand and prospective.UK arms deals was first revealed in 1990. By 1994 the leakage of information from the corridors of power into the public domain had turned into a flood. During their inquiry into the Pergau Dam affair, the House of Commons Foreign Affairs Committee published in full the evidence on ATP compiled by the World Development Movement, and UK press coverage included a front page lead story in the "Sunday Times" and a major feature in "The Observer". Biwater was highlighted time and again.


The Malaysian saga began in the early 1980's, when diplomatic relations had deteriorated as Prime Minister Mahathir Mohamad launched a "Buy British Last" campaign in protest at skyrocketing fees for overseas students and restricted landing rights at London Heathrow airport. Thatcher took the offensive in 1985, and during a private 3 hour meeting with Mahathir in April she struck a deal.

As "The Observer" (27 Feb 1994) reported, "When the two leaders emerged, it was apparent they had reached an understanding. It was to be a complex and apparently mutually beneficial relationship. Mahathir would rescind his Buy British Last policy. Britain would help Malaysia to re-equip its armed forces, improve its infrastructure and boost its national airline by providing more landing slots at Heathrow."

The infrastructure component was a massive "Rural Water Supply" project, worth £194m to Biwater who were bidding for the deal. A former Malaysian minister told "The Observer" that during the meeting with Mahathir "Mrs Thatcher did all the talking. She stood up and offered aid to build the rural water supply project. It was to be built by Biwater, a British firm. We could have done it ourselves, but the money was offered - and we accepted."

According to the "Sunday Times" (6 March 1994) a "former Malaysian minister" told the paper "that this deal was linked to an arms agreement then in the early stages of negotiation following the visit by Thatcher in 1985."

Without any domestic competitive tendering whatsoever, the Overseas Development Agency which in theory controls all allocations under the ATP programme, awarded £59 million to the Rural Water Supply project and construction began in 1986. The Financial Times (26 March 1986) remarked that "The contract has been seen as the symbol of restored political relations between Britain and Malaysia". The £59m was then the largest ATP award ever granted, and a decade later Biwater still ranked 5th among the top 10 UK firms receiving ATP funds since 1978, just behind Rolls Royce/NEI.

As the World Development Movement commented, "the Rural Water Supply project was the beginning of a series of contemporaneous negotiations over aid and arms exports". Aid-arms linkage in Malaysia became explicit a few years later with the notorious Pergau Dam project involving £234m in aid, although this time without any known involvement of Biwater.

In March 1988 the Secretary of State for Defence, George Younger, agreed to a formula correlating British aid with a £1.3billion deal for Tornado jets. The committment was probably illegal and certainly contrary to British Government policy statements denying any link between aid and arms. It was withdrawn quickly after a Cabinet row but as The Economist (5 Feb 1994) reported "Mrs. Thatcher ruled, somewhat ambiguously, that the pledge of aid could not be directly linked to an arms deal but that a promise by a British minister, once given, could not be violated". Younger retracted the formula but the Foreign Office then reiterated the intention to provide civil aid.

As the Economist commented "The nudge and wink could hardly have been more blatant". Funding for the Dam was authorised against the explicit opposition of top ODA civil servant Sir Tim Lankester who judged it an "abuse of the aid programme", but the entire affair was made public.

In 1994 the House of Commons Foreign Affairs Committee held its "Inquiry into the Pergau Hydro-Electric Project, the Aid and Trade Provision and its implications for overseas aid expenditure". Meanwhile, British arms exports to Iraq in the run-up to the Gulf war were now the focus of the Scott Inquiry.

One of the myriad companies under examination by Sir Richard Scott was "International Military Services", originally established by the Crown Agents as the military procurement arm of the British Government. Scott homed in on IMS involvement in a £270m arms deal with Jordan signed by Thatcher in 1985, which included nuclear, biological and chemical warfare equipment. As Lt. Col. Richard Glazebrook had told his Ministry of Defence colleagues at the time "IMS is attempting to ship chemical warfare defence equipment in defiance of HMG (Government) guidelines".

In 1989 "Peter Grey, the former manager (finance) of International Military Services, which organised large arms export deals for the British government, joined Biwater as company secretary and financial director." ("Sunday Times" 6 March 1994)

By then, Biwater was already involved in the massive "Green E-Sarn" project in Thailand, described by a Thai general as a "matter of national security". To quote the World Development Movement evidence to the Pergau Inquiry:

"The Thai military has been persistently criticised for continuing to support Pol Pot's Khmer Rouge, even after the Cambodian peace accord.

"Defence Procurement Minister Lord Trefgarne, when in Bangkok for the Defence Asia 88 meeting, was reported to be negotiating on a major package of military equipment purchases. The Thai navy and airforce were both interested in placing large orders for Hawks (other equipment of interest included: British Aerospace Rapier missiles with Marconi Command and Control Systems; Marconi air defence radar; shoulder-launched Javelin missiles from Shorts; Apache anti -aircraft artillery; BAe Sea Skua coastal defence missiles; Royal Ordnance coast artillery; communications; and an integrated command-and control system.)

"The Thai military were impressed by the British equipment, their interest in the Hawks being heightened by the parallel deal Britain was discussing with Malaysia, given growing Thai-Malaysian airforce co-operation. BAe and GEC-Marconi headed up a consortium of companies working with the Government to bid for contracts, and a British company was reported to have completed a feasibility study into the proposed $1 billion Eastern Seaboard defence system.

"However Britain was bidding against intense international competition. The financial terms of the deal were key to winning the contract, with the Chinese offering 'friendship prices' and high levels of Foreign Military Sales credits available from the US. Consequently, in the negotiations Britain was offering to 'provide credit at advantageous rates for Thai purchases of British equipment'. The exact terms on offer are not known nor whether, as in Malaysia, civil aid was at any stage discussed as part of the financial package underpinning the deal.

"However it is known that also under negotiation was British aid for the Green E-Sarn ('Green the North-East') project - a massive integrated development programme of water supply and irrigation, forestry, agriculture and hydro-power projects for the dry North-East of Thailand.

"The Thai army initiated the idea for the programme in the sensitive border area where they had fought a bloody counter-insurgency war. Official control of the programme was moved over to the civil government but the army insisted on remaining involved. The then Armed Forces Chief of-Staff General Sunthorn Kongsompong said that: 'It is necessary for us to launch a campaign like the Green Northeast project. It is a matter of national security and the Northeast is of much strategic importance because Vietnam wants to include the northeast province into the Indochina Federation', Bangkok Post 7 April 1988.

"A comprehensive feasibility study was carried out by British company Biwater. The company was reportedly hoping for a contract worth approximately £500 million, as part of an overall proposed project of about £1.2 billion.

"In March 1988 Biwater had reportedly received 'expressions of support from the top level in ODA' for their bid for substantial ATP support for the project - perhaps accounting for a quarter of total costs. In April 1988 the Thai Government allocated money for the programme in their 1989 budget plan, and the aid deal was discussed during the Prime Minister's August visit to Thailand.

"By 1990 however hopes for the large arms export package from Britain were fading, as the financial attractions of Thailand' s traditional suppliers reasserted themselves. By 1991 the US had concluded a massive $600 million agreement to sell fighter jets together with a range of military equipment. In 1990 the proposal for ATP funding for the Green E-Sarn also foundered, despite continuing Thai enthusiasm for it. The reason for ODA's decision not to proceed is not known."

Although the deluge was delayed until 1994, Biwater's record was questioned in the House of Commons six years earlier. Labour MP Ann Clwyd asked Prime Minister Margaret Thatcher (Hansard, 30 March 1988) whether "she was aware in assessing Biwater's reputation as worthy of her support in Malaysia, that Biwater had not by then successfully completed a major water project anywhere and had twice appeared in Nigerian courts for alleged poor performance".

Thatcher replied "The support given to Biwater, in relation to the Malaysian rural water supply project reflected our assessment that the company was fully capable of implementing the contract. Completion of the project in Niger state by Biwater represents the first request to come from the Nigerian Government for finance under the recently agreed Export Credits Guarantee Department package".

Biwater's track record deserves scrutiny. Perhaps the company would now care to explain why, in the face of the evidence of their involvement in the British Government's aid-and-arms linkage in Malaysia and the Green E-Sarn project proposal in Thailand, they threatened to sue the Mail & Guardian, SangoNet, and GreenNet?