COMMONS

Oversight of Private Infrastructure Development Group report published

29 January 2015

Some of PIDG’s investments raise questions over its decision making and the Department’s oversight according to the Public Accounts Committee's report published 28 January 2014.

Chair's comments

"It is essential for public confidence in spending on overseas aid that the Department for International Development is able to demonstrate that UK taxpayers’ money is being used for its intended purpose – of helping the world’s poorest people – and not ending up in the wrong hands.

Every pound that is lost to fraud and corruption is a pound that could have been spent on educating a child, improving health systems or supporting economic development.

By 2017 the Department expects to have contributed almost £900 million to the Private Infrastructure Development Group, a multilateral agency which invests in infrastructure projects in developing countries.

We recognise that PIDG operates in countries where standards of governance can be challenging. However the Department’s oversight of PIDG has been unacceptably poor and has left it open to questions about the integrity of PIDG’s investments and some of the companies with which it works.

Concerns were raised with us about the complex corporate structures that PIDG’s partners have sometimes established, making it difficult to be certain about the ownership of companies and creating a risk that those involved may have criminal connections.

For example, PIDG told the Committee that in March 2014 Emerging Africa Infrastructure Fund approved a €25 million investment in a power plant in the Ivory Coast which a company called Emerging Capital Partners has an interest in. We had allegations that Emerging Capital Partners had links with the fraudster James Ibori, who was convicted in April 2012. 

Furthermore, PIDG informed the Committee that in September 2014 Emerging Africa Infrastructure Fund decided to provide up to US$30 million to Seven Energy Finance Ltd in support of the gas processing and distribution activities of Seven Energy in Nigeria. Seven Energy is a company linked to allegations of looting Nigerian oil revenues.

When investing, PIDG must be constantly vigilant to mitigate the risks to taxpayers’ money and to the reputation of its donors from its investments.

The Department itself must exercise much tougher scrutiny over PIDG. So far it has not used its position as by far the dominant funder of PIDG to influence the direction of its operations and improve its performance. It should do so.

In 2012 and 2013, the Department contributed 88% of PIDG’s total funding. However, despite being the majority funder, the Department has the same voting rights as other countries which contribute far less.

The Department has also failed to put a stop to PIDG’s wasteful travel policies and poor financial management. For example, the Department’s poor oversight of PIDG allowed money to sit idle in a bank account rather than funding projects – an average of £27m between January 2012 and February 2014.

The Department should require PIDG to have a robust system to monitor and evaluate impacts.

It should use its 2015 multilateral aid review to develop a proportionate and risk-based approach to how it funds and oversees the multilateral agencies which it funds, including PIDG."

Margaret Hodge was speaking as the Committee published its 33rd Report of this Session which – on the basis of evidence from Mark Lowcock, Permanent Secretary, Department for International Development, David Kennedy, DG Economic Development, Department for International Development and Philippe Valahu, Executive Director, Programme Management Unit, Private Infrastructure Development Group – examined oversight of the Private Infrastructure Development Group.

The Department for International Development (the Department) is the main funder of the Private Infrastructure Development Group (PIDG), a multilateral agency which invests in infrastructure projects in developing countries. The Department has not used its position as by far the dominant funder of PIDG to influence the direction of its operations and improve its performance. The Department’s oversight of PIDG has not been sufficiently 'hands on'. We are concerned that the Department has insufficient assurance over the integrity of PIDG’s investments and the companies with which it works and the Department has not done enough to put a stop to PIDG’s wasteful travel policies and poor financial management.

The Department believes that infrastructure investment stimulates growth, which is a pre requisite for cutting poverty. It has identified a need for substantial infrastructure investment in developing countries which cannot be met by public funding and aid alone. PIDG, which invests in infrastructure projects in developing companies, is a multilateral agency founded by the Department and three other donors in 2002. PIDG is now governed by development agencies from eight countries and the World Bank. The Department’s total contributions to PIDG, which are expected to reach £860 million by 2017, have represented 70% of PIDG’s funding since 2002 and 88% of the funding in the last two years.

Conclusions and recommendations

Some of PIDG’s investments raise questions over its decision making and the Department’s oversight. We recognise that PIDG operates in countries where standards of governance can be challenging. Concerns were raised with us about the complex corporate structures that PIDG’s partners have sometimes established, making it difficult to be certain about the ownership of companies and creating a risk that those involved may have criminal connections.

When investing, PIDG must be constantly vigilant to mitigate such risks. They must take into account the possible risks to taxpayers’ money and to the reputation of its donors from its investments. PIDG’s procedures do not require the Department to be notified of all proposed investments, but the Department should do more to make sure PIDG takes a robust approach to the assessment and management of these risks. The Department was not well briefed on the specifics of individual investments which had attracted public concern.

Recommendation: The Department must ensure that PIDG has a robust and appropriate approach to due diligence in general and that it receives detailed briefing when concerns are raised about specific investments.

The Department’s weak oversight of PIDG means that some of PIDG’s operational decisions are at odds with the Department’s objectives. The Department’s aspiration is to support countries to build their tax base to support their own development. However, for historical reasons, some of PIDG’s investments pay taxes in Mauritius where the effective rate of tax is below 5%. The Department’s oversight of PIDG’s governance was not sufficiently strong to prevent board members booking expensive flights.

Recommendation: The Department should review its oversight mechanisms for PIDG to make sure it has an appropriate level of visibility of operational matters, and that sound financial controls are in place and that money is appropriately spent.

The Department’s poor oversight of PIDG allowed money to sit idle in a bank account rather than funding projects. Between January 2012 and February 2014, an average of £27 million of the Department’s money which could have been used to fund projects was left sitting in PIDG’s bank accounts managed by SG Hambros. As a consequence, SG Hambros had the opportunity to earn interest on the cash balances it held on PIDG’s behalf. At our prompting, the Department has asked SG Hambros to make a donation to a charity working in West Africa on the Ebola virus from any returns it made from the Department’s cash holdings.

Recommendation: The Department should set out what action it has taken to make sure funds it passes to third parties are used promptly. It should report back to the Committee on the outcome of its request for a donation to charity from SG Hambros.

The Department is not using its position as the dominant funder to drive improvements in PIDG’s performance. In 2012 and 2013, the Department contributed 88% of PIDG’s total funding. However, despite being the majority funder, the Department has the same voting rights as other countries which contribute far less. The Department seems unwilling to explore how it might use its dominant position to influence performance. For example, it has plans to extend its funding of PIDG by two years, bringing its potential total contribution to £860 million since 2002. However, the Department has not attached conditions, such as improved governance, to this funding.

Recommendation: The Department should, when considering increasing its investment in PIDG, identify the operational changes it would like to see alongside the development impact it is looking to secure. The Department should use its 2015 multilateral aid review to develop a proportionate and risk based approach to how it funds and oversees multilaterals, with a clear focus on whether its level of influence in multilaterals is commensurate with its level of funding, both in absolute terms and relative to other donors.

Public confidence on spending on overseas aid through PIDG requires robust and independent information on the impacts achieved, which is currently lacking. There is a reasonable overlap between those countries the Department consider to be a priority and those in which PIDG has invested. However, many of the development impacts claimed by PIDG are accounted for by a small number of projects. For example, one project supporting satellite telecommunications for 50 million people to receive new services accounted for 45% of all additional people served by PIDG’s portfolio of projects. While the Department has commissioned some independent evaluation of PIDG’s performance, it is too reliant on information from PIDG itself in making judgements about performance.

Recommendation: The Department should push PIDG to have a robust system to monitor and evaluate impacts using the Department’s own expertise to gain assurance over the adequacy of PIDG’s approach.

The Department has failed to draw sufficiently on the insight of its country teams to influence the investment decisions PIDG is making. PIDG represents a major investment by the Department. The Department’s country teams have in depth knowledge of some of the countries in which PIDG invests. We heard examples of how the Department’s network of country teams had helped to identify reductions in costs, demonstrating the benefit that might accrue from their involvement in investment decisions. For example, the Department managed to reduce the cost of one of PIDG’s projects by almost 60%. However, over half of the Department’s country teams were concerned that their activities and those of PIDG were not sufficiently coordinated, creating a potential separation between the Department’s and PIDG’s priorities.

Recommendation: In its response to this report, the Department should set out how it will apply the expertise of its country teams to improve the value for money of infrastructure investments made by PIDG and other multilateral bodies.

Further information

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