Future of CDC

Debate between Lord Bruce of Bennachie and Caroline Lucas

Thursday 14th July 2011 Westminster Hall

[Caroline Lucas (Brighton, Pavilion) (Green)]

I am grateful for the opportunity to speak in the debate, particularly because I am not a member of the International Development Committee, although I follow its work closely. I welcome the Committee’s report on CDC, which has operated in the shadows for too long and which is increasingly a subject of public concern.

I am pleased to note that the issue of compliance by CDC fund managers with the Department for International Development-sponsored CDC investment code has been raised in the report, because it is an important issue. I have followed the issue at first hand after one of my constituents, Mr Dotun Oloko, came to see me about the investments of two CDC-backed funds in Nigeria, Ethos and Emerging Capital Partners. Mr Oloko’s concerns have been set out in written evidence received by the Committee, so I will not detail them here. Suffice to say that Nigeria’s Economic and Financial Crimes Commission reports that four of the companies in which CDC-backed funds have been invested are fronts for laundering money. That money is said to have been corruptly obtained by James Ibori, the ex-Governor of Nigeria’s Delta state. Mr Ibori, who has previously been convicted twice in the UK, is on trial here again, this time for alleged money-laundering offences involving CDC investee companies.

CDC’s investment in such companies raises many concerns. As hon. Members will recall, CDC’s investment code requires that all businesses in which CDC’s capital is invested must

“comply with all applicable laws and international standards intended to prevent bribery and financial crime.”

Under these rules, companies with links to a politically exposed person, such as Mr Ibori, his relatives and close associates, should have been subject to an enhanced due diligence process. Why did the funds fail to pick up on these links, even after they had been brought before a Nigerian court and were widely publicised in print and in the electronic media? A simple internet search would have revealed the details of corruption associated with these CDC investee companies.

I also want to know whether procedures were in place, both within the funds and within CDC, to ensure compliance with money laundering laws in the UK, the US, Jersey, South Africa and Mauritius—all countries where the funds and CDC are variously registered. For example, here in the UK, the Money Laundering Regulations 2003 require CDC to implement procedures to forestall and prevent money laundering. If, as the evidence from this case suggests, CDC has failed in that respect, will there now be a broader review of CDC’s portfolio with regard to money laundering risks?

My constituent Mr Oloko’s own investigations revealed another stunning fact: a discrepancy of several million pounds between the amount one of CDC-backed funds claims was paid for its investment in a Nigerian fertiliser company, and what was actually received for the shares in Nigeria. The fertiliser company is reported—alleged—to be a front for Mr Ibori. Yet this appears to have gone unnoticed by CDC and, once it was informed, unreported too. In future, will CDC be required to report such information, if there are reasonable grounds to suspect that a crime has been committed?

There are other causes for concern. CDC continues to be an investor in a bank whose director has been jailed and in other indicted investee companies. Those companies include one where a former chief executive officer is facing criminal charges in Nigeria as well as civil action in the UK, and another which Private Eye magazine has accused of tax evasion and corruption. DFID’s response has been equally worrying. When concerns were raised, did it seek further information from Mr Oloko? No, it did not. Did it bring in independent investigators? No, it did not. All it has done is to ask the funds and CDC—the very institutions whose actions need investigation—to give assurances that no wrongdoing occurred. That is not sufficient to reassure the public.

A key question, still to be answered, is whether CDC passed on the information that it received from Mr Oloko to the police, as required under the Proceeds of Crime Act 2002. We do not know, because CDC refuses to say. When I met the director of the Serious Fraud Office earlier this year, he told me that he learned about the concerns directly from my constituent, Mr Oloko.

CDC’s Nigerian investments are not the only causes for concern. CDC also invested in funds that have backed companies accused of human rights abuses, such as Anvil Mining, and of profiting at the expense of the poor. For example, in Uganda the CDC-backed power distributor Umeme has hiked electricity prices to the point where many poorer Ugandans have been forced to steal electricity from the grid; Umeme’s manager is reported to have called for their execution.

DFID officials have argued that the measure of CDC’s contribution to relieving poverty is the profitability of the companies backed by its funds, which is not a serious argument. While investment is certainly needed to relieve poverty, it is both simplistic and irrational to assume that any investment, even if conditioned by environmental and social safeguards, automatically translates into positive impacts on poverty reduction simply because that investment generates growth.

Before I was elected to this House, I worked for Oxfam for more than 10 years. I have seen some of these development questions at first hand. Many of the funds in which CDC invests make extensive use of tax havens. I listened with interest to the right hon. Member for Gordon (Malcolm Bruce) on the complications and issues around tax havens, which is a matter of concern. Those funds are using tax havens, and although the right hon. Gentleman explained that that is not always to avoid paying taxes, it still raises concerns.

[Malcolm Bruce]

I want to reassure the hon. Lady that we share those concerns. We did not dispel them; we just felt that the matter was more complicated than we had appreciated. In a wider inquiry, we did not have time to come to a definitive conclusion. The concerns exist and we need assurances, but she should accept the danger that investment may be driven away if the matter is handled wrongly.

--- Later in debate ---

[Caroline Lucas]

I hope that the issue can be looked at in greater detail. I appreciate that it is complex, but none the less there are real causes for concern.

The Government have acknowledged many of the concerns about CDC. I am encouraged that that has strengthened CDC’s environmental, social and governance procedures. CDC is also committed to introducing new development impact indicators and to developing new investment instruments, so that it no longer operates exclusively as a fund-of-funds investor. By 2015, 20% of its investments will be loans and 20% of them will be direct equity investments. However, that still leaves 60% of its investments being delivered through private equity funds. I question whether such turbo-charged profit seekers are always the appropriate development finance vehicles. Indeed, fund managers themselves are sceptical about the compatibility of the fund-of-funds approach with DFID’s development objectives, particularly in addressing poverty.

There are some important lessons to be learned, most notably about the need for proper scrutiny of development projects and for CDC’s investments to be properly monitored on a regular basis. My constituent has looked at a relatively small proportion of CDC-backed funds, but what he has already discovered makes me extremely concerned that there deep-seated problems that needed to be addressed as a matter of urgency.

Profiting from development at the expense of the poor is easy; history is, unfortunately, replete with examples of that. The more difficult challenge is to assist poorer people in designing and developing programmes for their own benefit, rather than that of their financial backers. I very much hope that CDC can rise to that challenge in the future.

Finally, I sincerely apologise for the fact that I cannot be present for the whole debate, although I will be here for some time. I understand that it goes on until 5.30 pm.

[Malcolm Bruce]

It can do.

[Caroline Lucas]

If it does, I cannot be here until then. I hope that the Secretary of State will forgive me, and none the less address some of the issues that I have raised. I will avidly look at his response in Hansard.

Daylight Saving Bill

Debate between Lord Bruce of Bennachie and Caroline Lucas

Friday 3rd December 2010 Commons Chamber

[Caroline Lucas]

That was an early intervention in my speech, and if the hon. Gentleman listens to the next bit, some of these questions will be answered, because I do not agree with his point.

On reducing demand for artificial lighting, about 13% of domestic electricity consumption and about 30% of electricity consumed by commercial and public buildings currently goes on lighting. An extra hour of evening daylight would reduce the need for domestic lighting as people arrived home from school or work. Recent research by the Policy Studies Institute shows that the effect of the proposed clock change would be to lower demand for domestic lighting by as much as 9%. In other words, the Bill would lead to household savings of nearly £180 million per year on electricity bills alone. A common argument—I expect this will be made, so I will pre-empt it—against daylight saving time is that any drop in demand for evening lighting will be cancelled by the need for extra lighting on darker mornings. That may be true during the winter months, when the days are shorter, but the Bill proposes an adjustment of clock time throughout the year, which means less need for artificial lighting in the evenings all year round.

Regarding commercial demand for evening lighting, it is more difficult to quantify the potential savings for offices, workplaces and public buildings, as patterns of lighting often vary widely from sector to sector, but again, the studies indicate that overall demand from commercial customers is also likely to be lower. That aspect must be subject to detailed research during the initial trial period proposed in the Bill, as it offers the greatest potential for a nationwide reduction in domestic carbon emissions.

My second point is closely related to the first. Daylight saving will cut carbon emissions from power generation because it will even out the daily peaks in demand for electricity. For power companies, the late afternoon peak period determines the maximum number of power stations that are required to be on stream to match consumer demand. Currently, the extra capacity required for that short period of peak demand comes from inefficient and carbon-intensive sources such as oil-fired stations and pump storage facilities or, as has been said, by imports from France, which can be an expensive alternative.

The introduction of daylight saving would reduce peak demand for electricity on winter evenings. During that famous 1968-71 experiment with retaining British summer time throughout the year, the evening peak was reduced by 3%. Research carried out by the university of Cambridge calculates that lighter evenings now would reduce peak demand by up to 4.3%. The electricity industry also acknowledges that a reduction in evening peak demand would reduce carbon emissions by avoiding the need to keep inefficient and polluting spare generating capacity on stream.

The university of Cambridge study calculated that a move to daylight saving would mean a drop in CO₂ emissions from power stations, across the UK as a whole, of about 450,000 tonnes a year. That is the equivalent of taking off the roads about 200,000 cars. There would also be a significant reduction in power companies’ generating costs, both for resources and for the transmission and distribution infrastructure.

In addition to reducing demand for lighting, daylight saving also offers potential for reducing fuel costs and carbon emissions from heating. Domestic demand for heating is highest from November to February. The PSI study found that whereas there is little variation in average temperatures between 6 am and 8 am, when most people leave the house, temperatures tend to fall much more quickly in the late afternoon, around sunset, when people are arriving home from work or school.

Since the introduction of daylight saving will mean that it gets colder later, it is possible that households will be able to save money on their heating bills, while shrinking their carbon footprint. A small increase in fuel use for heating in offices and commercial and public buildings may be likely because of the earlier start to the day, but the resulting carbon emissions will be offset by reductions in domestic fuel use, so overall there is a clear reduction in carbon emissions.

[Malcolm Bruce]

Does the hon. Lady acknowledge that the fact that the temperature does not change much between 6 am and 8 am is because that is the coldest time of the day, and that is exactly the time when the cost of heating to compensate for the cold is at its highest, and that the energy consumption required at that time would be much higher under the changed rules than it is at present?

[Caroline Lucas]

No, I do not accept that, and I do not think that it is what the evidence suggests. One of the points that the right hon. Gentleman is making has more to do with the way in which we generate energy now and our spare capacity, rather than being a fundamental point to do with changing to daylight saving hours.

In all of the three areas that I have discussed—reducing demand for lighting, efficient management of peaks in demand, and reduced demand for heating—the greatest potential savings lie in household energy use. For this reason, I believe the Bill offers an easy and inexpensive means of combating fuel poverty. Many of us have constituents, often elderly ones, who struggle to pay their electricity bills and their heating bills. In Brighton and Hove, for example, more than 20,000 households, many of whom are my constituents, have been identified as fuel-poor—in other words, forced to spend over 10% of their income on energy bills.

I am not suggesting for a moment that the Bill will allow any of us to relax our efforts to eradicate fuel poverty, or to ignore our duty to take meaningful action on cutting carbon emissions. But the beauty of the Bill is that the action that it requires is simple, while the benefits that it will bring are profound.