Select committee inquiry
Private Infrastructure Development Group
Closed
What the inquiry looked at
“The Department for International Development is the principal funder of the Private Infrastructure Development Group (PIDG), a multilateral body to which it planned to commit up to £700 million between 2012 and 2015. DFID aims to increase private investment from international and domestic investors to help provide much-needed infrastructure to developing countries, including transport, power, water and communications. It describes PIDG as its most important vehicle in supporting this aim. PIDG funds are invested in infrastructure projects by private sector fund managers, who aim to achieve commercial returns while working in difficult environments and industries to secure development outcomes, including better services and more jobs. This inquiry will examine DFID’s interests in and oversight of PIDG. It will consider the Department’s rapid expansion of funding for PIDG and its record of financial management, as well as whether the Department has the information to demonstrate that investment in PIDG is the best option. Further information National Audit Office report: Oversight of the Private Infrastructure Development Group”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of 33rd Report - 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.
What the government said
The government responded on 25 February 2015.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 19 September 2014 to its close on 26 March 2015.
- Oral evidence 15 Oct 2014
- Report 29 Jan 2015
- Government response 25 Feb 2015
What it recommended 3 recommendations · 13 conclusions
1Some of PIDG’s investments raise questions over its decision making and the Department’s oversight.
Concluded (the committee's words)
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.
2The Department’s weak oversight of PIDG means that some of PIDG’s operational decisions are at...
Recommended (the committee's words)
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.
3The Department’s poor oversight of PIDG allowed money to sit idle in a bank account...
Recommended (the committee's words)
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 5 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.
4The Department is not using its position as the dominant funder to drive improvements in...
Concluded (the committee's words)
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.
5Public confidence on spending on overseas aid through PIDG requires robust and independent information on...
Concluded (the committee's words)
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.
6The Department has failed to draw sufficiently on the insight of its country teams to...
Recommended (the committee's words)
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 6 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. 7 1 Improving oversight
7The Department recognised that it had been too ‘hands off’ in its oversight of PIDG.
Concluded (the committee's words)
The Department recognised that it had been too ‘hands off’ in its oversight of PIDG. The Department told us that it was completing a review of PIDG’s governance—its first since
8Between January 2012 and February 2014, an average of £27 million of the Department’s funding...
Concluded (the committee's words)
Between January 2012 and February 2014, an average of £27 million of the Department’s funding sat in the bank account of the PIDG Trust12 earning interest at a rate of just 6 Qq 57–60; Memorandum from the Private Infrastructure Development Group, para 3.4.1 7 Qq179, 186, 187; C&AG’s report, paragraph 2.19 8 Q 135 9 Memorandum from the Private Infrastructure Development Group, para 4.7 10 Qq 112, 113; C&AG’s report, paragraph 2.19. 11 Qq 72, 168, 244; C&AG’s report, paragraph 2.2 12 The Trust moves funds between donors and facilities and act as shareholder of the PIDG companies. It acts on behalf of PIDG’s governing council. 9 0.016%.13 The Department acknowledged that it had been an error to allow money to remain idle in bank accounts, as the funds were not available to either the UK Exchequer or developing countries, at a cost estimated by the National Audit Office to have been between £200,000 and £2 million. We questioned how it had been possible for the Department, PIDG, and the bank (SG Hambros) not to have been aware of this matter for 18 months. The Department noted that it had commissioned a wider review of its multilateral agencies to make sure that the same mistake had not been made elsewhere.14
9Given that SG Hambros are likely to have made a financial return on the money...
Concluded (the committee's words)
Given that SG Hambros are likely to have made a financial return on the money in these accounts we asked the Department to write to SG Hambros to ask it to make a donation to a charity working in regions affected by the Ebola outbreak in West Africa. The Department subsequently wrote to SG Hambros on the lines we requested.15 2 Improving performance
10The United Kingdom’s investment in PIDG is considerable.
Concluded (the committee's words)
The United Kingdom’s investment in PIDG is considerable. Between March 2012 and March 2015, the Department plans to invest up to £700 million in PIDG. Whilst PIDG is a multilateral agency, made up of nine donors, the United Kingdom is by far the majority donor. For example, between 2002 and December 2013, the Department’s contribution to PIDG represented 70% of its contributions. Recent investment has seen that proportion increase to 88%. Furthermore, the United Kingdom is one of only three countries currently adding new funding to PIDG.16
11Despite the Department’s significant financial contribution to PIDG, it has the same voting rights as...
Concluded (the committee's words)
Despite the Department’s significant financial contribution to PIDG, it has the same voting rights as other donors. The Department told us that because PIDG is a ‘shared endeavour’, with collective decision making, it lacks the level of control it would have over a directly funded organisation. The Department noted that there were pros and cons of seeking to help poor countries by funding multilateral agencies such as PIDG.17
12The Department told us that its 2011 review of multilateral aid had informed its decision...
Concluded (the committee's words)
The Department told us that its 2011 review of multilateral aid had informed its decision to invest further in PIDG. That review had characterised PIDG’s approach to transparency and accountability as weak. However, the Department did not make improved governance within PIDG a condition of its increased funding.18
13PIDG is reliant on a large number of positive impacts from a small number of...
Concluded (the committee's words)
PIDG is reliant on a large number of positive impacts from a small number of projects, creating a risk that performance could be seriously undermined if one of these projects fails or if the information on the benefits generated is incorrect. One project to support satellite telecommunications in India accounted for 45% of all jobs created across PIDG’s portfolio. Some 75% of the jobs PIDG expects relate to its support for an Indian financier of 13 Qq 146; C&AG Report para 3.34 14 Q 144, C&AG Report para 3.35 15 Qq 123, 150, 247 16 Qq 11, 69, 70, 80, and 83; C&AG’s report, paras 1.25, 1.27 17 Qq 70, 187, 195 18 Qq 165,170 10 commercial vehicles. Neither the Department nor PIDG consider risks to the delivery of impact claims across PIDG’s portfolio.19
14Given the size of the United Kingdom’s contribution to PIDG, the Department needs a regular...
Concluded (the committee's words)
Given the size of the United Kingdom’s contribution to PIDG, the Department needs a regular and independent evaluation of the value generated from its investment. External and independent assurance is currently limited however.20 The Department is currently over-reliant on information it receives from PIDG to complete its evaluations of PIDG projects—the Department’s approach to monitoring projects relies on reports from the organisation in receipt of funding. The International Development Committee observed that the Department’s involvement in Trademark South Africa had been characterised, in part, by a ‘lack of credible scrutiny’ and that it ‘…relied too much on the success stories given to it by programmes managers.’ The Department agreed that it needed to expand its programme of independent evaluations. PIDG is completing its own review of how it can increase the independence of its own evaluations.21
15The Department’s investment in PIDG is large and increasing, and focused on economic development, an...
Concluded (the committee's words)
The Department’s investment in PIDG is large and increasing, and focused on economic development, an area of policy the Department is targeting.22 PIDG does not draw sufficiently on the knowledge accumulated by the Department’s country teams to improve its investment decisions. The Department supports a network of country teams which have, amongst other things, an interest in infrastructure. Almost all the country teams surveyed by the National Audit Office identified the absence of adequate infrastructure as a major barrier to economic development. We are aware of examples of the Department’s country teams working successfully with PIDG—for example, reducing the costs of one of PIDG’s projects by almost 60 per cent.23
16The Department has a formal role in assessing projects for two grants—DevCo (which supports transaction...
Concluded (the committee's words)
The Department has a formal role in assessing projects for two grants—DevCo (which supports transaction advisory services to governments for projects with private participation) and Technical Assistance Facility (which provides grants for technical assistance or subsidies to support PIDG projects). The National Audit Office reported positively on the impact of the scrutiny from country teams.24 Considerable gaps exist in the Department’s use of country teams. Its formal role does not extend to PIDG’s other investments, such as InfraCo Africa. Nor are country teams consulted sufficiently regularly about infrastructure projects—56% of country teams never or rarely considered PIDG as an option when developing business cases for infrastructure projects. The Department told us that, in taking forward its economic development approach, it was looking to identify priorities in each country and how PIDG might contribute to these.25 19 Q 206; C&AG’s report, paragraphs 3.12 and 3.13 20 Qq 206, 219 21 Qq 65, 206, 213; C&AG’s report, para 3.6 22 C&AG’s Report, para 14 23 Q 99; C&AG’s report, paras 2.31, 2.34 24 C&AG’s Report, para 2.31 25 Qq 99, 103; C&AG’s Report, paras 2.30, 2.36 and Figure 1 11
Evidence
Oral evidence sessions 1
- 15 Oct 2014No witnesses recordedparliament.uk ↗