FINANCE-BRITAIN: Storm over Blair backing for Indian industrialist

By IPS Correspondents Reprint | | Print |

Samanta Sen

LONDON, Feb 28 2002 (IPS) - A company registered in the Dutch Antilles owned by an Indian national buys a steel plant in Romania with support from British Prime Minister Tony Blair. Scandal or just international business?

What the company sees as the way of international business has turned into a domestic scandal in Britain. The opposition Conservative Party is demanding an independent inquiry after daily attacks on Blair for backing a company owned by a foreigner doing business in yet another.

At the start of the scandal is a donation of 175,000 U.S. dollars made by Indian businessman, Laxmi Mittal, to the Labour Party ahead of the general elections in June last year. Just weeks later Blair wrote to Romanian Prime Minister Adrian Nastase expressing his support for take-over of the Romanian plant Sidex by the Mittal group.

Blair’s office has been battered with accusations. A spokeswoman for Downing Street told IPS that the letter was “routine”. A Downing Street spokesperson said at first that Blair was unaware of Mittal’s donation to the party. Later the spokesman clarified that Blair knew Mittal was a donor, but did not realise that the LNM company he backed was Mittal’s.

Conservative spokesman Paul Collins said: “It is simply inconceivable that the Prime Minister did not know of Mr Mittal’s ‘generosity’. Nor is it credible to assert that he did not realise that LNM Holdings and Mr Mittal were linked when it was his own staff in Downing Street who amended the draft to remove a reference to Mr Mittal being a ‘friend’ of Mr Blair.”

Blair’s letter was followed by British government backing for a 100-million dollar loan Mittal obtained from the European Bank for Reconstruction and Development (EBRD) to buy the Romanian plant, bought for 420 million U.S. dollars for the plant.

Beyond the disputed link between a donation to the party and support to a foreign donor, the controversy has snowballed into a dispute over the nature of international business and the government’s role in it. Blair’s letter spoke of LNM as a British company. The Conservatives say it is British only in the sense that Mittal who has controlling shares in the company administers his worldwide steel empire from London. Of about 70,000 employees in Mittal’s companies worldwide, fewer than 100 work in the London office, the Tories say.

Mittal’s international steel business is being portrayed as a threat to the British steel industry. Ispat Inland, Mittal’s company in the U.S. is among a group of American companies seeking tariffs of 20 to 40 per cent on import of steel into the U.S. That will directly impact Corus, a steel plant based in Wales in Britain. British steel makers export about 400 million dollars worth of steel to the U.S. annually.

Adam Price, MP for the Welsh party Plaid Cymru says that Blair has not just acted in the interest of a foreigner but against British interests in backing him. Mittal has paid money towards “a policy U-turn in America and the imposition of steel tariffs which will virtually wipe out British steel exports to America at a very difficult time for the steel industry,” Price said.

Graham Mackenzie, chief executive of the British company Allied Steel and Wire said: “The fear is that the investment in the Romanian steel industry is going to lead to a surge in imports from Romania, and that, of course, is going to damage my company and other steel producers in the UK.” The British steel industry shed 6,000 jobs last year.

Under strong attack from the opposition and the media, Cabinet Office minister Lord Macdonald defended Blair in an interview to the British Broadcasting Corporation: “If you’ve got a global company like this, trying to position itself in different markets, then of course there may be contradictory elements to it.”

Mittal has operations in Romania, South Africa, Kazakhstan, Algeria, Indonesia, France, Germany, Belgium, Italy, Trinidad, Mexico and the US. The group is the world’s fourth largest steel producer. Mittal’s personal wealth is estimated at 1.5 billion dollars.

Mittal moved the centre of operations to London seven years ago because it seemed the right location for an international business, a spokesperson for the group said. The group has been keeping a low profile through the controversy.

But in a solitary interview at the start of the controversy late in January, Mittal told The Daily Telegraph: “London has been the main office of the group. All our services come from Britain – lawyers, accountants, financial services. British companies work for us. And when we do business with other countries, it stimulates interest in Britain.”

Gurmit Singh from the Asian Business Forum in London told IPS that “none of these issues would have arisen if a Brit had done what Mittal has been doing.” Singh said “there are any number of British industrialists who now manufacture abroad to take advantage of cheap labour, but that does not lead to a scandal.”

Flagship British companies such as Marks & Spencer now rely largely on overseas manufacture. The pioneering vacuum cleaners company Dyson has shifted its manufacturing operations to Malaysia. “Britain does not have a problem when its own companies go international but when foreigners go international,” said Singh.

Blair dismissed the scandal in reply to questions in Parliament as “garbagegate”. In a statement in Parliament, Blair said: “Government will back companies to get contracts the whole time. If we are not careful we will be in the absurd situation where governments don’t have anything to do in promoting British business, which would make us a pretty unique government in the world.”

But an internet poll by The Sunday Times and the political group YouGov indicated that 60 per cent of voters now thought Labour was “sleazy and disreputable” while 41 per cent said that description applied to the Tories. Blair’s position is not under threat, but the dispute seems to have done its damage.