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African Development Bank

Volume 598: debated on Tuesday 14 July 2015

It is normal practice, when a Government Department proposes to undertake a contingent liability in excess of £300,000 for which there is no specific statutory authority, for the Minister concerned to present a departmental minute to Parliament giving particulars of the liability created and explaining the circumstances; and to refrain from incurring the liability until 14 parliamentary sitting days after the issue of the statement, except in cases of special urgency.

The UK has purchased shares in the multilateral development banks through special or general capital increases before. The African Development Bank is reissuing additional shares that were originally issued for the AfDB’s sixth general capital increase (GCI VI), but were either forfeited or not taken up by other non-regional shareholders. The UK is currently half the way through making payments for its subscription under this share issue that was approved by Parliament in May 2011. Further shares have also become available as a special capital increase (SCI) to non- regional shareholders, following the ratification of South Sudan as a member of the bank. This is required to maintain the approximate shareholding balance between regional and non-regional members of the bank to 60:40 respectively.

The UK currently holds 1.684% of the shares in the bank and the Government wish to increase its shareholding. The UK currently has the smallest shareholding of all G7 countries. The UK joined the bank in 1983, and at the time elected not to take up the full allocation of shares on offer. This small shareholding means that the UK’s vote on all AfDB issues carries less weight than many other shareholders, as it represents a smaller percentage of the total vote. Subscription to the additional shares available will increase the UK’s shareholding to approximately 1.72%. If we are able to subscribe to the total GCI VI shares available, this would increase our shareholding to 1.87%. Failure to participate in this share issue would decrease the UK’s shareholding to 1.65%.

The UK has been allocated 3,157 shares from the SCI issue and 1,453 additional shares from GCI VI. Combined, this equates to an additional 4,610 shares. Under the terms of this share issue, of the allocated shares, 6% must be “paid-in” at a cost of £2,755,377 and the remainder (£43,267,406) will be callable—that is, a contingent liability.

The SCI share issue has a long deadline, as the first payment is not required until 4 October 2016. However, under the terms of the GCI VI share issue, the first payment should be deposited with the bank by 2 October 2015; otherwise the UK will forfeit the shares. If it is not possible to secure parliamentary approval for the statutory instrument in the short amount of parliamentary time available before the end of October, we would still plan to proceed with seeking the House’s approval of the instrument. This would enable the UK to purchase any further shares that are transferred due to these and other forfeited shares.

We also expect other shareholders may not be able to meet this tight deadline, and shares will be reissued again to shareholders. DFID is therefore seeking approval of a payment up to £7,946,866.67. This figure equates to the total amount of GCI VI shares available to all shareholders plus the UK’s allocation of the SCI. This will allow the Government to react quickly to any further reallocation of this share issue (GCI and SCI) and increase the likelihood of the UK being able to meet the short deadlines that are part of the bank’s rules for share reallocations.

DFID’s total contingent liability is currently £10.7 billion if the total approved funds were fully utilised it would increase by £124,570,794 or 1.17%. I have today laid a departmental minute outlining details of the liability.

A draft statutory instrument, seeking approval for the Department for International Development (DFID) to pay up to the capital amount of £7,946,866.67 is being laid before Parliament in accordance with section 11 of the International Development Act 2002. This will be considered by the Select Committee on Statutory Instruments. The final value of the callable shares will appear in DFID’s financial accounts as a contingent liability.

The main risk associated with this share issue is that the UK will be asked to pay for the additional capital of £43,267,406 of the currently available shares or up to £124,570,794 if the UK is issued further shares from this allocation. Although the AfDB has the right to call for payment for these shares if there is a crisis affecting the bank’s assets or loans, this has not occurred in relation to existing callable shares and, given that the bank has an AAA credit rating, it is very unlikely to occur in practice. If the liability is called, provision for any payment will be sought through the normal supply procedure.

The Treasury has approved the proposal in principle. If, during the period of 14 parliamentary sitting days beginning on the date on which this minute was laid before Parliament—that is, 14 to 21 July and 7 to 17 September—a Member signifies an objection by giving notice of a parliamentary question or by otherwise raising the matter in Parliament, final approval to proceed with incurring the liability will be withheld pending an examination of the objection.

[HCWS103]