Company Profile: BALFOUR BEATTY

Balfour Beatty was founded 75 years ago as a power construction and engineering company. In 1969, it was acquired by BICC (then known by its full name, British Insulated Callender’s Cables), which remains Balfour Beatty’s parent company today. Balfour Beatty’s interests now include civil, railway and power engineering, building and building services and maintenance, and asset management. Power engineering accounts for 9% of Balfour Beatty’s activities while civil engineering, which includes hydropower work, makes up 24%.

In the energy sector, Balfour Beatty specialises in power transmission and distribution systems, design and construction of overhead transmission lines, power stations, tunnels, dams and reservoirs, which, according to the 1998 Annual Report, include "some of the largest schemes in the world".

Only one-third of Balfour Beatty’s turnover is gained overseas (£543 million overseas compared to £1,596 million in the UK). Of this, Asia provides £137 million, the Middle East £79.5 million and Africa £6.4 million. The US and Caribbean accounts for the rest.²

Balfour Beatty’s annual turnover has remained fairly stable in the past couple of years: £2,140 million in 1998 compared to £2,202 million in 1997. However, profits have rocketed. In 1997, Balfour Beatty achieved record pre-tax profits of £51 million, only to see this rise in 1998 to £75.4 million — a 48% increase. And things look set only to improve, as Balfour Beatty’s order book stood last year at a record £2.7 billion.

However, the BICC Group as a whole has fared less well, Balfour Beatty being the only company within the group to report substantial profits. In 1998, BICC reported debts of £129 million, as against profits of £70 million (profits in 1997 had been £110 million). In the last decade, BICC’s share value has plummeted dramatically — from 422 pence in 1990³ to 6.6 pence in 1998. In its Annual Accounts, Balfour Beatty has opted to take exemption from the requirement to disclose transactions between itself and its parent company, BICC.⁴ In early 1999, BICC sold its entire cable business to American rivals, leaving it with only Balfour Beatty.⁵

In 1998, Balfour Beatty drew together most of its joint ventures and other businesses operating internationally under one wing: Balfour Beatty Major Projects. According to the 1998 Annual Report, Balfour Beatty Major Projects was created as "a centre of excellence for the management and execution of complex infrastructure projects worldwide".⁶ It combines the companies Dutco Balfour Beatty, Balfour Beatty Abu Dhabi, PT Balfour Beatty Sakti Indonesia, First Philippine Balfour Beatty Inc., Zubair Kilpatrick, and Balfour Beatty Hong Kong. The only other Balfour Beatty group business operating internationally is Heery International, which carries out project and construction management.

Private Power

"We have achieved considerable success under the UK Government’s private finance initiative in roads, power and healthcare."
Balfour Beatty.⁷

Many of the projects in which Balfour Beatty has participated recently in the UK, including the Heathrow Link and the Channel Tunnel [see below], have been joint public-private ventures. The company has been one of the main beneficiaries of recent government policies that seek to involve the private sector in provision of public infrastructure — particularly roads and rail, healthcare and power. In addition to its extensive involvement in rail projects following the privatisation of Britain’s railways in the early 1990s, Balfour Beatty received, along with Tarmac (another major donor to the then-ruling Conservative Party), 49% of all road construction contracts. Four of these have been constructed under public-private initiatives, known as Design-Build-Finance-Operate. Lately the company has expanded into the privatised power sector. In 1997, Balfour Beatty’s subsidiary, Balfour Kilpatrick, completed its first turnkey cable installation contract for the privatised utility Yorkshire Electric.⁸

With the global trend toward private provision and financing of public infrastructure, Balfour Beatty, like many UK companies, is capitalising on experiences gained in privatised Britain. In 1997, Balfour Beatty formed an international joint venture business, First Philippine Balfour Beatty, to target the growing private infrastructure market in that country.⁹ This followed the pattern already established by Balfour Beatty in Indonesia where it set up a joint venture, Balfour Beatty Sakti Indonesia.

Balfour Beatty Sakti Indonesia carries out power construction, mechanical and electrical engineering, industrial construction and power transmission installation. It participated in one of Indonesia’s first private power producer projects, the 135 MW gas turbine combined cycle Sengkang power station.¹⁰ In the Philippines, First Philippine Balfour Beatty again concentrates on infrastructure: from pipelines, power stations and transmission lines to roads and urban infrastructure.

BICC, Balfour Beatty’s parent company, has a fairly comprehensive environment policy, and claims that "each of BICC’s businesses has conducted a formal analysis of its environmental and safety performance, in some cases with the assistance of external experts".¹¹ However, for reasons unexplained, each of BICC’s businesses follows their own and not the parent company’s guidelines. Hence, "Balfour Beatty continues to develop its systems for environmental monitoring and reporting. Where practical, they have been linked with existing safety and quality management arrangements." ¹²

BALFOUR BEATTY DAMS

Balfour Beatty has been the engineering consultant or construction company for a number of highly controversial projects including Kainji (Nigeria), Muela (Lesotho), Pergau (Malaysia), Samanalawewa (Sri Lanka), Victoria (Sri Lanka), and is currently bidding for the Ilisu dam in Turkey [See boxes on Ilisu and the Lesotho Highlands Water Project].

PERGAU, MALAYSIA

The Pergau dam, built on the Malaysian-Thai border with £234 million of British overseas aid, has become a byword for patronage politics and the illegal use of aid money. The contracts for the dam were awarded jointly to Balfour Beatty — a company with close links to the British Conservative Party — and Cementation International, a company which employed Prime Minister Margaret Thatcher’s son as an advisor.¹³ Balfour Beatty, a major donor to the then-ruling Conservative Party, won civil works contracts for the dam — without competitive bidding. The works included a 75-metre high zoned earthfill dam, power tunnels and shafts, an underground power cavern and a 24 km water transfer tunnel, together with a pumping station.¹⁴

Britain’s aid agency, the Overseas Development Administration (ODA), opposed the funding of Pergau. However, Thatcher made an oral offer to fund the dam during a visit to Malaysia in 1989, conditional on a full economic appraisal. In 1990, an ODA review of Malaysia’s power sector identified a number of alternative projects and concluded that Pergau would not be an economic proposition until the year 2005 at the earliest.¹⁵ Nonetheless, the government agreed to fund the project in February 1991. At the time, Alan Clark, the UK Defence Procurement Minister, argued that withdrawal of support for Pergau "would have an adverse impact on UK relations with Malaysia in general and defence sales in particular."¹⁶

Documentary evidence subsequently revealed that the aid package was linked in writing to a reciprocal arms deal whereby the Malaysian government agreed to buy over £1,000 million worth of British military equipment in return for the UK funding Pergau. A judicial review brought by a British NGO, the World Development Movement, against the Foreign Office led to a High Court ruling that aid for Pergau was in violation of the 1966 Overseas Aid Act, which forbids British aid money being used for the purchase of arms. Conservative ministers in parliament had consistently denied the link between aid for the dam and arms.

Subsequently, the "revolving door" between Whitehall and the City, which has long ensured a place for ex-Ministers and top civil servants in the boardrooms of corporate Britain, saw Sir Charles Powell, Thatcher’s foreign affairs advisor until 1990, become a director of Trafalgar House, which owns Cementation. Both Lord Prior, a former minister under Thatcher, and Lord King, ennobled by Thatcher, have also been linked to the affair.¹⁷

SAMANALAWEWA and VICTORIA, SRI LANKA

Balfour Beatty also figures prominently in two other British aid-linked dam debacles: those of the Samanalawewa and Victoria dams in Sri Lanka, both part of the multi-dam Accelerated Mahaweli Development Programme. As with Pergau, ministers focused on the dams’ commercial advantages to British firms rather than on the benefits to local people.

In this case, British firms were appointed to design and help build the projects, Alexander Gibb winning the design work and Balfour Beatty the contracts to lay roads, drive a tunnel and build the power station.¹⁸ Yet two years after the Samanalawewa project was completed, its reservoir still could not be filled because its bed was leaking badly. Although remedial action has been planned, one Sri Lankan geologist has warned that the leak cannot be plugged: "Samanalawewa is a write off. It will become an archaeological site."¹⁹

NEDECO, the Dutch consultants which did the main feasibility study (1979) for the five-dam Mahaweli Scheme, stated that: "On the basis of the scenario adopted by the consultants about 50,000 families, or 250,000 people, have to be settled between 1980 and 1985. It is hard to find examples elsewhere in the world of successful settlement of such a large number of people in such a short time."²⁰ The experience of those resettled from Kinchigune village is typical of those who were evicted as a result of the project. As Ar Karunawathie of the NGO Samanalagama Samagi Kantha Samithya told a regional consultation of the World Commission on Dams:

Meanwhile, just 80 kilometres north of Samanalawewa, another ODA-funded dam — the Victoria dam, also built by Balfour Beatty with Gibb acting as design consultant — has also run into difficulty, failing to produce the electricity expected. An assessment carried out by the UK National Audit Office estimated that the firm capacity of the dam was likely to be "40 per cent below the original estimate".²²

As with Samanalawewa, those resettled have suffered economic and social hardship. The project displaced some 30,000 people, flooding 28 square kilometres of the productive and densely populated Dumbara Valley. Many of those made homeless were resettled under an agricultural scheme part-financed by the World Bank. The scheme was subsequently criticised by the Bank’s own Operations Evaluations Department for having "neglected" the project’s environmental impacts. In particular, the OED noted that the project resulted in the loss of some 30,000 hectares of forest due to clearance for paddy fields and "encroachment on remaining forest areas for shifting cultivation or for fuelwood."²³ Low water flow downstream of the dam created stagnant pools — a habitat for mosquitoes. In 1986-7, outbreaks of malaria occurred for the first time ever in the Mahaweli area.

The dam is the centrepiece of the Accelerated Mahaweli Development Programme, a "five-dam mega-scheme . . . to expand irrigation in previously forested areas" which has "submerged and turned into agricultural land the habitat of at least seven endangered and two threatened animal species", according to Patrick McCully, author of Silenced Rivers. For both Balfour Beatty and Alexander Gibb, the Victoria and Samanalawewa dams brought prestige. For Sri Lankans, however, they have saddled the country with a debt that the country is having grave difficulties in servicing. Indeed, according to the World Bank, the long-term macroeconomic impacts of the Mahaweli scheme have proved almost entirely negative. Not only did the scheme "crowd out other priority public investments" but the influx of foreign funding "supported an overvalued exchange rate" and "put extraordinary pressure on real wages and prices".²⁴ Today, the country is facing "renewed balance of payments and debt problems", one consequence of which is increased pressure on its natural resources as it seeks to export its way out of its financial difficulties.

The Mahaweli Project has also exacerbated civil conflict in Sri Lanka. Officials within the Mahaweli Authority have admitted that, in league with militant Buddhist priests, they used the resettlement programme to drive a wedge between minority communities of Tamil-speaking Hindus and Muslims by settling poverty-stricken households from the Singala-speaking Buddhist majority within and around minority communities.²⁵ As Thayer Scudder of the California Institute of Technology notes:

"Though contrary to project goals, which stipulated that ethnic and religiously distinct populations were not to be mixed and that minorities were to receive plots according to their proportionate representation within the national population, these actions were ignored by such donors as the United States Agency for International Development and the World Bank. Subsequently, massacres on both sides occurred, in some instances in the very communities where they had been predicted."²⁶

LESOTHO HIGHLANDS WATER DEVELOPMENT PROJECT, LESOTHO

Balfour Beatty was part of the international Lesotho Highlands Project Contractors consortium which won a £230 million contract to construct Phase 1 of the Lesotho Highlands Water Project [LHWP], a massive water-transfer scheme, intended to pipe water from Lesotho to Johannesburg. The contract to Balfour Beatty was worth £43 million and included the construction of over 65 kilometres of tunnels and associated shafts.²⁷ British involvement in the project was supported by export credits from Britain’s Export Credit Guarantees Department. Other companies in the international consortium included Spie Batignolles, LTA and Züblin. Balfour Beatty holds a 16-25% share in the LHWP.²⁸ The project has been fraught with social problems from the beginning. The project’s CEO, Masupha Sole, is currently on trial for corruption. Balfour Beatty was one of 12 companies named in the charge sheet as having paid money to Sole. In a recent development, the Lesotho government proceeded to prosecute the 12 companies for corruption, including Balfour Beatty, in a court case beginning on 29 November 1999²⁹ [See box on LHWP].

KAINJI, NIGERIA

The Kainji dam was completed in 1968 and caused the displacement of 44,000 people. Many more people who had used the seasonal floodplains, which were permanently inundated by the dam, were adversely affected. Yam production in the floodplain area fell by 100,000 tonnes after the dam’s completion, while downstream fish stocks fell by 60-70%. "Incredibly", remarks author Patrick McCully, "one of the original aims of the Kainji dam was ‘control of the river Niger to lessen . . . seasonal inundation . . . and to allow thereby the expansion of agriculture’"³⁰ [See section on Impregilo].

BALFOUR BEATTY AT HOME

No review of Balfour Beatty’s history would be complete without some description of the company’s activities at home in the UK — activities which, after all, account for over two-thirds of its business.

Budget, Safety, Service

Balfour Beatty states in its 1998 "Overview" that its highest priority is "customer service" and that it is committed to delivering projects "on programme and to budget". In addition, Balfour Beatty states that "the health and safety of our employees, our clients, members of the public and anyone who might be affected by our operations, is of paramount importance". Yet a review of some of the most recent projects Balfour Beatty has completed in the UK reveals that the company has fallen short of its own goals.

Record fine

In February 1999, Balfour Beatty was fined a record £1.2 million for breaches in health and safety during its construction of a new rail link to Heathrow airport. The fine was the highest ever meted out by the Health and Safety Executive (HSE) for incidents involving no loss of life. The judge called the incident "one of the worst civil engineering disasters in the United Kingdom in the last quarter of a century . . . It is a matter of chance whether death or any serious injury resulted from these very serious breaches."³¹ Balfour Beatty was one of two companies contracted to construct tunnels for the £550 million rail link. One of the tunnels collapsed in October 1994, leaving a crater which dragged down car parks and shook buildings, and crushed the Piccadilly Line of London’s underground train system. The cancellation of flights alone caused by the accident cost British Airways some £50 million.³² In March 1999, Balfour Beatty was again fined by the HSE — this time £500,000 for health and safety breaches leading to the derailment of a train between Witham and Kelvedon in 1997. The judge in this case said, "a very substantial risk to the public was caused." He said that he would have imposed a larger fine, but for, among other considerations, the company’s good record.³³

Dead workers

In fact, in the previous eight years, Balfour Beatty had been repeatedly fined in cases involving the death of several workers. In 1993, the company was fined £17,500 by the HSE for breaching safety rules at its Derbyshire foundry, where a worker was crushed to death.³⁴ But by far the most serious incidents occurred during the construction of the Channel Tunnel, linking England and France. Balfour Beatty was one of five UK companies contracted to build the tunnel. All five were found guilty of failing to ensure the safety of seven workers who were killed during the construction period. Each of the contractors was fined between £40,000 and £125,000. In one case, the prosecutor claimed that the breaches were a continuing danger that the contractors had done nothing to prevent. Commenting on the circumstances surrounding the death of a 26-year old worker, the judge said, "The failure in this case is one of the worst this court has heard about in the past years. This accident happened because the safety procedures in place were not properly supervised and carried out."³⁵

Cost overruns

Balfour Beatty’s involvement in the Channel Tunnel project was also marked by serious time and cost overruns. The company was one of ten who refused to carry our further work on the tunnel until an extra £1.2 billion was provided to cover increased costs.³⁶ In a more recent example of cost and time overruns, Balfour Beatty was one of five UK companies involved in the construction of the Jubilee Line — a new rail extension for the London Underground. On its completion at the end of 1999, the project was 60% over budget, costing £3 billion instead of the original estimate of £1.8 billion, and 19 months behind schedule. The Chair of London Transport, Peter Ford, blamed contractors for putting in rock bottom tenders: "Many contractors succumbed to the temptation to bid low and work on the claims". By 1999, contractors’ claims had amounted to £500,000. Ironically, another factor in the time and cost overruns was the disaster at the Heathrow link — another Balfour Beatty project. Because the Jubilee Line was using the same tunnelling methods employed by the latter project, work on the line was halted for six months.³⁷

Environmental damage

The latest project completed by Balfour Beatty in the UK is the Cardiff Bay Barrage — a 1.1km dam replacing tidal mudflats with a 500-acre freshwater lake. The project had been criticised by local citizens, campaign groups such as Friends of the Earth, and the European Commission for its impact on the environment. The project inundated important habitats for birds, including the threatened redshank and dunlin.³⁸

1 Balfour Beatty, 1998a.
2 Balfour Beatty, 1998b.
3 Financial Times, 1990a.
4 Balfour Beatty, 1998b.
5 Financial Times, 1999c.
6 Balfour Beatty, 1999a.
7 Ibid.
8 Ibid.
9 Ibid.
10 Ibid.
11 BICC www
12 Ibid.
13 Durham, M. et al, 1994.
14 Balfour Beatty, 1998a.
15 World Development Movement, 1994.
16 Ibid.
17 Durham, M. et al, 1994.
18 Pearce, F., 1994.
19 Pearce, F., 1994.
20 NEDECO, 1979.
21 Karunawathie, A.R., 1999.
22 Pearce, F., 1994.
23 OED Precis, 1995.
24 Frederiksen, H. D. et al, 1993.
25 Gunaratna 1994: 13
26 Scudder 1990, 1994
27 Financial Times, 1990b.
28 Balfour Beatty, 1998a.
29 Business Day, 1999.
30 McCully, 1996: 69.
31 Mr. Justice Cresswell, quoted in the Financial Times, 1999d.
32 Financial Times, 1998, 1999d, 1999e, 1993a.
33 Financial Times, 1999f.
34 Financial Times, 1993b.
35 Financial Times, 1990c, 1991a, 1992a, 1993c.
36 Financial Times, 1991b.
37 Financial Times, 1999g.
38 Financial Times, 1994a, 1994b, 1994c.

BALFOUR BEATTY: DAMS AT A GLANCE

MALAYSIA

Sungai Ahning dam: a 74m-high, 280m-long water-supply dam close to the Thai border in Kedah State. Balfour Beatty arranged finance for the project and, in joint venture, was responsible for its construction.

INDONESIA

Mrica (Soerdirman) hydroelectric dam: the 180 MW dam was inaugurated by then-President Suharto in 1989. Company promotional materials state that "the importance of the Mrica project to Indonesia was signified by President Suharto officially changing its name after the great General Sudirman, a famous Indonesian hero". Balfour Beatty worked in consortium with Skanska and ASEA of Sweden to build the 110m-high earthfill dam; the company also assisted in arranging financing for the turnkey project.

KENYA

Kamburu hydroelectric dam: EPD consultants, a member of the Balfour Beatty Group, provided feasibility studies, designs, contract documents and supervision of construction of the 95 MW Kamburu dam on the Tana river. The 53 m-high dam flooded an area of 150 has. Gitaru hydroelectric dam: the Gitaru is the largest dam of the Seven Forks development in Kenya, which comprises Kamburu (above), Masinga and Kindaruma. Gitaru harnesses the fall in the Tana river between Kamburu and Kindaruma. Again, EPD consultants (see above) were involved, carrying out first the pre-feasibility report, then detailed site investigation, designs, tender assessments, procurement, supervision of construction and commissioning services. The 30m-high 214 MW dam flooded an area of 310 ha [See section on Knight Piesold].

NIGERIA

Balanga dam: Balfour Beatty designed the Balanga dam and irrigation scheme in Bauchi State, Northern Nigeria. The 42 metre-high dam impounds a reservoir of 73 million cubic metres, which irrigates 4,100 hectares. The contract for the scheme was undertaken on a turnkey basis. The UK government Export Credit Guarantee Department supported a sterling loan for the project.

UNITED KINGDOM

Kielder dam: Balfour Beatty worked in consortium with Fairclough Civil Engineering (AMEC) to construct the Kielder dam in Northumbria, which was completed in 1982. The Kielder reservoir, over 11 kms-long and supplying water to north-east England, is the largest artificial lake in Europe. Queen Elizabeth II officially opened the dam. In her speech, she commented, "I have heard the present scheme criticised as being one which provides rather too much water . . . there has been inevitably the loss of some agricultural land and some homes, with families uprooted. It is sad when a larger good requires a personal sacrifice."

Mini hydropower dams. Balfour Beatty state that their experience of designing and engineering large hydroelectric schemes around the world "is invaluable in developing the more recent concept of mini hydroelectric power stations which bring power to small communities and raise the standard of living". In recent years, the company has built mini hydro dams in the Philippines, Thailand, Peru and Scotland.

SOURCES
Balfour Beatty: 1999. This section all taken from company promotional materials.

(Excerpt from "DAMS INCORPORATED: The Record of Twelve European Dam Building Companies"; Feb 2000, The CornerHouse, published by Swedish Society for Nature Conservation)