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Balfour Beatty's response to Ordinary Resolution 15 - on the World Commission on Dams

Introduction

This document is Balfour Beatty's reponse to a shareholder resolution put forward by Friends of the Earth at Balfour Beatty's 2001 AGM. 42.8% of investors chose not to vote with the management against the resolution at the AGM.

Balfour Beatty's response to the resolution

The World Commission on Dams' ("WCD") two-year programme represents an unprecedented dialogue involving parties from every interest group in the field of hydro-electricity, including NGO's, governments, contractors and dam owners. It goes a long way to outline prudent strategic priorities for future dams as well as set a precedent for open, transparent consultation amongst stakeholders. Balfour Beatty supports the efforts of the WCD to establish a framework for the establishment of appropriate practice on hydro-electric schemes.

These guidelines set out in the Report are not yet widely adopted as benchmark standards. Indeed it will in practice require much debate, discussion and negotiation, and possibly the achievement of international agreements principally involving governments, owners, developers and promoters of dams, before many of the principles and recommendations of the Report can be progressed or formally adopted.

The WCD Report does however provide a solid and useful reference point for all parties involved in hydro development. Balfour Beatty will therefore take it into account in determining when it should be involved in future hydro-electric projects. Balfour Beatty does also recognise the importance of the principles, criteria and guidelines of the WCD Report, as proposed in Para 1 of the Resolution.

In respect of Paras 2 and 3 of the Resolution however, there are a substantial number of guidelines and recommendations laid out in Chapter 9 of the WCD Report. They are complex, detailed and cover both matters of broad ideology and practical implementation, but are almost entirely within the control of owners and developers rather than contractors. In a number of cases they are, almost certainly, inconsistent with the existing planning and development policies and practices of most democratic governments. All the parties interested in hydro development are currently considering these guidelines and how to take them forward in practice.

At this early and uncertain stage it is, therefore, clearly not in the interests of either the Company or its shareholders that these Guidelines for Best Practice are adopted comprehensively and in full.

In any event Balfour Beatty's policies in respect of Ethical Business Practice, Human Rights and the Environment, which are set out clearly in the Report and Accounts, already cover much of the ground which the WCD Report addresses and are relevant not only to hydro-electric schemes but to other major infrastructure developments. Your directors will give consideration as to whether these policies should be amended in respect of dams or other infrastructure projects and in the light of the WCD Report.

With respect to Para 4 of the Resolution, the Business Practices Committee of the Board already reviews the Company's performance in all aspects of corporate responsibility and reports to the Board. Shareholders' attention will be drawn to any aspect of the Committee's work procedures and deliberations deemed appropriate.

As to the remarks in the first two paragraphs of the preamble to the Resolution, we do not accept that we continue to suffer from exposure to poorly contained or unacceptable reputational risks. We may suffer from unfair and unjustified criticism in this respect, but that is surely a different matter. We also have detailed, comprehensive and effective risk management procedures in operation.

As to the references to Lesotho and Ilisu, the first of these is not strictly relevant to the resolution being proposed.

In respect of the proposed Ilisu Dam in Eastern Anatolia, Turkey, a comprehensive process to evaluate the project against appropriate criteria is already well advanced.

A substantial and detailed Environmental Impact Assessment Report ("EIAR"), prepared by a group of independent international experts and based on work conducted over a number of months, is in its final stages of preparation. This report will detail the environmental and resettlement challenges associated with the project and indicate appropriate solutions. It is the intention that the EIAR should be published in due course to allow interested parties to comment.

It should be noted that the Turkish Government is the owner and developer of the proposed dam. Their future response as developer and the perspectives offered by other interested parties will provide the appropriate environment for the seven Export Credit Agencies who have been asked to underwrite the finance for the project, and all other interested parties, to make their decisions on a properly informed basis. In taking these decisions, the ECA's have already set four key criteria which will need to be met before underwriting support will be offered.

In the case of Ilisu, the Company is using its best endeavours, with others, to influence an owner to act in accordance with appropriate principles.