Mittal's £315m loan

TONY Blair’s government helped provide a second loan to controversial Indian tycoon Lakshmi Mittal, Scotland on Sunday can reveal.

He received a multi-million pound loan from the UK government to help redevelop a steel plant in Kazakhstan just months after making a donation to Labour.

The new revelation of how Blair’s government used taxpayers’ money to assist Mittal has significantly deepened the cash-for-favours scandal facing Labour.

The news comes in the wake of revelations that Blair intervened to help Mittal buy a Romanian steel plant last year soon after Mittal had given another cash donation to the party.

Last week, Scotland on Sunday revealed how Dr Paul Drayson, the boss of Powderject - Britain’s biggest vaccines company - donated £50,000 to the Labour Party just eight weeks after receiving a £17m NHS contract to supply vaccines.

Tim Collins, the Tory Shadow Cabinet Office Minister, challenged the government to hold an inquiry into the affair.

He said: "This is yet another loop hole in the Government’s story which now demands a full and independent inquiry into the affair. The longer Labour refuse this request, the longer they appear to have something to hide."

Scotland on Sunday can reveal that £14m of UK taxpayers’ cash was part of a £315m package assembled in late 1997 to redevelop the Kazakhstan plant by the London-based European Bank for Reconstruction and Development (EBRD) and the Washington-based International Finance Corporation.

In 1995, Mittal acquired the Karmet steel mill at Termitau in the north of Kazakhstan, after the government of the former Soviet republic privatised the plant along with nearby coal mines.

The plant was the fourth biggest in the former USSR, with a capacity to produce 5m tonnes of steel per year.

After the purchase, the London-based EBRD wrote to Mittal to tell him that the Bank would be ready to assist if he needed money to bring the business up to Western standards.

An EBRD spokesman said: "We wrote to him as a matter of course. This was one of the biggest steel plants in the former Soviet Union and we were naturally interested.

"Given our remit to develop industries in the former Eastern Bloc, it was natural for us to say that we were there and might be ready to help the company."

In 1997, Mittal drew up a restructuring plan to modernise the mill, boost its capacity, and make it more environmentally friendly. He contacted the EBRD to seek financial help.

The project was agreed by the countries involved in the EBRD at a meeting of the board in October 1997 and was signed-off jointly by the Washington-based IFC and the EBRD in December 1997.

Insiders from both organisations have told Scotland on Sunday that the UK delegation supported the project.

A former IFC insider said: "The decision was reached by consensus between the larger nations on the IFC of which the UK is one, and the UK delegation supported the package. I certainly don’t think it would have gone ahead without British support."

Asked whether ministers would have known about the project, the former IFC insider said: "It was the job of the UK delegation to report back to Whitehall and submit details of all projects for ministerial approval. A project of this size had to have full ministerial approval."

An EBRD source said: "Britain supported the bid, along with other countries, we were convinced of the viability of the project."

A spokesman for the Department of International Development, the government division which oversees British delegations at the EBRD and IFC, confirmed that the UK government had backed the project.

The spokesman said: "The EBRD exists to help restructure economies in the former Communist countries. We support all responsible projects that serve this purpose. We therefore supported this commercial loan."

While Mittal’s most significant donations to the Labour Party came last year after Blair campaigned for a second election victory, both Mittal and his wife donated cash to the party in early 1997 - prior to the EBRD package for Kazakhstan being approved by the British government.

In 1997 Mittal gave Labour more than £5,000, which saw him listed as one of the party’s largest donors.

Meanwhile, his wife Usha gave £5,000 to the election campaign funds of Keith Vaz, the MP for Leicester East and former Foreign Office minister.

The British steel industry - already enraged over Blair’s intervention to help its Romanian competition - hit out at the government over Labour’s claims that LNM, Mittal’s holding company, was British. Although Mittal runs offices in London, LNM is registered in the Dutch Antilles.

Graham Mackenzie, the chief executive of the Cardiff-based steel company, Allied Steel and Wire, said: "This plant in Kazakhstan is producing flat-rolled steel, the same steel as workers in Ravenscraig and Llanwern used to produce. While taxpayers’ money is funding other countries to produce this at low costs, British workers who used to produce this kind of steel have been thrown out of their jobs.

"We are a British company, we pay company tax here, VAT here, and the climate-change levy here, Mittal’s company doesn’t. We are being undercut by Eastern European firms who sell steel on the market here at less than it costs us to produce it."

Labour has been rocked by claims that it trades favours for donations to its party coffers since it emerged two weeks ago that Blair wrote to the Romanian government in support of Mittal’s bid to take over a Romanian steel mill after Mittal had given £125,000 to the Labour party .

A poll published last week showed that voters now view Labour as sleazier than the Tories, who lost office in 1997 amid allegations of sleaze .