839.6463/145: Telegram

The Secretary of State to the Commissioner in the Dominican Republic (Welles)

6. Your 14, February 23, 11 a.m.

The Department desires to aid so far as it properly can in promoting a settlement of the difficulty between the Dominican Government and the Santo Domingo Water, Light and Power Company which will be fair and just to both sides and acceptable to both. The Department furthermore is particularly interested in the carrying out of the public works program and in aiding the Dominican Government in all proper ways in the rehabilitation of the country.

[Page 681]

Three methods of settling the Power Company’s controversy suggest themselves:

1. The Company and the Government could agree to abide by the findings of the expert. As you are aware the Company is willing to do so. It appears that the Government however found the cost of repairs too high and as they were vastly in excess of the $60,000 mentioned in the contract it does not wish to do so.

2. In view of the Government’s feeling regarding proposition No. 1 the Company offered to accept $450,000 gold, or its equivalent in Dominican 5½ per cent bonds at 90 per cent of their par value, in full payment of the properties which would thereupon be transferred to the order of the Dominican Government in their present condition. The Company takes the position that although it was willing to sell this property in 1921 for $400,000, the sum of $450,000 should not now be regarded as excessive, as the Company has incurred considerable losses and expenses in the last three years, such as interest on its investment, the fee of over $10,000 to Dwight P. Robinson and Company, attorney’s fees, and the cost of the maintenance of the property, the latter amounting to from $12,000 to $15,000 annually. In considering this position of the Company the Department cannot disregard the fact that the expert selected by the Dominican Government has valued the properties in their present condition at $533,012. If the matter were to be adjusted on the basis of taking the properties over as they are without reference to repairs, it would be difficult for the Department, in the face of the expert’s report, to insist that the Company should take less than $450,000 which is $83,000 under the valuation.

This proposal, however, would mean that the Government would perhaps have to make new contracts for the reconditioning of the plant and they may prefer an arrangement by which the plants would be put in operating condition by the issuance of Dominican bonds to cover the cost thereof and thus acquire possession of the plants in working order in one transaction. The Department would therefore be willing to approve the following settlement should it meet with the Dominican Government’s approval. The Department is advised that this would be acceptable to the Company.

3. The Government to buy the plant at the value fixed by the expert, namely $533,012. The Government would then designate the repairs it desires made (the Department presumes that the expert’s valuation was based on putting the plant in an absolutely perfect condition whereas it may be possible to put it in working condition for very much less and that this is what the Dominican Government desires). The repairs would then be made by the Power Company at cost under the supervision of the Dwight P. Robinson Company, the latter to certify to the cost of the repairs and that they have been [Page 682] properly carried out. The Company would be given sufficient bonds at par value to amount to $533,012 at 90 per cent, and a sufficient number of bonds at par value to cover the cost of repairs at 90 per cent would be held in escrow by the Fiscal Agent until he is advised by the Robinson Company that the repairs have been made whereupon he will immediately turn over bonds to the Power Company to the amount certified by the Robinson Company. While the Company would prefer to receive immediately the bonds covering the present value of the property the Department understands that it would be willing, should the Government prefer, to have the bonds for that amount also held in escrow by the Fiscal Agent until the repairs are made.

It is furthermore possible that the Dominican Government may have still another proposal to make and the Department understands that the Company would be glad, in that case, to have the Government make their proposal as soon as possible whereupon the Company will give it careful consideration.

Your statements in paragraphs eleven and twelve imply that the Department is attempting to force the Dominican Government to accept one of the Power Company’s proposals by not authorizing the loan. This is not the Department’s policy. The Department is constantly solicitous that all matters should be dealt with on the fairest possible basis and with due consideration of the exigencies of the Dominican Government. You are referred to the note from the Minister of Foreign Affairs to Minister Russell dated November 23, 192344 (enclosed in the latter’s despatch No. 909 of November 2445) in paragraph 4 of which it is stated that

“it is estimated that it will be necessary to issue bonds for the nominal amount of $2,000,000 of the balance of the total not issued but authorized under Executive Order No. 735 in order to continue the program of public works; to meet the obligations assumed by the Government in the contract celebrated between the Municipalities of Santiago and Puerto Plata and the Water and Light Company of these cities; and for other purposes.”

This was the first request received by the Department for authorization to issue the loan and shows that the Dominican Government itself considered that the two questions of the bond issue and the settlement of the Power Company’s contract could not be wholly disassociated. The point is that if the Company is to be paid in bonds there certainly must be bonds to make the payments, and a reservation should be made sufficient for this purpose. The Department could not agree to any other course without depriving the Company of its fair opportunity to be reimbursed in the manner desired by [Page 683] the Dominican Government. The Department is entirely willing to authorize, and is instructing the Minister immediately to authorize the issuance of a further loan of $2,000,000 on the understanding that $951,000 par value bonds thereof shall be held in escrow by the Fiscal Agent of the Dominican Government pending an agreement between the Government and the Company. This amount is suggested merely because it is the maximum and is the amount of the valuation plus the repairs as fixed by the expert, but of course this amount will be subject to reduction to meet the terms of any new agreement that is made.

The Department feels that the above arrangement offers a fair basis for an adjustment of the difficulty, giving the Government wide latitude of choice as to the method to be followed out in acquiring the property, protecting the interest of the Company and permitting the Government to carry on its other needed public works. The Department hopes that the Government will be prepared to accept one of the above proposals or to make immediately a reasonable counter proposal.

  1. Not printed.
  2. Ante, p. 643.