Papers Relating to the Foreign Relations of the United States, 1927, Volume III

852.6363/40

Royal Decree-Law No. 1142 of June 28, 1927, as Published in “La Natión,” June 30, 1927¹⁰

[Translation]

Upon proposition of the Minister of Finance in accord with the Council of Ministers,

I decree as follows:

Article 1—A Government Monopoly is established on importation, industrial handling of all kinds, storage, distribution and sale of mineral liquid combustibles and the derivatives thereof as covered in Group 3, Class 1, of the present customs tariff. Said Monopoly shall comprise, in the manner to be determined in each case by the Government acting within its normal jurisdiction, the securing in the country of combustibles of the said mineral species, or production in the country, importation and sale of any other liquid combustibles of mineral or vegetable origin.

The Monopoly shall have jurisdiction over the forty-seven provinces of the Peninsula and in the Balearic Islands. The Government may extend it to the Canaries and territories under its sovereignty in North Africa.

Article 2—The Monopoly created by the present Decree-Law shall be administered by the Company which, having the necessary requirements as herein stated, shall have the service thereof assigned to it through public competitive bids to be hereafter made.

Article 3—The competition referred to in Article 2 shall be announced in the Gaceta within five days from the publication of this Decree-Law and shall be held two months thereafter, before a Board composed of the Directors General of the Seal, State Law Bureau, Customs and Public Taxes, also representatives of the Supreme Tribunal of the Public Treasury, the National Council of Combustibles, and the Ministries of War, Marine and Fomento; the Secretary being a Chief of the Treasury Administration designated by the Minister of the Treasury.

In order to participate in the competition it will be indispensable to deposit in the Bank, at the disposition of the Board mentioned in this Article, the sum of 2,000,000 pesetas in State securities which shall be devoted in due course to the execution of the obligations arising from the adjudication.

Article 4—The competition shall be based upon State participation in the capital stock, the amount thereof to be assigned to the benefit of the Leasing Company, the rate of taxation, the capital of the organization, the period of time within which the industrial refinery and the construction of tankers may be effected, the importance and security of the resources of the said leasing entity, the original price and quality of the products subject to the monopoly and such other circumstances as may relate to the efficacy and yield of the Monopoly, to the guaranty and solvency of the leasing entity and the best execution of the obligations that may be imposed thereon; it being also necessary to consider presentation to the State of a certain sum, once only, as a commission for the adjudication of the Monopoly equivalent to the minimum profits during one or several of the first years on the basis of prices below the maximum to be expressly determined, and such others as may involve benefit to the State or to the consumer.

All these conditions shall be freely and jointly considered primarily by the Advisory Board and, for settlement, by the Council of Ministers.

Article 5—The Board before which the competition is to be held, once it is settled, shall report within 15 days in due form the adjudication in reference. This having been done, and the plenary Council of State having taken cognizance thereof, the Government, by a Royal Decree prepared by the Council of Ministers, shall make adjudication of the service, being empowered to reject all the proposals if it is considered expedient for the public interest.

There shall be no appeal against the decision of the Government.

The Leasing Company shall be legally constituted, if such is not the case already, within fifteen days following notification of granting the adjudication.

Article 6—The Monopoly Leasing Company, which shall have the status of a stock company, shall be Spanish as to capital and organization. To this two-fold effect:

(a) The general capital shall belong wholly to Spanish individuals or entities, to which end the stock shall be registered and inscribed in a special record book to be kept by the Company, and in which shall be stated the original adjudication or subscription, as also transfers subsequently made, which shall be without effect unless duly authorized by the Council of Administration.

When, through hereditary succession or other valid legal right ownership of stock shall devolve on foreigners, the latter shall have to place them at the disposition of the Council of Administration, which, in their name, shall transfer them to Spaniards. Should such transfer be impossible the Company shall amortize the stock in question, making payment therefor.

(b) The President of the Council of Administration and all its members, high officials, experts technical and administrative both of the Monopoly and of the Leasing Company, shall be proven Spaniards, as also at least 90 percent of the other personnel.

Article 7—The Leasing Company of the Monopoly shall have a minimum general capital—exclusive of reserves and shares issued in Spain—of 125,000,000 pesetas entirely free for the execution of the contract.

State participation in the capital stock shall be made and recognized to at least 30% of its value without any disbursement whatsoever and in like manner as the shares or allotments of founders. This participation shall not be in diminution of the said capital stock but, on the contrary, in excess thereof. Consequently the capital stock shall be constituted as follows:

(a) For distribution to shareholders, not less than 125,000,000 pesetas.

(b) For acknowledged participation on the part of the State, not less than 30% of said distribution.

The State participation shall be represented by bonds registered and untransferable except by legislative enactment. These bonds shall enjoy the same benefits and prerogatives as the rest of the shares; and in case of dissolution of the Company, if a surplus should exist, upon the return of the nominal capital of the shares of the shareholders the State shall be entitled to receive the nominal value of its participation as if it had purchased it. Should any surplus exist it shall be distributed among the shareholders in proportion to their respective holdings.

No increase or reduction may be made in the capital stock without authorization of the Ministry of Finance. The Company may, under no conditions, issue bonds; but, under authorization of the Ministry of Finance, it may obtain bank credits required for the development of its services.

Article 8—The Leasing Company shall pay as a basis of taxation a maximum of 4% on the net profit of its income up to 75,000,000 pesetas; 5% on excess of that sum up to 150,000,000 pesetas; and 6% on any excess over that sum. This rate shall be consistent with a minimum interest of 5% on the capital stock referred to in Article 11.

When the profits of the Company, together with the guaranteed interest and the taxes, shall exceed 10% of the capital stock, inclusive of State participation, the surplus shall be distributed as follows:

Of the amount over 10 and not more than 15%, the State shall receive 25%; and the rest shall be for the Company.

Any excess profit of over 15% shall be shared equally by State and Company.

The said participation shall be no obstacle to the State’s receiving, in every instance, dividends on its shares at the same rate as those of the members of the leasing entity, and their amount shall be applied to reducing the prices of the products monopolized.

Article 9—The special obligations of the Company shall be:

(1) To intensify and stimulate the work of boring for natural petroleum in the subsoil of Spain.

(2) To promote the distillation of ofil residuum, lignite, coal bearing soil and rocks, as well as the supply of benzol produced in gas factories.

(3) To acquire national alcohols for the manufacture of liquid combustibles by means of admixture with gasoline when it accords with the general interests of the country, especially the interest of Viticulture.

(4) To develop technical specialists in industries connected with petroleum.

(5) To create petroleum stocks sufficient:

(a) To meet the necessities of commercial and industrial consumption in the country for four months; and (b) of national defence (War, Navy and Aviation) for a year.

(6) To equip the Monopoly within five years with the appropriate means for the maritime transport of petroleum brought from abroad.

(7) To establish, gradually, a refining industry so that in the first five year period at least 80% of the petroleum products consumed in the country may be manufactured therein.

(8) To acquire petroleum deposits in producing countries, and especially in Spanish America, either by direct purchase or through control of proprietary companies.

(9) To organize a distributing circuit of petroleum, gasoline and other products monopolized throughout the territory over which the Monopoly has jurisdiction, in order that sales may be facilitated in all towns and important petroleum centers.

(10) To turn over to the State, monthly, on anticipatory account of the annual profits that the Monopoly shall yield, a sum not less than one-twelfth of the net profits of the previous fiscal year, in accordance always with the regulation fixed in the contract, which shall also determine the antcipatory sums for the first year of the Monopoly.

(11) To organize, under the Tax Bureau, a special vigilance service for the repression of contraband.

Article 10—The Company shall have charge of all plants, stores, stocks and other installation destined for the importation, handling, storing and distribution of petroleum products in the territory under the Monopoly which shall expropriate and pay the industrial value for the said properties, either in shares of the Company at the current value of the same or in metallic currency, as desired by the respective owners. However, when said owners are foreigners, payment shall be made in metallic currency, and also, even if they are Spaniards, when the sum to be paid in shares would amount to 40% of the capital stock; in this latter case it will be necessary to take care of the application for shares in accordance with the ratio of expropriations to be made.

Valuation shall be made by a Board composed of three representatives of the State, one of the Company and another of the expropriated owner, against whose award recourse may be had to the Council of Ministers. The latter may revise the awards of the Board but may not reverse them. The Ministerial decision shall be without appeal.

The Company shall only be obliged to take over such plants, stores, supplies and installations as constitute an industrial concern, independently of immovable property which, without being necessary for the industry, may be occupied by the respective proprietors for the purpose, and in such cases, with indemnity for the damage caused to the immovable properties.

Valuation for expropriation shall be entirely completed within a period of three months of the final adjudication of the competition to the Company.

Expropriation shall not be proceeded with if the interested party is opposed thereto except when, in the judgment of the Company and in expressed accordance with the Council of Ministers, it shall be regarded necessary to incorporate the installation in question with the Monopoly. This method shall only be adopted in such cases as, by their complexity, make it difficult to replace them in a short time and the lack of which might affect the service of the Monopoly during the period of installation.

Article 11—The following items shall not be deducted from the total revenue, in determining the net production, but shall be reckoned as entirely belonging to the Company:

(1) Losses from damage and evaporation in shipment; and

(2) After the contract has lasted ten years, 2% of the cost for personnel and equipment of the offices and dependencies of the Company, the same to increase each year until it shall reach 20%.

Charges that may be deducted in fixing the net profits, purchase costs and, if necessary, refining crude oils and other monopolized products upon approval of prices and contracts of supply by the Ministry of Finance; legal interest on capital stock employed in the enterprise, including interest on State stock; charges for ships and transport, and such others as may be necessary in execution of the Monopoly being duly justified and that may not be expressly excepted.

Such exceptions shall comprise expenditures of the Company made in equipping refineries and acquisition for the same, destined for the Monopoly of petroleum wells, tankers, buildings and stationary machinery required for the service, as well as for the extraordinary works executed, by the same; but these shall be deducted annually from the revenue in fixing the net profits thereof, with the design of amortizing such expenditures in the percent ratio indicated by the Ministry of Finance according to the following maximum rates:

• Up to 15% annually if for acquisition of deposits,
• Up to 5% for purchase of tankers,
• Up to 4% for acquisition of machinery; and
• Up to 2% for construction or acquisition of buildings or special work on the same.

Under no conditions may these amortizations represent more than 20% of the gross annual yield of the Monopoly.

Company subscribers shall receive, upon final liquidation of the contract, the amounts represented by the difference between the total value of special expenditures referred to, made with the personal funds of the leasing entity, and that of the annual amortizations effected.

Article 12—A Government delegate shall be placed with the Leasing Company, who shall intervene in all acts connected with the exploitation of the Monopoly; shall effect reforms in favor of the State and shall attend the meetings of the Council of Administration without deliberative vote, so that when the Company may adopt measures prejudicial to State interests, or such as may be contrary to the contract, he shall suspend execution thereof, reporting same to the Minister of Finance for such adjustment as may be desirable. The Delegate shall intervene directly in accounts and cash transactions, his approval being necessary for all expenditures that may figure in the annual liquidations of revenue, as affecting the contract and authorizations granted thereon or provisions especially drawn up for its application.

The Government shall also appoint a number of Councillors, with voice and vote, who shall have status with those designated by the shareholders in the same proportion as exists between State participation and general stock.

With a consultive and, if necessary, a financial character, a Committee shall act composed of representatives of the State and of the consumers, which shall:

(a) Secure information concerning price rates of the monopolized products before they are applied;

(b) Secure, also, information concerning the quality of the monopolized products, drawing up, if necessary, complaints on the subject.

Approval of the Minister of Finance must specifically be given measures adopted by the Leasing Company involving expenditures in excess of 50,000 pesetas. Sums less than that amount shall be approved by the Government Delegate. Those made for purchase of deposits shall have the approval of the Council of Ministers.

Councillors and higher personnel of the Leasing Company may not exercise their functions without previous approval of their appointment by the Minister of Finance. Such higher personnel shall be regarded as persons whose salary shall exceed 10,000 pesetas a year, no matter what their duties may be.

Charges for personnel and equipment of the Government Delegation with the Company shall be paid in the first nine months of the duration of the contract, chargeable against the revenues, and constituting an item that may be deducted from the gross receipts. After the tenth year, these charges shall be for the State account, and in diminution of its net receipts to the amount of 2% for such expenses, to be increased 2% anuually until 20% is reached.

The personnel of the Company shall under no conditions be entitled to State pension, administration classification or gratuity for length of service.

The personnel employed in sale of products monopolized, whether in warehouses, shops or fixed establishments, shall be appointed by the Company upon proposition of the Ministry of Finance, which, for that purpose, shall submit their names for each vacant place, with names of persons having the general characteristics required by the Government and the special qualifications considered expedient on the part of the Company.

The Council of Ministers shall approve the duties and salaries of the Company employees, as also any modification thereof.

Article 13—No duties of any kind shall be required for the importation of crude petroleum and its derivatives destined for the Monopoly. Nor shall import duty be imposed for machinery and equipment required for manufacture thereof which can not be acquired in producing plants established in Spain.

The Leasing Company shall be exempt from payment of the Utilities (Profits) tax on movable resources in the sense comprised in third tariff of the Law regulating that tax. Profits corresponding to State shares shall be exempt under the second tariff of the said Law.

The Monopoly shall pay annually to the Municipality collecting taxes on the monopolized products and which is deprived of such revenue by its establishment, an amount equal to that collected on this account during the last year.

Article 14—Duration of the contract shall be for twenty years, and if, at the end of that time, a new competition is announced for the service, the Leasing Company shall enjoy the right of consideration.

The contract to be drawn up with the Leasing Company shall stipulate the rules that shall govern final liquidation.

Article 15—The general accounts of the Monopoly shall be submitted annually to the inspection and approval of the Supreme Treasury Tribunal.

Article 16—The Government reserves the right to rescind the contract without assigning cause, and, in such an event, if in the consequent liquidation of the Company, its entire capital is not regained, the State shall pay the difference. Annulment under such conditions shall be directed by the Council of Ministers and there shall be no recourse against their decision.

Annulment of the contract may be made by the Company at its charge and risk, and with the obligation to indemnify the State for damages sustained, should it voluntarily fail in the fulfillment of any of the obligations indicated in the contract.

The Ministry of Finance in such case shall grant the annulment after a hearing of the Company and consultation with the Council of State, and against the Royal Order thereupon legal appeal may be made.

Article 17—The bases above stated shall be developed in the corresponding contract which, after approval by the Council of Ministers, shall be made public by Royal Decree.

Article 18—From the publication of this Decree Law in the Gaceta it is prohibited to install new plants for the handling of petroleum and its derivatives, as also to enlarge those at present existing.

Article 19—Arrangements and details connected with the issue of the bids and adjudication thereof, until the Monopoly begins to function, shall be under the direction of the Stamp Tax Bureau, which in turn will take up pertinent matters with the Minister of Finance.

Article 20—All regulations contrary to the present Decree Law are annulled.

Done in my Embassy at London June 28, 1927.

Alfonso

Minister of Finance,
José Calvo Sotelo.

10. Transmitted to the Department by the Ambassador in his despatch No. 416, July 5, 1927; received July 18.