The Ambassador in Spain ( Hammond ) to the Secretary of State

No. 1278

Sir: I have the honor to refer to the Embassy’s confidential despatch No. 1227 of May 9, 1929, having to do with the negotiations in Paris for the settlement of the claims of the French and American petroleum companies expropriated by the Spanish Government.

The Department will recall that at the time this despatch was written the Spanish Government had offered through the French Foreign Office a total amount to the three companies in question of 51,600,000 pesetas. Although the Standard Oil Company was willing to accept its pro rata share of this amount the two French companies would not consider it, and after about three weeks of further negotiations the Spanish Government finally made an offer of 53,500,000 pesetas which all three companies decided to accept in principle.

According to an agreement between the three companies, the division of this amount works out as follows:

Industrias Babel y Nervion 24,587,716.74
Desmarais Frères 7,888,568.65
Marca el Leon (Deutsch) 21,023,714.63
Total to be paid … Ptas 53,500,000.00

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In regard to the division, I have been confidentially informed that the Standard Oil Company gave up to the other French Companies almost 500,000 pesetas of its pro rata claim in order to effect a settlement, as the French Companies were unwilling at first even to accept the 53,500,000 pesetas and wished to stand out for a minimum of 55,000,000 pesetas.

Interest of 5% from January 1st, 1928 is, of course, payable on this amount and, in accordance with the negotiations which have been carried on, the total amount is payable at an exchange rate of 29.23 pesetas to the pound sterling, which is equivalent to 6 pesetas to the dollar. As the exchange has been for some time around 7 pesetas to the dollar, this really means that the Spanish Government must pay about 15% more in pesetas than it would have had to pay had it accepted the same settlement six months ago.

Up to the time of the acceptance of a settlement of 53,500,000 pesetas negotiations had been carried on for some months between the Spanish Ambassador in Paris and the French Foreign Office. At the end of May, however, when agreement was finally reached, the French Embassy in Madrid was instructed to communicate direct with the Spanish Government and I am enclosing herewith the French text with English translation of a note from the French Embassy to General Primo de Rivera under date of May 29, 1929,18 which clearly states the various conditions governing the acceptance of the Spanish offer.

The Department will observe that in the third paragraph of the note under reference the demand is made that all payments to the companies should be free of any charges whatsoever, and in this regard both my French colleague and myself have received satisfactory verbal assurances from the Spanish Government. In regard to the second point having to do with the payment of the money at 29.23 pesetas to the pound sterling, an obstacle has arisen which at the moment is holding up a definite settlement of the matter.

The Spanish point of view is that it is quite willing to pay at a rate of 29.23 pesetas to the pound sterling, but owing to its recent exchange difficulties, it insists on making the total payment in pesetas in order to avoid having to buy gold exchange for the payment. This places a somewhat curious aspect on the matter, because the peseta market has shown extreme fluctuations in the last few months and it is impossible to foresee the course of the exchange in the near future. In practice the Spanish Government wishes to take the total amount of principal and interest payable in pesetas, calculate this at the rate [Page 786] of the day, which means a supplementary payment of about 15% in pesetas, and let the companies dispose of these pesetas as best they can. The idea of the Spanish Government seems to be to make the companies interested in the maintenance of the exchange.

It is, of course, true that the Shell payment was made in pounds at the above referred to rate of exchange as stated in the French Embassy note. The Finance Minister however insists that this is no precedent in view of the largely increased compensation that is being given to the French and American interests (almost 20% more than the Shell received).

I have had several talks with the Finance Minister with a view to obtaining a more satisfactory method of payment, and suggested tentatively contingent on the acceptance by the interests involved, that the Spanish Government give the Companies an undertaking to protect them from exchange losses. A general outline of this formula was given to the Department by the Standard Oil Company and is contained in the Department’s telegraphic instruction No. 33—June 15, 11 a.m.—1929. When the Standard Oil Company agreed, failing a better formula to accept this exchange arrangement, the matter was taken up with the French Embassy to obtain their consent.

The French Embassy on its part had also been negotiating and I found was trying to arrange for a consortium of French and Spanish banks to take the whole number of pesetas receivable by the companies at the present rate of exchange and turn them into dollars or francs, less 1% discount for commission.

As this solution, if feasible, would be more satisfactory than the one proposed by the Standard Oil Company, the French Embassy asked me to wait a few days for an answer from Paris. I have accordingly decided to wait until the beginning of next week and, failing a solution along the lines proposed by the French Embassy, I will submit on behalf of the American interests involved, the concrete plan which they have worked out for marketing over a period of three to six months approximately 31,000,000 ptas. which they are to receive.

I am enclosing herewith a draft of this plan to be submitted to the Finance Minister18a which I hope may be satisfactory to him.

I greatly appreciate on behalf of the Embassy the Department’s expression of satisfaction in regard to the outcome of these long and troublesome negotiations, and I am now exceedingly hopeful that I will soon be in a position to report a definite settlement.

I have [etc.]

Ogden H. Hammond
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