Memorandum by Mr. Raymond A. Hare of the Division of Near Eastern Affairs

The Legation in Teheran transmits a copy of the agreement between the Inland Exploration Company and the Afghan Government.1 The agreement is modeled closely after the A. I. O. C. agreement of 1933,2 so much so in fact that in many cases the language is identical. The following is a summary of the most important provisions:

1. The Company must secure pipe line privileges from an adjoining country (unspecified) within eight months after ratification of the concession.

2. No more than a year after such transportation rights have been secured the Company undertakes to begin exploration.

3. Before the expiration of the first year of exploration the Company will select five provinces in which to continue exploration.

4. Upon failure of the Company to comply with the foregoing the Afghan Government may give notice of cancellation which shall take effect a year later unless the Company is able in the meantime to show that the concession has been complied with.

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5. Within one year following the selection of the five provinces the Company will commence at least one well.

6. In the event of the discovery of oil in sufficient quantity to warrant commercial exploitation (the Company being the sole judge) the Company agrees to continue development without delay and endeavor to reach an ultimate production of 6,000,000 tons per annum. (Note: The A. I. O. C. did not reach this production level until 1930.)

7. If any province or provinces do not prove productive after the first twenty years of the concession, one such province shall be surrendered, and similar surrender of unproductive provinces one at a time shall take place at five year intervals.

8. The establishment by the Company of railway, telephone, telegraph, radio or aviation services shall be conditioned on prior consent of the Government.

9. The Company will pay the Afghan Government a royalty of four shillings per ton on petroleum sold in Afghanistan or exported. (Note: Same rate as paid under new A. I. O. C. agreement.) Detailed steps to be taken in case of currency fluctuation are prescribed.

In addition the Company agrees to pay the Afghan Government, a sum equal to 20% of the distribution to common stock shares of the Inland Exploration Company in excess of distributions equal to 5% on the invested capital. (Note: Same as A. I. O. C. agreement.)

Regardless of the status of operations the Company guarantees that payments to the Afghan Government shall not go below £250,000 for the second five year period following ratification and that subsequently the minimum shall be £450,000. (The A. I. O. C. minimum is £750,000 under the above headings.)

10. During the first fifteen years of the concession the Company, in exchange for tax exemption, shall pay the Afghan Government nine pence per ton on oil produced up to 6,000,000 tons, and six pence per ton thereafter, and during the following fifteen years one shilling and nine pence, respectively, under the same conditions. After thirty years a new rate shall be established by agreement between the contracting parties. (Note: This is exactly the same as in the A. I. O. C. agreement as regards rates but omits any reference to a minimum such as is stipulated in the case of A. I. O. C. in the amount of £300,000.)

11. Provision is made for facilitating the acquisition of property needed by the Company.

12. Sale of gasoline, kerosene and fuel oil in the country shall be at a basic rate fixed by the f. o. b. price of Rumanian or Gulf oil minus 25% for sales to the Government and minus 10% for sales to an Afghan company to be designated by the Afghan Minister of Trade. (Note: Identical with A. I. O. C. agreement as regards price of sale.)

13. Goods for the staff may be imported freely upon payment of usual duties and taxes. Medical equipment and materials for the Company may be imported free of duty.

14. The Afghan Government promises to lend its moral support in securing the consent of any foreign government through whose territory it may be desired to export oil.

15. No restriction shall be placed on the import or export of funds of the Company or its personnel.

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16. The Government has the right to inspect the technical activity of the Company and to appoint foreign specialists for the purpose. (Note: The A. I. O. C. contract does not use the word “foreign”.)

17. The Government may appoint a “Delegate” who will represent the Afghan Government at the Company’s headquarters.

18. Afghan nationals shall be used to the extent possible. If foreigners are needed they must be American. (The A. I. O. C. contract does not contain such a stipulation.) After the beginning of exportation the Company shall furnish $50,000 annually for the technical education of Afghan students in the United States. (VD3 does not perceive any visa difficulty in this connection.)

18. [sic] The concession is for seventy-five years. The Company may renounce it upon six months notice during the first ten years and thereafter upon two years notice. At the conclusion of the concession all property of the Company reverts to the Afghan Government.

19. All differences shall be subject to arbitration.

20. Any transfer of the concession shall be subject to ratification by the Afghan Government.

21. The concession may not be cancelled or abrogated by the Government.

22. The concession was signed in English subject to translation into Persian. The English text shall always prevail.

Considering that the A. I. O. C. concession, with which this one is approximately identical, was considered to be severe, the Inland agreement would appear to be doubly hard in view of the little that is known regarding the oil resources of Afghanistan and the great distance over which pipe lines have to be built. There is a certain compensation, however, in the fact that minimum payments are much lower in the case of the Inland agreement, i. e., £750,000 for royalties and £300,000 for tax exemption in the case of A. I. O. C. as compared to £250,000 (later to be raised to £450,000) for royalties and no minimum specified for tax exemption in the case of Inland.

  1. Not printed.
  2. Anglo-Iranian Oil Company concession signed at Teheran, April 20, 1933. For text, see League of Nations, Official Journal, December 1933, p. 1653.
  3. Visa Division.