Memorandum of Conversation, by the Commercial Attaché in Brazil (Clark)

Participants: The Ambassador, Col. João Carlos Barreto, DuWayne G. Clark.

During a luncheon conversation at the Embassy Residence on September 18, Col. João Carlos Barreto, president of the Brazilian Petroleum Council, was requested to outline the progress being made towards the realization of a plan which might permit and encourage the exploration for petroleum in Brazil. Col. Barreto’s remarks fell into two general categories, that is, preliminary conversations which are now under way, which may eventually permit the change in the Brazilian constitutional provisions allowing the entry into the country of foreign capital and technical knowledge. The other general remarks referred to the more immediate possibility of something being [Page 687] done to arrange for the refining of imported crude petroleum in Brazil so that at least a start could be made towards a national industry.

As has been the case in previous conversations, Col. Barreto repeated and emphasized the fact that any change which might be made in the Constitution which would permit the entry into Brazil of foreign capital for participation in the petroleum industry would be most difficult. He indicated that as matters stand at the moment, the prohibition against foreign capital applies not only to petroleum exploration and exploitation, but also to refining. He indicated that while this subject has been the subject of discussion of the Petroleum Council, as well as between Barreto and President Vargas, he, Barreto, wanted to be on very safe ground and for that reason had referred it also to the Army and the Navy and the Airforce. He indicated that he expects to be able to discuss the matter with the Chief of Staff of each of these military services in the near future. He seemed quite confident that all of these services fully appreciate the importance of developing a petroleum industry in Brazil, but he was not too clear as to whether there would be any unity of thought or opinion as to how the present petroleum law could be changed to permit the entry of foreign capital.

Col. Barreto is anxious to anticipate the eventual production of crude petroleum in the country through the creation of a refining industry in Brazil as soon as it is practical. He stated that he had received proposals from two Brazilian parties, both of whom have sufficient finance to handle such a proposition. Col. Barreto seemed to be desirous of developing a small refinery, something capable of handling approximately 10,000 barrels of crude per day. He emphasized that this refinery would afford an opportunity for technical training and experience for men who would later be employed in the industry, when it is further developed. Barreto indicated that the two proposals which he has received are from exclusively Brazilian capital sources and he stated that the encouragement and acceptance of one of these proposals would depend (1) upon a guaranteed source of crude petroleum, (2) a guarantee that the refinery can be operated in such a way that the various products will not be marketed throughout the country at a cost higher than those now imported and (3) a previously arranged marketing agreement between the refinery company and one of the now extant distribution organizations, such as Standard, Shellmex, Texas or Atlantic, to ensure the distribution and sale of the products of the refinery.

Col. Barreto also mentioned the intention of the Petroleum Council to erect and operate a small pilot refinery in the Bahia area, a plant capable of handling something like 2,500 barrels of crude petroleum per day. He indicated that only to this extent would the Government [Page 688] of Brazil be interested in participating financially in the petroleum industry. He repeated several times that the projected refining industry would be wholly private capital, and he also stated that any exploration and exploitation should also be on the basis of private capital and that the Brazilian Government, at least from his point of view and opinion, should not have a financial interest in these enterprises.