The Chargé in Venezuela (Dawson) to the Secretary of State

No. 8305

Sir: I have the honor to transmit herewith two photostatic copies of a document64 addressed to the Minister of Hacienda by Dr. Miguel Octavio Romero Sánchez, charging the Mene Grande, Creole and Shell companies with improper possession of a group of Lake Maracaibo oil concessions. An adverse decision in the case would cost the companies involved many millions of dollars, and establish a precedent which might cost them and others many more millions.

No extensive exposition is made in the document of the cases against Creole and Shell. On Page 51, however, the denouncer calls attention to the fact that such exposition appears in a similar document submitted on November 16, 1942.

It has been reported to the Embassy, albeit not confirmed, that Minister of Fomento Pérez Alfonso assisted in the preparation of the document, and in fact encouraged the not at all unwilling signer thereof and his associates to push the matter. This, very naturally, has caused American companies grave concern and is accepted as indicating a menacing and dangerous attitude on the part of Junta officials openly in conflict with assurances made after the October Revolution that the terms and provisions of the 1943 Oil Law and contracts and concessions arising out of it would be respected.

The document is being forwarded at this time, without the extensive analysis the Embassy would prefer to send, in order that it may be in the Department’s possession if and when, as is expected, oil company representatives consult the Department.

[Page 1336]

The Embassy deems the Oil Law in effect to be a solemn contract, entered into after extensive discussions between Venezuelan officials and oil company representatives, in which the Department and the Embassy intervened as “honest brokers”. In return for the surrender of valuable free customs entry privileges, the payment of higher royalty, the conversion of low royalty concessions which had many years to run, and other valuable considerations it was agreed, in Article 102 of the Law, that “sins of the past would be wiped out” i.e. that no claims based on old contracts or concessions would be made in the future and that outstanding ones would be nullified.

This article is now being attacked as unconstitutional. If it were so held by the Venezuelan courts, the result would be that the companies would have to keep to their part of the contract inherent in the 1943 Oil Law while losing the quid pro quo which was part of the compromise effected by the law. The incongruity is obvious of any action as to the constitutionality of existing legislation under a Government which is itself completely unconstitutional and which has as one of its announced first objectives the enactment of a new constitution to replace the one which it has in effect discarded.

It is nevertheless believed that the Minister of Fomento will go to great length to have his own point of view prevail over the law, even though such view was discarded by the Congress which enacted the legislation. Further, the Junta is capable of sudden announcement of costly decision, as witness its unexpected announcement a few minutes before midnight on December 31, 1945 of the “non-discriminatory” retroactive tax levy which will cost oil companies 30 million dollars, 90 percent of total estimated receipts under the measure.

Inasmuch as the Organic Hacienda Law gives the Federal Executive various alternatives, including that of simply throwing the case out, and inasmuch as the document is addressed to the Minister of Hacienda, the Embassy consequently plans immediately to express its views to him in a friendly and informal manner, and to the Junta President if necessary.

Respectfully yours,

Allan Dawson
  1. Not printed.