811.503132/3–3048: Telegram

The Acting Secretary of State to the Embassy in Brazil


309. Excepting as indicated below proposed law appears satisfactory and workable. Dept advises with respect Emb memo handed President Dutra and Secretary General FonOff (urtel 350, Mar 30) due care should be exercised in making recommendations concerning responsibility of NPC. Believe govt through NPC should have access to all info on operations and reasonable supervision oil co activities. On number of points now indefinite in law Dept believes they can be more satisfactorily resolved in regulations written under law and in concession contracts. Dept has in mind that such matters as conditions under which exploration concessions are to be converted to exploitation concessions, concession rights to enter refining and transportation activities, right to export, calculation of royalties, and value of concession could appropriately be specified in regulations and contracts. Would seem desirable have present flexibility in law rather than have rigid law which would require modification to meet all unforeseen operating conditions and problems.

Believe major point Emb should emphasize in further discussions concerning law is obstacle requirement 60 per cent Braz ownership refineries and pipelines will be to oil development. Emb should work toward elimination this limitation. Provision that local requirements be satisfied before oil exported would seem afford adequate protection Braz economy and not understood what is added in Braz public interest by requirement 60 per cent Braz ownership. Also, always understood whether law so states or not govt has first call on country’s petroleum resources and facilities event emergency. In any case sovereignty of nation ensures this with or without specific provisions laws or regulations.

Although limitation on area held by any one co is advisable some experience may be reqd to learn size area reqd for effective and practicable operations. If stated limitations prove to be too low then law would have to be changed which procedure might make law ineffective for some considerable time at least. Preferably law might indicate area any one co may hold at any one time should be limited but believe specific limitations on amt held should be removed from law and placed in regulations which can be adjusted to meet circumstances.

Art 55, para I, use word “greater” statement “who has available greater technical, etc” makes connotation inadvisable and should be changed to “sufficient” or some similar word.

Dept wishes emphasize basic law should be concerned primarily with [Page 362] statement general principles to provide sufficient flexibility, specific details and limitations to be included in regulations and contractual agreements. If Braz will relax ownership and area restrictions Dept believes present draft law would appear to be workable.