823.6363/3–2348: Airgram
The Acting Secretary of State to the Embassy in Peru
A–146. Reference Embassy’s airgram A–150, March 23, 1948.1 The Department commends the Petroleum Attaché for progress on difficult negotiations and excellent reports covering the same.
The Department believes that petroleum development can be best promoted through the media of sound petroleum laws and private enterprise operating on a free, competitive and non-discriminatory basis, as outlined in circular telegram of March 26, 1948.2 Pending a decision of the Peruvian Government to abandon enactment of a new petroleum law and its efforts to obtain ratification for the Sechura [Page 725] Desert Contract, the Department believes the Embassy should continue to support oil development on the basis just indicated.
Circumstances may require the acceptance of a less desirable substitute such as the transfer of the Montaña areas to the proposed Compañia Petrolera Fiscal in order to provide a basis for contract negotiations with operators. It is not within the function of the U.S. Government or any of its agencies, however, to underwrite the risk that resulting contracts may be illegal. It appears that CPF or the Peruvian Government might properly guarantee the repayment of all or the major part of the expenses actually incurred by operators in the event exploration contracts were declared illegal. There is a logical basis for a guarantee of this sort since the guarantors would also be beneficiaries if the contracts were voided through legal complications.
With reference to financing, there is no reason to believe that ample funds will not be forthcoming from the operating companies provided reasonably acceptable contracts can be negotiated.
The Department is not clear regarding the status of the Sechura Desert Contract under the proposed Decree Law as outlined in airgram A–172, April 6, 1948.3 On the basis of paragraph 3 of airgram A–145, March 18, 1948,3 it appears that the Sechura area will be transferred to CPF only if the attempt to obtain Congressional ratification of the ad-referendum contract during the coming July session fails. Is the Department’s interpretation correct that if the contract is not ratified, it will be terminated and that area will then be transferred to CPF presumably for exploration and development on the basis of the highest bidder.
The availability of Eximbank funds for highway development will depend upon the merits of the highway project as determined by comprehensive engineering and economic data as well as other pertinent factors.