723.00/9–2550: Airgram
The Acting Secretary of State to the Embassy in Peru
A–88. The Department is somewhat disturbed by the contents of Embassy’s despatch No. 326, September 25, 1950,1 the recent “El Comercio” editorials, and the appearance of nationalists Lieut. Colonel Pando and Engineer Roberto Valverde before the Congressional oil committee—all indicating that the Peruvian oil bill now under discussion in Congress could result in a law unattractive to American oil companies. Assuming the Department’s concern to be warranted, it would appear desirable that the dangers of making the law less attractive to private capital be fully appreciated before the opposition to the proposed legislation becomes consolidated and hence more difficult to overcome.
Officers of the Embassy may find the following points useful in tactfully encouraging a liberal law in discussion with appropriate Peruvian officials and influential citizens. The Ambassador may wish in his discretion to take up the matter informally with the President or appropriate Cabinet members.
The United States interest in the oil legislation could be based upon the desirability of developing additional oil supplies for hemisphere defense. A law radically changed from the bill now under study probably would prove unacceptable to foreign oil capital and thus delay development of this potential additional military oil. As an example, a reduction in the projected depletion allowance, which has proven so helpful in encouraging United States oil development might result in the Richmond and Conorada companies losing their present interest—to the disadvantage of Peru. This depletion feature is now under attack.
All Peruvian officials or citizens approached on the subject might be reminded of the great interest of the oil industry in Peruvian exploration in 1944, 45 and 46, and of how this interest evaporated owing to failure to enact a satisfactory law in 1946. Obviously, the considerable benefits to the Peruvian general economy from a revival of oil exploration could be a subject of conversation.
For the Embassy’s information, the Department believes that a modest increase in the royalty rates fixed in the proposed legislation would not be discouraging to American oil capital, but it should be borne in mind that there are numerous taxes—substantial in aggregate—in addition to the royalties that would bear on developers of Peruvian oil.
[Page 994]The Department would appreciate being kept closely informed on the progress of the legislative discussions on the bill.2