856D.2553/12–1151: Telegram
The Acting Secretary of State to the Embassy in Indonesia
614. Stanvac reps Collings,1 Board Chairman,2 and Prioleau, Vice Pres,3 held two hour discussion today with Lacy and Coerr PSA and Eakens PED4 in situation Stanvac facing as result Indo Govt proposal described in State Mining Comm Aide-Mémoire to Gibbon5 Nov 10 (Deptel 558 Nov 27).6 This proposal 1) wld refuse renewal Stanvac “let alone” agreement expiring Dec 31, thereby making co “adhere to all legal requirements applied to other producers export goods”; 2) wld apply formula Govt to receive 65 and co 35 percent Stanvac gross profits Indo operations.
Collings said divergent opinions held at present by two Stanvac parent cos: Standard Oil of New Jersey, with predominant interests NE, emphasizes Indo accts for only about one percent world crude production, and tends believe co if forced accept less than 50–50 formula shld liquidate Indo operations: Socony with proportionately heavier interests Indo, more disposed attempt continue operations there, recognizes Indo Govt has in effect been receiving about 60 percent Stanvac profits, and considers it wld be unrealistic try force Govt now cut its share to 50 percent.
Stanvac objects particularly to provisions Indo proposal which 1) wld give Govt right to fix export price, after consultation with co; 2) wld require co export at Rupiah 7.60 equals $1.00 while importing, through compliance “import certificate procedure”, at Rupiah 11.40 to $1.00; 3) wld give Indo Govt auth control, by export license system, destination of petroleum exports. On later point Lacy made it clear US wld take up on govt to govt basis any Indo move toward shipping oil to CCPR or similar undesirable destination.
Stanvac disturbed by possibility Indo Govt may insist Stanvac Production Co which is now Dutch shld become Indo (process which under Dutch law wld require co pay severe liquidation tax), and especially by alleged statement Indo official to Gibbon that 65–35 formula final and “not negotiable”.
Stanvac sending Leibacher7 ETA Djakarta Dec 14 in deference importance apparently attached by Indos to Dec 15 as starting date [Page 752] negots. Prioleau ETA Dec 20 with intention see Hatta, preferably without attendance other Indo Official, but together with Wilopo if Indos insist. Stanvac hopes after you have talked with Leibacher you may your discretion see Hatta “to pave way” for Prioleau. Latter, incidentally, believes Kuypers “is big fly in this ointment”. Co reps hope “educate” Hatta and other officials to see broad area mutual interest of Indo Govt and Stanvac in latter’s operations.
Collings states co considering counter proposal along fol lines: 1) co to be subj all laws except import certificate system and except Govt control destination exports; 2) co to pay fixed production tax per barrel and other taxes which “cld work out at about 58 percent” for Govt; 3) co to refuse accept any publicly proclaimed percentage formula prejudicial its operations other countries.
In view complexity problem and wide disparity initial positions of Govt and co, Stanvac very pessimistic re chances reach final agreement before Dec 31. In such case Stanvac plans suggest interim agreement whereby 1) negots wld continue toward mutually satis final agreement; 2) operations wld continue, preferably with extension current privileges, or alternatively under full or partial effect Indo laws, subj future adjustment retroactive to Jan 1, 1952 in accordance terms final agreement.
However Stanvac fearful Govt may refuse accept interim agreement and may instead “slap on 65–35 decree” and refuse renew “let alone” agreement. Prioleau states that since co has admittedly amortized its existing investment Indo it cld continue reasonably profitable operations for several years while allowing Govt 65 percent. Collings adds, however, that to operate under 65–35 formula plus complete compliance Indo laws wld mean 80–20 split in favor Govt which wld require rapid liquidation operations (maximum exploitation only of known reserves and complete cessation new exploration).
Stanvac reps aware popular appeal Indo “65–35” slogan and have instructed co public relations off study methods achieve counter-balancing popular presentation co proposal, and Stanvac operations, in order increase co proposal’s acceptability Indo Govt. Both Stanvac and Dept offs agreed on desirability seek solution avoiding if possible use publicly proclaimed formula. In discussing this question Eakens mentioned that in view widely different operating costs and conditions prevailing various petroleum exporting countries Dept has no fixed position as to optimum profit-sharing percentage which shld necessarily prevail in all countries, altho 50–50 div has been generally considered fair all parties.
Dept offs learned from Stanvac that Indo Govt has recently submitted copies its “Stanvac” proposal (first para tel) to Caltex and Royal Dutch Shell (BPM). Co interprets this action as evidence Indo Govt decided handle matter on “industry, wide basis”. Shell and [Page 753] Caltex consulting closely with Stanvac in recognition latter’s role as significant guinea pig. Dept offs recognized industry-wide aspects Stanvac problem but suggested advisability independent actions wherever feasible by Amer cos in view possibly mounting Indo-Dutch tension.
Lacy states Sukiman Govt has been showing itself to be cool-headed and pragmatic in business matters, and an “Iranian” development is probably unlikely unless Indo Govt taken over by group much further to left. He stated he doubts Indo Govt will “slap on decree” and full impact all laws Jan 1, and added that you of course are doing everything your power and discretion to keep Indos in negotiating frame of mind. Prioleau said Stanvac thinks “Cochran can do it if anybody can.”
- L. V. Collings, Vice President.↩
- Philo W. Parker.↩
- Harry F. Prioleau.↩
- Robert H. S. Eakens, Chief, Petroleum Policy Staff, Department of State.↩
- H. A. Gibbon, General Manager of Stanvac in Indonesia.↩
- Not here printed.↩
- E. N. Leibacher, Standard Vacuum Oil Company Director and member of its Indonesian Coordination Department.↩