856D.2553/12–3151: Telegram
The Ambassador in Indonesia (Cochran) to the Secretary of State
priority
930. Stanvac group called noon 29. Gibbon reported his conversation with Wilopo of that forenoon. He said Wilopo talked in terms 65–35 arrangement just as if there had been no conversations past 30 days, except that effort wld be made to keep arrangement confidential. Gibbon understood Indo Govt wld require its technicians assure govt that arrangement as formulated, even though not spelling out 65–35 cut, wld in operation yield 65 percent to govt. Gibbon said he portrayed to Wilopo problems faced by his company in undertaking to work under such arrangement.
I called on FonMin Subardjo 8:15, 31st. I told him of Gibbon’s report of his conversation with Wilopo. I understood Wilopo had been absent from Djakarta during important part exchange views on Stanvac problem. I found Stanvac group discouraged by Wilopo’s rigid attitude as revealed 29th. I feared they wld recommend to their [Page 769] shareholders against further expansion Indo unless they cld get some better arrangement. I reminded FonMin scale generally accepted internationally is 50–50.
I told FonMin that Stanvac contemplated spending many millions dollars 1952 to expand plant to keep up with demand for petroleum this area but must consider all factors before embarking on such undertaking. I pointed out arrangement whereunder Stanvac has perhaps been yielding approx 62 percent to govt had developed under NEI regime. I said company had been willing go along on this scale while rehabilitating war damaged plant and enjoying [“let alone”] agreement on fon exchange. I recalled however that in meantime Indo had come into sovereignty. I said I had been convinced of good intentions of Indo toward fon capital but had taken great responsibility upon myself in endeavoring convince my own govt well as active and prospective investors that present Indo Govt prepared give square deal to fon capital.
I said Indo beset by many problems and still on trial in eyes of world. I said if govt now insists on 65–35 arrangement, and at same time announces sharp increase retroactively in corporation tax during course negots, foreign investors such as Stanvac will naturally be most reluctant to risk their shareholder’s money in Indo. I emphasized that Indo’s great need is for fon capital to develop natural resources. I said there was limit to extent Export Import Bank shld go. I pictured ECA grant aid as transitory and likely diminish as demands for US help on part our allies increases. I said logical and dependable source fon capital shld be private investors. I said with petroleum business booming on account war conditions, now is time oil companies seek expand their operations. I said such cos wld however determine where they cld most wisely invest with assurances of security well as profit. I said too many imponderables in Indo situation yet to consider it secure place of investment. I said scales wld be heavily weighted against Indo as place for profitable investment if decisions shld now be taken indicating effort to exact last possible centime. I recommended consideration of arrangement which wld encourage Stanvac go ahead with expansion. I said outcome their negots being watched carefully by Caltex, which surely wld refrain from going further with its development if arrangement is imposed on Stanvac which both consider unfavorable. I cld not speak for BPM, but was aware that company anxiously awaiting outcome Stanvac negots.
FonMin agreed speak to Wilopo, as I had requested, and also volunteered that he wld discuss situation with PriMin Sukiman and Pres Sukarno. I reassured Subardjo no desire on my part enter actual negots for which Stanvac alone must be responsible. I reminded him however of possible embarrassment to my govt if precedent established [Page 770] Indo which wld upset US policy in supporting its investors in other principal oil areas of world. I said I did not want to see Indo obliged accept less favorable arrangement than US oil cos are giving elsewhere. Such development would react on Indo Govt. At same time I did not want see Sukiman govt suffer blow and Indo bear loss which wld come from imposing on Stanvac such unfavorable arrangement that Stanvac and other cos wld reduce operations and/or possibly withdraw from Indo.
Have appointment to present Prioleau to Wilopo 12 noon today.