874.211/1–954: Despatch
No. 1269
The Ambassador in Egypt (Caffery) to the
Department of State
No. 1604
Ref:
- CERP 10–13–52 D–15; Embdesps. 1496, Dec. 21; 1319 Nov. 29; 1274, Nov. 23 and 1247, Nov. 20, 1953.1
Subject:
- Discussions by IBRD Representative, Mr. Dorsey Stevens, with Egyptian Officials Regarding the High Aswan Dam and the Proposed Fertilizer Plant.
Scope and Purpose of Mr. Stevens’ Visit
Mr. Dorsey Stevens, Middle East representative of the International Bank for Reconstruction and Development, arrived in Cairo from Beirut Saturday, January 2, to ascertain informally from Egyptian officials the status of the High Aswan Dam project. The proposal for a fertilizer plant at the present Aswan Dam was also discussed in this connection. He visited officials of the National Production Council (including Dr. Mohamed Selim, Secretary, and [Page 2193] Mr. Hussein Fahmy, President), of the Ministry of Finance and Economy (including Dr. Abdel Guelil el Emari, Minister, and Dr. Ali el Geritli, Deputy Minister) and of the Ministry of Commerce and Industry (including Dr. Hilmy Baghat Badawi, Minister). Also, he discussed his visit with members of the Embassy and the United States Operations Mission for Egypt, including the Ambassador, Admiral Stevens, Mr. Perry Ellis, and the reporting officer. He left Cairo early Friday, January 8.
Nile Valley Study
Mr. Dorsey Stevens called on the reporting officer on Monday, January 4, just after having seen Dr. Selim, and stated that, although his reception had been friendly, he had been somewhat taken by surprise at the highly critical attitude of Egyptian officials toward the IBRD. This attitude and the reasons given therefor were very much the same as reported in the Embassy’s despatches cited above. It is believed, however, that as a result of Mr. Stevens’ interviews with the Egyptian officials their resentment toward the Bank has been considerably relieved and that they have a better understanding of the Bank’s organization, purposes and functions.
He sought to make it clear that the Bank is not an instrument of the United States Government. The Egyptian officials were particularly incensed at the condition attached to an IBRD engineering survey of the High Dam, namely, that it should be accompanied by a study of the development of water resources of the whole Nile Valley. Although there is a great amount of information regarding the Nile Valley, little exists on the part lying in Ethiopia and a number of years might be required to obtain information in this regard. Assuming that IBRD financial assistance for the High Dam would depend on the outcome of the Nile Valley study, Egyptian officials suspected that the condition attached to an IBRD engineering survey reflected merely an effort to obstruct construction of the High Aswan Dam and, presumably, also suspected that the United States, in offering to finance an IBRD survey on the condition of a Nile Valley study, was merely promoting British objectives. IBRD’s recent refusal to consider a loan to Egypt for a fertilizer plant at the present Aswan Dam pending receipt of a request from Egypt for an engineering survey for the High Aswan Dam (accompanied by a Nile Valley study) did not allay Egyptian fears in this regard.
There is no prospect now of Egypt’s asking the IBRD for the engineering survey in question. This is indicated in the Embassy’s despatches cited above and confirmed by Mr. Stevens’ visit. The prospects are, however, that Egypt will still require IBRD financial assistance in construction of the High Dam and Mr. Stevens believes [Page 2194] that, if a Nile Valley study is not made a condition of such assistance, that the Egyptian Government might possibly agree to having such a study made.
Status of Work on the High Aswan Dam
On arrival here, Mr. Stevens was aware of course that a preliminary engineering survey for the High Dam had been undertaken in 1952 by West German engineering firms engaged by the Egyptian Government, that the results had been submitted in the Spring of 1953 to an international panel of engineering advisers to the Egyptian Government, which had decided that further preliminary work needed to be done. He was under the impression that the German engineers were now completing their job. However, he was advised by Dr. Selim that the Germans have been engaged to undertake the second phase of the work, a detailed and final engineering survey (which the IBRD had expected to sponsor), and also the third phase, the drawing up of designs for the dam, that the second phase would be completed in March, that the final designs would be completed in June, that the results would be submitted to another international panel of engineers, and, if approved, that a call for bids would be made in July of this year. According to Dr. Emari, the decision to proceed without IBRD assistance on the engineering survey was due to suspicions aroused by IBRD’s requirement of a Nile Valley study in connection with sponsorship of such a survey and was made while he was in Washington last September discussing the matter with IBRD officials. It appears therefore that, when in response to an inquiry Dr. Emari told the reporting officer on November 12, 1953 that a request for an IBRD survey had been sent to the Ministry of Foreign Affairs for transmittal, he knew that no such request would be sent.
There appears to be some question as to whether the second phase of the engineering work, the detailed and final survey, is actually being done by a German engineering firm or whether it is being done by the Egyptians themselves. During Mr. Stevens’ visit, the reporting officer called on Mr. von Schulman, First Secretary for Commercial Affairs, of the German Embassy. Mr. von Schulman said that he had been to the High Aswan Dam site a week or so before and had seen the Egyptians drilling, but that he was not aware that there was any German engineering firm presently engaged at the dam site. The names of the German firms which had been engaged to do the “rough work” (preliminary) were, he said, Gute Hoffrungshuetti of Dusseldorf and Dortmunder Union of Dortmund, there being many other firms associated or affiliated with them. (However, subsequent to Mr. Stevens’ departure, Dr. Selim again confirmed to the Director of USOME that the second [Page 2195] phase of the work was being done by German engineers and that there were now 16 such engineers at Aswan.)
Mr. Stevens thought it would be desirable for an IBRD engineer to come to Egypt to ascertain exactly what engineering work is being done at the High Dam site and whether or not it is likely to be adequate for IBRD purposes in view of the prospect that the Bank’s financial assistance will later be required. He made a suggestion along these lines to Dr. Emari and Dr. Selim, who concurred.
Dr. Selim has several times told the Director of USOME that the Revolutionary Command Council has definitely decided on proceeding with the construction of the High Aswan Dam, it being politically necessary to do so.
Mr. Dorsey Stevens was given by the Egyptian authorities a chart showing the time schedule of work on the High Aswan Dam from the reconnaissance survey up to the call for bids. A copy is presented herewith as Enclosure No. 1. Accompanying explanatory notes comprise Enclosure No. 2.2
Financing of the High Aswan Dam
In his discussions with Mr. Stevens, the reporting officer pointed out that there had recently been a delegation of West German bankers in Cairo to investigate the possibilities of German financing of the High Aswan Dam project and inquired as to prospects in this regard.
Mr. Stevens estimated that the High Dam project might cost around $500 million and that Egypt might over a period of years be able to finance half of it from its own resources, leaving $250 million to be financed from foreign sources. Egypt’s international credit position was not strong enough, Mr. Stevens thought, to support financing of all of this balance of $250 million on a bankable basis, but the IBRD would probably be prepared to finance as much of it as was bankable, say $125 million, leaving $125 million to be financed on a grant basis. He stressed several times the point that IBRD financing would depend on U.S. grant aid and also he thought that loans for the High Dam project should be made on a 20 or 25 year basis.
If this was the situation in the case of the IBRD, Mr. Stevens did not see how the Germans could possibly undertake the foreign financing of the Dam without substantial help from other sources, especially since the Germans were not in a position to make loans for longer periods than 5 or 10 years. It is, of course, of great importance to the Germans to obtain substantial contracts in connection [Page 2196] with the High Dam project, but they have been informed, according to Mr. Stevens, that IBRD would be prepared to provide part of its financing in German marks.
Mr. von Schulman confirmed this to the reporting officer, but pointed out that IBRD’s German mark financing would be against Germany’s subscription to the Bank and he questioned whether his Government would agree to this since it would restrict Germany’s financial activities in other fields. He admitted, however, that Germany was not in a position to make loans for periods of more than 10 years and could not undertake the financing of the High Dam project except in connection with an international consortium, but he gave no hint as to what other countries might participate in such a consortium. He also said that Dr. Geritli, Deputy Minister of Finance, was thinking of High Dam financing on a 10 year basis, with Egypt undertaking half of it. The total cost figure mentioned by Dr. Geritli was L.E. 180 million.
With reference to Germany’s interest in the High Aswan Dam, Mr. von Schulman pointed out that it was a development resulting from German reparation payments to Israel, from which arose a threat of an Arab boycott against German trade. Egypt claimed that reparations to Israel were inimical to Egyptian interests and insisted that, by way of compensation, Germany undertake to build and finance the High Aswan Dam. Germany had indicated that it might be prepared to do so but only if, after investigation, a sound basis were found for such an undertaking.
The Fertilizer Plant
Regarding the proposed fertilizer plant at the present Aswan Dam and Egypt’s request of the IBRD for $45 million loan to meet the foreign exchange costs thereof, Mr. Stevens said that he did not understand why the IBRD had refused the request pending receipt of a request from Egypt for an engineering survey for the High Aswan Dam, conditioned on its being accompanied by a Nile Valley study. He readily conceded that the High Dam would reduce the costs of the plant, but pointed out that the Egyptians had earlier been told that, when they had gathered together a group of private investors interested in the plant, IBRD would be prepared to discuss the matter. The High Aswan Dam had not been involved as a condition of such discussion. The Egyptian Government had not yet, of course, gathered together a group of interested investors, but Government officials pointed out to Mr. Stevens during his visit here that such a group could not be gotten together until it was known whether the IBRD would lend the foreign exchange required, but that if the IBRD would agree to do so, there would be no difficulty in finding interested private investors, since the [Page 2197] project is highly attractive. The attractive aspects of the project were indicated in a memorandum given Mr. Stevens, a copy of which is presented herewith as Enclosure No. 3. In any case, if the public did not take up all the shares in the fertilizer plant which were offered to it, the residual would be taken up by the National Production Council with a view to disposing of them to private persons over a period of time.
Mr. Stevens thought that an expert from the IBRD should come to Cairo to discuss also the fertilizer plant with the Egyptian authorities. He might be the same person as sent to investigate the status of the work on the High Aswan Dam.
Since last seeing Mr. Stevens, the reporting officer met Dr. Selim briefly at a social function. Touching on a number of the points presented above, Dr. Selim was in an optimistic mood and stated that Mr. Stevens’ visit had helped to clarify matters, that he should have come sooner, and that Egypt might after all be able to do business with the IBRD.
Counselor for Economic Affairs