AF files, lot 58 D 459, “Miscellaneous”

Memorandum of Conversation, by Samuel J. Gorlitz of the Investment and Economic Development Staff

confidential

Subject:

  • Pafuri Gap Railroad Loan

Participants:

  • DMPA—Messrs. Stott and Keith
  • AF—Messrs. Bourgerie, Feld and Meier
  • OMP—Mr. Evans
  • DRN—Messrs. LaMacchia and Gordon
  • ED—Messrs. Gorlitz and Smith
  • TRC—Mr. Kellyz
[Page 301]

At the request of the Department, a meeting was arranged to ascertain the views of DMPA on the Pafuri Gap Railway project, and to discuss the problems raised in Mr. Stott’s memorandum of January 31 to D. A. FitzGerald of MSA.1 The problems raised by that memorandum were: (1) the relatively few strategic materials that would move over the proposed railroad, (2) the diversion of scarce labor from the copper mines that might be caused by new railroad construction, and (3) failure of the Southern Rhodesians to live up to an agreement with ECA to deliver specified quantities of coal to the Northern Rhodesian copper mines.

Mr. Gorlitz summarized the concern of the Department over the increasingly acute transportation shortage in Central Africa and told Mr. Stott of the need to clarify DMPA’s attitude toward the Pafuri project before the Department could take a position on the proposed Eximbank loan. He explained that there was no disagreement in the U.S. Government about the relative priorities of Beira, Lobito and Pafuri. The expansion and improvement of the Port of Beira had top priority and was already under way. Improvement of the Port of Lobito had the next highest priority and the Eximbank has indicated its readiness to finance that work as soon as a proposition is presented to them. The Pafuri Gap route is of a lower priority than either the Beira or the Lobito project but is considered extremely important not only to alleviate the general transportation shortage in this area but to relieve congestion at Beira so that the future flow of copper, chrome and other strategic materials through that port, will not be impeded.

Mr. Stott said that DMPA would certainly go along with that analysis. He stressed the urgency of the Lobito project on the west coast of Africa, but said that as a third line, DMPA favored the Pafuri Gap route to Lourenco Marques over the alternative Beitbridge-West Nicholson route through South Africa. His memo, he said, was based upon his feeling that Pafuri could not be justified solely on direct strategic material grounds since chrome would be the only strategic material that might move in significant quantities through the Pafuri Gap and even that was not certain. With the Beira chrome-leading wharf soon to be in operation, most of the chrome would probably continue to move out of there rather than over the Pafuri Gap. The indirect relation of Pafuri to strategic materials was undoubtedly, Mr. Stott felt, of great importance. He noted that Beira had only limited possibilities as a port and that it was vital to relieve congestion if strategic materials were to come out of that port in the increasing quantities we now looked toward. He agreed that Mr. Bourgerie’s point that a chrome loading wharf could not make a great contribution if a vessel could not first reach a general wharf without delay to unload [Page 302] import cargo. Mr. Stott then indicated that his only reservation on the Pafuri project was that MSA in its telegrams had overstressed the direct strategic materials angle.

The problem of diversion of labor was not dwelt upon in any detail. It was generally believed that that problem could be handled and should not become involved in this stage of project consideration.

The problem of coal shipments to Northern Rhodesia was then carefully spelled out by Mr. Stott. A steady supply of coal from Wankie—the only colliery in Southern Rhodesia—was vital to a continued high rate of production of copper in Northern Rhodesia. When ECA made a £5 million counterpart loan to the Southern Rhodesian Railways in 19—[1951] it tied to the loan a proviso that the Southern Rhodesians would allocate 21 percent of their coal production to the copper mines in Northern Rhodesia when monthly production reached 200,000 tons. This proviso was resorted to only after ECA was unsuccessful in convincing Belgium and Southern Rhodesia to reduce their artificially high freight rates on the rail line to Lobito. The Southern Rhodesians have not made adequate deliveries of coal to Northern Rhodesia under this agreement.

In an effort to keep copper production up, DMPA had thought of delivering up to 20,000 tons of U.S. coal monthly to Northern Rhodesia through Lobito. It had dropped this idea however, on discovering that: (1) the U.K. would not consider the resulting increased copper production as new copper above previous allocations and (2) that Southern Rhodesians threatened to cut back their coal deliveries by an amount equivalent to U.S. coal shipments.

This history on coal deliveries colored DMPA’s attitude toward any Southern Rhodesia project. Mr. Stott was very anxious that any U.S. lending to Southern Rhodesia have attached to it a requirement for increased coal deliveries. When asked why a new coal agreement would be effective where the present one had failed, Mr. Stott said that ECA should have asked last time for a coal delivery rather than an allocation agreement. Under the present agreement, it is possible that allocations of coal may not be delivered, on the excuse that railroad cars were not available.

Mr. Stott then asked if the Department could not explore with the Eximbank the feasibility of tying a coal delivery clause into the loan agreement. Mr. Evans pointed out that it might be possible to use the immediate need for coal to increase production of strategic materials as part of the rationale for the Pafuri project. Mr. Bourgerie added that we might consider the possibility of intergovernment negotiations with Southern Rhodesia to obtain a coal agreement as part of a “package deal” involving not only the financing of the Pafuri but also coal deliveries to help keep up copper production and to exploit new cobalt [Page 303] sources. This could, of course, be done only after the Bank had examined the project and was ready to approve the loan.

Mr. Stott then asked why the Bank would be concerned about the relationship of the Pafuri project to strategic materials since it was such an obviously good investment and since there was such great need for more transportation to facilitate the development of this region. It was explained that the Eximbank would usually not be concerned with this aspect. The Pafuri project presented two policy problems, however. Most of the items to be financed were to be procured offshore and the strategic materials to be shipped from the area would not go primarily to the U.S. but to our Western allies. Both these factors presented policy problems to the Bank in view of its statutory authority connecting its lending operations to the facilitation of U.S. foreign trade. In view of these two policy problems, the Department felt that the Eximbank would want to assure itself that DMPA as well as other agencies was solidly behind the project.

In conclusion, the Department representatives told Mr. Stott that this clarification of DMPA’s attitude was appreciated and that the Department would explore further the feasibility of tying coal deliveries into any possible financing arrangement for the Pafuri Gap project. It was understood that DMPA would be kept informed by the Department of the Eximbank progress on this project.2

  1. Supra.
  2. The Export–Import Bank authorized a $17,000,000 loan to Portugal for the construction of the Pafuri railway link on Aug. 28, 1952. For further information, see Export–Import Bank of Washington, Fifteenth Semiannual Report to Congress for the Period July–December, 1952 (Washington, 1953), pp. 14–15.