Foreign Relations of the United States, 1955–1957, Near East: Jordan-Yemen, Volume XIII

325. Memorandum of a Conversation, Department of State, Washington, May 7, 1956¹

Washington, May 7, 1956

SUBJECT

• Syrian Oil Refinery²

PARTICIPANTS

• Mr. Welk, Mr. French, Export-Import Bank
• Mr. Shaw, Mr. Roberts, NE/E

Mr. Shaw stated that the purpose of the meeting was to ascertain informally the Bank’s attitude towards possible financial assistance towards establishing a government oil refinery in Syria. As a result of Syria’s recent agreement with IPC,³ one of the companies operating a pipeline across the country, the Syrian Government is entitled to certain quantities of crude oil at favorable prices; that in furtherance of its nationalist desires, Syria has long wanted its own refinery and in February enacted legislation establishing the Petroleum Refinery Institute which, with a capital of approximately $25,000,000 is to establish a refinery to process 20,000 barrels of crude oil per day; the Institute may also import petroleum products and enter into the marketing thereof. The Syrian Government has requested bids on the construction of a refinery of this capacity; May 20 is the final date for filing. So far as the Department is aware three offers of refineries, owned and operated privately, have been made to the Syrian Government: 1) by the IPC (this offer may no longer be active); 2) the Shell Company; 3) the Standard Oil Company of New Jersey. The latter has offered to build and operate a refinery capable of processing 10,000 barrels per day. While we do not know the attitude of the Syrian Government towards these private offers, the Jersey Standard people do not appear to be hopeful that their offer will receive favorable action.

Mr. Welk replied that the policy of the Bank was:

1. It does not, as a matter of policy, finance projects which have to do with oil refining or with petroleum in any of its phases, the fundamental reasoning being that there is believed to be sufficient private capital available for these purposes.

2. The Bank does not ordinarily want to finance as government activities those enterprises which are generally carried on by private initiative.

3. If both of these objections did not exist the Bank would then look at the situation to see whether the country actually needed a refinery, or whether there were already adequate refining facilities in the immediate area.

He added that representations of political urgency and necessity on the part of the State Department might, at the discretion of the Directors, overrule this basic policy of the Bank.

Mr. Shaw then discussed possible alternatives. Among others was the possibility of an American or Western company offering to establish a refinery with local participation. He said that there were two groups which had put forward propositions of this kind. One group is headed by a Syrian named Ayoubi who is working with United Constructors and Ralph M. Parsons. The other group, the Syrian Oil Refining and Distribution Company, headed by Kettaneh, is connected with Foster Wheeler. The possibility of Export-Import Bank financing came up in connection with the question of should one of these groups obtain the contract and it exceeded the $25,000,000 capitalization of the Institute, where could it obtain additional financial aid.

It was pointed out that in certain countries it was possible to provide compensating financing for projects of this kind through the aid programs but as we had no ICA program in Syria that possibility was ruled out. So far as the IBRD was concerned, Syria had three other projects pending there and they more than likely would not want to apply there.

Mr. Welk interjected that if the other IBRD loans went through the question of the capability of Syria to repay still another loan would arise, although a refinery project would ordinarily be expected to pay for itself.

Mr. Welk thought that since there were two large American banks—the Chase Manhattan and the National City—already operating in the area and a third, the Bank of America, planned to commence operations soon, they would be the obvious sources from which to obtain the required financing. He continued that the Department of State would have to make a strong plea on the grounds of political necessity of keeping the Russians out of Syria before the Bank would consider the case and even then he could not foresee what the decision would be.

1. Source: Department of State, Central Files, 883.3932/5–756. Confidential. Drafted by Roberts on May 9.
2. Shortly after the Syrian Government announced in January 1956 that it would open bidding for the construction of an oil refinery, the Embassy in Damascus reported that Prime Minister Ghazzi had confirmed that the Soviet Union had made an offer to build the refinery. (Telegram 678 from Damascus, January 19; ibid., 883.2553/1–1956)
3. Signed November 29. Under the agreement, the Iraq Petroleum Company greatly increased its payment to the Syrian Government for pipeline transit privileges. (Telegram 534 from Damascus, November 29; ibid., 783.5–MSP/11–2955)