Also attached (Tab B) is a staff study discussing the pertinent factors
and suggesting: (1) that one of the major U.S. oil companies, perhaps
Standard of New Jersey, which has already offered to construct a
refinery, be urged to present to the Syrians a sufficiently attractive
offer to obtain the contract or, (2) failing this, that the United
States subsidize a Western company. This recommendation is concurred in
by Mr. Kalijarvi.
We agree thoroughly with the desirability of blocking the Soviet Bloc
effort and that the first step should be an approach to Jersey asking it
to improve its present offer. However, we see considerable difficulties
in the proposal to subsidize a Western offer. These include
Congressional and public reactions if it becomes known, which is
probable; the precedent established for other similar situations such as
the harbor works at Alexandria, the proposed refinery in Jordan and the
construction of the Hejaz railway; and the general reluctance in
principle to subsidizing U.S. business in this manner.
[Attachment—Tab
B]
MEMORANDUM5
Problem:
Should the United States, in an effort to prevent a Soviet bloc
country from securing the contract to build a Syrian Government
refinery, use Government funds unilaterally or jointly with other
Western powers to subsidize a Western bid.
Discussion:
The Project: The Syrian Government has enacted
legislation establishing a Petroleum Refinery Institute with an
appropriation of about $25 million to construct and to operate an
oil refinery. These funds are to be repaid within 15 years from the
date the refinery goes into operation. During this period the prices
of petroleum products are to be fixed at a level necessary to cover
refinery expenses and repayment of the loan with interest. The
Institute is also directed to sell and distribute refinery products
and import petroleum products as required, (Tab A).6
Bidding: The specifications call for a
refinery capacity of one million tons per year, (Tab B).7 Bids have been received from Czech,
Russian, British, French, Italian and Japanese firms, as well as
from at least two U.S. firms, Lummus and Universal Oil Products,
indirectly represented through European affiliates, (Tab C).8 Interest has also been shown by Ralph
M. Parsons Company and by Tuteur and Company,
associated with Foster Wheeler. Embassy Damascus indicates that
neither of these firms has submitted bids.
In addition to bids on the Government refinery, the Standard Oil
Company (New Jersey) has offered to build and operate a 10,000 [Page 584]
b/d refinery, with no Syrian
participation either private or Government. Although acceptance of
this offer, as an alternative to the Government-owned and operated
refinery, is extremely doubtful, the Syrian Minister of Public
Works9
has indicated a willingness to discuss the refinery with a company
representative. If the company were to inject new concepts into its
offer, such as eventual Syrian ownership and joint GOS and/or private Syrian
participation, this offer might be made attractive. Although when
the matter was last discussed with the company there was no evidence
that they wished to make their offer more attractive, this latest
development was brought to the attention of Howard Page (Vice
President of Standard) July 13 who expressed interest in following
up on the Syrian Minister’s interest in discussing Standard’s offer
further.
The Syrian Government Attitude and Likely
Outcome: Syrian Government sources, the press and public
opinion clearly favor a government refinery. The project is
considered to be economically sound and its attractiveness is
enhanced by the recent IPC-Syrian
agreement under which 600,000 tons of crude are to be made available
annually at a substantial discount.
June 7 was the deadline for submission of bids. Embassy Damascus
reports that two refinery experts (British and Czech) have been
selected to assist in reviewing the offers. The lowest Western bid
submitted prior to the closing date was by an Italian firm in the
amount of £42 million ($11.8 million). A Czech offer of £36 million
($10.1 million) is believed to be the only lower bid, (Tab D).10 The Minister of Public Works claims that he is
prepared not to accept a Soviet bloc bid if a better offer is made
by the West. The opening of bids is expected during the week of July
15.
Importance of Excluding the Soviets from the
Project: The Soviet bloc capability of supplying capital
equipment for many industrial enterprises in the Middle East is
recognized. Obviously the United States Government cannot counter
every Soviet offer to subsidize industrial projects in this region.
However, due to the vital importance of the Middle East petroleum
resources to the Free World, it is important that every effort be
made to secure the awarding of the Syrian refinery contract to a
reliable Western firm.
This refinery threatens to become the first refinery to be built by
the Soviet bloc in the Free World. Soviet capital and technical
methods will be introduced into the Middle East and a large number
of Soviet technicians, estimated at 350, will be occupied for
several years in the construction and at least the initial operation
of the [Page 585] refinery. Training
a considerable number of Syrians in the U.S.S.R. is also likely to
occur. The Soviets may be expected to use this refinery project as a
means of infiltrating and influencing developments in the Syrian and
Middle Eastern oil industry, including both the oil fields and
transportation facilities, for their economic and political
advantage.
Aside from the aforementioned situations which the Soviets can be
expected to exploit, it is improbable that there would be any
immediate Syrian shift away from Western controlled crude, although
intensified pressure for more favorable supply terms might be
expected. In any case, regardless of whether the East or the West
obtains the refinery contract, the existence of a Government-owned
refinery can be expected to increase the difficulties of Western
companies now marketing petroleum products in Syria.
Possible Courses of Action:
- 1.
- The Department might discuss the problem as soon as possible
with the top management of one or more of the major U.S. oil
companies; for example, the Aramco parent companies which have an indirect
interest because of Tapline.
Two of them have a further interest through IPC. On the basis of this
discussion one or more of these companies might be willing to
make a sufficiently favorable offer to the Syrians to secure the
contract for the West. Such an effort might help to consolidate
the sentiment within the country which favors private
enterprise.
- a.
- One or more of the
companies might be encouraged to undertake to build and
operate the refinery on terms acceptable to the GOS. The Jersey company has
already offered to build its own refinery in Syria and
might be induced to modify its original position so as
to make it sufficiently attractive to encourage the
Government to drop its own plans, e.g. by agreeing to
turn the plant over to the GOS after the expiration of a period of,
say, 5 to 10 years.
- b.
- One or more of the
companies might be willing to assist one of the bidders
to make its bid more competitive with the Soviet
offer.
- 2.
-
The U.S. might discuss with the Government of Italy the
feasibility of the U.S. Government assisting, through the
Mutual Security Program or the P.L. 480 Program, the Italian
company which is reported to have submitted the lowest
Western bid for the project. Embassy Damascus believes that
this approach might have the advantage of economy,
effectiveness and fairness to Western bidders, (Tab D).
This approach raises four major problems: (1) the use of U.S.
Government funds for petroleum developments, particularly
for government-owned [Page 586] projects; (2) the possibility that ENI,11 the Italian Government oil company, and
Enrico Mattei may be involved in the Italian bid; (3) the
possibility of publicity to the U.S. effort through Italian
Government leaks; and (4) inability to move rapidly enough
on this approach in the absence of approved aid legislation.
The Syrian problem may be serious enough to justify an
exception in the use of U.S. Government funds. Efforts are
being made to secure information on possible ENI involvement
in the Italian bid; however, the seriousness of the Syrian
problem may be sufficient justification to overlook possible
ENI participation.
- 3.
- If the Italian Government approach is impracticable or
inadvisable, a similar approach might be made to other Western
governments in connection with bids by their nationals.
- 4.
- The U.S. might, with appropriate safeguards, support a Western
bid with confidential public funds. A U.S. company bid, a bid of
a U.S. company European affiliate, or the Italian bid might be
considered in this connection. In addition to the Jersey
proposal, bids are said to have been made by Kellogg, Lummus,
and a European Foster-Wheeler affiliate.
