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

349. Memorandum From the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Rountree) to the Under Secretary of State for Political Affairs (Murphy)¹

Washington, March 18, 1957.

SUBJECT

• Syrian Refinery

During the past year the United States has followed closely the competition between Western firms and the Soviet Bloc for construction of a government-owned refinery in Syria. A number of deadlines for submission of bids have come and gone, and the award has not yet been made. The latest information (Tab A)² is that the Minister of Public Works was authorized about March 6 to sign an agreement with the Czechs. The delay is reported to be due to the efforts of Syria to reduce the interest rate from 31/2 to 3 percent.

What we know about the Czech offer: The Czech bid reportedly amounts to 54 million Syrian pounds ($15,126,000) to be paid over a period of 10 years. The interest rate set on the amount covered by loan, perhaps as high as 50 percent, is 31/2 percent. The Czechs are also reported to be prepared to take Syrian pounds. The latter point is stated to be an important reason inclining the Government of Syria to the Czech proposal.

The Western offer: The principal Western bid is that of Procon. This firm, if successful, will probably construct the plant in conjunction with an Italian consortium in which Ansaldo would be the prime mover. Hydrocarbon, an American engineering firm which is associated with the Mannesman Company of Duesseldorf, is reported from time to time to be still interested in the project, but is now in serious need of financial assistance. The Procon offer amounts to 56 million Syrian pounds ($15,500,000); 30 percent is to be repaid during the period of construction and the remaining 70 percent financed over a period of 12 years at an interest rate of 3 1/4 percent. The current favorable financial terms have been made possible by the willingness of the Government of Italy (Tab B)³ to improve the financing which was made available as the result of the sale of P.L. 480 commodities to Italy in October 1956 which generated 6.875 billion lire ($11 million).

U.S. assistance to date: The question of whether the U.S. should extend assistance to a Western offer has been thoroughly discussed within the Department. As a result of an examination of this problem last fall, the Under Secretary approved the utilization of the proceeds from possible new P.L. 480 sales for a loan to the successful bidder (Tab C).⁴ As a result of this authority, the $11 million fund referred to above was developed.

Additional assistance: The question as to whether the U.S. should give further financial help involves a number of considerations:

Arguments against:

1. The Czech objectives are solely political; the Czechs could be expected to meet a reduction in the Western offer.

2. The U.S. Government has not historically subsidized commercial ventures for political objectives; a precedent would be established by a direct subsidy of the Western offer in this case.

3. With respect to petroleum development, the U.S. Government has followed a policy of giving no financial assistance to investments in this field since the industry itself has heretofor demonstrated a capability to finance new projects. The U.S. also has favored private ownership of refinery and production facilities where private companies are interested. (ESSO expressed an interest in building its own refinery in Syria about a year ago.)

4. As the result of the new Italian offer and other developments, Procon now has the capability of prolonging GOS deliberations on the award. These capabilities are as follows:

a. The company has launched an advertising campaign to inform the Syrian people that Procon is U.S., not British, owned and has a considerable reputation in the construction of refineries. Moreover, that it is interested in the Syrian project.

b. The local agent of Procon has been instructed to discuss with officials the feasibility of some type of operating arrangement. (Procon is not interested in operating refineries, but is willing to use this idea as a means of prolonging the conversations, and hopes it may be able to interest someone else in a management contract.)

c. Within the past few days Procon has authorized a reduction in the interest rate on its offer from 4 1/2 to 3 1/4a percent and an extension of the repayment period from 10 to 12 years.

5. Even if the contract is lost to the Czechs, there is a possibility of going to the courts to contend Procon holds a valid letter of intent from the government which is being violated.

Arguments in favor of additional U.S. assistance:

1. The Procon bid exceeds the Czech offer and is likely to fail. A grant by the U.S. Government would enable Procon to reduce its asking price substantially below that which is being quoted by Czechoslovakia. Mr. Whyte, President of Procon, believes that their price would have to be dropped by at least 10 percent ($1.5 million) in order to dramatically impress Syrian officials.

2. If the refinery contract were awarded to Procon as a result of a U.S. subsidy to Procon, a gain for the U.S. would have been made in the area, and a bridgehead would have been denied the Communists. If the Czechs get the contract, the Communists will have gained an opportunity for penetration and subversion activities in an industry of the Near East of critical importance to the West.

3. A decision on the part of the Syrian Government to award this project to a Western firm is likely to bring on a Government crisis. This might or might not be beneficial to Western objectives. If the crisis resulted in a new government favorable to the West, the $1.5 million involved would have been well spent. If unsuccessful, the government would take on an even more leftist character and the contract would probably be awarded to the Czechs anyway; thus the additional financing would not be necessary.

4. If the Czechs underbid a new Procon offer based on U.S. assistance, we will have lost nothing and the frankly political nature of the Czech competition would be more clearly revealed. If the Czechs do not underbid a new U.S. offer, but the GOS still doesn’t accept the U.S. bid, the anti-West policy of the GOS would be brought home to the world and to the Syrian people, who might be stirred to some kind of pressure or action against a government which so blatantly disregarded national interests.

Recommendation:

On balance we believe it would be desirable to give some additional U.S. assistance to Procon, probably not the substantial amount recommended by Procon, but sufficient to bring Procon under the Czech offer (at least $500,000). If you agree in principle, we would like to explore the possibilities within the government.⁵

1. Source: Department of State, Central Files, 883.2553/3–1857. Secret. Drafted by Shaw and Rockwell on March 15.
2. Telegram 2035 from Damascus, March 6, not printed.
3. Telegram 3611 from Rome, March 12, not printed.
4. Not attached to the source text. Tab C was presumably the memorandum from Rountree to Hoover, Document 333.

5. A marginal notation by Murphy on the source text reads: “OK RM”.

   On March 18, the Embassy in Damascus reported that on the evening of March 16 Syrian Public Works Minister Kayali announced the signature of a contract with the Czechs, providing for the construction of the refinery for 5,420,000 pounds sterling at 3 percent interest. (Telegram 2128, Department of State, Central Files, 883.3932/3–1857)

   A copy of a memorandum from Siracusa (ARA/OSA) to Rubottom, January 10, 1958, attached to the source text, reads as follows:

   “Mr. Murphy agreed in principle with an NEA proposal to explore within our government the feasibility of using government funds to subsidize a western petroleum consortium to enable it to underbid Czechoslovakia on a contract to build a refinery for the Syrian Government. We did not actually execute this proposal because things moved too fast and the Czechs got the bid.

   “To the extent that this idea won approval in the government, it constitutes a precedent for the use of public funds in the general petroleum industry area when the objective is to meet communist competition and combat its penetration.”