Foreign Relations of the United States, 1955–1957, Arab-Israeli Dispute, 1955, Volume XIV

457. Telegram From the Department of State to the Embassy in the United Kingdom¹

Washington,December 14, 1955—8:32 p.m.

3346. Acting Secretary held meeting today² attended by British Ambassador,Black of IBRD, Egyptian Ambassador, Kaissouni and Egyptian engineers, purpose of which to inform Egyptians status US-UK-IBRD consideration Aswan Dam project. Following substance information conveyed orally by Actg Secy and supported by British Ambassador and Black:

Begin summary: After careful study of how US and UK Governments, in conjunction IBRD, might assist Egypt build Dam, we have now reached point in thinking which would render it useful to tell Egyptian officials how matters developing. British and US Governments expect within next few days to be prepared document offers in form aide-mémoire.³ Third document will be given Egyptians by IBRD,⁴ the three communications being interrelated. We hope they will render it possible for Egypt to proceed with project. We do not yet have draft aide-mémoire, which we will discuss with Kaissouni before their delivery; however following is general outline main points of arrangement which we think it might be possible undertake:

A. Re first stage, US and UK would together make grant aid contributions to preliminary Dam works aggregating $70 million covering necessary foreign exchange costs. Understood that Egyptian Government would put up remainder required for foreign exchange costs as well as for local costs this stage of project. Re local costs US might be in position provide additional assistance through utilization of substantial amounts Egyptian currency representing proceeds of sale to Egypt of wheat under P.L. 480. To extent such monies might be used burden upon Egyptian Government of raising local funds would of course be lessened.

B. Re second stage US and UK Governments would undertake cooperate with Egypt other Governments which might be interested and IBRD by lending their further support toward execution of project. While not empowered to speak for IBRD it our understanding that IBRD is contemplating letter of intent stating its readiness consider loan to Egypt of up to $200 million for foreign exchange costs of second stage subject to there having been worked out satisfactorily such points as internal financing, agreement with Sudan on division of Nile Waters, stability of local economy and arrangements for additional outside financing which will be needed.

C. Certain aspects of mechanics of implementing project are of considerable importance within context of assistance from US and UK:

(1) We will propose that disbursement of grant funds for first stage be handled by IBRD on basis of criteria normally applicable to Bank’s own funds. In other words, from outset IBRD would assume responsibility for handling foreign exchange provided for project by US and UK Governments.

(2) After thorough consideration USG finds that if US public funds are to be used on either grant aid or loan basis, directly negotiated contract with consortium is not feasible. We aware of Egyptian desire to enter into such a negotiated contract, in belief that only this course would permit initiation of work on project in 1957. On basis our discussions with IBRD however believe if procedures normally employed by Bank are used in this instance project will not be delayed. By following method of “invitational bidding” not only will legal difficulties relating to the American aid be overcome but we will avoid severe criticism which inevitably would follow any endeavor to make an American contribution on basis excluding competition. Our objection to negotiate contract is based on a principle and would not be overcome by for example adding American firm to consortium. Objection would be equally strong if American firm alone were being considered for contract. We have no objection to consortium as such and in fact consider it quite possible it will win contract under competitive bidding.

D. Again turning to question US grant assistance for stage one, in order make funds immediately available American contribution will necessarily come out of current FY 56MSA appropriations. This contribution will far exceed FY 56 program which might have been undertaken in Egypt in absence of Dam project. Our going ahead with latter project will therefore have effect of reducing substantially other elements of FY 56 Program for Egypt, although it is not expected that FY 55 program of which greatest part still unexpended will be affected. Indeed latter funds should provide important support to Egyptian economy during calendar year 56.

E. Should be understood that in establishing magnitude economic programs for Egypt in subsequent fiscal years Congress undoubtedly will take into account sums committed by US to Dam project. Assistance to Egypt as well as to other countries provided for by annual Congressional action, and in calling these matters to attention Egyptian officials we not endeavoring to predict amounts that will in fact be available in future years.End summary.

Egyptians expressed great appreciation this evidence US UK and Bank desire help with project of such importance to Egypt, and main discussion centered around two points: a) whether US and UK might be prepared now make firm commitment re assistance in phase 2 of project and b) requirement for competitive bidding.

While Egyptians seemed disappointed that firm phase 2 commitment could not be made, they were reasonably satisfied with explanation given. Re second point, however, Egyptians and particularly Hilmi urged strongly reconsideration so that negotiated contract can be given consortium. They expressed belief that delays which would inevitably accompany bidding for contract would result in postponement initiation of work beyond July 57, which is present target date. They suggested that in order avoid any criticism that US funds being spent for negotiated contract, Egypt would assume financial responsibility for consortium services (amounting approximately $23 million) with understanding full $70 million contributed by US and UK would be utilized under Bank procedures for purchases made on basis of competitive bids. Acting Secretary, British Ambassador and Black undertook consider Egyptian suggestion, but made it clear it unlikely that US could agree proceed with project on this basis.

FYI: Believe US must insist on competitive bidding for contract although we hope that simple and expeditious means meeting this requirement can be devised. Department shares IBRD view that bidding on “invitational” basis would be possible without causing undue difficulties or delays.

We will keep you informed of further developments.

Hoover

1. Source: Department of State, Central Files, 645W.74322/12–1455. Confidential. Drafted and approved by Rountree, who signed for Hoover. Also sent to Cairo.
2. No other record of this meeting has been found in Department of State files.
3. Document 461.
4. The referenced document, “Draft of Proposed Letter from the President of the International Bank for Reconstruction and Development to the Prime Minister of Egypt,” is the IBRD’s letter of intent. (Department of State, Central Files, 874.2614/ 12–1655) For portions of the letter, see vol. XV, footnote 2, p. 1. According to a memorandum of December 19 from the Secretary of the International Bank for Reconstruction and Development to Under Secretary of State Hoover,Black handed this document to Kaissouni on December 17. (Ibid.)