Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

PE–39. Despatch from the Chargé in Peru (Neal) to the Department of State¹

No. 491

Lima, February 18, 1960

REF

• AmEmbassy Tel. No. 736²

SUBJECT

• Conversation with President of Chamber of Deputies

Re La Brea y Pariñas Problem

I told Sr. Javier ORTIZ de ZEVALLOS that I was worried about the trend the La Brea y Pariñas Award matter³ had taken and that my concern was shared by the Department of State in Washington.

He shook his head and said, “This is a very complicated problem.” I agreed with this and said I was disturbed about the feeling in Congress during the last days of the session and sensed a feeling of expropriation.” He said, “No, you don’t have to worry about that.”⁴ He stated Peru had never broken an international obligation and was not going to do so in this instance.

I then asked him how the matter was to be resolved and didn’t he think there could be a compromise solution such as “adapting” or bringing the International Petroleum Company’s La Brea y Pariñas concessions under the Petroleum Code.⁵ I said I felt IPC would be willing to give up certain privileges in order to adapt its operations to the Code.⁶

He said this solution would never be acceptable to the opposition. He stated Pedro BELTRAN had suggested this but it was not acceptable and such a move had no chance at all for approval. I asked why he was so certain of this.

Sr. Ortiz de Zevallos said (IPC’s) La Brea y Pariñas concession terminated in 1972.⁷ On that date, “Talara (the Company’s refinery and installations) will belong to Peru.” The opposition realizes this and if a bill is presented “adapting” IPC to the Petroleum Code it would call for an extension of IPC’s concessions for an additional 20 or 30 years. He said “IPC does not have a friend in Congress, not one, therefore they are not going to be allowed to extend their concessions.”

I then asked him whether Peru intended to operate its own oil industry. I said if IPC realized it was not going to obtain an extension of its concession rights then I could imagine the company would cease its investments, terminate its exploration and development operations, and that by 1972 the industry would be in such condition that it would be very difficult for the Government (if it failed to renew the concession before that date) to assume responsibility for operating the industry. I said if the Government did have to take over the industry one of the first necessary moves would be to increase the price of products—a step which would be most unpopular with the people.

Sr. Ortiz de Zevallos said, “The company will have to keep the industry going during this time—why shouldn’t it, it has made so much money in the past and with its latest price increase, why shouldn’t it?”

The President of the Chamber of Deputies spoke again and again about the unpopularity of IPC. He said the company had no friends anywhere in the country. He said not a Member of Congress or a Cabinet Minister could stand up and make a favorable remark in IPC’s behalf. If anyone did so, he would be charged with taking a pay-off from IPC. He said IPC has always had poor public relations: “They don’t know how to handle this situation.” He said they expect that paying 40,000 soles for an advertisement in El Comercio, which is one of IPC’s big critics, helps, but it does not. He criticized IPC officials, saying they are difficult to deal with. He said he sent one of his representatives to IPC only a few weeks ago but his man received a “brush-off.” He stated IPC had sent him copies of its position on La Brea y Pariñas for distribution to each member of the Chamber of Deputies. He said, “I returned all of them to the company and then telephoned to see whether they had been received. This was not the way to handle the matter.”

He said if I would think about it a minute I would realize that IPC is unique in the hate it has generated in Peru. He said companies producing lead and zinc, cotton, sugar, fish, and copper are popular with the people, and these companies can be defended, but not IPC and petroleum.

According to Ortiz de Zevallos, IPC has always been unpopular because it inherited a “dirty business.” He said the original Award was brought about by graft to certain persons in France and to the Peruvians who put over the deal. He said he and his father (former Ambassador)⁸ were talking only this morning about the Award and that his father was in Paris when the Award was made and remembered the talk of the “pay-offs” at that time. He said his father warned him about the matter and had convinced him that it was an illegal thing from the start.

I told him I knew the stockholders of IPC would like to know just what could be done to place this in the proper light. He said he didn’t know but that “building a few houses in Talara” (the IPC housing project in Talara was one of the first in Peru and was quite well done) and putting advertisements in El Comercio was not going to win friends. (Comment: Ortiz de Zevallos is quite right about Talara housing, it was never received as it should have been.)

I kept pressing the President for his idea of a solution. He said, “Pedro Beltrán is a good friend of the United States. I am certain he will have some formula.” At the same time, he stated that when the President returns from Paris he is going to concentrate on La Brea y Pariñas matter.⁹

Several times, he told me “the opposition” was going to delay the problem as long as possible because it will make a great “banders” (issue) in the 1962 election. He said with all the opposition to IPC this is something which will appeal to the people.

I told the President that 1972 was going to roll around quicker than he thought and that no large concern was going to wait until the last minute to attempt to negotiate a contract on an oil concession or monopoly with a nation. I said I felt certain it would be necessary to start negotiation on a settlement before 1972 and this would not only be in the interest of the company, but also beneficial to the people of Peru. He admitted this.

I stated that if IPC is as unpopular as he feels it is (I personally believe he has the correct feel on this because it has become a real popular subject with no IPC backers), I was certain the shareholders would want to do something to correct the situation, therefore what was the answer? He said that expropriation was not the solution because Peru knew better than to try to buck the big international oil concerns. He realized that Peru would need foreign markets and that it could not compete with the big companies if Peru tried to take over alone. He said he saw a partnership deal as now exists in other countries.

I stated that as he already knew IPC was owned almost wholly by ESSO and that ESSO is acquiring sole ownership; and that maybe the solution would be to take the name of IPC entirely out of the picture and make it ESSO of Peru. He said, “something like that.”

I told the President that our concern over La Brea y Pariñas did not center altogether around IPC, but that we were worried about the adverse effects an unfavorable decision would have on the climate for foreign investment in Peru. Any discriminatory action here would make us start worrying about other United States investments such as Toquepala, Cerro de Pasco, Marcona, etc., etc.

Sr. Ortiz de Zevallos said I need not worry because IPC was a case within itself—“an isolated case.” He stated several times that this matter had nothing to do with anti-American sentiment. He said, “if you will think back on all the discussions and debates in Congress you will note that not once was the name of the United States mentioned—no U.S. imperialist talk—no anti-American sentiments.” He said he was afraid the Eisenhower visit to Chile was going to be mentioned and touch off remarks of ill feeling but this did not happen.

Jack D. Neal

1. Source: Department of State, Central Files, 823.2553/2–1860. Confidential.
2. Telegram 736 from Lima, February 18, reported on the present conversation. (823.2553/2–1860)
3. Reference is to a controversy over the status of the International Petroleum Company’s ownership of petroleum deposits in the La Brea y Pariñas property on the northern coast of Peru. A 1922 arbitral award granted the rights to the surface and subsoil of the area to IPC’s predecessor in perpetuity. In the summer of 1959 opponents of the Peruvian Government sought to have the award canceled in the Peruvian Congress. In despatch 546 from Lima, March 11, 1960, the Embassy submitted a background study of the controversy with pertinent documents. (823.2553/3–1160)
4. At least two opposition deputies spoke in favor of expropriation during the recent debate. [Footnote is in the source text.]
5. In despatch 546 of March 11, the Embassy informed the Department that “since 1957, the company has sought, unsuccessfully, to bring its operations under the Petroleum Law [of 1952], which would permit it to renounce its title to the subsoil of the property and to carry on its exploration, development and production activities as a concessionnaire.”
6. In despatch 621 from Lima, April 21, the Embassy reported that Jack Ashworth, General Manager of the company, had made an offer in writing to Prime Minister Beltrán for 50 percent Peruvian Government participation in the company’s net earnings. (823.2553/4–2160)
7. The concession presumably would end in accordance with a provision in the British-Peruvian Agreement of Settlement of March 2, 1922, providing that on January 1, 1972, at the end of a 50-year period, the property would become subject to payments under Peruvian laws then in effect or enacted thereafter. (Enclosure 8 to despatch 546 of March 11)
8. Reference is to Emilio Ortiz de Zevallos who was Second Secretary of the Peruvian Embassy in France at the time of the La Brea y Pariñas Award in 1922.
9. President Prado returned to Peru on March 11 after a 28-day official visit to France, the United Kingdom, Italy, Switzerland, the Federal Republic of Germany, and the Netherlands. In despatch 575 from Lima, March 29, the Embassy reported on a March 22 radio and television address by President Prado on his trip. (823.00/3–3960)