143. Memorandum From the Director of the Bureau of the Budget (Schultze) to the President’s Special Assistant (Valenti)1

SUBJECT

  • Immediate Next Steps on International Desalting Program

As you know, the First International Conference on Desalting will be held in Washington October 3–9. Secretary Udall and Chairman Seaborg have requested the President to announce at the Conference a program of expanded cooperation with other nations in the field of desalting. Briefly, the program would commit us to—

  • —assist water resources studies in developing countries;
  • —urge other developed countries to join with us in establishing a “talent bank,” under United Nations or similar auspices, to help solve water problems throughout the world;
  • —seek authorization for a fund of $300–$500 million to help provide “soft” financing for desalting plants abroad.

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Don Hornig, Mac Bundy,2 and I have serious reservations about committing the Administration to a $300–$500 million foreign aid construction program in desalting at this time.

The technology of economic, large-scale plants is as yet undeveloped. The largest plant built so far is on the order of 2 million gallons per day. The Interior-AEC proposal contemplates plants of 100 million gallons per day. Until we have a well-developed and well-tested technology firmly in hand, we run the risk of supporting plants that will be uneconomical or which will not work satisfactorily. The foreign policy implications of either outcome could be very unfortunate. We ought not to be conducting what is essentially a major R&D program in less developed countries. (Don Hornig has outlined this in more detail in his September 14 memorandum to you, copy attached.)3

The proposal will involve high budgetary costs, particularly in fiscal year 1967 (NOA of $120–$190 million). In addition, we run the serious risk of budgetary costs over and above those now contemplated if the demand for plants is greater than the number now planned. Since the Interior plan contemplates only two large desalting plants, the question arises as to how we discriminate in selecting sites. If the plants prove uneconomic, added budgetary cost would surely arise. For example, the Israeli project could require operating subsidies on the order of $5 million per year.

The proposal would mean support of large plants abroad in the absence of a similar program at home. Congress has recently approved a 5-year domestic program of $200 million for research and development only. A program to construct foreign plants raises serious questions of Congressional acceptance, especially since we could certainly test more efficiently in the United States.

The proposal raises serious questions of nuclear proliferation. We might be supplying the capacity to produce plutonium to countries having long-standing enmities with their neighbors. The amount of plutonium generated by a 200 MWe plant would produce enough materiel annually for a large number of nuclear weapons.

In addition, the Department of State, the Agency for International Development, and the Treasury Department raise the following important questions (see letters attached):4

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State believes that from the standpoint of foreign policy we should refrain from committing the United States to a specific, large-scale program to support plant construction and operation overseas until the present uncertainties about our capacity to build reliable and economic desalting plants now and in the near future are resolved. The Department also believes announcement of such a fund now would substantially predetermine a decision on U.S. financial participation in the prospective Israeli project. This decision should not be made until completion of technical studies now underway and a thorough assessment is conducted of the economics and political implications of the project.

AID believes that the proposed fund will largely constitute a substitution for present aid resources. The Agency further points out that this proposed use of resources weakens AID’s requirement that capital projects be economically feasible. AID also questions the use of concessionary financing in countries where we are largely out of the aid business. The Agency also suggests that earmarking of funds for specific types of projects distorts developmental priorities.

Treasury questions the advisability of committing the United States to spending large amounts of money for foreign desalting plants until plans are firm enough to assess accurately the effect on the balance of payments. The Department also questions the advisability of “soft” loans to countries that are being phased out of the aid program, and the desirability of funding a large-scale “AID-type” program outside AID channels.

The upcoming Conference is such that the President need not become involved. It will be a highly scientific and technical conference. (See copy of agenda attached.)5 Roughly 2/3 of the delegates will be from the United States, including many industry and university representatives. Most foreign official delegates are a cut below the ministerial level. It would be entirely appropriate for Don Hornig to address the delegates as the President’s top adviser on research and development matters in general and coordinator of U.S. desalting efforts in particular. As an alternative, Secretary Udall could deliver a welcoming speech for the President, indicating the President’s deep interest in desalting and the importance he attaches to the Conference (we understand that in view of the President’s planned absence from the city on October 4, Secretary Udall is planning to deliver an opening speech).

If the President (through Secretary Udall or personally) wishes to address the Conference, there is plenty he can say without committing the [Page 258]United States to support of foreign desalting plants. Suggested items, based in part on the list submitted by State (see pp. 3–4 of letter), are attached.6

The alternatives for the Conference are:

(1)
A Hornig speech;
(2)
A Presidential speech delivered by Udall without a commitment to support foreign desalting plants;
(3)
A Presidential speech delivered personally without a commitment to support foreign desalting plants;
(4)
A Presidential speech delivered personally including a commitment to seek a fund to support foreign desalting plants.

I recommend a Presidential speech delivered by Secretary Udall (alternate 2).7

Charlie
  1. Source: Johnson Library, White House Central Files, Confidential Files, FO 7/1–FO 7/5. Confidential. The handwritten phrase “Keep where can get fast” is at the top of the document.
  2. Despite the discussion in Charles Johnson’s September 21 memorandum to Bundy ( Document 142), Bundy apparently decided to “sign on” to Schultze’s memorandum.
  3. Document 140.
  4. Not attached. Reference may be to a September 16 letter from Seaborg to Schultze, a September 17 letter from Bell to Schultze, a September 18 letter from Ball to Schultze, and a September 17 letter from Trued to Clark. All are in the Johnson Library, National Security File, Subject File, Desalting Projects, Vol. I.
  5. Not attached.
  6. Not printed.
  7. In a September 30 memorandum to the President, Douglass Cater recommended that the President not address the conference. Hornig, Schultze, and Valenti concurred. “Hornig felt, and we agreed, that we need to make a breakthrough on the domestic front—hopefully a nuclear desalting plant for Los Angeles—before making concrete proposals on the foreign front.” They noted that Udall would address the conference and recommended that the President either invite the delegates to the White House and make informal remarks or send a brief message to be read at the conference. “We believe that alternative one would be greatly preferable to number two,” Cater wrote. Johnson left the first alternative unchecked, but agreed to the second alternative. (Memorandum from Cater to the President, September 30; Johnson Library, National Security File, Memos to the President, September 1965 (Open))