373. Information Memorandum From the Director of the Office of Regional Economic Policy (Rogers) to the Assistant Secretary of State for Inter-American Affairs (Meyer), Washington, March 5, 1971.1 2

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Memorandum
March 5, 1971

TO:
ARA - Mr. Charles A. Meyer
ARA - Mr. Robert A. Hurwitch
ARA - Mr. Daniel Szabo
ARA–LA/CAR - Mr. William D. Broderick
OPIC - Mr. Freeman
LA/DP - Mr. Jack Heller

FROM: ARA/ECP - J. T. Rogers

SUBJECT: Guyana - Bauxite Nationalization Act

Summary: On February 23, 1971 the GOG announced that it was nationalizing Alcan’s bauxite subsidiary (Demba) because GOG demands for equity participation were not met. The proposed legislation does not specify Demba and can be used for Reynolds Metal (a U.S. corporation) as well. Compensation is to be paid from future profits, which depend on Guyana finding markets and technicians (or keeping existing ones) to keep the operation going. Reynolds’ holdings are about $20 million with an AID investment guarantee for $16 million. The holdings represent only 10% of Reynolds’ requirements for bauxite, though a higher percentage of calcined bauxite. Reynolds, therefore, has little incentive to negotiate to give GOG major equity especially as this could jeopardize its more important holdings in Jamaica. Rumors that Alcan may market the nationalized bauxite have had a disturbing effect in Jamaica, as anything which made the GOG action appear successful could put pressure on Jamaica government to come up with a comparable arrangement for the bauxite companies in Jamaica, despite substantial political and labor opposition to radical moves.

Background. Following several months of negotiating for majority “participation” by the GOG in Alcan’s bauxite and alumina subsidiary (Demba), Prime Minister Burnham, on the first anniversary of the Cooperative Republic (February 23), bitterly attacked Alcan and Demba and announced the impending takeover of Demba holdings following legislative approval. Prime Minister Burnham admitted that Alcan had agreed to 51% equity. but said negotiations had broken dawn on other issues.(1)

(1) Burnham said Alcan insisted GOG put up $50 million for expansion, compensate with cash before taxes, and guarantee no better deal for other bauxite companies. Canadian sources say Alcan wanted GOG to borrow $23 million from IBRD, GOG to get 70% of profits.

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The proposed legislation, called the Bauxite Nationalization Act, 1971, amends the Constitution and makes other provisions for the “public ownership”of bauxite“undertakings”as necessary to secure“the interests of the people“, and to“promote the development of the economy.” Among other things,“compensation” as presently provided under the Constitution is made to conform with the terms contained in the Act.

Terms of nationalization provide that all assets and liabilities of the nationalized company (unless excepted) are transferred to the state, along with “actions” for and against the company. Related contracts, deeds, bonds, etc. “unless limited by law” are in full force.

Compensation. According to the proposed Act: (1) the State shall pay compensation as noted in (2) and (3) below or as may be agreed in writing between the State and the company. (2) Valuation is to be based on book value as of December 31, 1969, with any increase since then to be “other than by revaluation or reappraisal.” (sic). (3) Compensation will be paid in annual installments beginning in 1972 out of annual profits from the carrying on of the nationalized undertaking by or on behalf of the state; provided that any annual installment shall not be less than 1/8 of profits for the preceding year after taxes.

The Guyana Development Corporation is the successor of “the company” with respect to employment.

An exploratory memorandum to the bill states that nationalization is authorized only where the Minister of Mines certifies that negotiations for participation by the state in the undertaking have failed to produce agreement.

Reaction in Guyana to the nationalization has been mixed, with some fearful of the effect on private investment, local and foreign. Reaction in Jamaica has been mostly negative, and limited to comments by the conservative press and by labor Leaders. Reports (as yet unestablished) that Alcan may offer to market its nationalized bauxite have had a disturbing effect in Jamaica, since anything which would give the Guyanese takeover apparent success would put pressure on the Jamaicans to produce an agreement comparable to the equity arrangement or to take even stronger action. The Canadian Government continues its hands-off policy, noting that negotiations for compensation between Alcan and the GOG are going on. There are indications that the Canadian Government may be more concerned about its position vis-a-vis U.S. investment in Canada, [Page 3] than in protecting Alcan’s interests in Guyana, especially given the large U.S. ownership in Alcan. The Trinidadian Prime Minister is reportedly unsympathetic to Burnham.

The Position of Reynolds Metal Corp. in Guyana has not been made clear by the GOG, although former UN Ambassador Goldberg has approached the GOG on behalf of that company and subsequently provided Prime Minister Burnham information on the Hickenlooper Amendment and the Sugar Act. While Alcan is a Canadian corporation 48 per cent U.S.-owned, Reynolds is an American corporation. Alcan’s holdings in Guyana are more extensive - $100 million book value (est.) compared to about $20 million for Reynolds. Reynolds also has an AID investment guarantee (now held by OPIC) against expropriation and war for $16.3 million. While Alcan depends on Demba for 1/3 of its bauxite requirements, Reynolds gets only 10% from its subsidiary. All in all, Reynolds may have less interest in negotiating an equity agreement, especially if it might establish an adverse precedent with regard to its more important holdings in Jamaica.

  1. Source: National Archives, RG 59, ARA Deputy Assistant Secretary Subject and Country Files: Lot 74 D 343, Economic Policy Plans, Coordination, Guyana, 1970, 1971. Confidential. Sent for information. Drafted by King and Bittner; and cleared by Moser (ARA/ECP). Copies sent to Hurwitch, Szabo, Broderick, Freeman, Heller, Feldman, and Richardson (INR/RAR). The memorandum is an unsigned copy.
  2. Director of the Office of Regional Economic Affairs (ARA/ECP) Rogers outlined the important aspects of Guyana’s nationalization of ALCAN (DEMBRA). He concluded that the reaction to the nationalization in Guyana was mixed.