83. Information Memorandum From the Assistant Secretary of State (Meyer) to the Deputy Under Secretary of State for Economic Affairs, (Samuels), Washington, November 6, 1969.1 2

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NOV 6 1969

TO: D - Mr. Samuels
THROUGH: S/S
FROM: ARA - Charles A. Meyer
SUBJECT: Bolivia - Nationalization of Gulf--INFORMATION MEMORANDUM

The following are the answers to the questions in your memorandum of November 4:

1. The present situation between Gulf and the Bolivian Government is that both parties are groping through intermediaries toward establishing direct negotiations on compensation for the Gulf properties seized by the Bolivian Government.

2. a. Bolivia’s Position: President Ovando’s last offer is:

-- 25% of the value of crude exports through Arica to be paid to Gulf directly by a third party;

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-- 10% of the value to be deposited in a Bahamas bank by the third party and to be paid to Gulf in accordance with a compensation formula to be subsequently determined;

-- The total value of the 35% is estimated to be $7 million and coincides with the appropriate percentage of crude export values in 1967 and 1968;

-- 10% of the value of natural gas exports (once the gas pipeline is built), or approximately $1.2 million a year for Gulf’s investments to date in the gas pipeline to Argentina, which Bolivia estimates to be at approximately $12–14 million.

President Ovando’s proposal for compensation has been transmitted to the Bolivian Ambassador in Washington and by him to the IBRD and the Department of State. President Ovando confirmed this offer to Ambassador Castro on October 31. At that time, he stated that he was prepared to discuss compensation with Gulf and that he would conduct the negotiations. President Ovando also envisages an impartial expert determining the value of Gulf’s assets, and he has told our Ambassador that he is prepared to have the IBRD exercise this role. On November 6, the Bolivian Ambassador wrote Gulf that the President desires to meet with a Gulf representative in a strictly private meeting at the earliest possible date.

It is not clear that there is agreement within the Bolivian Government on the nature of assets which should be compensated nor on the manner in which compensation should be effected, nor even on the method of negotiation. Minister of Mines Quiroga has made public statements limiting the Government’s proposed compensation to the value of Gulf’s fixed assets above ground. The Minister has not offered Gulf more than the 10% to be deposited in a Bahamas bank. The normal preemption would be that President Ovando speaks for the Bolivian Government and that his offers, which were subsequent in time to the proposal of the Minister of Mines, are more authoritative. The Bolivian Cabinet is deeply divided, and the power relationships are uncertain. Ambassador Castro is not at all certain that President Ovando will be able to deliver on his proposal, even if Gulf should accept it, and history demonstrates that Ovando to extremely flexible and very often moves away from proposals he has made.

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b. Gulf’s Position: Gulf has taken the position that the expropriation is illegal under Bolivian and international law and that the Company will take all available measures to protect its title or other rights if the oil is offered to third parties. The Company may also bring an action in the Bolivian courts challenging the legality of the expropriation. Gulf has stated publicly that it is available for discussions at any time, but the Company has been slow to take up Ovando’s invitation to meet. It has insisted upon, and received, written confirmation of Ovando’s offer to meet.

The Company’s bargaining position is not entirely clear at this time. Gulf has told us it hopes to negotiate an Iranian-type solution in which it can resume operations in Bolivia under the cloak of the nationalization. However, the Company has said it will discuss compensation with the Bolivians and it has indicated it would accept third-party determination of the amount. The Company has objected in principle to compensation in kind or frame the proceeds of the oil and gas it considers its own, and it has refused to lift any crude from Arica until the total amount of compensation has been determined. The formulation that the Company will not accept an “undetermined” amount of compensation out of proceeds from its oil suggests that this objection may be a bargaining position. The last official Gulf position communicated to the Bolivian Government was its refusal on October 25 of President Ovando’s offer of 25% of the proceeds of exports of crude through Arica.

The Gulf Executive Committee is meeting on November 11 to adopt a position. We are told informally that Gulf would expect compensation for proceeds anticipated from proven reserves over the remaining twenty-seven years of the concession. This figure presumably will be much larger than Gulf’s total investment in Bolivia of $150 million. Responsible Gulf officers have stated that the amortized value of Gulf’s investments in Bolivia is $96 million, excluding Gulf drawdowns of $11 million for construction of the gas pipeline to Argentina.

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3. Neither side is taking an unreasonable position at this early stage in the maneuvering for position. After all, Gulf’s assets were only seized two-and-a-half weeks ago, and compensation issues are notoriously long and complicated. There have been some intemperate and unreasonable statements on both sides.

With respect to Mr. Levy’s statement that the Bolivian crude is worth more than $2.25 a barrel, I believe the Department should endeavor to make an independent assessment. If it can be established objectively that the crude is worth more on the market than the price at which it is to Gulf, this additional value should be taken into account in judging the amount of effective compensation being offered by Bolivia. However, Gulf claims that the crude is worth only $1.69 a barrel; that the $2.25 figure was established for accounting purposes in Gulf’s dealings with the Bolivian Government.

We have not yet received the concession agreements we have requested from Gulf, and do not know whether they contain a Calvo clause. We do know that the Bolivian Constitution purports to preclude recourse to diplomatic representation by foreign companies. In the past, however, the U.S. Government has not accepted such provisions insofar as they purport to limit U.S. rights under international law, and we have construed Calvo clauses in contracts as not waiving U.S. rights under international law but as requiring the investor to exhaust local remedies.

4. The United States Government is seeking to bring the two parties concerned together for meaningful negotiations at the earliest possible time. The United States has avoided being an intermediary or being directly involved in the negotiations. We believe, however, that the Department should follow the discussions carefully and have an independent view of the issues. If necessary, the Department should be prepared to become more directly involved.

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The Legal Adviser is considering number of questions on which the Department’s view of international law may differ from Gulf’s, e.g., the legal effectiveness of the expropriation under international law, and the propriety of payment in kind, assuming the offer otherwise meets the standard of prompt, adequate and effective compensation. It is our hope that these issues will not become material and that the Department is not forced to take a firm position on them. It could become necessary, however, to forewarn Gulf that the Government might not support the Company if it should decide to be rigid on a position with which we cannot agree.

5. I have spoken to Mr. Brockett, the Chairman of the Board of Gulf, and urged him to send mediators to be meaningful negotiations with President Ovando at the earliest possible date and even in advance of a decision by the Executive Committee on November 11. It is my judgment that whatever the outcome of the Board meeting and the ultimate position adopted by Gulf, the possibilities of settlement of this dispute will be enhanced by beginning direct negotiations as soon as possible. The only way that Ovando’s ability to reach a mutually satisfactory solution can be tested is by beginning direct negotiations as soon as possible. I do not believe that there are any other significant actions which the United States Government should take at this time and prior to your departure to Europe on Friday evening, other than the preparations now underway and the specific approach to Mr. Brackett which I have mentioned. I shall keep you informed as developments occur and if further United States action is required.

  1. Source: National Archives, RG 59, ARA Assistant Secretary Subject and Country Files: Lot 72 D 467, CAM [Charles A. Meyer] Chronological File, November 1969. Confidential. Drafted by Chapin; and cleared in draft by Feldman and Stevenson, and by phone by Trezise. The memorandum is an unsigned copy.
  2. Assistant Secretary Meyer outlined positions of Bolivia and Gulf Oil in the dispute over Bolivia’s nationalization of Gulf’s assets. The Department of State aimed to bring the two parties together for negotiations.