395. Telegram 248521/Tosec 160064 From the Department of State to Secretary of State Kissinger 1
248521. Tosec 160064. Subject: Petroleum Reversion—Démarche to the President. Ref: State 241105.
1. Summary. President Carlos Andres Perez responded in a forthcoming manner to the démarche I carried out in accordance with the Secretary’s instructions. He said he would look at the various problem areas of the various companies and might want to meet again with me next week in the company of the Minister of Mines and the President of Petroven. It is most important if we are to maintain the President’s confidence that the oil companies not get word of this démarche.
Action requested. If another meeting does occur I might be pressed on the specific problems of specific companies. I am disinclined to go beyond today’s generalized presentation but would appreciate the Department’s guidance. End summary.
2. I breakfasted alone with President Carlos Andres Perez this morning (October 19) and took the occasion to carry out the Secretary’s instructions in the reftel.
3. In covering each of the points in order (Paras 2-5d of reftel) I stressed our concern that all companies receive fair treatment and that all wishing to do so have the opportunity to continue in Venezuela under equitable conditions. I told him quite frankly that if one or more companies perceive an element of discrimination in the process we could have problems between us. Carlos Andres heard me out without interruption, only offering a smile when I came to the fact that the two governments are in disagreement with respect to what is an appropriate standard of compensation.
4. The President in response conceded that perhaps not enough attention had been given to the problems of the smaller producers. He [Page 1064] said it was the intention of the GOV to maintain relations with all the companies that want to continue here. He noted that the element of “profit” in the contracts under negotiation represent an inducement to that end.
5. On drainage, the President acknowledged the extreme difficulty of applying equitably this controversial provision of the law. The problem has been political, with the opposition highlighting the USSE by fabricating a law suit advancing huge claims for drainage (Caracas 10317). The President said he had been forced into a difficult “maneuver” to replace the judge in the case who was on the point of issuing arrest orders against a number of company presidents. He had also asked the French National oil companies to provide a technical opinion on the drainage question, fully expecting that such an opinion would be favorable to the companies. After the French declined there was no choice but proceed under the law, seeking the least onerous formula. In the President’s view, the deductions now indicated come to only a small fraction of what might have been taken—amounting in total, he said, to less than 200 million bolarivares.
6. With respect to the compensation bonds, the President expressed satisfaction over what he took to be a resolution of the issue. He thought the bonds as tax-free instruments would be highly negotiable and attractive to investors. He thought it to Venezuela’s advantage in the international money market to issue such good paper rather than the heavily discountable bonds initially contemplated. (I did not tell him so but the companies we have talked to seem at least moderately satisfied by the concessions the GOV has made in this area.)
7. The President said that the GOV is examining ways to liquidate the guarantee fund at a more rapid rate than initially intended. As for the amortization of concession bonuses, the President acknowledge that some companies were being penalized rather heavily for having received concessions at a date too late to permit full amortization. But he saw no method of providing relief under the law.
8. I responded to these comments by suggesting that the reactions of the companies affected by one or more of these problems could be skewered if they thought they were being trated unfairly overall. It seemed to me that each case should be examined individually in that light. The President asked me for specifics. What cases did I have in mind and what were the problems involved? I said we were far from familiar with all the details of all the comapny situations. However, we were aware of particular difficulties in some instances. I mentioned Amoco, Sun and Chevron, while noting that this was by no means a complete list. The President said he would check with the minister of mines on the various problem areas of the various companies and that he might want to ask me to meet later in the week with the Minister, the President of Petroven and himself to go over this ground again.
[Page 1065]9. Comment. Carlos Andres reacted dispassionately and even with a touch of conciliation to my presentation. My guess is that he was reflecting what of late I have detected to be a strong personal sense of confidence in the smooth passage of nationalization. I suspect that he has not been kept fully informed on the problems of the smaller companies or that they have not put forward their positions with sufficient candor and detail. In that sense the démarche was probably particularly timely. My hope is that it will suggest the possibility of adjustments in the more difficult cases, particularly on the fee-per-barrel side.
10. It should be clear, however, that the cordial and forthcoming attitude of today’s meeting could change very rapidly. The President manifested his concern on several occasions over the occidental affair which he sees as a threat to all the companies and to his ability to deal with them on an even-handed basis. He is troubled by the “irresponsibility” of the opposition as particularly demonstrated by Copei’s exploitation of the anti-US, anti-MN line. (He specifically criticized Caldera and his “unnecessary” attack on the oil companies last August—Caracas 8105.)
11. Is is my most devout hope that word of this démarche will not repeat not reach the oil companies. The President brought up with me again the apprehension he feels whenever engaged in confidential discussion with USG. He is nothing less than appaled at what he believes is our inability to prevent leaks of private exchange with other governments. If we keep his confidence we could have some effect on the nationalization outcome; if we fail on that score we surely will not.
12. Action requested. I was somewhat distressed to find myself pressed on the names of companies with problems. I gave as little as I could in the light of the President’s frank and forthcoming attitude. If another meeting is convoked he and his colleagues may well ask for more specifics. My inclination is to decline to go beyond the generalized presentation of today but I would appreciate the Department’s guidance on that point.
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Summary: Shlaudeman informed the Department that he had delivered a démarche to Pérez on compensation for expropriated U.S. oil companies.
Source: National Archives, RG 59, Central Foreign Policy File, D750363–0152. Confidential; Priority; Exdis. Drafted and approved by Matteson. Kissinger was in China from October 19 to October 23. On October 28, all but two of the U.S. petroleum companies subject to the oil nationalization law accepted the Venezuelan Government’s compensation offer. (Telegram 11240 from Caracas, October 29; ibid., D750375–0513) The Venezuelan Government indemnified the expropriated companies approximately $1.03 billion. (Telegram 11992 from Caracas, November 19; ibid., D750403–0398) The Venezuelan Congress gave final approval to the compensation agreement on December 16. (Telegram 13199 from Caracas, December 18; ibid., D750441–1151) Telegram 241105 is published as Document 394.
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