856d.6363/l

The Consul at Batavia (Jewell) to the Secretary of State

No. 254

Sir: I have the honor to enclose herewith, in quadruplicate, a report on “Mineral Oil Concessions and Rights in Netherlands India,” which, it is believed, should have the Department’s most careful consideration.

I have [etc.]

J. F. Jewell
[Enclosure]

Report on Mineral Oil Concessions and Rights in Netherland India

Production

The following statistics give the production of mineral oil in Netherlands India for the last five years for which this data is available (1914–1918 inclusive):

1914 1,569,288 tons of Kg. 1000
1915 1,598.442
1916 1,730.184
1917 1,605,610
1918 1,706,675

The year 1919 is expected to be about as 1918.

The bulk of the production is virtually in the hands of one powerful Dutch organization, either directly or indirectly, known as the Bataafsche Petroleum Maatschappij in Sumatra and Borneo, and as the Dordtsche Petroleum Maatschappij in Java. Four large organizations, the Petroleum Maatschappij Gaboes, the Koninklijke Nederland Maatschappij tot Exploitatie van Petroleumbronnen in [Page 261] Nederlandsch Indie, the Exploitatie Maatschappij Nederland, and the Perlak Petroleum Maatschappij, which all appear as large producers in the “Jaarboek van Het Mijnwezen in Nederlandsch Oost-Indie” (The Year Book in Mining in Netherlands East India), published by the Bureau of Mines for the Colony, are either subsidiaries or tied up so firmly with the Bataafsche Petroleum Maatschappij by contracts as to warrant their being considered one and the same company.

The Old Mining Law

Prior to 1912, mineral oil concessions were granted in Netherlands India under what is termed the “Old Mining Law”. Under its provisions, individuals or companies could apply for a permit valid for five years from the date of issuance to prospect for oil, gas and related commodities. If oil or gas were found in “commercial quantities”, the owner had a right to apply for a seventy-five (75) years concession.

The New Mining Law, Effective in 1917

In 1912, it was decided to change the above-stated law and no new permits were to be granted under its provisions until further instruction. It is believed that this was embodied in a General Confidential Order to all governing Residents of Netherlands India in June 1913. It was not until 1917 that the new mining law went into effect; hence, the period from 1912–1917 was one when development was at a standstill, when the old law was suspended and void, and when the new law had not come into effect. The law of 1917 provides for the granting of prospecting permits but with the stipulation that the Netherlands India Government has the right to take over for itself any territories covered by these permits which it may deem valuable, and merely idemnify the prospectors for the actual outlay of capital expended in development.

Results of the Mining Laws on the Development of Mineral Oil Concessions

The old mining law gave a fair opportunity to foreign enterprise, at least in theory, to become concessionaires. The important step was to obtain a research permit, and it was understood that a seventy-five (75) year concession would follow upon application to the authorities at the proper time in case oil or gas were found. The difficulty was more in obtaining the right to prospect than in securing the concessions which might arise therefrom, rights which were seldom denied by the Government.

[Page 262]

From 1912–1919, as previously stated, marks a period of arrested progress in the development of mineral oil concessions in Netherlands India. The present system is nothing more or less than a method for discovering profitable sources of wealth, which the Government takes over at cost upon report of its own geologists. If the results of prospecting and preliminary development prove a perimeter to be of doubtful value, it is not worth applying for as a concession and the expenses are a dead loss to the capitalists who have undertaken exploitation; if prospects are encouraging, the lands on which oil or gas has been discovered in substantial quantities are declared “Government Reserved Territory”. Even before the law of 1917 went into effect, the Colonial Government refused many exploitation or prospecting permits, reserving the lands they were designed to cover for government development in the future. As a result of this severe law and the policy immediately preceding, practically no new permits have been applied for [since] 1912. The slight increase in production, indicated in the statistics above given, is a result of the more intensive development of existing concessions, principally of the Bataafsche Petroleum Maatschappij.

Another result of the mining policy of the Government of Netherlands India is illustrated in the well-known Djambi Oil Concessions of Central Sumatra, considered as the most valuable mineral oil fields in the whole Colony. In 1913, tenders were invited from various operating companies for exploiting the Djambi area, and the Petroleum Maatschappij Zuid-Perlak was favorably reported on by the Ministry for the Colonies at The Hague on the ground that it was the highest bidder. Later, this company was discredited, a bid from the Bataafsche Petroleum Maatschappij was set aside, and the Netherlands Government took upon itself the operation and development of these fields. Although this was some years ago, practically nothing has been done and this valuable perimeter is non-producing to-day.

The “Nederland Koloniale Petroleum Maatschappij”

This organization is a powerful company, registered as a Dutch concern, in which American capital is largely interested. A history of its attempts to secure oil concessions in Netherlands India is a faithful “expose” of the difficulties which have been placed in the way of prospective foreign concessionaires. The Nederland Koloniale Petroleum Maatschappij was organized in 1910 under Dutch law, as it was felt that this was the most advantageous way to operate in this Colony. It would appear that the advent of this company into Netherlands India had considerable influence in deciding the Colonial Authorities to change the law of 1912 for stricter measures. [Page 263] At that time, foreign investment was not encouraged, in fact, it was viewed with suspicion; moreover, the Bataafsche Petroleum Maatschappij had already a large producing territory, subject to more intensive exploitation; consequently, its development, that of a Dutch company, would not be materially retarded. The result has been that the Nederland Koloniale Petroleum Maatschappij has been forced to seek permits granted under the old mining law from third parties, paying bonus and royalty for the same. The permits secured have usually been for abandoned perimeters or perimeters considered commercially valueless. After almost ten years of activity in the field, this company holds but a few of the less desirable concessions in the Residency of Rembang, Java, yielding about thirty tons per diem for six wells under exploitation. It has no incentive to endeavor to secure prospecting permits for new fields, as valuable wells would undoubtedly be made a part of the “Government Reserve.”

Conclusions

Such is the mining situation for prospecting and developing oil and gas concessions in Netherlands India to-day. It means that new enterprise is stifled, that foreign, and incidentally American capital, is made to work under most disadvantageous conditions, and that unless the law of 1917, as applied, is altered, American vested financial interest and other financial interests which may want to establish themselves in this Colony have nothing to look forward to.

In view of the “vital importance of securing adequate supplies of mineral oil both for present and future needs of the United States” (Department’s Instruction of August 16, 1919 on “Mineral Oil Concessions and Rights”1), attention is invited to the advisability of taking strong action to bring about a favorable change in what appears to be intolerable conditions governing the granting of mineral oil concessions in Netherlands India. These conditions are in marked contrast with our own lenient State Regulations which grant equal opportunity to all, regardless of nationality. In view of the manifest desire of the Dutch East Indies to find a profitable outlet for its produce in the United States since the European War, it is believed that the present moment would be opportune for approaching diplomatically the Netherlands Government with a view to restoring the “Old Mining Law” in force up to 1912, or in obtaining special guarantees and privileges for American capital which is already established or which may seek investment in Netherlands India.

  1. Not printed.