871.631/3
The Chargé in Rumania (Patterson) to the Secretary of State
[Received July 10.]
Sir: I have the honor to report that on June 8, 1928, there appeared in the Monitorul Oficial extensive regulations dealing with the methods of exploitation of petroleum and gas as stipulated in the Mining Law of 1924. In this connection it may be of interest to quote the final paragraph of the Legation’s telegram No. 49 of 1 P.M., July 22, 192410 concerning the Mining Law in general. This read as follows: “The most dangerous features of the law are exceedingly involved and well concealed. Aside from nationalization requirement, objectionable features grow out of manner and principle of future regulations.”
These regulations, translations of which are enclosed in duplicate,10 have now been published, but, coming four years after the promulgation of the Mining Law, oil companies in Rumania were taken by surprise, for it had been considered that many of the objectionable features of the law might have been forgotten or overlooked during this period and that the regulations, when issued, would not seriously affect foreign oil companies operating in this country.
Mr. Hughes, Director of the Romano-Americana (Standard Oil of New Jersey subsidiary), and Mr. Guest, Director of the Astra Romana (Royal Dutch subsidiary), have both discussed with me the contents of these new regulations and have pointed out those portions adversely affecting their companies. According to them it is now stipulated that the staffs of all oil companies, whether or not they are qualified to obtain state concessions under the Mining Law, are to be divided into the following categories, in each of which there must be at least 75% Rumanians:
- 1.
- —General manager, members of the committee of management, technical manager.
- 2.
- —Consulting engineers.
- 3.
- —Administrative and commercial manager, the respective assistant managers and persons authorized to sign for and engage the company.
- 4.
- —Technical inspectors and field managers.
- 5.
- —Section and assistant engineers who must possess the Rumanian certificate of exploitation chief.
- 6.
- —Assistants to exploitation chiefs.
- 7.
- —Chief master drillers.
- 8.
- —Workshop chiefs.
- 9.
- —Master drillers.
- 10.
- —Skilled workmen.
- 11.
- —Heads of commercial and administrative departments.
- 12.
- —Clerks.
- 13.
- —Auxiliary personnel such as messengers, watchmen, chauffeurs, etc.
Besides reserving the right to increase the number of categories, the Ministry of Industry will decide whether and in what posts employees, now in the service of companies and whose qualifications are not in accordance with these regulations, will be permitted to remain in the service of the companies, and carte blanche is given to the Ministry of Industry to take any measures deemed necessary in this connection.
According to Mr. Hughes and Mr. Guest, foreign oil companies established in Rumania before the Mining Law, and who in fact founded the Rumanian oil industry, were informed in 1924 that their acquired rights would be fully respected. Therefore, the new regulations curtailing the number of foreigners, i. e. not Rumanians, on their staffs is indefensible. They state that quite naturally investors have chosen men whom they consider trustworthy in responsible positions, and now to find that three Rumanians of an equal grade must be appointed if the present holder is not a Rumanian merely means the glutting of the staffs of the foreign companies to such an extent that the oil industry in its present state simply cannot bear it. The foreign companies are extremely sympathetic with Rumania’s desire to develop an education for her people in the oil industry, and both Mr. Hughes and Mr. Guest have informed me that well over 95% of the total employees of foreign companies are Rumanian subjects, but that it is another matter to insist that 75% of the staff in each of the thirteen categories specified should be Rumanians. Under the new regulations the employment of foreign specialists, which is considered necessary to bring Rumanian production methods up to date, will not be facilitated, and, further, no man will be allowed to act as field manager or in a higher capacity unless he had held Rumanian qualifications for at least five years.
According to the new regulations all gas produced with oil must be separated, collected and used in a rational manner. The burning of waste gas is prohibited, and any which cannot be used productively is to be repumped into the oil wells. Such gases as may be burned wastefully shall pay the mining tax of 2%, plus any royalties due to the State. It is stipulated that within one year all companies are to take such measures that production will be by natural flow, through the use of gas, compressed air, or by pumping. Bailing and swabbing, two methods much used in Rumania at the present moment, are to be prohibited. The theory underlying the latest methods of oil extraction by the use of gas [Page 810] pressure, repumping gas into strata, etc., is well known, but the application needs much experience, skill and patience. I was given an example of one company which carried out experiments over a period of two years at a tremendous cost before it finally adopted a well known American pumping system in the local conditions where the influx of sand caused great difficulties. These regulations, according to foreign experts, impose conditions of the latest technical perfection and yet limit the employment of foreigners so that the oil companies are practically asked to make bricks without straw.
Mr. Guest considers this to be the latest of a succession of attacks made on foreign capital in Rumania since the war, and the fact that it can appear at a time when Rumania is strenuously seeking and will probably obtain financial assistance abroad gives very little hope of fair play for capital in the future.
Having been informed by the Romano-Americana of the seriousness of the present situation, I considered it of prime importance to telegraph to the Department a résumé of the new regulations, but before doing so and lest I transmit a false interpretation of these to the Department, I spoke informally with Mr. Bratiano. I remarked that the new regulations seemed of such importance that a telegram to my Government was necessary, but that before sending it I would appreciate any informal comment which he would care to make, affecting as it did American oil interests in Rumania. Mr. Bratiano replied that he knew very little concerning the new regulations, that they were drawn up by the Ministry of Industry and Commerce and suggested that before sending my telegram I see Mr. Mrazec, the Minister of Industry and Commerce. My visit did not last more than two minutes.
Upon my return to the Legation I requested an interview with Mr. Mrazec but was informed that pressure of business made it impossible for him to see me on that day or the next and an appointment was made for the following day. The next morning an urgent message was received at the Legation before my arrival stating that the Minister of Industry and Commerce “would appreciate it if I could come to see him as soon as possible.” He had evidently been instructed by the Prime Minister to see me at an early date and explain in detail the new regulations. I informed Mr. Mrazec that I had neither been requested by the Romano-Americana to make a formal intervention on their behalf nor had I received any instructions from Washington to that effect, but that it was my intention merely to send a telegraphic resume to the Department for its information and consideration. He then brought out a copy of the regulations and asked me to what portions there might be an objection. After again explaining that I was not in any way authorized [Page 811] to discuss the regulations officially, I repeated to him the substance of the objections which Mr. Hughes and Mr. Guest had [made], and to my surprise he took a red pencil and drew lines through the first seven categories in which the percentage of Rumanians must be at least 75%, took full notes concerning the employment of foreign experts and the restrictions imposed upon them in the nature of certificates and requested me not to send an outline of the regulations to the Department of State until a thorough revision had been made.
Just what the outcome of this matter will be is difficult to state, but for the moment the Romano-Americana are very content with the “promise” to revise the regulations. In fact, Mr. Hughes in a joking manner has suggested that for the settling of any future difficulties with the Rumanian Government he write the Legation a series of identical and signed letters asking for intervention but with the subject matter and date left blank.
To me it is apparent that Mr. Bratiano is afraid of any sort of friction between large American business interests and Rumania, for a failure to obtain a loan at this time will be a great blow to the Liberal Party.
Some time ago the Standard Oil Company suggested to Mr. Culbertson, through Mr. Hughes, that he might inform the Rumanian Government unofficially that “not only were they not opposed to Rumania’s getting a loan in America but that they were in favor of it.” This assurance which reached Mr. Bratiano through Prince Stirbey may have been reflected in the urgent manner with which the Minister of Commerce and Industry requested me to see him and the willingness to revise any portion of the Regulations which I might suggest. Whether any real action in this matter will be taken, if and after a loan from American banking interests is granted, is difficult to state. Personally I am not optimistic.
I have [etc.]