352.1153St2/118

The Ambassador in Spain ( Hammond ) to the Secretary of State

No. 1198

Sir: I have the honor to refer to the Embassy’s confidential despatch No. 1168 of March 5, 1929,9 having to do with negotiations to secure adequate compensation for the foreign petroleum interests expropriated by the Spanish Government. Since this despatch was written there have been no definite developments in the negotiations for increased compensation for the Standard Oil New Jersey subsidiary, Las Industrias Babel y Nervion, and several French companies (Deutsch and Desmarais).

In the course of the last month the French Ambassador has had two conversations with Primo on the subject, and the Embassy has been confidentially informed that, due to the French Foreign Office’s dissatisfaction with the Ambassador’s negotiations here, the more important negotiations are now proceeding between the Spanish Ambassador in Paris and M. Berthelot.10 This phase of the matter was referred to in the Embassy’s strictly confidential despatch No. 1169 [1196] of April 10,11 having to do with General Primo de Rivera’s irritation regarding the criticism of his Government abroad, which he continually states is based on the dissatisfaction of the injured petroleum interests.

The Department will doubtless recall that in January General Primo de Rivera refused the French Ambassador’s request for arbitration of the petroleum companies’ claims under the Franco-Spanish Treaty of 1904. Later General Primo de Rivera reconsidered his categoric refusal and offered to submit the matter to a Board composed of three French, three Spanish and one neutral expert. In the meantime, during the various conversations which proceeded, both official and informal, General Primo de Rivera said that he was willing to give the expropriated companies 2% or 3% more for good will than had formally been allotted, and the Embassy has now been informed that this offer has been increased in the course of the Paris negotiations to 8%. A concrete instance of how such an offer would work out for the Babel and Nervion Company is as follows: The company was awarded some 19,300,000 pesetas physical valuation plus 8% for good will. A further payment of 8% would mean that the company would receive approximately 22,250,000 pesetas as against an original claim of some 36,000,000 pesetas. The several [Page 778] companies affected consider this supplementary offer of 8% inadequate, and they are, apparently, prepared to go to arbitration on the above referred to basis rather than accept it. It is, of course, presumed that the fixed rate of exchange of 29.23 pesetas to the pound sterling given to the Shell interests at the time of payment in January, 1929 will be given all other foreign interests in accordance with General Primo de Rivera’s past undertakings. The fact remains, however, that a practical difficulty arises regarding this matter at the present time, because exchange is now over 10% lower than in January, and the Spanish Government must, therefore, make a supplementary payment in pesetas of this amount no matter what extra compensation in regard to good will or valuation is given.

In the meantime, an interesting development took place a few days ago with regard to the claim for compensation of the Sociedad Espanola de Compras y Fletamentos which may well have an important effect on the negotiations above referred to. The Department will recall that the Sociedad Espanola de Compras y Fletamentos was one of the marketing agents of the Standard Oil Company of New Jersey which owned about 49½% of the company’s stock. The balance of the stock was owned to the extent of 28% by French interests allied with the Standard Oil Company of New Jersey, and 22% by various Spanish interests. In the Embassy’s despatch, No. 1125 of January 9, 1929, Page 2, reference was made to the fact that the Spanish Government, for some unknown reason, had decided to consider this company a Spanish organization and had offered to pay off its valuation in monopoly shares selling at a premium of 40%. The Spanish Government’s decision was communicated to this company in the form of a Royal Order of October 22, 1928, and, as the interests involved decided to accept the offer in view of the premium of the monopoly shares (which amounted in substance to a 40% allowance for good will value) arrangements were made to present the company’s title deeds, etc., to the monopoly.

The valuation figure for this company as finally fixed by the Council of Ministers was some 5,900,000 pesetas, this including stocks of merchandise on hand and plant and physical property. In accordance with the arrangement of October 22nd, this figure is to be paid to the company in monopoly shares at par. In addition the usual 8% of the total valuation granted to compensate the companies for loss in business, good will, etc., is to be paid in cash.

The legal formalities and the getting together of the title deeds took several months, and about a week ago the delegate empowered to sign the receipts reached Madrid. To his amazement he was informed that another unknown Royal Order existed to the effect that only half of the company’s claim was to be paid in monopoly shares for the time [Page 779] being, and the other half would not be payable until all the units entitled to payment in monopoly shares had been valued. The reason given was that there might not be enough monopoly shares to go around (only 40% can be issued to acquire property) and that after all a final payment might have to be made in money.

The company objected vigorously to this procedure and sent a petition to the Minister, the Spanish text of which and a substantial translation thereof being enclosed herewith.12 The Finance Minister refused to reconsider the matter and also refused the request of the French Embassy to change the procedure. Great hardship was thus worked on the company because an arrangement had been made with a Spanish bank to sell the shares at a fixed rate, and the option expired on April 10th. (It should be recalled that the foreign interests in this case entitled to receive the shares are not allowed to retain them under the monopoly legislation.)

I decided to bring this matter to the attention of the Foreign Office, and an arrangement was made for me to take it up with Senor Calvo Sotelo, the Finance Minister, on the evening of the same day, April 5th. Mr. Blair13 interpreted during the interview, and a long discussion ensued in regard to the merits of the case. The Minister finally said that he was disposed to reconsider his attitude on the company’s claim, and two days later I was glad to hear from him that he had decided to order the full and immediate issue of the shares due the Compras y Fletamentos Company. In this way, Compras y Fletamentos was able to market the shares immediately on what it considered a satisfactory basis, and a large amount of money was saved for the American and French interests.

Toward the end of the interview the subject of other expropriated interests not yet paid for came up and, as the Minister seemed to be in a conciliatory frame of mind, a general discussion ensued. The Minister referred to a talk we had had near Santander last summer and said that the figures for the Babel and Nervion valuation resubmitted by the French Embassy recently (as set forth in this Embassy’s confidential despatch No. 1168 of March 5, 1929) were higher than those discussed before. I at once replied that we had only very tentatively discussed a more reduced basis of settlement as a possible means of compromise, and that, moreover, he had never agreed to the figures (monopoly shares were then selling at a 50% premium, and I said I thought a compromise on this basis might be acceptable).

The Minister said he thought the Babel and Nervion claims were much nearer realities than the other protesting French interests, and I replied that, as I thought this was true, the time was ripe for an effort to effect a final settlement. I said we had never sponsored exaggerated [Page 780] claims; that the interests involved desired to be conciliatory, and that a fair settlement would be to the advantage of all concerned.

Mr. Calvo Sotelo said that he did not wish to stick on trifles and that after further consideration he would be glad to discuss the matter of a settlement again. Desiring to remind him of this statement, I wrote two days later to thank him for his decision giving satisfaction to the Compras y Fletamentos, and expressed the hope that our other differences might now be satisfactorily settled in a similar way.

I am enclosing a copy of my letter,14 and have in the meantime requested information regarding a figure of compromise for the Babel and Nervion Company which would be acceptable to the Standard Oil Company of New Jersey in order to be prepared for a future discussion.

The C. A. M. P. S. A. shares referred to in my letter to the Finance Minister is the currently used abbreviation for the shares of the petroleum monopoly, entitled: Compania Arrendataria de Monopolio de Petroleos Sociedad Anonima.

I believe the Minister really desires to come to terms if he can save his face in some way, the more so as the President is very irritated by the long drawn out negotiations and knows that they give ground for attacks on his Government by many hostile interests abroad.

This phase of the situation was referred to in my strictly confidential despatch No. 1196 of April 10.

I am also enclosing herewith statement of the liquidation of the Sociedad Espanola de Compras y Fletamentos which has been furnished me by the company for the Department’s information.14

I have [etc.]

Ogden H. Hammond
  1. Not printed; see telegram No. 14, March 1, 10 a.m., from the Chargé in Spain, supra.
  2. Philippe Berthelot, Secretary General of the Ministry for Foreign Affairs.
  3. Not printed.
  4. Not printed.
  5. Second Secretary of Embassy.
  6. Not printed.
  7. Not printed.