352.1153St2/120

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

No. 1227

Sir: I have the honor to refer to the Embassy’s despatch No. 1198 of April 12, and the telegraphic despatch No. 27—3 p.m.—of May 2, 1929, both giving details of negotiations now proceeding in Paris between the French Foreign Office and the Spanish Ambassador regarding the claims of the petroleum companies expropriated by the Spanish Government. The last offer of the Spanish Government [Page 782] referred to in the above mentioned telegram is contained in a long memorandum in French presented by the Spanish Ambassador to the French Foreign Office, and I am enclosing herewith copies of the French text for the Department’s information.16

Briefly stated the three companies in question,—Babel and Nervion, (The Standard Oil of New Jersey subsidiary), Deutsch and Desmarais, after some two months of negotiation in Paris, told the French Foreign Office that they would accept some 60,000,000 pesetas as total settlement of their claims. The Spanish Government offered some 47,000,000 pesetas, but as this was refused, finally made an offer of 51,600,000 pesetas.

This offer works out for Babel and Nervion at about 25% payment for good will over and above physical valuation of property, and is concisely stated in a brief memorandum in English which is transmitted herewith.16

In the course of the past week considerable wrangling has taken place between the three companies involved, owing to the fact that the Standard Oil interests wished to accept the Spanish Government’s offer and the two other French companies are holding off for an additional payment of 5% for good will. The Standard Oil Company, having reached an agreement with its French minority shareholders, advised the French Foreign Office that it was willing to accept the offer, but it was told that the claims of the three companies would have to be dealt with as a unit, and that it was not opportune to divide the claims at the present time.

The most recent development is that the three companies have informed the French Foreign Office that they will accept a round sum of 55,000,000 pesetas in settlement of their claims, and I understand that this offer was communicated to the Spanish Ambassador in Paris by Mr. Berthelot, with the request that the matter be taken up with the Spanish Government by telegram.

It is difficult to say whether the Spanish Government will now desire to make the best of a rather embarrassing situation and will decide to make a final concession of 3,400,000 pesetas in order to settle the matter once and for all. I believe the Finance Minister would like to come to terms, but I understand that he has so thoroughly persuaded General Primo de Rivera of the reasonableness of his original proposals for settlement that the difficulty now lies rather with Primo than with the Treasury.

There is, however, a political factor in the situation which is of considerable sentimental importance and which may well influence the Spanish Government to come to terms as quickly as possible. This factor is the meeting of the League of Nations here in June, and I believe that the Spanish Government may well wish to clear up the [Page 783] petroleum company claims in order to avoid the possibility of awkward questions during the League meetings.

I, personally, feel the recent offer of the Spanish Government should have been accepted, because, granting the prevailing political uneasiness here and the possibility of a change in regime, I think the offer is favorable from the point of view of the companies. This is particularly true of the Deutsch and Desmarais interests, whose claims are, I understand, relatively high in comparison with the Standard Oil and the Shell figures.

In the course of a recent conversation with the Finance Minister, he acknowledged that the Standard Oil Claims were reasonable, particularly when compared with those of the French Companies, and I gathered that he would be quite willing to come to terms with the Standard Oil were it possible to separate the claims and avoid charges of discrimination.

Bargaining is dear to the hearts of all Spaniards, and it is possible that the above referred to total offer of 51,600,000 pesetas was made with the idea that the last word has not been said and that the Spanish Government would finally agree to the 55,000,000 pesetas demand. This may prove to be true, but should the Spanish Government stick to its last offer, I think the Standard Oil Company may well decide to endeavor to come to separate terms, and this with good chances of success for reasons stated in my telegram referred to at the beginning of this despatch.

The Department will note that in the offer of the Spanish Government it is understood that all payments are to be made at the guaranteed rate of 29.23 pesetas to the pound sterling in accordance with the Shell settlement made last January. This provision, which was reached after long negotiations between the British Embassy and the Spanish Government, has proved to be a most valuable precedent, as exchange is now at some 34 pesetas to the pound. The Spanish Government must, therefore, entirely apart from the payments for compensation on account of property and good-will, make a supplementary payment of almost 20% in pesetas to pay the companies at the guaranteed rate of 29.23 to the pound.

The Department will recall that, in the long negotiations now covering a period of almost two years, the British Embassy was unwilling to associate itself with American and French representations, but the one point of exchange on which it stood firm has now proved to be of great value.

I consider that the weakness of the Spanish exchange is an important reason for reaching a settlement as quickly as possible, because the continued decline in the last three months seems to show that, notwithstanding brave Government pronouncements, there is great uneasiness beneath the surface in regard to the future. For this reason I am exceedingly [Page 784] hopeful that the American interests at least will soon come to terms on the comparatively favorable basis now available.

I have [etc.]

Ogden H. Hammond
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