891.77 Ulen & Company/3
The Consul at Teheran (Gotlieb) to the Secretary of State
[Received March 10.]
cooperation of sinclair exploration company and ulen company in persian bond issue
I have the honor to refer to my report of January 2, 1924 (877) entitled “Projected Persian Railways”13 wherein I mentioned the expected arrival of Mr. Lawrence Bennett, representing the Henry Ulen Company and Stone & Webster (the two concerns are now in partnership), and discussed the probable connection of his visit with the pending concession for the exploitation of North Persian Oil by the Sinclair Exploration Company.
Mr. Lawrence Bennett arrived in Teheran on January 17th., and certain developments have since taken place which are of the best possible augury for the harmonious cooperation of American capital in North Persia.
The second day following his arrival Mr. Lawrence Bennett called at this office and fully outlined his intentions, requesting that the Consulate assist him to get into touch with Mr. Ralph Soper, representative in Persia of the Sinclair Exploration Company with a view to cooperate financially in Persian affairs. Mr. Lawrence Bennett stated that the sole interest of his concern was in the construction of public works, including railroads, that they had no interest whatever in oil exploitation, and no affiliations with either the [Page 553] Standard Oil Company or with any foreign interests and that a brief review of the local situation had convinced him of the advisability of cooperation with the Sinclair financially.
I was very happy indeed to place him in touch with Mr. Ralph Soper, and had the privilege of assisting at a most interesting interview between the two gentlemen. Mr. Lawrence Bennett briefly advanced the above information regarding his connections, emphasized the fact that his company had no interest whatever in oil and stated that the sole object of his visit was the construction of public works for the Persian Government upon a cost plus basis, the Persian Government to advance the necessary funds for construction purposes. As an incentive, it had been contemplated to arrange for the disposal of a Persian bond issue in the United States through the connections of Ulen Co., and Stone & Webster, the proceeds of this loan to be earmarked for construction purposes.
A review of the local situation, Mr. Lawrence Bennett frankly concluded, had convinced him that unless his principals cooperated with the Sinclair Company, nothing could be done in this direction. Under the terms of its oil concession approved by the Persian Government and awaiting ratification by the Medjliss, the Sinclair Company had already undertaken to float a loan of ten million dollars for the Persian Government upon satisfactory security.
There could be no doubt that the American market would not absorb two Persian bond issues. He was accordingly convinced that the sole way out of the difficulty was cooperation with the Sinclair Company, and was quite certain that his principals would be willing to arrange for the flotation of five million dollars of the proposed Sinclair loan.
Like a good diplomat, however, Mr. Lawrence Bennett did not draw attention to what probably constitutes the main motive of his willingness to cooperate. The Sinclair loan is to be made upon satisfactory security. It has been definitely understood that the Anglo-Persian oil royalties are to constitute this guarantee. Consequently, Mr. Lawrence Bennett found himself confronted with the preemption of the only really giltedged security in the country for the purpose of backing up the Sinclair loan. Cooperation with the Sinclair, consequently, was the only solution of the problem.
Mr. Lawrence Bennett concluded with the suggestion that he telegraph his principals of the proposed cooperation in financing this loan, and that Mr. Ralph Soper do likewise.
Mr. Ralph Soper replied that he had no objection whatever, assuming that the Ulen Company had no other connections than those stated, to cooperating to the best of his ability. He offered to cable his principals as suggested, and expressed his personal gratification at the prospect of American capital actively cooperating in North [Page 554] Persian affairs. For two companies such as Ulen Co., and Sinclair to be at cross purposes, and both actively engaged in trying to float a loan, could not but injure the prospects of both parties; the Persian Government, as well as other interested foreign powers, would only be too ready to take advantage of such dissension.
Of course, there is no doubt that it is in the interest of the Sinclair Company as well, to enter into the proposed arrangement. Under the best of conditions it would be an extremely difficult matter for the Sinclair unaided to float ten million dollars worth of bonds in the United States, and the proposal of the Ulen Company to take over half the issue cannot but be welcome.
The main difficulty with which Mr. Lawrence Bennett is confronted, of course, is in arranging for the loan, when made, to be expended upon his Company’s construction projects, whatever form they may take. Mr. Ralph Soper went into this matter rather at length. The Sinclair Company is, of course, not concerned with the disposition made of the loan when raised, by the Persian Government. The general impression is that the Premier, Reza Khan, intends to employ the proceeds, or a part of them, for productive purposes.
Mr. Lawrence Bennett may encounter no little difficulty in persuading the Persian Government to accept his proposal in its present form. Persian Government circles are undoubtedly under the impression that he is here for the purpose of negotiating a railroad concession, and not a contracting project. There are rumors to the effect that the Premier’s intention is to build railroads with Persian capital, from the Sinclair loan and possibly the proceeds of a mortgage of the crown jewels with which possibly $10,000,000 might be raised abroad. On the other hand, the Government may desire to give a railroad concession, with mineral rights along the right of way and in return for which a second loan should be raised in the United States. It is too early as yet to determine just what the attitude of the Government may be in this regard.
It is my opinion that Mr. Lawrence Bennett will find it most difficult to get the Persian Government to consent to earmark the proposed loan which his company desires to make in collaboration with Sinclair, for construction purposes. He may succeed in having a part of it thus alloted, but even 50% would prove very little indeed for practical purposes.
… I do not believe that the Persian Government realizes the immense cost of such a project.13a It is the opinion of Persia’s foreign [Page 555] well-wishers locally that Persia’s economic future would be better served by concentration upon a road building scheme and encouragement of motor-truck transport which would be sufficient to handle existing freight for a long time to come. But the vision of a trunk line joining up North and South Persia, with resulting military advantages, has a very strong hold indeed upon the minds of the Premier and his counsellors.
Mr. Lawrence Bennett is of the opinion that if a railroad project is insisted upon, it could be accomplished only by slow degrees—two hundred miles of road could be built within the next few years and measures subsequently taken to finance an extension of the project. I do not believe that Mr. Lawrence Bennett himself as yet realizes the opposition that may be encountered in this connection from foreign quarters. The Government is supposed to have the intention of commencing operations from the Persian Gulf and building north. The Russians would certainly object to any such procedure. On the contrary, the British would certainly not look kindly upon an attempt to start operations from the Northern end. Perhaps a modus vivendi may be arrived at by pursuing operations simultaneously from both the Caspian and Persian Gulf ends.
On the whole, my personal conviction is that Mr. Lawrence Bennett started from the United States with the intention of doing business with the Persian Government independently of the Sinclair. The granting of the concession while he was en route deranged his plans, and certain local happenings lead me to believe that he received instructions immediately upon his arrival to cooperate with the Sinclair Company. Dr. A. C. Millspaugh,14 from what Mr. Lawrence Bennett himself says, advised him to combine with Sinclair if possible.
Both parties are now awaiting advice from their principals. It is to be hoped that these two companies find collaboration practicable as a united front locally would render the task of both much easier.
Mr. Ralph Soper is at present awaiting the arrival of a representative of his company who left for Teheran last week with a view to arranging for the flotation of the proposed loan.
Mr. Lawrence Bennett expects Mr. Ruan of the Ulen Company who has been detailed for a similar purpose, to arrive within a month’s time.
I shall keep the Department duly informed of developments.
Respectfully submitted