886A.10/4–1950
Memorandum of Conversation, by Messrs. Samuel Gorlitz and Wilfred Koplowitz of the Investment and Economic Development Staff
Subject: Saudi Arabian Eximbank Application for $16.4 million loan.
| Participants: | Mr. Snodgrass—International Bechtel, Inc. |
| ANE/E—Mr. Burns | |
| ANE/E—Mr. Strong | |
| ED—Mr. Gorlitz | |
| ED—Mr. Koplowitz |
The Eximbank is now considering the application from Saudi Arabia for a loan of $16,456,000. The credit is intended to finance 11 projects of a public works nature. (See attached list.) The application was made through a letter from the Saudi Arabian Minister of Foreign Affairs to the U.S. Ambassador in Jidda and was forwarded to the Bank by the Department on March 24, 1950. The Saudi Arabian Ambassador to the U.S. confirmed the request in a letter to Mr. Gaston, Chairman of the Bank.
Mr. Snodgrass has just returned from Saudi Arabia. He is a vice-president of International Bechtel, Inc., the American engineering [Page 1167] concern which has been working for Aramco and the Saudi Government. The project presentation was prepared by Bechtel. Several of the 11 projects have already been begun under previous Bechtel contracts.
This meeting followed a luncheon at which Mr. McGhee, Mr. Stinebower, Mr. Wilkins, Mr. Burns and Mr. Snodgrass were present.
Mr. Snodgrass traced the origins of the present loan application admitting the hastiness of preparation. This seemed to have been dictated by the development of a Saudi Arabian financial crisis and the resulting shortage of building materials needed to continue going and planned operations. In the event that external aid would not be rapidly forthcoming, he said, a serious reduction in the Bechtel labor force would become necessary.
After a discussion of the projects, the Department officers mentioned various factors likely to be considered by the Eximbank.
- 1.
- Regarding the problem of repayment, it was suggested that the Bank might request the assignment of future oil royalties to loan service. Mr. Snodgrass felt that the Saudi Arabian Government and Aramco might be reluctant to agree to such a condition.
- 2.
- On the subject of costs, two points were made: a) since the present figures were such tentative estimates additional breakdown and accuracy would probably be requested, and b) local currency costs have not been separated out of the total estimated costs. Therefore, it seems that the Eximbank is being asked to finance both foreign exchange and riyal components. Mr. Snodgrass was told that it is customary for the borrowing country to meet local costs from its own funds, and to provide details as to how it intends to do so.
- 3.
- The self-liquidating character of the projects was questioned since even the revenue-producing projects will not, for the most part, earn dollars directly.
- 4.
- The integration of the projects into the general development picture and their relationship to each other was discussed. Mr. Snodgrass stated that present plans were to complete the projects in about two years. The suggestion was made that Mr. Snodgrass be prepared to answer Eximbank inquiries as to why completion of all projects in two years was intended instead of the more usual procedure for underdeveloped countries of proceeding with a smaller work force more slowly, using the skills and income gained from each completed project on the next.
- 5.
- Since there has already been a substantial investment in several of the projects the comparatively small additional investment will result in important returns to the country in a comparatively short time. This point might be stressed, but it also opens the question of why the Saudi Government ran out of funds for projects underway. The loan of the Saudis to Syria is a partial explanation.1
- 6.
- The problems of Anglo-American relations in Saudi Arabia was introduced in a question concerning the status of the English Electric Company contract for the electrification of Jidda. Mr. Snodgrass [Page 1168] stated that as far as he knows the terms of the contract involved only the purchase of equipment and that Bechtel was free to undertake the electrification of Jidda under the proposed loan. He indicated that wherever appropriate companies other than his own would be included in the project work.
Mr. Snodgrass asked if there was any possibility of immediate action by the Eximbank for about $2 million to allow the procurement of the backlog of materials needed to maintain current operations. The Department officers did not consider that such action by the Bank would be likely.
Comment: It appeared to the Department officers present that Mr. Snodgrass had not anticipated the Eximbank’s specific, technical requirements which were pointed out to him. He communicated to Mr. Gorlitz upon leaving the building his and the Saudi Government’s understanding that this application was to have been dealt with and expedited on a political basis.
Mr. Gorlitz received a telephone call from Mr. Snodgrass on April 20, concerning a meeting of that date between Mr. Gaston and the Saudi Ambassador. It seems that as a result of questions from Mr. Gaston relating to Eximbank normal requirements the Ambassador left the interview extremely discouraged. He indicated, however, that he would not report to his Government until further discussions had been held with the Department and the Bank.2