Foreign Relations of the United States, 1964–1968, Volume XXXIV, Energy Diplomacy and Global Issues

148. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, May 30, 1966, 2:30 p.m.

SUBJECT

• Appointment of Coordinator on Desalting Projects in Israel and the United Arab Republic

In the attached memorandum² Secretary Rusk recommends you name a high-level coordinator to explore conditions under which we might cooperate on nuclear desalting plants in Israel and the UAR. (The Israelis, understandably, want the coordinator attached to the White House rather than State.)

The coordinator would look into using these projects to negotiate IAEA controls on all existing and future nuclear installations in both countries.

Sec. Rusk also recommends we undertake economic feasibility studies of both plants.

Before acting on these recommendations, we wished you to have available a clear account of the issues the coordinator will face—and our government—as we move forward in this matter.

Dr. Hornig’s staff, Charles Schultze’s and mine all collaborated in this staffing exercise.

Here are the four key questions.

1. Can these projects be economic? The recently completed joint U.S.-Israeli engineering study of the proposed Israeli desalting/electric power plant shows it is technologically feasible.³ While establishing the cost of producing water, it did not address the economics of future water use. We know a lot less about the UAR project. Since it is primarily a nuclear electric power plant with a small desalting capability, the water economics will be secondary; but we need to know whether the nuclear power plant would be more economic than an oil-fueled one.

The economic analysis we have makes clear that the Israeli plant will not produce water at currently competitive costs unless financed by grant or at heavily concessional rates. Eshkol himself has said that only if the project could be financed at “zero interest rate” could it be done without putting an unacceptable strain on the Israeli economy.

To illustrate, Israelis estimate the current maximum value of agricultural water in their remote southern Negev desert area at about 16 per 1000 gallons—which happens to be the actual cost of supplying water there from the Jordan River diversion works. By comparison:

• —At 8.4% interest (about equal to commercial rates), water from the proposed plant would cost 67 per 1000 gallons.
• —At 4.6% interest (half way between AID terms for Israel and Ex-Im Bank terms) it would cost 43.4 per 1000 gallons.
• —At no interest, repayable in 30 years, cost of water would be 25 per 1000 gallons.
• —And each of these costs should be increased by about 7 per 1000 gallons to cover the costs of delivery.

An outright gift of any part of the capital would, of course, lower the cost of water. For example, if 4.6% money were replaced by grant, the cost would be lowered by 2 per 1000 gallons for each $10 million. But with no concessional capital financing and at present water prices, an annual subsidy of about $16 million would be required.

But these projections, based on present economic conditions in Israel, are not a proper basis for decision. We need an authoritative evaluation of the water economics of Israel in the 1970’s. After all, the plant is being considered because of future water shortage in the country. Therefore, it will be necessary to:

• —Analyze supply and demand factors (population growth, industrial investment, agricultural expansion, decreasing natural water supply) which will determine the price of water.
• —Project into that context the relative advantages of desalting with nuclear as opposed to non-nuclear fuels.
• —Study alternative sources of water (such as filtered sea water for limited uses) and ways to do without water.

The study would, in addition, have to get into basic questions on water supply and use in the 1970’s. Israel is one of the best case studies we have, and we would like to put the best minds in the country on it.

2. Will these projects undercut our efforts to stem proliferation of nuclear weapons in the Middle East?

a Israel appears unlikely to give up its nuclear option by accepting controls on Dimona and all future reactors. Eshkol still has not answered your persuasive May 1965 letter urging him to accept IAEA safeguards. So we may not get much more than we already have—Eshkol’s assurance that Israel will not be the first to introduce nuclear weapons into the Middle East. If we cannot strike the cross-the-board bargain Rusk recommends, should we go ahead with nuclear desalting anyway, thereby sacrificing the one bargaining counter possibly big enough to get Israel off the nuclear weapons track? State’s paper leaves this up in the air.

b Even if Israel accepted IAEA safeguards on all its reactors, would they be adequate assurance against weapons proliferation? You have strongly urged Eshkol to accept safeguards as the best means of controlling existing reactors. This has been our policy throughout the Atoms for Peace program. However, despite our official endorsement of IAEA controls, some disarmament experts are skeptical about the effectiveness of IAEA safeguards in a crisis. With countries as mutually hostile as Israel and the UAR, it is not hard to imagine a situation in which they might cheat or try to abrogate the safeguards. If they could get away with it, we would have enhanced the potential of each to build nuclear weapons without establishing compensating controls. From the viewpoint of preventing nuclear proliferation, it might be better to have no new nuclear reactors in the Middle East and to look more closely at desalting with non-nuclear fuels, especially if nuclear desalting shows no clearcut economic advantage.

3. If we decide to go ahead for the sake of desalting, should we link the Israeli and UAR projects? Secretary Rusk suggests we make a stab at nuclear safeguards by doing a project in both countries, to give us bargaining leverage. (Jerry Wiesner wrote you along the same lines.) He argues that one country would hardly forswear nuclear weapons unless the other did, and the politics of the Middle East make it risky to help one side on any nuclear project without balancing on the other.

On the other hand, there are persuasive arguments against linking the two:

• —Helping the UAR would forfeit most of the political kudos we could expect from helping only Israel.
• —It may not be politically feasible for some time to go ahead with any capital project in the UAR, much less a nuclear one. So it may be unwise to tie the Israeli project to a balancing project in the UAR. In any case, the UAR project is primarily an electric power plant and is, therefore, not symmetrical with the Israeli project.
• —Nasser has little immediate hope of developing nuclear weapons. If we could strike a deal with Israel on safeguards, we might be able to persuade him to accept them without giving him a plant. After all, getting Israel off the nuclear track would be a big gain for him at little cost since he would be sacrificing no potential weapons of his own.
• —It is probably unrealistic to expect Israel to accept safeguards on all its reactors. So a private deal with Israel on nuclear self-restraint may be the best we can hope for. Realistically, quiet bilateral U.S. approaches to both parties might be as good a bet as urging public commitment to safeguards. Bilateral understandings might be worked out with quite different bargaining counters in each country provided we could give each essential assurance that the other would not go nuclear.

4. Can adequate USG financing be made available for the Israeli project? State’s paper includes $20–45 million in grants from Interior and AEC, but if our own proposed plant in Los Angeles goes ahead using the same technology, both Interior and AEC agree that there would be little or no technological justification for going to the Congress for a large grant to develop the same technology in Israel. Moreover, Congressman Aspinall and other members of the House Interior Committee oppose aiding any such project abroad. Current thinking calls for $48 million in local currency from PL 480 sales, but AID and Agriculture policy toward Israel calls for a shift to Title IV dollar sales. So no new large holdings of local currency will be accumulating, and current holdings are programmed to the hilt. Dave Bell believes AID should not finance any such project unless it can pay its own way without continuing subsidy. As nearly as we can tell from Executive Branch discussions so far, it is unlikely that our coming recommendations on the Water for Peace program will propose a new source of U.S. capital aid for large-scale desalting plants. So for the $200 million project, the only likely source of U.S. funds under current policies would be, say, $50 million from Ex-Im. The rest would have to be raised in world money markets at interest rates which would make the project uneconomic. Based on likely sources of financing, the water cost appears closer to 47 per 1000 gallons than to the 35 cited in State’s paper.

To sort these questions out, we support Secretary Rusk’s recommendations that:

1. You appoint a high-level coordinator. We feel that Douglas Dillon (one of Secretary Rusk’s suggestions) may be the best choice. He combines full understanding of the complex economics involved with diplomatic experience. But Secretary Rusk also mentions Averell Harriman, Gene Black, or Mac Bundy.⁴

2. You instruct the coordinator to organize a U.S.-financed independent broad-gauge economic study of the Israeli project (as Secretary Rusk recommends).⁵

3. You instruct the coordinator to explore the conditions under which Israel might accept safeguards on all its nuclear reactors (especially Dimona) in connection with this project (as Secretary Rusk recommends).⁶

4. You instruct the coordinator to keep the UAR angle under review but not to move without your approval. We would suggest that any approach to the UAR be deferred until we know better where we stand with Israel. Sec. Rusk recommends we offer a feasibility study of the UAR project when the political climate allows, because he feels we must balance our books with the Arabs. While we agree we must do what we can to contain Arab reaction, we feel that our present relation with Cairo makes even a semi-commitment to the UAR impractical in the immediate future. We also view Israel as the key to the safeguards question, since the UAR may eventually be far easier to persuade. (Nasser has more to gain by getting Israel off the nuclear track, since he has no nuclear capability.) We do not wish to commit ourselves to anything in the UAR until we think we have a deal with Israel that would make it worth while.⁷

5. You delay announcement of the coordinator at least until the end of June. Sec. Rusk agrees that we do not want it to follow too closely our aircraft sale announcement. It seems good policy to space our Israeli moves carefully in order to maintain steady momentum rather than giving too much away at once.⁸

6. These issues might be worth discussion in your presence either with a group from the NSC staff, Budget Bureau, Science Adviser’s office, or in a formal NSC meeting.⁹

Walt

1. Source: Johnson Library, National Security File, Subject File, Desalting Projects, Vol. 1. Secret.
2. Document 147.
3. In a May 12 memorandum to Udall and Seaborg, Schultze noted that the joint project was technically feasible, but questioned whether it was technically justifiable: “It seems to me altogether clear that essentially concurrent construction of two large first-generation desalting plants in pursuit of a single technology cannot possibly be justified… . Any decision with respect to the Israeli plant must therefore be based upon a careful study of its values in terms of different economic and technological factors than those underlying the MWD [Metropolitan Water District in California] plant.” ( Seaborg Diaries, p. 65142)
4. Neither the approve nor disapprove option was checked and no coordinator was named.
5. The approve line was checked.
6. The approve line was checked.
7. The option “Approve this approach” was checked.
8. The approve line was checked.
9. The option “White House-EOB Group” was checked.