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September 12, 1974
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25X1C10b Approved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7 Approved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7 Approved For Release 1999/09/02: CIA-RDP79-01194A0001005300017 YRGHT Fortune's Wheel A review of this issue ?ee, A~guSf, 1974, Vol. XC, No. 2. Issued monthly ,,Ti.?ne In--. 541 North Fairbanks Court, Chicago, . s E 5' t. Second-ciass postage paid at Chicago, :5 2"7 3:' ??ddi: ,'a1 mailing offices. Subscriptions: U.S cos;ess,ons, and Canada: one year $12; elso- ono >ar SSC to $46. Single copies $1.50. Address :ins a-d correspondence concerning them to C TL~'I . S-11 Nor:h Fairbanks Court, Chicago, Illinois '. anal -:?ices: Time & Life Building, Rocketel- Certer. r:ew York, N.Y. 10020. James R. Shepley,. cen:. CJiNord J. Grum, Treasurer, Charles B. Sec 5 ary authorized as second-class mail by the c. C pa .^enL Ottawa, Canada, and for pay- , cash. Member, Audit Bureau of Circu- :;'47.^e Inc. All rights reserved. R=produc- ?. s or in part without permission is prohibited. Business Roundup Why the Prospect Is Suddenly Darker 85. Businessmen in the News. Mockler of Gillette-and others 99 On Your Own Time . Tired Feet and Soaring Souls 113 121 Personal Investing It Can Pay to Send Money Abroad . 133 Editor's Desk 135 Editorials What'Ails the Economy Is Politics Truth and Consequences on Frontiers of Science 138 Suddenly It's Mariana in Latin America by Richard Armstrong 145 Betting $20 Billion in the Tanker Game by Lewis Beman 150 For Scrapmen, These. Are "Tinsel Days" by Marilyn Wellemeyer 1t4 -The Camera's Eye at the Scrapyard (A Portfolio) 158 The World Economy- A Bad Year for the Rich Countries by Lawrence A. Mayer 164 How the Union Beat Willie Farah by Deborah De Witt Malley 169 The Lady Gets. a New Flame 170 A Gas Man from Idaho Wins the Southern Cross by Arthur M. Louis The Fortune Directory of: 174 The 300 Largest Industrial Corporations Outside the U.S. 182 The Fifty Largest Commercial-banking Companies Outside the U.S. 184 The Fifty Largest Industrial Companies in the World 186 Index of the 300 Industrials and Fifty Banks 192 To Russia With. Pepsi (A Portfolio) 197 A Polo-playing Lord Who Scores Goals in Business by Robert Sall 1 by Charles D. Ellis Approved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7 CPYRGHT Thew&?81V1LQ8X81M CP'(RGHT e services). 's Ar E R:~TrIE R I H COUNTR]ES by Lawrence A. Mayer in terms o real economic growth, 1973- was one of the best years on record for the industrialized nations 'of the world. Their, ecnnnmies grew by more than 6 percent overall, because production hit .high levels in a good many of these na tions at the same time. The year's re- rriarkable economic growth was accom- panied, however, by ac.-elerating infla- tion, fast-climbing interest rates, and international monetary strains. And, of course, toward the end of the year came the damaging effects of oppressive in- creases in the price of crude oil. As a result, 1974 is proving to be an exceptionally unpleasant year for the richer nations of the world. We have the problems of 1973, and others besides, without the consolations of vigorous growth. It now appears that the overall growth rate for the developed world will not even reach 2 percent this year, the lowest in sixteen years. And 1975 may not be much better. Signs of financial distress, public as well as private, are already evident. The city of Rome has suspended interest payments on its massive debts, and the creditworthiness of the Italian national government has been questioned. With interest rates high and stock prices low throughout the world, a great many companies are finding it ewreedingly pensive to raise capital-in some cases, prohibitively so. A number of individual banks have run into trouble. They include Franklin National in the U.S. and Herstatt in Germany, as well as lesser institutions in Italy, Britain, and elsewhere. In an the international banking system, the Primarily because of the immense. in.- central bankers of major countries have crease in payments for il,imports, the let word be spread that within their own combined deficit of the advanced nations countries they will assist banks threat- may. run to $40 billion. erred by the general liquidity squeeze. Sign of a-cloudy outlook Not surprisingly, the piling up of so many economic troubles has brought more than the usual number of gloomy predictions about things to come. Vari- ous voices warn of catastrophicinflation or worldwide depression ahead-and sometimes both, the one followed by the other. Even some sober and hardheaded The beggar-my-neighbor erit The immensity of that deficit reflects the fact that the oil-pro oil revenues to buy an equ of goods and services fro? lucing nations se their added valent amount i the developed countries. Most of the oil-exporting countries are too small or too under- developed to be customer on that kind of scale. MeanEvhile, poorer countries observers find the prospects deeply dis- that have no oil are having to cut back Curbing. It is a sign of a very cloudy on less essential imports in order to af- _ ornic ouCCoon tnat so acute a finan- , ford rim film' `anti tcr4 ' cier as Britain's Jim Slater lids been... These circumstances place severe con- many of ;,:,e asset, of his straints on the ability of he industrial- corn any, Slater, Walker Securities, and putt ng the funds into. short-term paper. T e cheerful view (comparatively chee ful, that is) foresees a marked re duct on in the rate of inflation later this yea -and a Rr4Vr paiiyiltg retreat in inte est rates-without deep reductions in o tput and employment. On this view, the great surge in inflation starting last year resulted from an extraordinary con- cate atiti of circumstances, including the n-up of food prices after poor har- ves in 1972-73,. the worldwide boom that pushed up the prices of raw ma- teri s, and the radically' transformed situation in oil. This line of argument imp! es that the inflation will be largely self- orrecting as more normal condi- tions begin to prevail. If elf-correction doesn't come about, how ver, a large dose of distasteful med- icine may be needed to stop inflation. The ld orthodoxy dictates deflation to slow he rise. in prices and put credit on. a fir..er footing. But that course would brie on a lot of unemployment, and cans many companies-to fail. In a time mar d by widespread political and so- cial nstability, governments are even more reluctant than -usual to impose such severe measures. Be ides intensifying inflation around the - orld, the quadrupling of oil prices has created grave problems in interr.a- tiona trade and finance. Most advanced natio is will be running deficits this year on th it current accounts (mainly inter- ized. nations to deal with their current- . account deficits. Efforts to improve its individu p" Ushing.?xports or restr y one country 1 position by sting imports will serve to worsen the position of other countries. The name of this game is "beggar-my-neighbor." That phrase, frequently used in discussions of inter- national economic relations these days, is the name of an old card ame in which you try to capture all the-cards.) Playing it could lead to economic d wnturns that would spread from country to country. The developed countrie have agreed not to take measures that vould damage their trading partners. But before that agreement was formally signed, Italy, Denmark, and France had already taken actions that their neighbo s did not like. And Britain's Labor government has decided to strive for "expo t-led growth" -although it is not clear who will take those additional exports, e pecially since the volume of world trad is expected to increase only about 5 percent this year, compared to 13 perc nt last year. When trade deficits are o nearly uni- :ersa:amontg advanced countries, bor- ro-vincg to cover a shortfall does less" cn U; e tc, international commerce than do drives to expand exports. But heavy borrc;wing will bring its o problems. Most of the funds would have to come -from the recycling of money paid to oil-ing countries, and th s process in -:elves some special financ al complica- -ions (sae "Oil, Trade, and the Dollar," ~4pproved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7 Approved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7CPYRGHT FORTUNE, June, 1974). Oil-rich coun- tries have wanted to lend at very short term. -while governments of oil-import- ing countries need to borrow at medium or long term. This disparity has caused some big international banks to turn down short-term deposits from oil-ex- porting countries, or to lower interest rates on them. The'oil countries are putting addition- al. strain on the system by. depositing most of their funds in the twenty or so 'argent banks around the world; under - stm...rdably, they are seeking safety. At the same time, the loans requested by money-short countries tend to be enor- mous, T..,enders, of cdvrsc. like to diver- sify their risks, so they are forming consortia to get the money together. About 100 institutions participated in a 31.2-billion loan to Italy last spring (the loan brought the total borrowed abroad by Italy in the last two years to $10.5 billion). As Arab money gets concen- !' ated in a few big banks, these banks will have fewer other lenders to call on for funds in their effort to spread the frisks or ery large loans. A road to depression To help Italy and other national gov- ernments increase their borrowing ca- pacity..the Group of Ten (the major fi- nancial powers) has agreed to let nations increase the value of their gold holdings, v. hen used as collateral for loans. The c?rT vial gold price remains at $42.22 an ounce, but gold can now be offered as collateral at a "market related"-i.e., -ego?iated-price, perhaps $100 to $125 an ounce. Even with the higher valua- cn. however, few nations have enough -,Id to cover their oil deficits for more - aan a ye t or two. Some economists are concerned about the cumulative effects of heavy national borrowing over a span of years. William A. P. MIanser, economic adviser to a London investment bank, has reached some dramatic conclusions about the possible consequences of piling up debt to buy oil. Assuming that oil-consuming nations get the loans they need, then at the end of five years they will have bor- rowed something like S250 billion. Man- ser calculates that it would take $25 billion a year just to service these debts. the growing burden, Manser predicts, they will curb imports, push exports, and start down the' every-nation-for-it- self road that cat lead to a world de- pression. Like the American oil consul- tant Walter J. Levy, Manser believes the oil-consuming nations must somehow convince the oil producers that the only way to avert worldwide economic dis- tress is toy reduce the price of crude. The industrialized world, then, must engage. in a perilous balancing act- It must try to bring down the rate of infla- tion, and still hold down unemployment. It must pay its oil bills, and still prevent an international trade war. How these conflicting aims can be reconciled is not at all clear-nor is it clear that the gov- ernments involved, oil rich or oil poor, fully perceive the gravity of the dan- gers they all face. The diffusion of power The cartel set up by the Organization of Petroleum Exporting Countries has generated a massive shift in economic power. And the sudden improvement in .the fortunes of O.P.E.C.'s members has certainly had more traumatic effects on other countries than did, for example, the gradual postwar emergence of Japan as an industrial power, or the economic growth in such "third world" nations as Brazil, Iran, Taiwan, and South Korea. Producers of other raw materials, moreover, have noted the success of O.P.E.C.'s tactics. Jamaica has lifted export taxes on bauxite enough to yield it about $'LUU million this year, instead of $25 million. Among exporters of phos- phate for fertilizers, Morocco, the larg- est, has already raised the price from $14 to $63 per ton. In addition, producers of raw ma- terials are having to seek price increases to counter the higher cost of the oil they use. This is one reason Chile and Peru are looking for a way to lift world cop- per prices. Malaysia has persuaded the International Tin Council, which repre- sents both producing and consuming nations, to raise the guaranteed floor and ceiling prices of tin. As a result of Al this, the world is witnessing a re- markable diffusion of economic power. The various attempts by producers to get more control over pricing will con- -but some of the attempts may not succeed for long. Among other things, artificially puffed-up prices discourage demand and encourage the use of sub- stitute materials. Prices of some commodities have al- ready fallen quite a bit from recent lofty heights. From the end of 1971 to the peak reached early last May, total com- modity prices tripled, as measured by. the Economist's index. But by mid-July they had dropped 12 percent. It seems very likely that some buyers who com- mitted themselves for commodities in ex- cess of real needs are now trying to un- load. Such a development, coupled with improved food harvests this year, would mean that the broad-based commodity boom is over-for a while, at least. And that, of course, would be a big help in the fight against inflation. Traveling downward Virtually every line of business has been affected by this year's combination of slowdown and inflation. This looks like a lean year even for international tour- ism, which for a long time seemed to be perpetually e>;nanding. And the $28 bil- lion or so that tourism now generates around the wr.'d is vital to the econ- omies of a great many countries. The number of L.S. visitors to Europe this summer is down by at least 15 percent. The countries being hit the worst are among Europe's poorest-Portugal, n? ^- ? - .,i.w...,i7ltci.C, :.ntri it,aiy. For automobile manufacturers, gen- eral inflation and high gasoline prices are. making 1974 a year of recession. Sales and production are down substan- tially for every major carmaker in the world.- Both home-market and export sales are declining from the extremely nigh levels of 1973, Volkswagen, expect- ing its first loss since World War II, is- turloughing some workers, while pay- ing others',11 substantial bonus to quit. for good. Even the Japanese auto indus- try, which more than doubled its, output t?Oni 1968 to 1973 to become the second- ' e'ge_t producer in the world, is selling 'z:trer cars than last year both at home -nd abroad. 11e-zpite the downturn in autos, the 1 industry has been doing surpris- ct!r well. Tnt;tl world production may +- av v Approved For Release ~ ?00162 `:' `~i = 7 =0 '~J4AOO~l1b 93('Y~D ~'~t d of ?96 million CPYRGHT rov d F r. Release 1 99/0 0 : CI -RDP79-01194A000100530001-7 i r t ._ed by automakers has been picked up ~v appliance . manufacturers, who are .zing it to replace plastics in their prod- (There is a general -shortage of lastics, and prices of those made from etroleum are up sharply.) Energy producers will be supplying a trong base for the steel business for tome time to. come. Steel is going into oal mines, pipelines, supertankers, and iuclear power plants. In particular, im- ense quantities will be required for he oil and gas pipelines that are being wilt in the North Sea. "I'd rather look back" If governments could moderate infla- tion without putting economic activity into a sharp downturn, a great new boom in capital investment might ensue-the result chiefly of the demand for energy and raw materials. But that prospect lies beyond the perplexities of 1974, a year that a lot of people would like to be clone with.. As one prominent European econ- omist recently observed: "I would rath- er not look ahead at how 1974 will turn out-I'd rather look back on it." If 1974 is a rather grim year for the developed world in general, things are. a lot worse in some countries than in others. Here is how the situation looks in leading countries outside the U.S.: X ITALY'S economy. .is fragile. During most of the 190's :t? ..: ih -fate -., enviably robust, but beginning with a wave of strikes in late 1969, -Italy frit- tered away a chance to become a first- rank economy. Over the years, weak and unstable governments became a drag on economic progress. They created a class of "golden bureaucrats".-civil servants with high pensions-and allowed an enormous number of other people to feed at the public trough. The country was especially hard hit by the higher costs of oil and other com- modities, since to a large extent its econ- omy is based on the transformation of imported raw materials into manufac- tured goods for export. By last spring Italy was in such a state that Guido Carle, the forceful governor of its. cen- tral bank, issued a stern warning: "To- day's problem is not that of the quality of life in the factory, but that of the con- In llay, the country moved to curb im- ports of consumer goods, including the expensive beef that Italians-to the hor- ror of some economists-had grown very fond of. Stringent limits were also put on bank credit, and the country borrowed heavily abroad to help meet its external det:cit.'But all of this added up to just a stopgap program. And it didn't stop" ,he gap very effectively=for example, the French were able to keep their beef :lowing into Italy by supplying credit to Italian importers. Last month, after much internal dis- sensioh, the political parties, trade unions, and, big corporations got to- gether, more or less, on an ambitious program to put Italy on the path to Sol- vency. Taril`fs were raised sharply. Taxes were increased on luxury goods, and ef- forts to tighten up the inefficient tax- collection process were promised. These and other measures should serve to re- duce the budget deficit and cut excess imports. Capital strshed abroad is al- ready on its way home-a cheering bit of news. There has been some relaxa-' ' lion of limits on bank credit for small enterprises, -both to help them survive and to maintain employment. Bruno Brovedani, chief economist of the Eanca. - azionale del Lavoro, thinks that Italy's G.N.P. will increase about 4.5 percent in real terms for the year as a whole. Btit he expects the new pro- gram to cool off the economy toward the end of this year and into 1975. The labor unions are already sponsor- ing sporadic strikes to protest some of t%:e tough new policies, but those pol- icies please Italian businessmen, by and large. Says Umberto Agnelli, the man- aging director of Fiat: "For the short term I'm pessimistic, for the medium and 'on:%,term, I'm optimistic." In spite of Italy's problems, he believes that his country has "a very great strength." ^ BRITAIN began the year with a coal stri :e, which made it necessary to put ind=try on a three-day week. The new LcJ:r government, believing that inven- tc rigs were severely drawn down during the strike. expected a mini-boom while re.~. 'ekin- took place. The budget pre- =eraed in March, therefore, was de- g _ o e near y neu ra i economic effect, and the money supply was kept under tight rein. It turned out, however, that output during the stri -e had ex- ceeded expectations, and o did the amounts of inventory left in he economy when the miners went back to work. Ac- cordingly, the automatic recovery in production has been considerably weak- er than was forecast. stimulation, rather than budget neutral- ity, seems to be required. And in fact, last month, Chancellor of the Exchequer Denis Healey proposed a number of mildly reflationary measures, including reductions in some taxes and an increase in the rate at which companies can raise their dividends. Output held up surprisingly well dur- ing the three-day-week episode, in large part because of an unusual d gree of co- operation between labor and manage- ment. Both sides made sacri ces to keep factories in operation. The whole epi- sode suggests that the British economy has hidden reserves of productivity that are not normally brought i to play. Wage controls have just been lifted,. but price restrictions remain in effect. In place of wage controls, the Labor government is trying to promote some- thing it calls a "social contract," which it hopes will lead unions to a k for wage increases only as large as those justified by inflation. For its part, he govern- ment has already made eons derable ef- fort to win union cooperat on-it has increased old-age pensions, imposed stif- fer taxes on unearned income ' provided subsidies on essential food , and can- celed a rise in rents. Business confidence has b en low for some time, and isn't being helped by a Labor suggestion that tract unions be given a share in the managerr. ent of com- panies. In 1973 there was hope of break- ing out of the long years of emistagna- tion, and indeed, the G.N.P. grew by 5.8 percent. But 1974 threatens to be a year of skimpy-perhaps negative-growth. The longer-term outlook is clouded, in part by fears among businessmen of what the Labor party may be cooking up. Britain's exports are loin relatively well now but not nearly well enough to offset the increased costs of oil. Conse- , Approved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7 Approved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7 ' CPYRGHT quen y the country is again in difficulty on its trade balance. One promising note for the balance of payments is that a goocl.deal of oil money has been flowing into London-partly because Britain has traditionally been a banker to Mid- dle Eastern countries. pensit;- of states to interfere in trade." a WEST GERMANY' remains the strong- est economy in Europe. With the Conti- i:ent's stiffest monetary and fiscal pol- icles, it has held the inflation rate'to Exactly how West Germany e~.ploits its coal reserves will depend to a consider- able degree on what energy-sharing pol- icies emerge in the European Commu- nity-and what happens to oil prices. about 7 percent-even. though wage in- * CANADA "is incredibly lucky," sacs ~reaSes have been running to 12 and . Fred H. Me 'Neil, president of the Bank ^ FRANCE is making a fresh attack on ever 14 percent. As a consequence, profit of Montreal. "We are almost alone in the some long-standing problems under the niargins have been squeezed. Western world in having no b:dance-of- leadership of its. new President, Valery Restrictive governmental policies payments problems due to oil. We have Giscard d'Estaing. An economic expert, .... Tllo..T,. ~"-_?. West Germany Cartel Office Drops Charges 337 Tankers Japan's Modern Fleet Arabs Order Another ULCC 333 Peru "Plan Inca" Worries Industry United Kingdom-' Policy on Platform Construction .Morocco Searches Flopelully 33? Refining Prospects Now 341 Companies in the News 346 Oil and Energy Notebook 345 347 348 349 350. 351 For the Record 338 Books Received 341 News in Brief 351 Company Information 356 Volume XL1 Number 9 September 1974 Although Morocco has so far failed to justify its earlier reputation as a promisjn North African oil producer, the search for oil and gas continues on land and offshore with moderate optimism. The uncertain demand position and the danger of excess refining capacity have made forward planning hazardous in Europe, but expansion is going ahead in North America and Japan. Export refineries are now widely favoured by host governments in the Middle East. Natomas Coinoany US Oil Companies Prices Boost Profits in First Half United Kingdom Should Coal be Boosted? Offshore Opportunities Indonesia Rising Expectations India Fund to Finance Oil Development Australia Natural Gas Prices Up Tankers Dry Docks for the Giants France Oil Production Down, Prices. Up New Zealand State Participation Malaysia Plans for State Oil Company Offshore Cost of Seabed Oil Wells Exploration and Production International Forurn Established Record Profits of KNPC Approveftf i lR~a-ke 1999/09/02 CIA-RDP79-01194A000100530001-7 Corrections 351 Approved For Release 1999/09/02 : CIA-RDP79-01194A0001005300~y_YRGHT 'I HE impression that of prices have reached their peak Si to S13 a barrel to retain its custo`meis, and Tun '-ia and are now likely to decline seems to have been followed suit. gaining ground in recent weeks. It stems from the In recent weeks various other reports have cop- knowled ;e that bids for crude oil supplies offered at firmed the disappearance of the- fantastic prices hat state auctions have failed to meet the - expectations- of`~` -etc quoted for iriarginal' sales earlier"tliis`y a' n rapacious governments; that INIr Yamani of Saudi this sense it is true that the free market has teen Arabia still. appears to .. believe.. that posted prices ? - showing a downward- trend: It is relevant to point are too high, and that, with storage tanks full, there., ' out, howe'v'er; that the quantity of oil that changed is much talk of an oil surplus. Surely: the forces of the hands at these exceptional prices was very sina& ^ in market. will now. operate to. bring cheaper-oil to- hard- .. relation to world demand: - and- that theeffec of pressed consumers? "This is certainly, what the con these dramatic falls on the average cost of crud is summer would like to believe.. Unfortunately, a more , correspondingly limited. Far, more.important.are the i'#'abstic ' 4 ctatio^. .mac ?31>t -rude en' costs are iidcva'Tl..i cti!] -coct5 to International companies of the bulk sttpriieS rising and- that they are .unlikely,, without a change of - --that pass, through, their integrated systerns:to em rge policy by host governments, to, decline -in -coming: as finished products in consuming countries. But what exactly is meant by crude oil costs? A fruitful source-of contusion in any current discussion Equity Crude of price trends is the fact 'that crude oil ?is than ' These costs are, of course, related to posted pri es. hands at an extraordinarily wide`range of prices The raising of posted prices by some 70L-per cent ast Cheapest of all" is the equity crude or "cost-crude" 'October and by a further 130 per cent on 1st January,, to which oil companies are still entitled under con meant aourold increase (or more) in tax-paid costs cession agreements: in the Persian Gulf for instance , ; nf~ of equity crude to: :something like $7.11 for Ara 'an the taw-?aid cost of these supplies i f the` rii s o o ei - J' "it' S, .. f;,r Kuwait, ,~.1;; for ;igerian $7.10--7.90 a barrel Then there; are the buy-back prices paid by oil companies for supplies' purchased ... $10.00 for Libyan. At its Vienna meeting last IM1 ch range- `::and again at Quito in June, OPEC decided to leave artici from governments under " ation" a p p r to - S11 or Posted prices unchanged, with Venezuela reserving -menus: in the Persian Gulf these ran e u g p so-called free- the right to go its own way. At Quito, however, the more a barrel Finally there are the . . - majority of the governments - not Saudi Arabia or market rices charged b state entities or oil p y com ss " Venezuela agreed to s q ueeze the buyer a H to for o crude oil sold to c nsumer overnments o g further by adding 2 or to percentage points to their roy other :companies; these can: fluctuate within . xates, raising these from 12I to l4-- per cent of po wide limits in s short nPrinrl of tuna Market Price sty ted prices.. Where applied, this decision. raises the tax- aid cost of equity crude by just over 10 cents a barre in the Persian- Gulf and by 13 cents in Nigeria. This is the only direct inerease.in the. cost. o?.-equity c de Free market prices have in some cases fallen a long made in the Middle-East and. Africa this year, tho gh way from the dizzy heights reached at the time of the there is, of course, no guarantee that further in- Arab production cuts last winter. In, -those anxious creases may not follow OPEC's conference in days, panicky buyers paid up to $20 a barrel for - September. - much-sought-after non-embargoed oil. But, - with ? Venezuela, which has- a 163 per cent royalty an production restrictions removed, and 'with. con- "complicated tax-reference system including a b; sumption checked by steep increases in products prices; panic buyers are no longer in the market. As long ago as last March, the Kuwait government failed to line up purchasers for 462 000 b/d of royalty oil at its hoped-for prices. Offers ranged from $8.50 to $10 a barrel, and when the government insisted on the posted price ($11.545) as the minimum it sold only some 100 000 bld. Similar failures have been reported from Iran, Abu Dhabi, Tunisia and else- where. Algeria recently lowered its asking price by sic .ht he he an a price, a percentage surcharge, a variable frei element. and sulphur premiums, did not follow OPEC-recommended course. Effective 1st July. government raised its tax-reference prices by average of 35 cents to an, average-of some S14.4 barrel; bigger increases were applied to the lig than to the heavier crudes. The government is e threatening to increase the present tax rate (58 cent for most companies, though nominally 60 cent) by a considerable margin - which would ter per of, Approved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7 CPYRGHT Approved For Release 1999/09/02 : CIA-RDP79-01194A000100530001-7 eaur~e, further: increase the cost of these expensi5e crudes. The. cost. of the cheapest supplies available to international companies has thus been creeping up in recent months, .and there seems to be no immediate prospect of relief. It is true -that i`vlr- Yamani,'. Saudi Arabia's Oil Minister, has. several` times expressed the opinion that the current lever of prices is too high; and it was thought that he might have justified this view by auctioning a large quantity of oil last month .and allowing-the price to find its.own. level. But his belief ,(if it.really is. his belief). is strongly opposed by his OPEC colleagues, notably by the Iranians, some of whom have threatened to cut back production if Saudi'Arabia tries to engineer a price decli.ne.; In the light-of this opposition, it i& significant that the long-heralded August auction. of Saudi Arabian oil did not. take place. While the cost.r=of equity crude is rising, the quantity available. to.-the companies. is being sharply' reduced. (See our March issue, p 84). Apart from- the outright .nationalizations that. have taken. place in Algeria,.- Libya, Iraq and Iran, governments. have been forcing."participation".agreements on. reluctant Effect of Participation Under the 1473. - participation .. agreements, in Persian Gulf countries,. governments took 25 per cent of the equity:- in Nigeria.. 35 percent ?- and -ranted relatively- favourable buy-back prices; only 20 to 60 cents above-tax-paid costs. The position is very different now.. By an agreement finally. ratified by the .N ationaI Assembly on. 14th May; the Kuwait government raised its stake in Kuwait Oil (Gulf and BP) from 25 to 60 per cent, effective 1st January. The Qatar government signed a similar agreement with the Qatar Petroleum Co. (IPC group) and Sheri of Qatar in mid-April. As an interim measure, pending the finalising-of longer-tent artancements,. the Saudi Government>took a 6G-per cent interest-in Aramco, backdated to the beginning of the year, while desultory negotiations for a similar arrange- ment have been going on in Abu Dhabi. .: y After prolonged discussions, about buy-back prices in Kuwait, Gulf Oil agreed in July to pay $10.95 a barrel, equivalent to about 95 per cent of the. posted price, for oil purchased from end-June: to- end- September; and 13P followed. suit. This price,. which is subject to quarterly review, is almost 83.80 above the cost of equity crude, but the companies' buying commitment is restricted to a_ maximum of 350 000 b/d each. . In Nigeria, effective 1st April, the.government took a 55 per. cent participation.. Here the companies have the right to buy back half the government's share at S13 a barrel (which is over 88 per cent of the posted price of $14.691) and half the remainder at $13.25 - prices which look inereasi illy unrealistic: For'" the time being. therefore, - they' have access to' 8625 per cent.. of total production; this. percentage.-will, how- ever, be reduced to a maximum of 69.75. Per cent for. 1975, after which they will have no further.buy-back .entitlement: they will. have merely their-.45 per cent share of the e[luity, - In-Libya the position is that, the government has expropriated a number of companies:.with:. a. total 1973 production of the o-der..of 500 000 b/d and has taken. a.51 per cent share i., the remainder.. (See-our April issue p 127 and May p 173.). This gives it (on the basis of 1973 production statistics; approximately two-thirds of the total output, which has lately been declining.. Its. buy-back, prices range from.$12.75. to $1.3.40 a barrel, according to grade, - gainst a tax-paid cost for?equity crude of around. $10 a. barrel. . --,. - This continued rise in. the: average cost -of oil in the Middle-.East and Africa is reflected also in-Indonesia. Here the.state_entity; Pertamina, fixes its own selling prices which also serve as tax reference prices for oil companies. with production-sharing agreements. The price (now. uniform for all grades) was raised from $10.80 to $11.70 a barrel on 1st April and again to S12.60 on 1st July.. Buyers in Japan - the main market - may reflect ruefully that.. the highly prized. sulphur-free,_ Minas crude-v a& selling last year for '_$2.96a barrel; Which Way Note? . , T l:e sting of these agreements is the high buy-back Consumers looking, hopefully for cheaper oil were prices that have to be paid by the oil companies for disappointed at the stiff buy-back price'. agreed by the state-owned crude. Saudi Arabia set the pattern Gulf and BP for Kuwait crude - as a percentage of earlier this. year by. insisting on a price equivalent to posting, the highest so far 'accepted. The-reason for 93 per cent of the posted price, which means approxi- the companies' acquiescence is clear enough: there niately 510.80 for Arabian light against a cost of is always the threat that if the government's share about 8 7.12 for equity crude - a gap of 83.68. The remains unsold total production will fall and the Qatar agreement gave the companies the right to available supply of cost crude will shrink correspond- purchase during the first half of this year at. least ingly. The companies in Nigeria were threatened last 60 per cent of the state's share (i.e. 36 per cent-of the 'month with a production cutback, following Shell- tot