Page 97 - Historical Summaries (Persian Gulf - Vol II) 1907-1953

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.. z?4’.r i-, *^47 lhe Sh?11 Pftrolcum Company signed a long-term agreement with
Kuwait OJc ompanyjor Purchase of their share of the oil produced by the

95. In October 1949 the Ruler made an approach to the company for an
increase in the royalty rate. The company agreed to discuss the matter after the
arbitration proceedings over the islands (paragraph 111 below) had been
completed.(a ’) Disagreement between the two components of the company further
delayed matters and the Ruler became impatient. In March 1951 it was reported
that he had been asked in open Majlis whether he proposed to nationalise the oil
industry in Kuwait and that he had ignored the question.C0') By this time the
Arabian American Oil Company had entered into an agreement with the Saudi
Arabian Government on a fifty-fifty profit-sharing basis and it became increasingly
obvious that the Kuwait Oil Company would have to follow their example, and in
July they offered a settlement to the Ruler on these lines.(aow) The ruler insisted that
he should be given terms no less favourable than those which Iraq were obtaining
from the Iraqi Petroleum Company. In the course of the negotiations the company
agreed to withdraw their claims to any islands, other than those specified in their
agreement, and to the sea-bed beyond the limits of territorial waters provided the
Ruler abandoned certain demands based on his desire to receive the same treatment
as Iraq. A settlement was reached on these lines and the Ruler also agreed to
extend the company’s concession to a distance of three miles over the sea-bed
beyond the limits of territorial waters.
96. It was agreed that the fifty-fifty profit-sharing arrangement should be
effected by the issue of an Income Tax Decree by the Ruler and in order that the
American component of the company might derive relief on this account from
income tax in the United States it became necessary that it should be constituted
a separate company organised under the laws of the United States. A Gulf Kuwait
Company was constituted accordingly and on November 30, 1951, with the written
concurrence of the Ruler(a,°) the Kuwait Oil Company assigned to it an undivided
half interest in its concession of 1934. This was subsequently found to be a
contravention of Article 26 of the Kuwait Order in Council, 1949 but the Political
Resident was instructed to ignore this.(an)
97. During the negotiations one of His Majesty’s Government’s chief
concerns was that the large payments which would be due under the new
arrangement should be made in sterling and not in rupees. The Ruler when
approached on the subject at first insisted that the American component of the
company should make payments in dollars but eventually agreed to accept all
payments in sterling provided he received an assurance that dollars would be made
available for goods and services which were essential for the benefit of Kuwait
(but were not goods for trade) and which could not be obtained in the sterling area.
An assurance was given to him in writing accordingly and acknowledged by him
(Appendix H (i) and (ii)).
98. The Ruler signed the income-tax decree on December 29, 1951, and on
December 31 it was made applicable to persons subject to the Order in Council
by a King’s Regulation.^12) On December 30 the following documents were signed
by the Ruler, by the local Manager of the Kuwait Oil Company acting on behalf
of both the component companies and by the Political Agent as a witness: —
(i) An agreement amending the 1934 Concession.(313)
(ii) A letter from the Company enclosing an “ Explanation of the present and
contemplated future marketing of the crude oil produced in Kuwait
and undertaking (a) to consider a revision of the procedure proposed
for calculating “ gross revenue ” should circumstances change and
(b) to review the situation should the Iraqi Government in the future
receive a greater percentage of profit and/or should a pipeline be
constructed to transport crude oil from Kuwait to the Mediterranean.( )

(*••) (E4747/63/91 of 1947.)
(»") (EA 1531/22 of 1950.)
(*••) Tel. from Kuwait to P.R. 62 of March 24. 1951 (EA 15310/2 of 1951).
(••*) (EA 15310/63 of 1951.)
(,,#) No. I (a) and (b) II. O.A.C.
(*n) F.O. to P.R. Despatch 8 of January 9, 1952 (EA 1531/5 of 1952).
(J,s) No. 3 of 1951.
(»*•) No. 1 (c) II. O.A.C.
(,l4) No. 1 (d) II. O.A.C.