From «Oil Nationalisation and Managerial Disclosure: The Case of Anglo-Iranian Oil Company, 1933-1951»
Chapter 4: Profit distribution by the AIOC
Author : Neveen Abdelrehim | The university of york
The 1933 concession and the Supplemental Agreement had a number of key points which proved controversial and resulted in the issuance of Gidel‟s Memorandum. The Memorandum covered several issues that are worthy of further investigation. These issues formed the basis of the Iranian government‟s claims that the AIOC was paying an unjustly low return under the terms of the 1933 concession. It challenged the validity of the company‟s arguments in self-defence, and, in particular, AIOC‟s accounting reports which featured in this controversy. These reports were used as a source of data about profit and performance which allowed AIOC to transmit arguments in defence of its position and behaviour. It is worth mentioning that no prior studies or research have examined the Memorandum in order to address the responses by the Iranians to the AIOC‟s counter claims or to reveal the tactical methods adopted by the AIOC management, including the management of information. According to Gass, some of the points in the Memorandum were of a trivial and departmental nature but others were very radical and novel interpretations of the concession, such as comparisons between the present concession and the D‟Arcy concession, and also the question of a gold premium and taxes payable to the British government506. The Memorandum also dealt with other general issues which are not included in this chapter; the main aim here is to address and scrutinize the key points of contention that the Iranian government regarded as necessary in order to reach a settlement with the AIOC. Therefore, the following section reviews the most prominent items in Gidel‟s Memorandum in terms of distribution of value and the question of control and will examine and assess these in the light of Iranian claims and AIOC counter claims.
Difference in the value of gold
The gold clause specified within the AIOC concession allowed the Iranian government the option to receive payment in gold or gold equivalent. In fact, the Memorandum claimed that the AIOC had not abided by the gold clause in the 1933 concession and therefore the Iranian government had not received the quantity of sterling was assured it by the conditions governing the gold guarantee. The Iranian government therefore called for more sterling because the price of gold was controlled. According to Elm, “in 1933 the royalty figure of 4s per ton represented one-eighth of the price of Iran‟s crude oil, whereas in 1947, considering the gold guarantee, it represented less than one-sixteenth. Thus, Iran‟s royalties in relation to the price of oil exported dropped from 33 percent in 1933 to 9 percent in 1947”. In a similar vein, Ali Mansur, the Iranian Prime Minister, pointed out that the price of goods and particularly that of oil products had risen more than the price of gold and the currency used at the time of the agreement would still not have had the same value when payment became due.. Ali Mansur also declared that the total amounts paid to the Iranian government in the early years of the execution of the 1933 Agreement were often between 35 and 40 percent of the company‟s profit, whereas for the year 1948, assuming that the Supplemental Agreement would have been put into effect, they would come to about 26 per cent thereof. In this above context, Ali asked the AIOC that any amounts to be paid on account of royalty and taxes due retrospectively, irrespective of the date of the agreement and the date of payment, should be reckoned on the basis of the price of gold on the day of payment. In June 1950, when Ali Razmara became the Prime Minister, he studied the Supplemental Agreement and asked for a lump sum payment of £14,000,000 to take account of the devaluation in sterling, and in settlement of the accounts for the years 1947 and 1948 . Gass countered that the efficacy of the gold conversion clause was challenged by the government, on the grounds that it was not providing the intended security. The crisis which arose at the beginning of the war owing to reduced output and diminished revenue was settled by make-up payments, to bring the total royalty revenue and tax composition up to £4,000,000 per annum between 1939 and 1945 inclusive. Furthermore, the AIOC‟s treasury countered that “it was nevertheless accepted that the Iranian government had the unilateral right under clause 10 (v) (b) to call for review of the protection afforded to it by the conversion factor in that subclause and that their present complaint originated from their view that they were no longer fairly protected against the depreciated purchasing power of sterling because of the fixed official price of gold”.
The AIOC pointed out that the Iranian government‟s objective in raising this gold conversion issue was to receive larger sterling payments from the company by using a new and lower factor for the basic price of gold in place of the existing factor of 120/-d. per ounce in the concession. Also, the AIOC claimed that Iran was seeking to replace the fixed official price of gold in London, for royalty calculation purposes, with a higher fixed price. In short, the Iranian government was aware of the fact that the price of gold was not free but was looking for better terms for the country and for the Iranian people, by protecting their rights from being violated under the gold clause. The British government‟s main objection was that whenever an increase or decrease occurred in the official price of gold, the Iranian government would demand a revision of the special price fixed for royalty purposes, which would be impossible for the British to meet.
Notes & References
506. BP 071181, Reference no. 8585 A, Gass to Fraser on 29th September 1948, 1.
507. Gidel Memorandum, 1.
508. Elm, Oil, Power and Principle: Iran’s oil nationalisation and its aftermath, 53.
509. BP 126343, Notes on Supplemental Agreement handed by Ali Mansur to Shepherd on 3rd June
512. BP 126345, Informal discussion at Britannic house on 20th October 1949, 1.
513. BP 126407, Report on visit to Tehran 31st August to 26th October 1948, 1.
514. BP 101099, Note on meeting held at the treasury on 30th December 1948, 1.