98 Cabinet Submission by Sir Henry Gullett, Minister for External Affairs

13 March 1940

PORTUGUESE TIMOR-OIL CONCESSIONS AND AIR SERVICE

Following on various suggestions over a number of years from the United Kingdom authorities that the Commonwealth of Australia take active steps to establish Australian interests in the [sic] Portuguese Timor to forestall Japanese activities as part of their Southward advance policy, the Commonwealth Government decided in February, 1938, that the Minister for External Affairs [1] should be authorised to pursue this policy.

2. In July 1938, a new Australian group (Oil Search and Oil Concessions) sent a representative, Mr. Dodson, to Lisbon in an endeavour to obtain oil concessions. In the meantime, Serge Wittouck, a Belgian who floated various companies in Hong Kong and Manila, and had spent 50,000 in various surveys and exploratory work in Portuguese Timor, had also gone there for the same purpose.

The long delay which ensued was due to the competing claims of these Belgian and Australian groups, each supported by their respective Governments in their representations to the Lisbon Government.

3. A concession was granted to Oil Search in April 1939, but its conditions were regarded as too onerous by Oil Search, which withdrew from the enterprise. Oil Concessions then decided to carry on and undertook to proceed with the flotation of a new company to raise the necessary capital as soon as negotiations with the Portuguese authorities were concluded.

On May 25th, 1939, the Commonwealth Government informed the British Ambassador, Lisbon [2], that it supported the application of Oil Concessions as a 'reputable company' and that it was most desirable that the present effort to anticipate any foreign oil interest in Portuguese Timor should not be allowed to collapse.

Further, on August 18th, the Prime Minister wrote personally to the British Charge d'Affaires [3], and in enlisting his active support, referred to the political and strategical considerations which were actuating the Commonwealth Government in pressing for a concession.

4. Eventually a new concession was signed on November 22nd between the Portuguese Government and Oil Concessions for the whole area of Portuguese Timor east of 125( 50', which comprises the major portion of the colony. The view of the Minister for Colonies [4] was that Wittouck had a moral claim to some concession, and in this respect Oil Concessions agreed to negotiate some compensation with Wittouck.

5. The contract with Companhia Ultramarina de Petroleos (the Portuguese company set up by Oil Concessions) gives exclusive rights initially for five years and then for a further five years on condition that the company has spent not less than 50,000 on intensive prospecting. The Company undertakes to raise its capital to 100,000 within one year from the contract. The President and at least half the other directors must be Portuguese.

6. During these protracted negotiations, the Japanese Minister at Lisbon [5] was very active. He is still pressing for concessions to Japan, and has urged his Government that he be instructed to lodge an application for the formation of a company to establish Japanese interests, and especially oil interests, in the territory.

7. As part of its policy, the Commonwealth Government also proposed to Portugal, in April 1939 [6], the establishment of a weekly air service from Darwin to Dilli, with the declared object of increasing friendly contacts, improving communications and facilitating mutual development. The proposal was agreed to in principle by the Portuguese Government [7], and after a visit to the colony by Mr. Fairbairn [8], the text of a draft note for agreement was telegraphed to Lisbon [9], but to date the Ambassador has been unable to obtain the views of the competent authorities on this question.

8. In a despatch dated 9th February, the Secretary of State for the Dominions [10] requests the views of the Commonwealth Government on suggestions put before him by the Netherlands Minister in London [11] for measures of co-operation in the development of Portuguese Timor with a view to blocking Japanese expansion, a problem of mutual concern to Britain and the Netherlands. No concrete proposal was submitted, but reference was made to the desire to co-operate in the two Australian interests referred to in this memorandum, namely, (1) The oil concession given to the Australian group;

(2) The operation of an air service to Dilli.

As to (1), although the Directors of Oil Concessions appear confident of being able to raise the necessary capital from Australian and English sources for the exploitation of the concession, there is a reasonable doubt whether a proposal for oil exploitation in foreign territory with foreign control over the Company, in present world conditions, can be successfully launched. In any case, the following courses in appropriate sequence would seem to be desirable:-

(a) Oil Concessions should be given full opportunity of raising the required capital, in the shortest possible time, in order to work its concession independently of Governments or other major oil companies.

(b) If it is demonstrated that the Company is unable to raise the capital, then the Commonwealth Government might approach the United Kingdom with a view to co-operation in a loan or subsidy to the Company.

(c) In the event of (b) being unsuccessful, then the Netherlands Government could be approached by the Commonwealth Government for financial co-operation, which it has indicated it was prepared to give. In this respect, the financial and technical resources of the powerful oil group, 'Royal Dutch', could be sought, or- (d) Oil Concessions could be induced by the Commonwealth Government to approach direct the Royal Dutch Company for assistance, with the respective Governments supporting the policy of amalgamation of interests.

In regard to (2), the Consul-General of the Netherlands in Australia [12] has also raised this question informally with my Department, and has enquired as to the possibility of the Netherlands obtaining the rights of an air service to Dilli in case the Commonwealth Government, owing to the war, is restricting its civil aviation activities.

The proposed air service has been reviewed by the Department of Civil Aviation, which is desirous of proceeding with the service.

A telegram was sent on 7th Mardi to the British Ambassador, Lisbon, who replied that he is still unable to obtain a decision from the Portuguese Government. [13] The Commonwealth Government is at the moment in a reasonably safe position in having obtained agreement in principle for this service and in having actually lodged a draft agreement.

There would seem to be no advantage from the point of view of the Commonwealth in enlisting the co-operation of the Netherlands Government for an air service to Dilli, as the Dutch service is desired in conjunction with an extension of their own K.N.I.L.M.

services in the East Indies. Moreover, it is doubtful whether the Portuguese Government would entertain a Dutch service, as they have openly expressed a preference for an Imperial or Qantas link and have rejected Netherlands representations on behalf of K.N.I.L.M. since 1937.

9. A further complication arises out of the contents of a telegram, No. 172 of 9th March, received from the External Affairs Officer, London [14], and cablegram No. 74 of 11th March from the Secretary of State for the Dominions. [15] Dodson is now in London and suggests that the United Kingdom and Commonwealth Governments give financial support in buying the concession covering the western portion of Portuguese Timor, in order to forestall the Japanese, and prevent the possibility of Wittouck (see paragraph 2 of this memorandum) from selling out to the Japanese.

I am of the opinion that the Commonwealth Government should not entertain any such proposal. Wittouck, in fact, has not obtained any concession and the Portuguese Government regard him as having a moral claim only. Wittouck is regarded as an adventurer open to the highest bidder and it is not seen why he should be paid to relinquish something over which he has no legal right. In any case, Australian interests, with concessions covering almost three-fourths of the territory and with an agreement in principle for an air service, are already in a strong position to counteract undue Japanese penetration.

10. Based on the above considerations, the following draft telegram to the Dominions Office is submitted:-

'Your despatch 22 of 9th February, 1940, and cablegram 74 of 11th March.

As Netherlands Minister apparently did not submit any concrete proposals it is somewhat difficult to visualise the extent and method of suggested co-operation.

As to concessions recently granted to Oil Concessions Ltd., representative Dodson is, as you are aware, returning to Australia via London this week. His Company anticipates little difficulty in raising necessary English and Australian capital especially as area covers about three parts of colony, though we have doubts on this. Company has not approached Commonwealth Government for any financial assistance, and we are naturally anxious not to be involved in any way as a Government unless it becomes imperative to take steps to preserve concession, in which case we would naturally consult you and not Netherlands Government. At same time, we are appreciative of value of technical and financial co- operation of Netherlands interests, such as Royal Dutch Company, and eventual assistance from this group should be borne in mind.

As you are aware, Portuguese Government has agreed in principle to establishment of a Darwin-Dilli air service, and we have had draft agreement lodged at Lisbon since August last. The Commonwealth Government is prepared to go on with this service immediately final approval has been obtained and we have asked Ambassador, Lisbon, to press for decision.

In circumstances we see no reason to enlist Netherlands cooperation in this service. Moreover, from various reports to Foreign Office from Consul-General, Batavia, it appears Portuguese have refused to entertain a K.N.I.L.M. extension to Portuguese Timor since 1937.

We feel that wisest course to pursue with Netherlands Minister is not to take the initiative but to maintain sympathetic attitude without any direct encouragement on the two subjects raised. A request could be made for any concrete proposals which the Netherlands Government has in mind. Further, a suggestion could be made that the Netherlands Government approach immediately the Portuguese Government for an oil concession over the remaining and western portion of the territory, and that the Royal Dutch Company be invited by the Netherlands Government to become interested.

Competition at Lisbon between Japanese, Belgian and Netherlands interests will complicate matters in our favour. In this respect, it seems definite that Wittouck has not obtained any concession yet, and the Commonwealth Government is not prepared at this stage to entertain any proposals submitted by Dodson for the purchase of Wittouck's interests.

In the meantime we suggest the United Kingdom Government request the British Ambassador to continue to press for an early decision on the air service, to report developments in regard to western oil concession, and to make representations on behalf of United Kingdom and Commonwealth Governments in support of Netherlands interests if Netherlands Government or Royal Dutch agree to make application for concession.' [16]

H. S. GULLETT

1 W. M. Hughes. See AA: A2694, vol. 18, i, 9 February 1938, Minute 166.

2 Sir Walford Selby. See Documents on Australian Foreign Policy 1937-49, vol. II, Document 95.

3 0. A. Scott. See vol. II, Document 131.

4 Dr F. J. V. Machado.

5 Kikuji Yonezawa.

6 See vol. II, Document 71.

7 See vol. II, Document 97.

8 Minister for Civil Aviation.

9 See vol. II, Document 130.

10 Anthony Eden. The dispatch has not been found.

11 Jonkheer E. Michiels van Verduynen.

12 T. Elink Schuurman.

13 Both cablegrams are on file AA: A981, Aviation 50.

14 On file AA: A981, Timor (Portuguese) 22, v.

15 Document 97.

16 This submission was considered by Full Cabinet on 15 March 1940 when it was decided to dispatch instead the cablegram printed as Document 104. See handwritten minute on the copy of this submission here cited.

[AA: A981, TIMOR (PORTUGUESE) 22, v]