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