137 Prime Minister's Department to Mr S. M. Bruce, High Commissioner in London

Cablegram unnumbered 11 April 1940,

SECRET

Your telegram 220, TIMOR. [1]

While we still hold strongly view that Oil Concessions should raise its own capital and develop concession without further delay, our primary interest is excluding Japanese penetration.

Therefore, it being apparently opinion of United Kingdom Government that that can best be effected by association of United Kingdom, Commonwealth and Netherlands Governments and Oil Group we are prepared to co-operate financially on equal basis to buy out Wittouck. [2]

In this respect, however, following factors must be borne in mind, assuming agreement in principle can be reached: (a) Legal agreement between Portuguese Government and Wittouck must be transferable and should not contain onerous conditions as to capital and working conditions. Otherwise Governments will be faced with necessity providing additional monies to ensure non- forfeiture.

(b) To whom is title to be transferred on purchase from Wittouck? We think it should not be held by Governments for internal political and international reasons. Therefore, it would seem wiser for money to be loaned to Oil Concessions or new company composed of Oil Concessions and Anglo-Iranian or Royal Dutch, with provision for repayments.

(c) It would be imperative to obtain guarantees from Portuguese Government that they will stand firm against Japanese pressure and not grant any other concessions to them. Present concession is mining only, and would not preclude Portuguese granting to Japanese overriding developmental concessions of all kinds. This would obviously nullify whole object of any arrangement now made if not safeguarded against.

Assuming Anglo-Iranian remain disinterested, it would appear advisable to approach Netherlands Minister [3] immediately and accept offer of financial co-operation, on basis that co-operation can best be effected through instrumentality of Royal Dutch Company.

The obtaining of title and formalities regarding transfer to new Group will in light of experience take considerable time. In meantime, Oil Concessions should be encouraged to proceed with their own proposals for raising capital and developing concession, as time factor in contract is operating against them.

Even if nothing comes of present proposals, Oil Concessions should be in position to obtain a flying start, and though Portuguese Government might not be able to hold out indefinitely against Japanese pressure, they may be able to play off Wittouck against Japanese interests. In some respects, this may be just as advantageous as obtaining an oil concession over whole territory, which might well precipitate Japanese action against Macao, and cause other forms of concessions to be given. On whole, however, while not ruling this possibility out, we favour action as indicated.

1 Document 127.

2 Managing Director of the Asia Investment Company.

3 Jonkheer E. Michiels van Verduynen.

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