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.