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The Financial Times Saturday May 28 1977


Saudis to put only $ 2.9bn.
into Witteveen facility



THE SAUDI Arabian contribution to the so-called Witteveen Facility in the International Monetary Fund will be no more than 25bn, special drawing rights (about $2.9bn.) according to informed sources here.

If this turns out to be the case, then the new facility-designed to increase the IMF a ressources but with loans carrying strict conditions-will be funded initially at perhaps no more than $8bn.

This would be much smaller than Dr. Witteveen, the IMF Managing Director, had hoped for, indeed at the interim committee meeting here last month, Mr.Denis Healey, the Britsh
Chancellor of the Exchequer, observed that a facility of less than $10bn. would be considered disappointing. However, an $8bn, fund would at least reach the minimum target set by Dr.Witteveen, and could, in theory, be topped up later.

It is understood that other Golf nations may subscribe up to $1bn. to the facility, and, Venezuela has acreed to contribute an unspecified sum. It is intended that half the facility’s ressources would be provided by the OPEC nations and half by the industrialised countries.

The Saudi reluetance to offer between $4.5bn. which Dr.Witteveen had been requesting-apparently centres on its misgivings about conditions which would be attached to loans from the fund.

The Saudis believe developing countries would be reluctant to accept the sort of stiff terms that are envisaged and have been seeking some amelioration-such as the spreading out of both the adjustment and repayment processes over a longer period of time.

From the beginning, the Saudis have made it clear that they want developing countries to enjoy maximum access to any new facility increasing international resources.

There have been other reports, so far unconfirmed that the IMF has been trying to persuade the private banking sector to support the new facility, in some unknowen way. If realised, of course, then the facility might get off to a healthier start.

PLO claims clash with Israelis


THE FIRST direct clash between Israeli and Palestinian forces in south Lebanon for over two years was reported early yesterday morning at the western border village of Yarin, according to Palestinians in Beirut. A spokesman for the Israeli army said in Tel Aviv that it had no knowledge of any incident.

Mr. Bassam Abu Sharif, spokesman for the Popular Front for the Liberation of Palestine claimed that an Israeli force, estimated at the strength of a battalion and backed by tanks had crossed the border and clashed with Palestinians at Yarin, but had been forced to withdraw with some casuralties.

If true, the incident would represent a serious escalation of tension between Israel and the guerilla movement and a potental threat to the stability of the area.

In the south eastern border area around Marjayoun and Klaya seven people were reported killed and 13 wounded in the fourth consecutive day of fighting between Palestinian guerillas and Christian Rightwing militiamen, backed reportedly by Israeli artillery. In the beaviest day of fighting so for, both sides exchanges heavy artillery, mortar and machine gun fire.

Tension has been inpunting in the south for two main reasons. The Arab peace-keeping commission, composed of Kuwait, Saudi Arabia, Syria and Egypt, has failed to find an acceptable interpretation of the Cairo agreement regulating the Palestinian presence in Lebanon. The Right wing parties want the virtual disarmament of the Palestinians.

The fighting has also increased since the victory in the Israeli elections of the Likud Party ied by Mr.Menahem Begin, who favours the continued occupation of the West Bank. The Right-wing National Liberal Party in Lebanon was the only faction in the, Arab world openly to welcome Mr.Begin’s victory.

The violence in the south came after the expiration at mid-night yesterday of the mandate of the Arab committee supervising restoration of security in Lebanon, particularly implementation of the 1969 Cairo agreement.

The Christians had demanded the virtual disarmament of the guerillas, but the Palestinians moved much of their armament of the south after civil war and have been operating with relative impunity in the area, since Syrian troops of the peace-keeping force have been unable to enter the border area due to Israeli objections.

The daily al-Nahar said yesterday the four-nation committee had failed to enforce all restrictions on the Palestinians called for in the Cairo agreement and had left the matter for Syria, whose troops comprise the bulk, of the 30, 000 man peace-keeping force in Lebanon, to deal with.

The newspaper said Damascus was not anxious to clamp down on, the guerillas too swiftly because of changes in the Middle East situation after the rise to power of the Right-wing. Likud Bloc in Israel, as well as a desire to wait for the outlines to emerge of a definitive American stand on a Middle East settlement.

UPI reports from Damascus : In a clear reference to the United States, the Arab boycott of Israel head office to-day vowed to black list countries passing anti-boycott legislation and replace their products with those of Japan and West Europe.

"Chambers of commerce, industry and agriculture in Kuwait, Syria, and Jordan have started to implement resolutions taken at the conference of Arab chambers of commerce, industry and agriculture held in Damascus May 15-21." said Mr.Mohammed Mahjoub, spokesman for the Syrian-based boycott office.

"These revolutions are related to blacklisting countries who have approved bills or are in the process of passing legislation opposing the Arab boycott." he said.

Dayan oulcry : Front Page

EEC 22% budget rise proposed



SUBSTANTIAL increases in out-lays by the EEC social and regional funds have been proposed by the European Commission as part of its preliminary draft budget for 1978, which provides for total financial commitments by the community 22 per cent. higher than those estimated for the current year.

The new budget, which must be approved by the Council of Ministers and the European Parliament, will be the first to be financed entirely out of the Community’s own resources.
These consist of the proceeds from customs duties, agricultural levies and a share of value added tax revenue, amounting to about 0.6 per cent of total EEC VAT assessed next year.

The budget draft is also expressed for the first time in units of account based on an adjustable "basket" of EEC currencies. These so-called "European" units of account reflect real exchange rates and are due to replace the present accounting system, based on outdated pre-Smithsonian parities, at the start of next year.

The Commission has proposed an increase in commitment appropriations from 10.2bn.
European units of account this year to 12.5 bn E.U.A. next year. At recent exchange rates, the 1978 draft budget worth about £8.1bn. Payment appropriations, the amount actually paid out in a given year, would rise 24 per cent, to 11.9 bn. E.U.A.

As in past years the bulk of the EEC budget almost 70 per cent, is earmarked for agricultural expenditures, whitch are due to rise 17 per cent. Though most of the money is destined for price guarantees, the Commission has proposed trebling to 511m. E.U.A. the guidance section of the agriculture budget, which is used to promote greater efficency in farming.

The Commission is seeking to step up disbursements by the EEC social fund, which helps to finance vocational training programmes, to 542m. E.U.A. next year from an estimated 158m. E.U.A. this year. However, the total ressources committed to the fund are due to rise by less than 12 per cent to 585m. E.U.A.

Proposed commitments for the regional fund, of which Britain, Ireland and Italy have been the main beneficiaries are 750m.EUA a rise of 88 per cent. over the current year, and actual payments to be made during 1978 are put at 586m. EUA an increase of 84 per cent.

Other sectors for which the Commission is planning substantial rises in spending are research, energy, industry, transport and information. But though the projected increases in payments are as much as 85 per cent., the total allotted for all these activities is less than 500m.E.U.A., or under four per cent. of the EEC budget.

The budget preparation this year has been more than usually complicated by technical factors.
For one thing, though the budget is expressed in European units of account, the new currency "basket" will not apply immediately to agricultural financing, which will continue in
practise to be calculated according to artificial "green" rates after the start of next year.

Moreover, the basis for calculating member states’ contributions to the new budget is also in dispute. In Britain’s case, the sterling cost of its share of budget financing could vary by as much as £200m. a’ year, depending on the method used.

Britain is seeking to keep down its share in sterling terms by arguing that the amount by which its contribution may rise from year to year is limited by its EEC accession treaty. But though it has won the support of the Commission, the British case is being opposed by Germany, which wants the U.K. to shoulder a bigger part of the budgetary burden.


Textron link with Allied Chemical

TEXTRON Incorporated said it reached a tentative understanding with Solvay et Cie of Brussels under which it will acquire 2.7m. shares of Allied Chemical Corporationowned by Solvay, reports Reuter from Rhode Island.

This represents about 9.6 per cent. of the outstanding Allied Chemical stock which is currently worth around $130m. (some £76m.) at current market prices.

The transaction, which needs Textron Board approval, provides for the sale of the Allied shares to Textron in ten equal instalments over the next 2 years.

The initial instalment of 266.934 shares would be sold in early June at a price per share equal to the average New York stock exchange closing price over the three months ended May 31.

Following instalments would be each quarter until September, 1979, at the average closing price per share for the preceeding three month period, provided the price is within established ranges.

Textron said Solvay would not be obligated to sell any instalment if the indicated price was more than $5 below the price per share for the initial instalment.
Textron would not be obligated to purchase the Allied stock if the indicated price was more than $10 above the initial per share instalment price.

Solvay said it planned to use the capital from the proceeds for development and expansion of its U.S. businesses. Textron said it would acquire the Allied shares as an investment.

Citibank GNP estimate

CITIBANK SAID it cut its estimate of U.S. real second quarter gross national product growth to around 5.5 per cent. at an annual rate, from a previous 6 per cent. Reuter reports from New York.

This follows a sharp upward revision in first quarter GNP growth to 6.4 per cent. from the originally reported 5.2 per cent., the bank said in its economic week publication.

The new figure means inventory accumulation that the bank expected in the second quarter now appears to have occurred in the first, it said.

Amev plans Eurodollar finance


AMEV, the Dutch insurance compagny, plans a Eurodollar loan of around $25-30m. around July to finance about half of its planned acquisition of the Time Insurance Compagny in Milwaukee. The U.S. deal, for which a preliminary agreement has been signed is valued at $60m : the - balance will be financed from Amev’s own equity.

The company expects net profits to rise by "at least 10 per cent." this year, after an increase in the first quarter to Fls.15m. from Fls.4.5m., though a year ago a Fls.4.5m deduction was made to cover heavy storm claims. Turnover rose 12 per cent. to Fls.526 m. in the first quarter.

A breakdown of the first quarter gross profits shows that black in accident insurance. Profits from life assurance and increases.
other activities show healthy
Ennia, the other leading Dutch insurance company, has fixed the price of its $25m. 7.2 per cent. Convertible Sub-Ordinated Debentures due 1988-92 at 100 per cent.

The prospectus repeats that Ennia regards prospects for this year as "encouraging."

ESAB expects halved earnings for 1977



ESAB, the Swedish welding equipment manufacturer, reports that both sales and earnings fell behind its budget during the first four months of this year. Mr. Aake Ahlström the Managing Director, now expects earnings to be halved during 1977.

This new estimate compares with his forecast in the 1976 shareholders report that a general business recovery in the second half would boost sales by 15 per cent. this year and result in an unchanged profit. Last year ESAB showed pre-tax earnings of Kr.53.8 m. (£7.2m) after a disappointing 4 per cent, increase in turnover to Kr.1.18bn. Earnings in 1975 were Kr.85m.

Sales during the first four months this year totalled Kr.406m, compared with Kr.415m, indicating that there has been a substantial decline in volume.

The concern’s liquidity is described as "satsfiactory", although borrowings have been increavsed significantly. At the beginning of this year it made a Kr.30m bond issue on the domestic market following up last year’s DM25m. private placement on the German market.

ESAB, which gets close to 80 per cent, of its turnover outside Sweden, has been expanding aggressively abroad for the last few years.

Despite the setback to this programme in the last two years it is still looking for opportunities abroad. Mr, Ahlstrom yesterday announced the establishment of an electrode manufacturing plant in Iran, in which ESAB would take a 25 per cent, holding.

Janata Bank

THE Central Bank of Bangladesh announces that it is ready to put up $10m. in order to save the Abu Dhabi-based Janata Bank of Bangladesh from continued closure. The Commissioner of the bank is currently in Abu Dhabi working on suitable arrangements.

Pan Am cuts April loss

PAN AM MADE a loss of $2.5m against $10.6m in the same month last year, AP-DJ reports.
The loss last month was after prelax capital gains of $1.1m. from "disposition of equipment." The April 1976 loss was after similar gains of $5.1m.

April revenue was $146.1m, compared with $123m.

Vorster presses on with Namibia Bill


CAPE TOWN. May 27.

LEGISLATION to in Namibia a "central administrative authority" based on the constitutional proposals of the Turnhalle conference will be introduced in the South African Parliament before the end of its current session, the Prime Minister, Mr. Vorster, announced to-day.

Parliament will also be asked to approve a Bill relating to the status of the
of Walvis Bay, the consolidation of whose position as a South African possession has been repeatedly asked for by it inhabitants in recent months, he said.

Mr. Vorster’s declared intention to establish an interim Government in Namibia within the framework of the Turnhalle constitutional proposals came to-day as the so-called "Contact Group" of five Western nations- the U.S. Britain, France, Germany and Canada-were finalissing plans for resumption of their Cape Town talks with the South Africa Government in an effort to establish an internationally acceptable process leading to Namibian independence.

Mr.Vorster, who was giving an account in Parliament of his recent talks with United States vice président Mr.Walter Mondale, said there was fundamental disagreement between South Africa and the American delegation on the structure of a Namibian interim authority.
Mr. Vorster said be and Mr.Mondale had argued at length about the merits of a proposed Turnballe administration, which Mr.Mondale found unacceptable because it was ethnicallybased and unrepresentative.
Evidence that a "Turnhalle solution" was gaining wider acceptance in Namibia, said Mr.Voster, was the fact that the Damara and Herero tribes had asked the South African Government to grant them regional self -government.

Mr.Vorster said he did not know when talks with the fivenation "contact group" would resume. A third meeting was due to be held before the end of May, but no date has been set.

He confirmed there had been basic disagreement with Mr.Mondale about the status of Namibian political prisoners, the release of whom was one of the item under discussion with the Western group of five.
Mr.Vorster said be had drawn a distinction between the detention of political dissidents and those "after being sentenced by proper courts." He indicated he would be prepared to the matter to a commission of jurists, providing the release of prisoners or detainees held by South Africa were matched by the release of Swapo dissidents restricted to camps in Tanzania and Zambia.

USSR and Japan sign fish accord

By David Satter

MOSCOW, May 27.

JAPAN and the Soviet Union to-day ended three months of controversy over Japanese fishing rights in the Soviet 200 mille fishing zone with the signing of an agreement which provides for significant reductions in the permitted Japanese catch.

The agreement was signed by the Japanese Agriculture and Fisheries Minister, Mr.Zenko Suzuki and the Soviet Fisheries Minister, Mr.Zenko Suzuki, and the Soviet Fisheries Minister, Mr.Alexander Ishkov, it must now be ratified by the Soviet and Japanese governments. Under its terms, Japanese fishermen may take 455,000 tons of fish from waters in the Soviet zone between June and the end of 1977. This is 63 per cent. of the Japanese catch in these waters during the comparable period in previous years.

The agreement leaves the Japanese-Soviet territorial dispute largely unaffected. The Soviet 200-mile zone is taken to include waters around four formerly Japanese islands occupied by the Soviet Union but the agreement contains a clause which states that it concerns fishing rights only, and is not a renunciation of the Japanese claim to the islands.

The interim agreement signed to-day is valid only until the end of this year. Negotiations for a new long-term agreement to replace the 1956 convention on fishing in the north-west. Pacific, which governed Soviet-Japanese fishing relations for 21 years but was obviated by the Soviet declaration of a 200 mile zone last December, are expected to begin in the autumn.

Banabans settlement


THE 3 000 Banabans who claimed that their former homeland of Ocean Island in the Pacific was devasted by phosphate mining activities, are to be païd A$10m. Dr.David Owen, the Foreign Secretary, said yesterday. The money will come from funds held by the British Phosphate Commissioners on behalf of the Governments of the U.K., Australia and New Zealand.

The islanders fought a fouryear action against Britain in the High Court claiming more than £20m. in lost royalties and damage to their homeland resulting from the exploitation of phosphates. MPs who have supported the islanders’ cause were in no doubt that the offer
will not satisfy them. Sir Bernard Braine (C, Essex SE) said the Banabans would have earned $50m from phosphates had they received proper advise and information in 1947.

Dr.Owen said the Government was trying to bring about an honourable compromise. The money was being offered on condition that no appeal was made in the case against the Crown, that early resolution of the cases against the British Phosphate Commissioners would not be sought and that no further claims would be in addition to the damages to be paid by the Phosphate Commissioners.

Lufthansa strike threat


BONN, May 27.

LUFTHANSA, the West German airline, was served notice today that the majority of its pilots, flight engineers and cabin staff will be called out on strike unless the management improves its standing offer of a 7 per cent. wage increase before mid- day next Tuesday.

Flight crews who are members of the white-collar Deutsche Angestellten - Gewerkschaft (DAG) have voted overwheimingly to give their union leaders discretion to call the strike, and the DAG in turn gave the airline management the new deadline.

The Lufthansa board announeed to-day that it would not consider further concessions, and accused the DAG of deliberately blocking the way to agreement in negotiations arbitration and subsequent informal attempts to mediate the dispute. The airline said the union had raised its demands in the course of these contacts.

Lufthansa also said it was considering a lock-out of strikers, while preparing an emergency schedule to keep at least some services flying. Out of the 3,400 air crew who are members of the DAG, 2,816 were reported to have voted to give the union leadership
strike powers, while 335 voted against.

’Hero’ gets off with $1.10 fine

By Our Own Correspondent


PERHAPS with an eye on the critical mountaineering constituency in the upcoming elections, Mayor Abraham Beame of New York to-day dropped the city’s
$250.000 suit against the young toymaker who yesterday scaled the World Trade Centre.

The feat clearly captured the imagination of New York, and when the suit was brought against Mr.Georges Willing yesterday afternoon, the reporters present at the announcement were moved to boo loudly.

To-day, the Mayor, who is barely 5 feet tall and who is not known to have climbed anything other than a financial mountain, hauled Mr Willing into his office, gave him a "big apple" lapel pin and deseribed him as a hero.

He then said the suit - and all other charges -were being dropped, suggesting that instead the city would settle for $1.10 or a penny for each floor Mr.Willing managed to scale.

Mr.Willing paid up, and got a from Mr.Beame, who said, showing the wit that sends New York into stiches every decade, "We need the money" Mr.Beame is 71.

Moluccan gunmen release children

By David Buchan

ASSEN, May 27.

officials said tonight "talks are in progress" with the South Moinccan gunmen who are still holding 60-odd hostages. But they would not confirm reports that a locomotive is being moved up to shift the hijacked train, still stranded in open country.

This follows the dramatic release at dawn of all 105 child hostages from the Bovensmilde School. The gunmen are reported to have re-affirmed their demands to-day that the Dutch government fly them and 25 of their jailed compatriots out of the country.

The focus of attention tonight switched to the hijacked train, still standed in open country. The ten gunmen there allowed the 56 adult hostages, lucluding a pregnant woman, food and drink at noon to-day - the second supply in 18 hours.

But at daybreak this morning the Bovensmilde school-where now only four Dutch teachers are left facing five Moluccan gunmen - provided the first big break in the double siege. A sudden epidemie of vomitting and diarrhoea among the children apparently decided the gunmen to release them, Dutch officials said.

Release of the children is expected to ease tension bettween the Dutch and Moluccan communities. Concern about a possible backlash against Moluccans however has led the Indonesian embassy to issue to-day an appeal to all Indonesians to "keep calm and not allow yourselves to be provoked," and "make it clear that you do not belong to the people who are responsible for the attacks."

Mr. Andries van Agt, the Justice Minister, commented to-day that "nature helped us a bit" and denied that the virus had been introduced into food to the school.
The runmen are said to be suffering too. Indications of the deteriorating health of the children grew yesterday as eight were freed and taken to hospital.

But it was’not until 3.45 a.m. that the gunmen announced that all the remainder could go.

Some 15 ambulances took off about 34 children on stretchers to the hospital. As it grew lighter, a single file or the rest of the blanket-clad children walked or trotted to a waiting bus.
One waved back at the school, which now holds teachers with ulcer trouble was freed at the same time.

Twenty-six children are being kent in an Assen hospital for . The rest were either sent home or given firstaid treatment in Bovensmilde.

Parents seemed more distraught than children. One harassed father, ambushed by the Press for comment, kicked and punched a German cameraman and then bashed his car a tree before he was able to escape home. But one girl said "I was frightened, but not a lot." In general the child hostages said the Motuccans’ treatment of them was not unduly harsh,

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The Financial Times Saturday May 28 1977



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SATURDAY, MAY 28, 1977


AFTER profit-taking at the end of the last account, the equity market began the new account this week on a quiet note. On Tuesday, however, demand suddenly rose and the 30 share index shot up by 15.7 points, its largest jump in a single day for nearly two years. The market was full from the opening with various rumours which had this in common with one another, that some kind of encouraging statement from the Government was imminent : and it did, in fact, turn out later in the day that the Govenment had agreed under pressure to drop its request for powers to continue controlling profit margins and dividends beyond the middle of next year. This, together with the publication of a new accounting standard about deferred taxation which will make the earnings and equity assets of many companies look better, was enough to convince the bulls that they had been right.

But the rise in prices had been disproportionate to the news. The market slipped back a little on Wednesday and Thursday and finished yesterday on a definitely note.
This was all the more note worthy because there had been unexpectedly good news from large companies like ICI and Courtaulds and because the Chancellor had suggested that there might well be scope for the economy if the balance of payments continued to improve.

U.S. rates

The hesitation in the equity market, not surprising in any case after so sharp a rise, can hardly be attributed to the week’s economic indicators.
Estimates about the growth of product and the behaviour of industrial capital investment in the first quarter are too statistically suspect to have been an important influence and the latest unemployment figures continue an expectedly encouraging trend.
A much more significant factor has been the way in which the steam has gone out of the giltedged market mainly owing to doubts about the scope for a further reduction of interest rates.

There are two reasons for these doubts. The first is the way in which U.S. interest rates have begun to move up as a precaution against inflation, a trend which has incidentally pushed stock prices on Wall Street down to a new low point for the year. This affects the demand for sterling, and the Bank of England has had to intervene in the foreign exchange market this week to hold the rate. The second reason for doubts about freedom to reduce interest rates further, linked to the first through its potential impact on sterling, is the growing unlikelihood that any Phase Three agreement on wage restraint, except of the very loosest kind will be reached. The Bank of England has announced this week the terms of the new floating bond, that was to have helped sell gilt-edged even when the prospect of falling interest rates receded : they have been pitched at a level, presumably for some reason where immediate demand for the new bond is unlikely to be great.

New stimulus

The Government is still hoping to reach some kind of agreement with the unions, if only because a complete failure to do so might well have an adverse effect not only on the exchange rate, but on its own electoral chances. Electoral considerations seem likely to play an increasingly large part in economic decision-making and the behaviour of the stock market in the period ahead, and it is now widely assumed that the Chancellor will have some more concessions to make before long.

This week in Parliament, while maintaining that the IMF ceilings remain at the heart of Government economic policy, he has pointed out that various increases in the public sector borrowing requirement have been largely offset by the fall in interest rates that has already taken place and that he therefore has a margin for further expansion if he wishes to take advantage of it when the time comes. As to that time, he has said that he was deliberately cautious in the Budget because he was not sure how solid was the improvement in the balance of payments and that, if the improvement in the latter is maintained, he could be less cautious later in the year. But the giltedged market, now that U.S. rates are moving up, is likely to be mainly concerned with the outlook for inflation ; the equity market will be very largely influenced by what happens to gilts.

Now BP’s Alaskan white
elephant turns to gold


THE FIRST drops of crude oil from Alaska’s Arctic fields at Prudhoe Bay will be funnelled into the $9bn. Trans Alaska Pipeline (TAPS), in six weeks’ time. Thirty days later, after being pumped through the 800 mile system at about 1 mile an hour while crews check that it is sound, the oil will trickle into tanks at Valdez, Alaska’s ice free southern port.

By early September if all goes as expected, the first tanker load of Alaskan crude will be shipped to the west coast of the U.S. to be refined. Then the oil companies exploiting the biggest oil field in the western hemisphere -British Petroleum and its partner, Standard Oil of Ohio (Sohio) : Exxon : and Atlantic Richfield have the biggest stakes-will know that almost ten years after the field was discovered it is ready to carn its keep.

The 9.2bn barrels of oil in the main Sadlerochit reservoir are worth around $130bn. at to-day’s prices. Perhaps another 2bn. barrels nearby have yet to be developed and exploration continues for more. The North Slope field is so large it will have an impact on the U.S. and not merely on the oil companies developing it. It accounts for about one quarter of proved U.S. reserves and at peak production will equal about one sixth of U.S. imports currently running at 8.4m barrels a day.

One of the nicer ironies is that had it not been for the decision of the Organisation of Petroleum
Countries (OPEC) after the last Middle East war to quadruple the price of oil, the Alaskan project-perhaps the biggest project in civil engineering history-could have a gigantie white elephant. With oil selling at $3 a barrel instead of to-day’s world market price of over $13 the enormous cost of exploiting Alaskan oil would probably have made it uneconimic.
Some New York oil analysts are adamant that without the escalation of oil prices Sohio for one might have been pushed to the brink of bankruptcy. Instead the company, which will he controlied by BP early next year, can look forward to a phenomenal rise of profits. If Sohio had charged its full interest costs against its profits in 1976 instead of capitalising them it would have suffered a heavy loss instead of the $136m. after tax profit it reported. Some U.S oil analysts are confidently predicting that the company will earn a profit after tax of close to $800m. next year from Alasxan oil alone.

BP and Sohio are the biggest beneficiaries of the Alaskan strike with an interest in the field of close to 54 per cent.
This fact, coupled with mounting expectations that the Britsh Government may sell in the U.S. some of the BP stock which it acquired from Burmah Oil, explains the close interest investors are paying to BP and Sohio’s performance, American investors continue, of corse, to be suspicious of the British Government’s controling stake in BP. It remains to be seen whether that will have an impact on the company’s development in the U.S.

BP’s relationship with Sohio was formed in January 1970, when some two years after the Alaskan strike, BP reached agreement to swap the bulk of its find for a stake in Sohio intended eventually to rise to 54 per cent. Currently it holds shares equivalent to 26 per cent.
As the flow down the pipeline increases to 1.2m barrels a day early next year, BP will gain majority control of sohio, with the crucial 50 per cent. mark expected to be passed early next year. At current stock market prices, that holding would be worth over $1.7bn.

In a few short years BP will have completed a major transformation of its operations, lessening its dependence upon the Middle East. Instead almost half of its assets be in North America. But if the project has transformed BP, it has also issued a challenge for the company’s management. BP is more dependent on oil than are many other big multinational oil companies. BP has not pushed its diversification into other forms of energy, especially coal, as vigorously as has, say, Exxon ; or into non-energy businesses as vigorously as Mobil. Profits from Alaskan oil will give BP a big U.S. base, access to U.S. capital markets, and an opportunity to expand and diversity.

A year or so ago the prospects were much more clouded, among other things, by questions, since resolved, about the quality of the pipeline in Alaska. More recently decisons and recommendations have indicated that the Alaskan project will be very profitable, although providing nothing like the return on capital of the biggest North Sea fields.

In his energy message in April President Carter recommended that Alaskan oil should be allowed to sell in the U.S. at the world price. How profitable it will be is still unclear, varying from company to company, and depending on what cost estimates are assumed. A key variable for example is that California, the market closest to Alaska, will not be able to use all the oil Alaska could supply.
At a pipeline flow of 1.2m.barrels a day, perhaps 500.000 barrels a day will be surplus to California’s needs in 1978.
This will involve the oil companies in extra transport costs to move it to other markets.
Sohio, with no West Coast refining capacity, is likely to be hit hardest by the surplus and has been busy establishing alternative distribution systems, including ordering new oil tankers.

The oil companies will have to pay a Government regulated tariff of as much as $6-7 to the owners of the Alaskan pipeline. Sohio, with a 33,3 per cent, stake in the line, and BP, with 15.8 per cent, are expected to make profits from this source, and they will be taxed at a lower rate than the crude oil. These taxes on crude imposed by the state of Alaska, coupled with royalties and federal taxes, will all eat into the profit made on the oil itself.

As a result of varying assumptions about taxes and costs Wall Street analysts are coming up with a wide variety of estimates of profit per barrel. F.Eberstadt for example in a recent circular has come up with a figure of around $1.82 a barrel in 1978, compared with $2.53 a barrel from Merrill Lynch Pierce Fenner and Smith in a circular in November, and $2.80 by Wainright Securities more recently. Much depends on the split between pipeline and crude oil profits, but if any of the forecasts are close, then the outlook for BP and Sohio is bright to say the least. Mr.Tom Petrie of Wainright Securities for example estimates from his figures that compared with profits of $136m. after tax ($3.35 a share in 1976) Sohio will report profits of around $840m. ($13.96 a share) for 1978. For the sake of comparison, in 1976 BP as a whole earned profits after tax of $306m.

The figures give some indication of the opportunity opening up to BP/Sohio in the U.S.Mr.Petrie has estimated that between mid-1977 and the end of 1980 Sohio will have a cash flow of around $2bn. Even allowing for an estimated $700m, of required repayments on its heavy borrowings, the scope for new projects and higher dividends once the debt is eased, is considerable.

Before that however the two companies must adjust to a new relationship as BP assumes majority control of Sohio early next year. There are a number of grounds for believing that this potentially awkward transition will go smoothly. The companies have known since 1970 that it was coming and have come to known each other .
Just as important, perhaps, is the fact that over the past four years or so BP has been actively decentralising its management.

Once BP has a 50 per cent. shareholding in Sohio early, next year, the companies will have to work closely together on major financial and investment decisions, since what Sohio then does will have a direct impact on BP’s balance sheet. On the other band the established decentralisation process at BP and the distinctiveness of the U.S. market, not to mention the minority public shareholding, promise Sohio a considerable independence, BP seems intent on leaving most of the top positions at Sohio in the hands of local management and shows no signs of wanting to make major board or executive changes.

It is clear however that it will be vital to the future of both companies to reach an agreement on how they will invest the huge sums flowings from Alaska, once the initial debt burden is lightened. Although BP is expected to retain some of its Alaskan oil and gas interests independently from Sohio-for example its $1.4bn, investment in the Alaskan pipeline-it is expected to use Sohio as its U.S. base for the future. Most analysts are expecting that BP’s oil exploration interests in the U.S. will be merged into Sohio.
A policy of concentration on Sohio should also reduce overlapping and make U.S, operations easier to manage effectively.

But the question remains what directions the companies will take. In some senses both are well placed. Alaska is expected to produce oil for 20 years which means that unlike some major competitors BP/Sohio will not be under pressure to keep discovering new oil to supply a vast network of refineries and marketing outlets. Refining and marketing are not now expected to be major areas of expansion.

Sohio is in any case quite a small company by the standards of the industry. Although its 1976 balance sheet total was $6bn., more than $4bn. was tied up in non-producing oil related assets in Alaska. The company’s $235m. of pre-tax profits last year comprised $155m. from oil sales and marketing and refining, $32m. from coal, and $47m, from chemicals. These relatively small operations mean that BP/Sohio has a relatively clean slate for planning its U.S. future.

There are two obvious areas of possible expansion in the Old Ben Coal Company, a medium sized operation now producing 10m, tons a year from leaders of the industry and petrochemicals. Oil exploration is clearly another avenue for expansion.

It seems highly likely that BP, like most of the major oil companies, is conscious of the need to diversity away from oil, an increasingly regulated as well as dwindling resource.
But this will not necessarily be easy in the U.S. Given the mood in Congress, which is increasingly critical of the oil companies’s expansion into nonoil energy fields and other natural resources, any diversification will have to be handled with great caution. But at least BP seems to have time on its side.





Established operation




Forties (N.Sea)








Alaska pipeline




Currency adjustment






Wood, Mackenzle, the London stockbrokers, foresee a rapid increase of profits from Alaska and the N.Sea which levels off after 1978 until additional fields are opened up.

.Sohio and pipeline figures include estimated investment tax credits of £5m. in 1977 and £90m. in 1980.
.Differs from published figure because net of estimated taxes recovered from previous years.

Letters to the Editor

Tax rates

From Mr.C.N.Beattie.

Sir,- Mr, Pardoe (May 23) is right that it does not require a QC to find the defects in his taxation proposals. It does, however, require a politician to think up such a daft scheme.

Mr.Pardoe asks whether it matters that under his scheme of taxation the highest earners would pay at a lower rate of tax on the top slice of their income than would lower earners. The answer is that it matters greatly, Mr.Pardoe must be brought to understand that what is resented by people is treatment which is unfair.
The skilled man resents the payment of a nearly equal wage to an unskilled man. Both resent
the pyment of a nearly equal amount of social security to a non-worker. A man earning a large income would resent being taxed 83 per cent. on his top income when a man earning a larger income was taxed at only 50 per cent. But nobody cares, and most people do not know, whether top-rate taxpayers suffer at 98 per cent., 83 per cent, or 50 per cent. Mr, Pardoe’s suggestion that it is politically impracticable to reduce top rates without at the same time giving a sop to someone is a symptom of the moral bankruptcy which afflicts Members of Parliament, and shows how out of touch politicians are with the feelings of the people whom they represent.

24 Old Buildings,
Lincoln’s Inn, W.C.2.

Leeds castle

From Mr.John Wheeler.

Sir,-Mr.David Freud in his article of May 21 "A place to be proud of" does not mention one of the earlier and bloody events which took place at Leeds Castle.
According to Vol, II of "Country Seats of the Noblemen and Gentlemen of Great Britain and Ireland" edited by the Rev.
F.O.Morris it appears that King Edward II granted the manor to Lord Badlesmere. Ungratefully this peer joined te Earl of Lancaster in his attempt to put down the royal favourite, Piers Caveston. Then, to top it all, Lady Badlesmere refused the demand of Queen Isabella for hospitality at the castle for one night. She had arrived with a large retinue and it was feared that she intended taking the castle. In the attempt to force an entrance some of the royal servants were killed. The king, put out by all this, surrounded the castle, starved it out, hanged the castellan, and put Lady Badlesmere and her family in the Tower. Later Lord Badlesmere was hanged at Blean near Canterbury, his head was then struck off and fixed upon Bargate in that city.

Nor does Mr.Freud mention that during the 1939/45 war Leeds Castle was used as an Offcers’ Hospital. I well remember how impressed I was when visiting a friend there.

Many of your readers who have seen countless repeats of that excellent film "Kind Hearts and Coronets" will be interested to learn that part of it was filmed at Leeds Castle.

John Wheeler.
10. Courtwood Drive,
Sevenoaks, Kent.

Post tiers


Sir.-How refreshing to read Mr.Bernard Campion’s letter "post without tiers" (May 25).

I have never undestood how and inherently stupid system of first and second class post could have lasted so long or ever have been proposed in the first place.
When the delay throughout the country to the business and financial life and activity is considered the loss to nation is immensely greater than any benefit to the Post Office. And how frustrating that the PO top management give the impression that the broader issues are never considered.

I am not "knocking" the PO who give a good service in many ways. However with a bit more commonsense it could be "first class."

41,Cottesmore Avenue,
Barton Seagrave,
Kettering, Northants.

O and R

From Mr.R.L.Lewis

Sir,- I was amusd to see the sudden return of operational research (now spelt small "o" small "r"- how are the mighty fallen !) in Michael Dixon’s article of May 23.

Clearly Mr.Dixon’s experience of the blind acceptance of Management to the use of techniques is different from mine. As an Operational Research practitioner. I have found that managers will not accept anything unless they understand everything. In most cases it has to be proved that the use of mathematical techniques will produce better results than methods already in use - for
example, for forecasting and stock and production control.
Even in investment strategy and the analysis of risk, if the answer is different from what intuition and experience expect, managers want to ferret out the reasons for the differences before implementing.

In one area I do agree with Mr.Dixon.Cost benefit analysis with its placing of monetary values on the "quality of life" is the spurious way in which the scientist tries to take over the manager’s job, by giving him single figure answers, based on assumptions too difficult to disentangle later. However, the scientist has no responsibility for corporate welfare. He is responsible neither to the workforce nor to shareholder. Managers have to do the thinking and the decision taking, otherwise we need a new definition of manager,"one who looks after people and implements what he is told to do."

The mathematical techniques are invaluable in evaluating rapidly the financial implications of the many possible strategies (too many for the manager to handle adequately) and to suggest the best solution, in monetary terms, the next best ans so on.

If the company, for whom I am carrying out a study wish me to make the decisions and manage the business. I will gladly do so-for their salary plus mine !

Partners in Management
Koryf House.
Royal Avenue,
Worcester Park, Surrey.

Pig prices

From Mr.S.V.Gaskell.

Sir,- Among all the comment about the European Court order to remove the temporary pig meat subsidy, little has been said about the problem which will face both meat producers and distributors.

The Government has found a short term way of holding back inflation by not devaluing the green pound. Fatstock prices have been held down in this way for over a year effectively at the producer’s expense. Eventually we will have to face up to reality and when we do we will have the problem of reviving a demoralised and hard-up stock producing industry and explainning to the public that very high rises in meat prices are really necessary.

We should take Mr.Gundelach’s advice and devalue the green pound now. The longer we leave it the greater will be the reduction in our livestock herd, the greater will be the cost to our import bill and loss of jobs, and the greater the cost of restoring the damage.

It is as well to remember that we still live in a hungry world.
S Bridge Street. Warrington.


From the Director General,
The Chartered Institute of

Sir,-In the summary (May 13) by your transport correspondent of the Commons Paper "The Role of British Rail in Public Transport" (unfortunately not yet available to the general public) appears a statement from the report-"The Department of Transport Policy Review Unit should be strengthened to include transport professionals." Whether the full report amplifies this statement I do not know but I suggest that we must be clear what we mean by and how we define, a "transport professional."

Gone are the days when transport could be said to be a conglomerate of separate and unrelated tasks. It is a necessary component of the civilised world : its services and facilities influence material standards and social behavior and it is essential to the economic and social well-being of every community. It may be said to be in short, a single, though very complex, activity.

Transport is becoming more complex in character as a result of technological changes and economic ans social conditions.
There is, therefore, a need for qualified people with high standards of general and vocational education and practical experience. A transport professional must not only have a thorough understanding and expertise in his (or her) own mode or function but must be fully qualified in the fundamentals of the theory and practice of transport by satisfactory educational attainments and accepted experience.

In other words, the transport professional is one whose work should be expected to require familitarity with, expertise in, and experience and understanding of the broad body of knowledge concerning the art and science of transport. Against the total employed in transport, such people are relatively few ; they are the product of education, training-as continuous processes-and experience.

(Brigadler) D.N.Locke,
The Chartered Institute of
80, Portland Place, W.1.


From the General Secretary,
Council of Bank Staff

Sir,-It is interesting to see that the Government intends not to reappoint 44 independent women members of independent women members of Industrial Tribunals unless they are sponsored by the TUC or CBI.

The Secretary of State for Employment appears to have abrogated big right to appoint persons
purely on qualification for the job (that is not saying that TUC to and CBI nominated persons could not do the job).

The article by Alan Pike.
May 26, indicated that the TUC and CBI have a statutory right to nominate persons to sit on industrial tribunals but to my knowledge this is not so. It is the Secretary of State who appoints and it appears to have been his decision to delegate his power to the TUC and CBI.

My union would suggest that if we are to have a system whereby industrial tribunals are to function in an independent way then the Secretary of State should be free to exercise his discretion and appoint persons who are from all walks of life and not solely dependent upon the TUC and CBI for sponsorship.

Wilfred Aspinall.
25, John Street. W.C.I.

More wealth

From Mr.G.Schwartz

Sir,- I am surprised, indeed dismayed, that D.Walker (May 13) talks of "distributing wealth." The folly of this thinking can be best illustrated with a pre-war anecdote attributed to Rothschild :
" A clothcap labourer stormed into his office with the words "we are going to take your money and divide it."
Rothschild replied taking a pound note from his pocket "There are 40m. people in this land. I have £40m. Here is your share, now get out."

Wealth is a finite quantity at any moment in time, such as water is. Spreading it thinly will do no good. What one has to do is to use it : to create more wealth. This can only be done by collecting it and channelling it into productive uses. It is no use collecting it into a large stream (Government Treasury) : most of it will go to waste (Concorde and British Leyland).

Create new wealth. It has to be collected into small irrigation channels, which can be easily controlled and, if need be, redirected to areas where it is most useful ; new small and medium sized entreprises and allow them to grow. The past has shown that private entreprise has created the wealth of this country and is still doing so, even today, with the odds staked heavily against it by taxation. One only has to compare the progress from 1917 to 1977 in the USSR and U.S-countries of similar population, resources and size. The more fact that the former has to make barriers to keep people in and the latter to keep them out simply illustrates the point.

For this country ever again to get on its feet, wealth,must be allowed to recreate wealth, if necessary by channelling it into the right avenues, but must not be distributed and
, dissipated, as present Labour policies are doing. The wealth of one of Rothschild’s forebears was able to buy the Suez Canal for England.

G.T. Schwartz.
24a Avenue Road,
Highgate, N6.


Danger seen in big
oil price rise


OIL PRICE increases of 15-20 per cent, could cause intense economic setbacks throughout the world, warned Dr.Lawrence Klein, Benjamin Franklin professor of Economics and Finance at the University of Pennsylvania.

On the second and final day of the Financial Times conference on the management of foreign exchange risks, in London, he said that the world economy in 1977 was off to a reasonable start, and, if the momentum could be mainained for 1978, recovery from the 1974-75 recession would be very nearly complete.

There was still the problem of the world inflation rate by another notch and of getting the trade accounts of Italy, France and the U.K. into balance, but the 1979 extension of the pattern estabilished in the table of forecasts by Dr.Klein would just about complete the process.

He expected to see lower rates of growth in international trade volume in the next few years, in the neighbourhood of 6-8 per cent, compared with growth rates near 10 per cent, in the latter 1960s.


The expansion of the 60s was dominated by trade in fabricated products exchanged among industrial countries. The next phase of world trade in primary materials and among a wider range of nations, including both developing and centrally planned economies as major trading centres.

The re-cycling of the OPEC countries’ reserve balances and the pricing of their crude oil were of utmost importance. They would have to be willing to make grants and loans to other developing nations with large petrol deficits.

In addition, they would have to refrain from imposing harsh adjustment policies on industrial nations with large deficits, from initiating adverse currency speculation, or from backing speculative movements in other basic cummodities.

For the moment, there would continue to be strains on the system. Crude oil pricing indexed to about 7 per cent. a year could be accommodated in a system which was gradually winding down the rate of inflation, as suggested in the table.
of 15-20 per cent, were strongly rumoured a ago, could ignite a serious economic setback.

A thin margin of success or failure existed in this area.

The three troubled economies of the U.K, Italy and France appeared to be improving year by year. By 1979 or 1980, they could be on a sound trade footing and poised for somewhat better growth performance, even to the extent of bringing unemployment back to normal proportions.

They would need assistance from the U.S. and other stronger trading partners.

The "practical monetarism" which had been adopted in the U.S. would face difficult challenges this year and next, said Dr.Henry Kauffman, partner and member of the executive committee of Salomon Brothers, New York.

Talking about U.S. monetary policy and interest rates, he stated that the broadening economic recovery, together with the upward bias in inflation, would

Real Growth %

Unemployment %

Inflation %

Merchandise trade balance (FOB) $ billion

77 ; 78

77 ;78

77 ;78

77 ;78


5.4 ; 5.9

7.0 ; 6.2

5.8 ; 5.6

- 24 ; -21


5.4 ; 6.9

2.0 ; 1.7

6.9 ; 7.1

10.5 ; 8.6


4.5 ; 5.0

4.4 ; 4.0

4.6 ; 4.2

18.4 ; 17.6


0.7 ; 1.7

5.6 ; 5.3

15.7 ; 12.7

- 5 ; -3


3.4 ; 5.6

4.8 ; 4.5

9.0 ; 7.5

- 3 ; -1


2.9 ; 2.4

4.0 ; 4.0

20.5 ; 11.3

- 3 ; -1


4.0 ; 4.3

8.4 ; 8.8

7.0 ; 6.4

2 ; 2.7

Sources : Dr.Lawrence Klein

push money growth more frequently up to and above the official of tolerance.

This would require sharper and larger increases in money rates than were initiated during the past two years when money growth only occasionally exceeded official targets.

The likely results would be that the Federal Reserve Board would struggle valiantly to maintain its practical monetarism, but would not achieve total success.

An important clue to the Administration’s approach to the likely conflict would occur in January when President Carter had to decide whether to reappoint Dr.Burns as chairman of the Federal Reserve.

Interest rate differentials between the major currencies, used as vehicles for finance, had consistently understated the exchange rate risk inherent in these currencies over the last decade, said Mr.Peter Stevens, senior manager, treasurer’s department of the National Westminster Bank, international division.

In the last ten years, the multinational corporate businessman would always have done best to

borrow the most expensive currency in terms of interest rates.

The investor in Eurobonds would have invested most wisely by purchasing those bonds offering the lowest yield.

For U.K. borrowers with sterling depreciating rapidly, the Eurobond barket’s advantages had been largely restricted to those companies with substantial foreign currency earnings, ideally in the currency in which they were raising loans.

Any responsible banker to-day should warn a U.K. client thinking of taking Euro-finance that there must be access to significant foreign currency earnings.

Mr.Stevens warned of a possible in medium-term finance if 1977 marked the bottom of the current interest cycle.

Mr.Thomas Devine, vice-president, International division, Manufacturers Hanover Trust, of New York, said that the risks inherent in short-term, mediumterm and long-term borrowing were identical.

It was very dangerous to borrow in a currency which had no economic link with the purpose of the borrowing. Banks had a responsibility to keep borrowers away from such loans.

The exchange markets had calmed down in the last few years as a result of the disappearance of banks and finance companies which had been overtrading, said Mr.Hubert Baschragel, senior vice-president of the Swiss Banking Corporation of Zurich.

In his address, on the role of large and small speculators in foreign exchange markets, he told the conference there had been excessive speculation on the markets in pre-Herstatt days in the early 1970s.

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