'File 82/34 II (F 94) APOC Concession' [‎71v] (143/362)

The uoncessionnaire undertook to employ only subjects of His Imperial
Majesty the Shah of Persia, except the technical staff, such as the managers
engineers, borers and foremen (article 12),
He undertook to pay a fixed annual due of 2,000 tomans 10,000 Persian dinars, or a gold coin of that value. and a variable due
equal to 16 per cent, of the annual net profits (articles 4 and 10).
On the expiration of the term of the concession, all materials, buildings and
apparatus then used by the company for the exploitation of its industry were to
become the property of the Government, free of charge (article 15).
4. The first company for working the concession was formed in 1903. The
Anglo-Persian Oil Company, established in 1909, took over all the rights and all
the obligations arising out of the D'Arcy Concession.
5. From the beginning of the concession the line of action pursued by the
concessionnaire gave rise to disputes—
(a) Under article 4 the Government was to receive annually a fixed sum of
2,000 tomans 10,000 Persian dinars, or a gold coin of that value. . Years went by and the due was not paid. In 1909 the
arrears amounted to 16,000 tomans 10,000 Persian dinars, or a gold coin of that value. . The Government made repre
sentations to the Anglo-Persian Oil Company, which refused to make
any payment. The Government asked for arbitration, but the
company declined.
(b) Under article 10 the Persian Government was to be paid annually a sum
equal to 16 per cent, of the annual net profits of any company or
companies that might be formed to work the concession. Up to 1900
no sum had yet been paid under this head. During the Great War
the company complained that, in the course of hostilities (in February
1915), pipe-lines had been cut by armed bands, and that, owing to the
disturbed state of the country, it would take a long time to repair
them, which meant serious losses to the company. For these losses it
sought to make the Persian Government responsible in virtue of
article 14. The Persian Government replied that the pipe-line, which
supplied the British fleet, had been cut by armed bands at the
instigation of one of the belligerents. It was not responsible, but
proposed to settle the dispute by arbitration, as provided in article 17.
The company would not agree to this, and, acting as judge in its own
cause, refused to pay the dues (Appendices I and II).
6. The Persian Government employed a sworn accountant, a British
subject, Mr. William McLintock, to examine the company's books and accounts
and those of its subsidiaries, to ascertain what losses the company might have
sustained during the war and to check the calculation of the net profits with a
view to the levying of the 16 per cent.
In his report the expert stated that the delay in repairing the pipe-lines was
chiefly due to the fact that the company's ships had been requisitioned by the
British military authorities. He also called attention to the wide discrepancy
between the sum claimed by the company (over £600,000) and the real amount of
the loss sustained (about £20,000).
He further noted that the company deducted from the gross receipts an
undue amount in respect of amortisation and considerable sums in respect of
interest, and subtracted the income tax on profits before calculating the dues.
7. In consequence of the expert's investigations, a financial adviser lent by
the British Government to Persia—Mr. Armitage-Smith—was appointed to
settle the questions outstanding between the Persian Government and the
Company, either by amicable agreement or by arbitration. He made an arrange
ment with the company whereby—
(a) He was to calculate the arrears.
(b) He was to fix the basis on which the dues were to be calculated.
(c) It was decided that, if a dispute should arise in regard to the state of
the dues, the method of calculating them, or any contested point, such
dispute should be referred, not to the arbitrators provided for in
article 17 of the concession (in Tehran), but to London, to an expert
accountant to be appointed by the president for the time being of the
English Chartered Accountants' Institute, whose award shall be
final."