Dividends and Subsidiaries (Establishments outside Iran)


Aerial photo of Abadan 1950’s

From “Oil Nationalisation and Managerial Disclosure: The Case of Anglo-Iranian Oil Company, 1933-1951”

Chapter 4: Profit distribution by the AIOC

Author : Neveen Abdelrehim | The university of york

Dividends were restricted as a result of post war limitations imposed on British
companies by the British Government and the AIOC “could not as one of Britain‟s most prominent businesses realistically break ranks with government policy”[572]. In view of the dividend limitations imposed on AIOC arising from UK fiscal policy, the Iranian government indicated to the company that they were not satisfied with the existing arrangement under the concession whereby they received a yearly payment equal to 20% of the sum distributed to the ordinary shareholders[573]. Penrose pointed out that early in 1948; the AIOC had planned discussions with the Iranian government to remedy the apparent prejudice to Iran of the British government‟s policy of limiting dividend payments[574]. The Memorandum called for dividends payable to the Iranian government to be exempt from this restriction, claiming that “the restriction imposed on the amount of dividend on the company‟s shares on the authority of instructions issued by the British government should not affect the shares of the Iranian government in the company‟s profits”[575]. Furthermore, Ali Mansur argued that the 20% rate paid to the Iranian government of dividend for ordinary shares had never been realised due to the British manipulation of their tax rate[576]. AIOC countered that the deferred participation in profits might not accord with the Iranian government‟s immediate interests because defining profits were a major difficulty which faced the company. The company pointed out that the amounts held back by the restriction were being held in reserve for the Iranian government and offered to make these funds available immediately[577]. Meanwhile, Fraser believed that the Iranian government might well be successful in bringing about an amendment to the concession so he proposed that an “ex gratia” payment should be made by the company to the Iranian government either by way of a loan or on account, being in effect a unilateral “gift” by the company without any sort of conditions, in order to forestall any problems[578]. Moreover, Gass aimed to convince the Iranian government that its share in the company‟s profits had been in no way affected by the policy of limiting dividends and claimed that the ex gratia payment offered by the company would be in the Iranians‟ best interests[579]. By restricting the dividend payments to shareholders and imposing taxes on the
company, which were greater than Iranian royalties, British fiscal policy helped to fuel Iranian grievances about the AIOC‟s distribution of income[580]. This appears to provide evidence that Iranian claims were genuine, that certain features of the concession agreement were not operating in the way that was originally intended, and that AIOC, by making such claims, were merely defending their position.


Subsidiaries (Establishments outside Iran)
Iranians were dissatisfied with the insistence of AIOC on not consolidating the non-Iranian subsidiaries. Elm has pointed out that non-Iranian subsidiaries were not consolidated by the AIOC to deprive the Iranian government of profits generating from overseas operations[581]. Meanwhile, Penrose describes the exclusion of subsidiaries as “an important element of arbitrariness” in the realisation of profits, so that, for instance, profits might be realised in regimes with the lowest tax rates[582]. In fact, the company‟s statement of 1950 noted that The accounts of fifty-one subsidiary companies….have not been included in the Consolidated Accounts since your Directors are of the opinion that such consolidation would be misleading[583].
The above illustrates that the process of integrating subsidiaries is not only an
economic process but also a political one and therefore affected by the main country‟s social and political dynamics. The AIOC produced 51 percent of the Middle East‟s oil, three-quarters of it from Iran and the other quarter shared between Iraq, Qatar and Kuwait. The remaining 49 percent was made up of 44.5 percent from American companies and 4.5 percent from Dutch and French companies[584]. This raises the question of why AIOC insisted on withholding profits earned outside Iran. The resource was Iranian, and the capital investment and other costs (except the initial historic costs) were met from the sale of Iranian resources- so why was the income retained by, or paid out to, Britons? Clearly, the treatment of subsidiaries was a matter of concern because of its implications for AIOC‟s profitability. The Memorandum invoked the Government‟s right upon expiry of the concession with regard to the subsidiaries[585]. In 1949 Husayn Makki, who held office under General Zahedi (Musaddiq‟s successor), complained that the company accounts did not mention the capital employed in its 37 subsidiaries[586]. Moreover, in 1950 Musaddiq attacked the company‟s treatment of its subsidiaries from two angles. Firstly, AIOC could not withhold its profit from Iranian royalties on the basis that it had been earned outside Iran, bearing in mind that the majority of its earnings were Iranian. Musaddiq pointed out that, in its balance sheet for 1948, the AIOC had about £28,000,000 worth of shares in its subsidiary and combined companies and in respect of these shares it received only £2,000,000, which implied that the amount received was not above 7% of the investment which totally belonged to Iranian oil resources[587]. Secondly, Musaddiq argued that the subsidiaries were in any case financed with Iranian profits. For instance, the profits of the British Tanker company, (a shipping company for Iranian oil, whose capital had been provided by the AIOC) were at least £10,000,000 in 1949. From this amount it gave only £240,000 to the parent company, although £4,000,000 of the earnings from Iranian oil had been invested in that company[588]. The AIOC countered that it was willing to protect its overseas investments and maintain control over its assets, an idea as important to them as nationalisation was to the Iranians[589]. Gass was aware that the Iranian government was very concerned about the establishment of subsidiaries outside Iran, believing that the government was looking to maximise its revenue from expansion of operations and of refining capacity from within Iran. This would have been very desirable from the Iranians‟ viewpoint, furthering their policy of raising the level of employment and increasing the rate of foreign exchange[590]. However, the company responded by stressing that the “fundamental difference” between its establishments inside and outside Iran was that the former would revert to the Iranian government, but that there was no question of allowing the latter to do so[591]. In short, the AIOC was not willing to consolidate the non-Iranian subsidiaries to maintain control over their assets.


References :
572. Bamberg, The History of the British Petroleum Company, 326.

573. BP 101099, AIOC opinion on 20th June 1948, 1.

574. Penrose, The large International firm in developing countries, 66.

575. Gidel Memorandum, 1.

576. BP 126343, Notes on Supplemental Agreement handed by Ali Mansur to Shepherd on 3rd June

577. Gidel Memorandum, 8.

578. BP 101099, AIOC opinion on 20th June 1948, 1.

579. BP 126407, Report on visit to Tehran 31st August to 26th October 1948, 29.

580. Bamberg, The History of the British Petroleum Company, 326.

581. Elm, Oil, Power and Principle: Iran’s oil nationalisation and its aftermath, 53.

582. Penrose, The large International Firm in Developing Countries: the International Petroleum Industry, 43

583. AIOC Annual Report and Accounts, 1950, 7.

584. Elm, Oil, Power, and principle: Iran’s oil nationalisation and its aftermath, 108.

585. Gidel Memorandum, 2.

586. BP 126346, AIOC concession supplemental agreement bill on 28th July 1949, 1.

587. BP 126349, press extracts No. 816, Dr. Musaddiq‟s letter to ITTILA‟AT on 20th November 1950, 3.

588. Ibid.

589. BP 79673, Denis Wright to London, 6 January 1954.

590. BP 126407, Report on visit to Tehran 31st August to 26th October 1948, 42. 591 Gidel Memorandum, 14.





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