Chapter 115: Fruits of Past Labour (2)

Ministry of Finance, North Block

That evening

The valuation cell occupied a windowless room in the basement of North Block. Its door was locked with two separate keys, and its walls were lined with filing cabinets, slide rules, and adding machines. Nine men in shirtsleeves sat around a long table without speaking.

Ardeshir Darabshaw Shroff stood at the head of the table with his waistcoat unbuttoned and his spectacles pushed up on his forehead. When Ram walked in with Shaktidas Sharma, the cell rose in unison.

"Sit, gentlemen," Ram said. "I am here to listen to your final valuation report."

Shroff nodded to a junior analyst, who pulled a canvas cover from a wall chart ruled in red and black.

"Prime Minister, the valuation exercise is complete. Eleven months of work, from public filings, trade intelligence, and documents our London contacts should not have been able to obtain. I will begin with Burmah Oil, because it is the piece on which the whole structure turns, and because the figure in the file you saw in January was wrong."

"Wrong?"

"Too high. That figure rested on pre-war earnings, and those earnings no longer exist." The analyst, Gaurav Panda, picked up a pointer. "In the spring of 1942, the Burma Corps carried out the denial programme at Yenangyaung and Chauk. Wells plugged with cement, pumps smashed, refineries dynamited. Eight million pounds of plant destroyed in a fortnight, on British orders.

The Japanese restored some of it, and American bombers wrecked most of that in 1944 and 1945. The Burmese fields today produce perhaps a tenth of their pre-war output. Rehabilitation will cost years and tens of millions."

"So, what value is left in Burmah Oil?"

"Four things." He tapped the chart. "The twenty per cent holding in the Anglo-Iranian Oil Company, which is nearly all the value. We put it at sixty-five million pounds. The Digboi refinery and the Assam Oil Company, twelve million. Burmah’s half of Burmah-Shell, the marketing company, which is the steadiest cash earner, eighteen million. And the Burmese fields themselves, impaired as they are, ten million. That makes a hundred and five million pounds. Conservative, eighty-five. Liberal, a hundred and twenty."

Shaktidas leaned forward. "There is a fifth heading on the board, is there not? The war-damage claim."

"There is." Minister Shroff almost smiled at the question. "Burmah Oil has pressed a claim against His Majesty’s Government for the scorched-earth destruction, about thirty million pounds, unresolved since 1945. The company holds the claim against the Crown. If we buy the company, we buy the claim."

"Whitehall would sooner bury it," Ram said.

"Whitehall would sooner bury it. Which makes it useful, Prime Minister. We can threaten to press it. Or, better, we can waive it, and appear to give something up." Shroff waved Panda to his seat. "There is one more peculiarity of this negotiation I want to raise now. In an ordinary sale the seller wants a high price and the buyer a low one. In this negotiation, it will be doubly true.

The seller is also the debtor. Every pound at which they value an asset is a pound of debt they do not owe. So, the British will argue Burmah up, and we will need to argue it down."

"They will cite the pre-war earnings," Ram said.

"They will, and they will be arguing against a fact that the Treasury’s own generals created in 1942. I intend to put that to them."

Ram nodded slowly. "Go on to the rest."

Shroff turned to the second chart, a long table of names. "The parity holding in the crown jewel companies. We do not want control. We want equal footing with the British Government, twenty-five per cent each, thirty in the most critical cases, wherever the state holds or is about to hold a stake. Two governments side by side, the rest in private hands."

He read the schedule, tapping each line.

"Aero-engines and aircraft: Rolls-Royce, thirty per cent, twenty-two million. De Havilland, twenty-five, ten million. Bristol Aeroplane Company, twenty-five, twelve million. Hawker Siddeley, twenty-five, twenty million. Vickers-Armstrongs, twenty-five, thirty million.

Electronics and heavy electrical: English Electric, with Marconi, thirty per cent, eighteen million. Associated Electrical Industries, including Metropolitan-Vickers, twenty-five, fifteen million. Babcock & Wilcox, twenty-five, twelve million.

Steel, which the Labour Government is looking to nationalise this year: Stewarts & Lloyds, Dorman Long, Colvilles, Richard Thomas & Baldwins, and Guest Keen & Baldwins, twenty-five each, seventy-five million together.

Shipping: P&O, with British India Steam Navigation, thirty per cent. Cunard-White Star, Shaw Savill, and Alfred Holt’s Blue Funnel Line, twenty-five each. Forty million for the four. Swan Hunter, twenty-five, ten million.

Chemicals: a twenty-five per cent interest in the overseas subsidiaries of ICI, twenty million."

Ram ran a finger down the column. "Two hundred and eighty-four million."

"Two hundred and eighty-four. With Burmah at a hundred and five, three hundred and eighty-nine."

"And the credit?"

"The sterling balances do the work, Prime Minister. Interest on one point eight billion at four per cent is seventy-two million a year. London owes the full year 1948-49, seventy-two million. It owes the thirty-six million deferred from the second half of 1947-48. And it owes the thirty-six million for the first half, which the Bank of England ’provisionally deferred’ and never paid. A hundred and forty-four million in arrears. Add three hundred million of principal, and the credit is four hundred and forty-four million."

"Which leaves fifty-five million over."

"Fifty-five million that I have not spent." Shroff permitted himself a thin smile. "I have held it in reserve. A list of smaller holdings, technical firms, machine-tool makers, component houses, that we want but that I did not wish to put into the opening offer. Ferranti, Plessey, Lucas, Tube Investments, British Aluminium, Dunlop, Decca, and Alfred Herbert. I intend to let the British argue Burmah down from a hundred and sixty to a hundred and five, and then ask for the difference in these."

Ram looked at the second list for a long moment. "You build your concession before you make it."

"A Parsi accountant’s habit, Prime Minister."

"Then let me say what I think the British will actually resist," Ram said, folding his hands behind his back. "They will not resist the principal cut. They will welcome it. It is three hundred million pounds of debt that vanishes without a pound of cash. They will resist the assets, because they are strategic. They will resist the board seat on AIOC. And they will resist the thing we are not discussing at all, the August terms: the rupee at thirteen to the pound and the remaining balance serviced in dollars."

"It is the dollars that will give them nightmares," Shaktidas said. "They cannot pay the arrears. They will see this as a way not to."

"And they will be correct, because it is. I do not wish to mislead them. The arrears alone, at four dollars three cents, come to five hundred and eighty million dollars. If they had this much in dollar reserves, they’d have paid the interest. If I take it in companies, I save them the dollars, and they save face in the Commons." Ram stopped. "On the seat. Shroff-ji, it is not negotiable. I will give them almost anything around it, but the seat stays."

"On what ground?" Shaktidas asked.

"That it is not theirs to give. In 1909, when Burmah brought its capital into the Anglo-Persian venture, the articles of association gave the Burmah shareholding the right to nominate directors. The right is attached to the shares, not to the nationality of their owner. If London wishes to say the right dies with the sale, it is claiming the power to rewrite a company’s articles when it dislikes the buyer. The Treasury has been very sensitive to that principle wherever India is concerned."

Shroff chuckled. "You propose to quote their own rules at them."

"It is the most effective argument I know," Ram said.

HM Treasury, Great George Street, London

March 1949

The Chancellor’s room faced St James’s Park, but the March rain fell so thickly that the trees were grey smudges against the glass. Sir Stafford Cripps sat behind a plain desk in a dark suit, his austere face half in shadow. The room reflected the man: no carpet, no ornament, and only a small coal fire in the grate. Sir Wilfrid Eady leaned forward at his right with his chin on his fist. At the far end of the table loomed Foreign Secretary Ernest Bevin, flushed, his collar tight against his thick neck. By the window sat Lord Strathalmond, chairman of the Anglo-Iranian Oil Company, a stiff, silver-haired man who clearly resented being there.

Ram sat opposite them with Shroff and Sir Chintaman Deshmukh. A plain leather folder lay unopened before him.

"Prime Minister," Cripps said, in his precise, schoolmasterly voice. "We have studied your proposal. I will say at once that the Treasury finds it extraordinary."

"I hope it is also reasonable, Sir Stafford."

"On the financial side it is more reasonable than I expected." Cripps did not smile. "On every other side, it is not. Mr. Smith, summarise."

Smith, a young college graduate, laid out the schedule: arrears of a hundred and forty-four million, a principal reduction of three hundred million, a credit of four hundred and forty-four, set against Burmah Oil and the parity holdings. He gave the figures without ornament. When he reached Burmah, Eady raised a finger.

"One hundred and five million. The Treasury’s own valuation is a hundred and sixty."

"The Treasury’s valuation rests on pre-war earnings, Sir Wilfrid," Shroff said. "Those earnings no longer exist. In May of 1942 the Burma Corps wrecked the Yenangyaung and Chauk fields on the orders of His Majesty’s Government. Eight million pounds of plant destroyed in a fortnight. The Japanese rebuilt part of it, and the Allied air forces destroyed that. Production is a tenth of what it was."

"The fields will be restored."

"At a cost of tens of millions, to be borne by the buyer. We have priced that in." Shroff turned a page. "The value in Burmah is the twenty per cent of AIOC, which we put at sixty-five million, plus Digboi, Burmah-Shell’s half, and the impaired fields. A hundred and five. The Treasury’s figure would have me pay for a destroyed asset as if it were intact. I should not like to explain to our Parliament why I paid a hundred and sixty million for the wreckage your own army made."

Eady’s mouth twitched. "You press a point of some embarrassment."

"The embarrassment is not of my making."

"And the war-damage claim?" Cripps asked sharply. "I am told the company has an unresolved claim against His Majesty’s Government, thirty million pounds."

"It does," Ram said. "It passes to the buyer with the company. India would be entitled to press it."

"It is a claim we have rejected."

"It is a claim you have not paid, Sir Stafford. They are different things." Ram opened his folder at last. "I do not wish to press it. I would prefer to settle matters as friends. We can speak about it later."

Lord Strathalmond spoke into the pause, his voice thin with indignation. "Prime Minister, the issue is not the price. It is what the company carries. Burmah’s holding in AIOC is the keystone of British policy in the Persian Gulf. With it comes a right to nominate directors. If India acquires it, India sits on our board. It will see our concession terms, our production figures, our negotiating position with the Shah. I cannot permit it."

"Lord Strathalmond, the Republic has no designs on Persian oil. Burmah’s fields lie on our soil, its refinery supplies our army, and its marketing arm sets fuel prices in every Indian city. I should think it strange if India did not wish to own it."

"Burmah Oil is a British company."

"Which has taken oil from Indian soil since 1886. I should be glad to discuss what a fair price for that history might be."

Bevin leaned forward, hands flat on the table. "Then I will be plain. The nomination right does not pass. If the Cabinet permits the sale at all, the seat stays with a British nominee."

"I will give you almost anything but that, Mr. Bevin. Not the seat."

"You are in no position-"

"I am in the position of a man buying shares that carry a right," Ram said evenly. "The articles of 1909 attached the nomination right to the Burmah holding, not to its owner’s passport. If His Majesty’s Government rules that the right lapses when the shares change hands, it asserts that the Crown may rewrite a company’s constitution when it dislikes the buyer. I should be most interested to hear the Chancellor explain that principle to the City."

Cripps’s expression did not move. Eady’s eyes closed briefly.

"It is a lawyer’s argument," Bevin said.

"Prime Minister," Strathalmond said, "no government in the Gulf will take us seriously if it is known that a foreign state sits at our table."

"A friendly state holding a minority position, with the same duty to the company as any director. I will address your concern directly." Ram drew a typed sheet from the folder. "India will undertake, in the treaty itself, the following. First, no increase of the Burmah-held AIOC stake without British consent. Second, no sale or pledge of the shares to any third party without a prior offer to His Majesty’s Government at the market price."

Strathalmond opened his mouth, shut it, and glanced at Bevin, who had not expected India to consult Britian about increasing their stake in the cash cow that was AIOC.

"That is a good deal of restraint," Eady said quietly.

"It is meant to be. I am buying a dividend and a window, not a throne."

Eady glanced at Cripps, who gave a faint nod, and Eady drew a sheet of his own from his folder. "Prime Minister, the Treasury has considered the matter from a different direction. I am bound to say it is the obvious direction. The principal reduction you propose is three hundred million pounds. It is, from our side, welcome. A debtor is not distressed to have his debt cut. Why, then, stop at three hundred?"

"I do not follow, Sir Wilfrid."

"Suppose we cancelled six hundred million of principal," Eady said, "and you kept your claim to Burmah alone. The parity holdings, Rolls-Royce, the steel companies, the shipping lines, remain with the British. You would be paid, in effect, double. For us, there is no risk to strategic industry. For you, there is a larger sum off the debt. It seems a tidier arrangement."

"It seems a tidy arrangement for the Treasury," Shroff said, without heat.

"Minister-"

"No, I do not say it unkindly. You offer me more paper to avoid giving me anything I can use. Let me give you the reasons why I refuse." Shroff raised one finger. "First, India does not need a larger write-down. India needs jet engines, steel, ships, and electronics, and the engineers who know how to make them. The paper you offer cannot be turned into a turbine.

Second, cancelling principal does nothing for the remaining balance. The terms agreed in August stand: the rupee at thirteen, interest in dollars, American guarantees. A smaller balance is still a debt, and the dollars are still owed.

Third, and I will speak plainly, you ask me to trust that the pound will hold. If I am wrong to doubt it, I lose nothing by holding companies. If I am right, I have turned a depreciating claim into something that earns."

"You are saying you do not trust sterling," Cripps said.

"I am saying that I am a careful man, Sir Stafford, and that I have read your reserve figures."

Bevin snorted. "And when Egypt and Iraq and Pakistan learn that India has bought her way into half of British industry with her balances? They will all come to the door. Every creditor in the sterling area will want the same terms."

"Then I suggest you pay them as you pay me, Mr. Bevin," Ram said. "On time."

There was a short silence. Cripps looked at the fire.

"Nevertheless," Shroff went on, "I appreciate that the Treasury’s difficulty is real. So, I offer two courses. In the first, India purchases Burmah and the parity holdings as proposed, with the undertakings I have described. In the second, India forgoes Burmah and the AIOC holding entirely, takes the parity holdings alone, and the Treasury agrees to an escalation clause. Should sterling be devalued by more than five per cent against the dollar within three years, Britain makes good India’s dollar loss on the outstanding principal."

Ram glanced sharply at Shroff. The second course had not been in the draft.

Eady understood at once. Option Two left the Treasury with an open-ended liability triggered by the very event it feared. Option One cost a company but capped the damage.

"That is very ingenious, Minister Shroff," he said softly.

"I am a mathematician, Sir Wilfrid. I prefer problems with defined boundaries."

Bevin shoved back his chair and stood, blocking the light. "I will not be blackmailed in a British Cabinet Room."

"No blackmail has been offered, Mr. Bevin. Only alternatives."

"I shall speak to the Prime Minister."

"I should be honoured to meet him. I understand he is in residence."

Bevin glared, then strode out. Strathalmond followed. Cripps sat still, looking at the table, and Eady wore a faint, rueful smile.

"I would ask for twenty-four hours," Cripps said.

"You may have forty-eight. I should add, with courtesy, that the treaty establishing the North Atlantic alliance will be signed in three weeks. When it is, Britain’s priorities will lie in Europe, and Washington’s tolerance for anything that distracts from that will wane."

"You are betting on American support."

"I am betting on American self-interest, Sir Stafford. It is far more reliable."

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