DISCONTINUANCE OF THE ABOVE ARRANGEMENT.

This arrangement was not remunerative to the Company, inasmuch as the expense of the steam vessel, which, in consequence of it, the Company were obliged to run between Malta and Alexandria, was fully equal to the whole amount of the sum received for the conveyance of the Mails between Southampton and Alexandria, and it also subjected the Company to some additional expenses in carrying on their trade with Constantinople and the Black Sea ports.

The Directors have on former occasions publicly stated that they had, notwithstanding, no intention of breaking up the arrangement, considering it as a link in the chain of extensive postal communication, from which, as a whole, the Company were deriving a large portion of their income.

The Government, however, thought proper to discontinue it, on the alleged grounds of its being unnecessary, and that a saving of expense to the public would be effected thereby. The various memorials from Bombay, praying in urgent terms for its re-establishment, form a sufficient refutation of the first allegation. And the facts—that its discontinuance necessitated the employment, by Government, of an additional packet, to replace this Company’s vessel, which carried the Mails between Malta and Alexandria, at an expense exceeding the whole sum previously paid to the Company—and that the breaking off of an important branch of postal communication could not fail to cause some diminution in the postage revenue—are sufficient to show, that so far from the public being financially benefited by the change, it has been accompanied by a positive loss.

Termination and Renewal of the Contract of 1840, for conveying the India and China Mails between England and Alexandria.

The result of the recent proceedings of the Government, in reference to this Contract, has been of a most satisfactory character, not only as regards the interests of this Company, but the interests of other extensive enterprises employed in the Contract Packet Service.

A summary of these proceedings will be found in the evidence of Mr. T. C. Croker, in his answer to question 1306, wherein he read the following précis of them, furnished by the Admiralty, viz.:—

“On the 6th January, 1848, the Admiralty gave notice to the Peninsular and Oriental Company, for the termination of the contract, at the end of twelve months, on the 18th January, 1849. Their object in so doing was, to ascertain whether the service could not be done at a cheaper rate. There had previously been correspondence on the subject between the Admiralty, the Treasury, and the Post-office; and the Treasury, by a Minute, dated 4th February, and communicated on the 5th, requested the Admiralty to give this notice. On the 27th of March the Admiralty wrote to the Treasury, proposing that an advertisement should be issued, calling for tenders for conveyance of mails to and from Alexandria. On the 5th of April the Treasury approved. The advertisement appeared in the Gazette of the 21st of April. It was for the monthly conveyance of the Calcutta and China Mails and despatches between England and Alexandria, by way of Gibraltar and Malta, leaving England on the 20th of each month. The contract was to commence on the 8th of January, 1849, and to last at least three years. On the 18th of May two tenders were received, one from the Peninsular and Oriental Company, for the following sums: for the first year of contract, £27,500; for the second, £27,000; for the third, £26,500; for the fourth, £26,000; and so on, reducing £500 for each subsequent year that the contract remained in force, with two vessels of 450-horse power, and a reserve vessel of 250-horse power. Another tender was received from the India and Australia Company for £25,650, offering the ‘Minerva,’ of 400-horse power, 627 tons; the ‘Admiral,’ of 400-horse power, 929 tons; and one spare steam vessel, of 250-horse power. The Peninsular and Oriental Company accompanied their tender by a letter, in which, after stating the grounds upon which they considered that the Government ought not to take away the conveyance of the Mails from a Company which had embarked so much capital in the undertaking, and had performed the service satisfactorily, they propose, that if the contract is continued to them they will submit the accounts of all their transactions connected with the mail service, from time to time, to the inspection of such competent persons as the Government may appoint; and that when the financial position of the Company, with respect to such mail service, shall be such as, after making the customary allowance for the repairs, wear and tear, and sea risk of the vessels and property, a maximum dividend of 10 per cent. can be realised, any surplus of earnings over and above such maximum dividend shall be placed at the disposal of the Treasury, for the benefit of the public. On the 19th of May the Admiralty wrote, that, previous to coming to a decision upon the tender, they were anxious to ascertain whether this proposal, if adopted, might be expected to cause any deduction, and, if so, to what extent, from the account that would be paid by the public if their tenders were accepted; they therefore begged to be informed what surplus of profit beyond a dividend of 10 per cent., after deductions for repairs, wear and tear, sea risks of vessels and property, might be expected, from the calculations the Company were able to make; and whether, in case a satisfactory reply could not be given to this question, two officers deputed by the Admiralty might at once have access to the accounts, for information on that point, and previous to a decision being come to on the tenders. This latter alternative was at once adopted by the Directors of the Company, and they opened all their accounts to the inspection of Captain Ellice and Mr. Bond, who made a report on the subject, from which it appeared that the Shareholders had never received a dividend of 10 per cent., and that the balance of receipts, after payment of all expenses and charges, was not then sufficient for a dividend of that amount; the Admiralty having ascertained that no diminution of the tenders was likely to accrue from this proposal, and, considering both tenders too high, declined them both. The Admiralty then made an offer to the Peninsular and Oriental Company, founded on the mileage rate, viz., 4s. 6d. paid to them for the Lisbon and Gibraltar Line. This was not accepted—but after several interviews with the Directors of the Company, it was signified to the Admiralty that they would be willing to undertake the service for £24,000 a year, diminishing annually by £500, until the expiration of the contract, which was not in any case to cease before the 1st of January, 1853. The India and Australia Company also made an offer, which was, however, not admissible, for it required a fourteen years’ contract; it was for a mileage of 5s. 6d. a mile for the first seven years, and at 4s. 6d. a mile for the remaining seven years. They afterwards modified the offer as to the duration of the contract; and the Government, finding that there were competing offers before them, determined upon affording another opportunity for public competition; and on the 2nd of November, 1848, tenders were again sent in, in accordance with a public advertisement, from the same parties. The tender of the Peninsular and Oriental Company was higher than their offer made in pursuance of private negotiation, though the terms were the same. It was for £26,750, with a diminution of £500 after the first four years, in the event of its being continued, and £1,000 additional a year, if the port of embarkation were removed to Plymouth. The India and Australia Company tendered for £18,450, in two vessels of 400-horse power, and one reserve of 150-horse power; the same vessel being mentioned in both tenders, as in the former one. The lowest tender was directed by the Treasury to be accepted, provided they could furnish satisfactory security for the due performance of the service they were to undertake. Much inquiry and negotiation then took place, and the Company were allowed until the sailing of the last packet provided for under the expiring contract, to prove that they had capital sufficient for the undertaking,—but they failed in showing that they possessed sufficient paid-up capital, and they did not actually possess the vessels mentioned in their tender, so that on the 20th December, the Board of Admiralty closed that negotiation, and having obtained the consent of the Peninsular and Oriental Company to renew their former offer of £24,000, recommended it for the sanction of the Treasury, and it was adopted in the existing contract.”

The result of this transaction has, there is every reason to believe, satisfied the Government of the correctness of the opinions which were pressed upon its attention, on behalf of this Company, in the course of the proceedings above detailed, namely:—

1. That fully recognising, as one of the first duties of a Government, the protection of the public interests, by economising the public resources, the mode adopted for doing so, by closing at short periods and re-opening to public tender these large Contracts for the Mail Service, is neither effective for benefiting the public, nor altogether equitable as regards the interests of those private parties who had embarked capital in the formation of the extensive steam navigation enterprises, by means of which these important postal communications were first established.

2. Because experience has amply proved, that capitalists cannot be induced to embark their money in any extensive steam navigation enterprise, intended to compete with one previously established.

3. Because the very act of terminating these Contracts at short periods, and then putting them up to public competition, increases the difficulty of obtaining bonâ fide competitors, inasmuch as no capitalist of ordinary prudence will embark in an enterprise dependent for its success upon its employment in a public service of so uncertain or transient a duration.

4. Because, were it even possible to create a competing Company on so extensive a scale as would be required to perform efficiently the Contract Mail Services alluded to, the two Companies would either, one or both of them, be ruined—or, what is much more probable, for the protection of their mutual interests would coalesce, and thus establish a stronger monopoly than could ever be effected by a single Company.

5. Because it is but just that parties who have embarked so large an amount of capital in the establishment of such enterprises, and who have thereby, as has already been shown, been the means of effecting important public benefits, should have a preference of employment,5 so long as they perform the public service efficiently, and are willing to do so on terms realising to them no more than a fair commercial profit.

6. That there is no practical difficulty in protecting the public interest, without opening these Contracts to public tender, by either of the following means:—

First, By stipulating for a diminishing scale of payments, on the plan adopted by this Company in their Contract for the Southampton and Alexandria Mail Service. The public, by this plan, derive a benefit from any increase of income which, by the progressive development of their enterprise, the Contractors may obtain from the increase of commercial traffic.

Secondly, By stipulating that, at intervening periods of the Contract, the question of reduction should be submitted to two competent arbitrators, one to be appointed by the Government, who should investigate the Contractor’s transactions, and make an award as to whether any and what reduction ought to be made in the payment for the Mail Services.

The Committee of the House of Commons seem to have recognised the eligibility of the principle of the last mode of proceeding, in the third and concluding resolution of their Report, namely—“They suggest that if it be decided to renew the existing Contracts, the most strict and searching inquiry should be instituted, by some responsible department of the Government, into the cost of the execution, into the manner in which the Service has been performed, and into the profits resulting from the several transactions to the Companies by which they have been respectively carried on.”

This suggestion, it has been shown, was anticipated by the Directors of the Peninsular and Oriental Company, in offering their books and accounts to the inspection of Government.