No. III. Contract for conveying Mails between Suez and Aden, Ceylon, Madras, Calcutta, Penang, Singapore, and Hong Kong. COMMENCED JANUARY 1st, 1845.

For several years prior to the arrangement of the Contract with this Company, for the accelerated transmission of the India Mails to and from Alexandria, much public solicitude had been manifested for a more comprehensive system of steam communication with India than that which had been established by the Government and the East India Company. That establishment being considered, as, indeed, at its commencement it was professed to be, merely a preliminary and experimental one—intended to pave the way for a more comprehensive scheme, that should embrace all the Presidencies, and not be limited to the port of Bombay only, as the Government and East India Line was,—and which it was expected private enterprise would undertake, after the navigation of the Red Sea, and other important questions connected with such an undertaking, had been tested by the Imperial and Indian Governments.

As a proof of the importance which was attached to this extension of steam communication with British India, the following declarations of eminent persons connected with the Government of that empire may be quoted:—

The late Lord William Bentinck, then Governor-General of India, stated, in a public despatch, that so great were the advantages which it would confer, “that it would be cheaply purchased at any price.” The present Right Honourable President of the India Board, Sir John Cam Hobhouse, who then filed the same post, in speaking in the House of Commons of various ameliorations which the Government he was then connected with had in view for India, in which improved steam communication formed an item, said, that “it was calculated to benefit India to an extent beyond the power of the most ardent imagination to conceive.” And the present Lord Bishop of Calcutta, in a public address at a meeting in that city, said, that “the extension of steam navigation with India would be opening the floodgates of measureless blessings to mankind.”

Various attempts, however, under the sanction of eminent merchants, and other influential parties connected with India, to form a Company and establish the so much-desired scheme having failed, the parties who had been instrumental in establishing the Peninsular Company, and the accelerated conveyance for the India Mails to Alexandria, feeling that they had placed themselves in a position to effect this important national object, resolved to adopt it as a part of their enterprise, which they thenceforth designated “The Peninsular and Oriental Steam Navigation Company.” It was accordingly formed into a joint-stock Company, and a Charter of Incorporation from the Crown was applied for, which, after considerable opposition from other parties, was granted—but subject to the following conditions, namely, “That the Company should open an improved steam communication with India throughout, from England, within two years from the date of the Charter, or it should be null. That all steam vessels to be constructed by the Company of 400-horse power, and upwards, should be so strengthened and otherwise arranged as to carry and fire guns of the largest calibre then used in Her Majesty’s steam vessels of war. That the Government should have a power of inspection, as to their being maintained in good and efficient sea-worthy condition, and that the Company should not sell any of such vessels without giving the pre-emption of purchase to the Government.”

The Company under this Charter having obtained the necessary additional capital, and being joined also by most of the parties who had previously been endeavouring to effect this object under the designation of “The East India Steam Navigation Company,” proceeded, with all practicable speed, to fulfil the conditions, and carry out the object of their Charter of Incorporation.

On the 24th September, 1842, their first vessel destined for the India Sea service, the “Hindostan,” of 1800 tons, and 520-horse power, constructed at Liverpool, at a cost of £88,000, was despatched from Southampton for Calcutta, to open the “Comprehensive” line of communication, by plying between Calcutta, Madras, Ceylon, and Suez.

The commencement of this communication, by so large and powerful a vessel, was looked upon as a public event, and the ship was visited by members of the then Government, Directors of the Honourable East India Company, and many other eminent individuals.

It may here be necessary to advert to a circumstance which has been made the subject of much misrepresentation, and was even attempted, although without success, to be misrepresented to the Parliamentary Committee. (See evidence of Mr. Andrew Henderson in the Report, questions 2200 to 2208, and 2333, and 2334; also, correspondence between the East India Company and the Peninsular and Oriental Steam Navigation Company, in the Appendix, page 224 to 227.)

The circumstance alluded to was this:—The Directors of the East India Company, seeing that the extension of steam communication with India was at last in the hands of parties likely to place it on a practical basis, and desirous to encourage it on public grounds, voluntarily proposed to the Peninsular and Oriental Company to give them a premium of £20,000 per annum, and to continue the same for five years, on certain conditions, which, if the Company should at any time neglect or decline to fulfil, it was at the option of the East India Company to withdraw the premium or grant.

The conditions were:—

1st. That the communication with India beyond the Isthmus of Suez should be opened, and carried on by vessels of not less than 520-horse power, and 1600 tons burthen.

2nd. That a communication between Suez and Calcutta should be established the first year of the grant.

3rd. That not less than six voyages between Suez and Calcutta should be performed, in order to entitle the Peninsular and Oriental Steam Company to the second year’s grant.

4th. That a monthly communication between those places should be established, to entitle the Steam Company to the third and subsequent years’ grants.

5th. And that in case a contract should be entered into with the Steam Company for the conveyance of Mails, the grant should cease, and merge into such sum as might be paid for that service.

Such were the principal conditions of an arrangement which was attempted to be construed into a Contract, binding the Peninsular and Oriental Company to maintain a Monthly Mail Packet Service between Suez and India, with vessels of 520-horse power, for five years, for £20,000 per annum. It is, however, obvious that so far from such being the true construction, it was perfectly optional to the Peninsular and Oriental Company to discontinue the arrangement, and relinquish their claim to the grant, whenever its continuance might be incompatible with their interests.

The Company having constructed another vessel of 520-horse power and 1800 tons, the “Bentinck,” and purchased a third new vessel, of similar power and tonnage, the “Precursor,” considered that the time had arrived when they might improve the postal communication with India, upon the same principle as that upon which they had improved the Peninsular and Mediterranean Services, namely, by combining an important public improvement with a reduction of the public expenditure.

Finding, from a return which had a short time previously been made by the East India Company to the House of Commons, that the cost of conveying the India Mails between Bombay and Suez, as then performed by that Company, with steam packets of an average power of about 200 horses each, and some of which were of inferior speed, was not less than £110,000 per annum,—the Peninsular and Oriental Steam Company made a proposal to the East India Company, to relieve the latter of that Service, and to undertake it with their vessels of 520-horse power each; and thereby effect a considerable acceleration in the transit of the Mails—an improvement in the accommodation, and a reduction in the charge for passengers—a greater facility for the conveyance of light valuable goods and parcels—and a reduction of about £30,000 in the public expenditure, inasmuch as the Peninsular and Oriental Company offered to do the service for £80,000 per annum.

The then Court of Directors of the East India Company being opposed to the relinquishment of the postal service between Bombay and Suez into the hands of private enterprise this proposal was not entertained; and, the matter having engaged the attention of her Majesty’s Government, it was ultimately arranged that the East India Company should be allowed to retain the Packet Service between Bombay and Suez, and that the Peninsular and Oriental Company should submit proposals for the establishment (under Contract with the Admiralty) of a Monthly Mail Service between Suez, viâ Ceylon, and Madras and Calcutta, with vessels of 500 horse-power; and, in connection therewith, a monthly communication between Ceylon, Penang, Singapore, and Hong Kong, with vessels of 400 horse-power, thus effecting a Mail communication twice a month with India, and a Monthly Steam Packet communication with China.

After a lengthened negotiation a Contract was effected, in virtue of which the Peninsular and Oriental Company were to receive £115,000 per annum, equal to about 20s. per mile, for the Suez, Ceylon, Madras, and Calcutta Service; and £45,000 per annum, equal to about 12s. per mile, for the Ceylon, Penang, Singapore, and China Service.

This Contract was not put up to public competition, and there are obvious reasons to show why to have done so would have been useless, and unjust. It would have been useless, because it was well known that there were then no vessels in existence capable of performing such an extensive service, on the plan proposed, except the vessels which had, in fulfilment of the conditions of their Charter of Incorporation, been provided by this Company expressly for the East India Steam Communication; and it would have been unjust to the Peninsular and Oriental Company, after they had been induced to embark so large an amount of capital in providing ships of a description adapted to important national objects, not to have given them the opportunity of executing the Service on reasonable terms.

That the terms concluded upon were as reasonable and advantageous to the public interests as could have been at that time obtained, is sufficiently confirmed by the Report of the Parliamentary Committee.

A few facts may, however, serve to further elucidate this point.

In giving in their proposals for these Services, the Managing Directors submitted therewith detailed estimates of the expenses and receipts, to enable the Government to see and examine the grounds upon which the sums required for the Mail Service were based. And it appears, by the evidence taken before the Committee of the House of Commons, as well as before another Committee of the House of Lords, on the Post-office Service, (Session 1847,) that this part of the question was subjected to a very close and rigid scrutiny at the Admiralty. Also, that an estimate was made to ascertain what the proposed Services could be done for by public vessels; the result of which was, that it would have cost by such means not less than 42s. 6d. per mile, (less such returns as might be obtained from the conveyance of passengers.)

Looking therefore, to this estimate, and the fact that the Bombay and Suez Service, with vessels of only about 200 horse-power, was actually costing, under the management of the East India Company, after deducting the receipts for passage-money, at the rate of 31s. 6d. per mile, namely, £110,000 for 70,000 miles, the rates received by the Peninsular and Oriental Company—being about 20s. per mile for the Suez and Calcutta Service, and 12s. per mile for the Ceylon and China Service, or if averaged for the two Services together, about 17s. 1d. per mile—it cannot be considered as exorbitant by any reasonable or unbiassed mind; but it will rather be admitted that the Company in this, as in the previous instances, are entitled to take credit for effecting a great public improvement, at a less cost than what it could otherwise have been obtained for.

The following evidence on this subject was given by Mr. Croker, of the Admiralty.

1388. Does there appear to have been any estimate made by the Admiralty of the expense of doing that service?—Yes.

1389. When was that made, or when was it sent to the Treasury?—It appears to have been sent to the India Board.

1390. At what date?—On the 20th of January, 1844; the points upon which they gave information were, “The practicability of the proposal made by the Peninsular and Oriental Steam Navigation Company respecting the mode of ‘effecting the accelerated transmission of the East India Mails and Despatches between Bombay and Suez, combining therewith, for the year 1844, a two-monthly communication with Calcutta and Madras.’ The sufficiency of the means which the Peninsular and Oriental Steam Navigation Company proposed to employ, and the propriety of their demand of £80,000 per annum for performing a service which the Admiralty understood to be that then performed by the East India Company, namely, conveying the mails by steam vessels between Suez and Bombay monthly; and, in addition to this, between Bombay and Calcutta every second month.” The estimate then goes on in detail: and “With respect to the propriety of the demand of £80,000 per annum the Admiralty forwarded a statement from the Accountant-general of the Navy, showing that the cost of building and equipment of the four steam vessels required for the service, under the naval regulations would be about £250,000, including £6,500 which the Admiralty added to the estimate of their Accountant-general to meet additional fittings for the necessary accommodation of passengers. The Admiralty, however, had every reason to believe that to this estimate of the cost, &c., of the vessels, which they considered to be absolutely necessary for the satisfactory performance of the Mail Packet Service in the Indian seas, the outlay of the Peninsular and Oriental Steam Navigation Company would be increased by an additional sum of nearly £50,000, for what may be termed the luxurious accommodation now expected by passengers. Upon this speculation the Company, of course, subjected themselves to a risk of loss, or corresponding advantage. With respect to the item of coals, which was omitted in the Accountant-general’s return, the Admiralty, in the absence of precise knowledge, estimated the cost upon the best information they could obtain, and their Lordships considered the Commissioners for the Affairs of India to be competent judges of the correctness of their assumed estimate, as well as of the assumed cost of coal depôts, coaling, and other incidental and contingent expenses. The item of oil, tallow, &c., was also assumed, as the consumption of these articles depended on the construction of the engine, both as to principle and manufacture. In explanation of the differences between the following calculations and the Accountant-general’s statement, the Admiralty observed, that the interest of the money was not taken into account in naval expenditure; and that 15 per cent. for wear and tear, and depreciation of hull and machinery, had been adopted, with six per cent. for insurance, in compliance with the suggestion of the India Board, for the purpose of maintaining a comparative uniformity with the estimate given in their Secretary’s letter of the 24th of November, founded upon the Parliamentary documents supplied by the East India Company. The investment the Admiralty were willing to admit for the first cost and equipment of three first-class and one second-class steam vessels, being £250,000; this capital, if dealt with as suggested, would require an annual expenditure, for performing the Mail Service between Bombay and Suez, in wages and victuals, of £35,000; for coals (taken at 48s. per ton,) £29,000; for oil, tallow, &c., £1,500; 15 per cent. on £250,000 for wear and tear, and depreciation of vessels and machinery, £37,000; six per cent. insurance, £15,000; four per cent. interest on capital, £10,000; making £128,300. To this sum of £128,000 must be added the expenses of coal depôts at Bombay, Aden, and Suez, and the cost of coaling the vessels at these stations, &c., which, according to the items supplied by the Parliamentary document, ordered to be printed on 3rd July, 1843, appeared to be, for coal depôts, £7,644; wages of mechanics and apprentices not attached to particular vessels, expense of receiving ships, and miscellaneous charges of the steam department, £8,594, making a total of £16,238; thus increasing the amount of annual expenditure by upwards of £20,000, as the Admiralty considered that at least £4,000 difference must exist between supplying vessels of more than double the horse power and tonnage of those of the East India Company, making an annual outlay of £148,000 per annum for performing a distance of 70,080 miles.4 The result of this calculation, therefore, exhibited the comparative cost of the Mail Service on the line between Suez and Bombay as follows: If performed by the East India Company, in their, comparatively speaking, small vessels, as shown by their return to Parliament, after deducting passage-money, £108,000 per annum, which does not appear to include the cost of coal depôts. If performed by vessels of 500-horse power, and 1,500 tons, without deducting passage-money, £148,000 per annum. If performed by contract, by vessels of 500-horse power, and 1,500 tons, £80,000 per annum. The Admiralty, in conclusion, observed, that should a mail communication, as suggested by them, extending from Suez to Calcutta, be determined on, the increase in the item of coals (calculated at 33s. 6d. per ton) would be £15,000, and three coal depôts, with the expense of coaling, &c., might be taken at £20,000 per annum, in round numbers.”

1391. What is the date of that report you are reading from?—It is the report from the Select Committee of the House of Lords, ordered to be printed 21st June, 1847.

1392. You spoke of vessels of 1,800 tons, and vessels of 1,500 tons; do you mean to say they were of that number each, or that there were three vessels 600 tons each?—1,500 tons each, or 1,800 tons each, the larger class of vessels.

1393. If I understand you, from what you have stated from that report, the estimate of the Admiralty for the cost of their vessels, for three first-class vessels and one second-class vessel, was £148,000?—Yes, £148,000.

1394. That makes no allowance for any receipt from passengers?—It is without deducting passage-money.

1395. What was the amount of passage-money deducted from the East India Company’s account, which comes to £108,000?—That will be shown by the Parliamentary document ordered to be printed on the 3rd of July, 1843, I presume; It is not stated here.