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.