5

D.—sa

My directors are, of course, alive to the fact that any unreasonable agreement for the purchase of the railway would not bo likely to receive the approval of Parliament, and unless they were prepared to sell on terms and conditions favourable to the colony, and such as would probably be regarded by Parliament as fair and reasonable, they would not have expressed their willingness to negotiate. Whilst, therefore, you may assume that my letter of the 4th instant may be regarded as a rejection of a proposal of purchase on certain hard and fast conditions upon which my directors have never been consulted, they decline to admit that they are unwilling to sell at a price and upon conditions favourable to the colony. On this basis they are still willing to negotiate and again beg to suggest a personal interview with a view to bringing the negotiations to a satisfactory conclusion. My directors consider that they would be doing an injustice to themselves and the shareholders if they passed over that portion oE your letter under reply which specially refers to the defective legislation in relation to the district railways, and charges the board with mismanagement. Eegarding the first, you express the inability of the Government to perceive how the company can justly complain, and state it as the opinion of the Government that the colony at large and the ratepayers within the railway district are the aggrieved parties. It is to be regretted that you should have made so serious a charge against the board, and committed the Government to the opinion stated, without offering some facts in support. The loss to this company and the gain to the colony at large and the ratepayers by reason of the defective legislation complained of is so manifest that it seems scarcely necessary to again point out to you how seriously the company, has suffered thereby—namely, the impossibility of selling its debentures, necessitating financial arrangements involving the payment of high rate of interest and large sums of money for commission and legal expense, to meet which heavy calls had to be made upon the shareholders, to their very serious inconvenience; also the loss of nearly two years' guaranteed interest, in consequence of the provisions of the statute relating thereto being found practically inoperative. Inasmuch as the two years' interest should have been paid partly out of the consolidated revenue and partly by the ratepayers, it seems perfectly clear that the ratepayers and the colony at large, so far from being the aggrieved parties, have been the gainers, and the shareholders of this company the losers, by the defective legislation alluded to. With regard to your farther and more serious charge of mismanagement, my directors would be disposed to resent your insinuations in strong terms did they not feel convinced that such a charge would not have been made had you been correctly informed of the facts; and they desire me to express their regret that you should have made such serious statements without being first assured that there were at least some reasonable grounds for your accusation. You seem to doubt my statement that " the company has not materially altered its time-table since the line was opened; " nevertheless it is true, and can easily bo corroborated by reference to the Government time-tables in force during the subsistence of the agreement between the Government and the company's time-table, which I have the honour to enclose. At the time the line was opened the departure and arrival of our trains was arranged so as to connect with the Dunedin and Invercargill express, the Government intending to arrange an alternate service to Kingston via Invercargill thrice weekly, and three days a week via the Waimea Plains ; but, the Invercargill people objecting to any alteration in the service then existing, the Government arranged with this company to run its train between Elbow and Kingston three times a week each way at the absurdly low charges of £9 per week, the agreement to be terminable at one month's notice. My board considered this only a temporary arrangement, and repeatedly complained that the service was being performed at a very serious loss to the company, and finally the consideration was altered to £12 per week. The company performed the service for three years, but found that it entailed very serious loss. The board accordingly gave the General Manager notice of its intention to terminate the agreement, and discontinued running trains over the Government line between Elbow and Kingston at the beginning of the year. As the contract with the Government expired by effiuxion of time on the 31st December last, the company cannot be fairly charged with cancelling the agreement. No offer was made on behalf of the Government to allow an increase in the charge for the service, nor has any proposal ever been made to connect with our trains at Elbow ; so that if the lino has ceased to be of use as a through line, over which passengers can travel from Dunedin and Kingston and vice versa, the blame should be charged to the Government, and not to my board. The board, having never been asked to do so, cannot fairly be charged with refusing to guarantee any permanence in the time-table. I am directed to state that, with the exception of keeping the train an hour longer at Gore on Saturdays at the request and for the convenience of the ratepayers (and which was not done for a considerable time after the through service was discontinued), the time-table is now and has always been practically the same as when the company's train first ran to Kingston under the agreement previously mentioned. Passengers can now and have always been able to leave Elbow every morning and go through to Dunedin or Invercargill the same day, and vice versa. As an answer to your charge that the line has not been worked to the best advantage with a view to profit, I am directed to state for your information that the result of the current year's working will disprove that charge. So far from the Government having any just ground of complaint against the company, on the contrary the company may fairly complain of the illiberal treatment it has received and continues to receive in its dealings with the Eailway Department in the matter of the exorbitant charge for the supply of rolling-stock, the whole of which, with the exception of locomotives, is hired from the department. The Government has from the first been exacting and exorbitant in its dealings with the company, and has thus materially diminished the profits of the line, and consequently increased the amount required from the guarantors.