L—7a

having the control of a line of railway of 100 miles —a line as big, if not bigger, than that of the Manawatu Company—it is obvious there must be many disadvantages when, coupled with the control of the constructed line, comes the absolute necessity of completing the construction of a line of railway some 60 or 70 miles east and west and the same north and south, not to be constructed as the Government might wish, but in terms of the Midland Railway contract, and just as the company under its contract would have been compelled to construct it. The company has the absolute right to see that the terms of its contract are carried out to the full extent by the Government in its mode of constructing the company's line. And we need not look far to see how difficulties may arise, for there is one that may very probably come up shortly. I refer to the system upon which the Government has been carrying out the works of the railway by co-operative labour. 1 think you will remember that, when addressing you upon the debenture-holders' petition, Mr. Blow referred in very strong terms to the manner in which the Midland Eailway Company had let contracts in London, privately, at very high prices. It may have been right to draw attention to the fact, if it has been a fact; but there was not then existing the position of trust which would entitle him to draw attention to the manner of construction of the line by the company, and which now lies on the Government in its relation with the company. If it is true that the directors of the company, had they let contracts at Home privately, would have been very much to blame ; how much more is it true that the Government trustee—when it lets contracts to co-operative labour instead of putting them up to public tender—is greatly to blame. This is one of the difficulties, among many, which I feel certain will arise in the management of the Midland Eailway by the Government. But apart from the manifest advantages which, I think, must be derived from the amicable settlement of this matter and from the acceptance of the present proposals of the company, I confidently assert that there is an absolute necessity for the construction of this railway. The necessity of the railway is made more prominent every day, owing to the interest that is taken in the development of the mining industry on the West Coast. Mr. Ziman, in an interview with a reporter, stated that it was sheer waste of time to remain in Johannesberg, or in South Africa, so long as there was Eeefton to go to; and I believe he is not far from the truth. If this be so, the fields of the West Coast have an enormous amount of gold in them. To convince you of that, I need only refer you to the evidence given by a large number of witnesses called by the Government, who were examined in the arbitration proceedings as to the nature of the country through which the Midland Eailway would have to run. That the Government admit the necessity of better communication between the east and west coasts of the Middle Island is shown by the fact that very recently two new lines of telegraph have been put up between Eeefton and Christehurch. On the other hand, I do not think there has been any great demand for the construction of the line north and south. But, should the present proposals of the company be accepted, it will lead to a large increase of settlement on the West Coast, and this must eventually lead to settlement on the line mapped out from Eeefton to Nelson. While the company regrets that at the present time it cannot make any proposal for the immediate construction of the north and south line, it feels that the present proposal, if accepted, is a step in that direction. There can be no doubt that ultimately there would be so much settlement and so many inducements to build the line, that the company would be in a position to come forward and make an offer to carry out its original contract. I can assure you that the company has every wish to carry out not only its present proposal, but also the proposal in the original contract; but from the force of circumstances and the difficulties that have arisen, rightly or wrongly, the company has not been able to complete what originally it thought it could complete. I wish briefly to refer to the fact that a very prominent politician in New Zealand has stated that the proposals of 1894 would have redounded to the credit and honour of the colony if they had been carried into effect. Then, if that were so for the proposals of 1894, how much more is it so for the proposals we are now placing before you ? A reasonable treatment of the company by the colony must improve the credit of the colony at Home, and would remove the feeling which, rightly or wrongly, prevails in London among financial people, and is indicated by leaders, and letters, and paragraphs which appear from time to time in financial papers in England. Ido not think I have anything more to say in support of the present proposals. I wish, however, to refer to one or two points in reference to the petition of the debenture-holders. Eirst of all, the impression appears to have been created in the minds of some people outside that the Midland Eailway Company expended enormous sums on its own personality (if I may so speak), or practically that the directors let high-priced contracts to their colleagues, and generally behaved in a way in which directors should not behave. I wish to give to that statement an absolute denial. Mr. D'Avigdor, of the firm of McKeone and D'Avigdor, was a contractor for a portion of the company's line. He was also a director of the company; but he gave up his contract three years before he became a director. That is the only instance of any connection between the directors of the company and the undertaking from a personal and financial point of view. Secondly, as to the condition of the rollingstock, I would refer you to the report of Mr. Eotherham in the Government railways statement of this year. In the statement he says that the rolling-stock generally is in good order, and fulfils the requirements of the traffic, the greatest want being timber and wagons. If any further information is desired by the Committee, I may say that the general manager of the company, when the line was seized, sent the resident engineer of the company over the line to inspect the rollingstock and the permanent-way. He has made his report, in which he sets out fully the condition of the rolling-stock and permanent-way at that time, and his report is at the disposal of the Committee. Thirdly, the actual cost of the line was stated to be £760,000. I wish to point out that that does not represent the whole of the actual cost. It is the actual cost without interest. The actual amount of interest paid is £265,000. That was paid to the debenture-holders in the way of interest, so that it can be called interest during construction. This may fairly be added to actual cost, as it is provided in the Midland Eailway contract that, in the event of purchase by the Government, it has to add to the actual cost a sum not exceeding £400,000 as interest during construction. I will examine Mr. Dalston on this point.

4