PUBLIC RECORD OFFICE
Reference :-
TPMC.O. 882
8
PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-
COPYRIGHT PHOTOGRAPH—NOT TO
7. In December, 1904, you forwarded an estimate showing that after appropriating all the surplus balances (which were then stated to be Rs.1,100,000) the funds required to be raised by loan for the completion of sanctioned works amounted to Rs.13,700,000. I note that in the estimate the sum devoted to the Drainage scheme appeared as Rs.4,000,000, instead of Rs.3,000,000, the additional million being "required for the acquisition of land, and for excess on estimate." Subsequent correspondence showed that the estimate also included provision to the extent of Rs.1,500,000 for the proposed break - water, although this work was not then, and has not been, sanctioned.
8. Your recommendations were accepted by my predecessor, and an Ordinance authorising a loan of Rs.15,000,000 was passed in February. 1905; but the successful results of the pearl fishery obviated the necessity of immediately raising funds, and no action has yet been taken under the Ordinance.
9. In your despatch under consideration you now propose that the amount of the loan should be increased to Rs.23,700,000. Thus the successive stages in this question are :—in 1903, a suggestion that a loan of Rs.6,000,000 might possibly be required; in March, 1904. a proposal for a loan of Rs.10,500,000; in September, 1904, an amended proposal for a loan of Rs.15,000,000; in January, 1906, a further amendment increasing the amount to Rs. 23,700,000; and I note that although this last proposal show8 &0 increase of over 50 per cent. as compared with its predecessor, none of the new works mentioned in connexion with the programme of September, 1904, finds a place in that of January, 1906. The grounds on which you ask for this larger sum are threefold :---
(i.) The proposal for protecting the coaling jetties by an island breakwater is now replaced by a much more costly scheme for extending the south-west arm of the breakwater. The effect of the change is to raise the amount required for this service from Rs.1,500,000 to Rs.6,600,000, to which must be added Rs.600,000 representing that portion of the cost of deepening the harbour which you propose to charge to loan account.
(ii) The Colombo Municipality contemplate an extension of their drainage scheme, and consider that provision should be made for lending them a further sum of Rs.1,500,000 on this account.
you
(iii) In your despatch, No. 347, of the 5th September, 1905, you asked authority to construct a railway to Ratnapura, at an estimated cost of Rs.2,800,000, to be defrayed from loan funds "provided that there was such a balance available from the £1,000,000 loan as to make that course possible." You now suggest that provision should be made for this work although the condition on which you first put it forward cannot be realised.
10. The effect of your two last proposals may be summarized thus :—
Estimate on which the £1,000,000 Loan was sanctioned.
Amount added by the despatch of
Total.
10th January, 1906.
Rs.
Ro.
Harbour Works
5,432,000
5,700,000
Rs.
11,132,000
Railway Works
1,126,000
1,126,000
Water Main
-
1,001,000
1,001,000
Colombo Drainage
4,000,000
1,500,000
5,500,000
Irrigation
2,100,000
144
2,100,000
Ratnapars Railway
2,800,000
2,800,000
Total in round figures
13,700,000
10,000,000
23,700,000
11. It will hardly be disputed that when proposals have been formulated and approved whereby an important addition is made to the public debt, it is the duty of the Colonial Government under ordinary conditions to do everything in their power to avoid further borrowing until the works so provided for have been completed, and their effect on the financial position of the Colony has been ascertained. In the absence of tircum- statices which it was impossible to foresee and of proved urgency, recommendations to
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extend the scope of these works, resulting in further loan ordinances and the possibility of repeated applications to the money market, suggest that the Colonial Government have not taken a sufficiently careful and comprehensive survey of their requirements and resources at the outset, and they are not calculated to improve the credit of the Colony. Lenders are entitled to assume that their holdings will not be liable to depreciation by frequent issues of fresh stock, and the favour with which the loans of Crown Colonies are usually received by the investing public is largely due to the knowledge that all such borrowing is subject to the sanction of His Majesty's Government, which is only given after careful examination of all the circumstances.
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12. In the case of the Harbour Works I am not prepared to say that the conditions to which I have just referred are wanting. It was doubtless impossible to foresee that a scheme carefully prepared by the consulting engineers, and regarded as adequate by committee of naval experts, would suddenly be swept away and replaced by one costing four or five times as much. It is also probable that to provide further protection in the harbour is a matter of some urgency. To this extent, therefore, the Colonial Government make out a case, prima facie, for an addition to their borrowing powers, though in saying this I must not be taken to commit myself as to the merits of any particular scheme. My only information on the subject at present is derived from your despatch now under reply, and I need only say that I shall be disposed to give favourable considera- tion to your proposals when they come before me in a shape in which they can usefully be considered.
13. I may note in passing that while the work will not in itself produce an increase in the business of the harbour, it will make a serious addition to the capital cost; and unless effect is given to the suggestion made in paragraph 18 of your despatch as to a rearrangement of the charges, I fear that for some years to come the harbour will cease to be remunerative.
14. With regard to the sums required for the Colombo drainage, two considerations present themselves. I imagine that when your despatch was written you were not in possession of the information contained in the report of the consulting engineers dated the 21st of December last. The cost is there estimated at Rs.4,520,000, exclusive of the cost of acquiring land and easements and of the engineers' commission, and it therefore appears to me that at least Rs.1,000,000 must be added to the amount which you have set down for this service. I shall be glad to receive your observations on the point.
15. Your despatch suggests a still more important question: What is to be the extent of the liability of the Colonial Government to the Municipality in respect of this work? Originally, as I have shown, the Colonial Government undertook to find *
About Rs.3,000,000." Without any reference to this understanding, the amount has been successively raised to Rs.4,000,000, Rs.5,500,000, and (possibly) Rs.6,500,000; while you state in your despatch that after five years "further extensions must follow." It is therefore important not less to the Municipality than to the Colonial Government that the extent of the assistance by way of loan which the latter is prepared to extend should be definitely laid down. The Ceylon Government cannot assume a liability for an unknown amount which might have the effect of diverting funds required for its own works, nor could it properly have recourse to the money market for the sole purpose of relending comparatively small sums to the Municipality. On this point, also, I shall be glad to have your remarks.
16. Assuming for the present that an additional amount of seven or eight million rupees must be found for the Harbour and Drainage works, it is clear that the loan of Rs.15,000,000 is insufficient, and that a further sum of about Rs.7,000,000 must ultimately be raised irrespective of any new works. In these circumstances, it appears to me to be more than ever important that a programme once laid down should be adhered to and carried out before fresh liabilities are incurred for any projects not of immediate urgency.
I have given careful attention to your despatch No. 347 of the 5th September last, and though I recognise that the arguments in favour of the Ratnapuru railway-as, indeed, of other schemes of railway extension-would deserve consideration if the Colony were not already committed to heavy liabilities in respect of works which cannot be postponed, I have reluctantly come to the conclusion that this project must be. deferred for the present, and brought up at a later date for consideration with other schemes over which its claim to priority is not self-evident.
17, I turn now to your proposals for dealing with the surplus funds of the colony matters which are only briefly referred to in your despatch, but which cannot be considered apart from the general quesúba of the commitments of the Colony in respect of Public Works.
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THU
PUBLIC RECORD OFFICE
9
Reference :-
C.O. 882
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH—NOT TO
8 PUBLIC RECORD OFFICE, LONDON
A
18. In the Lieutenant-Governor's despatch No. 383 of the 21st September last, a resolution of the Legislative Council was forwarded for my consideration, recommending hat a railway to Negombo, to cost Rs.1,500,000, should be constructed from surplus funds; and in your despatch No, 8 of the 6th January last you submit a scheme for mproving the station accommodation at Colombo at a total cost of Rs.3,000,000 to be provided from the same source. It is true that in the latter case the form which your proposal takes is that the expenditure should be met from general revenue as funds are vailable, but this is clearly equivalent to charging it ultimately on surplus funds, and The point is further brought out by the fact that while you have inserted a provision of R-350,000 for this service in the Estimates of expenditure for 1906, the estimated revenue for the year shows a heavy deficit as compared with the expenditure, and this deficit is to be met from surplus funds.
may
note
19. I shall, of course, deal with these estimates on another occasion; but I here that the anticipated deficit -after allowing for possible savings on expenditure of Rs.1,000,000, and without taking into account the supplementary estimates of the year which will almost certainly have to bear heavy charges on account of services which have received my approval—is nearly Rs.800,000, so that the surplus balances, which on the 1st January amounted to about Rs.3,800,000, will by the end of the year be reduced to Rs.3,000,000 and possibly to a considerably smaller figure. From surplus funds you propose to spend on the two works which I have mentioned-the Negombo Railway and the Colombo Station-a total sum of Rs.4,500,000, thus not only sweeping away the whole of the accumulation of previous years, but mortgaging future surpluses to The extent of at least Rs.1,500,000. In these circumstances I am compelled to examine carefully, not merely the question whether the projects are sound in themselves, but also that of the employment of the surplus balances in the best interests of the Colony.
20. The economic conditions' in Ceylon, satisfactory as they are at present, are not such as to remove the necessity for foresight and prudence. Signs are not wanting that its staple industry will be exposed to competition of increasing severity as the years go by; and though the recent history of the Colony has been one of uninterrupted progress, the experience of the past forbids us to feel any certainty that it may not hereafter be liable to sharp vicissitudes of fortune. In such a contingency the possession of a substantial surplus would be invaluable, reducing within manageable limits what other wise might be a grave disaster, and enabling the Government to meet, with the least inconvenience, the period of depression which, however shortened by the variety of the Colony's resources and the energy of its inhabitants, could not be altogether escaped. To take advantage of the prosperous years by building up such a surplus appears to me to be a real and pressing obligation; it would in fact be a measure of insurance, and the risks against which it would "provide are not more remote than those against which moderu industrial enterprise is accustomed to insure itself. I should therefore regret to see the present balance dissipated, and indeed I should wish to see it considerably increased, for am of opinion that the goal at which we should aim is the creation of a fund of not less than Rs.5,000,000-which is equal to barely two months' income on the present scale to be invested in such a manner as to be easily realised, and to be used only on the occasion of some such emergency as that which I have suggested. If the revenue of the Colony continues to expand, it should require no special effort, and no great lapse of time, to reach this limit, and thereafter surpluses could be fearlessly devoted to objects of public improvement; but in the contrary event the policy of retaining the present balances would be vindicated, and I may add that the estimates for the present year in themselves emphasize the need of caution in this respect.
21. While holding these views I have not failed to consider attentively whether there are exceptional circumstances in connexion with the proposals which you have made for dealing with these balances, such as would justify me in approving them on the ground of their special urgency and importance, and thus postponing to a future date the creation of an emergency fund. A between the two proposals-the Negombo Railway and the Colombo Station your despatches leave no room for doubt as to which of then should have priority. The question as to the sufficiency of the railway arrangements at Colombo is one on which local knowledge and experience must be decisive, and I cau readily understand that the traffic has outgrown the accommodation provided under very different circumstances. Some re-construction of the stations, such as you recommend, appears to me to be a matter of immediate necessity, and my only doubt is as to the procedure.. To make the progress of the work dependent on the possibility of annual Appropriations from revenne will mean its prolongation over a considerable number of years; the cost will in the end inevitably be much greater; and I imagine that the
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attendant dislocation of traffic can hardly be without its effect on the railway receipts. Subject to the advice of the Consulting Engineers, to whom 1 have already caused the papers to be referred, I am of opinion that the work should be pressed vigorously forward to completion, and that, as it is clearly a proper charge on capital expenditure, its cost should be met from loan funds.
arose
22. With regard to the Negombo Railway the position is different, and the speeches of the Lieutenant-Governor and yourself in the Legislative Council, which were enclosed in Sir A. Ashmore's despatch, No. 333, of the 21st September, explain quite clearly how No it is that the scheme comes to be pressed on my attention at the present moment. special urgency is claimed for the construction of this line, nor is there any assertion that on its merits it should have precedence over the lines to Ratnapura or Badulla. Sir A. Ashmore said : When they were confronted with that pearl-fishery money the question what should they do with it?" and after explaining that the Badulla and Ratnapura schemes would have been too costly, he added:-"with regard to the money in hand from the last pearl fishery, they thought they could carry out a nice little. scheme. His Excellency's thoughts had naturally turned to the Negombo Railway." Your own statement was:-"With reference to this Negombo Railway we have got this sum of money which is just a windfall, and I think the Negombo Railway is a very fair purpose to which to place this amount. Though the Ceylon Government are of opinion that the line would pay its way, it is admitted that it would be to some extent a speculative enterprise, inasmuch as it would have to depend for its earnings on passenger traffic. The district is already served by a canal with which I understand that the rail- way could not hope to compete for heavy goods traffic, and the expedient of closing the canal in order to divert that traffic to the railway--which I see is alluded to in the papers, though not supported by you-is one to which I should be very slow to give my assent. 23. On a review of all the facts, therefore, I am of opinion that the case of the Negombo Railway presents no such exceptional features as to require that its construction should be begun forthwith, or that the surplus funds should be diverted in its favour from objects which appear to me of greater importance; and I should prefer that it should take its place, with the Ratnapura and Badulla lines, as projects to be considered hereafter when the heavy works to which the Colony is already committed are so far completed that their ultimate cost can be approximately ascertained and the effect on the financial resources of the Colony can be better appreciated.
me,
but
24. I have stated the opinions to which my examination of the facts has led I have avoided giving them at this stage the form of definite instructions, as I am anxious that you should have an opportunity of fully and freely expressing your views after considering the whole subject in the light of these observations. In any event there appears to be no necessity for further loan legislation at the present time, for the powers given by the Ordinance No. 1 of 1905 have not yet been acted on, and the sum of £1,000,000 which can be raised under it will doubtless be sufficient for a considerable period. In this connexion I should be glad to receive from you, for the guidance of the Crown Agents in issuing the loan, an estimate showing in what instalments and at what dates you are likely to require funds.
I have the honour to be,
Sir,
Your most obedient, humble Servant,
ELGIN,