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FORLI
།།། ། ། །
RECORD OFFICE
Reference
C.O.882/12
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sideration the continued slump in the price of tin. In a memorandum dated 17th March it was pointed out by the Treasurer, Federated Malay States, that assuming the loan of £850,000 to be sufficient for the completion of the existing scheme, then in order to meet the interest on the 5 per cent. and 7 per cent. debentures, loan, and preference shares, operating costs, and sinking fund charges on the 5 per cent. debentures, the Com- pany would have to sell at least 24,000 K.V.A. per annum and that as the Company was then selling only 13,000 K.V.A. and there was little prospect of any appreciable increase in sales owing to the low price of tin and the tendency to restrict production, It appeared inevitable that possibly by January and certainly by July, 1931, the Company would not be in a position to meet its cash obligations. Further, that unless a very substantial increase took place in the price of tin resulting in at least the doubling of the Company's present sale of power, the position in 1934 when a further £77,000 per annum would have to be available from revenue, to provide for sinking funds on 7 per cent, debentures, loan and preference shares, was likely to be materially worse. The necessity for an independent investigation appeared urgent and I accordingly sent Your Lordship my telegram of 20th March,* stating that I considered it essential that an immediate investigation of the Company's financial affairs on the terms suggested in my telegram of 8th November, 1929, should be carried out. I might mention that on the 18th March I took the opportunity of visiting the Chenderoh power station and was then informed that the station would be in operation and earning revenue in May this year.
(vi) On the 7th April I received Your Lordship's despatch, Federated Malay States, No. 89 of 10th March, 1930,† enclosing a memorandum dated 26th January, 1930, by Mr. Pountney on the adequacy of the loan of £850,000 to stabilize the financial position of the undertaking.
It is not necessary to go into a detailed investigation of this memorandum, but it is sufficient to say that, having regard to the relatively small sale of power which was taking place in April, combined with the continued slump in the price of tin, the ten- dency to restrict production, and the delay in completion of the Chenderoh power station beyond the date previously anticipated, the estimate of total revenue and of expenditure on operating and administrative costs contained in paragraphs 12 and 13 of the memorandum, appeared to this Government to be far too optimistic. It was also at this time that Sir Arnold Gridley, one of the Directors of the London Board, arrived in the country and, before addressing Your Lordship on the financial position of the Company as it appeared to this Government, I thought it would be advisable first to obtain, by conference and consultation with him, all such information as was possible of existing local conditions.
(vii) On the 9th of April, at a meeting with the Chief Secretary, Sir Arnold Gridley promised to put up a financial statement of the Company's revenue and expenditure, and on the 30th April Sir Arnold Gridley forwarded a memorandum showing that, when the present scheme had been fully developed, it was anticipated that on an estimated revenue of £604,390 and operating costs of £166,362 a sufficient balance would be left not only to meet all interest and sinking fund charges, but also to provide a fair rate of interest on the ordinary shares. A copy of this letter and summary of the financial position is enclosed for Your Lordship's information.
(viii) So far as this Government was concerned these figures were of no value whatsoever. This Government was vitally concerned as to the position of the Company during the next two or three years and as to the measures to be taken to tide over the certain shortage of money in 1931. It was accordingly decided to hold a conference with Sir Arnold Gridley and this took place on the 13th May. At that conference which was attended by the
Acting Chief Secretary to Government,
Acting British Resident, Perak,
Treasurer, Federated Malay States (Mr. H. G. R. Leonard, Acting British
Resident, Pahang),
Acting Treasurer, Federated Malay States (Mr. G. P. Bradney).
Sir Arnold Gridley,
Captain Dane, General Manager of the Company,
Mr. Topham, Chief Engineer of the Company.
Sir Arnold Gridley's memorandum and figures were discussed in detail and it was pointed out that his results depended on too many hypotheses and merely showed the ultimate position if and when the full load was taken and that what the Government really required was an estimate of the position of the Company during the financial
+ C. 72367/30 [No. 53]: not printed.
* C. 72367/30 (No. 57]: not printed.
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year 1st August, 1930, to 31st July, 1931, and the measures to be taken to meet the certain deficit that was bound to arise in July, 1931. A further statement on these ines was promised by Sir Arnold Gridley and it was decided to hold another conference when the figures were available.
(ix) In letters dated the 26th and 29th May, copies of which are enclosed for Your Lordship's information, revised estimates of the possible cash requirements for 1931, based on varying prices of tin, together with certain proposals for meeting the cash shortage (estimated at from £95,000 to £136,500) were submitted by Sir Arnold Gridley. Of the proposals contained in paragraph 6 of the letter of 26th May I would specially invite Your Lordship's attention to proposal (D) in which it was asked whether this Government would allow the Board to issue the £250,000 7 per cent. debenture stock which has been held in reserve and which the Board agree not to issue without the consent of Government." I submit that any right that the Board may previously have had to issue such debenture stock clearly ceased to exist when this Government gave a loan of £850,000 in January, 1930; for of this sum £250,000 was definitely included to meet the cost of the extra steam sets at Malin Nawar and the Company had in June, 1928, been accorded the right to raise that sum. That this is clearly the case
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is shown by paragraph 6 of the enclosure dated 17th December, 1929, contained in Your Lordship's Confidential despatch of 2nd January, 1930,* which reads as follows:- "The loan of the sum of £850,000 obviates the necessity for the issue of the further £250,000 of 7 per cent. participating debenture stock, authorised in June, 1928." The Government could not see its way to accept any of the proposals put forward by Sir Arnold Gridley and it was accordingly decided to hold a further conference on 25th June.
(x) I enclose a copy of the notes of that conference for Your Lordship's informa- tion and would invite reference to the following admitted facts :--
(a) that the Company would have a cash shortage of £140,000 (possibly £160,000) during the financial year ending 31st July, 1931, due to excess of expenditure over revenue, excluding any payment of interest due on the 8 per cent. preference shares which by July, 1931, would have amounted to £60,000.
(b) that a further £150,000 would be necessary to meet expenditure on increas- ing the height of the dam, in order to economise coal costs at Malim Nawar, and in providing for capital extensions of a definitely, remunerative nature. (xi) As the Government now had definite information as to the Company's financial position, based on a full and complete examination of local conditions, it did not appear to me necessary that the investigation by an independent accountant, previously insisted on by this Government, should take place, and I accordingly sent my telegram of 27th June.t
(xii) On the 28th June I visited Chenderoh to open the new power station and enclose copies of the speeches delivered by Sir Arnold Gridley and myself at that
ceremony.
(xiii) In a letter dated 29th June, Sir Arnold Gridley further elaborated the sug- gestion made at the conference of 25th June and also enclosed the text of the draft Heads of an Agreement for carrying out these suggestions. A copy is enclosed for Your Lordship's information.
(xiv) A final conference was held on 22nd July, when the proposals put forward by Sir Arnold Gridley were discussed in detail, and the decisions come to at that con- ference, with which I am in full agreement, are contained in Enclosure No. 8.
3. The above summary of what has taken place since the grant of a loan of £850,000 by this Government to the Company, together with the enclosures contained herein, sets out what can only be described as a very alarming financial state of affairs of the Company in the near future. Since July, with the continued fall in the price of tin and the closing down of many dredges, the position has altered for the worse; and, as I am given to understand that the sale of power by the Company, which in April stood at 13,000 K.V.A., has now fallen to some 9,000 K.V.A., it is definitely clear that Sir Arnold Gridley's estimate of the cash shortage (varying from £140,000 to £160,000) on 31st July, 1931, is on the low side and the actual shortage may reach to as much as £200,000.
This Government has granted very substantial assistance to the Company in helping to bring the existing scheme to completion, but it is financially impossible to advance further sums in order to meet deficits of revenue over expenditure extending
possibly over a period of years. There appears to be very little prospect of this Govern-
* C. 62367/A/29 [No. 188]: not printed.
+ C. 72367/30 [No. 70]: not printed.
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