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ment receiving any interest on its £500,000 8 per cent. preference shares for some years to come and I should not be justified in laying further burdens on the public revenue by guaranteeing in any form whatever the raising of further funds by the Company in order to meet its liabilities. Without some measure of reconstruction it appears to me that the existing scheme for the sale of 160,000,000 units cannot prove a success owing to over-capitalization, a fact which is admitted by the Chairman of the Company in paragraph 20 of his letter of the 22nd October, 1929,* which reads as follows:- Even if this amount (£850,000) were provided and the existing scheme completed, it is certain that a successful enterprise could not possibly be created on the existing capacity for power supply.”
5. I am, as Your Lordship is aware, proceeding on leave on the 17th October and I would suggest that, with Your Lordship's concurrence, a conference might take place between representatives of the Colonial Office, of His Majesty's Treasury, of the Company's Board of Directors and myself to discuss the grave financial position of the Company as disclosed in this despatch.
I have, &c.,
C. CLEMENTI.
High Commissioner.
Enclosure 1 in No. 1.
THE PERAK RIVER HYDRO-ELECTRIC POWER COMPANY LTD.
Ipoh, Perak,
Federated Malay States,
30th April, 1930. The Chief Secretary to Government, Federated Malay States, Kuala Lumpur. SIR,
I HAVE the honour to enclose herewith, for the information of the Federated Malay States Government as promised, an estimate of the financial results to be antici- pated when the present scheme has been fully developed. By the present scheme is meant the ultimate sale from the Chenderoh and Malim Nawar Stations and the Trans- mission System as planned of 33,550 K.V.A. or horse power.
2. It will be seen that the estimated gross profits are expected to suffice, not only to meet all the fixed interest and redemption charges and the 8 per cent. dividend on the 500,000 preference shares held by Government, but should leave available a balance of approximately £70,000.
3. There are two, and so far as can be foreseen, only two main factors which make it difficult to forecast by what date full development can be reached, and the gross profits realized.
4. The first is the rate at which new business can be secured, remembering that, when the price of tin is low, prospective consumers are hesitant of spending money on new electrical equipment. If it were practicable to stabilize the price of tin, at say £225 per ton, it would be safe to assume that these estimates would be achieved during the year 1933.
5. The second is the quantity of water which may be available from time to time at the Chenderoh Dam. Any abnormally prolonged drought may diminish the flow beyond the conservative estimates made by our Consulting Engineers and which are averaged over a period of ten years. A severe shortage in any one year would call for increased supply from, and coal consumption at, the Steam Station in that year, and therefore put up the costs for that year. For this reason I propose to recommend to my Co-Directors that, as from, say August, 1934, we should set aside annually, out of revenue, the sum of £10,000 until a Coal Reserve of £50,000 has been accumulated. to be drawn on in a year of exceptional coal cost, the Fund to be restored to £50,000 again as soon as possible.
6. I understand that some doubt has been expressed as to whether there is avail. able in our Concession Area sufficient business from which it can be reasonably expected that a gross revenue of £600,000 can be secured annually. This question has been carefully explored, and we are satisfied that there should be ultimately obtainable in the Area a gross revenue of at least £850,000 a year. We could not, of course, supply such a load as this revenue would mean without further extensions of generating plant capacity and of our transmission and transforming system. This is a matter for the
* C. 62367/29 [No. 116]; not printed.
,
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5
future. For the moment it suffices to show proof that a sufficient volume of prospective business exists which can provide a gross revenue from the sale of current of £600,000 per annum, and there is no doubt whatever that it does exist. To earn this figure involves our securing only two-thirds of the available business. Our calculations are given on p appendix of the detailed Estimates which we will bring to Carcosa. 7. It being accepted that sufficient prospective business is available, the imme- diate problem, especially during the prevalence of low prices for tin, is how to secure new business rapidly, and so reach the full stage of development as soon as From the cash point of view this is most important. If, for example, we fall, say,
possible. year behind our contemplated speed of business getting, this means that there will be less cash coming into the Company's exchequer, and there might be difficulty in meeting the cash liabilities of the Company in the way of payments in discharge of interest liabilities, and so on. The £850,000 cash provided recently by the Federated Malay States Government might not then suffice to see the Company through to its full development on the basis of the present scheme.
8. The importance, therefore, of the immediate adoption of an aggressive and actively sustained selling policy cannot be over-stressed. This is one of the primary reasons for the present visit of a Director. Since his arrival the situation has been examined, and we have already decided upon various steps which it is hoped may result in an acceleration of business getting. For example:-
(a) We have altered our tariff to large consumers by making the demand charge monthly instead of quarterly, subject to certain conditions with which all consumers can quite easily comply. This will remove misunderstandings and popularize this tariff.
(b) We have graded downwards the present tariff charge to small consumers. Instead of the rate of $18 per B.H.P. month for all loads between 1 h.p. and 200 h.p., the rate is now to be graded-starting at 50 h.p.-until at 200 h.p. the rate will fall to $15 per B.H.P. month. This should make this form of tariff much more attractive to the smaller consumers.
(r) We
propose to extend and make easier the facilities under which consumers may hire or hire purchase electric motors and equipment.
(d) We propose to explore the possibility of obtaining credits from certain manufacturers to enable us to obtain sufficient materials to carry our ter- tiary distribution lines (6,600 volts) nearer to prospective consumers, and thus make it easier to get more load quickly.
(e) The selling staff of engineers is to be further strengthened.
9. The effect of these inducements, so far as they may involve some financial risk, has been taken into account in arriving at the estimated figures submitted. When times are bad, it is sometimes prudent, rather than imprudent, to take reasonable risks to secure business, risks which are not necessary when times are prosperous and busi- ness is more easily obtainable.
10. Conferences have already taken place with leading managers of the important mining companies and groups, and with representatives of the Chamber of Mines, and our new tariff proposals have been discussed with them. Satisfaction has been univer- sally expressed, not only with these new proposals, but also with the policy pursued by the Company, and with the service it is giving in providing power at reasonable rates and with so few interruptions in supply.
11. If the Company is permitted during these next four years to pursue its policy of active development unhampered, and is assisted by a continuance of that help rendered by the officers of the Government departments with whom the Company's operations make contact, herein lies the best hope of bringing the undertaking to full and profitable development in a reasonable time.
12. The next question is whether the estimated costs of operating and main- taining the Company's large system are conservatively framed. We are confident that they are. Every item has been long and carefully probed. The coal costs are based on a higher average consumption of coal per unit than we have already got down to, and on the price per ton that we can contract for. Ample allowance for all wages and salaries has been made. We have made full provision for repairs and maintenance of the power stations, substations, and the long and increasing mileage of overhead trans- mission lines. In order to err on the conservative side, we have over-estimated what,
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RECORD OFFICE
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