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not pretend to be more than approximate, it is quite conceivable they may be exceeded but it is equally possible they may not be attained for a number of years to come.
On these figures and bearing in mind the certainty of lean times in the near future I do not think it would be prudent to put the value of the undertaking at a much greater figure than £2,500,000. Even if this figure were increased by fifty per cent. it still would not suffice to meet the debenture debt alone and it is quite clear that the whole of the share capital has been lost. If the figure of £2,500,000 be taken the assets are barely sufficient to cover the Prior Lien Debentures, the Guaranteed Debentures and the Federated Malay States Government Loan.
It seems to me clear that before very long drastic reconstruction will be necessary. It is also clear that neither the Prior Lien Debenture-holders nor the Treasury are likely to forego any of their rights. So much I think is certain, as is shown by the Treasury insistence that the Federated Malay States Loan should rank after the Guaranteed Debentures, though it is inconceivable that any independent lender would have agreed to such a condition. If past history is any guide we may expect considerable pressure on the Federated Malay States to forego repayment of at any rate a part of its loan as otherwise there will be little or nothing for the 7 per cent. Participating Debenture- holders. I have spent many hours reading through the voluminous correspondence relating to this Company and nothing I have read therein gives me any reason to hope that the Federated Malay States is likely to gain much from any voluntary scheme of reconstruction. I am forced to the conclusion reached by the Director of the Electrical Department some two years ago that the only hope of the Federated Malay States recovering any appreciable portion of the money it has sunk in this under- Laking is for the Company to go into liquidation. If a purchaser can be found willing to offer £2,500,000 the Federated Malay States gets its loan back and can afford to regard the loss of its £575,000 in Preference and Ordinary Share as a not excessive price to pay to be clear of this commercial entanglement. In the more probable case of no such purchaser being forthcoming, the only alternative to a complete loss will be for the Federated Malay States to take over the whole undertaking and buy out the Prior Lien and Guaranteed Debenture-holders. How far that will be feasible will depend to some extent on the amount involved. It is all very well to say that this proposed issue of £150,000 will increase the value of the assets by a corresponding amount. That may or may not be true, but what is quite certain is that it means that an extra £150,000 would have to be found, and that in the present financial condition of the Federated Malay States is a not inconsiderable sum.
In essence the present proposal is not greatly different from Lord Elibank's proposal to extend the steam station at Malim Nawar which was consistently and successfully opposed by the Federated Malay States and most of the arguments advanced against that proposal could be brought against the present one. The certainty of increased sales is to some extent offset by the lower price at which they have to be contracted for.
The real object in view when the creation of these Prior Lien Debentures was agreed to was to meet certain outstanding liabilities and, if necessary, provide funds for the payment of interest and sinking fund charges on the Guaranteed Debentures. That is clearly stated in the letter from the Treasury to the Colonial Office in which the Treasury undertake not to approve the issue of any Prior Lien Debentures for any other purpose save with the prior consent of the Secretary of State acting on behalf of the Federated Malay States Government. This undertaking is set out, even more definitely, in the Secretary of State's telegram of the 1st of January, 1931, to the High Commissioner.
The Federated Malay States Government may or may not have the right to object to the acquisition of the plant of the Malayan Tin Dredging Company by the Perak River Hydro-Electric Power Company. That turns on questions of legal construction on which I am not competent to express an opinion.
What is not, however, open to question is that the Federated Malay States have the right to object to the issue of Prior Lien Debentures for that purpose and my advice is that the Federated Malay States Government should object.
18th October, 1932.
M. REX,
Acting Financial Adviser and Treasurer,
Federated Malay States.
A
57
Enclosure 2 in No. 23.
COPY OF A MEMORANDUM BY THE LEGAL ADVISER, FEDERATED MALAY STATES, DATED 18TH OCTOBER, 1932.
THE Secretary of State appears to consider that the appropriate clause of the Concession Agreement is Clause 12, vide (13)* herein. Under this approval of the Federated Malay States Government is necessary but that approval cannot be unreasonably withheld. The second paragraph of the same clause contains two further stipulations-
(a) the transmission system connected with the acquired station must be either connected to the main transmission system or closed down, i.e., the acquired station is not to continue in action,
(b) the rates payable by consumers who have been taking power from the acquired station must, if these consumers are connected to the main system, conform to the rates in force for similar consumers throughout the distribution area.
"
2. This last stipulation is wider than the provisions of Clause 26, which goes into considerable detail. But similar consumers is not an expression capable of abstract definition, and it must be a question of fact to be determined in each individual case whether consumers are similar or not.
3. Apart from Clause 12 a right to acquire other undertakings is given by Clause 22. Under this clause the approval of Government is required to the transfer and the terms and conditions thereof where the licence granted to the undertaker was prior to the Agreement with the Perak River Hydro-Electric Power Company. But the licence to the Malayan Tin Dredging Company was only issued on 21st July, 1928, and it would appear therefore that we have no standing under this clause and no power to interfere.
4. Turning to Clause 26, which prohibits preferential treatment, it is again a question of the facts in each case whether the difference in the rates amounts to pre- ferential treatment or not. Without full details as to each of the matters mentioned in the clause it is impossible to express any opinion.
5. I suggest that it is not unreasonable for us to withhold our consent, apart from considerations of finance, until we are satisfied that the proposed rates in Mr. Cochrane's memorandum do conform to the rates in force for similar consumers throughout the distribution area, that prima facie they do not appear to do so and that it is for the Company to satisfy us first that their proposals do not involve a breach of the Agreement.
W. S. GIBSON.
18th October, 1932.
C. 92302/1/32 [No. 7].
No. 24.
THE HIGH COMMISSIONER to THE SECRETARY OF STATE.
(Received 28th November, 1932.)
(No. 713.)
King's House, Kuala Lumpur, 3rd November, 1932.
SIR,
IN continuation of my despatch, Federated Malay States, No. 305, dated the 18th May, 1932,† I have the honour to reply to your despatch, Federated Malay States, No. 79, dated the 10th March, 1932, with which was transmitted a copy of a letter from the Trade Facilities Act Advisory Committee on the subject of the titles of the Perak River Hyrdo-Electric Power Company, Limited, to its land in Malaya.
2. In my despatch, Federated Malay States, No. 305, dated the 18th May, 1932, I indicated that an exhaustive memorandum was being prepared, and I now attach as annexures to this despatch two memoranda signed by the Legal Adviser, Federated Malay States, with which I am in agreement.
3.
I invite your attention to paragraphs 13 to 17 of Memorandum I, in which the Legal Adviser envisages a conflict of interest in certain eventualities between
* Secretary of State's Federated Malay States Confidential telegram No. 149 dated
7th September, 1932.
† C. 92302/1/32 [No. 4]; not printed. ‡ C. 92302/1/32 [No. 3]: not printed.