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PUBLIC RECORD OFFICE

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Alternatives.

(1) The Protectorate Government can carry out the work itself, raising a Government loan to finance the cost of construction and operation.

This method has the merit of simplicity, but does not decentralise construction, which I understand is in some respecta desirable. Nor does it enlist outside financial and commercial interests, which would be useful in the future to encourage schemes of develop. ment by which the railway would benefit.

(2) The Protectorate can sell the existing railway system to a company in which it would retain a con- trolling interest, and finance further extensions on the security and prospects of the existing system.

This method would have the advantage of retaining the whole railway in one organisation, but would entail certain political and working difficulties and reorganisation of personnel. In addition, it would have the disadvantage of necessitating a sale at a considerable capital loss, and would be a more ex- pensive method of raising the additional capital required.

(3) There remains a third method which, while somewhat novel, would appear to be the best solution, and I therefore propose to enter into this method in detail.

I presume that the Protectorate Government will desire

(1) To retain control of the new railway.

(2) Itself to operate this railway in conjunction

with the present system,

I should therefore suggest:

Formation.

That a company should be formed with an author- ised capital of say £1,000,000 in 1,000,000 shares of £1 each, for the purpose of constructing the proposed Uasin Gishu line and any further extensions which the Protectorate may from time to time determine to make. An agreed proportion of these shares should be immediately issued to the Protectorate to represent the value of the present concession and necessary facilities, of which an agreed number should be allotted to the group finding the necessary money for the construction of the new system, but so that the Protectorate will maintain complete control over the line and the future policy of the company, including the balance of its unissued capital.

It is suggested that the Government should be represented on the Board by three Directors, includ ing the Chairman, and the Group by two Directors. The money necessary for the construction of the line and for the overhead and administrative expenses of the company should be found by the issue of say £3,000,000 at £3,500,000 of debentures which would be guaranteed by the Protectorate.

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When the line is completed it would be leased to the Government for a period equal to the term of the Debenture issue, at an annual rental equal to the amount necessary to cover the service of the debon- tures, i.e., interest plus sinking fund. The Govern- ment would thus not only practically own the Tine, but would also operate it without any outside control. The head office of the company would be in London, and might also serve as a semi-official information bureau and centre of propaganda, and would thus fulfil a most necessary and useful function in promot ing the development of the Protectorate, while the inclusion of important financial and commercial interests as shareholders in the company and on the Board would facilitate future finance and encourage their assistance in the development of the resources of the Protectorate from which the railway would be the first to profit.

Finance.

With regard to the debentures, these could either be issued in one lump от in, say, three yearly instalments, but my financial colleagues are of opinion that the whale amount required to finance the construction of the proposed system and the interest during construction, and say, one year thereafter, together with a small

surplus to COYOT administrative and overhead expenses, should be issued at once because

(1) the rate for money will probably rise during

the next three or four years,

(2) a partial issue is not popular with the public, (3) a saving would be effected in advertising and

other expensex,

(4) the money could always be profitably employed on short term mortgages and otherwise in the Protectorate.

In the prescut uncertain condition of the money market it is impossible to state definitely at what rate the issue could be made, until the approximate date of issue is fixed. Nor until such time is it possible to say how much should be devoted to interest and how much to redemption since fashion varies in this respect.

The ratio in value, however, between this issue and the average Colonial Trustee stock will remain con stant, and it should therefore be possible forthwith to agree upon a formula on this basis.

It should be noted, however, that this issue would be too solid to attract the more speculative investor, and that it is precluded from relying upon the enormous resources in the hands of Trustees, and some allowance must be made for this fact.

The following terms are therefore suggested:-

(1) The Debentures should be guaranteed as to principal and interest by the Protectorate, and the interest and sinking fund secured by the terms of the lease above referred to.

(2) The date of redemption should be the year 1950, the sinking fund to come into opera- tion in the year 1923, by which date the line should be in operation, and to be applied to the redemption of the deben- turos either by annual drawings at par or by purchase on the market, whichever is most favourable to the company.

(3) The Debentures to be issued on terms which would give the public a return in interest of per cent. per annum more than the cheapest Colonial issue at the time, and at a price calculated to give a redemption yield of per cent. per annum assuming the bonds are drawn at par at the average date of redemption (in this case 1937) and after deducting 5 per cent, which would probably cover the expenses of the issue, including the cost of advertising and under- writing (unless it were considered advisable for political reasons to issue a portion in Africa).

Construction

My group will undertake the construction of the railway on the basis of the revised estimate for a contractor's profit of 5 per cent, on the approximate cost of two and a half millions, shown on Buch estimate. Should any saving be affected on that estimate, 75 per cent. thereof will balong to the Railway Company and 25 per cent. thereof will be the contractor's bonus for such saving, and an agreed bonus for any saving of time based on & nimilar proportion.

In the event of the costs as shown on the revised estimate being exceeded, the contractors shall receive no profit on such excem.

Figures to be based upon a fixed rate of exchange. It is understood that facilities will be given by the Protectorate through the Crown Agente and other. wise for the purchase and transport of material, labour, and use of rolling stock, the price of rate of hiring boing, of course, agreed and included in the revised estimate.

The facilities given will have a great bearing upon the time that will be necessary for the construction of the work and consequent saving of interest during construction.

It is understood that construction will be carried out under the supervision of the Government Engineers on behalf of the Protectorate.

I am, &c.,

J. NORTON GRIFFITHS,

MY DEAR BOTTOMLEY,

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No. 3...

SIR EDWARD NORTHEY to MR. BOTTOMLEY.

UASIN GISHU RAILWAY.

77, Carlisle Mansions, S.W. 1.

January 15th, 1920.

In answer to your letter of 13th instant the following are my comments on Mr. Ezechiel's Memorandum on the Plateau Railway Extension. I return the Memorandum herewith as requested. We must think largely in these matters of Empire building-I assume that a great future is expected for British East Africa and Uganda in the production of raw material required, by the Empire and that development is considered desirable.

I believe that the Eldoret branch line will eventually become the through main line to Uganda, if not to the Sudan also. I should therefore not easily be put off the originally surveyed route by the argument that we are climbing the Mau Escarpment twice; if by doing so we get a quicker and shorter line through, and incidentally open up not only the rich lands just north of Nakuru, but also a very valuable forest area, we sliall be short-sighted, perhaps, to cut it out because of the extra half million required. The proposed line, as surveyed from Nakuru through the Eldama Forest, goes right through Grogan's big forest concession. We ought to get him to assure us, or even guarantee, his real intentions as to working the timber-in sufficient quantity, I mean, to give the line plenty to carry-not merely cedar wood for pencil-making and pretty woods for carving and panelling, but big timber for building. If he is really serious about pushing this timber business—as he should be, for I believe it would pay-then there is a very strong argument for taking that route, not only for Grogan's interest, but for the good of the Protectorate which wants the timber.

I am sorry I have no information as to the respective distances by the surveyed route from · Nakuru or for Mau Summit to Eldoret, but I believe the surveyed route is shorter.

I recognise that if Grogan's timber business is not certain to bring a very large downward traffic to Nakuru, and if it is a fact that the alternative route by Mau Summit will cost half a

million, roughly more, it may be decided that the latter is preferable.

Of course, Londiani-Eldoret direct is an impossible route, mostly through very bad black cotton soil and unproductive land. The alternative route must be from Mau Summit, and cut in to the surveyed route after it has mounted the Escarpment.

Mumias Station is being moved to Sudis Old Village, some 40 miles N.E. of Mumias. I recommend that we estimate in the first place for a line only as far as Soi, some 15 miles beyond Eldoret. Soi is central for the Trans-Nzoia people, and quite far enough to go to until the through line to Uganda is arranged for later.

The productive probabilities of the Plateau and Trans-Nzoia Districts have more than doubled since Sir Charles Bowring was there in 1918. I was astonished at the rapidity of recent development: I was there in June, 1919.

The question of how best to finance a loan for the Protectorate, or for the railway alone, must be left to expert advisers, but I am convinced that if the Treasury cannot help us, we can and must raise funds privately or from the public; but we cannot start paying full interest and sinking fund on the total loan in the first few years. This must come out of capital.

Yours, &c.,

No. 4.

EDWARD NORTHEY.

NOTES BY MAJOR E. 8. GROGAN ON ALTERNATIVE ALIGNMENTS FOR THE PROPOSED UASIN GISHU RAILWAY.

When I was originally offered the forest concession which I now hold, I stipulated that I should be allowed to select the area. Before selection I employed a railway location surveyor to run try lines from the plateau to (1) Londiani, (2) Mau Summit, (3) Nakuru. He reported that the best railway alignment was approximately the original Uganda Hailway survey wid the Eldalat Pass to Nakuru. I therefore selected the forest area in relation to this alignment.

Subsequently, the Government ran try lines from Londiani and Mau Summit and finally decided upon the Eldalat-Nakuru route, and a definite survey was made. Since then I have carried out all my developments in relation to the beaconed survey.

As it was the declared policy of Government to construct at an early date along this survey, I erected a mill at a cost of £8,000 in the Eldalat Pass based on the surveyed route, and I have latterly spent over £30,000 on a trolley line and mill with logging lines near the Uldama Ravine. The principle of this latter development was to give me present access to Mau Summit in such a way that the work could be switched over to the New Line when built.

This forest area is the only forest area in B.E.A. which can possibly be traversed by a Trunk Line. The best portion containing the construction timber of the country lies in a shallow

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