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15. It has been ascertained from the Admiralty that the approximate relative cost of coal used in steaming at 145, 137, and 12.6 knots is 131, 117, and 100, Coal being the largest item of expenditure, it is submitted that the case of the Eastern Colonies is not overstated if the relative cost per mile over the Brindisi- Bombay sections, the Aden-Adelaide sections, and the Colombo-Shanghai sections, is estimated at 128, 115, and 100. The cost of the various sections, corrected on this basis, works out as shown in the fifth 'column of Appendix G, (where the ratios 109, 98, and 85 have been taken instead of the equivalent ratios 128, 115, and 100, so as to make the total cost come to the same figure as before, £321,500). The remaining columns of Appendix G give the approximate share of the subsidy which should be paid by the various Colonies and India, when difference in speed is thus taken into account, viz., India, £62,420; Ceylon, £2,625; Straits Settle- ments, £5,345; Hongkong, £9,607; and Australia about £54,000.

16. In Appendices F and G the items "Incidental Expense" and "Re- ceipts from Foreign Closed Mails" have been increased by figures supplied by the Imperial Post Office, so as to include the Australian section, and have been distributed according to the general apportionment of the subsidy in the same way as in Appendix C. It is, however, contended that the sea postage received in respect of foreign closed mails should more properly be credited to the sections over which the foreign mails travel, as in the case of the analogous receipts referred to in paragraph (b) of Lord Morley's award, instead of being divided in the saine proportion as the subsidy. See paragraph 23 (G) of Imperial Post Office case (Appendix A).

17. The Colonial Office does not possess (1) the statistics necessary for mak ing the last mentioned adjustment; nor (2) those required for making the correct- ions of the figures in the sixth column of Appendices F and G, referred to in foot- notes to Appendix F; nor (3) those relating to parcels, referred to in paragraph 7 above, which would involve further credits to the Eastern Colonies in the Pool- ing Account.

18. Subject to the corrections in respect of the three points referred to in last paragraph, the figures given in Appendix G show that a fair contribution from Hongkong would be only slightly in excess of the amount hitherto paid, viz., £9,480, while Ceylon and the Straits Settlements have been paying each year since the commencement of the contract about £1,400 and £830 in excess of their fair contribution.

19. The contract with the Peninsular and Oriental Company has been extend- ed for three years from the 1st February, 1905, the subsidy being increased from £330,000 to £340,000 in return for an acceleration of 24 hours on the service. As this acceleration will be gained by increased speed on the Brindisi-Bombay section, the present speed being retained on the other sections, the arguments in paragraphs 14 and 15 above will apply more forcibly to the apportionment of the increased subsidy of £340,000, and it is contended that during the extended con- tract the contributions of the three Eastern Colonies should only be increased beyond the figures shown in Appendix G by about 3 per cent., i.e., the ratio of the increase to the original subsidy.

Colonial Office,

October 12, 1904.

Appendix A.

The Case of the Imperial Post Office to be submitted to the Right Honou- rable the Earl of Morley.*

Lord Morley's Award. †

Appendix B.

Appendix C.

Division of cost in accordance with the principles embodied in the Award of Lord Morley.‡

* Sec Appendix I of Minute.

+ See Appendix II of Minute.

See Appendix IV of Minute.