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Appendix VI.

THE CASE OF THE IMPERIAL POST OFFICE TO BE

SUBMITTED TO THE RIGHT HONOURABLE

LORD BALFOUR OF BURLEIGH.

1. Under a contract for the Eastern Mail Service, working to and from Brin- disi, which came into operation on the 1st February 1888, the Peninsular and Oriental Steam Navigation Company received an annual subsidy of 265,0007.

2. And, in accordance with the desire of the Australian Colonies for a weekly Mail Service, contracts, to run from 1st February 1888, were concluded by the Imperial Government with the Peninsular and Oriental Steam Navigation Company for a fortnightly service from London via Brindisi, and with the Orient Steam Navigation Company for a similar service viâ Naples, the two companies together thus providing a regular weekly service by direct steamers. For these services each company received a subsidy of 85,000l. per annum.

3. All three contracts expired on 31st January 1898.

4. In response to the invitation of tenders for the respective services from 1st February 1898, the Orient Company offered to continue their portion of the Australian Service at a higher speed for the same subsidy of 85,0007.

5. The Peninsular and Oriental Company, who declined to tender for one service without the other, offered to continue the Eastern Mail Service and their portion of the Australian Service at higher rates of speed for each Service for a total subsidy of 330,000%., as against 350,0007., the total under their two expiring

contracts.

6. The acceptance of these tenders was recommended by a committee, of which the Right Honourable W. L. Jackson was chairman, and on which the Colonial Office was represented.

7. The total subsidy of 330,000l. asked by the Peninsular and Oriental Company was taken by Mr. Jackson's Committee as representing 35,000l. for the Australian Service and 245,000l. for the Eastern Service, an apportionment based on the fact that the Orient Company offered a corresponding Australian Service for 85,000%., and that the expiring contract of the Peninsular and Oriental Company for the separate Australian Service was also for that amount. The Indian Post Office, however, was disposed to think that a larger sum should be assigned to the Australian Service; and at its request, the Peninsular and Oriental Company were asked to say what part of the subsidy of 330,000l. was assigned to the Australian Service, and how the balance was subdivided among the sections of the Eastern Service. In reply the Directors stated that it would be impossible to separate the sections as desired, but that they had always had in view that they should obtain the sum of 85,000/. for the Australian portion of the work, and that out of the total subsidy the sum of 245,0001. was for the Eastern Mail Service.

8. The Australian Post Offices, on the other hand, argued that the Australian Service provided by the Peninsular and Oriental Company should be credited with some portion of the reduction of 20,000/. effected in the combined cost of that Company's services. But this argument was met by the Imperial Post Office with the considerations already referred to, and the point was not pressed.

9. The cost of the Eastern Mail Service has accordingly been taken at 245,000l., and the benefit of the whole reduction of 20,000. effected under the new contract for both Eastern and Australian Services is thus secured to the Eastern Mail Service. A further advantage to it is secured by the fact that the subsidy under the new contract covers the conveyance of parcels-a service which formerly gave rise to additional expense.

10. As to the method of division of cost, the principle upon which the cost of the Eastern Mail Service has been divided rests upon the fact that the Service is organised for commercial and political reasons, as well as for postal reasons, and that the intercourse promoted by it is a matter of equal interest to the Mother