File 2764/1904 Pt 2 'Baghdad Railway: General negotiations 1908-10.' [‎77r] (162/799)

[This Docament is the Property of His Briteamie Majesty's Government]
BAGDAD RAILWAY.
SECRET.
S-r~ \- \ V f - .'"T
' X " - ‘.V h
[April 8.]
[11933]
v I e APR 1919 >
6>
Section 3.
mjlt
Messrs. Ogilvy, Gillanders and Co. to Foreign Offiee.—^Reeeived April 8.)
a- ^ un Court, 67, Cornhill, London, E.C.,
’ W1? -j • . . April 5, 1910.
limi+orl + . a Ve ^ ^ 1 ^ ost car eful consideration, consistently with the somewhat
r^rivilpo-A 11 ? e r W 1C ^ ^ aS i^oo^ ^ ^ s P osa l» to the subject which we had the
privilege of discussing on the 22nd ultimo with Mr. Alwyn Parker, and to the Foreign
Unice memorandum he communicated to us.
We understood that the two principal points upon which we were desired to
express an opinion were: Firstly, the probable cost of a railway from Bagdad to
Roweit, with an alignment parallel more or less to the River Tigris on the right bank ;
secondly, the financial basis upon which the capital required for the construction of
suen a railway would be forthcoming in London. As regards the *
First Point. We are of opinion that the cost of a single-line metre-gauge railway
as proposed should not exceed 7,500/. per mile, this figure to include rolling-stock
but it would be exclusive of the necessary charges for the expenses of floating the
company. &
No opinion is offered at the present moment on the most suitable gauge.
This^ estimate of cost is considered to be sufficient to provide fully for the
construction of a bridge over the Euphrates in the neighbourhood of its confluence
with the Tigris, but does not contemplate any other very important engineering
works. Excluding a bridge over the Euphrates, the metre-gauge line alone should not
exceed 7,000/. per mile.
Second Point.—We understood that it might be deemed impolitic to press the
Ottoman Government to give suitable guarantees.
Although there seems to be good prospect that there should be a fair return upon
the capital of the company from the traffic which it would serve, it is considered that,
in order to give the company the necessary stability in the London market, there should
be something in the nature of a guaranteed minimum return, although it is thought
that the obligation under such a guarantee would be nominal.
We therefore suggest that the proposal to bring the railway within the scope of
the terms appertaining to Indian railways should be seriously considered, and we shall
be prepared to interest ourselves in the flotation of a company to be formed on
such a basis.
We suggest that the following might be taken as a preliminary basis for such a
company, viz.:—
(a.) Interest on capital during construction at the rate of 4 per cent, per
annum to be charged to capital expenditure, as customary.
(6.) After the line is opened throughout for traffic, the Secretary of State for India
to guarantee interest on capital at the rate of 3|-, or possibly even 3 per cent.,
according to the exigencies of the money market. Should His Majesty’s Government
prefer to give a British guarantee, the guaranteed rate of interest would obviously
be lower.
In connection with the suggestions for a guarantee from the Secretary of State for
India, it may be remarked that to-day’s market price of the India SJ per cent, sterling
loan is, say, 95/. 10s. per cent., and of the 3 per cent. India sterling loan 82/. per cent.
(c.) Free grant of land from the Ottoman Government for the purposes of the
railway.
(d.) After the earnings of the railway are sufficient to pay a reasonable percentage
upon the capital expenditure on the line, the surplus to be divided as follows :—
One-third to the Secretary of State for India ;
One-third to the Ottoman Government;
One-third to the railway company.
We have not been able within the short time at our disposal to fully test financial
opinion in the City with regard to the possibility of raising the capital in London
[2707 h—3]