File 2764/1904 Pt 2 'Baghdad Railway: General negotiations 1908-10.' [‎100r] (208/799)

[This Document is the Property of His Britannic Majesty's Government.]
• BAGDAD RAILWAY.
SECREP.
[March 12.]
Sectjon 1 .
No. 1.
( 5227 )
_ . N Si r C- Hardinge to Sir H. Babinqton-Smith.
(Private.) - J
^ Dear Babington-Smith, ^ Foreign Office, March 12 , 1910.
1 AM very much obliged to you for your interesting letter of the 8th February,
containing an able statement ol the arguments in favour of accepting Gwinners
offer to Cassel.
I quite agree that the present moment is not an opportune one for pressing
our views at Constantinople about the Bagdad Railway, owing to the chauvinism which
has been created by interested parties around the Lynch Concession. It is difficult,
however, to believe ^that, when the proper moment comes, any insuperable objection can
be raised by the Turks against British interests acquiring 60 per cent, of the total
capital of the Gulf sections of the railway. Were there anv apprehensions on the
part of Turkey, a clear statement of our intentions should suffice to dispel them, and
to show that no challenge to Turkey’s sovereign rights would be involved. All that
we want is to maintain and foster, under the protection of the Turkish Government,
the trade interests which this country has been developing for over two centuries.
The method by which we propose to attain this object is that British investors
should hold a certain percentage in a Turkish Railway Company’s share capital,
and that they should be adequately represented on the Board of that Railway
Company, whose total share capital will revert to the Ottoman Government on the
expiration of the Concession. Much will depend upon the attractiveness of the form
in which the matter is presented to the Turks.
I do not believe that the position of the Germans is quite as strong as you
seem to think. The 1903 Concession is bound to call forth increasing discontent as the
line progresses and the payment of the annuities for each successive section is exacted
from the Turkish taxpayer. My belief is that the Germans are anxious for our
co-operation because they realize the strength of our position. They fear that we may
get a competing line down the Tigris. Also they probably know of our privileged
position at Koweit, and that the terminus can hardly be made elsewhere, and they
do not want opposition to their interests in Mesopotamia on account of the political
uncertainty which is at present affecting enterprise in Turkey. They realize, moreover,
that so long as we are hostile to the project their bonds will not obtain quotation on
the Paris market.
It is not impossible that, if His Majesty’s Government decline to approve of
British participation in the Bagdad Railway unless there is a modification of the
Concession, the Germans may give way and agree to suggest a modification to the
Porte. Were the Germans to unite with us in such a course it is probable that the
opposition of the Turks would disappear, especially if the prospect of the 4 per cent,
customs increase were held out to them. The Germans might then stipulate that the
whole benefit of such a modification should not be enjoyed by Turkey alone, but should
be shared by them, and they could then arrange matters as they liked best.
Our objections to the kilometric guarantees remain, and to accept them would
expose us to very damaging criticism from the public. It is true that the working
cmarantee has been criticized, because it militates against the railway being sufficiently
worked to make it pay. It should be noted, however, that in the sections as far
east as Mosul the gross traffic receipts may well be under 4,500 fr. a kilometre, as
the population is sparse and the traffic would be relatively small, so that the Germans
will probably derive their profits on those sections, not from traffic receipts, but from
the Government working guarantee. On the other hand, the gross receipts on the
Bagdad-Gulf sections would probably exceed the 4,500 fr. per kilometre, and there
the Government would not have to pay any guarantee to the Company.^ Why
therefore should the Bagdad-Gulf sections be mulcted 2,000/. per kilometre in order
to meet the working expenses of the western sections of the line, which must almost
certainly be lower than those of the Gulf sections ?
As for the construction annuity, we look upon it as altogether in excess of what
the actual cost is likely to be. The Committee which examined the question here in
[2684 m —l] B