File 2764/1904 Pt 2 'Baghdad Railway: General negotiations 1908-10.' [‎101r] (210/799)

the^soveSg^riglrbs 6 ^ that thG TuikS W ° uld regard this P ro P osal as a dereliction of
T] ke °^ ie1 ’ f 1 J t f rnat i 1 ve which might be suggested to the Turkish Government is
mat they should themselves give a guarantee. In their case it would probably have to
e one o per cent., and the guarantee would have to begin from the moment the
rr/o rwvfz iec l uiie d for construction. A 5 per cent, guarantee would only amount
• p i ’ • a-year, pins, say, 20,000/. in respect of bankers’ profits and discounting,
sue i were necessary in connection with the financial operations; and, an important
pom , ns ia i ity would not continue for ninety-nine years, but it would cease as
soon as the railway realized a net profit of 5 per cent, (a state of affairs which ouo-ht
soon to come about in the fertile districts of Mesopotamia); while Turkey, under
e n ian system, would share equally with the Railway Company in any profit
over and above 5 per cent. “ j r ^ j r
Now to contrast the two systems :—
Under the Concession of 1903 the Turkish Government might have to pay, as
stated above, a maximum amount of 433,180/. Should, however, Dr. Gwinner insist
on having 2,000/. of the construction guarantee (viz., 2,000/. X 71G makes a capital
sum ot 1,432,000/., which, at 5 per cent., represents an annual charge of 71,600/.)
on the Bagdad-Gulf sections, and make arrangements on that basis with the Turkish
Government, while the “Indian system was adopted by the British capitalists, the
cost to the Turkish Government would be 71,600/. for the guarantee and 200,000/.
a-year as the “Indian” maximum, making a total of about 270,000/.
The ‘ Indian system has the great advantage that the guarantee really
corresponds to the actual cost of construction ; it is a far cleaner plan than the other;
it would benefit the Turkish tax-payer; and it would foster and develop British
trade, getting us out of what you call the “ perversity ” of the working guarantee,
which renders the railway incapable of being worked as a commercial success. If, on
the other hand, we accept Dr. Gwinner’s proposal, the Germans will be reaping the
lions share of the profits under the 1903 Concession, while we shall merely incur the
odium of it, as neither the Turkish tax-payer nor the British public will be able to
discriminate the innocent from the guilty of the two parties to the transaction.
We are not opposed to kilometric guarantees as a system ; they exist, as you
know, in Egypt; what we object to is the scale of the guarantees allotted under the
Concession of 1903, imposing as they do, in our opinion, burdens altogether in excess
of what is fair upon the Turkish tax-payer.
As regards the Bagdad-Homs Railway and the irrigation schemes in Mesopotamia,
the French Government are very anxious that British capital should participate in
the railway upon which they have bestowed their blessing, and they themselves
are equally desirous of par ticipating in the irrigation schemes. If the railway is to
he built, we think it very desirable that British finance should participate in the
scheme, so as to have a voice in the construction and control of a line which may
in the future be of considerable advantage to British trade. The question of the
extent of the participation of a British group and other details can be decided later.
I understand, however, that the French Government have no knowledge whatever
of the Ornstein group, and that the Ottoman Bank is not represented in it. Moreover,
the French Government will take good care that no group gets the concession except
through them. I may add that they have already announced their claim to a
concession for this railway as a condition of the 4 per cent, surtax.
In view of my earlier statement that we agree with you that, owing to the
prejudices aroused by the Lynch Concession, it may be advisable to postpone
temporarily any further pressure to obtain for British capital the construction and
control of the Persian Gulf The historical term used to describe the body of water between the Arabian Peninsula and Iran. section of the Bagdad Railway, it appears to us that for
the present it would be well for British finance to concentrate on encouraging sound
irrigation and railway projects, which will cover the ground in Mesopotamia, and so
minimize the importance of the southern end of the Bagdad Railway.
Believe me, &c.
CHARLES HARDINGE.
B 2
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