File 2764/1904 Pt 2 'Baghdad Railway: General negotiations 1908-10.' [‎105v] (219/799)

receipt of 4,500 fr. per kilometre, but if the traffic receipts exceed this sum, the who e ot
the surolus up to 10 000 fr. per kilometre goes to the Government and the company
received nothing more until that sum is exceeded. Any receipts above that amount
^rjivided in the proportion of 40 per cent, to the company and 60 per cent, to the
Government. This means that the company has precisely the same sum to meet the
working expenses, whatever the traffic receipts may be, so long as the receipts do not
exceed^0 000 fr. per kilometre, and that out of the receipts above that sum, the company
receives^ only 40 P per cent., a proportion insufficient to meet the additional cost of the
additional traffic. The Germans admit the perversity of the arrangement, and say
that in order to meet the future charge arising from it, they propose to put aside as a
reserve a sum of 2,000Z. per kilometre from the margin on the construction of the easy
^What, then, are the objects of the Germans in proposing British co-operation ?
They probably foresee that if British capital does not participate British opposition
will grow stronger and stronger as the line approaches the Persian Gulf The historical term used to describe the body of water between the Arabian Peninsula and Iran. , buch opposi
tion would probably not prevent the ultimate completion of the line, but it would delay
it. In the second place, they wish to secure for their guarantee the proposed addition
to the customs duties, and consequently they are anxious that there should not be any
condition which would exclude this. Thirdly, they would not be sorry to obtain the
assistance of Paris and London in issuing the bonds. _ Fourthly, looking furthet into
the future, they perhaps think that British co-operation would facilitate the use ot
the line for Indian mails and passengers. . ,
With these advantages in view they agree to cede to British capital a pre
ponderating interest in the Persian Gulf The historical term used to describe the body of water between the Arabian Peninsula and Iran. section, provided that arrangements are made
for them to retain the 2,000Z. a kilometre on which they count. On the other hand,
they are unwilling to contemplate any modification in the terms of the concession, even
if the modification were such as to leave their prospective profits untouched, since they
are of opinion that any negotiation of the kind would be very difficult to carry-
through in the present state of affairs, and might endanger the concession m geneial.
Cassel brought away from his conversations at Berlin the strong impression that
they would not listen to a proposal involving a general modification of the convention,
and that the only practicable course was to accept substantially the terms they
offered. . i • i • ij
The objection which Sir Fdward Grey sees to this proposal is that it would
involve accepting the kilometric guarantees, and that this would expose the Govern
ment to the charge of inconsistency, and to damaging criticisms in the press and in
Parliament.
As regards the system of the guarantees under the Bagdad convention, the
criticisms which have been made apply specially to the working guarantee. This might
with great advantage be modified, and it is worth considering whether we might not
dispense with the working guarantee altogether, if the division of the traffic receipts
were arranged on a rational basis. I do not at present put this forward as more than a
suggestion for consideration. Mr. Money’s investigations will give us the materials for
judging whether it is practicable.
As regards the construction guarantee, the system is not open to the same
criticisms. It merely amounts to a guarantee of interest and sinking fund on the
estimated cost of construction, given in the form of bonds. The criticism is that the
amount allowed for construction is exaggerated. This may be true, if the easy sections
are considered separately and if the 8,5001. remains intact; but if the 2,0001. per
kilometre is deducted from the 8,500L, the remainder (6,500L) will probably not leave
an excessive margin. Here, again, Mr. Money’s reports will give us a more accurate
basis; but taking into consideration the gauge and the substantial nature of the line,
the provision of rolling stock, the cost of terminal arrangements at Bagdad, Bussorah,
and Koweit, and of one or more bridges over the Euphrates, and, finally, the payment
of interest during construction, the cost cannot be low. Dr. von Gwinner has given
the actual construction cost of the Konia-Eregli section (a very easy one, with no big
bridges) as 5,000Z. per kilometre, without interest, during construction.
In any case, it cannot be expected that British capital will take the matter up
without a reasonable prospect of profit, and, if it is a condition of obtaining control ot
the Bagdad-Gulf section, that 2,000Z. per kilometre should be assigned to the Germans,
there is not much room for reduction in the amount of the guarantee. It has been
suggested that the British Government might give a guarantee, but the Turks would
have the strongest objection to this, and would far rather pay the guarantee themselves.
If, therefore, the Government regard it as an object of great importance to obtain