Friday, August 10, 2007

The Manila Railway Company

Far Eastern Review, September, 1906
pp. 120 – 124

The Manila Railway Company, operating the only steam railway in the Philippines, between Manila and Dagupan, was organized in London in 1888. The concession for this road was secured from the Spanish Government for a term of 99 years dating from April, 1887, and during that period the Government guaranteed the interest, payable from the Philippine Treasury, of 8 per cent, on a capital of $4,964,000, which was subsequently increased to $5,373,700 from the extra cost of works authorized by the Government. The working expenses for the purpose of calculating the guarantee, was based on 50 per cent of the gross earnings. At the expiration of this concession the road was to revert to the State without compensation, and there was no option for the purchase by the Government at any time during the life of the franchise.

The Spanish Government regularly paid the guarantee, every three months up to 1897, but, on the change of sovereignty, the payments were stopped. The company, acting under the best legal advice, took the natural stand that, under international law, the United States assumed the obligations of Spain on the transfer of authority, while the American officials have contested the point.

This is in addition to the claims of the Company for damages to their lines through insurrection, and for revenues while under control of the military amounting to $1,500,000 gold, has been a matter of diplomatic negotiation ever since, and was only settled on the signing of the recent contract for the new lines.

In 1903, the Company secured concessions from the Philippine Commission for the construction of three extensions to the main line aggregating 87 miles, one to Camp Stotsenburg, one to Cabanatuan and the other to Antipolo. The Company as formerly organized had and authorized capital of $1,000,000 gold ordinary and $1,500,000 preference shares, with borrowing powers of $7,575,000. The headquarters are at 43 New Broad St., London, with the following Board of Directors:

C.J. C. Scott, (Chairman), A. von Andre, Admiral Sir C. A. G. Bridge, R. H. Bensen, R. Fleming and J. G. Le Marchant, Secretary, J. Mackenzie.

Two years ago, a controlling interest in the company was secured by Messrs. Speyers and Co., the well-known bankers of New York and London, and through this firm the negotiations with the government were carried out for the construction of the new roads.

The Hon. Cameron Forbes, in an article on the Railroads of the Islands, recently published in the anniversary number of the Daily Bulletin, has the following to say about the negotiations leading up to the new concessions:-
On June 20, 1905, Secretary Taft advertised proposals in Washington asking for bids for the construction of railways, and they were similarly advertised in Manila. The terms, which had been very carefully drawn under good advice, called for very good construction, early completion, and, in general, would have provided the Islands with an admirable system at an early date. There were eleven routes advertised, amounting in all to an aggregate of about 1,200 miles. The probable cost of construction of this number of miles was the extreme limit upon which the Government was authorized to guarantee bonds, as the bill provided that the amount of interest guaranteed could not exceed $1,200,000 a year. At the time these proposals were issued the Government had reason to believe that there would be at least three bids for the whole system.

On December 20, 1905, the bids were opened in Washington in the presence of the Secretary of War and Governor-General Wright. They were three in number, one for the whole island of Luzon, one for three of the Visayan islands, Panay, Negros, and Cebu, and one from a Seattle syndicate for the lines in southern Luzon in the provinces of Albay and Ambos Camarines.

These bids were none of them in accordance with the terms of the proposals, differing in the following respects:

The Speyer syndicate did not ask for a guaranty but made many requests for privileges which were of such a nature that the Government could not possibly be justified in acceding to them as they would have laid it open to the charge of having given away the rights of the people. These included permanent low taxation, permanent high rates without right to regulate, and permanent immunity from competition.

The Seattle syndicate did not deposit any check as guaranty, complying otherwise in every respect with the terms of the proposal.

The second call for bids was issued, to be opened on January 20, 1906. In the second call the following changes were made:

In the first place in regard to bids upon which guaranty was asked the amount of contractor's profit was increased as requested by the Visayan syndicate and the period of time during which surveys and construction could be made lengthened. Other changes of a minor nature were also made.

In regard to unguaranteed lines propositions were requested, no restrictions being placed except that they must comply with the terms of the law.

The Speyers this time offered two propositions, one of them for unguaranteed lines almost entirely as before, but eliminating some of the more objectionable features of their original proposition, and bidding in addition on a guaranteed line from Dagupan to Laoag, making in all some 400 miles of unguaranteed line, much of it short branches from the existing lines, and 160 miles of guaranteed line. Although modified so as to comply with the terms of the law yet the proposition of the Speyers still contained so may features that seemed objectionable that the award was withheld and negotiations entered into with them in the effort to have them so modify their demands as to make a proposition which the Government could be entirely justified in accepting.

After many months of negotiation this has at last been accomplished, Messrs. Speyers & Co. having reached an agreement with the Secretary of War, of the progress of which the Commission were kept cognizant and of which they entirely approve. In the course of these negotiations the plan to construct a guaranteed line from Dagupan to Laoag was abandoned and the result is that all the lines in Luzon are upon one plan, namely, that of unguaranteed construction. On May 25, 1906, the following resolution was passed, formally awarding the concession to the Speyer syndicate and agreeing to pass an Act the terms of which has been agreed upon, word by word, by the parties interested, namely, The Philippine Government, the War Department, and the bankers:

“WHEREAS, the Secretary of War and Vice-Governor Smith have reached an agreement with Messrs Speyer and Company upon the terms of a concession for the construction of 428 miles, more or less, of railroad in the Island of Luzon, the construction and equipment of which they will agree to undertake; and

“WHEREAS, said agreement contained also a provision by which all the railroad lines of the Manila Railway Company, Limited, whether built under the old Spanish grant or under concessions of the Philippine Commission will be transferred to a new company organized under the laws of one of the States of the United States and will be merged with the new system; and

“WHEREAS, said agreement further provides that all claims of the existing railroad against the Insular, provincial, or municipal government of the Philippine Islands and the United States Government will be waived, and the original Spanish grant and concessions by the Philippine Commission for existing railroads will be terminated and merged in the new concession; and

“WHEREAS, it appears to the Commission that it is in the public interest that railroads be constructed in Luzon at the earliest possible date, and that the lines bid for are, on the whole, satisfactory and the terms proposed are such that the public interest will be properly protected if the same be accepted and approved;

“NOW, THEREFORE, BE IT RESOLVED, That the Commission hereby agrees to award to Messrs. Speyer and Company, of New York, a concession, the terms of which are to be the terms contained in the draft of the proposed Act copy of which is hereto attached, which provides for the construction and equipment of 428 miles, more or less, of railway in the Island of Luzon along the routes indicated in the attached draft and upon the terms therein set forth; and

“BE IT RESOLVED FURTHER, That in order that no time may be lost by the said company in making their arrangements to begin their surveys and other plans for early construction the Secretary of War is hereby authorized to give formal notice of such agreement to award; and

“BE IT RESOLVED FURTHER, That the Secretary of War be notified that, upon receipt of the name of the proposed railway company for which the concession is requested, the Commission will pas an Act in accordance with the terms of the accompanying draft, copy of which he now has in Washington.”

The salient points in the Speyer's concession are as follows:

1.They agree to build 428 miles, more or less of railroad throughout the Island of Luzon, including roughly 100 miles in Albay and Ambos Camarines, the line from Manila to Batangas and Lucena with branches, and several branches from the existing line of the Manila and Dagupan Railway, branching to the east and to the west, but principally to the east and including a line from Dagupan to San Fernando de la Union and a branch to the foot of the mountains within a few miles to Baguio.
2.No guaranty is asked on any of this construction.
3.While the rates are to be based on those now enjoyed by the Manila and Dagupan Railway the Government has the power to regulate them at any time.
4.The existing Manila and Dagupan Railway and all its branches give up their franchises, withdraw any claims which they may have against the municipal, provincial, or insular governments or the Government of the United States, and come in under the new charter on exactly the same basis at which the new lines go in.
5.The concession is a perpetual one.
6.There is nothing said in regard to competing lines, the Government being free to grant franchises for such lines at any time.
7.Taxation is one-half of one per cent of the gross earnings for thirty years; 1 ½ per cent for the ensuing fifty years, and thereafter to be fixed by the Government.
8.The company is give twelve months to complete its surveys and thereafter two years in which to complete the first 150 miles and agree to complete 75 miles each year thereafter. This does not compel particularly rapid action.
9.Right of entry of the material for the construction free of duty.
10.Privileges of using right of way 100 feet wide of the public domain, excepting always such part as is laid aside for public uses like parks, streets, etc., and such improved lands as the so-called Friars' Lands, etc., for which payment must be made.
11.Gauge to be three fee six inches and the quality of construction material to be up to first-rate modern standards with due regard to local conditions.
It will be seen that the public are to be amply protected by the above concession. Although the concession is a perpetual one the power of the Government to regulate rates and to grant franchises for competing lines assures the people of the Philippine Islands that industry cannot be choked either by exorbitant rates or by one railroad occupying the fields and preventing any others from coming in. Others can be built whenever it seems advisable to so arrange.

In this enterprise the syndicate has a great advantage in the experience gained by the officers now in in charge of the Manila Railway Company, Limited. Mr. Higgins is manager of this company and deserves a great deal of credit for the condition to which he has brought the property. In spite of light rails, the inexperience of native labor in railroad matters, the recent destruction during the insurrection, and the resultant depression in industrial conditions throughout the Islands he has succeeded in bringing his road-bed up to a very creditable condition and so maintains it. While the railroad is run on what seems to those used to American methods as a slow and cautious plan yet it is to be said to his credit that using wholly native engineers and conductors collissions are almost unknown, and the railroad is run as a profitable enterprise, continually building itself up which is the best criterion of good management. Mr. Higgins' wide experience, thorough training, and known ability are such as to be a guaranty that the work of construction about to be begun will be well and economically done.

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