Sir,—I have the honour to inform you that the directors of this Company held a special meeting on the 2nd inst., and carefully considered your communication of the 14th ult. (No. 57,491), setting forth the conditions upon which the Government will be prepared to enter into an agreement with the Company for the lease and purchase of the Waimea Plains railway, in conformity with a resolution passed by the House of Representatives.

Before referring in detail to the proposals contained in your letter under reply, my directors desire me to bring under your notice a short statement of the Company's position, and the difficulties it has had to contend with, principally owing to defective legislation.

The Company consists of 75 shareholders, and the capital subscribed amounts to £59,350, of which the sum of £35,610 has been called up. The proprietors were induced to subscribe to the undertaking in the belief that a minimum dividend of 7 per cent, per annum wan secured to them by law, and that under the provisions of "The District Railways Act 1877" the Company would be in a position to raise money by the issue of debentures.

Relying upon the provisions of the Statute quoted, and in anticipation of floating debentures, the Company entered into contracts for the construction of the line and the importation of rolling stock, involving the payment of a large sum of money, To the Company's serious inconvenience and loss, however, it was found that owing to the defective provisions of the statute the debentures were unsaleable, and, pending remedial legislation, the Company was forced to obtain advances under a personal guarantee, and to submit to exorbitant charges for the accommodation; in addition to which the directors were forced to make calls upon the shareholders far in excess of the sum expected to be called up at the time they subscribed for shares.

The provisions of the statute relating to guaranteed interest were also found to be practically inoperative, and although the railway had been continuously open for traffic since the 1st August 1880, the Company found itself powerless to enforce payment of the guaranted interes until the enactment of "The District Railways Acts Amendment Act 1883," and then only for the period commencing the 1st of April 1882. Thus the Company was deprived of its right to nearly two years' interest on the certified cost (£108,713) of the railway and its equipment.

After serious loss and inconvenience, extending over several years, in consequence of defective legislation, the Company is at last in a position to enforce payment of the guaranteed interest, which will for the future admit of the payment of a steady dividend at the rate of 8½ per cent, per annum, thus:—

The traffic on the line is steadily increasing, and there is a reasonable prospect of the Company's net profits in the course of a few years being considerably in excess of the amount guaranteed.

In view of the foregoing facts and the Company's prospects, my directors think you will see that the shareholders will be disinclined to part with their property, except at a price that will at any rate yield them a fair and reasonable return for their outlay.

Recognising the fact that the rating powers possessed by the Company is a matter seriously affecting the settlers within the railway district, and that the line should form part of the Government system, my directors will be prepared to recommend the shareholders to enter into an agreement for the sale of the railway upon equitable terms and conditions. With reference to the conditions proposed by the Government I am directed to reply as follows:—

1.	The Board is willing to enter into an agreement which shall be subject to the ratification of Parliament.
2, 3, and 4.	As the Company's obligations will absorb the amount of the overdue rates, page 3 and the guaranteed interest for the year ending 3lst March next, my directors do not see their way to postpone proceedings for recovery of rates, unless the Government will agree to pay the amount as contemplated by the bill which passed the House of Representatives last session, and take what course it may think proper regarding collection of the rates.
5.	The Company has not materially altered its time table since the line was opened, and continues to meet the up and down express trains between Dunedin and Invercargill, Until some definite arrangement is made with the Government re leasing and purchasing the railway, my directors will deem it their duty to regulate the traffic in the interest of the shareholders, and to suit the convenience of the ratepayers.

With reference to the "memorandum of information required," I am directed to inform you that most of it has already been supplied to the Government, and to state that as regards further details, the preparation of which will involve some trouble and expense, they can be furnished if required, should the Government and the Company agree as to terms and conditions of sale.

Should you be of opinion that the terms and conditions can be more advantageously discussed at a personal interview than by correspondence, my directors will be glad to appoint one or more of their number to meet the Government with the view to an equitable agreement being arrived at,