Sir,—In reference to the interview I had with you and your directors on the subject of the purchase of the Waimea Plains railway, I have to express regret that it has not led to an agreement between your Company and the Government. The Minister of Public Works requested me, in the event of your directors wishing to do so, to verbally communicate with them with respect to your letter of 20th of February. It would be as well now, in order to complete the correspondence that a written reply should be made to it, and I have to say that the Government are unable to accept the proposal it contains.

There are several points referred to by you in the letter, upon some of which it is perhaps desirable that I should comment.

You raise the question as to what amount would be calculated to return to the shareholders the capital they invested. It does not seem to the Government that they are concerned in considering what effect the purchase would have upon the shareholders. That is a matter which rests between them and their directors. But if it were the business of the Government to see what effect their proposed purchase would have upon the shareholders, obviously that effect would have to be traced, not from the time, some years ago, when the shareholders originally invested their money, but from the time when the negotiations with the Government commenced. I am informed on excellent authority that before the negotiations commenced shares in the Railway Company could be purchased at a very considerable discount; in fact that no purchasers could be found for them, whilst since the negotiations have commenced with the Government the price has largely advanced. It is evident, therefore, that as far as the shareholders are concerned the proposals of the Government had a highly favourable effect upon their interests. The shareholders also have to bear in mind that the losses they may make will arise from the undertaking having been commenced without sufficient capital. For example, to the price the Government may give, you would have to add several thousands of pounds for redeeming the long currency debentures of the Company, held by the Insurance Association. I am informed, also, that enormous rates of interest were paid by the Company on some advances it obtained. Obviously the Government are not concerned in indemnifying shareholders for losses of this kind.

With respect to your statement as to the cost of the railway, as certified to by the Hon. the Minister for Public Works, I have to say that it has been discovered that a serious mistake has been made in the certificate of the cost of the railway, The certificate of the cost appears to have been based upon the cost estimated by the engineer, whilst it is in evidence that a large amount of the work included in the engineer's estimate has not been carried out. To the best of our belief some £16,000 or £18,000 worth of work has not been completed. So that the ratepayers are paying a guarantee upon an amount of capital which has not been expended on the works, or rather has not been expended in such a manner as to entitle it to be included in the guarantee, I page 13 am aware that the cost stands in the books of the Company at about the amount guaranteed, but in that coat is comprised interest and financing, which clearly should not be included. The intention of the Acts under which the railway was constituted was that the shareholders should find the money required, and not receive interest until the work was completed. I am now bound to say it appears to me you will have to finish the work not completed, and that meanwhile the Government and the rate-payers have a right to a material reduction in the amount on which they are asked to pay the guarantee. As far as the Government are concerned, they are entitled to the return of a considerable part of the sums paid you during the last two years, which I shall be glad to learn you are willing to restore.

In order to come to a clear conclusion as to the value of the railway, it would be desirable that a valuation should be made, and I have to ask you to allow the Minister for Public Works to send engineers upon the ground to make such valuation.