COPY OF LETTER TO PREMIER OF QUEENSLAND
THE HON. G. F. R. NICKLIN, M. LA.
DATED 26TH OCTOBER, 1959.
Dear Mr. Nicklin, Mr. Holt having now returned and given us an account
of his very extensive enquiries into the possibilities of
overseas borrowing, I am now able to convey to you our considered
views as to the part the Commonwealth is prepared to play
in financing the rehabilitation of the railway from Collinsville
to Mt. Isa in North Queensland.
First, I should say that we have concluded that
there is no immediate prospect of raising finance overseas specifically
for the Mt. Isa Railway project. We do not by any means
rule out the possibility of obtaining some overseas money for the
purpose at a later stage, and that is a consideration we have had
to keep in mind in framing the proposal I am about to put to you.
It is clear, however, that no such pportunity is likely to occur
for some time ahead and that, even then, we could not rely upon
obtaining more than a part of the total sum required.
In the light of this conclusion we have turned
our minds to the problem of finding sufficient money from other
sources to enable the comprehensive railway project to go ahead
and be carried through to completion in a satisfactory manner,.
You told me in your letter of the 24th July last
that your Government had decided to proceed with the limited
project of re-building the line fro~ m Richmond to Duchess at the
standard envisaged by Ford Bacon and Davis in their report. The
advice you obtained from that firm was that the cost of that
work would be from œ E8 million to œ 10 million and you said that,
spread over five years, this would be within thle financial resources
of your State. On this, I said in my r, ply to you that, while
the more limited proposal was naturally quite unobjectionable
from our point of view, I could not help feeling that it was a
relatively temporary expedient, and that I would like to see the
whole line done, thus bringing about a development of great importance
to Queensland. That is a view to which I have held steadily,
My colleagues and I have always seen the compreilensive railway
ptrioesj ecotf adse vael moepamnesn t ofw hipcrho muontdionugb ttehde lyi mmeexnisset ainnd Novratrhieerdn poQsuseiebnisl--L*
land. This is indeed an aspect of the matter which may have had
too little emphasis. ' We all started thinking and talking about
the railway primarily in relation to mining at Mt. Isa and, of
course, it probably remains true that the prospective mining and
smelting expansion at Mt. Isa itself constitutes the chief immediate
need for the railway work, But, as we know from what you
and others have told us, and from our own investigations, the
whole of the North-Western region is rich in possibilities of
other developments, some of them perhaps being likely to materialise
in the not far distant future. I have therefore come to
think of the railway as being vital not only for the Mt. Isa expansion
itself, but for the whole future of Northern Queensland.
Hence, it is clear to us that the financial problem
to which we should look is that of meeting the cost of rebuilding
and re-equipping the whole Collinsville-Mt. Isa railway
at an adequate standard. That, at any rate, is the basis on.
which we have worked, and I know that you see eye to eye with us
in this. Coming now to details, I remember that the estimated
cost of the railway project as a whole, as originally conceived,
was of the order of œ C29 million to œ, 30 million. Those
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figures, I believe, allowed fairly substantially for increases
in construction costs that might occur during the time the railway
was being built, for interest on capital during the construc
-tion period, and for certain improvements of a general nature
which the Queensland Railway System would, sooner or later, have
had to face. Next, as I recalled a little earlier, you said
that your State would be able to find from its own resources
over a period of five years, from œ E8 million to œ 10O millionto
wards the cost of the railway. You thought that this might entail
some sacrifice of work elsewhere but you plainly rated the
importance of the railway improvements so highly that you were
prepared to face up to this.
It appears, then that your essential unsatisfied
requirements is for a sum of HO0 million over the period it may
take to carry out the railway rehabilitation work. My collagues
and I have now decided that the Commonwealth will offer
to underwrite the provision of this sum on the terms and in the
manner I shall now state.
We would provide the money initially by way of
advances from the Commonwealth to the State of Queensland as the
railway work proceeds and pro rata to expenditure on the project
by Queensland during that period from -its own resources.
The Commonwealth would charge interest on these
advances, as from the date at which each advance was made, during
the construction period but it would not expect repayment
of the principal to begin until the designated date for the completion
of the railway work. Thereafter, it would require equal
annual ~ instalments of interest and principal sufficient to pay
off the total amount advanced over twenty years from the designated
date of completion of the railway.
While not wishing to become involved in details of
the project, the Commonwealth would naturally desire to be satisfied
that it would be carried out at an adequate standard of
construction and equipment. We envisage in effect, that in
essentials, though not necessarily in all particulars, it would
follow the broad lines set out in the Ford Bacon and Davis reports.
On this basis there would have to be an initial estimate
of total cost to which your Government and ours would work in
providing finance pro rata as expenditure on the job required.
In determining the standards, your Government would naturally be
guided by the knowledge that the Commonwealth's contribution
would be œ-20 million. I may say that in making this offer we have had
very much in view that it was just such an arrangement we had
under discussion when last year, we were negotiating for a
loan from the International Bank. I believe I am quite right in
saying that you then regarded such an arrangement as both suitable
for the financing of the railway and as acceptable to your
Government. Hence it seemed to us that we could not do better
than to revive the arrangement which had so much thought at that
time, and on which both your Government and ours were agreed
both as to broad principles and as to the main details. If I
could put it so, we are now proposing to place ourselves in the
position we would have occupied had we been able to secure a
loan from the International Bank but with the substantial difforence
that we ourselves will now be assuming in addition the
obligations which earlier we had hoped would have fallen upon
that institution. The same consideration has guided us in determining
the matter of interest rates. While it is not easy to find a
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generally satisfactory criterion for this, we think it fair to
propose that the rates of interest the Commonwealth should charg3
on the advances made from time to time to Queensland should be
the same as those currently set by the International Bank for new
loans to member countries. You will readily appreciate that the
Commonwealth will still have ahead of it the job of raising money
for the advances it makes to Queensland, and we will certainly be
following up all possibilities of raising such money abroad.
This is for the very good reason of importance to the States
as well as to the Commonwealth that anything we can raise
abroad over and above what might be called normal loan raisings
will enable us to avoid any diminution of the amounts that would
otherwise be available to the Commonwealth and the States for
other developmental purposes. It is, of course, quite impossible
to foresee what any money raised abroad will cost but, as a
broad judgment, the rate currently charged by the International
Bank ought to provide a fair reflection and index of the cost of
international loans to Governments. Should it subsequently
prove that some part of our advances to you can be recouped from
special borrowings overseas on better than International Bank
terms, we should be propared to negotiate an adjustment on the
interest charges to give you the benefit of any advantage so
obtained. You will have observed that we wish to make no condition
about the terms of any freight agreement that may be made
butween the Queensland Railways and Mt. Isa Mines Ltd. for the
carriage of their goods on the railway. As I said to you in my
letter of 28th August the Commonwealth regards the ultimate responsibility
in this matter as belonging to the Government of
Queensland and we for our part are not divposed to insist upon
specific legal undertakings from the Company as a condition of
our helping to finance the work on your railway system. However,
I am sure you will have very much in mind the importance of securing
such terms and conditions for the carriage of goods upon
the railway as will guarantee that the large financial outlays
on the re-building of the line will produce an adequate return
of revenue. The main points in the Commonwealth offer are restated
in the Annexure, There will be numerous matters of detail
to clarify between your Government and ours. I am bound to
say, however, that in making the above proposal to you we feel
that we are fully recognising the great national interest involved
in the projected work and that the terms I have set forth
are, in all the circumstances, both fair and practicable.
Yours sincerely,
( Sgd) R. G. Menzies
PRIME MINISTER,,
ANNEXURE
SUMMARY TERMS OF THE COIAMONIEIATH OFFER
The State will as soon as practicable, determine the nature
and extent of' the works to be undertaken and the estimated
total cost thereof.
The State will provide the Commonwealth with a general de
scription of the works and an estimate of the phasing of
expenditure within each year of the construction period.
In the light of this information the State and the Commonwealth
will agree upon a designated date for completion of
the project.
( L4) The Commonwealth, provided it is satisfied that the works
to be undertaken conform generally with its present understanding
of the nature of the project, offers
to underwrite the provision of funds to the State aggregating
not more than œ-20 million for expenditure on
the project;
to make advances in each year of the construction period
equal to that proportion of actual expenditure in
that year on the project which œ 20_ million bears to
the initially estimated total cost of the project.
() The State will agree
to carry out the project as described to the Commonwealth;
to pay interest during the construction period on each
advance at the lending rate of interest ( and commission)
determined by the International Bank from time
to time for new loans of not less than twenty years
currency; to repay, in equal annual instalments over the twenty
years commencing from the designated date for completion
of the project, the amount necessary to amortize
the aggregate amount of the advances made up to that
date, including ( subject to paragraph 6( a) hereof) interest
on the outstanding balances at a rate which
shall be equal to the weighted average rate of interest
payable on advances made in each year of the construction
period.
The State and the Commonwealth agree
to negotiate a reduction in the rate of interest specified
in paragraph 5( c) if the Commonwealth is able to
borrow the whole or part of the advances overseas on
more favourable terms than the average rate specified
above; to negotiate the terms of any further advances if the
advances made before the designated completion date
fall short of œ-20 million and the project is still
uncompleted.