E.—No. 2

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FURTHER PAPERS RELATIVE TO THE

municated with Mr. Reynolds, who last Session moved an amendment, which was adopted, re-affirming the decision that the boats should proceed along the coast to and from Port Chalmers. I asked each of those gentlemen whether, in his opinion—supposing it to prove impossible to make an arrangement with the Australian Colonies by which the decision of the Assembly would be completely carried into effect—it would be a satisfactory compromise to arrange that the boats should, one way, proceed direct between Port Chalmers, Auckland, and San Francisco, and the other way direct between San Francisco, Auckland, and Australia. The reply in each case was to the effect, that the plan affirmed by the Assembly would be more satisfactory; but that if it was found impossible to exactly carry out the wish of the Assembly, it would be desirable to entertain such a compromise as I had sketched. It was evident that, so far as Victoria was concerned, the refusal to consider a proposal exactly conforming to the decision of the Assembly, was intended to be absolute. I conferred with Mr. Webb as to his willingness to arrange for a service such as I have indicated. That gentleman consented to vary his contract as proposed, but seeing that it necessitated the employment of a fourth boat, he required the united subsidy from Victoria and New Zealand to be £60,000, and that he should have a share of any subsidies obtained from other colonies. After coming to this understanding, I proposed to Victoria, that the two Governments should jointly contract with Mr. Webb; that the boats from San Francisco should proceed through to Melbourne, transhipping at Auckland the mails for Port Chalmers and intermediate New Zealand ports, the boats from Port Chalmers proceeding through to San Francisco, transhipping at Auckland the mails from Melbourne; that each Colony should pay £30,000; and that the subsidies received from Great Britian should be divisible amongst the colonial contributaries, and that the subsidies received from other colonies should, after pi*ovision being made for branch services, be divisible in equal shares between Victoria, New Zealand, and the Contractors. The Hon. C. Gavan Huffy, the Pi-emier, informed me that his Cabinet would be willing to entertain negotiations on the basis stated; and, after some days, I was given to understand that an arrangement would be agreed to, provided I would consent that the boats from Melbourne should proceed through to San Francisco, and that New Zealand should have the direct boats from San Francisco. I replied that I believed the impression would be, whether rightly or wrongly, that there was an advantage in having the boats to proceed through, without transhipment, on the up-routc. It was alleged, in reply, that New Zealand would get the better share in the partnership, because of the number of ports at which the steamers would call; but I rejoined that though the steamers would call at more ports in New Zealand than in Victoria, the latter Colony would have a service involving by far the greater mileage—equal, in fact, to about 20,000 miles a year in excess of the service to New Zealand; and that if the boats were, under the partnership, to remain a certain time in New Zealand waters, it mattered little or nothing to Victoria whether that time was passed at one port or in visiting several ports. Finally, I offered, instead of the Colonies contributing equally towards the subsidy of £60,000, that I would, on behalf of New Zealand, pay £5,000 for choice of routes, or receive that sum if Victoria had the choice. After consideration, Mr. Duffy informed me that his Cabinet preferred paying the extra amount in order that the boats from Melbourne should proceed direct to San Francisco ; and that £5,000 as the extra payment would be agreed to, provided that, in respect to £2,500 of that sum, it was made a first charge upon the portion of the contributions from other Colonies, divisible between Victoria and New Zealand. I acceded to those terms; and I hope that the Government will be satisfied with my having done so. I considered that, after all, the preference I felt in favour of the through boat on the upvoyage might be exaggerated, especially as Mr. Webb gave me the assurance that room for New Zealand passengers and freight would be reserved in each boat leaving Melbourne for San Francisco, and that in fixing rates and fares from New Zealand ports, he would not make any extra charge consequent upon transhipment, seeing that, whichever way the two Governments agreed to arrange the service, there would have to be transhipment at Auckland. Further, I was not left in doubt as to the fact that, if an agreement was to be come to, it must be on the condition of Victoria having the choice of the routes ; and I felt that the difference in payment to some extent represented the value of the preference. Ido not say that it fully represented the extra advantage secured by Victoria. All things considered, I would prefer New Zealand paying £32,500 to Victoria's £27,500, in order to secure the through boat on the up-voyage; but I was naturally anxious not to leave without concluding an arrangement. The contract which the Legislature will be asked to ratify will secure —(1) A through service between the Colony and England; (2) An Inter-Provincial service, except to three or four ports on the West Coast of the Colony ; (3) An Inter-Colonial service between Auckland and Melbourne. The cost will be £27,500 a year, reducible by one-third of the yearly surplus from contributions made by other Colonies, after providing for such Colonies the necessary connecting services, and meeting the already-stated first charge of £2,500. When I compared the small payment necessary to secure such results with the payments which New Zealand has made in past years- —for the Panama Line, and for Inter-Colonial and Inter-Provincial services—l could not but conclude that Parliament would be well satisfied with the arrangement made. If the route of the vessels, so far as New Zealand is concerned, does not exactly conform to the

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