The Chargé in Ecuador (Belt) to the Acting Secretary of State

No. 344

Sir: I have the honor to inform the Department that during the last ten days there has [have] been numerous conferences between the General Manager of the Guayaquil and Quito Railroad, Mr. J. C. Dobbie, and the Government officials here with regard to the general railroad situation.

The principal points involved consist of an order on the part of the Government for a cancellation of the 10 and 5% increases in the present passenger and freight tariffs previously agreed upon between the railroad and the Government as effective October 1, 1917, although in fact this increase became effective on October 20th. of that year.

From the information I have been able to secure during the short time I have been in charge, it would appear that at the end of July [Page 173] 1917, the Railway Company was faced with a deficit in its operations of 96,450.00 sucres, and to continue operations under these conditions meant practically complete bankruptcy to the railroad. The Company in August of that year submitted to the Government a proposal covering a general increase in its passenger and freight tariffs of 20 and 10 per cent, respectively, and after considerable discussion it was finally agreed upon to allow a general increase in the tariffs of 10 and 5 per cent. While this increase was supposed to become effective the 1st. of October 1917, it was 20 days later it went into effect. This delay was occasioned by the fact that the railroad had a coal ship discharging in Guayaquil during the month of September and as a result of the large delivery of coal which was necessary to be made each day, i.e., 60 tons, the railroad Company was unable to handle promptly the northbound freight from Guayaquil. The Company decided in order to give the Government and the shippers no cause for complaint to allow 20 days grace in which to clean up all freight which had accumulated due to the railroad’s inability to despatch same as a result of having to discharge several thousand tons of coal from the vessel in Guayaquil.

In this connection I am advised that the coal above mentioned cost 66.00 sucres per ton while pre-war prices averaged about 20.00 sucres per ton. The total monthly coal bill of the railroad amounted to approximately 120,000.00 sucres provided coal was used entirely. I understand the pre-war and the year 1915 monthly fuel expense amounted to 40,000.00 sucres.

The extra revenue derived from the allowed increase of 10 and 5 per cent on passenger and freight tariffs only amounts to some 15,000.00 sucres per month, and the Company states that even with this increase it would have been impossible for the railroad to continue operations when the fuel bill alone had increased about 80,000.00 sucres per month. In order to meet this serious situation the railroad Company had to find a substitute for coal and an effort was made to obtain a supply of local fuel oil with the view to converting the locomotives from coal to oil burners. It was impossible, however, to obtain a sufficient supply of oil so firewood was resorted to. The Company was able to secure a sufficient supply of firewood locally and for this reason it was able to reduce operating expenses which not only enabled the Company to operate without a loss but at a gain of a few thousand sucres of net earnings monthly.

In the month of July, 1918, the Minister of the Interior insisted on the cancellation of the tariffs previously agreed upon, not because operating conditions had greatly improved, but for the reason that Congress was to convene on August 10th, and no doubt the Administration was anxious to avoid political criticism in view of the previous permission for an increase in the tariffs.

[Page 174]

The General Manager of the Railroad in the early days of August submitted to the Government a complete statement of the financial affairs of the railroad as to that date, and also a statement of the difficulties with which the railroad was confronted as to securing railway equipment, coal, etc., due to the war and the difficulty to obtain export licenses for all supplies necessary to maintain the road in a state of efficiency. The Government accepted these explanations and allowed the tariffs to remain in effect and Congress failed to make mention of the 10 and 5 per cent increases in the tariffs.

In the latter part of December, 1918, the Government again renewed its request to have the tariff increases cancelled and at the same time complained of the failure of the railroad to improve its rolling stock; of delays to trains owing to the use of firewood instead of coal, and then desired of the railroad that it contribute its net earnings to the payment of one of the coupons on the bonded indebtedness.

The General Manager of the railroad has been in consultation with the Minister of the Interior and with other Government officials for the past ten days and the latest development in the entire matter appears to be the Government has agreed to appoint an impartial committee to make a thorough investigation of the railroad, its finances, present state of equipment, etc., and that this commission will render its decision which will be final and binding on both the Government and the railroad.

With regard to this commission I have reason to believe men satisfactory to the railroad will be appointed, men who are not connected with the Government, but I understand men of good standing in Ecuador.

. . . . . . .

I have endeavored to keep in close touch with this situation and the entire matter has been one as between the railroad and the Government with no intervention of the Legation, thus avoiding the raising of diplomatic questions which appear unnecessary at this time.

Newspaper clippings relating this subject are herewith enclosed,3 and a translation of same will be forwarded later.

The Department will be kept informed of the future developments along this line, and in this connection I beg to refer to my cable of January 11,—12 Noon.3

I have [etc.]

John W. Belt
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  2. Not printed.