File No. 819.77/91.
The American Minister to the Secretary of State .
Panama , November 28, 1911 .
Sir: I have the honor to acknowledge the receipt of your instructions Nos. 3 and 4, both of the 7th instant (File Nos. 819.77/81 and 819.77/80, 83 respectively), and both relating to the proposed Panama-David Railway. Your instruction No. 3 requests informaton as to what effect the vetoes by the President of Panama of the two bills passed at the recent special session of the Assembly have upon the bid made by Mr. R. W. Hebard. In reply I have the honor to state that Mr. Hebard’s original bid, as well as those of the other two American bidders and the French bidder, were all found unsatisfactory and rejected by President Arosemena prior to the calling of the special session of the Assembly for September 25 last.
Your instructions referred to also request a report up to date on the disposition that is proposed to be made by the Panaman Government of its funds invested in New York and upon the Panama-David Railway project as a whole.
Mr. Andrews’s despatches have informed the Department of the developments in this matter up to the time of my arrival here. The following information will, I trust, enable the Department to understand the further developments and the situation as I understand it at present.
I have had conversations upon the subject of the Panama-David Railway with President Arosemena, Señor Boyd, Minister for Foreign Affairs, Dr. C. C. Arosemena, Minister of Public Works, and Mr. E. W. Hebard.
In a conversation with Dr. C. C. Arosemena I requested him to give me the exact situation at present. Dr. Arosemena thereupon reviewed the history of this matter stating that all the bids presented having been considered unsatisfactory by the Government, the Government had called the special session of the Assembly in order to secure the alteration of the requirement imposed by section b. of paragraph 3 of Article 1 of Law 6 of 1909 (January 5), forbidding bonds for railway construction to be issued below their face value. This provision was considered to have prevented bidders from having made more satisfactory bids. The Assembly, however, as a purely political measure and to prevent the present Government from gaining any prestige through constructing this railway, had not only failed to alter the requirement in question but had passed two bills, one altering Article 138 of the Constitution and directing the Executive to build the railway with the six million dollars invested in New York, and the other directing the Executive to have another survey made before constructing the line. The object of both bills was merely dilatory and both had been vetoed by the President (despatches Nos. 185 and 190 of October 10 and 16, 1911). This had left the legal situation precisely as it had been before the special session.
In this connection and for greater clearness I enclose a copy of the following documents1 which, at my request, Dr. Arosemena gave [Page 1191] me, certain of which have already been forwarded to the Department:
- 1.
- Pamphlet entitled “Ferrocarril de Panama a David” (Railway from Panama to David), containing in convenient form the two laws governing the construction of the Panamá-David Railway (Laws 6 of 1909 and 2 of 1911); the procès-verbal of the opening of the bids; the text of the bids received from Mr. W. H. Knowlton, Mr. R. W. Hebard, the L. E. Myers Co., and Mr. Blaise Roy (French); the Report of the Consulting Commission of the Ministry of Public Works as to these bids; a memorandum of the Minister for Foreign Affairs as to the construction of this railway: the procès-verbal of the Session of the Cabinet rejecting all the bids and the procès-verbal of the Session of the Cabinet at which the Executive reported the failure of the further negotiations with the former bidders and the Cabinet decided to call a special session. Added to this pamphlet are the specifications issued with the call for bids (enclosure 1).
- 2.
- Pamphlet entitled “Panamá-David Railroad: Documents referring to public bids for the construction of a railroad, with branch lines from Panama to David, Republic of Panama,” containing the report of the preliminary survey of the railway from Empire to David made by the Panama Railroad Co.; a tentative draft of a contract for the construction of this railway and the specifications for the same (enclosure 2).
- 3.
- Pamphlet entitled “Informs que el Secretario de Fomento presenta al Señor Designado Encargado del Poder Ejecutivo “(Report presented by the Secretary of Public Works to the Designado in Chargé of the Executive Power regarding the bidding for the Construction of the Panama-David Railway). This contains a review of the situation after the refusal of all the bids and recommendations for the consideration of the Special Session of the Assembly, with a draft for a new law (enclosure 3).
- 4.
- Printed sheet giving the report of the committee of the Assembly upon the Panamá-David Railway project and the modifications suggested in the law proposed by the Minister for Public Works (enclosure 4).
- 5.
- Gaceta Official of October 14, 1911, giving the text of the two laws passed by the special session of the Assembly and vetoed by the President, a copy and translation of the first of which was enclosed in Mr. Andrews’s Despatch No. 185 of October 10, 1911 (enclosure 5).
Continuing, Dr. Arosemena said that under these circumstances, as the Executive was convinced that the people wished the railway to be built, the President had endeavored to make a contract for this purpose acting under the authority conferred by Article 5 of Law No. 2 of 1911 (of January 2, 1911). The Executive considered that it might be best to construct a section rather than the whole of this line at first in order to demonstrate its value. Accordingly, the Government had lately agreed upon a tentative draft for a contract with Mr. Hebard for the construction and operation of the section from Aguadulce to Santiago de Veraguas. At my request Dr. Arosemena furnished me with a copy of this draft,1 which is enclosed with a translation (enclosures 6 and 7). Mr. Hebard was to present this to his principals in the United States for their acceptance. Dr. Arosemena added that this draft had not been signed and was therefore entirely tentative and did not bind the Government even if accepted by Mr. Hebard’s syndicate. Certain details in it in fact had not been entirely settled; especially he desired to reduce the length of the concession (Article XIa) from seventy-five to fifty years. The sum upon which by Article XXI the Government guaranteed 5% interest, which was left in blank in the draft, was one million dollars gold and the period for this guaranty (also left in blank) was the existence of the concession. It is to be noted that the contract (contrary to the Dziuk proposition mentioned below) gives no land, except such as [Page 1192] is necessary for the railway, and also gives no option for constructing further sections. The Government expressly guarantees the interest on the one million dollars with the interest from the six million dollars invested in New York. A memorandum attached to the contract obliges the concessionary to allow connections with other railway lines and also allows the Government to use the railway, whenever it considers it necessary, for reasonable compensation.
Dr. Arosemena stated that an offer to construct the Panamá-David Railway had also been received from Mr. Dziuk, the concessionary of the Darien Railway. At my request Dr. Arosemena furnished me with a copy of this offer,1 which I enclose with a translation (enclosures 8 and 9). Dr. Arosemena stated that he considered this the best offer the Government had received but as it came from a German syndicate and as the Government was resolved only to deal with Americans, he had declined it and advised Mr. Dziuk to see whether he could not get Mr. Myers to interest himself in making through him a similar offer. From what he had subsequently heard, however, he did not think this likely. It is hard to see why Dr. Arosemena should prefer Mr. Dziuk’s proposition as it appears distinctly more onerous to Panama.
Dr. Arosemena assured me that the foregoing was the present situation and that no other negotiations were taking place.
I thereupon thanked Dr. Arosemena and stated that I supposed he was familiar with the Department’s instruction to the Legation (No. 89 of September 20, 1911) a copy of which had been given to Señor Boyd. Dr. Arosemena replied that he had heard of this instruction but had never seen it, as Dr. Arias, Panaman Minister to the United States, had had it for some time. While expressing my surprise and regret, I advised Dr. Arosemena that it seemed most important that he should read this document as soon as possible. Notwithstanding his statement I believe from what I have heard that Dr. Arosemena is already well acquainted with this instruction.
Subsequently, two days ago, I again met Dr. Arosemena by chance and he informed me that Mr. Dziuk had that afternoon shown him a telegram which he had received from New York from some gentlemen who seemed interested in this railway. He had not been able to see the signature to this telegram at all well, but it seemed to be a German name. Dr. Arosemena added that he had not made up his mind whether or not to deal with Mr. Dziuk, and in reply to my question said that to his regret he had not yet been able to read the Department’s instruction. I again pointedly advised him to do so immediately, stating that this instruction would give him better than I could full information regarding the position of the United States as to the construction of railways in Panama by foreign syndicates. Dr. Arosemena I have since learned sent to Dr. Arias soon after and secured the copy of the instruction.
While adding that I did not fail to express my gratification to President Arosemena for his important communications, which I promised to report to my Government,
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