Unfortunately the promoters of railway enterprises in Brazil, entered into with British capital, have looked more to the guaranteed interest offered by the Government upon the money to be expended than to legitimate sources of traffic, out of which a dividend might be earned. All the Brazilian Railways, with the exception of the little MauÁ, at Rio de Janeiro, and to which reference is made in my former book, have been created since 1853, the first in order and time being the Recife, or Pernambuco, about which there has been so much controversy between the Company and the Government. Before submitting any comments of my own, I will quote the following from the report lately issued by the Minister of Public Works, Senhor Dantas, upon this and the other lines. The document is official, and therefore worthy of reliance:—

The annexed gives the length, receipts, and expenses of the railways in 1867. The receipts and expenses of the S. Paulo Railway include only nine and a half months:—

These figures leave a balance of 2,706:737$610 over the cost of working.

D. PEDRO II. RAILWAY.

With the Macacos branch the length of this railway is 203 kilometres, 56.6 kilometres having been added during last year in its prolongations towards the station of Entre Rios. Failing to come to an agreement with the Companhia Mineira for the extension to Porto Novo da Cunha, an offer was made by the Companhia Uniao e Industria to construct a cart road to that point, the final offer of this Company being to make it gratuitously if certain favours were conceded to it. However, its offers were declined, as a cart road was judged incompatible with the requirements of the railway. Under these circumstances, as the state of the finances did not permit the contracting for the extension, orders were issued to give it a commencement by administration; and at the present time the works of the first miles are tolerably advanced.

A proposition to construct and work the fourth section has been received from capitalists and planters of the district it would serve, and it is now awaiting solution.

The competition between the railway and the Uniao e Industria road being prejudicial to both, the directory of this road has proposed bases for a compromise as under:—The Uniao e Industria road company to give up all its traffic between its station of Posse and Rio, receiving as compensation certain advantages, the principal one being the duration of its contract for twelve years, and the receipt of 120 rs. on every arroba transported on the railway between Entre Rios and Rio, which, it is estimated, would give the company 324:000$ annually, and transfer traffic of 2,700,000 arrobas, or 1,000:000$ annually, to the railway. In order to facilitate this transaction the company proposes to lease the railway for twelve years and pay a dividend of four per cent. to the Government. It also proposes to make any extension determined on, that to Porto Novo to be finished in five years, the Government to furnish the money, and the company to receive no compensation for its trouble except what would arise from the 120 reis the arroba upon the traffic over the line from Entre Rios and Rio. On the completion of the Porto Novo branch, the company would receive 2,000:000$ out of the profits over the four per cent. dividend as indemnity for any loss, rights or advantages secured to it by the contract of October 29, 1864, and it would then commence the construction of the railway through the valley of the Parahybano towards the Serra of Mantiqueira, using for this purpose four-fifths of the net revenue received from the railway, one-fifth remaining for the company, this continuing until the end of the twelve years, and the company binding itself to make, at its own cost, the branch from Juiz de Fora to the railway station of Uba. If, however, the Government judge it better to construct a system of macadamised cart roads, centering at Entre Rios, the company will then pay six per cent. on the railway, and will construct within four years, twenty leagues of road to Porto Novo da Cunha, and on to Barra do Pomba, and will, within six years, macadamise the Serraria road as far as Mar de Hespanha, the road from the Parahybuna station to Flores, and that from the Uba station to Juiz de Fora; making also, during the last six years of the contract, the road to Barbacena, following as much as possible the trace drawn for a railway, and prolonging it to S. Joao de El Rei. Besides, the company will settle 2,000 families of colonists along the road from Uba to Juiz de Fora, and on that between Juiz de Fora, Barbacena, and S. Joao de El Rei. The company also binds itself to keep in order all the cart roads in construction, transporting freight and passengers on them at the rates provided for the Uniao e Industria road; and, in addition, to deliver up to the Government, at the end of the twelve years, the railway and roads in good condition.

Three proposals have been made for the prolonging of the railway to the waterside; that of the engineers, Senhors Bulhoes and Passos, proposes to bring the line to the Praia da GambÔa, and there construct large warehouses and furnish all facilities for shipping and landing goods; that of Senhor F. B. Jansen Lima and others proposes to pass by a tunnel through the Livramento Hill to the Praia da Saude; that of Senhor Feliciano JosÉ Henrique proposes to connect the Santa Anna station with the principal parts of the city wherein goods are now stored.

The capital employed in the railway having been 27,525:957$816 upon the 31st of December last, its net income of 1,422:434$402 during the last year represents a dividend of 5.16 per cent. upon its cost, which percentage should, when the Entre Rios traffic assumes a normal condition, rise to six per cent. in view of the greater number of stations now open, and if the Uniao e Industria freights pass over the line there can be no doubt that the percentage will exceed seven per cent. per annum.

The following table shows the progress of the railway since its commencement. The Macacos branch is excluded, it not existing in the first years:—

The stations opened during 1867 were:—Uba on May 5, Parahyba do Sul on August 11, Entre Rios on October 13.

BAHIA RAILWAY.

The shareholders of this railway continue to suffer the consequences produced by the excess of expenses over receipts. Last year's balance showed an increase of 12:867$764 in receipts, and of 24:383$445 in expenses, giving a deficit of 218:630$092, more by 11:515$681 than the preceding year's.

This result is no doubt disheartening, but meantime I await the report of the commission I authorised the President of the province to appoint, whose investigations must have revealed the latent causes of this state of things, in order to take such measures as may be recommended for the purpose of placing the enterprise on the footing reclaimed by its and the public treasury's interests.

The construction of the feeding roads judged necessary for the improvement of the traffic could not be carried on rapidly owing to the financial condition of the province.

The register of cattle established at Alagoinhas is estimated to give the railway a further traffic of 24,000 bullocks and to augment the receipts by 40:000$.

In my opinion, however, the only measure which can save the capital employed in the railway is its prolongation, but unfortunately those causes subsist which counselled me to postpone surveys for the prolonging of this and the other railways, with the exception of the Dom Pedro II. line, whose existing conditions are different.

The debt of the Province of Bahia to the National Treasury for advances on account of the Two per Cent Guarantee was estimated at 1,516:862$220 up to the first half of last year, and at present must be more than 2,000:000$.

PERNAMBUCO RAILWAY.

Notwithstanding the elements of prosperity which the company already counts on, and those which the future reserves for it, its financial position is not at present satisfactory, nor have its shares been able to obtain in London quotations worthy of the destinies awaiting it. To such result that false position has contributed, besides other things, in which the company has been placed by the various operations through which the company sought to obtain its capital. As you know, part of this capital enjoys the guarantee of interest, another part was obtained by a loan effected by the Imperial Government, and finally, a third fraction, furnished by the shareholders, runs the risk of not realising the least return for a long time. The question of the increase of guaranteed capital, in discussion between the Imperial Government and the company, must indubitably have aided in augmenting the embarrassments in which the company flounders. It would be very proper to put an end as soon as possible to every question delaying the prosperity of an enterprise whose capital has contributed largely to the development and riches of the Province of Pernambuco. It is needful to give a definite settlement to that question of the increase of the guaranteed capital of this railway which has been submitted to your deliberation. The directory in London is constantly reiterating its reclamations for a final decision. As we do not possess the needful means for undertakings of this kind, it is of much importance to us that foreign capital, which comes to try and to explore, may obtain advantages that may encourage other enterprises.

On the other hand, it is of very great interest to the State that companies which enjoy a guarantee of interest may prosper in such a mode as to dispense with the guarantee. The company having to meet the next payment of debenture bonds, whose time was ending, and neither having funds in hands for it nor the power of raising them in London, it recurred to the Imperial Government, asking for a loan of £40,000, but this the Government could not grant, as it was not duly authorised.

The question of the prolongation to the city of Recife has occupied my attention, especially since the engineer of the company presented the plans and estimates for the realisation of the project. According to them the direction of the line should run parallel to the streets of Santa Rita, Nova, and Praia, and the cost is estimated at £5,000.

Although the company comprehends the advantage it should obtain by this prolongation it is not disposed to undertake the works without a guarantee on the capital expended, or without some other pecuniary assistance. The advantages which this work will produce for the agriculture and commerce of the province, and the small sacrifice which its execution asks from the public coffers dispose me favourably towards it, and if, as I hope, the examinations I ordered into those plans and estimates do not change my opinion, I will at a proper time authorise a contract for this improvement.

In accordance with the dispositions of the law I authorised the Imperial Legation in London to lend the sum of £15,000 to the company, to be employed in increasing the rolling stock. The company proposing, however, to accept the loan without interest, and to amortise the principal with the excess of revenue over seven per cent., I declared the proposal inacceptable.

The revenue diminished by 47:917$011 from that of the preceding year, it coming to 599:331$445. The expenses on the contrary rose from 364:134$259 in 1866 to 414:772$537, an increase of 50:638$270 occurring therefore in 1867. This double result is partly explained by the diminution of the traffic in consequence of bad harvest in the localities profiting by the road, and partly by the need to promptly carry out the repairs of the road. Although it is desirable that this result had not occurred, it should not suscitate serious apprehensions for the future of the railway.

SANTOS AND JUNDIAHY RAILWAY.

This line was inaugurated on the 15th, and opened on the 16th of February, 1866: this road at once commenced to show an extensive traffic, which, augmenting day by day as the planters became convinced of its superiority over ordinary methods, prognosticates most brilliant destinies to it. However, notwithstanding its evident inferiority, the common road still maintains a serious competition with the railway and takes from it a part of the products which are sent to Santos from the interior, inasmuch as, out of 1,004,779 arrobas, at which amount the total traffic is estimated, 611,818 go by the railroad, and 392,961 by the highway. Despite this competition, and the difficulties with which every enterprise struggles at first, however well organised, the gross receipts of the Santos and Jundiahy railway, since its opening, up to the end of 1867, rose to 1,236:423$702, thus giving more than 4¾ per cent. upon the capital employed. It maybe presumed that, when the short life competition referred to is overcome, and when the line is extended to Campinas, taking into account the natural increase of production in a province so favourably placed, the revenue would soon double, thus freeing the treasury from the onus of the guarantee of interest. The Santos and Jundiahy Railway is, therefore, one of those amongst us which promise best; and perhaps it may be considered the first industrial undertaking of the kind, if the serra service, by means of inclines, does not exact a constant outlay which will diminish the revenue.

During the past year the trains of the road transported 176,081 passengers, namely:

The plan of Engineer P. Fox for the extension of the line to Campinas having received the preference over the other traces presented to the ministry in my charge, the President of the province undertook to promote a company of planters and capitalists to carry this important benefit into effect. The company having the right of preference to the extension of the railway, I instructed our Minister in London to obtain an explicit declaration from the directory renunciatory of its right, in order that there might be no future doubts or reclamations. The directors replied that the company expressly desisted from the right, and, therefore, the association could proceed with its measures for the realisation of its object. In the opinion of Engineer E. Viriato de Medeiros the amount of capital expended up to the 30th of July, 1866, amounted to £2,548,434, but for payment of interest due it was estimated hypothetically at £2,650,000.

The provincial assembly not having empowered the President to pay the interest of two per cent. upon the guaranteed capital, to which the province had bound itself, it was necessary for the national treasury to take upon itself the satisfaction of the provincial promise. It is therefore requisite that the provincial assembly provide in the estimate of this year for relieving the public treasury from the charge upon its already too burdened coffers.

It will be seen from these reports that all the guaranteed railways are exposed to difficulties arising out of the special character of the relations existing between the various companies and the Government, and that Senhor Sobragy, the talented manager of the Dom Pedro Segundo Railway, has been sent to England to try to come to terms with the companies. In my opinion, however, nothing short of the Government taking over the railways, giving in exchange a guaranteed stock, can ever meet the requirements of the case, or bring these concerns out of their present unfavourable position. It would be useless to recapitulate here the causes of their failure. Certainly no fault can be laid to the charge of the Government, which has acted in perfect good faith towards them, and done probably more than any other Government ever did or would do to assist undertakings of this or any other kind. Rashness, ignorance, and bad advisers have led to most of their difficulties, and with such proofs of the mismanagement of railway directors on our home lines no one will be surprised at the unsuccessful result of their management of lines abroad.

As an evidence that railways can be made and properly managed by Brazilians I need only refer to the Dom Pedro Segundo, a line quite as important as any in the country. In separate chapters I have referred to this railway, and also to that in the province of San Paulo.

I believe it would be greatly to the advantage of the rising generation in Brazil if the young men were trained to become engineers, rather than lawyers or doctors, with which the towns and cities swarm. Brazilians are neither deficient in talent nor energy, if properly brought out, and the employÉs of the Dom Pedro Segundo are chiefly natives. The splendid road to Juiz de Fora furnishes an example of this, and I regret time did not permit me to make another visit there, which Senhor Mariano very kindly urged on me. Had it not been for the heavy expenditure of the Paraguayan war, the railway system of Brazil would doubtless have been much more extensively developed, and the provincial lines now in existence carried further into the interior, as it is impossible the latter can ever be productive of much revenue, or of much national benefit until they are prolonged to the chief centres of cultivation, which, as a general rule, lie upwards of one hundred miles from the coast. The provinces of Pernambuco and Bahia both attach great importance to railway extension to the river San Francisco, but it does not appear from the report of Captain Burton, who lately explored that river, that it is likely to yield so much traffic as is supposed. The want of population is the great drawback to railways, and until this want can be met by emigration of some kind, a large amount of internal wealth must lie waste.

My long detention in the southern part of Brazil and the River Plate prevented me visiting Bahia and Pernambuco, and judging from personal observation as to the state and condition of the railways there, or reporting on the new tramway from Caxioera to the interior, which promises to be of great utility to the country traversed by it, as well as remunerative to the shareholders interested in its future.