The First Philippine Railways

From: The Philippine Islands. A political, geographical, ethnographical, social and commercial history of the Philippine Archipelago and its political dependencies, embracing the whole period of Spanish
rule. By John Foreman, F.R.G.S. New York,: C. Scribner's sons, 1899. pp 265-267.

Philippine railways were first officially projected in 1875, when a Royal Decree of that year, dated August 6, determined the legislative basis for works of that nature. The Inspector of Public Works was instructed to form a general plan of a railway system in Luzon Island. The projected system include (1) a line running north from Manila through the Provinces of Bulacan, Pampanga, and Pangasinan. (2) A line running south from Manila, along the Laguna de Bay shore and eastwards through Tayabas, Camarines, and Albay Provinces. (3) A branch from this line on the Laguna de Bay shore to run almost due south to Batangas. The lines to be constructed were classed under two heads, viz. : (1) Those of general public utility to be laid down either by the State or by subsidized companies, the concession in this case being given by the Home Government: and (2) those of private interest, for the construction of which concessions could be granted by the Gov. General.

In 1885 the Government solicited tenders for the laying of the first line of railway from Manila to Dagupan – a port on the Gulf of Lingayen, and the only practicable outlet for produce from the Province of Pangasinan and Tarlac District. The distance by sea is 216 miles – the railway line 196 kilometers (say 120 miles). The subsidy offered by the Government amounted to about P.7,640 per mile, but on three occasions no tender was forthcoming either from Madrid or in Manila, where it was simultaneously solicited. Subsequently a modified offer was made of a guaranteed annual interest of 8 per cent on a maximum outlay of P.4,964,473.65, and the news was received in Manila in October, 1886, that the contract had been taken up by a London firm was issued in February, 1888. The line was to be completed within four years from July 21, 1887, and at the end of ninety-nine years the railway and rolling stock were to revert to the Spanish Government without compensation. The rails, locomotives (36 tons and 12 tons each), tenders, coaches, wagons, and ironworks for bridges all came from England. The first stone of the Central Station in Manila (Bilibid Road, Tondo) was laid by Governor General Emilio Terrero on July 31, 1887. In 1890 the original contractors failed, and only the first section of 28 miles was opened to traffic on March 24, 1891.

Many other circumstances, however, contributed to delay the opening of the whole line. Compensation claims were very slowly agreed to; the Government engineers slightly altered the plans; the company’s engineers could not find a hard strata in the bed of the Calumpit River1 (a branch of the Rio Grande de Pampanga) on which to build the piers for the bridge; and lastly the Spanish authorities, who had direct intervention in the work, found all sorts of excuses for postponing the opening of the line. When the Civil Director was applied to, he calmly replied that he was going to the baths, and would think about it.

Finally, on appeal to the highest authority, Governor General Despujols himself went up to Tarlac, and in an energetic speech, reflecting the dilatoriness of his subordinates, he declared the first Philippine railway open to traffic on November 24, 1892. For about a year and a half passengers and goods were ferried across the Calumpit(1) river in pontoons. Large caissons had to be sunk in the river in which to build the piers for the iron bridge, which cost an enormous sum of money in excess of the estimate. Later on heavy rains caused a partial inundation of the line, the embankment of which yielded to the accumulated mass of water, and traffic to Dagupan was temporarily suspended. The total outlay on the line far exceeded the company’s original calculation, and to avert a financial collapse fresh capital had to be raised by the issue of 6 per cent Prior Lien Mortgage Bonds, ranking before the debenture stock. The following official quotations on the London Stock Exchange will show the public appreciation of the Manila Railway Company’s shares and bonds: -

Up to July 1, 1905, the interest has been regularly paid on the Prior Lien Bonds. No interest has been paid on the debentures (up to December, 1905) since July 1, 1891, nor the 7 per cent Cumulative Preference Shares since July 1, 1890. On January 6, 1895, these shares were officially quoted, for sellers, 0.

Including the termini in Manila (Tondo) and Dagupan, there are 29 stations and 16 bridges along the main line, over which the journey occupies eight hours. There are two branch lines, viz.: from Bigaa to Cabanatuan (Nueva Ecija), and from Angeles (Pampanga) to Camp Stotsenberg. From the Manila terminus there is a short line (about a mile) running down to the quay in Binondo for goods traffic only. The country through which this line passes is flat, and has large natural resources, the development of which – without a railway – had not been feasible owing to the ranges of mountains – chiefly the Cordillera of Zambales – which run parallel to the coast. The railway is ably managed, but when I traveled on it in 1904 much of the rolling-stock needed renewal.

In 1890, under Royal Order No. 508, dated June 11 of that year, a 99 years concession was granted to a British commercial firm in Manila to lay a 21-mile line of railway, without subsidy, from Manila to Antipolo, to be called the “Centre of Luzon Railway.” The work was to be commenced within one year and finished within two years. The basis of the anticipated traffic was the conveyance of pilgrims to the Shrine of Our Lady of Good Voyage and Peace; but, moreover, the proposed line connected the parishes of Dilao (then 4,380 pop.) Santa Ana (then 2115 pop.), Mariquina (then 10,000 pop.), Cainta (then 2,300 pop.), and Taytay (then 6,500 pop.) – branching to Pasig and Angono – with Antipolo (then 3,800; now 2,800 pop.). The estimated outlay was about P.1,000,000, but the concession was abandoned. The project has seen been revived under the American auspices.

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(1)The extra delay was quite a year, and the cause having become common talk among the natives in the neighborhood, many of them suggested that an evil spirit prevented the foundations of the bridge being built. They proposed to propitiate him by throwing live children into the river; consequently many mothers migrated with their infants until they heard that the difficulty was overcome.

Reconstruction of the Manila Railway Company Limited

From The Far Eastern Review January 1907

The directors of the Manila Railway Company have announced from their London office that negotiations for the reconstruction of the company necessary to carry out the terms of settlement with the United States Government, set forth in the circular of August 3rd last, sent to the shareholders, are concluded, and are contained in a plan of reconstruction issued to the shareholders with the report for the year ended December 31st, 1905. The plan has received the careful attention of the directors, and has been adopted by the shareholders.

Claim Against United States

The directors recall that after the Spanish-American War the company presented a claim for the amount due under the guarantee given with the Spanish concession; but
liability was denied by the Washington Government. After the return of the railway to the company there were presented to the United States Government claims for use and for damages. In June, 1905, the Philippine Government invited tenders from United States or Philippine Corporations or citizens for the construction of various lines on the Island of Luzon, as well as on other Philippine islands. Two members of the Board of Directors proceeded at once to Washington to take up again with the British Ambassador the negotiations for damages. After much consultation Messrs. Speyer & Co., of New York, with a view to cooperating with the company, and at the same time, as far as possible, to protect the shareholders' interests, presented a bid for the construction of various lines on the Island of Luzon, which were considered to be profitable commercial enterprises if worked in connection with the railroads owned by the company. None of the bids presented were accepted; but, as the result of subsequent negotiations, an award was made to Messrs. Speyer & Co. of a concession for these lines, which have now been assigned to a New Jersey Company organized by them, known as the Manila Railroad Company. The concession which has been granted to the American company is a perpetual concession, qualified only by the not unusual condition that it is subject to amendment, alteration or repeal by the Congress of the United States. It authorizes and requires the construction of 450 miles of railroad in the Island of Luzon, which are reported by Mr. Horace L. Higgins, general manager of the Manila Railway Company, Ltd., to be likely to be remunerative, and provides that the favorable rates of taxation prescribed in respect to the new lines shall apply to the existing lines when owned or operated by the American company, and that the concession or franchise shall appertain to the English company's lines when it shall have fully discharged all claims against the United States and the Philippine Government. Mr. Higgins, who has been closely associated with the Manila Railway since its formation, has agreed to take the office of President and General Manager of the American company.

A Satisfactory Position

In the opinion of the directors the position thus brought about is thoroughly satisfactory. They have, therefore, with the assistance of Messrs. Speyer & Co., in New York, and Messrs. Speyer Brothers, in London, very carefully considered how to effect the transfer of the property to the American company and the construction of the new lines, at the same time ensuring that practically the entire net revenue of both the present system and the new lines shall be retained. A new English company will be formed called the Manila Railway Company (1906), Limited, referred to herein as "the new company," which will act as a holding or securities company. As part of the plan, the following agreements will be made:-

(1)An agreement with the American company under which the English company will sell its undertakings in consideration of an agreed amount of the American company's securities;
(2) an agreement with the new company under which the old company will nominate the new company to receive such securities in consideration of the new company's issuing to the old company an agreed amount thereof;
(3) an agreement between the new company and American company for purchase by the new company of bonds and shares of the American company to be issued to obtain money for construction of new lines and other corporate purposes. Under the provisions of the Act of Congress applying to corporations doing business in the Philippine Islands, bonds and shares of the American company cannot be issued except in exchange for actual cash or for property at a fair valuation equal to the par value of the bonds or shares so issued.

The effect of the arrangement will be that there will be vested in the new company, as a holding company, practically all the bonds and shares issued by the American company. These will be vested by the new company in trustees, and against them will be issued the shares and securities of the new company, the prescribed portion of which will be offered to the shareholders in exchange for their existing holdings. The securities of the new company will thus have a charge on the entire net revenue, not only of the 208 miles of the present system, but of the further 420 miles to be built under the new concessions.

New Company

The Manila Railway Company (1906), Limited, will have an authorized capital of £4,000,000, divided into £200,000 5 per cent non-cumulative preference shares of £10 each and 200,000 ordinary shares of L10 each. There will be a present issue in 4 per cent "A" debenture bonds of £1,600,000 and in 4 per cent "B" debenture bonds of £1,730,000. Power will be reserved in the trust deed that further amounts of each class of debenture bonds may be created and issued for the acquisition of securities issued by the American company for the construction or acquisition of new mileage or other capital purposes, provided that the total amount of bonds to be issued for the construction or acquisition of new mileage shall not exceed the rate of £5,000 of each class per mile, and that for other capital purposes the amount to be issued shall not exceed £50,000 per annum of each class. It is proposed to deal with the securities and shares of the new company as follows: —Four per cent "A" debenture bonds: In exchange for the securities of the present company, £1,257,200; issued to provide funds for the requirements of the plan, £342,800; reserved for future construction and equipment, £1,400,000; total £3,000,000. Four per cent "B" debenture bonds: In partial exchange for the securities of the present company, £730,000; issued to provide funds for the requirements of the plan, £1,000,000; reserved for future construction and equipment £1,270,000; total, £3,000,000. Preference shares: In exchange for the shares and securities of the present company, £1,180,000; issued to provide funds for the requirements of the plan, £820,000; total, £2,000,000. Ordinary shares: In exchange for the shares of the present company, £399,270; reserve for new company, £1,600,730; total, £2,000,000. The interest charges on the £1,600,000 "A" debenture bonds and £730,000 "B" debenture bonds will amount to £93,200, thus reducing the annual interest charges by about £15,000. Mr. Higgins estimates that the net income of the present system of 208 miles, having regard to the increased traffic, which should be brought as each connecting branch of the new system is opened, will be £116,000 for 1906, and will by 1912 have increased to £153,000. It is estimated that the construction of the 420 miles of new railroad will cost approximately £3,100,000 for which the issue of the securities reserved for this should fully provide, and that construction should be completed in 1911. Mr. Higgins estimates that the yearly net earnings of the sections, beginning with 1907, should be as follows: £1,200, £29,300, £66,900, £112,200, £135,800, £155,000. The total estimated net revenue of the 628 miles when completed and in operation will be £308,100.

Terms of Exchange

The securities to be received in exchange for each principal sum of £100 existing securities are as follows: For 5 per cent first mortgage stock, £112 new 4 per cent "A" debenture bonds and i6s.8d. for accrued interest to December 31st, 1906; for 6 per cent prior lien bonds, Series "A," £120 new 4 per cent "A" debenture bonds and £3 accrued interest; for 6 per cent prior lien bonds Series "B" £115 new 4 per cent "A" debenture bonds and 3 accrued interest; for 6 per cent secured notes, £112 new 4 per cent "A" debenture bonds, with 3 os. 4d. accrued interest; for 6 per cent debentures £100 new 4 percent "B" debenture bonds, £100 new preference shares, and £6 cash; for 7 per cent cumulative preference shares,. £150 new preference shares; for ordinary shares, £300 new ordinary shares; for deferred shares, £300 new ordinary shares.

Annual Report

The report of the Manila Railway Company, ltd., for the year ended December 31st, 1905, states that the traffic receipts amounted to $1,694,820 and the expenses in Manila to $723,040 leaving $971,779, which, at 2s. exchange, is equal to £97,178. The profit on working the quay line amounted to £1,429, and the profit in exchange to £242, while the charges in London were £3,790, leaving as net revenue £95,059, out of which interest has been paid on first mortgage registered stock (£7,500) and on prior lien bonds, "A" and "B" (£35,100). The value of the Philippine currency has remained steady throughout the year at slightly over 2s. per dollar. The claims against the governments of the United States and of the Philippine Islands have been settled, subject to the consent of the shareholders and security holders, on the terms stated in the chairman's circular of August 3, 1906. The company's claims on the Spanish Government are being prosecuted, but the directors regret that they are still unable to report any recoveries. The construction of the extensions has made good progress. The receipts from extensions to December 31st, 1905, are £13,305. The amount paid for interest on secured notes during 1905 was £20,250, so that a debit balance of £6,944 is carried forward to 1906.

The Manila Railway Company

Far Eastern Review, September, 1906
pp. 120 – 124


The Manila Railway Company, operating the only steam railway in the Philippines, between Manila and Dagupan, was organized in London in 1888. The concession for this road was secured from the Spanish Government for a term of 99 years dating from April, 1887, and during that period the Government guaranteed the interest, payable from the Philippine Treasury, of 8 per cent, on a capital of $4,964,000, which was subsequently increased to $5,373,700 from the extra cost of works authorized by the Government. The working expenses for the purpose of calculating the guarantee, was based on 50 per cent of the gross earnings. At the expiration of this concession the road was to revert to the State without compensation, and there was no option for the purchase by the Government at any time during the life of the franchise.

The Spanish Government regularly paid the guarantee, every three months up to 1897, but, on the change of sovereignty, the payments were stopped. The company, acting under the best legal advice, took the natural stand that, under international law, the United States assumed the obligations of Spain on the transfer of authority, while the American officials have contested the point.

This is in addition to the claims of the Company for damages to their lines through insurrection, and for revenues while under control of the military amounting to $1,500,000 gold, has been a matter of diplomatic negotiation ever since, and was only settled on the signing of the recent contract for the new lines.

In 1903, the Company secured concessions from the Philippine Commission for the construction of three extensions to the main line aggregating 87 miles, one to Camp Stotsenburg, one to Cabanatuan and the other to Antipolo. The Company as formerly organized had and authorized capital of $1,000,000 gold ordinary and $1,500,000 preference shares, with borrowing powers of $7,575,000. The headquarters are at 43 New Broad St., London, with the following Board of Directors:

C.J. C. Scott, (Chairman), A. von Andre, Admiral Sir C. A. G. Bridge, R. H. Bensen, R. Fleming and J. G. Le Marchant, Secretary, J. Mackenzie.

Two years ago, a controlling interest in the company was secured by Messrs. Speyers and Co., the well-known bankers of New York and London, and through this firm the negotiations with the government were carried out for the construction of the new roads.

The Hon. Cameron Forbes, in an article on the Railroads of the Islands, recently published in the anniversary number of the Daily Bulletin, has the following to say about the negotiations leading up to the new concessions:-
On June 20, 1905, Secretary Taft advertised proposals in Washington asking for bids for the construction of railways, and they were similarly advertised in Manila. The terms, which had been very carefully drawn under good advice, called for very good construction, early completion, and, in general, would have provided the Islands with an admirable system at an early date. There were eleven routes advertised, amounting in all to an aggregate of about 1,200 miles. The probable cost of construction of this number of miles was the extreme limit upon which the Government was authorized to guarantee bonds, as the bill provided that the amount of interest guaranteed could not exceed $1,200,000 a year. At the time these proposals were issued the Government had reason to believe that there would be at least three bids for the whole system.

On December 20, 1905, the bids were opened in Washington in the presence of the Secretary of War and Governor-General Wright. They were three in number, one for the whole island of Luzon, one for three of the Visayan islands, Panay, Negros, and Cebu, and one from a Seattle syndicate for the lines in southern Luzon in the provinces of Albay and Ambos Camarines.

These bids were none of them in accordance with the terms of the proposals, differing in the following respects:

The Speyer syndicate did not ask for a guaranty but made many requests for privileges which were of such a nature that the Government could not possibly be justified in acceding to them as they would have laid it open to the charge of having given away the rights of the people. These included permanent low taxation, permanent high rates without right to regulate, and permanent immunity from competition.

The Seattle syndicate did not deposit any check as guaranty, complying otherwise in every respect with the terms of the proposal.

The second call for bids was issued, to be opened on January 20, 1906. In the second call the following changes were made:

In the first place in regard to bids upon which guaranty was asked the amount of contractor's profit was increased as requested by the Visayan syndicate and the period of time during which surveys and construction could be made lengthened. Other changes of a minor nature were also made.

In regard to unguaranteed lines propositions were requested, no restrictions being placed except that they must comply with the terms of the law.

The Speyers this time offered two propositions, one of them for unguaranteed lines almost entirely as before, but eliminating some of the more objectionable features of their original proposition, and bidding in addition on a guaranteed line from Dagupan to Laoag, making in all some 400 miles of unguaranteed line, much of it short branches from the existing lines, and 160 miles of guaranteed line. Although modified so as to comply with the terms of the law yet the proposition of the Speyers still contained so may features that seemed objectionable that the award was withheld and negotiations entered into with them in the effort to have them so modify their demands as to make a proposition which the Government could be entirely justified in accepting.

After many months of negotiation this has at last been accomplished, Messrs. Speyers & Co. having reached an agreement with the Secretary of War, of the progress of which the Commission were kept cognizant and of which they entirely approve. In the course of these negotiations the plan to construct a guaranteed line from Dagupan to Laoag was abandoned and the result is that all the lines in Luzon are upon one plan, namely, that of unguaranteed construction. On May 25, 1906, the following resolution was passed, formally awarding the concession to the Speyer syndicate and agreeing to pass an Act the terms of which has been agreed upon, word by word, by the parties interested, namely, The Philippine Government, the War Department, and the bankers:

“WHEREAS, the Secretary of War and Vice-Governor Smith have reached an agreement with Messrs Speyer and Company upon the terms of a concession for the construction of 428 miles, more or less, of railroad in the Island of Luzon, the construction and equipment of which they will agree to undertake; and

“WHEREAS, said agreement contained also a provision by which all the railroad lines of the Manila Railway Company, Limited, whether built under the old Spanish grant or under concessions of the Philippine Commission will be transferred to a new company organized under the laws of one of the States of the United States and will be merged with the new system; and

“WHEREAS, said agreement further provides that all claims of the existing railroad against the Insular, provincial, or municipal government of the Philippine Islands and the United States Government will be waived, and the original Spanish grant and concessions by the Philippine Commission for existing railroads will be terminated and merged in the new concession; and

“WHEREAS, it appears to the Commission that it is in the public interest that railroads be constructed in Luzon at the earliest possible date, and that the lines bid for are, on the whole, satisfactory and the terms proposed are such that the public interest will be properly protected if the same be accepted and approved;

“NOW, THEREFORE, BE IT RESOLVED, That the Commission hereby agrees to award to Messrs. Speyer and Company, of New York, a concession, the terms of which are to be the terms contained in the draft of the proposed Act copy of which is hereto attached, which provides for the construction and equipment of 428 miles, more or less, of railway in the Island of Luzon along the routes indicated in the attached draft and upon the terms therein set forth; and

“BE IT RESOLVED FURTHER, That in order that no time may be lost by the said company in making their arrangements to begin their surveys and other plans for early construction the Secretary of War is hereby authorized to give formal notice of such agreement to award; and

“BE IT RESOLVED FURTHER, That the Secretary of War be notified that, upon receipt of the name of the proposed railway company for which the concession is requested, the Commission will pas an Act in accordance with the terms of the accompanying draft, copy of which he now has in Washington.”

The salient points in the Speyer's concession are as follows:

1.They agree to build 428 miles, more or less of railroad throughout the Island of Luzon, including roughly 100 miles in Albay and Ambos Camarines, the line from Manila to Batangas and Lucena with branches, and several branches from the existing line of the Manila and Dagupan Railway, branching to the east and to the west, but principally to the east and including a line from Dagupan to San Fernando de la Union and a branch to the foot of the mountains within a few miles to Baguio.
2.No guaranty is asked on any of this construction.
3.While the rates are to be based on those now enjoyed by the Manila and Dagupan Railway the Government has the power to regulate them at any time.
4.The existing Manila and Dagupan Railway and all its branches give up their franchises, withdraw any claims which they may have against the municipal, provincial, or insular governments or the Government of the United States, and come in under the new charter on exactly the same basis at which the new lines go in.
5.The concession is a perpetual one.
6.There is nothing said in regard to competing lines, the Government being free to grant franchises for such lines at any time.
7.Taxation is one-half of one per cent of the gross earnings for thirty years; 1 ½ per cent for the ensuing fifty years, and thereafter to be fixed by the Government.
8.The company is give twelve months to complete its surveys and thereafter two years in which to complete the first 150 miles and agree to complete 75 miles each year thereafter. This does not compel particularly rapid action.
9.Right of entry of the material for the construction free of duty.
10.Privileges of using right of way 100 feet wide of the public domain, excepting always such part as is laid aside for public uses like parks, streets, etc., and such improved lands as the so-called Friars' Lands, etc., for which payment must be made.
11.Gauge to be three fee six inches and the quality of construction material to be up to first-rate modern standards with due regard to local conditions.
It will be seen that the public are to be amply protected by the above concession. Although the concession is a perpetual one the power of the Government to regulate rates and to grant franchises for competing lines assures the people of the Philippine Islands that industry cannot be choked either by exorbitant rates or by one railroad occupying the fields and preventing any others from coming in. Others can be built whenever it seems advisable to so arrange.

In this enterprise the syndicate has a great advantage in the experience gained by the officers now in in charge of the Manila Railway Company, Limited. Mr. Higgins is manager of this company and deserves a great deal of credit for the condition to which he has brought the property. In spite of light rails, the inexperience of native labor in railroad matters, the recent destruction during the insurrection, and the resultant depression in industrial conditions throughout the Islands he has succeeded in bringing his road-bed up to a very creditable condition and so maintains it. While the railroad is run on what seems to those used to American methods as a slow and cautious plan yet it is to be said to his credit that using wholly native engineers and conductors collissions are almost unknown, and the railroad is run as a profitable enterprise, continually building itself up which is the best criterion of good management. Mr. Higgins' wide experience, thorough training, and known ability are such as to be a guaranty that the work of construction about to be begun will be well and economically done.