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and was of a power barely sufficient to convey a gross weight of ten tons over the Railway, the traffic taken by it however was sufficient to pay the actual working expenses. This little experimental Engine was not of the proper guage for working over this Railway, so that the wheels ran on the outer edges of the Longitudinal Bearers with a projection of 1½ inches over them, and consequently the wheels frequently ran with a bearing of not more than 1½ inches on the surface of the Longitudinal bearer. This of course, proved very destructive to these timbers which had previously been unduly tried by the high speed maintained over the incomplete road, and faulty arrangements in the Rolling Stock; and in the following July the Provincial Government, on Mr. Davies, proposal, and my recommendation, consented to the construction in Invercargill of a Locomotive Engine of the required guage, and of a character suitable for working over the incomplete Railway, the Boiler, Cylinders, and crank shaft of a portable Engine of about double the power of the Lady Barkly being converted for the purpose.

This Engine was completed in September, and commenced running regularly on 21st September, from which date she conveyed the traffic very satisfactorily until 23rd October, when on her return trip her crank shaft broke at an old flaw in the iron; the departure from the Province of the men who had been engaged at her construction has hitherto delayed the repairs from being effected, and in the meantime one of the heavy Engines supplied from Victoria is being used over the road, although in its incomplete state, and from the character of the Engine, its use is objectionable.

At the time of the final suspension of Works, the payments on Work amounted to £79,250 3s 1d.
and for Rolling Stock to £5,433 6s 8d.
£84,683 10s 3d.

The Retention Money at the time in the hands of the Government amounted to £2,692 0s 0d.

In November, 1865, a proposal was made by the Contractor for the settlement of all claims, which proposal was accepted by the Provincial Government, and under instructions received from His Honor the Superintendent, I certified the sum of £16,250 as due to Mr. Davies, in terms of letters of 15th and 20th November, 1865.

This sum may be debited as follows:—

Retention Money ... £2,692 0s 0d
Claim under Patent ... 1,000 0s 0d
Compensation ... 12,500 0s 0d
Claims on Works ... 58 0s 0d
£16,250 0s 0d

For the Invercargill Station, £5,287 12s 0d has been debited to this Railway.

PRESENT STATE OF THE RAILWAY, AND MOST ADVANTAGEOUS MEANS OF USING AND IMPROVING THE PERMANENT WAY SO AS TO ADMIT OF THE USE OF THE ROLLING STOCK OF THE BLUFF HARBOR AND INVERCARGILL RAILWAY OVER IT, AS ALSO OF ITS OWN ROLLING STOCK.

The preliminary character of the opening over the length in present use for traffic has been stated, and the Earthworks requiring completion over this portion of the Railway, when funds are procurable for the purpose, are the construction of the cuttings and embankments to the Sectional Levels of a portion where these levels are not at present maintained, extending from 6 miles to 6 miles and 47 chains, and the widening of the embankment on this length, also the completing and the trimming the slopes of the cuttings and embankments, the completion of Drainage Works, and the forming of the slopes of the spoil-banks; of the ballasting the greater portion remains to be executed, the sleepers having been temporarily packed over a considerable portion of this length with any material most readily obtainable from the excavations, in order to secure the power of opening on 18th October, and this material requires to be replaced by ballast. The level crossings with a few exceptions require to be formed, and the trespass on the Railway, in consequence of these not having been completed, is injurious to it.

The Fencing also requires completion, and to be extended through the various bush lands. The Longitudinal Bearers have also been subjected to very unfair trial both from the high rate of speed over a wooden Railway in its incomplete state, maintained while the works were in the hands of the Contractor, from deficiencies in the guide wheel arrangements, and from the necessary use in the