entering into an agreement with the Agent of the Inter-colonial Royal Mail Company for the inauguration of the Panama service not later than the first of next January. His Excellency's Government having, by this agreement, undertaken to pay to the Company the sum of £19,000 a-year in excess of the subsidy agreed to be paid under Mr. Ward's contract in reliance upon the respective Governments of Wellington and Canterbury fulfilling their engagement to indemnify the General Government in respect of such excess, I did not hesitate, when called upon, to guarantee, on behalf of this Province, the payment not merely of a moiety, but £15,000 of the £19,000...

You are already apprised that the Government of New South Wales having agreed to join New Zealand in the contract and to take upon itself the payment of one half of the subsidy, the amount of the subsidy payable by this Colony is reduced to below the amount authorised by the Act of the General Assembly, and that the guarantee of this Province is no longer required.

To my mind the bringing of New Zealand to within twenty-five days communication of America, and some forty-three of Europe, will do more to advance its future than any scheme ever yet attempted, proposed, or imagined.

Though the proposed arrangements with the Inter-colonial Royal Mail Company in regard to the Patent Slip fell through in consequence of the non-ratification by the late Government of Mr. Crosbie Ward's Panama Contract, I am happy to inform you that a contract for its erection was entered into with Messrs. Kennard, of London, in January last, on terms which can scarcely be deemed other than satisfactory. The Government is to grant a lease of fifteen acres, and is further, without reference to the actual cost of the Slip, to guarantee for a period of twenty-one years such a yearly sum as together with the net profits will yield the contractors interest at the rate of seven per cent. on £27,000, which sum is fixed as the cost of the Slip.

The Slip, which is to be finished by January, 1867, is to be capable of taking up vessels of 2000 tons register, is to be kept in good working order during the whole term of the guarantee, and the dues levied upon vessels using it are not to exceed by more than ten per cent. the current rates at Melbourne. With some sixty steamers already in these seas, and with the still further development of steam that may reasonably be anticipated from the establishment of the Panama service, there can be but little doubt that the Slip will prove an investment so remunerative as to render the guarantee purely nominal. It is also the intention of the contractors to establish in connection with the Slip ship-building yards.

You will be equally glad to learn that the same firm has taken the contract for the extension in iron of the Queen's Wharf, the time allowed for its completion being the same as for the Slip. The cost, however, will be very largely in excess of the estimate submitted to you, and of your appropriation. The amount of Messrs. Kennard's contract is £31,800, or if the timber required is to be supplied by the Province, about £28,300. The proposed additions to the existing T's will cost £3,500, thus involving a total outlay of £37,800. Add to this the cost of the wharf as it at present stands, viz., £20,000, and you will see that when the Wharf is completed, it will have entailed an expenditure on the Province of at least £57,000—most probably £60,000—an expenditure which it would be difficult either to justify or reconcile the Province to, had it not been undertaken and consented to by preceding Councils, on the express understanding that a large portion, if not the whole of it, would be defrayed out of the profits of the sale of the land in the harbour already reclaimed or to be reclaimed.

Turning now to the subject of Land Purchases, a question in which the interests of this Province are more than in any other involved, I have to inform you that all the disputes with the natives with regard to old purchases in the Wairarapa have been most ably and satisfactorily adjusted by Mr. G. S. Cooper, whose services were kindly placed at my disposal by the late Ministry; that the £12,000, the purchase money of the Upper Manawatu Block, was, after ample notice, paid to the chiefs appointed to receive and distribute it; that further instalments have been paid by Mr. M'Lean on behalf of this Province on account of the Forty Mile Bush, the purchase of which, so far as it lies within this Province, may be completed any day; that an instalment has also been paid by Mr. M'Lean on a block estimated to contain some 75,000 acres, in what may be termed the Taupo-Patea country. I understand also that a block at Parikino on the Wanganni river, said to contain some 40,000 acres, has been purchased by the General Government, and that they are negotiating for the purchase of another block, variously estimated as comprising from 250,000 to 500,000 acres between the Wanganui and Waitotara rivers.

In short, I venture to assert that there is not at the present time in this Province, a single block of land of any extent, upon which an instalment has not been paid, or which is not under offer.

It is right that I should state that the three blocks I have just mentioned are, however desirable their acquisition may be in a political point of view, almost valueless for the purposes of settlement, and I regret to add that His Excellency's Government, in the purchases they are effecting or negotiating, are adopting a system of deferred payments—a system which, as has already been proved in the Wairarapa, will give rise to endless, never-ending disputes, between the natives and the Government.

It is to me a matter of great disappointment that I am unable to announce to you, as I fully anticipated, the final closing of the Rangitikei land dispute by the absolute cession to the Crown of the block, the ownership of which it is contested by at least three tribes. You are aware that, after many efforts to arrange this dispute, which for years has threatened the peace of the Province, had failed, I was requested by the late Government to undertake the task. The reports which I have already made to the General Government, and which I now purpose laying before you, will show you the difficulty of the task, the magnitude of the interests involved, and will, I believe, satisfy you that the quarrel had been adjusted—that the only possible solution of the difficulty had been achieved, and that in order to complete the purchase it only remained to arrange the questions of price and reserves.

And I have little doubt that these questions would ere this have been settled, had not certain parties after Mr. Buller's removal from Manawatu, and during my own absence in Australia, instilled into the minds of the natives that the exclusion of the Manawatu block from the operation of the Native Lands Act of 1862, was an act of injustice which justified them in repudiating their agreement with me. It affords me a peculiar gratification, however, to inform you that owing to Mr. Buller's candid explanations, these base attempts to revive the quarrel and involve the tribes in war, both between themselves and with the Government, have been defeated, and that I have received from the leading chiefs of the three tribes the most positive assurance of their determination to adhere strictly to their arrangements entered into with me last year. So I am not without hope that in the course of a few months this, the almost only possible cause of war in this Province, may be removed.

Believing that the Land Regulations have worked on the whole most beneficially, and that no greater injury can be inflicted upon a Colony than a constant changing of its land policy, it is not the intention of the Government to propose any alterations in the present system. Aware, however, that a proposal will be submitted to you, if not to raise the price of land, at