Funding for the work will be secured 'in different and creative ways', says F&WHR General Manager Paul Lewin.
The decision could mean an eventual return to steam for the whole F&WHR fleet, suggests Lewin.
The 0-4-0ST, built in London in 1867 by George England, was the fifth loco delivered to the FR and has been out of use since its firebox was condemned in 1939. It is slightly larger, more powerful and with a longer wheelbase than the earlier England engines, which date back to 1863.
The loco was a stalwart of the original Welsh Highland Railway, which closed to passengers in 1936, and in the early years of the preservation era was located on a plinth at Porthmadog Harbour Station as an advertisement for the Ffestiniog Railway. Over the winter of 2012-13, Welsh Pony was the subject of a cosmetic restoration to enable it to take part on the celebrations of 150 years of steam on the FR alongside its sisters Princess, Prince and Palmerston.
"As a mature railway, our aspiration is that all our locos should eventually be returned to operating condition," adds Lewin. "We want to be in a position to be able to simply pull any one of them out of the shed and light it up. With the notable exception of Princess and Double Fairlie Livingston Thompson, which contain much original material and will be preserved as historic artefacts, the idea is that everything else should be restored to working order rather than being tucked in the back of a shed covered in dust.
"This will be a complete contrast to the early days of preservation, when the bare minimum of locos needed to run services was maintained in operable condition, the rest lying unloved in sidings and sheds.
"Welsh Pony will be the first and we will draw up a priority list of our remaining locos. Our hope is that everything we've got will eventually be able to run – Englands, Fairlies, Hunslets, Garratts and NG15s. It's a simple idea, but nailing down the details of how we'll implement and pay for it will be far more complex."
Welsh Pony will also be the first loco restored 'live' on the internet, with regular news, photo and video reports on a dedicated microsite http://festrail.co.uk/welshpony . Some phases of the work may also be broadcast live by webcam, although Lewin stresses that details have yet to be finalised.
"We know where we're going," adds Lewin, "And we're starting to fill in the details of how we get there. We believe that this long-term vision will ensure continued and growing interest in our railways around the world."
No start date or deadline for completion of the work on Welsh Pony has yet been made public, but work is likely to start over the Winter of 2013-14. The loco is due to celebrate its 150th anniversary in 2017.
Donations should be made via the Ffestiniog Railway Society charity. UK taxpayers are asked if they can sign up to the Gift Aid scheme to allow us to claim tax back on donations. The facility also exists on our donations site to set up ongoing monthly donations to really give our little pony the ongoing boost it needs to be in steam for its 150th birthday: http://uk.virginmoneygiving.com/charity-web/charity/finalCharityHomepage.action?charityId=1003330