CN's track record

No reason to celebrate the BC Rail deal
March 3, 2004

Last year's tragic case of a bridge failure near McBride, and the loss of railway employees' lives, raises some important questions about the corporation taking over BC Rail, and whether the privatization deal is really in our best economic interests.

Canadian National's (CN) track record has not been that impressive. The bridge failure resulted in a letter from the federal Transportation Safety Board to the Minister of Transport and CN noting that the company had identified defective parts of the bridge near McBride years earlier, but failed to complete the necessary repairs. A group of former railway lawyers has since requested an inquiry into railway safety in Canada. In a deregulated and privatized environment, monitoring of track and infrastructure maintenance has largely been left to companies like CN.

When CN was privatized in 1995 the federal government provided $900 million in relief for debt that was incurred to pay for much-needed improvements, such as double-tracking to improve traffic flow. CN recently pulled up sections of this double-track for use in its US rail operations. The company is also having difficulties with safety, and much of its highly touted profitability comes from 'savings' made at the expense of infrastructure maintenance. Today's CN is a monopolistic corporation whose first priority is not the interests and safety of Canadians (over 70% of the company is American-owned).

While the privatization of BC Rail doesn't include the sale of the right-of-way, it does clear the way for a trail of lost jobs, lost profits, and lost future opportunity. BC Rail is estimated to be worth close to $2 billion, according to the government's own internal documents. CN paid $1 billion for a ninety-nine year lease of the rail line, access to the BC Rail Pension Plan surplus, and the engines and rail cars. One quarter of this cost ($250 million) is for an $800 million tax credit accumulated by BC Rail that could be applied to future profits.

As a Crown corporation, BC Rail provides approximately 1,600 jobs for British Columbians. The closure of its North Vancouver headquarters, and other switching yard and maintenance facilities, will result in the loss of more than 700 jobs. The timing couldn't be worse -- BC communities are already suffering from job losses as a result of layoffs in industries such as forestry and from cuts to government services.

The privatization of BC Rail will also reduce employment and economic spin-offs for local communities. These spin-offs help to strengthen and maintain a strong provincial economy. Decent paying employment in smaller municipalities supports employment and investment in other services.

BC Rail is a profitable enterprise. In 2002, it earned $76.8 million in profits. It is expected to make roughly $80 million in 2003, and has forecasts of up to $120 million in net income over the next three years. BC Rail made a profit in 19 out of the last 22 years (the 3 years that were not profitable were years when there was a write down of the debt incurred to build the Tumbler Ridge branch line). These profits will no longer be reinvested in BC, but will be paid out to CN's shareholders.

It is sadly ironic that talk of a new rail link to Alaska, tied to the construction of a natural gas pipeline from that US state and territories in the Canadian north, came up after the sale of BC Rail is nearly completed. The southern terminus of the Alaska railway is likely to be located in Prince George. BC Rail and the provincial treasury will lose out on this future opportunity.

The privatization of BC Rail to one of two major competing railways in Canada also reduces competition. It increases CN's considerable monopoly over transportation in western Canada and its market power over rail operations in North America. It also leaves Prince George in a situation where rail customers now only have one choice for shipping their goods. The anti-competitive effects of the privatization deal may lead to its downfall -- the Competition Bureau will make a decision later this spring. Only a successful challenge of the sale at the Canada Competition Bureau will stop this poorly thought out deal.

What the Competition Bureau won't consider, unfortunately, is the negative economic impact on the province's interior and northern regions. BC Rail was a successful, government-led exercise in province building, and it still could be. This deal isn't worth a one-time cash grab for a provincial government that is desperate for revenues.

John Irwin is a researcher with the Canadian Centre for Policy Alternatives' BC Office. He spent many years as a railway worker in his younger years.