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Why Are We Selling Our Railway?

Need to get up to speed on the BC Rail privatization issues? Climb aboard, and read on

By Chris Tenove, 14 Nov 2003, TheTyee.ca

Reports that BC Rail will be sold this week to Canadian National Railway (floated in Friday's Vancouver Sun and quickly denied by the government) left the province's citizens - including the 32,000 who signed a petition against the move - with more questions than answers. Find here a quick briefing on issues.

Is BC Rail being being privatized?

The government says no, that the sale of BC Rail operations is merely a public-private partnership. But for most of us, when a private company is running the show we consider it "privatized."

The provincial government assessed bids from Canadian National, Canadian Pacific, and a joint bid by OmniTRAX and Burlington Northern Sante Fe and news reports suggest the CN bid will win. The province will not sell the railbeds, tracks, or rights-of-way, but everything else goes. The initial deal is expected to last for 30 years.

Why does the government want to privatize BC Rail?

Gordon Campbell argues that government should get out of areas where private industry can effectively operate, because the marketplace will ensure maximum efficiency. Yet many British Columbians don't think this logic should be applied to cherished provincial assets such as BC Hydro, the Coquihalla Highway, or BC Rail. As a result, after their 1996 election loss and before the 2001 elections, the Liberals announced that they would not privatize or sell BC Hydro and BC Rail.

Some argue the Liberals see privatization as a remedy for the provincial budget woes, caused by the sluggish BC economy and the big tax cut just after the last election. The Liberals promised a balanced budget by 2004-5, and must find money everywhere they can. Finance Minister Gary Collins insists the books will be balanced regardless of what happens with BC Rail.

Does anyone else want BC Rail privatized?

Nearly three-quarters of BC Rail revenue comes from the forest industry, which wants to protect the cheap, reliable service that BC Rail can provide. Of course, this is what everyone wants.

The Western Canadian Shippers' Coalition, which represents the forest industry's major players, says BC Rail is hampered by a mountain of debt -- nearly $500 million, which puts debt servicing costs of $30 million a year. They fear this will prevent BC Rail from making the kind of capital investments needed to run a competitive, modern railway. But they also fear that an international player like CN won't be attentive to the specific needs of B.C. producers.

But BC Rail is profitable, isn't it?

Last year the railway posted an operating profit of more than $75 million, and were able to pay down some of their debt. By the end of the third quarter of 2003, BC Rail's operating profit was already at $70.5 million.

BC Rail has cut operating costs (and more than 500 jobs) and increased revenue from the forest industry. In order to turn a profit despite U.S. anti-dumping duties, forest companies have boosted shipments. Output will likely decrease once an agreement is struck on the softwood lumber dispute. On the other hand, there will be a lot of pine beetle-damaged wood to ship in future, and BC Rail might find other ways to increase revenue.

Without access to BC Rail's confidential financial assessments, it's difficult to say whether the railway will turn a profit in the near future. Perhaps the strongest argument that it will, however, is that companies lined up to take it over.

Aren't there larger issues than profitability? Isn't BC Rail intended to stimulate economic development?

Yes. BC Rail built a line to Tumbler Ridge to ship coal to Japan. The railway lost money because of the huge capital investment, but the venture made sense when you include provincial taxes generated by the development of the coal industry. In the future, a rail line to Alaska or spur lines into oil and gas fields might be desirable. Would a private operator be interested? What kinds of subsidies would be required?

Will private operators cut existing BC Rail jobs?

Yes. It doesn't make sense for a railway company to take on BC Rail without maximizing efficiencies, and that will mean cutting redundant positions. One indication of what may be in store was a leaked memo to BC Rail management in 2002. It estimated that under CN, more than two-thirds of jobs could be cut. That estimate might be high, because they were looking at the impact of the outright sale of BC Rail and not just a 30-year partnership. The B.C. government may have negotiated some protection for BC Rail jobs. But there is little doubt that there will be cuts.

Bob Sharpe, chair of the Council of Trade Unions on BC Rail, has estimated that a CN deal could cost half of BC Rail's 1,600 jobs.

Wouldn't CN have a virtual monopoly on rail transport in most of B.C.? Isn't a monopoly the antithesis of the competitive environment the Liberals say they are seeking through privatization?

Good questions.

Call me a cynic, but have the railway companies made contributions to the Liberal party?

Since 1996, CN has given the Liberals $126,000 and CP has given them $80,000, according to the B.C. Federation of Labour, while OmniTRAX and Burlington Northern Sante Fe have given nothing.

Are there any advantages to having a private operator take over BC Rail?

This question is difficult to answer. Of course, new management could come up with new innovations. A larger company could get better deals when transferring freight between the BC Rail lines and lines owned by other companies. A new operator might improve communication technology or buy new rail cars. CN has become a stronger company in recent years through improved performance in on-time delivery. There are lots of possibilities, but no guarantees.

BC Rail eliminated its passenger service in the fall of 2002, isolating small, remote communities and leaving towns as big as Lillooet with no public transport. Is there any chance that privatization will lead to passenger service?

The provincial government said bids must include access to rail lines by third-party passenger train operators. Tour operators such as Rocky Mountaineer Railtours and Whistler Rail Tours have both expressed an interest in a tourist service on BC Rail lines. But basic passenger rail service almost always requires some form of subsidy.


Links:
BC Rail

Council of Trade Unions on BC Rail

BC Department of Transportation

Chris Tenove, who has contributed to the National Post, CBC Radio, the Globe and Mail, Maclean's, and Adbusters, will file irregular dispatches from around British Columbia this winter, giving Tyee readers a look at the personalities and the politics found outside the Lower Mainland. If you want to comment on a story or to suggest a future trip, email him at ctenove@yahoo.com  [Tyee]

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