(The following story by Peter Kennedy appeared on the Globe and Mail website on November 21.)
VANCOUVER — British Columbia has told potential buyers of BC Rail Ltd. that they stand to gain more than $1-billion in tax pools and other benefits if they proceed with the purchase of the Crown corporation.
The benefits include $857-million in tax pool benefits that could be used to lower the levy on future profits, according to a confidential provincial government memorandum made available to Canadian National Railway Co. and other potential buyers.
If, as widely expected, CN emerges as the successful bidder, it will also gain $151-million worth of BC Rail pension fund surpluses, according to the memo, which was released yesterday by railway unions, which are trying to stop the sale.
The B.C. government would not confirm if the memo was bona fide, but a BC Rail spokesman said he had no reason to doubt its authenticity.
According to the memo, the figures do not include the value of rolling stock that generates about $310-million in revenue from the transportation of forest, energy and agricultural products along 3,055 kilometres of track.
“We are very concerned about the people in this province that work for BC Rail,” said Bob Sharpe, chairman of the Council of Trade Unions, the umbrella organization representing unionized employees at BC Rail.
Mr. Sharpe fears that more than 60 per cent of 1,764 employees at BC Rail will lose their jobs as a result of the realignment of its networks and the elimination of management functions.
Officials at BC Rail and CN would not comment on the contents of the memorandum or discuss speculation that a sale is being held up because tax benefits accruing to any buyer may not be as valuable as the province has estimated.
It is widely expected that legislation will be in place by the end of November to allow the sale to proceed and that CN has outmanoeuvred Canadian Pacific Railway Ltd. and a consortium of U.S. giant OmniTrax and Burlington Northern Santa Fe Co.
Under any agreement, the province is expected to retain ownership of the railway tracks, bed and rights of way, selling 9,000 cars and other equipment to any buyer, which would be responsible for all freight and passenger operations.
The buyer would also benefit from $857-million of non-capital tax loss carry-forwards, the province has disclosed in its confidential memo.
At the end of 2001, BC Rail had a defined-benefit pension plan with a surplus of about $151.7-million, according to the memo.
As a result, any purchaser of BC Rail would benefit from a contribution holiday that is expected to continue for a number of years.
The province is projecting a 76.7-per-cent operating ratio for BC Rail in 2003, resulting in $67.2-million of operating profit and $103.7 million in earnings before interest tax, depreciation and amortization.