(The following story by Scott Simpson appeared on the Vancouver Sun website on November 21.)
VANCOUVER — Canadian National Railway is the least attractive choice to take over BC Rail because it will close rail lines, cause massive layoffs, lessen competition and boost freight rates for the province’s biggest industry.
That’s the warning from the government’s own advisers in confidential documents obtained by The Vancouver Sun.
They also warn that “community impacts under CN would be the most severe of any of the options,” with 900 layoffs among BC Rail’s 1,600 employees across the province.
“In the longer term, the losses could be substantially greater if the railway shrinks, with particular impacts at Dawson Creek, Fort Nelson, Fort St. John, Lillooet, Squamish and Fort St. James,” says one of the documents.
They say the government’s move to privatize BC Rail would gain more support from wood product shippers — who account for close to 80 per cent of BC Rail’s business — if either Canadian Pacific or OmniTRAX/Burlington Northern Santa Fe was awarded control of BC Rail.
The documents are confidential progress reports submitted on Sept. 8, 2003, to the government committee that is evaluating bids for BC Rail.
The evaluation committee includes two senior members of the civil service and two members of the board of directors of BC Rail.
Transportation Minister Judith Reid on May 15, 2003, issued a request for proposals from the private sector to take over BC Rail freight operations on a long-term lease.
As reported in The Sun on Wednesday, one of those bidders, Canadian Pacific, has recently pulled out of the process in disgust, alleging breach of principle by the government and favourable treatment for CN.
The third bidder, a partnership of OmniTRAX and Burlington Northern Santa Fe (BNSF), has expressed disappointment but has not formally withdrawn from the process as CP did.
One confidential document says forest industry shippers “fear the consequences” of a CN takeover of BC Rail because it would rob them of their ability to bargain for cheap freight rates by giving “excessive” market power to CN.
British Columbia has the largest forest industry on the continent, and BC Rail provides its customers with a competitive advantage over the northwestern United States as well as the B.C. coast, where BCR does not operate.
The province is advised in one document to give “serious consideration” to the concerns expressed by lumber and panel board shippers that a deal with CN would strip away their competitive advantage.
“It is clearly not in the interest of lumber and panel products producers that CN be selected to continue the operations of BCR in view of its [CN’s] significant market dominance,” says an evaluation of shippers’ key concerns written by Allan F. Foran, a Winnipeg-based attorney.
Shippers won’t talk openly about their concerns, and declined The Sun’s request for comments.
Earlier this week, 100 Mile House Mayor Donna Barnett told The Sun that shippers oppose the provincial government’s apparent choice of CN as the successful bidder and believe it would be harmful to the B.C. economy.
Forest products account for 78 per cent of BC Rail freight traffic revenues.
BC Rail shippers currently have a choice of four class-one (major continental railways) carriers to connect to — CN, CP, Burlington Northern Santa Fe, and Union Pacific.
These options are worth money to shippers in terms of price and competition for business — particularly access to southern U.S. markets that don’t match CN’s routes to the Eastern Seaboard.
A document written by Travacon Research says it “seems natural” that CN would abandon the BC Rail line from Chasm to North Vancouver, a distance of 350 kilometres.
It says this would mean shipping wood products along CN’s main line to the coast, adding as much as 850 kilometres to the travel distance for some products coming from the B.C. Interior.
It says the changes would save CN money, but would boost shipping costs in some cases by as much as 68 per cent.
Travacon says shippers “fear the consequences of excessive CN market power.”
Foran echoed that in his report, saying: “Above all, there is grave concern with the significant market power that CN would obtain, particularly because of its preoccupation with shareholder value rather than customer service.”
A spokesman for CN said the company would not comment on the documents.
Canadian National’s bid could be worth as much as $1 billion, according to unionized BC Rail employees who held a press conference Thursday morning to release a portion of the “confidential information memorandum” which details the government’s expectations for participants in the bidding process.
Reid said the report was intended to solicit the frank views of B.C. shippers.
“We wanted to identify issues and address issues. At the end of the day, any agreement we have has to be better than the status quo,” she said. “We did this on purpose. We wanted to know what their concerns were. . .We have to end up with something that is better than the status quo for the shippers.”
Despite a firestorm of controversy surounding the government’s plan to privatize BC Rail, Reid remains committed to moving the management and operation of the province’s railroad to a private company.Government officials refuse to say when legislation will be introduced enabling the BC Rail deal to move ahead. Next week is the last week of scheduled legislature sittings before the Christmas break.
Bob Sharpe, chair of the Council of Trade Unions for BC Rail, was not surprised the government’s advisers to the BC Rail bidding process were critical of CN, saying The Sun’s documents confirm union fears about massive layoffs.
“The government has to step back and take a very hard look at the whole process. There’s no way the government should be preparing to sell the railway right now.
“People should have a complete understanding of what’s going on with this. The CTU would like to see a proper investigation of this whole process. It’s starting to fail the smell test here.”