(The following article by Scott Simpson was posted on the Vancouver Sun website on December 18.)
VANCOUVER — The recent sale of BC Rail’s freight service to Canadian National Railway was a fair deal for British Columbia that improves competiveness of B.C. industries, according to a government-commssioned report that was released Wednesday.
The report by Charles River Associates — a Boston, Mass.-based consulting group — was commissioned by the provincial government to evaluate the fairness of the bidding process for the crown-owned railway, and to determine if B.C. received good value.
In both cases, the consultant said the answer is yes.
The consultant said that B.C. will forfeit between $6.4 million and $7 million of future tax revenue as a result of the transaction, but concluded that the province did well compared to other recent railway sales.
“The financial value obtained by the province was above what might be expected, based upon a quantitiatve comparison of the BC Rail transaction to recent, similar railroad transactions,” the report says.
It estimates the value of BC Rail at between $701 and $770 million, and says the agreed-upon price of $750 million “suggests that CN valued the [freight] operations appropriately.”
CN’s total bid price was $1 billion, which included the $750 million for freight operations including freight cars and engines, plus a $250-million payment for $2 billion worth of BC Rail debts and losses that CN can use as tax writeoffs.
As reported in The Vancouver Sun, rival bidder Canadian Pacific sent a letter to Premier Gordon Campbell’s office alleging that the committee evaluating bids for BC Rail was biased in favor of CN.
But the consultant found that the process “was designed and managed to be fair to the proponents,” and that both the government and bid evaluation committee employed an objective and structured process.
One allegation was that prior to the announcement of CN as the successful bidder, CN was permitted to solicit proprietary information from shippers — their own commercial contracts — which was presumed to give it a competitive advantage in bidding. But the report says only CN’s information was shared — not other parties’ financial information.
It also says that exclusive in-depth discussions with CN, which followed second-round bids by three rival bidders, did not represent favorable treatment.
“The evaluation committee and its advisors determined that CN’s proposal put it in the position of the ‘front-running’ proponent,” says the report.
It says the discussions involved clarification on several aspects of CN’s bid, and the delay in announcing a winner arose from a determination that it would be prudent to wait until all questions were answered before announcing CN as the winner.
“Because there was still a reasonable degree of uncertainty as to whther CN would be selected, the competing proponents were not eliminated from the process,” the report says.
“However, because of the sufficiently lower likelihood that these proponents ultimately would be selected, the committee and its advisors did not ask them to undertake significant efforts in clarifying their own round two proposals.”
The report says that decision was both “reasonable” and “prudent” and adds that at no time did the government suggest all bidders would receive equal treatment prior to the selection of a single bidder.
After reviewing competing bids by CN, CP and OmniTRAX/Burlington Northern Santa Fe (BNSF), the reports authors concluded that CN would be least likely among all candidates to gain businsess from its rivals in a BC Rail takeover.
“Indeed, by choosing CN as the successful proponent, the province not only has increased the competitiveness of the BC Rail freight that was interchanged to the CN network, but has also preserved competition to the very large markets served by both [Union Pacific] and BNSF.”
It says B.C.’s choice of CN will lead to shipping rates lower than those that BC Rail could offer as a crown corporation.
Finally, the report opines that the deal will suit the B.C. government’s objectives for reasonable shipping rates and opening up new economic opportunity in the northern part of the province.