(The Vancouver Sun published the following article by Scott Simpson on its website on July 15.)
VANCOUVER, B.C. — Despite growing evidence that hundreds of BC Rail jobs will be eliminated, B.C. Transportation Minister Judith Reid insisted the pending sale of the railway’s freight service will turn out better for the company’s workers than critics expect.
Confidential government documents obtained by The Vancouver Sun suggest that between 750 and 1,230 management and union workers will be laid off as part of any deal to put the government-owned railway’s freight operations in the hands of the private sector.
But Reid said Monday that the documents, written for the government by BC Rail’s corporate development section, do not take into account the railway’s recent cost-cutting efforts.
The railway last year trimmed costs by $25 million — a nine-per-cent reduction that does not consider a full year’s savings from elimination of passenger service.
Nor do the documents consider “positive” proposals made by rail companies that were named Monday to a shortlist of bidders who responded to a Request For Proposals (RFP) to take over BC Rail and add it to their existing services.
As reported previously in The Sun, on the short list are Canadian National, Canadian Pacific, RailAmerica and a partnership between OmniTRAX and Burlington Northern Santa Fe.
In all scenarios envisioned by the government, massive layoffs were seen as necessary for a new operator to make money and provide shippers in B.C. with a competitively priced service.
Reid described The Sun’s reporting of her government’s documents as “fearmongering.”
Reid has not examined the bids accepted for the shortlist, but was briefed by a bid evaluation committee of senior government employees.
Addressing an afternoon teleconference from a cabinet retreat at Sechelt, Reid said there is “good strong competition between the different proponents.
“I believe that’s going to be a good result for B.C,” Reid said.
“I believe, from what I have been told by the evaluation committee, that all the proponents in the RFP process have addressed in very positive ways the concern around employees, and we will have to wait for the process to finish.
“I do believe that it is very, very positive.
“The fearmongering that is out there, that has, I believe, just been irresponsible, is not a scenario that is going to materialize.”
“We’re going to see some very positive results come out of this competitive process.”
Even a consultant to BC Rail has advised, however, that the company cannot survive without radical reductions in overhead and operational costs.
In addition, a spokesman for BC Rail’s unionized employees said he’s under no illusion that handing freight operations to a private operator will be good news for employees.
Bob Sharpe, chair of the Council of Trade Unions of BC Rail, is also an executive with the United Transportation Union and has dealt at one time or another with all the bidders on the shortlist.
He says all the companies vying for BC Rail have made substantial job cuts in other jurisdictions and he expects the same thing to happen here.
“Why shouldn’t BC Rail workers be afraid when credible documents prepared for [the B.C.] government by BC Rail management say half to two-thirds of all jobs will be eliminated?” Sharpe asked.
“Workers and northern communities and businesses that depend on BC Rail are being told ‘trust us’ by the government when we know BC Rail management expects huge job losses, freight rate hikes and routes being abandoned. Who’s doing the fearmongering here and who is sticking up for BC Rail?” Sharpe asked.
The council says there is only one way a successful bidder will make more money than the already profitable BC Rail — by cutting jobs and services and increasing rail rates.
Sharpe notes that BC Rail had a strong financial year in 2002-03 — although analysts have suggested it was a blip and that the railway’s long-term financial prospects are poor.
In addition, BC Rail is carrying $700 million worth of debt — with annual interest payments in the range of $30 million eating deeply into the company’s annual profits.
The documents also concluded that the OmniTRAX-Burlington partnership had notable advantages for British Columbia because among all supposed private operators, it was the only one that would allow the B.C. government to retain regulatory control over operations.
But Reid said it’s up to the province to make sure that any eventual partner in the operation of BC Rail ensures that the interests of shippers — the forest sector is BC Rail’s major customer — are protected.
“The regulatory authority on the rail line would have to be consistent no matter where that authority comes from,” Reid said.
“Right now there is not as much protection on the BC Rail line with regard to disputes as there is under federal jurisdiction.
“If the federal laws were not going to apply then the province would have to have similar provisions introduced to mirror those kinds of concerns that have been raised.”
In all, the government received five proposals.
The government wants a number of conditions met in the proposals including sustainability, competitiveness, growth opportunities, and community benefits.
Proponents are now expected to conduct further due diligence, which may include railway inspections, facility tours and BC Rail management presentations.
After that it’s up to the proponents to submit further detailed proposals to the evaluation committee.
The successful bidder will be announced in the fall and Reid wants a contract signed by year’s end although she conceded that may not happen until next spring.
BC Rail’s railway right-of-way, railbed and tracks will remain publicly owned, while the partner will assume the operations and management of the freight service and provide capital investment — in particular, dealing with the debt.
Reid said all stakeholders agree it’s critical to come out of the process with “a sustainable, affordable rail system in British Columbia for our industries.”
“If we don’t get the competitive rates there is not going to be a railway. It won’t work.”
Ian May, a consultant to forest products shippers, noted that shipping is the forest industry’s second-biggest cost after stumpage.
“There is a reason that the government is looking at a new operator for BC Rail. Even though you hear correct reports about a banner year, that’s the exception rather than the rule,” said May, a former vice-president for regulatory issues with the Council of Forest Industries.
“With the debt load BCR is carrying, and the fact that they’ve lost the coal shipments that were coming out of Tumbler Ridge, they really do need an infusion of cash in order to survive.
“We need them to survive so that we can survive, so that’s why we’re interested in whatever the government can do to fix it.”
He said that the softwood lumber dispute with the United States, and pine beetle infestations in the B.C. Interior contributed to a big year for both the industry and BC Rail.
“But those are not sustainable situations, neither of them. When the market fluctuates — they’re not going to have another banner year, let me tell you.”
He noted that BC Rail’s service levels have already been compromised by financial pressure — including cancellation of passenger service and intermodal services.
“If there is anything we would like to emphasize, it is how critical an efficient and cost-effective, competitive provincial railway is to our industry.”