The Columbia Journal
P.O. Box 2633 MPO,
Vancouver, British Columbia,
Canada V6B 3W8
All Aboard: 30 Points West and North to Disaster
1 BC Rail sold to C.N. Rail for $1Billion.
2 $750 M of this is for the right to operate freight
operations for 60 years and options for an additional 930 years on B.C.
owned rails and rights of way and for ownership of the BC Rail company
itself and its name and trademarks.
3 Of this total amount, $250 M will go to acquire for
CN tax credits on the accumulated (for tax purposes, losses, capital
expenditures, and deductible expenditures over 70 years) of BC Rail
worth an estimated $2 Billion or more. The credit may be as much as
$250 M. There is a qualifier: If the federal tax department agrees that
BC Rail’s tax debt credit (useless for a crown corporation which pays
no taxes) can be transferred to CN then BC gets the $ Billion from CN,
if not BC gets $750 million plus what amount CN is able to get from the
federal tax department. There is no certainty that Canada will agree to
accept directly in lost future income tax, $250 Million of BC’s
indirect debt, payable by a corporation which now does not pay income
taxes at all as a transfer to one that does pay taxes.
4 BC to pay off all the current $500 M B.C. Rail debt
from the money CN Pays BC.
5 BC will pay $17.2 million for part of the Prince
Rupert terminal facility.
6 BC will pay $15 million into a First Nations Trust,
not necessarily divided equitably between the 20 Bands through whose
reserves BC Rail track runs. The trustees of this fund are to be mostly
Native people appointed by the Liberals.
7 BC will pay $4 million for airport improvements in
8 BC will pay $135 million into a Northern
9 BC will pay $1 million for terminal and runway
improvements in Prince George.
10 BC will pay $50 million into a general trust to
support economic development across Northern BC.
11 BC Rail rolling stock is estimated to be worth
$600 million which CN gets as part of deal.
12 At the time of sale, BC Rail had about $1.2
BILLION worth of undepreciated capital assets, much of this in
industrial land which does not depreciate, on it’s tax books.
13 BC Rail had operating losses over its
approximately seventy years of existence that can be carried forward
for tax deductions. This value was about $800 M. This may result in a
tax credit against CN Rail’s present and future earnings of about $250
M. This is entirely contained in # 3 above.
14 The firm hired to access fairness was explicitly
disallowed any capacity to assess the real value of tax shelters as
part of sale. It was not allowed to determine if CN or BC got value for
15 The firm hired to assess the “fairness” of the
sale had to rely solely on what the government said about it’s own
transactions and it was given a strictly limited framework in which to
assess the “fairness” of the bidding process. Both other bidders for BC
Rail have claimed publicly that the process was unfair.
16 CN is not required to give any accounting of the
BC Rail line’s costs, profits or benefits to anyone, ever.
It is a public company and must report general operating results to its
shareholders. It does not have to report any specifics about parts of
17 BC Government to be partly responsible for the
cost of a 7% rate reduction promised to major BC Rail customers. There
is no promise to small customers.
18 Approximately half of BC Rail employees are to be
laid off, including almost all maintenance workers in Squamish and
Prince George. The work will be done at existing CN Rail shops in
Winnipeg and elsewhere by existing CN staff. 60% of BC Rail’s head
office staff are to go too. CN has made no promise to keep any of the
BC Rail workers. CN will acquire and operate a wheel refurbishing shop
in Prince George. Transfer of workers’ seniority, if any, seems unclear
19 BC Rail has a debt now because it was required by
the Bennett Governments to absorb the whole cost of the spur lines to
the North-East coal mines, now abandoned. Previous construction on the
BC Rail was charged to Provincial General Revenue in most cases like
the Dease Lake Extension, now about half unfinished and/or abandoned.
BC Rail has been paying these off ever since, in full, and on time,
from BC Rail’s before-net earnings.
20 The projects in #5-10 will be paid for from the
amount of money above that required to pay off the BC Rail debt and
only after the debt has been paid. That could be years.
21 BC can sell any BC Rail land to CN at any time and
CN must take it for $1.00. This is intended to force CN to accept
responsibility for any environmental damage. BC can sell any BC Rail
lands to CN, at any price CN agrees to pay, at any time. This includes
specifically the tracks and the land under them.
22 CN may increase freight rates on the line as it
sees fit but not until just after the 2009 election. There is no limit
or formula to determine the amount of the rates after that, other than
an appeal to the Federal Competition Review Board or Parliament. CN may
abandon rail lines (stop using them) but again, not until just after
the 2009 election.
23 CN and BC Rail’s current industrial shippers are
currently in dispute about whether the base freight cost today should
be stated in US dollars (CN is US owned and is primarily a US carrier)
or Canadian. If US, the promised 7% reduction has already largely been
achieved at little additional cost to CN or BC. The freight bill has
usually been charged in Canadian dollars by BC Rail but not always.
24 CN has its own debt of several $ Billion from some
operating losses and the acquisition of other railroads in the US. When
Canada sold CN, Canada paid the banks which had held the CN debt all
the accumulated debt of CN and its predecessor railroads since 1910,
before CN was sold.
25 The sale contract runs to more than 1500 pages.
26 CN is to provide a number of new railcars to work
on BC Rail tracks but gets to sell current BC Rail cars to partly
offset the cost.
27 If BC wants to buy BC Rail back there is no
provision in the agreement to set a price in advance. BC will have to
pay what CN wants to get at that time. It is never required to sell at
all. The price will be unlimited.
28 The Magna Carta (The English speaking world’s
longest standing contract) has only been in effect for 789 years.
Technically, a series of 60 year renewals is legal. A single 990 year
lease would not be valid, even between corporations which, unlike the
rest of us, never die. The CPR negotiated 999 year leases on rail track
in the 1880s when such long terms were legal. CN and its predecessors
may have done the same before WW 1. These extensions commit BC and CN
Rail until June of the year 2994.
29 At current rates of interest and earnings at BC
Rail and without allowance for major staff reductions and other
economies of scale, CN should have recovered its purchase price in a
decade. Making allowance for these lay-offs and savings, CN could be in
the black on this in about seven years. ($250 Million from income tax,
BC Rail currently makes about $100 Million a year, staff cost cut by at
least a third, other less quantifiable savings from running
single unified company under only federal railroad regulations.)
30 Passenger service is not included in the agreement
but it would have to be organized to not disrupt CN Freight movements.
CN will own the running rights on the BC Rail tracks and will not have
to allow any passenger rail use.
The purpose of this agreement by the BC Government was to get BC out of
the railway business. For CN it is a huge windfall and gives CN
monopoly control of all the railways in BC except for a very limited
amount along the right of way of the CPR from Banff to Kamloops to
The value of having control of a railway to the resources of the
Interior of BC, the skilled jobs involved, railway competition, value
for the taxpayers as well as for the citizens, and any future
passenger, tourism or other options was deliberately set at zero by the
Liberal Cabinet. The net benefit to BC and its people is neutral at
best, horribly negative at worst. The facts that CN was such a huge
contributor to the federal and provincial Liberal Parties, that
CN Rail is mostly American and does not use the term “Canadian” in
describing itself, and that the RCMP are still investigating whether
vital information was leaked to CN Rail but not to the competing
bidders will be footnotes that increase public resentment.
Once done, this deal can never be undone. Ideology, in the guise of
reducing Government operations to the bare essentials, will have
triumphed over the BC dream of controlling our own future economic