Canadian Railroads > on this day in 2006

a bunch of images (24)  taken November 30, 2006. A few images taken around Quesnel while we were preparing for our homeward trip to Williams Lake BC. The morning was bright, clear and chilly as compared to the previous evening snow storm.
images
01  BCOL 605
02 BCOL 604 Quesnel yard power
03 a little dig at former Premier Gordon Campbell, the man that promised not to sell BC Rail, true enough he did not sell the railway, basically gave it away.

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3 more around Quesnel

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on the road south of Dragon siding, romping along and kicking up some snow.

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along the way at dusk

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Deep Creek bridge mile 330

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last 3 images, thanks for looking.  Doug

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yes and didn't the BNSF have the highest bid

Dilworth Wrote:
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> yes and didn't the BNSF have the highest bid

The finalist bidders were CN, CP and OmniTrax/BNSF.  CP admitted afterward that its bid was not as high as CN's. OmniTrax/BNSF never revealed their bid price. But the government was after money, so it seems unlikely that it would have taken anything but the highest bid.

A big part of the price was to pay for $852 million in unused tax credits that BC Rail had accumulated for its losses since the late 1980s. Of the $1 billion paid by CN, $250 million was to pay for the tax credits. It then took four tax years for CN to apply all those credits against its Canadian income to reduce its corporate income tax. That put any American bidder at a disdvantage because the tax credits would have been worth very little to them, as they could only be applied against Canadian income.

How much income would either OmniTrax or BNSF make in Canada in a year compared with CN? It would have taken a long time for them to use up the tax credits, which had to be paid for up-front.  So it's likely their bid did not include much of a price for the tax credits or perhaps nothing at all. 



Edited 1 time(s). Last edit at 11/30/16 17:13 by railsmith.

Great cab view shots Doug, did the trailing unit have the number boards lit because it was the movement designator (such as X7006 south)? Did CN have numbers for the regular trains by this time?

Railsmith, good info about the tax credits. I was not aware they were used over four years. Was there a cap on how much of the debt the could apply against corporate tax per year? I didn't know $250 million was just to buy the debt either. easy way to roughly triple the value of the money. We (the BC citizens) we got fleeced in this deal.

The whole scandal was what got me interested in reading/learning more about how governments operate, corruption and such. Taught me not to rely on only main stream news sources. Most of what transpired has not been brought to the public's attention.

Mike N.

     

Helo-Mech Wrote:
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> Railsmith, good info about the tax credits. I was
> not aware they were used over four years. Was
> there a cap on how much of the debt the could
> apply against corporate tax per year? I didn't
> know $250 million was just to buy the debt either.
> easy way to roughly triple the value of the money.
> We (the BC citizens) we got fleeced in this deal.

It wasn't debt as such that CN purchased -- it was tax credits that could be claimed for BC Rail's cumulative operating losses over a long period starting in the late 1980s.

CN would have used the tax credits to the best extent to reduce its taxes for each year; I don't know if there was a cap as such. It was allowed 20 years to use them, but most was used in 2004. You can see its use of the credits in CN's Annual Financial Statements for 2004, 2005, 2006 and 2007 (this is in note 15 or 16 to the statements depending on the year).

These credits did not triple anything. CN paid $250 million for them and over four years received that amount in tax reductions, perhaps a bit more (the B.C. government would have had to make up any shortfall below $250 million). To CN it was a wash, but it was a gain for the B.C. government to be paid for the credits, which it could not otherwise use. 

By recovering the $250 million it paid for the credits, the effective cost to CN of the deal was $750 million, even though it paid $1 billion to the BC Government. The loser in this was the federal government, since it lost much of that $250 million because it collected less tax from CN for 2004-2007.  B.C. would also have lost some tax revenue too, but most of it would have been federal.

As for the $1 billion received by B.C., $502 million was used to retire BC Rail's current debt (that did not include the debt for Tumbler Ridge, Dease Lake and various other expenses pre-1989, which the government had already absorbed). Beyond that, the government put $135 million into a northern development fund, $17 million for the Prince Rupert container terminal, $4 million for upgrades to the Prince George airport, and $15 million to First Nations along the line. The remainder of about $325 million went into the government's general coffers.

Of the $750 million paid by CN for the actual railway, $600 million was to buy the operating assets of BC Rail Ltd. (including $105 million for the 109 locomotives and 10 yard slugs and $122 million for the freight car fleet). CN also paid $150 million for the track access lease for 90 years, in two segments: 2004-2064 and 2064-2094.  This has been described as a 990-year lease but that's an urban myth. Beyond 2094, the contract includes 15 lease renewal clauses of 60 years each, which is where the 990 years comes from, starting from 2004. But CN has not paid for anything beyond 2094, so the price of those lease renewals would have to be negotiated at the time by the government and CN.

Five years before the expiry date of each lease, the government can serve notice on CN that it wants the railway back when the lease expires. Likewise, CN has to give three years' notice before a lease expiry that it wants out of the deal. The government's first opportunity will be in 2059, and CN would have to give notice in 2061.

But there's a catch for both sides. If the government wants to end the lease, it has to buy back the operating assets that are being used to operate the line and that price would have to be negotiated. But on CN's part, it would have to return the line to the government in the same condition that it was in in 2004, which is detemined by being able to operate trains at 2004's speed limits for each section of track as defined in the contract, using the maximum allowable car weights that applied in 2004 for each section (it's a long list of track sections).  



 



Edited 2 time(s). Last edit at 11/30/16 22:08 by railsmith.

The sale of BC Rail was a real political football to say the least, and the citizens of BC lost the game. Another part of this deal that is never really accounted for is the loss of the good paying jobs the BCR railway employees had all along the BC Rail line. The sale decimated the employees in most of the terminals and those lost jobs / wages affected the local economies as well. In my opinion the whole deal was a shabby, sham by the governent of the day.  Doug