Canadian Railroads > BC Rail was leased, not sold to CN

In 2004, during the public uproar about the "sale" of BC Rail , then BC Premier Gordon Campbell (BC Liberal) was quick to point out that the railway had been leased to CN for 999 years (standard legalese). Of course at that time, no mention of the details of the lease were released about what would happen if CN vacated the lease. Many similar railway leases simply revert the property to the original owner.
So, if CN applies to abandon the portions of the railway presently under suspension, the Government of the Province of British Columbia will be the organization making the decision as to the future of the line.

It is hard to guess what decision the Government of BC will make. Unlike CN, they have a responsibility to the electors of BC. Will the "suspension" of service become a political issue?

BC Rail still exists as a corporation. The BCR Port Subdivsion was not included in the sale. This is the former BC Harbours Commisioners Railway which was merged into BC Rail.
All trains heading to Roberts Bank and Delta Port travel over this line. It is dispatched and maintained by BCR 2004 Corporation.



Edited 1 time(s). Last edit at 04/05/20 17:37 by eminence_grise.

Should be interesting to watch, Phil.

Brian E 

It didn't seem like the government of BC gave a rats ass about what the public thought when they "sold" the BCR to the CN.  Is there a reason to think that they might have a different attitude if CN appears to not be complying with the lease agreement or just plain abandoning portions of the line?

wyeth Wrote:
-------------------------------------------------------
> It didn't seem like the government of BC gave a
> rats ass about what the public thought when they
> "sold" the BCR to the CN.  Is there a reason to
> think that they might have a different attitude if
> CN appears to not be complying with the lease
> agreement or just plain abandoning portions of the
> line?

Different political parties in power in both BC and Canada. .. Different management at CN. 

The government in power now is very different from the one that was in charge back then.
Not saying they will do anything, but they are very different.

The current portions where trains are not being run by CN is not more of an effect of the current economic downturn caused by the effects of COVID-19? No rebound would take place if the economy improves? Remember when they were trying to widen the sea to sky highway between North Vancouver and Whistler - all the construction before the Olympics? They wanted the rail right-of-way then to pave over for the expansion to the highway! But that was ultimately blocked.....

Rocky Mountaineer still operates over the route - seasonally at best. It's not very many trains even when in season now. 

What specific sections were taken out of service by CN? No trains whatsoever?

Wondering if the transportation of the local residents between towns and the famous school run could make a come back. Agree the politics have changed, perhaps the locals have waited the big guys out.

Interesting to see what happens but not waiting for green Alco's.

bring it back    whistler northwind   rdc's  maybe MRL, or somebody will see traffic there?

what happened to the bus  train for school children?

eminence_grise Wrote:
-------------------------------------------------------
> BC Rail still exists as a corporation. The BCR
> Port Subdivision was not included in the sale. This
> is the former BC Harbours Commisioners Railway
> which was merged into BC Rail.
> All trains heading to Roberts Bank and Delta Port
> travel over this line. It is dispatched and
> maintained by BCR 2004 Corporation.

Actually, to split a hair, CN did buy BC Rail Ltd., which was the operating company that ran the railway.

What still exists is the British Columbia Railway Co. (BCRC), which was the parent that owned BC Rail Ltd., BCR Marine, BCR Properties and a company that acted as a self-insurer for those other entities.

BCRC is a Crown corporation owned by the B.C. government, and among other things its role is to serve as the landlord in the relationship with CN, the tenant. BCRC owns the land that serves as the right-of-way and the track materials.

BCRC also acts as landlord to a tenant, Kinder-Morgan Canada Terminals, that has leased the facility formerly known as Vancouver Wharves, adjacent to BC Rail's North Vancouver yard.  Vancouver Wharves was the main element of the subsidiary known as BCR Marine.

While BCRC still exists, it has no employees and its Board of Directors consists of one person, namely whoever is the Deputy Minister of Transportation & Infrastructure (the senior civil servant of that ministry).

The BCR Port Subdivision, as it is known, was not included in the deal with CN, as noted by the poster.  It has about 20 employees engaged in dispatching and maintenance. But in 2010 they were transferred from BCRC to the Ministry of Transportation & Infrastructure, at the same time that BCRC was slimmed down to have just a single part-time director and chairman, as noted above.  The opposition in the B.C. legislature objected to the continuation of BCRC as a bureaucracy with some high-paid executives and the government responded by reducing it to effectively a legal shell.

BCRC still maintains a basic website and anyone interested in studying the CN-BC Rail deal will find the two documents that constitute the deal at the link below: those items are the BCRC Investment Partnership Agreement and the BCR Revitalization Agreement. When printed out, they fill two thick binders and make for heavy reading, but during the pandemic lockdown finding time to read shouldn't be a problem.

https://www.bcrco.com/links.html

Those reading these documents will find that the 990-year lease is an urban myth. The initial lease is for 60 years (to 2064), with a renewal option for another 30 years. For that 90-year period, CN paid $150 million (it paid $600 million for the railway's operating assets, essentially BC Rail Ltd.).

The agreement includes 15 renewal clauses of 60 years each, the first of which would start in 2094, if both parties agree (which is where the 990 years comes in). CN has not paid for any of the renewal options, which would be exercised one at a time, and the price for each 60-year extension would be negotiated at the time the previous term expired. For those who seek out the linked documents, the renewal options can be found in Schedule P of the Revitalization Agreement and the initial lease term of 60 years is described on page 17.

The first renewal option at the 60 year mark is at CN's sole discretion, as it has already paid for 90 years. It simply has to give BCRC three years notice that it intends to continue for the final 30 years.

At the 90-year mark (2094), either party can break the lease unilaterally. BCRC must give CN five years notice that it intends to do so, while CN must give three years notice.

In either case, if the lease is ended at that point, the following applies.

CN must return all the track to the province in the same condition as when the lease began. In practical terms, that means the track must be safe, at the 2004 speed limits, for trains of loaded railcars weighing up to 143 tons each (the current mainline standard in North America), except for some branchlines and the northernmost part of the system, where 131.5 tons was the limit in 2004
 
But if the government does not want to renew in 2094 or at any of the later 60-year intervals, it has to purchase the "Operating Enterprise" from CN under the "Re-purchase Option". Unfortunately, the definition of the latter is blacked-out in the contracts, so we have no idea of what this entails. The implication, though, is that CN could require the government to purchase the physical operating assets of the railway, such as a certain number of locomotives and freight cars, shop buildings and other structures, road vehicles and so on.

If CN wants to renew for 2094-2154, or any of the subsequent 60-year extensions, and the government agrees, CN has to pay what is defined in the transaction contracts as Additional Rent. The amount is not spelled out and presumably would be negotiated at the time. In theory, the government could decide the arrangement is working just fine and charge CN just $1 for the next 60 years.

Also, in theory, teleportation might have been invented and perfected by then, and the whole matter will be moot.

EDITED at 01:18, April 7, to correct the original statement that CN owns the rail, ties and ballast. In fact, these are owned by BCRC as would be any replacement materials, which must be of the same standard as the original materials, unless the landlord consents otherwise.

 


 



Edited 8 time(s). Last edit at 04/07/20 01:18 by railsmith.

That's a wonderful analysis.

Posted from Android

So, if my math is correct, CN leases the operating rights for BC Rail for $1.7 million a year.  I'm not sure of current traffic levels on BCOL, but for comparison I'll offer two examples of operating lease rates.

The first is a shortline pays another shortline $5.75 per revenue/loaded car moved over 13 miles of trackage rights.

The second is from 25 years ago, but a class 1 built a small 2 track yard for a shortline as an interchange point.  The shortline paid $25 per loaded car for use of this yard.

 

Maybe CN needs to call Dennis Washington. BC Rail Link? He already runs the former BC Hydro now known as the Southern Railway of British Columbia.



Edited 1 time(s). Last edit at 04/06/20 09:45 by PHall.

jp1822 Wrote:
-------------------------------------------------------
> Rocky Mountaineer still operates over the route -
> seasonally at best. It's not very many trains even
> when in season now. 

With a major portion of the Rocky Mountaineer's route on the former BCR now out of service, will the Rocky Mountaineer that used the former BCR be discontinued?
BSB

BigSkyBlue Wrote:
-------------------------------------------------------
> jp1822 Wrote:
> --------------------------------------------------
> -----
> > Rocky Mountaineer still operates over the route
> -
> > seasonally at best. It's not very many trains
> even
> > when in season now. 
>
> With a major portion of the Rocky Mountaineer's
> route on the former BCR now out of service, will
> the Rocky Mountaineer that used the former BCR be
> discontinued?

The tender document for the bidders who wanted to operate tourist train services on the BC Rail and CN lines provides some interesting information. The bidding was opened while BC Rail and CN were still separate and included the BC Rail line between North Vancouver and Prince George and the CN line between Prince Rupert and Jasper.  

The document states that a contract would be awarded for an initial 10 years, with an option to renew for another five years. To quote it: "The initial term of any agreement resulting from this Request for Proposals shall be ten (10) years, commencing upon a date mutually agreed between BC Rail, CN and the successful bidder. BC Rail and CN reserve the right to extend any award resulting from this Request for Proposal for up to an additional five (5) years, as mutually agreed with the successful bidder."

By the time a contract was awarded, CN had taken over BC Rail and had selected Rocky Mountaineer as the winning bidder. The contract was awarded on September 3, 2004, but when did the clock start ticking on the 10 to 15 years that it was valid for?

Operations did not begin until May 1, 2006. If that's when the 10-15 years began, it means that 2020 would be the 15th year, and a new contract extension would be required to continue beyond 2020.

The daily North Van-Whistler train was cancelled after 10 years, and that portion of the run was tacked on to the existing Whistler-Quesnel-Jasper service. That train only operates once a week and is clearly Rocky's poorest performer. Will Rocky want to seek an extension from CN?

 

PHall Wrote:
-------------------------------------------------------
> Maybe CN needs to call Dennis Washington. BC Rail
> Link? He already runs the former BC Hydro now
> known as the Southern Railway of British Columbia.

Now that five years has passed since the take-over, CN does have the right to sub-let "all or any portion of the Leased property without the consent of the Landlord."

PHall Wrote:
-------------------------------------------------------
> Maybe CN needs to call Dennis Washington. BC Rail
> Link? He already runs the former BC Hydro now
> known as the Southern Railway of British Columbia.

SRVI, Southern Rail Vancouver Island is the freight operator on Vancouver Island, where the Island Corridor Foundation is the organization responsible for the former
E&N Rail corridor. SRVI is a Washington Group company.  So, Dennis Washington doesn't mind being the operator on a railway owned by someone else. 

eminence_grise Wrote:
-------------------------------------------------------
> PHall Wrote:
> --------------------------------------------------
> -----
> > Maybe CN needs to call Dennis Washington. BC
> Rail
> > Link? He already runs the former BC Hydro now
> > known as the Southern Railway of British
> Columbia.
>
> SRVI, Southern Rail Vancouver Island is the
> freight operator on Vancouver Island, where the
> Island Corridor Foundation is the organization
> responsible for the former
> E&N Rail corridor. SRVI is a Washington Group
> company.  So, Dennis Washington doesn't mind
> being the operator on a railway owned by someone
> else. 

Well yeah, his Montana Rail Link runs on BNSF tracks which he has a long term lease on.

Looking back to 2004, how hard did CP and BNSF work to try to get BC Rail at the time and what was different about CN's bid verses the others?  Was CN the highest bidder for the rights to the railroad?

Northern Wrote:
-------------------------------------------------------
> Looking back to 2004, how hard did CP and BNSF
> work to try to get BC Rail at the time and what
> was different about CN's bid verses the others? 
> Was CN the highest bidder for the rights to the
> railroad?

I was told CP withdrew their bid before the closing date, which is allowed.

Northern Wrote:
-------------------------------------------------------
> Looking back to 2004, how hard did CP and BNSF
> work to try to get BC Rail at the time and what
> was different about CN's bid verses the others? 
> Was CN the highest bidder for the rights to the
> railroad?

CN paid the most.

$1 billion in all. This was broken into $150 million for the 90-year lease, $600 million for the operating assets, and $250 million to buy $852 million in unused tax credits that BC Rail had accumulated since the late 1980s. 

It then took four tax years (2004-2007) for CN to apply all those credits against its Canadian income to reduce its corporate income tax by $250 million. That put any American bidder at a disadvantage because the tax credits would have been worth very little to them, as they could only be applied against Canadian income for a 20-year period.

The tax credits were a separate deal that bidders did not have to apply for, but it obviously gave the B.C. government an incentive to pick a Canadian bidder for whom the credits would be valuable.

There was no guarantee that the $852 million would actually produce a tax saving of $250 million, so the government agreed to indemnify CN if there was any shortfall. To my knowledge, that indemnity was never drawn on, so presumably CN did get at least $250 million back, making its net cost for the deal $750 million.

The monetary value of the other bids was never disclosed officially. However, in a 2003 year-end interview with a newspaper, CEO Rob Ritchie implied that CP's bid would have had benefits to the B.C. economy aside from the cash value paid to the government, but he understood that the government had given priority to the cash paid, and went with the highest bidder. As he put it, "B.C. needs money and that's how they went."

BNSF did not bid in its own right but was a silent partner in the bid by OmniTrax, which remained as one of three bidders in the final round. As another poster has mentioned, CP dropped out shortly before the winner was announced.

RailAmerica and Genesee & Wyoming had also been involved earlier on, but that was only revealed by leaks long after the deal closed.



Edited 1 time(s). Last edit at 04/12/20 00:43 by railsmith.