Thursday, June 11, 2009
BC Rail: Going ... going ... but not gone yet
July 14, 2009 is only 32 days away. It's an important date in B.C. history because it's the 5th anniversary of the signing of the BCRail Corporation and BCRail Properties Ltd. transaction with Canadian National Railway Company (CN) on July 14, 2004.
Those agreements have been kept secret.
On March 31, 2005, Wayne Straeleff, Auditor General of British Columbia, provided some uncomfortable glimpses into that situation in his Report to the Legislative Assembly. Here are some excerpts:
26. Contingencies and Commitments
... As a result of the transaction the province and BCRC have provided commercial indemnities to CN with respect to the transaction and indemnities related to income tax attributes of BCRail Ltd. and BC Rail Partership at closing. The maximum present value (calculated at 9%) of amounts payable under the tax indemnities related to income tax attributes is $366 million ...
The maximum payable under the commercial indemnities - not related to income tax attributes - is limited to $263 million. There are certain other specific indemnities (including certain environmental indemnities and matters unrelated to the industrial freight rail business) for which there are no limits on the amount payable thereunder.
The province and BCRC believe it is unlikely that the province or BCRC will ultimately be held liable for any amounts under the commercial and tax indemnities other than the payment of $490,000 which was identified, except for the amount, prior to the transaction's financial close.
33. Significant events
British Columbia Railway Company (BCRC) Operations
On July 14, 2004, BCRC and BCRC Properties Ltd. completed a transaction with Canadian National Railway Company (CN) pursuant to an agreement signed between the parties on November 25, 2003 (the "BCRail/CN Transaction") Under the terms of the BC Rail/CN Transaction agreement, CN assumed BCRC's industrial freight railway business by purchasing the shares of BC Rail Ltd., the partnership interests of BC Rail Partnership, and railcars from a related entity (?) (collectively "BC Rail) for cash proceeds of $1.0 billion. The gain on the BC Rail/CN Transaction is $199 million, calculated as follows:
Proceeds: $1,000 million
Deposition costs: ($19 million)
Net assets of BC Rail transferred to CN including cash assumed by CN: ($782 million)
Gain on BC Rail/CN Transaction: $199 million
The proceeds from the BC Rail/CN Transaction were used to repay all outstanding debt due to the province at a cost of $510 million. The province, however, still retains the associated external debt and as a result the debt has been reclassified as taxpayer-supported debt. The proceeds were also used to pay a $443 million dividend to the province. The balance was retained by BCRC to pay transaction costs and fund future corporate requirements.
Prior to the BC Rail/CN transaction, BCRC and BCRail Partnership entered into a Revitalization Agreement, under which BC Rail Partnership leased the railbed and related infrastructure from BCRC under a long-term lease. BC Rail Partnership prepaid all lease payments under the Revitalization Agreement. The lease of certain items included in railbed assets is being accounted for as an operating lease. Assets under the operating lease include land, grade, ballast and track laying and surfacing. The remaining railbed assets and track infrastructure have been treated as a capital lease. CN assumed responsibility for the Revitalization as part of the BC Rail/CN Transaction.
The Revitalization Agreement has an initial term of 60 years and gives CN the option to renew the lease for an additional 30 years at no cost to CN, and allows for further extensions to the term of the Revitalization Agreement should BCRC not exercise its option to repurchase the rail operations. The maximum term of the Revitalization Agreement is 990 years.
The BC Rail net operating income for the 1206 days ending July 14, 2004 was $16 million ($86 million for the year ending March 31, 2004).
The province and BCRC have provided indemnities to CN with respect to the BCRail/CN Transaction (see Note 26).
Public Accounts 2004-05
Notes to Summary Financial Statements
for the Fiscal Year Ended March 31, 2005
BC Rail Sale Sidetracked
Columbia Journal - 04/04
Full story is here.
The BC Liberal government’s move to sell BC Rail, already marred in scandal, has taken another hit as newly leaked documents showing a secret deal to sell railroad lands to the Canadian National Railway for just one dollar have come to light ...
”In addition, the leaked sections of the agreement allow -- after just five years -- for the sale of public land under rail lines to CN for one dollar. These lands include very valuable waterfront properties between North Vancouver and Squamish.”
The Liberals had repeatedly promised during the 2001 provincial election campaign that they would not sell off BC Rail if they formed the next government. Shortly after they were elected, they began the process to do just that.
Since the release of these documents, critics are now challenging the government’s claim that it will make about $1 billion from the sale of the highly profitable railway, since the huge land give-away and other taxpayer funded bonuses for CN are now estimated to cost around $1.2 billion.
The documents are also adding more fuel to the accusations [of] influence peddling by the government and collusion with CN. Influence peddling is one of the suspicions of police investigators who raided the legislature last December. Several other rail firms that had bid on the sale are also alleging it ....
... stop the sale has been echoed by a growing coalition of municipal councils, labour, small business and residents’ organizations, both along BC Rail routes and across the province.
The group recently sent a letter to Liberal Premier Gordon Campbell demanding the sale be stopped.
“A broken promise and a criminal investigation betray the trust of the people of British Columbia,” the letter said. “The only responsible decision you and your government can make is to suspend the sale of BC Rail until matters related to the raid on the legislature have been fully investigated by the police.”
The letter was signed by Fort St. James Mayor Jim Togyi, Quesnel Mayor Nate Bello, and North Vancouver City Mayor Barbara Sharp and by nine Councilors from Williams Lake, Prince George, Squamish and North Vancouver City, and six large business enterprises in the region, along with representatives from railway unions.
The coalition is also calling on the federal Competition Bureau, which has to rule on the legitimacy of the sale before it can take place, to block it. It is also considering court action to stop the government’s move.
But the government is still pressing ahead with the sale, claiming it will be an overall plus for BC communities and the economy.
Despite audited financial statements showing the provincially owned rail system returned a profit in 19 of the past 20 years, Campbell insists that, “recent financial losses for the year preceding the sale shows BC Rail is a money-losing public venture.”
The only money generator in California is Disneyland. Now there's a company that could put California back on its financial feet.
In the Vancouver Sun this morning, the editorial board likened British Columbia's deficit budget to a child's building blocks of A, B, and C.... simple economics for simple people who are supposed to be OPEN and TRANSPARENT with our tax dollars. The stock market hopefully will look like the letter "V", but the think tank economists are predicting the letter "W" will be in the offing, and then there is the dire straights in which Japan found itself looking at the letter "L"... where it hit bottom and stayed... for one long time.