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Agency Rulings
Decision No. 498-R-1993
July 27, 1993
IN THE MATTER OF an Agreement between the Canadian National Railway Company and the Cape Breton and Central Nova Scotia Railway Limited, pursuant to section 158 of the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.), to convey by sale the Canadian National Railway Company's lines of railway between Truro and Sydney to the Cape Breton and Central Nova Scotia Railway Limited comprising 113.98 miles of the Hopewell Subdivision between Truro and Havre Boucher, 113.90 miles of the Sydney Subdivision between Havre Boucher and Sydney, and 8 miles of the Oxford Subdivision between Stellarton and the end of rail, including spurs, (hereinafter the Truro-Sydney line), land and buildings, related facilities and itemized equipment, in the province of Nova Scotia.
IN THE MATTER OF a public hearing held by the National Transportation Agency from June 7 to June 10, 1993 in Sydney, Nova Scotia and on June 25, 1993 in Halifax, Nova Scotia.
File No. T 6135/674-1
HEARD AT: Sydney, Nova Scotia between June 7 and June 10, 1993 and at Halifax, Nova Scotia on June 25, 1993.
BEFORE:
Mr. Craig S. Dickson, Chairman of the Panel, National Transportation Agency
Mr. Edmund J. O'Brien, Member, National Transportation Agency
Mr. Keith Penner, Member, National Transportation Agency
COUNSEL, NATIONAL TRANSPORTATION AGENCY:
Ms. Alix Jenkins
Ms. Shelley Appleby-Ostroff
LIST OF PARTICIPANTS:
Mr. Serge Cantin, Q.C. - General Counsel for the Canadian National Railway Company
Mr. Myer Rabin - Regional Counsel for the Canadian National Railway Company
Ms. Mary E. Taylor - Canadian National Railway Company's panel
Mr. Claude Poirier
Mr. Harry R. Munro - Counsel for the Cape Breton and Central Nova Scotia Railway Limited
Mr. Bruce M. Flohr - Cape Breton and Central Nova Scotia Railway Limited panel
Mr. Mark H. Westerfield
Senator Alasdair Graham - Public interest
Mr. Iain Angus - MP, Thunder Bay-Atikokan, Ontario
Mr. Francis LeBlanc - MP, Cape Breton Highlands-Canso, Nova Scotia
Mr. Russell MacLellan - MP, Cape Breton-The Sydneys, Nova Scotia
Honourable Elmer MacKay - MP, Central Nova, Nova Scotia
Honourable Dr. John Savage - Premier, Province of Nova Scotia
Mr. Donald MacDougall - Department of Transportation and Communications for the Province of Nova Scotia
Mr. John MacEachern - MLA, Cape Breton East, Nova Scotia
Ms. Alexa McDonough - Leader, Nova Scotia New Democratic Party, MP, Halifax-Chebucto, Nova Scotia
Mayor Michael H. White - Town of North Sydney, Nova Scotia
Mayor Donald MacInnis - Town of Glace Bay, Nova Scotia
Mr. Ronald MacSween - Councillor, County of Cape Breton, Nova Scotia
Mr. J. Wesley Stubbert - Deputy Warden, County of Cape Breton, Nova Scotia
Mr. John A. Morrison - Cape Breton Board of Trade
Mr. Vince MacLean - Grand Narrows and District Board of Trade
Mr. John Coady - Cape Breton Joint Expenditure Board
Mr. James Cunningham
Mr. John Davis - Strait Area Waterfront Development Corporation
Mr. Peter Vuillemot - Atlantic Provinces Transportation Commission
Mr. Thomas P. Fleming - Cape Breton Development Corporation
Mr. Adrian White - Cape Breton Development Corporation
Mr. Rod MacDougall - Canadian National Railway Company Pensioners Association
Mr. David G. Swales - Brotherhood of Locomotive Engineers
Mr. Arthur R. Hartlen - Brotherhood of Maintenance of Way Employees
Mr. G.D. Housch - Brotherhood of Maintenance of Way Employees
Mr. David Brown - Brotherhood of Maintenance of Way Employees
Mr. Daniel Tomiczek - Canadian Brotherhood of Railway Transport and General Workers
Mr. Harold E. Patterson - United Transportation Union
Mr. Ronald A. Bennett - United Transportation Union panel
Mr. Donald Slaunwhite
Mr. A.J. MacRae
Mr. Stan Horodyski - National Automobile, Aerospace and Agricultural Implement Workers Mr. Tom Wood Union of Canada (CAW-Canada) panel
Mr. John Merritt
Mr. Joe Jenkins
Mr. A. Bruce McDonald - Public Interest
Mr. Charles Palmer - Public Interest
Honourable D. Burchell - Public Interest
Mrs. Catherine Kohlsmith - Public Interest
Mr. Tom MacNeil - Public Interest
Ms. Marjorie MacKeigan-Peeples - Public Interest
Mr. John Pearce - Transport 2000 Atlantic
Mr. John Gratwick - Halifax Dartmouth Port Development Commission
CONVEYANCE AGREEMENT
On September 18, 1992, the Canadian National Railway Company (hereinafter CN) entered into an Asset Purchase Agreement (hereinafter the Agreement) with the Cape Breton and Central Nova Scotia Railway Limited (hereinafter CB & CNS Railway) to convey by sale the CN Truro-Sydney line to the CB & CNS Railway. On January 27, 1993, the National Transportation Agency (hereinafter the Agency) received notice from CN and the CB & CNS Railway of the Agreement pursuant to subsection 158(2) of the National Transportation Act, 1987 (hereinafter the NTA, 1987). A copy of the Agreement was filed with the Agency. Both CN and the CB & CNS Railway have requested that the Agency preserve the confidentiality of the business sensitive portions of the Agreement and attached Schedules.
In accordance with the Agreement, CN has agreed to convey the Truro-Sydney line to the CB & CNS Railway, a provincially incorporated railway company, which is a wholly owned subsidiary of RailTex Inc. (hereinafter RailTex), an American company. RailTex owns and operates a number of short-line railways in North America, including the Goderich-Exeter Railway Company Limited (hereinafter the Goderich-Exeter Railway), in the province of Ontario.
Pursuant to the terms of the Agreement, to the extent assignable, the CB & CNS Railway will assume all of the duties and obligations under CN's existing leases, licences, contracts and orders (other than confidential contracts between CN and customers relating to inter-line traffic). The CB & CNS Railway also agrees to maintain and operate the Truro-Sydney line as a freight railway line providing services to existing and future rail users as a common carrier. Article 15 of the Agreement also grants CN the right of first refusal to reacquire the Purchased Assets, or any portion thereof, of the Truro-Sydney line for fair market value and enables CN to assign this right to the Province of Nova Scotia (hereinafter the Province) or a short line operation of CN's choosing.
In addition, pursuant to Article 11.1(c) of the Agreement, CN undertakes to obtain an Order in Council or other instrument effecting the transfer, to CN, of the lands of the Truro-Sydney line, which are presently vested in the Crown and which form part of the Canadian Government Railways. Furthermore, the issuance of an Order in Council approving the sale of the Truro-Sydney line to the CB & CNS Railway under the terms and conditions specified in the Agreement is a condition of the Agreement.
CN and the CB & CNS Railway have also agreed to an Operating and Marketing Agreement and an Interchange Agreement which are incorporated into, and constitute part of, the Agreement. Pursuant to the Operating and Marketing Agreement, the CB & CNS Railway shall provide train service on the Truro-Sydney line in a manner consistent with existing levels of service, or the needs of the marketplace, and shall maintain the Truro-Sydney line to standards that will ensure the safe operation of equipment. CN has agreed to do its best to supply equipment to meet current and projected traffic requirements for traffic moving to/from the Truro-Sydney line.
Pursuant to the Interchange Agreement, CN and the CB & CNS Railway have agreed to make certain yard trackage available at Truro for the interchange of traffic. Under the terms of the Operating and Marketing Agreement, the interchange of traffic will take place in accordance with time schedules and frequency to be established by the parties. Changes to level of train service will be subject to negotiation between the parties. The CB & CNS Railway will receive a carload rate for the interchanged traffic based on a rate schedule agreed to by the parties. Both parties have agreed to cooperate and do their best to coordinate their marketing efforts on the Truro-Sydney line.
The Operating and Marketing Agreement further provides that CN will be entitled to quote and publish rates and enter into contracts to collect its related revenues and applicable freight subsidies for traffic to and from stations on the Truro-Sydney line which will be routed over CN lines. The CB & CNS Railway will have the exclusive right and responsibility to publish tariffs and enter into contracts governing switching, demurrage or storage charges and other services provided by the CB & CNS Railway at stations on the Truro-Sydney line in respect of traffic handled via CN lines.
PUBLIC NOTICE OF THE AGREEMENT
In accordance with the direction of the Agency of February 18, 1993, CN served copies of the public notice of the Agreement on interested parties on February 26, 1993 and published the notice in local area newspapers on March 3 and March 5, 1993. Interveners were given until April 5, 1993 to file submissions with the Agency and CN was given until April 15, 1993 to file its replies to any submissions received.
Interventions were received in response to the notice; the majority of interveners opposed the proposed conveyance and requested that public hearings be held.
PUBLIC HEARING
The Agency issued a Notice of Public Hearing on May 4, 1993 indicating that a public hearing would be held in Sydney, Nova Scotia commencing on June 7, 1993.
During the course of the public hearing, the Agency granted a request by the Province to hear a presentation by Dr. John Savage after he had been sworn in as Premier. The public hearing adjourned in Sydney on June 10, 1993 and was subsequently reconvened in Halifax, Nova Scotia on June 25, 1993.
MATTERS TO BE CONSIDERED BY THE AGENCY
Pursuant to section 158 of the NTA, 1987, a federally regulated railway company may convey a line of railway, be it a branch or main line, to another railway company of its choosing, under terms mutually agreed upon by both parties. The conveyance of a line of railway to another company pursuant to section 158 is deemed not to be an abandonment.
Subsection 158(3) of the NTA, 1987 states that:
..., the Agency shall, ... approve the agreement for the conveyance unless the Agency determines that the conveyance would not be in the public interest or that the company to whom the line or segment is to be conveyed is not authorized to operate it. (Emphasis added)
Accordingly, pursuant to section 158 of the NTA, 1987, the Agency must take into consideration the public interest and the proposed acquirer's authority to operate the line to be conveyed. In its consideration of the public interest, the Agency shall have due regard to the national transportation policy set out in subsection 3(1) of the NTA, 1987.
PUBLIC INTEREST
The following issues were raised by the parties: the financial status and viability of both RailTex and the CB & CNS Railway; the impact the proposed conveyance would have on rates, and subsidies paid to shippers pursuant to the Atlantic Region Freight Assistance Act, R.S.C., 1985, c. A-15 (hereinafter ARFAA) and the Maritime Freight Rates Act, R.S.C., 1985, c. M-1 (hereinafter MFRA), as well as its effect on rail service and intermodal competition from CN and Newfoundland traffic; the applicability of the Newfoundland Act, 1949, R.S.C., 1985, Appendix II, No. 32 (hereinafter the Terms of Union) to a provincial operator; rail safety issues; the right of first refusal; employment and property issues; and, whether there are any constitutional obligations to operate the Truro-Sydney line.
Financial Status of RailTex and the CB & CNS Railway
During the course of the public hearing, RailTex testified that the purchase of the Truro-Sydney line by the CB & CNS Railway will be financed mainly by the procurement of loans from three different lending institutions - the National Bank of Canada, the First Interstate Bank and the Massachusetts Mutual Life Insurance Company. RailTex further advised that it has a revolving line of credit with all three lending institutions for an acquisition such as the Truro-Sydney line, and, therefore, no further approval would be required to acquire the funds necessary to complete the transaction.
One intervener who reviewed RailTex's audited 1992 Financial Statement stated that RailTex had a substantial debt load, indicating a highly leveraged equity to debt ratio. It was this intervener's opinion that RailTex would not be able to generate sufficient internal funds to pay off its debt but would have to continually rearrange its financing.
The Agency noted, from the evidence provided, that RailTex's 1992 current liabilities exceeded its current assets.
RailTex's explanation for this situation was that its 1992 current liabilities included short-term notes payable. RailTex stated that accounting rules require that indebtedness that is due for payment within the next twelve months be carried as a current liability rather than as a long-term indebtedness. RailTex submitted that the short-term notes payable in the amount of $8,300,000 which were due in June 1993 were fully renegotiated and converted into long-term debt. This conversion reduced RailTex's current liabilities by $8,300,000.
RailTex further submitted that its 1991 and 1992 income statements indicate that the net income for these years is evidence of its ability to cover long-term and short-term debt payments. RailTex further stated that its auditors' May 3, 1993 report did not indicate that RailTex would have any financial problems in the near future.
Further, the Province testified that its Department of Finance along with a chartered accounting firm had examined the financial documentation RailTex presented at the public hearing in Sydney and were of the opinion that RailTex was a financially viable firm capable of supporting the CB & CNS Railway during an adverse financial period.
RailTex also stated that its Board of Directors recently decided to convert RailTex from a privately held stockholder company to a publicly owned company and that RailTex has already taken preliminary steps towards accomplishing this goal.
Maintenance and Expenditures
The issue was also raised as to whether the CB & CNS Railway would have sufficient capital to operate the Truro-Sydney line, sustain any losses and carry out the necessary repairs and maintenance to the rail infrastructure, bridges and grade separations.
In its evidence, CN indicated that insofar as the present condition of the Truro-Sydney line is concerned, the track is generally in good condition and the bridges and culverts, based on the amount and type of traffic handled, are also in good condition.
RailTex submitted that it had conducted its own review of the Truro-Sydney line and agreed with the conclusion of CN that the track is in generally good condition.
Regarding future rehabilitation costs, CN indicated that it does not foresee any major expenditures for the Truro-Sydney line within the next three years. CN contended that the most significant expenditures foreseen for this period are annual tie replacement, at a rate of approximately six thousand per year for a projected cost of approximately $250,000 per year and repairs to a bridge located at mileage 49.4 of the Sydney Subdivision in 1995 at an estimated cost of $350,000.
With respect to the provision of funding to cover the future maintenance of the line, RailTex stated that the business plan for the CB & CNS Railway allows for general maintenance of way expenditures of approximately $1,700,000 a year, which would include such items as snow removal, brush and vegetation control, signal parts and maintenance, track repair components (primarily ties and ballast), equipment rental or purchase of the vehicles and machinery necessary to perform the work and maintenance of the track. RailTex indicated that those expenses pertaining to ongoing work would be treated as an annual outlay but the acquisition of the machinery would be treated as part of the start-up acquisition budget expense.
RailTex maintained that the business plan also takes into account the longer term maintenance and replacement cost of such capital items as bridges. RailTex contended that both RailTex and the CB & CNS Railway are prepared and capable of absorbing such costs in the course of business and that they have adequate funds built into their business plan to cover the costs of operations.
Liability and Property Insurance
The participants at the public hearing also expressed concern as to whether the CB & CNS Railway would carry adequate liability and property insurance on the Truro-Sydney line.
RailTex responded that if the sale were approved, the CB & CNS Railway would carry $25,000,000 in liability insurance per occurrence with a $50,000 self-retention to cover any accidents and emergencies that may occur on the Truro-Sydney line. RailTex further indicated that the liability insurance policy will cover environmental issues such as ground contamination and pollution. In addition, RailTex stated that the CB & CNS Railway intended to carry property insurance for all major structures at replacement value in order to ensure that sufficient funds would be available to restore the line to service in the event of a catastrophe.
Further, RailTex submitted that these policies, combined with the financial resources of RailTex and the regulatory regimes of the province of Nova Scotia, will provide a high degree of protection for the public and its workers and an assurance that the resources will be available to deal with emergencies. RailTex also advised that the CB & CNS Railway will be insured with an independent insurance company.
Rates
RailTex stated that there would be no immediate change in through rates either to or from the CB & CNS Railway that involve CN. According to RailTex, in the event that the conveyance is approved, all rates and all tariffs which CN has entered into, whether open or confidential, will remain in effect. Further, RailTex stated that CN would bill the customers, collect the revenues and continue to market the Truro-Sydney line. On inter-line movements not already covered by the Agreement, the CB & CNS Railway would have to negotiate the division of revenues with CN.
With respect to intra-line traffic, RailTex submitted that the CB & CNS Railway would assume rates that are currently in effect at start-up but for any new business or any major increases or decreases, the rates would be negotiated by the CB & CNS Railway with the shipper. RailTex stated that while it could not project whether the rates of the CB & CNS Railway would be higher or lower in the future, it did indicate that on all of its other rail lines, the rates have either remained the same or decreased.
In addition, the Province submitted that with respect to rates, it has no intention of requiring railway companies to publish tariffs under its proposed railway legislation.
Rate Subsidies
With respect to inter-line traffic, CN maintained that it would be quoting rates and issuing the bills of lading for traffic moving from points within the select territory to points in Canada outside the select territory. Accordingly, CN, not the CB & CNS Railway, would be claiming subsidy benefits under ARFAA.
In the case of intra-line movements of traffic, CN indicated that the CB & CNS Railway will be claiming subsidy benefits under the Atlantic Region Special Selective and Provisional Assistance Regulations, SOR/78-495 (hereinafter ARSSPAR). However, since the definition of "carrier" in paragraph 2(1)(a) of ARSSPAR precludes provincial railway carriers, CN intends to take the necessary steps to have that paragraph of ARSSPAR amended to include railway companies under provincial jurisdiction that operate within the select territory in the definition of "carrier". CN advised that it intends to apply to the Governor in Council for the amendment at the same time that CN requests the appropriate Governor in Council approvals for the transfer of the lands from the Crown to CN and the sale of the Truro-Sydney line to the CB & CNS Railway.
Service and Equipment
RailTex stated that the CB & CNS Railway's business plan initially contemplates providing the same level of service as CN is currently providing on the Truro-Sydney line; namely, daily through-train service in both directions over the full length of this line as well as switching services to the industries along the Truro-Sydney line in accordance with CN's current schedule.
Regarding motive power, RailTex stated that, according to the above plan, there will be one locomotive located in Sydney, another in Port Hawkesbury and one in Stellarton. In addition, two sets of four units will make up the through-train, for a total of eleven locomotives. RailTex maintained that its general practice is to lease its motive power from the seller during the initial start-up phase of operations until its own locomotives are in position.
With respect to the provision of rail cars, CN submitted that it will continue to provide the cars for the traffic that moves to and from the Truro-Sydney line. For intra-line movements, RailTex indicated that it will supply the rail cars.
Intermodal Traffic
Interveners questioned the wisdom of allowing CN, under the terms of the Agreement, to compete intermodally with the CB & CNS Railway for traffic on the Truro-Sydney line.
In response to an enquiry as to whether CN intends to compete directly by truck with the CB & CNS Railway for existing traffic on the Truro-Sydney line if the sale were to take place, CN maintained that it intended to compete intermodally with the trucking industry. Upon being questioned further, CN admitted that while it will compete for traffic from customers on the Truro-Sydney line with CN's intermodal service, it will do so in accordance with the provision of the Agreement which states that Cape Breton and Central Nova Scotia and CN "... agree to coordinate their our marketing efforts so as to maximize the revenue generated from the Short Line to their mutual benefit.".
RailTex also acknowledged that, under the terms of the Agreement, CN would have the continuing right to solicit traffic on the Truro-Sydney line; CN would move such traffic intermodally by highway to a point such as Moncton and then via flatcar for furtherance to destination.
Newfoundland Traffic
Insofar as competing intermodally for Newfoundland traffic is concerned, CN indicated that it has no intention of diverting its Container on Flat Car (COFC) traffic to truck as a result of the proposed transaction. CN stated that the way in which it routes its traffic in the future will continue to depend upon the service requirements and the economies of both gateways (i.e., North Sydney and Halifax) and the volume of traffic that CN continues to carry to and from Newfoundland.
With respect to the CB & CNS Railway's intention concerning Newfoundland traffic, RailTex stated that it has already met with Marine Atlantic and discussed measures to attract more of the business destined to Newfoundland through the Port of North Sydney rather than through the Port of Halifax.
Newfoundland's Terms of Union
CN submitted that, for movements originating in Newfoundland which will traverse the Truro-Sydney line and be interchanged with the CB & CNS Railway in Truro for furtherance by CN to Central Canada, CN would be issuing a bill of lading, supported either by a published tariff pursuant to the NTA, 1987 or a confidential contract. Therefore, CN concluded that it would be required to abide by Term 32(2) of Newfoundland's Terms of Union. The fact that the rail movement would transit over the CB & CNS Railway is totally immaterial in CN's opinion; the CB & CNS Railway would only be acting as a subcontractor to CN for that segment of the journey and it would be up to CN and the short line to agree on adequate compensation for that segment of the movement. Similarly, CN maintained that Term 32(2) would also apply to traffic terminating in Newfoundland which originated elsewhere in Canada.
In situations where traffic would originate at a point on the Truro-Sydney line and be routed to Newfoundland without any CN intervention, CN maintains that the CB & CNS Railway, as a provincial operator, would not have the authority to issue an interprovincial tariff. Since such a movement is not a through movement, CN contends that the movement would not be governed by Term 32(2).
Safety
The adequacy, or lack, of provincial safety regulations and procedures governing rail operations and the carriage of dangerous commodities in Nova Scotia was of major concern to several participants at the public hearing.
Insofar as rail safety is concerned, RailTex indicated that the CB & CNS Railway has a vested interest in maintaining the safe operation of the Truro-Sydney line and that safety is RailTex's number one priority. RailTex indicated that the Canadian Code of Operating Rules will govern the train operations of the CB & CNS Railway, and that the rules of the Association of American Railroads will govern the interchange of traffic.
RailTex maintained that, if the conveyance were approved, the CB & CNS Railway would comply with existing Canadian federal government regulations governing railroad operations ranging from control of noxious weeds and the maintenance of fencing along the right-of-way to the handling of hazardous cargo by train, whether the Province chooses to adopt them or not.
In this regard, the Province indicated at the public hearing that it will develop up-to-date railway legislation which "will provide the legislative framework to regulate the safety of railways through the adoption of existing federal regulations and railway operating rules". Further, the Province stated that preliminary discussions have taken place with federal authorities "for contracting the inspection of rail lines in Nova Scotia" and that the Province has "an informal agreement with the Transportation Safety Board for the inspection and analysis of railway accidents". In addition, the Province submitted that it intends to either amend its Dangerous Goods Transportation Act, R.S.N.S. 1989, c. 119 governing the carriage of hazardous goods to include rail or will incorporate this legislation into the proposed railway legislation.
RailTex also indicated that it has a contingency response plan that could be implemented in case a catastrophic event occurs on the Truro-Sydney line and intends to adopt other precautionary measures.
Right of First Refusal
It became evident at the public hearing that this issue was of major concern to the interveners. During the public hearing, the interveners sought clarification from CN, RailTex and the Province as to what type of agreement, if any, the parties had actually entered into and whether the terms of such an agreement included a guarantee of future rail service on the Truro-Sydney line.
The Province indicated, at the public hearing, that it will continue its negotiations with the CB & CNS Railway to provide the Province with a right of first refusal to purchase the land, or any portion of it, if the railway ceases operations or is offered for sale. The Province also advised that it anticipates entering into additional agreements for the purchase of rails and other equipment. Moreover, CN provided the Province with written confirmation, by letter dated June 30, 1993, that, in the event that the CB & CNS Railway ceased operations on the Truro-Sydney line, CN "agrees to ensure the continuation of rail service on the Truro-Sydney provincial short-line.".
Employment Issues
Representatives from the different unions representing the CN employees on the Truro-Sydney line intervened on behalf of their members. They were opposed to the sale transaction due to the fact that it was their belief that, if the sale were approved, employees would be laid off and others required to relocate. They questioned CN officials extensively on many issues including the reasons for the sale and alleged demarketing of the Truro-Sydney line. RailTex was asked to respond to questions concerning the purchase price of the Truro-Sydney line, hiring practices, terms of employment, employee benefits, pension plans, wages and profit sharing.
In its testimony, CN indicated that there are currently 111 employees on the Truro-Sydney line, all of whom will remain the responsibility of CN. CN maintained that all but four management personnel are covered by collective agreements. The 107 employees are represented by six different unions. CN stated that, in general terms where employment is terminated, the non-operating groups are subject to the provisions of their specific agreements while the operating groups, such as the United Transportation Union and the Brotherhood of Locomotive Engineers, must negotiate those benefits which have not already been spelled out in their agreements.
RailTex indicated that, while the Agreement does not include any provisions for hiring current CN employees, it is seeking to hire a total of fifty-two (52) qualified persons with railroad experience, especially those with experience on the Truro-Sydney line. RailTex also advised that it will provide a right of first interview to CN employees currently working on the Truro-Sydney line.
Property Issues
Assurances were sought from CN and RailTex that the rights of adjacent property owners, with respect to lease agreements and right of access to cottages, would be protected under the terms of the Agreement.
RailTex maintained that it would honour all of CN's agreements but will ask that all parties ensure that the current owners/users are actually the signatories to the private crossing agreements. Further, RailTex stated that, providing it was able to comply with the requirements of the Nova Scotia Planning Act, R.S.N.S. 1989, c. 345, the CB & CNS Railway intended to sell all parcels of land that are not within the Truro-Sydney line's contiguous 100-foot right-of-way to the lessees of that property or adjacent property owners at current market values.
RailTex also indicated that the CB & CNS Railway would undertake to honour agreements with municipalities and road authorities with respect to crossings and related structures such as those agreements in effect with respect to the Canso Causeway, in addition to the agreements with individual landowners.
Constitutional Obligation to Operate the Truro-Sydney Line
Having examined the "pertinent railway history, including statutes and Orders in Council concerning the Intercolonial Railway and the Truro-Sydney line, as well as pertinent case law ...," Counsel for CN submitted that "neither the Government of Canada, as the owner, nor CN, as the "entrusted" manager, has a legal obligation, constitutional or otherwise, either to maintain service on or to ensure the continuous operation of the railway." In its submission, CN indicated that "there is no such obligation in the Constitution of Canada. Furthermore, no such obligation can be inferred from the legislation and Orders in Council related to the construction, ownership, and/or operation of the Truro-Sydney line." Counsel for CN "found no evidence of a trust deed between the Province of Nova Scotia and the Government of Canada and found no contract whatsoever imposing upon the Government of Canada (or CN) any such obligation."
CB & CNS RAILWAY'S AUTHORITY TO OPERATE
The CB & CNS Railway advised that the CB & CNS Railway was incorporated under the Nova Scotia Companies Act, R.S.N.S. 1989, c. 81 on September 3, 1992 without any restrictions on its objects and powers.
The CB & CNS Railway further advised that a company incorporated under either the Nova Scotia Companies Act or by Special Act under the provincial Railways Act, R.S.N.S. 1989, c. 383 may be authorized to operate a railway in the province of Nova Scotia. According to the CB & CNS Railway, a provincial railway company is not required to obtain pre-authorization from the Province, by way of a certificate or by licence, in order to operate a railway in Nova Scotia. Therefore, the CB & CNS Railway is of the view that the CB & CNS Railway has corporate authority to operate a railway in the province of Nova Scotia.
The Province concurred with the CB & CNS Railway's conclusion that the CB & CNS Railway has the authority to operate a railway in the province of Nova Scotia.
FINDINGS
Public Interest
In assessing the public interest, the Agency has carefully examined and considered all interventions and information filed with the Agency, including the oral presentations and arguments presented by the participants during the course of the public hearing.
Regarding the financial viability of RailTex, the Agency found that the profitability of RailTex has been more than acceptable in the last three years as the company posted good results in its operating and return ratios. Based on RailTex's financial performance and its ability to generate profits in the past, there is no apparent indication that it will not be successful in the future. Although the Agency findings did indicate that the capital structure of RailTex has changed significantly due to recent acquisitions by RailTex, which have been financed mainly by debt, the Agency is satisfied, in light of the fact that RailTex has decided to issue shares to the public, that RailTex's financial structure should improve.
Insofar as the availability of funding for the purchase of the line is concerned, the Agency is satisfied that sufficient capital will be made available to the CB & CNS Railway through financial institutions and/or through its parent company RailTex to finance the acquisition of the Truro-Sydney line, locomotives and other equipment necessary to operate the line.
With respect to the projected long-term viability of the CB & CNS Railway, the Agency has evaluated the business plan and projected income statements for the CB & CNS Railway for the first three years of operation and found that the financial results for years two and three were too optimistic. However, based on more conservative assumptions, the Agency determined that the profitability factors were reasonable. Therefore, based on the information provided by RailTex and the CB & CNS Railway, it would appear that the CB & CNS Railway will be able to generate adequate revenue in the future to cover its estimated operating and maintenance costs for the Truro-Sydney line, especially in view of the fact that both CN and RailTex have indicated that this line is in good condition and no major rehabilitation expenditures are anticipated in the near future.
Respecting the interveners' concerns about the adequacy of the CB & CNS Railway's insurance, RailTex has demonstrated that its liability and property insurance should be adequate to cover any future unforeseen occurrences on the Truro-Sydney line.
In examining CB & CNS Railway's future probability for success, the Agency took into consideration the previous experience of the general manager-designate of the CB & CNS Railway and his familiarity with railway operations and has concluded, based in part on his previous experience and record with the Goderich-Exeter Railway, that the general manager-designate has the qualifications necessary to operate the CB & CNS Railway successfully. Further, the Agency notes that it is the intention of the CB & CNS Railway to only hire qualified persons with railway experience.
Consequently, based on RailTex and its subsidiaries' proven record of profitability, RailTex's ability to market its lines successfully and increase its traffic base and the fact that RailTex will only be hiring qualified personnel with experience in railway management and/or operations to operate the Truro-Sydney line, the Agency is of the view that the CB & CNS Railway's business prospects for the Truro-Sydney line appear to be favourable.
With respect to rates set by the CB & CNS Railway on intra-line traffic, which represents approximately 50 per cent of the total traffic base, the Agency is satisfied, based on the testimony of RailTex that, if the sale were approved, the CB & CNS Railway would honour the rates currently in effect with shippers on the Truro-Sydney line. Further, the Agency is of the opinion that the CB & CNS Railway will negotiate with shippers and industry in good faith in an effort not only to maintain its present traffic base but also to attract new business to this line.
Concerning rate subsidies, the Agency notes that under the terms of the Operating and Marketing Agreement, CN will continue to publish rates, enter into contracts and handle revenue billing, including applicable freight assistance on inter-line traffic. The Agency also notes from the evidence given by CN during the public hearing that, if the conveyance were approved, CN will be quoting rates and issuing the bills of lading for traffic moving to and from the Truro-Sydney line.
The Agency is of the view, based on the above, that the existing legislation and regulations would permit eligible traffic moving from points on the Truro-Sydney line to points in Canada outside the select territory to participate in the MFRA and the Selective Westbound (Atlantic Region Selective Assistance Regulations, C.R.C. Vol. III c. 260) Programs, and would provide the necessary authority for the payment of freight assistance for such movements. However, the Agency is of the opinion that the CB & CNS Railway, as a provincial railway company, would not be eligible for freight assistance under the present regulations governing the Intra Program (ARSSPAR). The Agency notes, however, that CN intends to take the necessary steps to have ARSSPAR amended to provide for the payment of freight assistance to provincial railway companies operating within the select territory.
Insofar as the provision of rail service by the CB & CNS Railway is concerned, the Agency has examined the evidence presented, and the terms of the Agreement, and is of the view that shippers will continue to be adequately served.
Consequently, the Agency concludes that the proposed conveyance would not have a negative impact on shippers. Further, shippers and industry on the Truro-Sydney line appear to support this conclusion as none have opposed the proposed conveyance of the Truro-Sydney line. In fact, the APTC, which represents the interests of manufacturers and producers in the Atlantic Provinces in matters of transportation, supports the proposed sale of the Truro-Sydney line to the CB & CNS Railway.
With respect to CN competing intermodally with the CB & CNS Railway for traffic on the Truro-Sydney line or for Newfoundland traffic, after examining the evidence and the terms of the Agreement, the Agency has concluded that, while it is preferable that a short-line operation not be directly competitive with a major carrier, CN's intermodal service, which primarily competes with trucks, should not have a significant impact on the operations of the CB & CNS Railway. Moreover, the Agency is of the view that it is in CN's interests for the CB & CNS Railway to succeed as a feeder operation as its success will contribute to the economic health of both CN and the region.
Regarding the applicability of Newfoundland's Terms of Union to the CB & CNS Railway, the Agency takes note of CN's evidence that it will continue to meet its obligations under Term 32(2).
Insofar as rail safety is concerned, the Agency points out that it has no jurisdiction over the adequacy, or lack, of safety legislation in Nova Scotia governing provincial railways nor may it be prevented from carrying out its mandate set out in section 158 of the NTA, 1987 due to the lack or adequacy of such legislation. However, the Agency notes that RailTex has given its assurance that the CB & CNS Railway intends to comply with existing federal regulations and railway operating rules. Further, the Province has stated that it will implement the necessary legislation and agreements to ensure that provincially-regulated railway companies operate safely in the province and that it would not allow the CB & CNS Railway to begin operations before proper legislation is in place. The Province anticipates that such legislation will be passed by the provincial legislature by December 1993.
Regarding the right of first refusal, the Province stated that it has reached an understanding with the CB & CNS Railway and will continue negotiations with it with respect to granting the Province the right of first refusal to purchase the land, or any portion thereof, should the CB & CNS Railway cease operations of the Truro-Sydney line or offer this line for sale. Moreover, the Province anticipates entering into additional agreements with the CB & CNS Railway for the purchase of rails and other equipment.
The Agency notes that CN has provided the Province with written confirmation that if the conveyance were approved, and the CB and CNS Railway were to cease operations, CN agrees to ensure the continuation of rail service on the Truro-Sydney provincial short line. Considering the foregoing, this would appear to provide shippers with adequate safeguards with respect to the provision of future rail service.
Regarding the effect that the proposed conveyance would have on CN's employees on the Truro-Sydney line, the Agency has reviewed all the submissions on file and the testimony and evidence presented at the public hearing and is of the view that in light of the provisions of the various collective agreements governing all but four of these employees and the fact that the CB & CNS Railway has stated that it anticipates hiring many of the CN employees who worked on the Truro-Sydney line, the Agency finds that the proposed conveyance would have a limited impact on labour.
The Agency has also reviewed the terms of the Agreement and the evidence presented by RailTex and the CB & CNS Railway at the public hearing concerning property issues and lease agreements. The Agency is satisfied that the CB & CNS Railway will undertake to honour those lease agreements cited in the master Agreement which are currently in effect with individual landowners, municipalities and road authorities respecting leased land, road crossings and access to private properties adjacent to the Truro-Sydney line.
With respect to the issue concerning the federal government's constitutional obligation to protect or operate the Truro-Sydney line, the Agency is of the view that this issue does not impede the Agency in its consideration of this matter.
Parties appearing before the Agency stressed that continued rail service is essential to shippers, receivers and the economic future of the area. By applying to convey the line, CN has indicated that it does not wish to continue to operate rail service over the line. As a short-line operator, RailTex does not have the financial assets of a national railway company but it does have experience in ownership and management of short lines, both in the United States and Canada, and has shown a desire to operate the Truro-Sydney line and compete for traffic by rail. The Agency is of the opinion that in this particular case the conveyance of the line to the CB & CNS Railway will help ensure continued rail service to the area and to the shippers and receivers served by the line.
In conclusion, after a review of the Agreement, the information and submissions on file and the evidence presented at the public hearing, the Agency has not found sufficient evidence to conclude that the conveyance by sale of the Truro-Sydney line from CN to the CB & CNS Railway would not be in the public interest.
CB & CNS Railway's Authority to Operate
The Agency is satisfied that the CB & CNS Railway, a wholly owned subsidiary of RailTex, is authorized to operate as a railway company in the province of Nova Scotia.
DETERMINATION
Accordingly, the Agency hereby approves, pursuant to subsection 158(3) of the NTA, 1987, the Agreement between CN and the CB & CNS Railway to convey by sale CN's lines of railway between Truro and Sydney to the CB & CNS Railway comprising 113.98 miles of the Hopewell Subdivision between Truro and Havre Boucher, 113.90 miles of the Sydney Subdivision between Havre Boucher and Sydney, and 8 miles of the Oxford Subdivision between Stellarton and the end of rail, including spurs, land and buildings, related facilities and itemized equipment, in the province of Nova Scotia.
Notwithstanding the approval of the Agreement, the Agency retains jurisdiction over the Truro-Sydney line while CN is the owner/operator. The Agency will cease to have jurisdiction when the CB & CNS Railway becomes the owner/operator of the Truro-Sydney line as a provincial carrier.
Further, CN is requested to advise the Agency in writing of the date upon which the conveyance transaction has been completed.