A saviour for BC Rail?

There has been lots of interest in Highway 99 since the Ministry of Transportation released its list of options for upgrading the road back in June, but railway may still play a role in the final solution.

The Liberals promised in the 1996 election to sell BC Rail, and they figure that promise was one of the things that cost them that election. They didn’t make that promise last year, but the writing may be on the wall for BC Rail.

As recently as two years ago the BCR Group of companies had three main divisions: BC Rail, BCR Marine and BCR Properties. In 2000, it was decided BCR Properties should divest itself of all properties not related to the group’s transportation business.

In March of this year the BCR Group announced it was going to sell off BCR Marine, its second major division. That left only BC Rail, including the pesky passenger service that kept sucking money out of freight revenues. Earlier this year, without making a public announcement, BC Rail decided to end the Cariboo Prospector passenger service.

But even after selling off BCR Properties, BCR Marine and cancelling the passenger rail service, the prospects for BC Rail are still not bright. A report, released in February of this year, notes that in 1997 the business of carrying coal provided 19 per cent of BC Rail’s revenue. With the closure of the Quintette coal mine in 2000 – two-and-a-half years ahead of schedule –the railway lost two-thirds of its coal business. The remaining coal business is expected to dry up next year, when the last mine shuts down.

And of course forest products, the other major commodity carried by BC Rail, have nose-dived in the wake of the softwood lumber tariff and the economic malaise across North America and Asia.

Currently, the BCR Group has a debt level 115 per cent of equity, whereas most railways and transportation companies have a debt/equity ratio of 30-40 per cent. The BCR Group needs an injection of capital to reduce its debt/equity ratio, but being a crown corporation, the only way it can reduce this ratio is to sell assets, which it has already done, increase revenues, or ask the provincial government for more money.

According to the February report: "The challenge has been made worse by shrinking business and revenues, particularly at BC Rail. The corresponding reduced level of free cash flow is no longer adequate to cover historic levels of sustaining capital, resulting in growing debt just to sustain the physical plant."

The situation looks bleaker and bleaker as you read through the report. Due to deregulation in the trucking industry freight rates have declined across the whole transportation industry in recent years. And consolidation among major railways across North America is creating "new strategic pressure on BC Rail and its ability to provide competitive freight rates…"

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