Agriculture Committee on May 16th, 2006

[Sinclair Harrison]

Actually, it is homogenous. Once they go in, they go into a common fleet. So the 2,500 to 2,600 cars the railroads have in grain service.... The federal government cars don't go to any particular location. They're in the pool. They are allocated to wherever, so it is a homogenous fleet as we speak today.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Last fall there was an agreement in principle, essentially, with the FRCC. I don't know how sudden the May announcement was--or was it expected? Had things gone--no pun intended--off the rails? Were you surprised by this, or were you expecting this to happen?

[Sinclair Harrison]

We knew the agreement was under review. Mr. Green, the president of CP Rail, said in Winnipeg at Agricore United, that they were going to do everything in their power to nix the deal, so we knew there was a move to nix the deal. We got half an hour's notice before the minister made his announcement, so, yes, it did come as a surprise.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Half an hour's notice--that's fair. So all this resistance was coming primarily from the railways, as opposed to from Transport Canada? Would you say that the government, the public service, was in fact supportive of your efforts and your research, which was proving that we're paying too much?

[Sinclair Harrison]

We were negotiating in good faith, and I believe they were also, from March 9 until the agreement was struck. Then the election appeared on the horizon, and things came to a standstill. We had one meeting in January of this year before the election, but they were privy to all these documents. They understood the FRCC business plan inside and out. We supplied them with a lot of information. The negotiations were going along well.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Then I would be puzzled, in the face of all this evidence--the triple costing, the lack of a plan for replacement at this stage, the lack of accounting for the expenditures for life extension--as to why Transport Canada wouldn't have said that the railways were taking farmers for a ride, so the best plan for us, and the taxpayers, and the nation, and grain operations, and ports such as the one I represent in Thunder Bay, would be that the FRCC would take over this. It would save the farmers money, save the taxpayers money, and get maximum efficiency out of the system.

[Sinclair Harrison]

We just want all the information on the table, and that's why we have brought these. We would like them brought forward, but I certainly think there are still some things that can be added to the decision and the announcement, and we're here to work with whoever it takes to make that happen.

[The Chair, Conservative, Gerry Ritz]

Mr. Steckle, you may have one short redirect.

[Paul Steckle, Liberal, Huron—Bruce, ON]

In response to the point that Mr. Bezan made earlier, I'm going to ask this committee to request of Transport Canada that the three reports that are in the hands of Mr. Harrison this morning be made public and be placed in the hands of every committee member, in both languages.

[The Chair, Conservative, Gerry Ritz]

Okay, we can ask for that. We'll need the actual names of those reports, Mr. Harrison. The clerk will get those from you at the end of the meeting. Thank you.

We'll have Mr. Anderson for five minutes, and then that will wrap up this segment.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Mr. Chair.

It sounds as if you're still questioning the maintenance cost of $1,700. You said so much is administration and so much is actual cost. Were the costs of maintenance of the cars not available from the Saskatchewan provincial government and the Canadian Wheat Board? They've got a fleet of cars that, over the years, have been maintained. Do they have the same lease agreements that the federal government did with the railways?

[Sinclair Harrison]

There are separate operating agreements for each government--the federal government, the province of Saskatchewan, the province of Alberta, and the Wheat Board--and none of those owners can get the maintenance records from the railroads. They've all tried.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

So they signed the same lease agreements, but none of them signed a lease agreement that would accommodate the request for maintenance costs.

[Bernie Churko]

Mr. Anderson, I would just mention that in my previous life I was head of the Saskatchewan cars. Initially, if you look at the agreements, they are very much transferred--at least the Saskatchewan agreement--to the railways, which were not required to provide the maintenance information. Perhaps a decade ago we started becoming concerned about it. We probably should have sooner, as manager of that asset. On several occasions we specifically requested the maintenance costs. We were able to collect one set of maintenance costs about 10 years ago, when they provided some information, but since then they have not been prepared to provide any further information on the maintenance.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

How long were those leases signed for? For the life of the cars?

[Bernie Churko]

They had an evergreen clause, which meant they continued. There were some clauses in our agreement under which we could jump out based on 90 days' notice, but for the most part they were ongoing. I think ours was a 12-month notification. You may recall the debate about the right of first refusal; the federal government had had a five-year term.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay.

I have a couple of other issues.

One is that this winter, the Canadian Wheat Board bought some cars. That's impacted their freight rate to the point of an increase of 1.2% that farmers will be paying in terms of freight, just because the board bought those cars and then had to lease them back to railways. That was a couple of thousand cars. What would the purchase of 13,000 cars have done to that rate count?

[Sinclair Harrison]

In the North American continent cars are leased under two basic leases. A net service lease is one in which the railroads are responsible for the maintenance. The full service lease is one in which the owner of the car is responsible for the maintenance.

Our business plan is based on a full service lease; we are responsible for the maintenance. The Wheat Board, for whatever reason, chose to go with a net service lease, so they are not taking control of the maintenance. They've left it in the hands of the railroads.

Again, when you see this document, you will see that the revenue gap would have come down under our scenario, because we're taking the maintenance out, so it's really comparing apples and oranges when you look at what happened with the Canadian Wheat Board and the revenue cap and the FRCC business plan.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I want to talk a little about the upgrading of the Saskatchewan hopper car fleets in terms of weight. I know that's well along.

I understand there are some deadlines on when this needs to be done. I understand one of them is July 1 of this year. I'm wondering why this hasn't been a bigger issue with you. I don't remember, other than kind of peripherally, that it was being raised or that we were being made aware it needed to be done quickly. Now we see a situation in which 12,000 cars are not being upgraded. Are they going to be at an obsolete weight? Where does that issue sit? Why wasn't it a bigger issue for you in notifying us that it needed to be done, and that there needed to be a sense of urgency?

[Sinclair Harrison]

We have discussed that over and over with Transport Canada. An application was required to the Association of American Railroads for that work to be done. That application was filled out by the Saskatchewan Grain Car Corporation officials and given to Transport Canada. The application went in. It's been approved, but the work has never been started.

I'm sorry we haven't got that information to you, but certainly Transport Canada was well aware. We have slide presentations of what it would have done. About 8,000 cars in the federal fleet could be upgraded, and, as Bernie indicated, there is about a 10% increase in efficiency, so what you're really doing is adding 800 cars to the fleet by that upgrade. I think you were at Ogema, where they were carrying that out. This work can be done outside; it can be done on a repair track, and it costs less than $1,000 per car. It's just unthinkable that this work has not started.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

It's going to cost a lot more than $1,000 after July 1, I understand.

I've got a short time here. You said it would cost about $4.50 a tonne, the increase on the rate cap, if the railways replace the cars. Mr. Churko said your lease rate is going to cause a small increase.

How much will your lease rate cost per tonne? What is the increase going to be on that lease rate?

[Bernie Churko]

I would have to do an assessment, but we've always looked at it from the perspective of the current legislation when there was a reduction, so my quick assumption would be that it would be somewhat under, but very reasonably close to, $2 a tonne.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay, so you're suggesting a $2 increase. The government has actually come through now with a $2 decrease, so I think that's a good deal for farmers.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Anderson.

Gentlemen, thank you for being here this morning.

We move on to our next witness now. If Mr. Urban could take a seat at the end of the table, we've got a few minutes for him to make a presentation.

Thank you.

[Sinclair Harrison]

Shall I give you these titles now or at the end of the...?