Transport Committee on Sept. 22nd, 2016

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Great. Thank you for that.

Does interswitching impose any difficulties on the railways, either operationally or cost-wise?

[David Emerson]

The answer is yes.

[Murad Al-Katib]

The way that interswitching revenues are treated today, they are counted against the maximum revenue entitlement. One of our recommendations on the modernization of the maximum revenue entitlement was to allow railways to be fairly compensated for their interswitching and for those revenues to be excluded from their maximum revenue entitlement. In essence, the revenue counts, but the move itself doesn't count. The railways are penalized for interswitching. They're obligated to do it. I think that when you consider the interswitching, you have to consider how that revenue is accounted for to make sure the railways aren't penalized for it.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

The revenue they get counts against their maximum revenue entitlement, but the move doesn't count toward their obligation to move a set amount of grain. Is that what...?

[Murad Al-Katib]

That's right. With the way the agency treats the calculation under the legislation today, removing that interswitching as other income that doesn't count against their maximum revenue that they can earn is a recommendation that has some merit worth looking at. That won't penalize the producers who are requiring or wanting to have the interswitching. I think it's a fair balance.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Okay.

I wanted to get to the maximum revenue entitlements, MRE. I gather that's obviously meant to suppress rates, to keep rates more affordable for grain producers and shippers. You can correct me if I'm wrong on that one.

Other than obviously taking away from the free market level at which things would be charged, are there other distortions that the MRE creates in the system?

[Murad Al-Katib]

I was also responsible to Mr. Emerson for potash and a number of other commodities. Other commodities force your products.... Potash, the rest of them...they're dealing in a market-based system. In a way, they feel they're subsidizing the grain shipping. From that perspective, there is a distortion from that.

The other distortion that happens today is with new modes of transport. We mentioned containerized grain. We recommended that be excluded from the MRE as it really wasn't intended to be captured there. There was no containerized movement of grain when the MRE concept came in. It costs railways more to move containers, so therefore they are being penalized under an MRE system, and really they are not incented to make that capacity available.

I believe that's a major part of our future capacity creation, so when we have crops that are unexpectedly large, containerized movements can happen.

The other thing we have in the MRE that distorts is what we call the free rider rights. If one railway makes an investment and the other railway makes less of an investment, they actually equalize the investment. So, if CN makes a bigger investment than CP, CP gets half of CN's investment. The free rider rights really are not very fair, and they don't incent investment.

These are all the things that I think are problematic. Rates are one thing, but the MRE does create a number of other problems.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

I think my time is up, but I hope I get another round, because I have more questions.

Thank you.

[The Vice-Chair, Conservative, Luc Berthold]

There will be another round of questions, Mr. Hardie.

The next five minutes are set aside for a member of the official opposition. Since that is generally the side I sit on, I am going to take the liberty of asking you a question, Mr. Emerson.

Earlier, you mentioned that the Canadian rail network is class one and one of the most efficient in the world. The rail network that links small communities to that class one, best-in-the-world network is likely the 250,000th best network in the world. It’s probably one of the worst.

In my region, there is a lot of pressure on local communities to dismantle the railways and make them into bike paths and walking trails.

I would like to hear what you have to say about this trend in rural areas. If you have a message for us, I would like to know exactly what you think about this trend we are witnessing, not only where I live, but also in a number of small communities that are seeing their railways being transformed into bike paths.

[David Emerson]

I would say we should move very cautiously in terms of abandoning track. I'm thinking mainly of rural feeder lines or feeder lines that connect to resource regions and that kind of thing.

On the issue of abandonment of lines within urban areas, I think that is a local issue for local people in Vancouver. They have just converted a major old line that really didn't have much economic relevance to—and you said it—bike lanes and gardens, and that kind of thing. I don't want to come out and make a blanket statement that no line should ever be converted, but I think it should be more difficult to abandon lines, because I think over the next 10 or 20 years, a lot of the lines that we may have abandoned now or 10 years ago we'll want back because of what you have alluded to, which is the need for short-line capacity to feed the system.

[The Vice-Chair, Conservative, Luc Berthold]

Okay.

What should be the role of regulatory authorities and governments in this process, in order to preserve our rail network?

[David Emerson]

I think Murad wanted to comment on this.

[Murad Al-Katib]

Yes.

[The Vice-Chair, Conservative, Luc Berthold]

Mr. Al-Katib, would you like to comment on this?

[Murad Al-Katib]

I want to make one quick point.

The cost of relaying those tracks is very, very prohibitive. As Mr. Emerson said, the infrastructure replacement 10 years down the road, if you make a mistake, is so prohibitive it will never get redone, so you do have to be very careful. Municipalities, when they are considering it, need to consider that replacement cost.

Most short-line railway beds in Canada would never be laid again if they were to be bad laid, so from that perspective, they are very valuable assets.

[David Emerson]

We have recommendations in the report on short-line and on the need to have better tax treatment of investment in short-line rail-related assets to bring it up to the same standard that they have in the United States. They have far superior legislation and tax provisions in the U.S. for their short-line rail system.

As I said and as you've acknowledged, the short-line system is going to play an increasingly important role because you cannot efficiently have the class I railways taking on all of the feeder responsibilities that are going to be necessary to ensure the vibrance of smaller, more remote communities.

[The Vice-Chair, Conservative, Luc Berthold]

I represent the community of Lac-Mégantic, which has suffered the consequences of the deterioration in upkeep and track quality of lower class railways. Your message for us today is that those lines are extremely important for Canada in terms of the global economy.

[David Emerson]

That's correct.

[The Vice-Chair, Conservative, Luc Berthold]

I am going to ask myself to bring my own comments to a close because the time I had is up.

Mr. Aubin has the floor for three minutes.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Mr. Chair.

My first question is about passenger rail.

In the municipality that I have the pleasure of representing, there has been no service for decades. My constituents do not live in Canada’s far north. The city of Trois-Rivières is right in the Quebec City-Windsor corridor.

In a competitive world, where we have been promised a train for decades, what do we have to do to see those promises become a reality? Is government investment needed, or will market forces one day allow a train to serve a municipality like Trois-Rivières?

[David Emerson]

Our recommendation in the report was to, over the next few decades, allow VIA, for example, to invest in its own roadbed. One of the real barriers to an efficient passenger rail system is the requirement to use the same tracks that the freight trains use, which creates scheduling issues and reliability issues. Basically crowding each other on the same track probably creates safety issues as well.

We think that government can perhaps through public-private partnerships or through providing the right regulatory and investment incentives play an important role in enabling the private sector to invest more in passenger rail. It's a high-density urban future. In our view, it's not a future that will take off in terms of long-distance passenger rail. That's simply not going to happen. It's uneconomic and, to the degree that long-distance passenger rail does happen, it tends to be tourism related.

Government needs to play a bigger role, but in the high-density regions.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you.

On another topic, but still in Trois-Rivières, grain transportation is automatically associated with railways, but also with ships. The efficiency of the port of Trois-Rivières is well known, even well recognized.

I notice a passage in your report that surprised me and that I would like you to clarify. You mentioned that repositioning the Coast Guard into Transport Canada would have significant advantages for marine trade. Could you elaborate your thoughts about that?

[David Emerson]

In the report, we took the view that the Coast Guard is under-resourced and under-mandated, almost tragically so; it's basically not able to meet its responsibilities in terms of what it was originally envisaged to do.

Our icebreaking capacity is abysmal. Our investment in hydrographics and in a number of the other marine-related navigational tools is abysmal. The Coast Guard needs a reboot, in our view.

We felt it was better positioned in Transport than in Fisheries because it really is a vital supporting element of the transportation system. Yes, it has relevance to fisheries, but it's more core to transportation.

[The Vice-Chair, Conservative, Luc Berthold]

Thank you, Mr. Emerson.

Three minutes go by quickly. We have finished the first hour of our meeting and discussion with Mr. Emerson. We will now start the second round of questions. You have six minutes once more.

The floor goes to Kelly Block.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

I'm extremely grateful for the fact that we are continuing on with our discussion with you, Mr. Emerson. As we've gone through an hour of testimony, I have numerous questions that have arisen, not only from your answers, but from questions and comments that my colleagues have been making.

I do want to follow up on the comment that you made in regard to the unfairness that perhaps is perceived or actually created in the system as a result of the interswitching provisions that were put in for our grain farmers in Bill C-30.

One of the questions I have Mr. Katib or you could answer. Is there an issue of timing when moving grain, other cereal commodities, or other cereal crops that needs to be taken into consideration as opposed to other commodities?