MR. CHAIRMAN: If we could bring the Standing Committee on Economic Development to order, I would like to welcome Mr. Peter Touesnard here this morning, the general manager of Cape Breton & Central Nova Scotia Railway, a division of Rail America Inc. Mr. Touesnard is going to make a presentation. I think we've all been copied that presentation. I would ask if committee members would perhaps introduce themselves, and if you're substituting for a regular member, also indicate that please.
[The committee members introduced themselves.]
MR. CHAIRMAN: Thank you. Mr. Touesnard, if you want to begin, please feel free.
MR. PETER TOUESNARD: I just put together a brief presentation. Debbie gave me a short list of things that people were interested in, so I've just put together a brief presentation to bring us into the discussion and touch on some of the key things that have been happening at our railroad over the past number of months.
The first is the impact of the Devco closure. In 1996, 38 per cent of our freight revenues and 38 per cent of our carload volume was generated by coal. In 2002, coal continues to be a major source of revenue for us; that volume has remained constant at 38 per cent, but our revenue has actually dropped to 25 per cent, so a sizable drop in revenues as a result of the closure of the Devco facilities. Nova Scotia Power, Emera, has been importing coal from the United States and South America and they've been transshipping that coal over the Martin Marietta Materials facility on the Strait of Canso, resulting in a shorter haul for our railway. The result is lower revenues.
1
In addition to that, as we're all aware, the Sysco facility closed here about a year and a half ago, I guess it is now. In 1995, it was the biggest year in our history with the Sydney Steel Corporation. We shipped over 2,100 cars with them in that year and they represented 11 per cent of our freight revenue. Additionally, Sysco, probably more so than Devco, kind of sustained some smaller businesses on our rail line - scrap businesses, propane suppliers and so on and those businesses have essentially become nonentities as far as our railroad is concerned with their closure. As a result, that volume has pretty much decreased to zero.
The cumulative impact of both of those closures was really the loss of our anchor business east of Port Hawkesbury. Freight levels east of Point Tupper are expected to drop to about 800 carloads this year; that's from a high, at one time, somewhere in the neighbourhood of 13,000 or 14,000 carloads. At one time that represented about 54 per cent of our total revenue base, and that's going to drop to about 5 per cent of our total revenue in this year.
The operating losses that we're experiencing right now - this is just in the operation of each of our trains. We're operating two trains a week now beyond Port Hawkesbury and serving local customers two days a week in addition to that. We're losing approximately $40,000 per month, which is a pretty sizable loss for a medium-sized business in the Province of Nova Scotia. In addition to that, as I think most of you are aware, we also maintain our own infrastructure and the cost of maintaining rail infrastructure - we're referred to as Class 3 rail line - is approximately Cdn. $8,000 per mile on average. In addition to that, we have a couple of major bridge structures that we have to look after.
The actual section that we're talking about beyond Port Hawkesbury is about 98 miles, so that's about $784,000 per year that we should be putting into that rail line. Over the last couple of years, just like I'm sure our friends who look after the highways in Nova Scotia, you spend the money as you can afford to spend it. We have not been spending that level of money on that rail line. With lower traffic volumes, we didn't feel that it was necessary to do that. As a result, the rail line is not in as good a shape today as it was two or three years ago, but it's not in a state of deterioration either. It would probably take a little bit more money today than it would have taken two years ago to bring this railway up to the shape that it used to be in.
The next page gives a snapshot of what our revenues looked like in 1996. Without a colour chart here, it's a little hard to differentiate, but the big pie shape, the 38 per cent, represents our coal revenues. The 19 per cent that you see is paper and scrap paper, movements largely involving StoraEnso and Kimberly-Clark, and 16 per cent would be the Sydney Steel business. In 2002 we've seen our paper business grow to 31 per cent, or we're anticipating growth to 31 per cent, I should say, which is pretty consistent with last year. The 22 per cent that you see there is a good news story on our rail line, and that's the influx of the business from Sable Offshore Energy with the movement of propane and butane. As I indicated earlier, coal volumes have dropped to 25 per cent.
Our labour situation at CB&CNS Railway is we have 72 employees. We operate the railway itself with probably about 52 employees, and the other 20 employees are in a regional role. We look after administration and customer service functions for three railroads in Ontario, so that accounts for a total employment base of 72 employees. The average earnings of those employees in 2001 were a little over $47,000, almost $48,000. Our wage increases since the inception of the rail line in 1993 were 39.3 per cent. We have 34 of our 72 employees unionized under the Brotherhood of Locomotive Engineers and, as some of you may be aware, we are in the throes of negotiating a first contract with those employees and have just come through a 52-day strike. But I'm very happy to say that our employees are back to work; we have an excellent workforce and they're out doing a great job, as they always have.
Challenges going forward. Obviously, our number one challenge today, I would say, is sustaining our rail line beyond Point Tupper. That has been an ongoing discussion, really, since the Fall of 1999 with the federal government and the provincial government at that time looking at the closure of Sydney Steel and Cape Breton Development Corporation. We approached government at that time and indicated that if that happened, there was a strong likelihood that we would have to discontinue our rail operation beyond Port Hawkesbury. We continue to work on that; again, as many of you are probably aware, we've made application to the Utility and Review Board for discontinuation and abandonment of our rail line. We see that as a procedural step. If we're unsuccessful in securing business, an anchor customer for that section of our rail line, we don't want to find ourselves in step one of the process three or four or six months from now. Also, we recognize that by taking this step it certainly focuses attention on this, and as I indicated earlier, with operating losses in the neighbourhood of $40,000 per month, that's something that we want to stem.
Impacting government policy regarding transportation alternatives, hopefully that's something we can discuss more as we go on here. But I guess where we're coming from is - and I make this statement at the end - it's no longer the Department of Highways; it's the Department of Transportation and Public Works. There are a lot of transportation alternatives to be looking at as government meets and discusses these issues. Unfortunately, about a year and a half ago, we were in negotiation with Georgia-Pacific to move gypsum from a location in Cape Breton to Point Tupper. We were unsuccessful in those negotiations. We were found to be slightly more expensive than a trucking alternative.
At the time, our marketing person did approach government to look for some funding for a section of new rail line that we would have to build. We were unsuccessful in securing that funding. Recognizing the financial situation of the province, we could certainly appreciate that but, having said that, the result is probably going to be 75,000 truckloads operating between Melford, Cape Breton and Point Tupper through the communities of Port Hastings and Port Hawkesbury where there's already some pretty significant truck traffic. We feel that that will have a detrimental effect on the highway system through there, let alone safety, and that it was probably in the province's best interests to consider our proposal, but that's kind
of a curve ball. We're a private industry, and building infrastructure for us we realize is not necessarily what governments think of today, but that's the type of decision that if we're faced with that again in the future, we would like to have better understanding or the ear of government - as government looks at transportation alternatives, where is the best place to spend taxpayers' dollars in transportation.
Providing a safe world-class service to our customers and the public, certainly safety - as Westray is remembered - is very high on everyone's minds. We take a lot of pride in operating a safe railroad. We feel it's very important to the public. We also feel that that's very important to our customers. We're fortunate to have some wonderful customers on our rail lines and world-class customers - StoraEnso, Kimberly-Clark, Trenton Works, and smaller businesses like Copol International in Sydney and so on, it is very important for us to maintain competitiveness so we can ensure their competitiveness. As we all know, Nova Scotia kind of hangs out to the rest of North America, and when you're working in a North American market it's very important to have a reliable transportation system. So that's something that we think is key to our future and, obviously, growing our business in the future.
Opportunities and risks, as I indicated earlier, saving our rail line beyond Point Tupper is very important to us. We are working with Emera and others today to build a business case to hopefully accomplish that. One thing that we all must realize in that is that it has to be a business case for Emera. It has to be a business case for Cape Breton and Central Nova Scotia Railway. To subsidize or to force an organization to do something that is financially unsound is a short-term solution. So we're working very diligently to try to provide Emera and to try to find other customers to attract them into Cape Breton for all the right reasons so we can keep them there.
So, in addition to that business beyond Point Tupper that we're working on, we're working on some intermodal business with Canadian National now. We're working on services to and from Newfoundland. We look to the future to petroleum and offshore supply potential in the Cape Breton area with the development of the Laurentian Sub-basin. I mentioned gypsum earlier. We still have not lost total hope on gypsum and, hopefully, at some point government can help us out with some of that as well. As I indicated, very large volumes of gypsum will be moving from the Melford location. That's also a long-term project and although the trucking industry has been successful in securing that business, we're hopeful into the future that that can be redressed perhaps and, of course, developing the former Sysco site is something that government is taking a very active role in. We're seeing some opportunities starting to come out of that and we're very hopeful that that's going to build, but recognizing and saying all that, we still need to find an anchor customer beyond Point Tupper to sustain that growth.
[9:15 a.m.]
Opportunities in risk continue to building business on the Strait of Canso. Again, a great potential there for offshore supply. A petrochemical industry has certainly been discussed as we see gas reserves being developed off the coast of Nova Scotia. Building on the natural port, the focus, of course, has been on the success of containerization in Halifax. We certainly recognize that. We're not looking to take business away from Halifax, but I think it's important for everyone to recognize that there's another ice-free deep-water port in the Province of Nova Scotia and that we need to take advantage of that natural resource.
Building business in Guysborough, the Guysborough Regional Development Agency has been very aggressive in trying to attract business to that area and, again, as many of you may be aware, they have commissioned a rail study as well to get rail into the Goldboro area - and this is another Melford, this is Melford, Guysborough County - into Melford Industrial Reserve next to Mulgrave. We have played a low-key role at this time in that development, but we're certainly hopeful that that's something we can play a more active role in in the future. On the risk side, again, StoraEnso, as many of you are aware, is experiencing some very challenging market conditions right now and they are working on those issues. We're certainly working with them on that through our partner, Canadian National, and we're hopeful that we will not see a reduction in the size of StoraEnso. If anything, we're hopeful that we're going to see an expansion. If they are successful in managing some things, their four top costs, then I think it's likely that we will see an expansion of that facility.
The other industry that we serve currently that's been experiencing some major market challenges is Trenton Works. Traditionally we handle between 2,000 and 3,000 cars for Trenton Works annually. They're currently in a temporary shutdown mode and they're probably looking at producing about 750 cars this year, which is off considerably from their normal production. That's another industry that we're watching very closely and very hopeful that they're going to be successful into the future.
Closing remarks, CB&CNS has been successful and we're proud of that success. I guess, as I mentioned earlier, we serve a lot of businesses that are important to the economy of Nova Scotia. In achieving that into the future, we need to continue being successful. So we're not going to shy away from an aggressive business approach and, as I said, we're proud of that. I mentioned earlier as well that it's no longer just the Department of Highways, it is the Department of Transportation, and we would like government to build on the changes that have been made in that department and have more consideration for other modes of transport as government goes forward.
This refers to a comment that was made in the media over the course of the past couple of months, it's not attributable to anyone from government - and I don't necessarily want to indicate the source - but railways in Nova Scotia are no longer a public utility. By 1995 Canadian National, of course, had spun off our short line in 1993. In 1994 the former
CP line that runs from Windsor Junction to Kentville was spun off as a private entity, and by 1995 Canadian National had gone public and had become a private entity. While I can't speak for those other companies, I think it is very important for all of us that people realize that we are not a public utility. We don't receive funding from government. In speaking for ourselves, we don't really want to receive funding from government. We want to be a successful business in our own right and have the right business drivers in place, helping us grow our business. Thank you.
MR. CHAIRMAN: The member for Cape Breton Centre, Mr. Corbett.
MR. FRANK CORBETT: Thank you for coming, Mr. Touesnard. Could you fill us in on any discussions leading up to the closure of the Cape Breton Development Corporation and the Sydney Steel Corporation? Did levels of government sit down and fill you folks in or find out what the impact of those closures would be on your business, or was it that you found out like the rest of us, through a public statement?
MR. TOUESNARD: No, I think we were certainly very much involved in that process. Obviously, with both of those customers generating about 54 per cent of our volume and revenues through that time, we were certainly talking to governments that were involved and they appreciated the economic impact that that would have on the region and our railroad. Now I will editorialize here a little bit. Having said that, I think they also appreciated that because of the expense of operating both of those organizations, the decision that was eventually made was the decision that had to be made regardless of the impact on our railroad.
MR. CORBETT: With that said, did you ever sit down with the federal government to discuss the purchase of their rail infrastructure?
MR. TOUESNARD: We indicated to the Cape Breton Development Corporation that we had an interest in looking at that rail infrastructure. Cape Breton Development Corporation - this was through the summer of 2001 - indicated that they weren't prepared to have those discussions yet. As it turned out, Emera had a previous agreement in place with Cape Breton Development Corporation to sell the surface assets of Devco.
MR. CORBETT: A previous agreement. Can you explain that for me?
MR. TOUESNARD: I'm afraid I can't explain it. All I am aware of is that there was a previous agreement.
MR. CORBETT: There was an agreement made before you could get back and, say, put a second bid in - if you want to characterize it as that - that effectively shut you out if you wanted to do business?
MR. TOUESNARD: The discussions never reached that level. We had just indicated we would have an interest in the railroad, and they said that at that time it wasn't appropriate to have that discussion.
MR. CORBETT: I will go back to the other stuff at a later round in the questioning, but your characterization of the railway as not being a public utility because it's . . .
MR. TOUESNARD: Privately owned.
MR. CORBETT: . . . privately owned. We realize that companies can be privately owned but they can still be a public utility, and my friend sitting in back of me here can attest to that, of what's going on these days. Did you feel that there is a simpatico there between your business, although it is a privately-owned business, that it is still considered by many as a public utility? Just by the mere fact of your previous statement that the government has to think outside, that it is no longer the Department of Highways but the Department of Transportation and Public Works, that government has a role to play in public transportation.
MR. TOUESNARD: Well, certainly, government has a role to play in public transportation, but to distinguish railways in Nova Scotia as public utilities is moving too far in the one direction, in my opinion.
MR. CORBETT: You mean the left. But you don't see that then, and I'm not trying to be combative here. Do you feel that, for instance, the idea of the Utility and Review Board playing a role in your exiting from there, do you feel they have a role to play in that?
MR. TOUESNARD: Yes, absolutely, as a review body, not as a public utility review body if you distinguish the two.
MR. CORBETT: Distinguish those, okay. I am just trying to make some short questions here. The Melford situation - Melford, Cape Breton, not Melford, Guysborough - when your company approached government looking for financial aid to put a spur line in there, what was the cost and what was the reason for the government not to want to participate?
MR. TOUESNARD: I can't speak to the detail because, although I was with the current owner, RailTex, at the time, I wasn't working in this immediate area. My understanding was the funding that we were looking at, the total funding project to construct that railroad was about $11 million. I believe that the funding that we were looking for was something in the neighbourhood of $2 million or $3 million.
MR. CORBETT: The reason government gave you was?
MR. TOUESNARD: That government wasn't in a position where they could afford that expenditure.
MR. CORBETT: Could you, as a person involved in that industry - and if you don't feel comfortable answering, it is fine, but your company is involved with the rail industry and we also know the impact of the amount of trucks going over that road - could you relate to two costs in the sense of what it could do for highway interchanges and just the overall wear and tear on that highway?
MR. TOUESNARD: As you say, we know and, of course, in reality, we don't know, we assume what the damage is going to be, but we don't know what the damage is going to be. I think today that's something, as the Department of Transportation and Public Works builds policy and builds expertise, they're getting a better understanding of what that cost is going to be. So as we move forward, I would like for the department to bring into consideration how do we best spend taxpayers' dollars on transportation?
MR. CHAIRMAN: Frank, I think we're going to have to be fair and go to some other members. I was trying to catch your eye.
MR. CORBETT: Why do you think I was looking that way. (Laughter)
MR. CHAIRMAN: I should mention that since the meeting began we have been joined by the member for Cape Breton West, Russell MacKinnon. Good morning, Russell.
MR. RUSSELL MACKINNON: Thank you, Mr. Chairman.
MR. CHAIRMAN: Also sitting in the wings is the very affable member for Cape Breton Nova, Paul MacEwan.
MR. PAUL MACEWAN: I'm the Liberal Transportation Critic and I was completely on your side on that Melford (Interruption) I think you know that.
AN HON. MEMBER: Venerable?
ANOTHER HON. MEMBER: Affable?
MR. MACEWAN: Both venerable and affable. (Laughter)
MR. BRIAN BOUDREAU: Mr. Chairman, my first question is in regard to Devco. Your volume remains the same, but your revenue was down. Could you explain why?
MR. TOUESNARD: Typically, in the transportation industry, the shorter the distance, the less revenue you generate. That's true in this case, as well. So, today, instead of hauling coal from Sydney to Point Tupper and from Sydney to Trenton, we're hauling coal from Aulds Cove to Point Tupper and Aulds Cove to Trenton.
MR. BOUDREAU: So when were those prices negotiated?
MR. TOUESNARD: The original prices were negotiated in January 1997 when the Phalen Colliery first - I say first from our experience - started to experience production problems. At that time, Nova Scotia Power had to react very quickly to obtain sources of coal elsewhere, and they obtained that coal in the United States, I believe, and they moved it into the Strait of Canso and we moved our first coal trains from the Strait of Canso in February 1997.
MR. BOUDREAU: So the price was negotiated in 1997?
MR. TOUESNARD: The original price was negotiated in 1997. Since then, we have had ongoing discussions with Nova Scotia Power and Emera for haulage pricing.
MR. BOUDREAU: When was the last time you negotiated a price?
MR. TOUESNARD: We are actually in the throes of negotiating pricing for that movement today.
MR. BOUDREAU: So these fees that they pay now, when was that agreement negotiated?
MR. TOUESNARD: In 2001.
MR. BOUDREAU: So it's obvious that the impact of the closure of Sysco, your clients, I guess, or your customers were aware that your line was hurting. Was that a factor in negotiating, the fact that these people knew the Sysco business was gone?
[9:30 a.m.]
MR. TOUESNARD: It was not a factor in negotiating the movement from Aulds Cove to Trenton and Point Tupper.
MR. BOUDREAU: But it was an issue from Sydney to Port Hawkesbury?
MR. TOUESNARD: As I indicated earlier, we are having ongoing discussions with Emera to hopefully generate a best business case for Emera, so that it makes financial sense for their company to move coal from Sydney to Point Tupper, Trenton, and, of course, they are moving it to Lingan and Point Aconi from that facility today.
MR. BOUDREAU: But it is an extra trump - if we may put it that way - that your customer has when negotiating prices with your rail line, is that a fair assumption?
MR. TOUESNARD: The two, quite honestly, have been divorced. There has been no - Emera, nor Cape Breton and Central Nova Scotia Railway have tried to tie those two movements together, recognizing that at the end of the day it is the same volume, it's just where the volume originates.
MR. BOUDREAU: Okay, so the difficulty with your rail line, is it a bunch of little problems that you have with the railroad or is it the fact that you lost Sysco?
MR. TOUESNARD: We lost a large volume of business east of Point Tupper. Our rail line, just to give you some sense, handles about 30,000 carloads per year. It's handled 23,000 to 30,000 or 31,000 carloads since we purchased it in 1993 from Canadian National. In 1997, it took its first dip in revenue; it hit its lowest ebb in 1998 and we built up the business somewhat from 1998 with the expansion of StoraEnso and with gas coming on or with propane and butane coming on in the Port Hawkesbury area. But, by 2000, with the complete demise of Cape Breton Development Corporation as a coal-producing entity and the complete demise of Sydney Steel as a steel-producing entity, our traffic between Sydney and Port Hawkesbury has dropped to about 800 carloads. We have 98 miles of railroad and between operating expenses and capital expenditures on that rail line - I will just pull a number off the top of my head - it's well over $2 million a year to operate that 98 miles of railroad. So we need business; it's as simple as that.
MR. BOUDREAU: During the last provincial election when the Progressive Conservative Party indicated they would close Sysco, were there any negotiations or consultation with your rail line in regard to their Leader and now the Premier, John Hamm?
MR. TOUESNARD: We had discussions with the then Minister of Transportation, Gordon Balser, to let Mr. Balser know that in all likelihood, with the likely closure of Cape Breton Development Corporation and the likely closure of Sydney Steel, it would be very difficult for us to continue an operation beyond Port Hawkesbury.
MR. BOUDREAU: So they were aware before the closure of Sysco what impact this would have on the rail line?
MR. TOUESNARD: Yes.
MR. BOUDREAU: You indicate that 11 per cent of your freight was carried by steel, but you indicated that other businesses, I believe you said 6 per cent?
MR. TOUESNARD: Pardon me?
MR. BOUDREAU: Was it 6 per cent that other businesses contributed?
MR. TOUESNARD: About 5 per cent of our revenues are generated by the balance of the business that we have in Sydney today.
MR. BOUDREAU: Are you aware of where those businesses are now?
MR. TOUESNARD: Pardon me?
MR. BOUDREAU: Are the businesses still in existence?
MR. TOUESNARD: Yes.
MR. BOUDREAU: Why don't they continue to ship then?
MR. TOUESNARD: They continue to ship, but the volume isn't sufficient to justify the continued operation of the rail line. It's costing us more to operate than the revenues that we're capable of generating today from those 800 carloads.
MR. BOUDREAU: The downturn in the industry or your businesses, has this affected the number of employees that you have hired?
MR. TOUESNARD: It has not had an overall impact on our employee base; in fact, our employee base has actually grown - marginally but it has grown. Our average number of employees has gone from 68 to 72 over the past four years. As I indicated earlier, part of that is because we are a regional centre, and part of that is because our business in the Port Hawkesbury area has grown substantially. But the impact that we've had is that a large number of our employees reside in the Sydney area and now to work, they have to commute to Port Hawkesbury three or four days a week to carry out the work.
MR. BOUDREAU: When you approached the provincial government to assist you in constructing this new rail line, what reason did the provincial government provide not to be involved in this?
MR. TOUESNARD: Again, as I indicated earlier, I was not personally involved. I don't know the detail, but it is my understanding that government indicated that they simply couldn't afford a $2 million expenditure for a rail line at that point.
MR. BOUDREAU: Could I ask who was involved in those negotiations?
MR. TOUESNARD: The person who was working for us at the time was a lady by the name of Elaine Collins.
MR. CHAIRMAN: I'm going to have to cut you off for now; thank you. Mr. Carey.
MR. JON CAREY: I just wanted to get back a little bit to what Mr. Corbett was talking about, the limestone. In your presentation, did I misunderstand, or was it 75,000 loads?
MR. TOUESNARD: It's my understanding that when it peaks the business would be the equivalent of about 25,000 rail cars and a standard in the industry is 3 to 1, so approximately 75,000 truckloads or 25,000 carloads, after the business ramps up.
MR. CAREY: You've indicated your company was looking for some assistance to the tune of $2 million to $3 million?
MR. TOUESNARD: And again, I'm not intimately knowledgeable about those details but it is my understanding that it was somewhere in that range.
MR. CAREY: I guess the question I'm trying to get clear in my mind is, if you were to have this amount of volume and the business appears to be stable, is there any consideration that the company is still looking at expenditures of $11 million to do this or is this something that's gone by the way?
MR. TOUESNARD: As we discussed with government potential solutions to our lack of volume east of Port Hawkesbury, government followed up with Georgia-Pacific and Georgia-Pacific indicated at that time that, at least in the near term, they weren't prepared to rear-view mirror that decision. So as a company I would say if we were able to get the deal that we were looking for in 1999, then yes, most certainly, we would be interested in moving that volume for Georgia-Pacific.
MR. CAREY: Thank you.
MR. CHAIRMAN: Mr. Touesnard, if I could, the relationship that the Cape Breton & Central Nova Scotia Railway has with RailAmerica Incorporated, obviously there would be some joint meetings - I would think, at least - and reporting and things of that nature to this company that is most likely publicly traded. How much pressure does RailAmerica bring to bear on this division, if you will, of the Cape Breton rail line, regarding the fact that profits probably aren't what they should be?
MR. TOUESNARD: We're one of approximately 50 railroads that RailAmerica owns in North America. Every railroad is a profit centre unto itself and every railroad is expected to make its budgets. To that extent, we would receive no more or no less pressure than any of the other 49 railroads that the company has in North America.
MR. CHAIRMAN: When you say no more or less pressure, do you mean no more or less pressure based on your bottom line? If you're not turning a profit that is in direct correlation to the number of miles that you're responsible for, would you not be perhaps receiving more pressure, I think it would be expected, and I'm just wondering if it wouldn't be a fair question to ask, what's the position of the parent company regarding this rail line in Nova Scotia?
MR. TOUESNARD: Certainly this is a problem, or a challenge I guess that has drawn some attention from our parent company. They want to see us fix the problem and the fix, of course, is either that we generate sufficient business to generate a profit on that end of our rail line or that we discontinue the service and utilize the assets elsewhere.
MR. CHAIRMAN: Is it true then that the Cape Breton rail line has been given, I suppose you would call it an ultimatum to either deliver the goods or the line will essentially be abandoned or sold to other interests?
MR. TOUESNARD: Whether it's an ultimatum that comes from Florida or one that's based here in Nova Scotia, I guess I prefer to say that it's based here in Nova Scotia, that as general manager I see the right thing to do is that we find business or we close it down.
MR. CHAIRMAN: Thank you, Mr. Touesnard. Mr. MacKinnon.
MR. RUSSELL MACKINNON: Mr. Touesnard, I'm a little perplexed. I'm looking at your detailed sheet that you have provided here, but you don't provide any detail on what your revenues are. My understanding is that the rail line was purchased for approximately $30 million. Is that correct?
MR. TOUESNARD: I couldn't speak to that detail, but my understanding is, yes, it's approximately that.
MR. MACKINNON: What's the average cost of a mile of rail?
MR. TOUESNARD: To construct?
MR. MACKINNON: Yes.
MR. TOUESNARD: Probably about $1 million.
MR. MACKINNON: So you bought a $180 million rail line for $30 million plus all the rail cars?
MR. TOUESNARD: No.
MR. MACKINNON: The rail cars weren't included?
MR. TOUESNARD: No.
MR. MACKINNON: What else was included?
MR. TOUESNARD: A shop facility in Sydney, a station in Port Hawkesbury, and later we added a station in Stellarton.
MR. PAUL MACEWAN: And the bridge at Little Narrows.
MR. TOUESNARD: Well, I guess I consider that part of the rail infrastructure.
MR. MACKINNON: So it would be safe to say then you bought a $200 million product for approximately $30 million?
MR. TOUESNARD: No, I would say that we bought a $30 million product for $30 million.
MR. MACKINNON: Well, it's all a question of how you look at fair market value. But I'm a little curious, you're hiring employees, but you're talking about shutting down the rail line. Why?
MR. TOUESNARD: Our business between Port Hawkesbury and Truro has expanded. So in order to continue a high level of service to those customers, it was necessary for us to increase our total number of employees, but recognize that some of those increases have come in as a result of regionalization of our customer service and administration.
MR. MACKINNON: When you notified the provincial government of the impact of the closure of Sydney Steel, did you provide any figures on your revenue downstreams, the projected loss of revenues? Did you provide any detail to Mr. Balser or the provincial government on your projected revenue losses?
MR. TOUESNARD: My understanding is, again prior to my involvement as general manager, that my predecessor had two meetings with Mr. Balser. In the second meeting Mr. Balser was looking for some detail and shortly after that the potential deal to sell Devco to Oxbow was announced and the potential deal to sell Sydney Steel to Duferco was announced.
Things kind of fizzed until both of those deals came to unsuccessful conclusions in February 2001 and May 2001.
[9:45 a.m.]
MR. MACKINNON: But you didn't answer my question; were those revenue projections provided to Mr. Balser?
MR. TOUESNARD: No.
MR. MACKINNON: Why not?
MR. TOUESNARD: The process got redirected when it looked like there was going to be a positive outcome.
MR. MACKINNON: Would you be willing to provide those revenue projections to the committee?
MR. TOUESNARD: No, only because I haven't prepared a detailed analysis of what that has been, and again, as you're probably aware, on May 29th we're scheduled to stand before the Utility and Review Board and I would guess that at that time we will be discussing in more detail the financial impact.
MR. MACKINNON: So if you have more detail then, you would be willing to provide it to the committee?
MR. TOUESNARD: Yes.
MR. MACKINNON: Are you familiar with a letter that was written on June 25, 1993, by then-Premier John Savage to Mr. Paul Tellier, President and CEO of Canadian National Railways?
MR. TOUESNARD: Yes, through this process I've become familiar with that letter.
MR. MACKINNON: Now, is it RailTex or Cape Breton & Central Nova Scotia Railway's position that they would be willing just to give up their rights with no questions asked? In other words, would they be willing to sell it back to CN for $30 million?
MR. TOUESNARD: I couldn't answer that question, honestly. I guess, here's my interpretation. We're a short line operator. Short line operators typically run more efficiently than Class 1 operations because we're more personally involved. We feel that we have the ability to generate a profit on this rail line as well as any other rail company in North America.
MR. MACKINNON: Well, why are you threatening to shut it down, then, if you think you can make a profit?
MR. TOUESNARD: Well, it's important to . . .
MR. MACKINNON: This seems like a bit of a contradiction here. You don't want to sell it back to the government for what you bought it for. You got it for 10 per cent of what it would actually cost to produce and you're hiring employees, so why the contradictions?
MR. TOUESNARD: Well, I don't think that there are any contradictions.
MR. MACKINNON: You won't provide the revenue streams. Anyway, that's what I have for now, Mr. Chairman.
MR. TOUESNARD: We're generating - in summary, I guess - revenues and volumes, very good volumes, between Port Hawkesbury and Truro. We certainly hope to generate sufficient volumes between Sydney and Port Hawkesbury to sustain that end of our rail line. That's a business case. It's important to the long-term profitability of the rail line to make sure that we manage each one of our costs, and today, that represents a cost, unfortunately.
MR. CHAIRMAN: We will now go to the member for Cape Breton North, Mr. Cecil Clarke.
MR. CECIL CLARKE: Mr. Chairman, one item I would just like to comment on was, while it's not attributed, the discussion that railways are no longer a public utility. Obviously, railways, like any other levels of business that governments at any level have divested themselves of, have overall been done in the interest of the wider public, that the privatization would help other private businesses run more efficiently, and ultimately our society and economy would be stronger. While it may be a private entity, it is still publicly regulated and accountable for that. Some people could play with words on that, and it's very important, and thus we're here today because of that; otherwise we wouldn't be here today.
So one of the things I want to come to is going back to, really, the go-forward and that is where are we today. Obviously, last week stakeholders and industry participants met in North Sydney not really to go over the history, but really where we are going from here, from this point forward. I know why there are processes through the URB, there also has always been this underlying process to build a business case. To come back to that, in looking at the areas of opportunity, can you clarify a little bit further - I left that meeting last week feeling very positive, that everyone has been working towards a positive case, the anchor customer being a key thing, how positive do you feel that those discussions are proceeding in light of a May 29th URB hearing coming?
[9:50 a.m. Mr. Brian Boudreau took the Chair.]
MR. TOUESNARD: We've had some very positive discussions with Emera and other potential business over that section of our rail line. To date, those discussions are just that, they're just discussions. We haven't signed a contract, but certainly there appears to be a willingness in government, there appears to be a willingness in industry to look at the situation very, very seriously and to try to find a positive outcome.
MR. CLARKE: I think with - just because it's obviously of interest - the Intermodal traffic, especially the Newfoundland and services for Newfoundland, when you refer to services for Newfoundland, is there any clarity relating to that?
MR. TOUESNARD: There are some competitive issues that I'm reluctant to give too many details about, but, yes, there's business that we feel we can have there again if we have the anchor customer for Sydney and for our rail line.
MR. CLARKE: And, one of the things that's been key, obviously, just to clarify for the record, there have been discussions of rail cars moving from Cape Breton with coal on them and people enquiring where the coal is coming from, can you just clarify that for me?
MR. TOUESNARD: It's my understanding this is some Prince coal that the plant in Trenton is interested in having, so over the next short while we will be moving some previously-mined coal from Sydney to Trenton.
MR. CLARKE: With regards to, if nothing else, a good faith gesture, it was indicated as well that there may be at least a ship coming, in the near future, to the Sysco piers to try to move some coal - is that?
MR. TOUESNARD: That possibility has been mentioned to us as well, yes.
MR. CLARKE: One of the things, I guess, and when we talk about this, is people talk about the demise of Devco, but I think the Minister of Natural Resources as well as not forgetting transhipment of coal from outside sources, the domestic market while Devco has been closed, I think there has been a very clear indication by the Minister of Natural Resources that once the issue of lease transfers has been settled with the federal government and transferred back to the province, indeed there would be opportunity for other domestic developments. I see that as well as a future source when you get on the map of what's out there, in terms of business. One of the things I'm looking at, we can pick things apart, but I would think, in my dialogue and discussion in the community, there is a good sense that there's positive momentum to actually get that anchor tenant and other tributary accounts into that, that can build it up some more.
MR. TOUESNARD: Essentially, that's our view as well. Of course, we're proceeding with cautious optimism.
MR. CLARKE: Thank you.
MR. CHAIRMAN: Thank you Mr. Clarke. For the minutes, I'm the Vice-chairman, Brian Boudreau. I will be assuming the Chair's responsibilities until the chairman comes back. He's been summoned to deal with an issue in his constituency and he should be returning in just a moment. Mr. Corbett.
MR. CORBETT: Getting back to an issue that the member for Cape Breton North just brought up about the possibility of transfers of what is referred to as the Devco leases of coal resources, has the Department of Natural Resources talked to you folks about the impact and the length of time those negotiations may take?
MR. TOUESNARD: No, we haven't had discussions, but we have had discussions with interest groups in the Sydney area.
MR. CORBETT: It's my understanding that where a lot of these are held up is at the Department of Natural Resources. Natural Resources will not really engage in transferring these deed leases until such time as they feel they have any problems around environmental remediation resolved. Therefore, it's something I guess you can't really bank on until those are resolved and until DNR decides that we're satisfied and we can go forward even at operations that weren't previously mined by the Cape Breton Development Corporation, but are owned - and I speak primarily of the Donkin site - is that what you're led to believe? Maybe you don't feel comfortable speaking . . .
MR. TOUESNARD: Well, I certainly can't speak to it in any detail, but we have had discussions with people who have an interest in developing the Donkin site. Speaking from the perspective of a company that gets involved in acquisitions of long-standing industries, the purchase of railroads, I can also tell you that the environmental issue is one of the number one questions that we want to have answered. So if anyone's going to proceed with any level of confidence I would think, in developing coal reserves in Cape Breton, that is a question that the Department of Natural Resources would want to have answered for them before they actively pursue the sale or lease of those properties.
[9:57 a.m. Mr. Brooke Taylor resumed the Chair.]
MR. CORBETT: I always thought it perplexing that the Cape Breton Development Corporation hived off its rail infrastructure and part of that was the Victoria Junction wash plant and people within the industry would say that's probably the most heavily damaged environmental area, yet DNR didn't see that was a problem.
MR. TOUESNARD: But they didn't actually purchase the Victoria wash plant. It's my understanding that's a leased property and there is a remediation plan in place for that site.
MR. CORBETT: But they still have that property.
I want to go back to a report, The Way Ahead, A Strategic Framework For Coordinating Transportation Development in Nova Scotia that was published in December of 1999. In the EXECUTIVE SUMMARY there's a paragraph that says: "Our gateway ports of Halifax and the Strait of Canso need attention to keep up with international competition. The Halifax Airport is under-capitalized and our regional airports at Sydney and Yarmouth need more business. Our ferries, small ports and rail need more consideration and many millions of dollars are required for road work." Now, with that in mind, from 1999, the government still would not consider the $3 million investment within the rail spur for the Melford location?
MR. TOUESNARD: Again, I can't speak to detail, so I'm hesitant to go down that road, but it's my understanding that, yes, there were some concerns on the part of government that they didn't have the cash to invest in rail at that point.
MR. CORBETT: In other words, we probably wasted money on this report because it tells them one thing and they do another.
I want to quote something from the Premier that was in our packet here from August 8, 2001. I'm quoting directly from the Premier. "We are very, very conscious that to lose that rail line would be a devastating blow to the economy at this point, and we're working aggressively to try and find a short-term viable solution leading to long-term dependent viability." So I want to ask what has the government been doing in a tangible way to secure that railway from Point Tupper to Sydney?
MR. TOUESNARD: Obviously I can't speak directly for government, but I can certainly say that they've played a major role in bringing the parties together to take a serious look at the impact that the loss of the railway could mean to the local economy.
MR. CORBETT: They say they're doing something, but everyone around this table I think is concerned, but the only group within this province, outside of yourselves, that could lend tangible support is the provincial government, yet I really don't get a feeling how they're doing in conjunction with your business, or say that if you're leaving that we're going to get somebody else - what kind of discussions are they having? They talk about a committee to deal with this, are you part of a committee to deal with it? Is your company part of this committee?
MR. TOUESNARD: We have probably met with government since July 3rd of last year, at least twice per month, to work through potential solutions.
[10:00 a.m.]
MR. CORBETT: But are you considered part of a committee? Is your company considered part of a committee to help save that rail line in conjunction with departments of government? Is there a formalized committee put together?
MR. TOUESNARD: I wouldn't say that we're part of a formalized committee, but certainly there are a group of players from the Department of Transportation and Public Works, the Department of Economic Development and they are playing a major role in bringing the various commercial parties together to try to find a solution.
MR. CHAIRMAN: Mr. Corbett, I'm going to have to again move along and seeing how we're in the second round here, if we get an opportunity, I'm sure you would like us to come back. Mr. Boudreau.
MR. BOUDREAU: Mr. Chairman, I, like my colleague, the member for Cape Breton West, am a little baffled, really. You're losing money, but you're hiring employees. That concerns me because any business I was ever involved in, one of the first things they do when they start losing money is lay off employees. This is not the case in your situation, which creates some air of suspicion, at least in my area.
MR. TOUESNARD: Our total operation is not losing money. The Cape Breton & Central Nova Scotia Railway is not losing money. Our operation between Port Hawkesbury and Sydney is losing money.
MR. BOUDREAU: Can you provide the statistics for the breakdown of those areas to this committee?
MR. TOUESNARD: Again, I wouldn't be prepared to do that today. I certainly anticipate that through the course of the Utility and Review Board hearings we will be providing financial information.
MR. BOUDREAU: I can appreciate that, Mr. Touesnard, but would you take the . . .
MR. TOUESNARD: I'll take it to a high level, Mr. Boudreau. We used to do 13,000 carloads. Now we do 800 carloads.
MR. BOUDREAU: Mr. Touesnard, can you provide those statistics to this committee after your hearing date?
MR. TOUESNARD: I think that it will be a matter of public record after the hearing. I'm not certain that I want to meet again with the committee.
MR. BOUDREAU: In regard to the rail line in Cape Breton, and I represent Cape Breton The Lakes, for instance, what do you actually own on the Bras d'Or Lakes? What do you own with this rail line? Don't you own access to the Bras d'Or Lakes?
MR. TOUESNARD: We have a right-of-way along the Bras d'Or Lakes.
MR. BOUDREAU: You control it too, sir, don't you?
MR. TOUESNARD: Yes.
MR. BOUDREAU: And any resident who wants to build on that side of the lake has to get permission from you. Is that correct?
MR. TOUESNARD: Yes.
MR. BOUDREAU: Are you forgoing with your permissions to allow people to develop their properties on the Bras d'Or Lakes?
MR. TOUESNARD: We are forgoing to the extent that it is in the interest of public safety and the safety of our train operations.
MR. BOUDREAU: So what do you intend to do with these rights after you abandon the line? What are you going to do?
MR. TOUESNARD: I can't speak to that.
MR. BOUDREAU: You don't know. Do you have any plans to develop these areas after you abandon this line?
MR. TOUESNARD: We would utilize the assets in the most beneficial way possible, but having said that, our focus today is on saving the rail line, it's not on closing the rail line.
MR. BOUDREAU: It doesn't seem to me, Mr. Touesnard, that, really - you're not on a committee to try to save. There's no committee here. You're losing money. You're hiring employees. There's something wrong here, sir. This just doesn't add up.
MR. TOUESNARD: Well, if you want to . . .
MR. BOUDREAU: As far as your maintenance, what type of maintenance? For instance, in the Georges River area, and I represent that, you have floodgates up in that area. Residents have been calling you, sir, directly, since I've been elected in 1999 and prior to that. Why is there no maintenance ongoing on this type of infrastructure that you have?
MR. TOUESNARD: I'm unaware of floodgates or concerns about floodgates on the Georges River.
MR. BOUDREAU: So you don't have any record of any phone calls from residents in regard to that area?
MR. TOUESNARD: I certainly do not, no.
MR. BOUDREAU: They went directly to your office, sir, and I provided the phone number directly to the residents. So you're telling me that they did not call your office?
MR. TOUESNARD: I have no record of concerns about floodgates on the Georges River.
MR. BOUDREAU: We will check on that. Do you intend to develop any of your property on the Bras d'Or Lakes?
MR. TOUESNARD: From what perspective?
MR. BOUDREAU: You're going to abandon it. So are you going to sell it or are you going to develop it? Really, what do you plan to do after you abandon that line?
MR. TOUESNARD: Again, I can't respond to questions on real estate.
MR. BOUDREAU: So you don't have any backup plans? Your company paid $30 million for this line and what are they going to do, just throw it in the wind?
MR. TOUESNARD: No, as I indicated earlier, we will be utilizing the assets. It's our intention to utilize the assets in the best way possible.
MR. BOUDREAU: So you have not been part and parcel of any discussions in regard to after you abandon that line?
MR. TOUESNARD: I am the operating manager of the rail line to the extent that if we cease operations in Port Hawkesbury, my focus will be on operating the rail line between Port Hawkesbury and Truro, and others will be involved in what happens with the rail line beyond that point.
MR. CHAIRMAN: We are going to have to move along, Brian.
MR. BOUDREAU: Thank you, Mr. Chairman. I will be back.
MR. CHAIRMAN: Mr. Touesnard, you indicated earlier, or at least I think you did, that the parent company RailAmerica is bringing some pressure to bear, obviously, because they feel that the line isn't that profitable, or at least parts of the line. You said you didn't think you would consider it an ultimatum but, perhaps, I guess I could paraphrase, more a request from the parent company to show a profit or you're going to have to abandon. I was a little bit curious as to whether or not Cape Breton Rail actually received some timeline or was a time frame put in place whereby you say you're operating 50 different lines, or at least RailAmerica is and after some toing and froing, I think we both agree that perhaps the pressure that your particular line is receiving from the parent company may be a little more pronounced than another line that is more profitable. I just wonder, did they impose a time frame on Cape Breton Rail to either shape up or ship out?
MR. TOUESNARD: Through our budgetary process, like government, like any organization, we strike a budget every year. Through that budgetary process, we have imposed time lines on ourselves. Honestly, we have surpassed those time lines in an effort to try and save this rail line. So that brings, of course, again, more focus in terms of when we're going to be able to find a solution here.
MR. CHAIRMAN: Being a publicly traded company, I would think, and you can correct me if I'm wrong, that in terms of capital and ongoing operations, most of the funding would be in American currency. Is that a fair statement or is it a mix?
MR. TOUESNARD. We strike our budget in Canadian dollars.
MR. CHAIRMAN: You strike your budget in Canadian dollars, but the investment on the capital and operational side?
MR. TOUESNARD: Our friends south of the border have a tendency to think in U.S. dollars, if that's what the question is. But, certainly, the budget in terms of capital maintenance, in terms of operating, is all Canadian.
MR. CHAIRMAN: So by extending some of the budgetary time lines that you imposed upon yourself, it's probably in RailAmerica's best interest, based on the exchange rate, to try to see this line sustained?
MR. TOUESNARD: In terms of our return in U.S. dollars, obviously with dropping exchange rates our return is less in real dollars. I think if we're having a discussion about exchange rates, I think maybe the benefits to us as a rail line has been it allowed companies like StoraEnso and others that trade in the United States, sell their goods in the United States to be more competitive in the United States. So it's a good and bad story, I guess, as we look at exchange rates.
MR. CHAIRMAN: And those benefits would also . . .
MR. TOUESNARD: We see the benefits from the additional volumes or the competitiveness of those customers, but many of our expenses, for instance, most locomotive parts you have to source those parts in the United States. So we're buying those parts in U.S. dollars. So the exchange rate has a detrimental effect and a positive effect at the railroad. At the end of the day it's hard to determine which way it goes.
MR. CHAIRMAN: Is it really that hard to determine which way it goes?
MR. TOUESNARD: Yes, it is. It really is, and it's on the revenue side where it's more challenging to determine what impact that's actually having on companies that are trading in the United States, like Stora, like Kimberly-Clark, like Michelin Tire. Has their business grown as a result of a low exchange rate? Certainly, I anticipate that it puts them in a more competitive framework as they trade in the United States. So I don't know. I certainly can tell you what the expense has been on our side and the expense has been considerable. We continue to guess wrong, as the country probably does, on what the exchange rate is going to be.
MR. CHAIRMAN: Thank you very much. Mr. MacKinnon.
MR. MACKINNON: Thank you, Mr. Chairman. Mr. Touesnard, with regard to the intermodal component of your business, you indicated that Newfoundland would be a primary target. Have you had serious discussions in terms of a market for that product, for the containers going to Newfoundland from Halifax?
MR. TOUESNARD: Our marketing agreement with Canadian National has Canadian National marketing anything that moves on and off our rail line. Anything that moves within the confines of our rail line, we look after the marketing directly. So it's a marketing partnership and yes, jointly, we have identified somewhere in the neighbourhood of 1,400 rail cars of potential business.
MR. MACKINNON: Is that in an agreement form or is that just in the discussionary stage?
MR. TOUESNARD: It's just in the discussionary stages. We have not finalized pricing on it and, obviously, until we finalize pricing and strike a deal with those customers, then it's . . .
MR. MACKINNON: You're familiar obviously then with the plan by the Halifax container terminals to increase their volume from approximately 0.5 million to 0.75 million boxcars a year?
MR. TOUESNARD: I'm certainly familiar with the success that Halifax has had.
MR. MACKINNON: You're not familiar with those figures?
MR. TOUESNARD: Again, it's not our major focus. Obviously that volume is focused on the U.S. over the Port of Halifax.
MR. MACKINNON: I appreciate what you're saying, but perhaps if you could just answer my question, you're not familiar with those figures?
MR. TOUESNARD: Not specifically, no.
MR. MACKINNON: Okay, what is your breaking point for the Cape Breton component of your rail line? I'm getting mixed signals here today on one hand . . .
MR. TOUESNARD: We've indicated . . .
MR. MACKINNON: If I could finish . . .
MR. TOUESNARD: I'm sorry.
MR. MACKINNON: On one hand you seem to indicate that you need government's intervention to make this a viable entity - the application for some assistance on the Melford spur line there, what was it $3 million or thereabouts; concern about the loss of the market from Sydney Steel and Devco and I appreciate that. I guess the bottom line is, if you have to speak to your superiors in head office down in Texas, or wherever it is, what is their shut-down point? Is it 1 per cent profit, 2 per cent, 5 per cent, 10 per cent? Where are we at in this whole picture, because we have nothing on revenues but we have lots of concerns about potential markets and expenses? For example, on Page 4 you indicate that capital requirements should average $8,000 per kilometre, but you don't indicate that that's what you spent.
MR. TOUESNARD: I indicated in my editorial that we have not been spending that money since approximately 1999.
MR. MACKINNON: So you've made a policy decision to let your infrastructure depreciate and deteriorate?
MR. TOUESNARD: Yes.
MR. MACKINNON: Yes. So how serious are you in maintaining the line if you deliberately and methodically allowed the infrastructure to deteriorate before you've come to an agreement, let's say with the Newfoundland market or a potential market from the Donkin coal mine which, by the way, would require a spur line from Donkin to Victoria Junction or else a truck route which, either way, would be a major expense; if it was a spur
line, it would be an expense undoubtedly in some form to yourselves. If it's a truck route, it would be an expense to the provincial government in some measure.
So I'm getting mixed signals. Can you give us some clarity on really where you stand? You're letting your infrastructure and everything (Interruption) go downhill but on the other hand, you seem to be talking positive, but there doesn't seem to be any documentation to back up your positive disposition.
[10:15 a.m.]
MR. TOUESNARD: I think it's a natural thing for any business, that when your business declines, you don't put as much money into infrastructure. That's certainly the decision that we made. It will be very easy for us to bring that rail line back up into the kind of shape we would need to have it if we were able to attract 7,000, 8,000, 10,000 carloads to that rail line, which we think is a very real possibility. We could certainly do that in one summer of construction season with tie replacement, with surface replacement, very easy to bring that rail line back into shape. The rail line itself, the core of that rail line, if you will, is in very good condition. So while we haven't spent the level of money that we have spent between Port Hawkesbury and Truro, we have not let the asset deteriorate to the extent that it's unusable by any stretch.
MR. CHAIRMAN: Thank you, Mr. MacKinnon, I do have to move along. We will come back if we have time. Mr. Clarke.
MR. CLARKE: Mr. Chairman, I just want to come back to, I think when we talk about car volumes, the base lines in 1995-96, in terms of when most recent peak volumes were there from both Sysco and Devco, in 1995-96 there were around 2,100 cars of volume from Sysco. The number of cars from Devco, is it correct, was approximately 6,700?
MR. TOUESNARD: In 1996, no, it would have been closer to 9,700, 10,000 carloads.
MR. CLARKE: So, 9,700 to 10,000 carloads. When you look at the volumes of traffic moving on the rail lines and, obviously, this is an issue that we are trying to, as a provincial government, deal with. What I am looking at is with the Devco divestiture and the decision, they have obviously put in some displacement dollars with regard to new investment and the like. I'm wondering what dialogue RailAmerica or CB&CNS has had with federal - either elected or department - officials regarding this, because in some ways it seems to me as being characterized as a provincial problem. I don't see it as such because I think the number one trigger is there.
For instance, with Sysco, one of the sites was the redevelopment and, obviously, Provincial Energy Ventures as a potential customer that's in discussion with you. I'm just looking at what the Government of Canada is doing. I know that the federal agency for Cape
Breton was involved with the provincial government in assessing the situation and looking at potential scenarios, but where has the federal government been in discussions with you?
MR. TOUESNARD: I guess, again in terms of involvement, it has been to the extent that the provincial government has involved people from the federal levels outside of the members from the area, Mr. Eyking and Mr. Cuzner.
MR. CLARKE: Do you fee that the Government of Canada has a larger role to play in trying to be a partner in finding some solutions here and putting some investment - I seem to think that it has been directed specifically at the province, but we do have a Government of Canada that has very specific dollars, millions of dollars currently on the books designated for the subsequent outflows of the divestiture. I'm just wondering, have you approached them about potential investment in some of these discussions you've had with regard to whether that's Georgia-Pacific with the spur line for Melford? I'm just wondering where they are. Do you feel that they should have a greater role?
MR. TOUESNARD: We have not had those discussions. As a provincially regulated railroad, our primary interface has been with the Province of Nova Scotia, but you certainly make a good point.
MR. CLARKE: Yes, thank you.
MR. CHAIRMAN: Thank you, Mr. Clarke. Mr. Chipman.
MR. FRANK CHIPMAN: You have 72 employees, 34 unionized, the other 38 I'm assuming are general workers. It appears you have been very generous to your employees. They've averaged approximately 4.5 per cent, 5 per cent per year. Is that for unionized, or all workers?
MR. TOUESNARD: Well, obviously there's a range, that's an average number but, I guess, as I indicated in the summary, we're proud of our success. We're proud that we pay our employees reasonably. The rail industry, as people are probably aware, compensates its employees fairly well across the country and in order to attract and retain good, qualified employees, it's important for us to do the same.
MR. CHIPMAN: The 39.3 per cent, does that include both union and non-union? Are they both averaging the same amount?
MR. TOUESNARD: Yes, but there's very little if any difference and this was a first contract for these employees. So those 34 employees have only been unionized or represented by a union since October 2000.
MR. CHIPMAN: What was the result of the strike? They were making $19 to $20 an hour and they wanted the same as their Ontario counterparts. What was the result of the strike, what was the increase?
MR. TOUESNARD: Of course, media reports are sometimes a little difficult to differentiate all the detail that's involved. They were making $19.94 per hour plus a profit share portion, which wasn't widely publicized, I guess. The employees wanted their profit-share in an hourly wage, so we included their profit-share in an hourly wage and provided wage increases of 2.75 per cent, 3 per cent, 3 per cent, 3 per cent, 4 per cent, and a four year, nine month agreement which was retroactive to April 1, 2001.
MR. CHIPMAN: Will you be following up with the same figures for your non-unionized employees?
MR. TOUESNARD: It's certainly our intention, yes.
MR. CHIPMAN: Thank you.
MR. CHAIRMAN: I wonder if I could ask honourable members now, seeing as we are into the third round of questioning, to try to limit themselves to a brief commentary and one question, if that would be possible. Mr. Boudreau.
MR. BOUDREAU: Thank you, Mr. Chairman. I'm wondering how many acres of real estate you have on the line and adjacent to the line? How many acres of real estate to you own around the Bras d'Or Lakes?
MR. TOUESNARD: There are probably about 60 miles of rail line around the Bras d'Or Lakes and for the most part, we would own a 100 foot right-of-way.
MR. CHAIRMAN: Mr. Corbett.
MR. CORBETT: I will read a quote again from the Premier and this if from August 8th, in this book here, from the Inverness Oran: "I believe that we can find a workable plan to allow that rail line to continue to be in operation until such time as the economy of industrial Cape Breton recovers to the point that the line would become viable on its own." With a statement like that I would think the Premier of the province would be active in trying to support you, at least for the short term, financially, but yet you say they would not participate in the Melford spur line in any financial way whatsoever. Have they ever given you any indication, as part of trying to get you through this period so we can see the economy of industrial Cape Breton recover to where we would like to see it, have they ever spoken to you about getting involved in a financial way?
MR. TOUESNARD: First I will deal with the Melford situation. Obviously that was a specific situation. Largely, prior to the demise of Devco and Sysco - although people could
see it on the horizon - the government's strong preference, as is ours, is to find a long-term business solution. If we need to look at other remedies on an interim basis, we haven't had that detailed discussion yet.
MR. CHAIRMAN: Mr. Touesnard, in other jurisdictions many rail lines, both short term - and I suppose you would call it, I don't know what terminology you use, more secure number one rail companies, so to speak, partner up with the trucking industry? Some of the rail lines and the trucking companies quite successfully partner. I know, for example, Sears; Line Haul; Day & Ross; Clark; Midland, et cetera, run down to the boats, so to speak, with trucks and trailers on a daily basis. Perhaps you are doing some partnering now with some trucking companies, but in order to make that rail line more successful and profitable have you had some dialogue with the trucking companies about partnering up, running the piggybacks - be they empty or loaded down to the boat - or whatever the case may be?
MR. TOUESNARD: Yes we have and there is an interest. By and large, though, in the short-line business we find ourselves competing with trucking companies. Class 1 railroads like Canadian National extend their reach in two ways, or I could say three ways, I guess, if I involve the marine industry. They extend their reach through strategic partnerships with trucking companies and through strategic partnerships with short line railroads. In our case, ours is a strategic partnership with the Class 1. So, by and large, we're seen as maybe some competition for the local trucking industry. The difference that we have here is that the Newfoundland market presents kind of a different animal, if you will, and to the extent that we can put together a good logistical plan with Canadian National to move trailers from some of the core centres around Atlantic Canada-Halifax, Moncton and beyond into Montreal and Toronto. Then we will be able to provide the trucking industry with kind of a value-added option to moving their trailers around the country.
MR. CHAIRMAN: It sounds like there is some potential there. Mr. MacEwan.
MR. MACEWAN: I will come straight to the point, given the strict time parameters you might have, Mr. Chairman. We are in an interim period right now. Every day that we live is an interim day in our lives. The general view, if we are not total pessimists, is that there is going to be some economic resurgence in industrial Cape Breton. I think we can agree on that. It's just a question of when it will happen. But I think that the Donkin Mine will be mining coal within three to five years. I firmly believe that. I think Prince Mine could very well be reactivated because there's 15 years of coal left there to mine if somebody would just go down and take it out. Sydney Steel might get back into business. It is still operational; it is just not operating. There's a difference between operating and operational. But the equipment to make steel is all still there and it's not going to be demolished. It's being left on site in an operational capacity. All of these developments are going to need rail transportation to survive. They are.
Now if I were an investor and I had what you have to play with right now, I'd hang on to it. I wouldn't give it away to somebody else. I certainly wouldn't go out doing what
they did in Prince Edward Island and tear the railway up tie by tie. I hope you can hang in there come what may. I'm not advocating the mothballing of your railroad from Port Hawkesbury to Sydney at all. I want to see it operational every week. I would say, above all else, if you can, hang on to it because it's going to become worthwhile to somebody down the road. I firmly believe that. I hope you do too.
MR. TOUESNARD: Well we're certainly optimistic that we're going to be able to save it. To your point about the "when" is what we're challenged by as well.
MR. MACEWAN: I know that.
MR. TOUESNARD: We have been at this since 1998. We feel that we have not generated positive cash-flow beyond Port Hawkesbury since 1998. Every anchor customer seems to be just out of reach for us. So that has been the challenge that we've had to deal with since that time and we had to put a framework around that - we have to make a decision by . . .
MR. MACEWAN: Hang in there if you can. That's my parting advice to you.
MR. CHAIRMAN: Mr. Carey.
MR. JON CAREY: Perhaps further to what Mr. MacEwan has said, the information I've been given is, if approval of the abandonment plan is accepted by the URB, then your company is compelled to offer the line to the province for a net salvage value?
MR. TOUESNARD: Yes.
MR. CAREY: Is there a time frame on that?
MR. TOUESNARD: Our application has a very aggressive timeline. We've asked for abandonment of the rail line by June 10th. We certainly recognize that that is aggressive, but also recognize that we have been at this process, as I just indicated to Mr. MacEwan, since 1998. We have indicated to the stakeholders in the Sydney area that we would review that date and that we would be reviewing that date over the course of this week. I intend to get back to our customers and government officials who are involved in a stakeholders group in Sydney on those dates.
MR. CAREY: If I might, is there a net salvage value? Is the province aware of a value?
MR. TOUESNARD: No, the province is not aware of the value. The province, early in the process, had a consultant take a look at some of the issues here. The consultant, I believe, estimated the value of those rail assets, as we have, of course.
[10:30 a.m.]
MR. CHAIRMAN: Thank you Mr. Carey. Mr. Boudreau.
MR. BOUDREAU: I'm going to ask, what role does your company play with regard to Newfoundland? Any shipments? Do you ship anything?
MR. TOUESNARD: Yes.
MR. BOUDREAU: Do you have the statistics?
MR. TOUESNARD: An approximate number today is about the equivalent of 200 rail cars.
MR. BOUDREAU: Per day?
MR. TOUESNARD: No, annually.
MR. CHAIRMAN: We're going to wrap it up with Mr. Chataway. Our guest and witness has been very gracious here this morning and we thank him for his indulgence. Mr. Chataway, the final question will go to you.
MR. CHATAWAY: Mr. Chairman, I very much appreciate it. This is certainly a fascinating discussion. I'm not a permanent member on this committee but one of the things I've been able to gather from the conversations that we've had is that basically this is a business decision for the railway; at least some parts of their line are not a profitable thing. Basically this is a decision that will be a sustainable solution that will involve private sector involvement and just good business thinking behind it. Has the firm ever gone to the Utility and Review Board before for a discontinuance of service? Have you ever used the Utility and Review Board for their comment on the business that you were deciding to go to?
MR. TOUESNARD: No, we haven't. The Railways Act of Nova Scotia was proclaimed into law at the end of November 2001, so it's fairly new legislation. That legislation involves the Utility and Review Board in our business.
MR. CHATAWAY: Why? They're just new at it, why the Utility and Review Board?
MR. TOUESNARD: I guess you'd have to ask government specifically. When Cape Breton & Central Nova Scotia was first formed in 1993, it was the first railroad that Nova Scotia had that was not a federal railroad since about 1927. So there was no legislation in place to manage or to put a framework around our business. So, at that time, we were advised that Nova Scotia would undertake to establish a Railways Act and, in the interim, we agreed to operate under federal regulations. By and large, the Nova Scotia Railways Act, in
terms of safety regulations, in terms of commercial regulations, mirrors a lot of what happens on the federal scene.
MR. CHATAWAY: I very much appreciate this.
MR. CHAIRMAN: Thank you, and thank you Mr. Touesnard. You probably have said everything that needs to be said, but if you wanted to take a couple of minutes to wrap up you're certainly more than welcome to do so.
MR. TOUESNARD: I guess our only comment is that we have been successful in the Province of Nova Scotia. We want to continue being successful in the Province of Nova Scotia. We want to provide the major industries in northeastern Nova Scotia with good service. We want to provide them with good rates. We want to have a safe operation for the communities that we operate through. In order to do that, it's important for us to be financially viable. As we undertake the potentially unpleasant task of having to discontinue this section of rail line, we're doing it with that in mind. At the end of the day we certainly hope there is going to be a positive outcome here, that enough attention has been brought to bear on this issue that we're having that we're going to be able to save the rail line beyond Port Hawkesbury and generate profits and provide good service for the businesses in Sydney that are there today, for the businesses that we hope to have in the Sydney area in the future. Thank you very much for your time.
MR. CHAIRMAN: Thank you, Mr. Touesnard. Thank you for coming in today. It's really appreciated. I can say that on behalf of all committee members. I ask all committee members not to rush away. We have a little bit of work to do regarding the future agenda. Darlene has provided committee members with a copy of a potential agenda, rescheduling Sydney Port Authority. I've been advised that the next date we have is May 30th, which is a Thursday. Is it agreed that we would try to bring in the Sydney Port Authority on May 30th? I'm looking for counsel.
MR. CORBETT: Yes, and you can't get any wiser counsel than myself and Mr. Boudreau.
MR. CHAIRMAN: Cecil, you may want to join us for that occasion. It's on a Thursday, so we will ask our illustrious clerk, Darlene, to see if she can arrange that. Also, usually we adjourn for the summer months, but do we want to schedule a meeting for June 11th?
MR. CORBETT: That's a holiday in industrial Cape Breton because it's Davis Day. I would prefer not to meet on Davis Day.
MR. CHAIRMAN: That's a good enough excuse for me.
MR. CORBETT: But beyond that, I have no problem with it if we were available.
MR. CHAIRMAN: Well, based on the time of the year and so on and so forth, I think we will try for Sydney Port Authority and possibly adjourn until some time later on at the beck and call of the committee. Do we have a motion to adjourn?
MR. MACEWAN: You've agreed to hear from the Sydney Port Authority and is that it?
MR. CHAIRMAN: Yes, because usually, Paul, we shut her down for the summer months. We had talked about a date briefly, June 11th, but it's not acceptable or agreeable to members of your own caucus and the NDP caucus and probably ours too.
MR. MACEWAN: Well, that's kind of an important holiday in the mining area.
MR. CHAIRMAN: Yes, it is. Okay, thank you, everybody.
[The committee adjourned at 10:37 a.m.]