On a completely tangential note, Toronto's mayorial election may spell good news for the federal NDP and its leader, Jack 'Nance' Layton.
What I was really poking around for, though, was information on the privatisation of BC Rail.
This struck me, because I'd distinctly remembered reading in the BC Liberal Party's manifesto a promise that they would not sell or privatise BC Rail. As you can read right here. Where it says that they will:
- Not sell or privatize BC Rail.
Which seems fairly unambiguous.
My knee-jerk gut reaction was to grumble 'Shame, shame, what is the world coming to, why back in my day,' and so forth, because privatising things generally leads to trouble, distress, and the British rail system. But, to be fair, knee-jerk socialism is no substitute for informed decision-making. It could be that this was a really swell deal after all. It's a deal on freight service, rather than passenger, so it seems at first glance as if it's less likely to dick over the public.
So I started looking. I looked coolly and dispassionately. I would like to say I weighed the arguments pro and con with a careful and critical ear, but on matters of business and finance, I do not know my own fundament from a hole in the proverbial ground. I can listen to people who do, though, and having done so, it seems as if the purchaser, Canadian National, is making out like a bandit.
CN is paying $1 billion for BC Rail, the government trumpets. Only it isn't, actually, as the papers are pointing out. CN is forking over $750 million itself, and promising another $250 million to come from corporate tax write-offs inherited from BC Rail (which apparently has a pool of some $850 million in write-offs). So this $250 million won't really be coming to British Columbia from the company, but in effect from the rest of Canada, in tax revenues from CN the federal and provincial governments will be losing. Which doesn't seem like a terribly nice thing to do. CN is in effect paying $750 million for a 60-to-90-year (its choice, so make that 90) contract to operate all that infrastructure. The province will technically retain ownership of the railbeds, but CN will get to haul all the freight over them. This is not an unprofitable venture. As it stood, BC Rail had already been turning a profit; by the end of the third quarter of 2003, it had raked in over $70 million. According to the Vancouver Sun, CN expects to turn a profit of $100 million a year. This figure may or may not be reasonable and accurate. The BC government cites some $30 million in debt interest and $40 million in maintenance costs that this deal will supposedly save the province; but if the railroad is already profitable, it is hard to see how this actually counts as saving anything. It seems as if this is a very good deal for CN, but not nearly so good a deal for the province. If it was determined to sell, or 'partner up', or however they want to describe it, it should, at the least, have gotten a much higher price. Let's do a lot of rounding, and be generous. For the province to break even on this deal over the 90 years of the contract, BC Rail would have to average no more than about $11 million in profits over that span. Going by its recent performance, BC Rail would be likely to exceed this by quite a margin.
Unless something awful happens in the next 60 to 90 years, which is entirely possible. If miraculous cheap anti-gravity renders railroads redundant in 2008, the province will have made out like a bandit. Will rail take it up the dumper enough to bring BC out on top? We will see. I would not feel comfortable gambling a large sum of provincial money on it.
Here you can listen to an interview with someone who seems to know how these tax break thingies work, via CBC BC.
According to this Vancouver Sun story, CN was the worst possible choice of buyers.
And so forth.
So, all in all, it looks like it was a bad idea. My socialist gut was right after all.
Who knew?
(Mildly updated at 11.47pm.)
Posted by aloysius at November 26, 2003 08:11 PM | TrackBack |