Kicking the tires on the Huron Central deal

What do you get for 30 million bucks? To start, Huron Central Railway has "probably" agreed to operate its line between Sault Ste. Marie and Sudbury until the end of its lease with CP Rail in 2017, "possibly" longer, said Tony Martin, the Sault's MP, Sault This Week reports.

"I wasn’t privy to
those discussions," said Martin, who represents the New Democratic Party
on the all-party federal rail caucus. "I believe…part of the deal"
was to get a guarantee Huron Central and its U.S.-based parent company, Genesee
& Wyoming Inc. would maintain local operations for a given period of time.

GWI has had a good first
six months, particularly since March 2010, according to the company’s Q-2
report to shareholders.

If the economy stays good
so that enough product is still shipped, operations will continue, Martin said.
If the economy goes sour again and the company starts to lose money here,
"Who knows what they’ll come back with?"

In the meantime, the
federal and provincial governments have helped to keep the companies
competitive by covering C$30 million of the C$33-million cost of rail upgrades,
Martin said. "I would be very surprised" if the railways hadn’t
agreed to a timeline.

Martin explained the
apparent brinksmanship of the federal government in announcing its 45-per-cent
share, C$15 million, in the total cost of upgrades to the rail line between the
Sault and Sudbury as "a bureaucratic delay." He qualified that,
saying Ottawa had to "get the language right" in agreements with "a
lot" of companies, shippers and three railways.

Brenda Stenta, manager,
corporate communications, Essar Steel Algoma, declined comment on possible
guarantees to government by HCR that would have provided her company assurance
of rail service to Sudbury. She said later in an email, "We are very
pleased with the level of commitment provided by all three levels of government
in support of the operation of the Huron Central Railway. "Had a solution
not been found, Essar Steel Algoma would have been forced to use alternative
transportation methods including other rail carriers, marine and truck
transport. It could have meant upwards of an additional 350 transport trucks on
Canada’s highways every week, which of course comes at an environmental and social
cost," she said.

An earlier report states
that Huron Central will start restoration next year, once the company and the
federal and provincial governments work out details of their agreement. Rail
upgrades will continue over the next four years, until 2015, two years before
the end of Huron Central’s lease with CP Rail. The railroad will order plans
and material this winter and seek outside contractors through a tender-issue
for completion of upgrades to the line. He foresees no serious interruption of
service during construction.

Huron Central lost $2.1
million in 2008, according to a report last week in The Sault Star. HCR
threatened last fall to close the railway. Interim funding of C$3.3 million
from the province and the federal government bought a delay and signaled the
start of negotiations toward a long-term solution. The rail line promised to continue
operations until Aug. 15 this year.

Genesee & Wisconsin
blames the local crisis on the downturn in the economy since 2008 and reduced
shipments by Essar Algoma Steel and Domtar’s Espanola mill. The two companies
account for 80 per cent of rail traffic on the route, Essar having the largest
share, of 60 per cent. Essar and Domtar committed to usage levels and shipping
rates as part of the agreement with government.