The timing of the federal election, the lack of dedicated funding for short-line railways, and a regulatory hang-up appear to be stymying a subsidy to the Huron Central Railway.
For the third time in 10 years, the Huron Central's parent company, Genesee & Wyoming Canada (G&WC), has threatened to drop freight service between Sault Ste. Marie and Sudbury by early 2020 if Ottawa and Queen’s Park don't contribute to a five-year, $40-million package for track maintenance and safety upgrades.
And it’s the third time in a decade that former Sault mayor and retired CAO Joe Fratesi has had to step into the breach to ensure the critical northeastern Ontario rail line remains intact.
Fratesi is volunteering with another retired Sault mayor and city councillor, Steve Butland, in leading a task force of regional stakeholders to secure funding to keep the freight moving in northeastern Ontario.
To avert a similar stoppage late last year, the Ford government provided emergency funds of close to $1 million to sustain the service for another year while negotiations were to resume toward reaching a long-term funding solution.
“To say we’re frustrated and the Huron Central is frustrated would be an understatement,” Fratesi said.
Politicians and candidates may publicly support rail when they’re on the campaign trail, but he wants them to make good on those promises.
The Huron Central hauls steel, forest products and chemicals for large and small companies like Algoma Steel in the Sault, the Domtar paper plant in Espanola and the EACOM sawmill in Nairn Centre.
A Domtar spokesperson said G & WC has advised them that March 2020 is the likely timeframe for closure of the rail operations.
G&WC president Louis Gravel wasn’t made available for an interview, but the company responded by email that they’ve met several times with federal and provincial government officials over three years to explain the challenges they face.
“At this point, evidently, we’ve been unsuccessful in convincing both levels of government of investing in the survival of this rail operation for business and citizens of Northern Ontario,” the railway said.
The Montreal-based company contends there’s “insufficient” revenue generated from that 278-kilometre line to cover track maintenance costs and carry out federally mandated grade crossing regulations without assistance.
G&WC also operates the Ottawa Valley Railway, which runs between Sudbury and Temiscaming, Que., but the company hasn't threatened to discontinue service if there's no subsidy there.
The company responded that it’s a shorter line – at 252 kilometres – that needs less capital investment and it provides other sources of revenue in switching and storage.
The breakdown of G&WC’s business plan and their cost-sharing model calls for $20 million from Ottawa with the remaining funds shared between Queen’s Park, the Huron Central, and G&WC. The railway invests about 12 per cent of its revenue back into capital projects every year.
Through the ups and downs of the steel and forest industry over the years, the company said they’ve done just enough to keep operations going safety and reliably. But the capital requirements are too much to take on alone.
The line is owned by CP Rail but it doesn’t contribute toward track maintenance. Huron Central inherited that responsibility when they took over operations in 1997.
Even back then, the railway said, the track needed plenty of work.
G&WC insists if their five-year growth forecast come to fruition, the revenue generated would put them into “cash flow positive” position to invest back into the line.
G&WC contends it’s applied twice through the National Trade Corridors Fund and been rejected both times.
In working with Sault MP Terry Sheehan, Fratesi said there’s general support through transport minister Marc Garneau’s office but it’s been difficult to shoehorn the railway’s funding request into a particular program. The same issue applies at the provincial level, he said.
With the looming federal election, Fratesi believed they were close to make a funding announcement – “We were talking about dates” – when the campaign began.
Everything is on hold, he said, until the election is over and is contingent on who forms the next government.
Another hang-up, south of the border, appears to have had a downstream impact on the Huron Central.
Genesee & Wyoming Canada’s parent company in Connecticut was acquired over the summer by Brookfield Infrastructure for US$8.4 billion.
But finalizing that sale has been delayed due to the approvals process by the U.S. Surface Transportation Board. Fratesi said that may or may not have interfered with the Ottawa’s timing to release the funding.
“We just ran out of runway in terms of a federal announcement, probably because of Brookfield.”
Considering the vital jobs that short lines do, Fratesi said it underscores the need for government to set aside dedicated funds for these railways.
“There isn’t currently a short-line program. There wasn’t 10 years ago. There needs to be at both levels of government because it’s about regional economic development as much as it is national security.”
The railway employs 43 but thousands of jobs in companies across the region depend on the service, he said.
Some online critics charge G&WC with demanding corporate welfare, to which Fratesi replies it’s no different than funding other types of transportation infrastructure, or Ottawa coming to the aid of Algoma Steel to offset onerous U.S. tariffs on Canadian steel.
“It provides economic activity for this region, it puts people to work.”
If there’s no rail, G&WC said shippers along the line will require about 40,000 transport trucks to replace the 12,500 carloads of freight they haul every year.
Moving goods by rail keeps heavy trucks off highways, the company argues, is four times more fuel-efficient than trucks, and decreases the carbon footprint of freight movement.
A spokesperson for Algoma Steel told SooToday that while rail is the “preferred method of transport,” product can still get to market by other means of transport, though it “would impact our freight costs and result in more trucks on the road.”
Whether there are enough transport trucks in Northern Ontario is another question.
Fratesi said he has a letter of support from Arauco, a Sault flakeboard manufacturer, which indicates it's having difficulty sourcing trucks to move product out of the Sault.
“If the Huron Central doesn’t operate, it will compound things and make it difficult for them.”
But he expressed confidence that government will eventually honour its funding commitments, illustrating his point with last summer's example of $28 million in federal funding for capital improvements at Domtar’s Espanola mill.
“They would look awfully stupid with a plant that was updated and upgraded which can’t ship materials in or out because Huron Central isn’t operating. There’s a bigger picture that they have to be concerned about.”