Canada May Sell Part of VIA Rail, Cut Routes as Costs Mount

Canada may sell part of VIA Rail or cut service provided by the money-losing passenger-rail company as the government looks to pare spending, documents show.

The transport ministry is “assessing several options for future support for passenger-rail services,” including “significant reductions” in service and privatizing part of the network, according to a briefing note prepared for Transport Minister Denis Lebel, which was obtained by Bloomberg News under Canada’s freedom-of-information law.

Prime Minister Stephen Harper’s government has promised to eliminate its budget deficit by the fiscal year starting April 2015, in part by cutting operating spending by at least C$4 billion ($3.9 billion) annually.

Federal money for government-owned VIA has increased in recent years as it “regularly requires additional funding to cover operating shortfalls,” according to the documents. “Privatization and public sector partnerships in the Quebec City-Windsor corridor are being assessed,” staff say in the documents, referring to the most densely-populated sections of Quebec and Ontario, including Toronto and Montreal.

VIA had an operating loss of C$261.5 million in 2010 according to its latest annual report. Annual revenue fell 5.3 percent from 2005 to 2010 to C$274.4 million, while operating expenses rose 15 percent to C$535.9 million.

Government Support

The government provided a combined C$1.2 billion for operations and C$441 million for capital spending in that period, annual reports show.

“At this time, there are no plans to privatize VIA Rail,” said Pierre Florea, a spokesman for Lebel, in an e-mail. “While the department can make suggestions, the minister is in charge of government policy.”

A spokesman for Montreal-based VIA Rail said the company “regularly discusses various plans and scenarios with government.” VIA’s mandate remains to “operate the current network,” Malcolm Andrews said in an e-mail.

Finance Minister Jim Flaherty said in November he was delaying plans to balance the budget by a year, amid a dimming outlook for global growth and more conservative revenue estimates.

Canada, Germany, the U.K. and Sweden are the only Group of 10 countries with stable AAA ratings from the three main credit assessment companies. Foreign investors purchased record amounts of Canadian government bonds in 2010 and 2011, which returned 9.6 percent last year, compared with a 6.1 percent gain for global bonds, based on Bank of America Merrill Lynch data.

Remote Communities

VIA Rail, created in 1977, operates from British Columbia to Nova Scotia. While it serves remote communities such as Churchill, Manitoba, which bills itself as the “Polar bear capital of the world,” about 80 percent of the company’s ridership moves between Windsor, Ontario and Quebec City, the country’s main commercial corridor.

Transport Canada has been reviewing the federal government’s support for passenger rail since 2008, according to the note, which is dated April 13, 2011.

“Potential service level reductions could include: reduced frequencies on the western and eastern transcontinental service; reduced frequencies to certain remote areas; and, removing regional services in rural areas that are well served by other public modes and highways,” staff say in the note.

It’s common practice for VIA to “adjust schedules based on passenger demand,” Florea said. “Our government is committed to safe and efficient passenger rail for all Canadians.”

Small Railways

Canada also spends C$16.1 million annually to provide services to remote areas through small railways such as Manitoba’s Keewatin Railway and Ontario’s Algoma Central, according to the note.

VIA plans to use C$923 million in government funding to meet maintenance and safety requirements and fund equipment and infrastructure projects through 2014, according to the note.

It makes no sense for taxpayers to pay for VIA’s upgrades if it’s going to be sold, said Bob Fitzgerald, national staff representative with the Canadian Auto Workers union, which represents VIA employees.

“It would be devastating to employees and the country to scrape the cream off the top and let the rest of it die,” Fitzgerald said in an interview, referring to privatizing service in the Windsor-Quebec City corridor.

‘Fire Sales’

The government is considering “fire sales” of public assets without considering the true long-term cost of privatization, said Brian Masse, a lawmaker with the country’s biggest opposition party, the New Democratic Party.

“What’s really unfortunate about this is that they just claim there’s an outright cost for VIA Rail, but they never factor in the other transportation modes and their true costs,” said Masse, who represents a district in Windsor. “We pay for a whole series of costs for our highway systems.”

VIA could prove to be a tough sell to investors. The company owns less than 2 percent of the 12,500 kilometers (7,750 miles) of track it uses, relying on freight railways such as Canadian National Railway Co. VIA’s fleet includes 396 passenger cars and 78 locomotives, according to its website.

Services Uneconomical

“Under prevailing market conditions, passenger rail services are uneconomical and, without continued and substantial government support, will continue to decline,” Jean Dupuis, a researcher for Canada’s Library of Parliament, said in a November report. “High-speed passenger rail provides the best potential for profitability and market growth but would require substantial investment.”

While VIA’s total ridership dropped 9.8 percent between 2008 and 2010 to 4.15 million, the total was up from 4.1 million in 2005.

The briefing note also shows Canada is looking at improving service between Windsor and Quebec City, including through high-speed rail.

Florea said a high-speed rail network would cost between C$20 billion and C$40 billion.

“Given the very high public cost and in the current fiscal circumstances, this project is not a priority for our government,” he said.

Canada’s review of passenger rail comes amid a broader debate about the future of the industry in North America.

President Barack Obama’s administration has spent $10.1 billion to speed up passenger trains across the country. Amtrak, the U.S. national passenger railroad, has proposed upgrades to high-speed service from Washington to Boston. U.S. representative John Mica, the Florida Republican who chairs the House transportation committee, has called for the private sector to play a greater role in financing Amtrak’s upgrade.