No. H254/05
For release November 24, 2005
OTTAWA - Transport Minister Jean-C. Lapierre and Finance Minister Ralph Goodale today announced an agreement-in-principle to transfer the Government of Canada's grain hopper car fleet to the Farmer Rail Car Coalition. The coalition includes members from western grain producer groups, agricultural associations and rural government organizations.
The Government of Canada has agreed to lease the approximately 12,000 grain hopper cars to the Farmer Rail Car Coalition for five years, leading to a permanent transfer at the end of that period. The transfer price will be $205 million, consisting of lease payments over five years
totaling $65 million, a credit of $35 million for car refurbishment work to be done by the coalition, and a final payment of $105 million over a further eight-year period.
"Today's announcement fulfills a prior commitment we made to farmers to work with the Farmer Rail Car Coalition to secure a viable future for the Government of Canada's grain hopper car fleet," said Mr. Lapierre. "This lease-purchase arrangement effectively balances the interests of producers with those of industry and taxpayers."
"I am pleased that the Government of Canada has reached this agreement-in-principle with the Farmer Rail Car Coalition," said Mr. Goodale. "Now farmers will be full-fledged partners in the grain handling and transportation system."
"This agreement-in principle is an important step for ensuring western grain producers have a long-term and affordable grain transportation system," said Andy Mitchell, Minister of Agriculture and Agri-Food. "I commend the coalition for its diligent work on behalf of grain producers."
"This agreement in principle is a tribute to the hard work of Canadian farmers," said Reg Alcock, President of the Treasury Board and Minister responsible for the Canadian Wheat Board. "This is an important step in empowering our producers to compete in an increasingly global marketplace."
In October 2002, the Farmer Rail Car Coalition submitted a proposal to the Government of Canada to acquire the hopper cars and to manage, maintain and replace the fleet over time. The Government of Canada conducted a significant amount of due diligence during the review of the proposal to ensure that the business model the Farmer Rail Car Coalition has put forward would be financially viable, workable and consistent with both parties' shared interest in moving towards a more commercial, efficient and competitive grain transportation system that meets the needs of producers, railways and other stakeholders.
The lease-purchase agreement will be finalized in 2006, following confirmation that the Farmer Rail Car Coalition has agreements in place with Canadian National Railway and Canadian Pacific Railway for the use of the cars.
Backgrounders with more information about the hopper car fleet and the agreement-in-principle and key terms and conditions are attached.
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Contacts:
Mylène Dupéré
Press Secretary
Office of the Minister of Transport, Ottawa
(613) 991-0700
Cathy Cossaboom
Communications
Transport Canada, Ottawa
(613) 993-0055
Patrice Breton
Press Secretary
Office of the Minister of Finance, Ottawa
(613) 996-7861
Elizabeth Whiting
Press Secretary
Office of the Minister of Agriculture and Agri-Food, Ottawa
(613) 759-1059
Lise Jolicoeur
Press Secretaryry
Office of the President of the Treasury Board Ottawa
(613) 957-2666
Transport Canada is online at t www.tc.gc.ca. Subscribe to news releases and speeches at apps.tc.gc.ca/listserv/ and keep up-to-date on the latest from Transport Canada.a.
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BACKGROUNDER
TRANSFER OF FEDERAL HOPPER
CAR
FLEET TO THE FARMER RAIL CAR COALITION
Currently, there are approximately 12,000 railway hopper cars in the Government of Canada-owned fleet, which form the core of rolling stock used by Canadian National Railway and Canadian Pacific Railway to move western grain. These cars are provided at no cost to the railways for the transportation of grain from the Prairies to the ports of Vancouver, Prince Rupert and Churchill for export or to Thunder Bay and Armstrong, Ontario, for domestic or export purposes. The railways have day-to-day control of the cars and allocate them to grain shippers on a commercial basis.s.
On March 9, 2005, the Government of Canada announced it was opening negotiations with the Farmer Rail Car Coalition concerning the possible transfer of the federal fleet of hopper cars. The announcement included seven principles to guide the negotiations of a possible transfer agreement. These principles were aimed at encouraging system efficiency, competition, commercial discipline and accountability, minimizing risk of trade challenges, optimizing value for taxpayers, reducing the financial impact on western producers, and ensuring an orderly transition.
In October 2002, the Farmer Rail Car Coalition submitted a proposal to the Government of Canada to acquire the hopper cars and to manage, maintain and replace the fleet over time. The Government of Canada conducted a significant amount of due diligence during the review of the proposal to ensure that the business model the Farmer Rail Car Coalition has put forward would be both financially viable and workable.
Following this review, the Government of Canada has agreed to lease the grain hopper car fleet to the Farmer Rail Car Coalition for five years, leading to a permanent transfer at the end of that period. The transfer price will be $205 million, consisting of lease payments over five years totalling $65 million, a credit of $35 million for refurbishment work to be done by the Farmer Rail Car Coalition, and a final payment of $105 million over a further eight-year period.
The lease-purchase agreement reflects modern governance practices and includes conditions to ensure that the Farmer Rail Car Coalition is accountable to its members, the Minister of Transport and the public through annual meetings and public disclosure of key documents related to the coalition's performance. The agreement also provides an opportunity for the Government of Canada to test and assess the impact of the Farmer Rail Car Coalition business plan, including its impact on efficiencies, and to terminate the transfer if it does not benefit farmers and the grain handling and transportation system.
The lease-purchase agreement will be finalized in 2006, following confirmation that the Farmer Rail Car Coalition has agreements in place with Canadian National Railway and Canadian Pacific Railway for the use of the cars.
November 2005
BACKGROUNDERKEY TERMS AND CONDITIONS
The cars will be transferred to the Farmer Rail Car Coalition (FRCC) under a five-year lease-purchase arrangement, with ownership to be conveyed at the end of the five-year lease period.
The transfer price will be $205 million, consisting of $65 million in lease payments during the five year lease term, a credit for $35 million in refurbishment work on the cars to be undertaken by the FRCC during the lease period, and a final payment of $105 million over a further eight-year period.
The cars will be used primarily for grain movements but may be used for other purposes for short periods of time if not required for their primary purpose.
The FRCC will be permitted to sublease the cars to railways or to grain shippers.
The FRCC will be prohibited from involvement in day-to-day logistics operations of the railways and grain companies and will make a commitment to apportion cars in a non-discriminatory manner if cars are subleased to grain shippers.
The FRCC will be permitted to take over responsibility for maintenance of the cars from the railways.
During the lease, the FRCC will put net cash proceeds into reserves for contingencies, fleet refurbishment and fleet replacement.
During the five-year lease, the FRCC may acquire cars from other sources, subject to approval of the Minister of Transport and only if funds are available from the fleet replacement reserve.
The transfer agreement will include conditions to ensure accountability and transparency consistent with modern governance practices, including public meetings and public disclosure of FRCC's performance documents.
The sale agreement can be terminated during the lease period if it turns out that the FRCC business model does not benefit farmers and the grain handling and transportation system.
November 2005
