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Federal government tells OmniTrax to fix its railway in 30 days or face legal action

When it comes to the inactive section of the Hudson Bay Railway (HBR) north of Gillam to the Hudson Bay port town of Churchill, which has been accessible only by air or sea since late May, the parties involved continue to favour words over action.
A Via Rail train being loaded onto a ship for transport out of Churchill
A Via Rail train being loaded onto a ship for transport out of Churchill. The train had been stuck in the Hudson Bay port town since spring flooding washed out several sections of the Hudson Bay Railway track bed north of Gillam, prompting track owner OmniTrax, which says it does not have money to pay for repairs, to suspend service to Churchill indefinitely.

When it comes to the inactive section of the Hudson Bay Railway (HBR) north of Gillam to the Hudson Bay port town of Churchill, which has been accessible only by air or sea since late May, the parties involved continue to favour words over action.

Natural Resources Minister Jim Carr began the next round of conversation and accusations with an Oct. 13 statement that the federal government was giving railway owner OmniTrax 30 days to begin repairs before launching legal proceedings.

“Since the rail service disruption in late May 2017, the government of Canada has been working towards the restoration of the rail line,” said Carr. “Despite these efforts, OmniTrax Inc., the parent company of the owner and operator responsible for restoring service to the affected communities, has not met its obligations. As such, today, Transport Canada sent OmniTrax Inc. a notice of default of its agreement, demanding that it complete all railway repairs and resume rail service within 30 days. Failing this, Transport Canada will instruct Justice Canada to file a lawsuit for breach of contract.”

The federal government said in early September that a 2008 contribution agreement required OmniTrax to operate the Hudson Bay Railway until 2029, though the company says the unprecedented flooding that occurred in the spring represents a force majeure, or unforeseeable circumstance, and releases it from fulfilling the terms of that contract.

OmniTrax Canada president Merv Tweed said in a response to Carr’s statement on the company’s website that it was clear the federal government doesn’t intend to solve the problem of Churchill’s only surface transportation link being cut in any constructive way.

“It appears from their collective indecisiveness, dysfunction and lack of leadership on this critical issue that both Canada and the province of Manitoba are content to leave Churchill as a remote, fly-in community for the first time in over 100 years,” said Tweed. “While this conflicts with Canada’s stated position on reconciliation with First Nations and with Arctic sovereignty – Churchill is Canada’s only deep-water Arctic port – and its commitment to its more isolated northern communities, our experience since the 200-year flood event on May 25 does not suggest there is an appropriate sense of urgency by any governments to rebuild the railroad or transfer the ownership to the First Nations who seek to own it.”

“In mid-May of this year, seeing the snow pack and threatened storm, HBR contacted everyone along the railway and advised that we were concerned about a catastrophic flood that could compromise the railroad. When the flood came, we immediately informed our regulator of the damage and requested that they come view this damage first hand. Transport Canada declined to personally inspect the damage. We hired a world leading engineering firm, AECOM, to begin the difficult work of assessing the damage and putting together a repair plan. We informed our stakeholders, the government and the public that we would not be in a position financially to repair or continue to operate the line, and began the process of transitioning the HBR to a First Nations consortium. In early August, we entered into an agreement with Grand Chief Dumas and a new coalition of First Nations buyers. This coalition has the capability to operate the line and ensure it can offer a sustainable link to Churchill and points north. This agreement now hinges on the federal government and its willingness to provide the requisite approvals and financial support.”

Assembly of Manitoba Chiefs Grand Chief Arlen Dumas, who was chief of Mathias Colomb Cree Nation at the time that it and Missinippi Rail signed a memorandum of understanding on the transfer of OmiTrax’s Manitoba assets to a First Nations-led consortium in December 2016, said in an Oct. 18 statement that threats of legal action might jeopardize the sale of the port and rail line.

“This flies in the face of all the good work that has been done so far,” said Dumas. “I see this as a delay tactic. If the government decides to pursue legal action against OmniTrax, it is forcing the communities serviced by the rail line to become fly-in communities if the line doesn’t get fixed. I believe OmniTrax is also using this as an excuse not to fix the line, which further punishes our people living along the rail line. I would like to apologize to the people along the rail line that we still have other interests deciding when we can eat and when we can travel and that our governments still refuse to help.”

Carr said the federal government’s chief negotiator Wayne Wouters is continuing to facilitate discussions between concerned parties and that the federal government hopes recent developments will speed the process of a potential transfer of ownership.

“I am encouraged by the significant breakthrough towards an agreement between Missinippi Rail and One North to created a unified group as a potential buyer,” said Carr. “I am optimistic that the partnership can develop a viable, sustainable business plan towards owning and operating the line. Their collective interest in regional ownership and focus on long-term sustainable operations represents an important step towards ensuring viable transportation in the years to come.”

The federal government said it was also preparing for challenges that may crop up before the long-term goal of restoring rail services is achieved.

“The government of Canada continues to make concerted efforts to ensure the safety and security of the people in Churchill and other communities along the Hudson Bay Rail line,” said Carr. “These efforts pertain to food affordability, fuel resupply and storage, community support and economic development. Our top priority remains the safety and well-being of residents impacted by the service disruption.”

Tweed countered that the federal government’s words regarding Churchill have not matched its actions.

“The transfer of the HBR, as well as the repair, requires government resources,” he said. “The federal government said it would help and it has not helped. In fact, it has stood in the way of both the transfer and the repair. We are distraught over today’s statement, not because of our commercial interests – our commercial interests were washed away with the flood – but because of what it means to our employees, our stakeholders and our communities along the HBR.”

A document on OmniTrax’s website details a temporary repair plan that could result in restricted service being restored and take only about a month to complete, according to AECOM, which prepared the report.

The plan would consist of basic temporary repairs and full temporary repairs to restore 25 washout locations north of Amery, where rail service has been suspended since late May, and cost about $5 to $10 million.

“Once these temporary repairs are completed, the line could be reopened for very restricted service until the full plan to perform permanent repairs is completed in 2018,” the report says.

The cost of returning the rail line to safe and operable condition for light loaded trains was estimated at $43.5 million in an August report by AECOM, and would have taken 60 days to complete. Had those repairs been started in September, AECOM predicted that some rail service to Churchill could have been restored by November.

An Oct. 13 community update from Churchill Mayor Michael Spence and council says they are unhappy with OmniTrax’s inaction and glad to see the federal government taking steps to address it.

“The town continues to be disappointed that to date the rail line owner has refused to meet their obligations to restore service,” said the update. “The town is pleased the federal government is taking this serious action to hold OmniTrax accountable.”

It also said the key to a sustainable future was ownership by Northern Manitoba partners.

“There is an agreement between northern communities to form one ownership group to acquire OmniTrax’s Northern Manitoba assets including the Churchill marine tank farm, the Hudson Bay Railway and the port of Churchill,” said mayor and council. “Securing a partnership for northern ownership of these assets has been a community goal for some time and the town is grateful for the commitment the government of Canada has made to support the transition to new ownership. The town will be working closely with the federal government to explore any and all community efforts that can be taken to prepare for a transfer of assets should OmniTrax fail to meet the deadline now imposed by the federal government.”

Churchill’s mayor and council also asked residents to respect the work being done to remove a stranded Via Rail train from the town by sea.

“While the town’s desire was to see these rail cars be removed on a repaired rail line, we recognize that it is not possible at this time. Via Rail is an important partner in our community and will remain so well into the future. We ask for the community’s cooperation in allowing workers to do the work they need to do.”

Spence and the council members also said they are still waiting for more details about provincial government contributions to ensure Churchill’s well-being.

“At this time, we still have had no formal communication from the province of Manitoba regarding the premier’s commitment of $500 million for Churchill over the next decade,” said the update. “We will continue to seek clarification if any of this includes new investments that would continue to support our economic growth.”

Tweed said the government of Canada has taken actions to the detriment of the Hudson Bay Railway since OmniTrax purchased it and the Port of Churchill for about $11 million in 1997.

“We have seen a steady and systematic removal of government funding to support those assets,” he said. “At that time, in addition to supporting the transport of passengers, goods and supplies to Churchill and other northern communities, the HBR was used to transport grain from western producers out to global markets through the Port of Churchill. The value and commercial viability of the HBR have been undermined by a continuum of federal government actions over recent years, including the termination of the Canadian Wheat Board’s single desk in 2012, the abandonment of the Churchill Gateway Development Corporation in 2013, the subsequent privatization of the wheat board and the termination of grain shipping support programs. The result of these measures has been the collapse of commercial activity along the line to the point of non-viability, as producers and shippers shifted the movement of grain westward. The port has been closed to grain shipments since 2016. This is complicated by the fact that we have invested over $100 million in this enterprise without any return since our purchase in 1997.”

Tweed says it no longer makes sense for a profit-seeking company to operate the railway. 

“It is our view that, as a result of the federal government’s actions (or inactions) recently and over the past 10 years, the HBR is not commercially viable and should be regarded as a public utility,” Tweed wrote. “We recognize this position has frustrated many, but it has become the inconvenient truth for Churchill. We do, however, believe a solution is achievable, as do many of the local stakeholders. While we remain of the view that the best outcome for all concerned is a negotiated sale to the First Nations coalition, based on Transport Canada’s actions today, we are now contemplating steps to bring this protracted matter to a close.”

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