Monday, November 18, 2019

Council spending $3.6M to purchase rail line

train tracks 1

Council opted to roll the dice rather than place the safe bet Thursday night.

It voted to spend $3.6 million to purchase the tracks along 26 miles of rail line from Chatham to just north of Wallaceburg.

Council was faced with a dilemma, as a locked-in purchase option for the track with Canadian Pacific was to expire March 2. Council had the choice to let it lapse and risk the track being pulled up by CP, or to take ownership of the line.

The 26-mile stretch of track from Chatham to just north of Wallaceburg has four potential buyers, but so far no one has signed a cheque.

Council opted to role the dice rather than place the safe bet Thursday night. It voted to spend $3.6 million to purchase the tracks along 26 miles of rail line from Chatham to just north of Wallaceburg.

Council was faced with a dilemma, as a locked-in purchase option for the track with Canadian Pacific was to expire March 2. Council had the choice to let it lapse and risk the track being pulled up by CP, or to take ownership of the line.

In 2013, the municipality and CP partnered to pay CSX $4 million for the rail line, with Chatham-Kent owning the land and CP purchasing the salvage rights to the steel rails.

CP gave the municipality freedom to seek an operator on the line. Several potential operators courted the municipality, and two put in offers, but council didn’t deem them feasible, John Norton, the municipality’s solicitor said.

“We received two offers to purchase the rail line, but terms were not satisfactory,” he said.

What may have swayed council was a comment from Michael Burton, director of economic development. He said there are three agricultural businesses on the line – London Agricultural Commodities, Jackson Seeds, and Southwest Ag – who used to rely on the line to get their product to market. Now they pay significantly more to have it trucked to market instead.

But Burton said if the municipality were to let the track get torn up, not only would these businesses have to look for permanent trucking alternatives, but large dollars in potential economic development would dry up.

Burton said about 40% of the files his department is working on in terms of outside investment is tied to having the rail line active. But that also translates to 95% of investment growth potential on file.

“That’s a potential $1.7 billion in investment. The larger facilities require rail access,” he said. “They need logistics. They need multi-modal options.”

That includes a potential $15 million in investment and 100 jobs from such industries as crumb rubber and solar windows, Burton said, as well as $1.2 billion in investment and 350 jobs for a fertilizer plant.

“Without rail, there is no fertilizer plant. It’s that simple,” he said. “There is significant interest in this kind of facility. Four companies are interested.”

Council learned that letting the purchase option lapse would have been cost neutral, according to CAO Don Shropshire.

“The downside is we’d lose the economic opportunities, likely forever. Even if we maintain the land, it’s extremely unlikely the rail would ever be put back down,” he told council prior to its vote.

The potential pitfall for the option council ultimately chose, however, is increased financial risk, Shropshire said.

Worst-case, the municipality winds up selling the rail line for scrap and loses as much as $2.1 million in the process.

But Stuart McFadden, deputy director of economic development, said the majority of the line consists of high-grade steel rails that could be reused.

“The rail is in excellent condition. About 90-95% of the rail is considered reusable,” he said. “CP’s intention was probably to pick it up and move it to the west. They see value in it.”

Shropshire said if that’s the case, the municipality could actually turn a profit even if future development doesn’t materialize.

“If we resell the track, if it’s reusable rail, we’d make an additional $1.4 million,” Shropshire said.

North Kent Coun. Joe Faas led the successful motion to have the municipality buy the rail and keep its economic development options open. He understands councillors may take some heat for the decision.

“The popular decision is the easy way out. We’re elected to do the right thing, not the popular thing,” he said.

“The investments from China and India that are looking to locate here, we’ve always come to them with the premise that we own a railroad,” he said. “I’m not saying the fertilizer plant is guaranteed, but if we turn it down (the option to purchase the rail line), it’s guaranteed it won’t come.”

East Kent Coun. Steve Pinsonneault was one of the largest opponents to the purchase.

“The rail companies can’t make money running this line and somehow we think this is going to be a profitable deal,” he said. “I believe this will prove to be the biggest mistake this term of council will make.”

The motion passed by an 8-6 vote.

Administration stressed the municipality has no plans to operate the line on its own.


– Story by Bruce Corcoran

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