New rail developments face steep challenges

by Mark Cardwell

Railroads play an integral role in economic, political and social life, and were critical in developing modern Canada.

From the country’s first public railroad – a 25-kilometre line that was inaugurated in July 1836 when a wood-burning, steam locomotive dubbed the ‘Iron Kitten’ towed two passenger coaches from La Prairie to St-Jean-sur-Richelieu – the Canadian rail industry has evolved into a highly integrated transportation network that today hauls more than $320 billion worth of freight over 50,000 km of rails from coast to coast.

Those activities generate some $10 billion in revenues for Canada’s two Class 1 railways – Canadian Pacific, which opened up the West and expanded Confederation; and Canadian National, the country’s largest railway – as well as dozens of short lines and a few American freight railways with trackage rights that are mostly connected to the two Class 1’s transcontinental corridors.

Despite the crucial role railroads play in Canada’s supply chain, few new lines dedicated to the movement of goods have been built in recent years.

And though two new projects hope to buck that trend – one in Alberta, the other in Quebec – both are facing the same challenges that have always made developing railways difficult in as vast and rugged a country as Canada.

A2A

The more ambitious of the two projects – the Alaska-Alberta Railway, or A2A Rail – proposed to construct a $22-billion, 2,600-km-long railway that would carry oil, grain, ore and containerized goods between deep-sea ports in Delta Junction, Alaska, and the oil sands hub of Fort McMurray, Alberta.

In 2020, the Calgary-based company secured financing and commissioned an engineering firm to do detailed land surveying for the Alberta portion of the route, much of which passed through Indigenous lands.

“A2A Rail continues to gather momentum,” company founder and chairman Sean McCoshen said in July 2020. “The start of surveying activities means that we are now officially ‘boots on the ground’ here in Alberta. Combining that with our progress on completing our feasibility study, it is safe to say that A2A Rail has advanced well beyond the early idea first investigated by the Van Horne Institute into a mature infrastructure project only months away from breaking ground.”

McCoshen added that the project, which got a public promise for a permit in the fall of 2020 from then-President Donald Trump, would generate more than 18,000 jobs and $60 billion in economic activity through 2040.

“Headaches go from whether or not you’re investing in something that’s going to see a return, whether or not people are going to accept the idea, to other issues, and now it’s kind of more along the lines of a regulatory construction issue,” he told Inside Logistics in August 2020.

In July 2021, A2A filed for creditor protection. Its main lender, Bridging Finance, went into receivership and the court-appointed receiver, PriceWaterhouseCoopers, called in a $149-million loan made to A2A.

Financial irregularities

CBC has since reported that an investigation by the Ontario Securities Commission found “numerous financial irregularities” in McCoshen’s dealings with Bridging.

In a press release posted on A2A Rail’s website in August – the company’s most recent public communication – interim receiver MPN Ltd. said “interest has been expressed by both strategic and financial entities that could make an offer for the project’s assets.” Those assets reportedly range from engineering and right-of-way agreements with First Nations’ groups to A2A’s marketing and partnership plans.

For Garland Chow, a professor emeritus in the operations and logistics division of the Sauder School of Business at the University of British Columbia, the proposed railway is “partially dead in the water (and) everything is in limbo. Even if someone buys the assets, A2A is a very complex and giant project that involves two Canadian provinces and a territory, an American state and two countries, and a half dozen First Nations groups.”

Chow said the A2A project is also hampered by both the current global political climate against fossil fuels and the fast-changing dynamics involved with financing and building a railway designed to haul heavy cars of crude oil long distances over rugged terrain and through pristine valleys in different legal jurisdictions.

“When the studies for the project were being done, pipeline projects were jammed,” said Chow. Since then, however, a Supreme Court of Canada ruling in July 2020 ended legal challenges to the Trans Mountain Pipeline, and U.S. President Joe Biden and other world leaders are pushing for a 50-percent reduction in greenhouse gas pollution below 2005 levels by 2030.

“The world changes real quick,” said Chow. “Oil and gas markets are now projected to go down drastically in the coming years. I mean, California won’t have any gasoline-powered cars on the road soon. So who is going to invest billions of dollars in a venture to transport a commodity that is losing value? You’d need a lot of other traffic to make this route economically feasible, and I don’t see it.”

Qc Rail

Chow is far more optimistic about the chances of success of Canada’s other new railway project, the Societe ferroviaire Qc Rail. Devised and led by a consortium of regional and municipal governments and the band council in the Innu community of Pessamit, the project proposes a new 370-km freight line that would join with and extend CN’s rail network from the inland city of Dolbeau-Mistassini to the deep-water port of Baie Comeau on the North Shore of the St. Lawrence River.

According to sources, the proposed railway would be an alternative east-west national route that would bypass the heavily-trafficked Windsor-Quebec City corridor, helping to move an estimated 800 cars per day of bulk solid and liquid products and general cargo from across Canada and northern Quebec, and give them better access to world markets.

Various companies have reportedly expressed interest in the venture, including CN, Cargill; which has a large grain terminal in Baie-Comeau; and other exporters like aluminum maker Alcoa and Resolute Forest Products, which have processing and/or manufacturing facilities in the North Shore region.

Feasibility study

This summer, Quebec engineering firms SNC Lavalin and Norda Stelo began a two-year feasibility study of the project, which is estimated to have a construction price tag of around $2 billion.

The $15-million study is being funded mostly by the federal and provincial governments (respectively $7.45 million and $7.5 million) with the Manicouagan regional government, which is headquartered in Baie-Comeau, chipping in $50,000.

“There are many things we’re trying to get our heads around,” Marcel Furlong, prefect of the Manicouagan MRC and interim head of the Qc Rail board, told Inside Logistics.

Re-elected to a second four-year term as prefect in early November, Furlong said the proposed railway would allow “large quantities of merchandise to be transported at high speed in convoys of hundreds of wagons.”

For his part, Chow thinks QC Rail has a real shot at becoming a reality. “Compared to 2A2, it’s a small project being planned inside a single jurisdiction, and it has both federal and provincial government involvement as well as First Nations. There’s a lot more control and fewer challenges to overcome.”

Still, Chow said routing a new railway over rugged terrain, around swamps and over rivers that are frozen half the year – all the while planning for the establishments of yards and junctions where materials for building tracks and bridges can be stockpiled – has never been easy in Canada.

“Any railroader knows the big issue is that unit trains carrying natural resources are very heavy,” said Chow. “You can’t lay heavy tracks on bogs and rocks. You need to excavate and build and maintain rail lines with the most even grade and the least amount of curvature possible. These are always complex projects.”

For her part, Caroline Healey, executive vice-president and general counsel of the Railway Association of Canada, which represents 95 percent of the country’s railways, says that all projects that add to the capacity of Canada’s rail industry are welcome.

“We support any railway project, whether it’s Class 1 or a short line, that helps to increase volume or make the supply chain more fluid,” said Healey. “What we keep telling the federal and provincial governments is that the rail industry has a significant impact on the Canadian economy, but also on the environment.”

The challenge, she added, is to convince governments on the need to make targeted investments in capital spending programs that will help to maintain Canada’s current railroad network and encourage the development of new railway lines and projects.