Short-line rail operators have shown interest in the hopper cars, estimated to be worth $6.2 million for the entire fleet
The buyers of approximately 900 grain hopper cars owned by the Saskatchewan Grain Car Corp. should be known within the next two months.
Highways and Infrastructure Minister David Marit said the process aimed at selling SGCC rail cars is well underway, adding that successful bidders could be identified before the end of May.
A request-for-offers process was initiated March 22, and the deadline for interested buyers to submit offers is May 12.
“I’m hoping that within weeks (of the May 12 deadline) we could at least let the successful bidders know,” Marit said. “I am pleasantly surprised … at the interest that we’ve had in the cars.”
The Saskatchewan government announced its intention to sell the SGCC fleet last month as part of the 2017 budget.
At the time, the province said Sask-atchewan’s short-line railway operators would be given the first opportunity to buy the cars, and so far they have shown considerable interest in acquiring the cars.
“The interest that we’ve had … from the short lines … I feel has been very, very good,” Marit said.
The province also announced that it would eliminate provincial grants to short-line railways.
The grants, which helped to pay for short-line maintenance and infrastructure upgrades, were worth roughly $900,000 a year.
Grant recipients were required to match the province’s investment on a dollar-per-dollar basis.
There are 14 short-line railways operating in the province.
The decision to sell the SGCC fleet raised eyebrows in the short-line industry.
Among other things, lease revenues from the SGCC hopper cars were used to pay for the annual maintenance grant program.
In 2016, lease revenues from the fleet were approximately $2.6 million.
Marit said the current book value of the cars is approximately $6.2 million. That works out to about $6,900 per car on average, only slightly more than salvage value.
Marit said the decision to sell the fleet was not based solely on the province’s need to generate revenue.
The cars are also nearing the end of their projected lifespan.
In the future, additional provincial investments would be required to perform necessary upgrades and maintenance on the cars.
“We felt that when we looked at the book value of (the cars), there was still some good value there,” Marit said.
The province had no interest in reinvesting tens of millions of dollars into an aging hopper car fleet.
Presumably, those who buy the cars will be more willing to maintain and refurbish them, as re-quired. With proper care, the life-span of the cars could be extended significantly.
In addition, the province’s short lines have had difficulty securing rail car capacity, Marit said.
“I think (this sale) gives them the opportunity to increase their business,” he said.
“Sure there’s going to be some (provincial) revenue but … the reason why we wanted to move in this direction was to give an opportunity to short lines to build capacity. That was the first goal here.”
The 900 cars on offer have been split into three groups based on their overall condition, maintenance requirements and existing lease arrangements.
Approximately 415 cars are under lease to Last Mountain Railway until 2020 or 2021.
Of the remaining 485 units, some are load-ready with up-to-date maintenance records while others require varying degrees of work.
About 280 were previously leased to Canadian Pacific Railway.
Potential buyers are free to bid on any number of cars in any of the three groups, Marit said.
“Obviously, we’re going to look very favourably at the short lines” when assessing the bids, he added.
“I mean, the dollar (value) will mean something … but I think in all fairness, the short lines are going to be very competitive in this process…. They were very active in the discussions that we had with them. These operators have done their homework in pricing cars across North America.”
The SGCC will also be wound down.
Its three staff members will be given other jobs within the ministry of highways and infrastructure, Marit said.