It looks like the federal government’s fleet of grain cars probably won’t change hands by Aug. 1.
The Farmer Rail Car Coalition, which is negotiating to take over the 12,400 hopper cars, had hoped a transfer could coincide with the new crop year.
But following a meeting between the FRCC and federal government officials last week, coalition president Sinclair Harrison said that might not be possible.
“We’re still optimistic but we’ve been warned by Transport Canada that probably it’s not going to happen,” he said.
Read Also
Land crash warning rejected
A technical analyst believes that Saskatchewan land values could be due for a correction, but land owners and FCC say supply/demand fundamentals drive land prices – not mathematical models
A transfer by the beginning of August depends on negotiating an agreement before the end of April. That’s because the government is required to give the railways 90 days notice of any change in ownerships of the rail fleet.
Harrison said the first serious negotiating likely won’t take place until the middle of this month.
“It looks like there’s going to be some slippage there because if we’re not into negotiations before mid-April it’s highly unlikely we’re going to conclude the final agreement by the end of April,” he said.
The main reason the coalition had hoped to take possession of the cars Aug. 1 is that the rail revenue cap, along with a lot of other grain industry regulation and activity, is based on the crop year.
“We could do it Oct. 1 or whenever, but it just makes it a little more complicated,” said Harrison.
Federal transport minister Jean Lapierre announced in early March the government would enter into formal negotiations with the FRCC, nine years after Ottawa first announced its intention to dispose of its hopper cars.
It selected the FRCC over competing proposals from the two national railways and from a group of grain companies and commodity associations called the Farmer-Industry Partnership.
The FRCC wants the cars for a nominal sum and intends to lease them on a not-for-profit basis to railways.
During the initial meeting with Transport Canada, the FRCC received a copy of a report commissioned by the federal government on the condition of the hopper fleet. The report didn’t contain any surprises, said Harrison, and indicated the cars are overall in “average” condition.
He said the FRCC has a couple of issues regarding the cars’ condition that need to be addressed in the negotiations.
For example, a brake appliance called a slack adjuster will have to be added to the cars for them to meet new North American safety regulations taking effect in 2014.
The coalition also is concerned about potential structural problems with some cars due to cracking in the shear plate, and wants to look into upgrading the cars to increase their carrying capacity to 130 tonnes from 119 tonnes.
All of those issues will have a bearing on the eventual transfer price.
It’s also clear that if Ottawa does transfer the cars to the FRCC, it will be on a five-year lease-to-purchase basis, rather than an outright sale, with the government retaining title during that time.
Such an arrangement would be designed in part to deal with critics of the FRCC who have expressed doubts about the coalition’s ability to administer the cars.
The government would likely set certain performance benchmarks that the FRCC would have to meet to take ownership after five years.
Harrison said a lease-to-purchase deal complicates matters. The coalition plans to put lease revenue into reserves to cover such things as maintenance, car replacement and crop volatility, and it’s unclear what would happen to those reserves if the government decided not to transfer title in five years.
Also, without title, the FRCC would have no asset against which to borrow during the lease period.
