TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, March 11, 1998

• 1531

[English]

The Chairman (Mr. Raymond Bonin (Nickel Belt, Lib.)): I call the meeting to order.

I thank our witnesses, who have agreed to share with us their impressions and their views to assist us in our study on passenger rail. We have with us today Mr. Paul Tellier.

Mr. Tellier, we're very pleased you agreed to come with your colleagues, whom you will introduce for us. Without further ado, I will ask you if you have a presentation, written, verbal, or in whatever fashion you have.

Mr. Paul M. Tellier (President and Chief Executive Officer, Canadian National Railway): Mr. Chairman, good afternoon to you and the members. My colleagues and I are delighted to be here this afternoon.

You know Jack McBain, who is our executive vice-president and responsible for operations. Dave Todd is our vice-president, government affairs.

Mr. Chairman, I have a written statement, but I think members would prefer that I not read it word for word. If it is okay with you, I'm just going to summarize it, but I would be grateful if it could be put on the record. If this is okay with you, it would save your time. I'm just going to talk to it and summarize it rapidly.

The Chairman: I will mention, Mr. Tellier, that we have a binder where each presentation becomes a chapter. Your written presentation, along with a condensed report from research, will form part of this binder.

Mr. Paul Tellier: Perfect. Thank you very much, Mr. Chairman.

Let me say at the outset that I think I share the committee's views, and, Mr. Chairman, your views, about the importance of addressing this concern, this issue affecting VIA Rail. I think both the Minister of Transport and the president of VIA Rail should be congratulated for focusing on the issues and trying to find solutions. What I would like to do over the next few minutes is to put rail passenger services in the broader context of what is going on elsewhere, and secondly, to put it in the context of freight rail transportation.

The first point I want to make to you and your colleagues, Mr. Chairman, is that if you look at passenger rail transportation in the world, I am aware of no place where services are run on a fully commercial basis. In other words, rail passenger services, to the best of my knowledge, are losing money everywhere. I think it's important to put this in that context. In Europe, for instance, on an annual basis, the degree of subsidies exceeds $10 billion U.S.

• 1535

The second point that I want to make, talking about passenger services, is that the intercity or commuter service is much more popular elsewhere than it is in Canada. For instance, if you look at the total rail traffic for moving passengers by train, in Japan it represents 30% of the movement of people. Thirty per cent of the people in Japan are taking trains to move from one location to another. In Canada it is 1%. It's very important to keep this in mind.

The other thing is that I read the presentations that you have received so far, Mr. Chairman, and there is very much a temptation to make some comparisons between Canada and other countries, especially those in Europe.

Let me give you a couple of numbers. If you look at the proportion of the total revenue from rail in Japan, for instance, 95% comes from the passenger side. Ninety-five percent of the money that trains are making in Japan is coming from passengers. In Germany, it is 67%. In Britain, 80% comes from passenger services. In Canada, it is 3%.

Therefore, I would say to you and to the members of the committee that in any comparison you make by looking at Britain or Germany or any country in Europe or Japan or what have you, what really matters in these countries is rail passenger service, whereas in Canada what really matters is freight rail service.

Having said that about rail passenger service, let me say a couple of words about freight rail in Canada. First of all, in terms of the mix, if you look at the total transportation pie, the mix using rail in Canada is very high. About 50% of domestic shipment is moved by rail. It is very high.

Secondly, in terms of our exports— and all of us in this room know that this is a country of exporters and traders— 40% of Canadian exports, at one point in time, move on a freight train.

Therefore, I'm saying that on the one hand, rail passenger services in Canada represent a very small proportion of the movement in rail, and on the other, freight rail services are very critical to the Canadian economy.

If you look at the freight rates— and we'll be discussing that, no doubt, during the question-and-answer period— it's very important to keep in mind that freight rates, on a real basis, have gone down by roughly 30% over the last 10 years. And this is exactly the same trend as in the U.S.

Although we have made some progress— by “we” I mean the two main freight rail services— we're still lagging behind the U.S. freight services by about 30%. We have distributed the IBI report, which is an objective report, and which shows— with good charts— that if you take, for instance, the productivity of our employees or CP's employees and compare it with that in U.S. railroads, we are running about 30% behind in terms of revenue tonne miles, that is, moving a tonne of freight over a mile of track. We are running roughly 30% behind the U.S.

Therefore, the point that I'm making is that freight trains are very important in Canada. First, we move a large proportion of products by freight. Second, freight trains are very critical to the economy. Thirdly, they are very critical to competitiveness, because you know we are not an industry that exists strictly to run trains, we are there to serve our customers. If we cannot become competitive by providing services to our customers, the end result is basically that the shippers themselves will not be competitive, either within Canada or elsewhere. This is very important in terms of the Canadian infrastructure.

• 1540

I've been talking about Halifax for a certain number of years. For instance, to use the Port of Halifax as an example, if Canadian National is not successful and is not competitive, the future of the Port of Halifax is at stake. That's a fact.

I would really therefore say to you, Mr. Chairman and your colleagues, that when we examine the solutions to resolve the problem of VIA— and I'm all for it— to try to resolve the problem that we have with passenger rail services, we have to make sure that we don't affect the competitiveness of other Canadian ports, Canadian shippers and what have you. And I said the Port of Halifax, but I could say exactly the same thing about the Port of Montreal.

Therefore, I'll look at the plan that has been developed by VIA Rail. Again, I congratulate VIA for their efforts, but what they are suggesting is this— And I'm not saying that this is the only problem they face. They are basically focusing on the corridor between Quebec City and Windsor. There are two sets of tracks there, the CN tracks and the CP tracks. They want to put all the fast traffic on one track, the CN track— our intermodal traffic, our automotive traffic and the passenger traffic— and all the slower trains on the CP track. It's a very simple solution. The only problem with it is that it's not workable, and let me take a couple of minutes to say why.

First of all, I'm not aware of any jurisdiction that is running trains at 100 miles per hour or faster where these trains are not running on fully dedicated track. Therefore, the proposal is that we would increase the frequency of these trains— and I understand why Terry Ivany is proposing this. He said that in order to be self-sufficient, he has to increase the lines of products, he has to increase the frequency of his trains, double that and so on. You've seen his numbers. What I'm repeating is that I'm not aware of any jurisdiction where people run trains at 100 miles per hour or even faster, and where they are not on dedicated track.

Secondly, I would say that if you increase the speed and frequency, you would have to increase your track maintenance and your track standards. For instance, the Europeans are running fast trains, but on concrete ties. In our business, the freight business, we are using hardwood or softwood ties— and Jack is a former engineer who could explain that to you. We are also using concrete ties, but mainly on curves and so on. Therefore, the costs of the infrastructure would go up very quickly.

The other point that I want to make— and we can discuss this in a minute— is that when you increase the speed, the track capacity that you need to move these trains has to increase. In terms of capacity, one fast passenger train takes about the equivalent of five freight trains in terms of track capacity, and we can explain that to you in a minute as well. But the capacity is therefore not there today if we were going to double the number of trains that would be available in the corridor in the way that VIA is proposing.

• 1545

The next point I want to make is on the proposal that the slower trains would be moved on the CP tracks. We would have to spend an awful lot of money in order to upgrade the capacity of the CP line, not to mention the fact that CN would be at a major disadvantage, because if you look at any map, the direct line between Montreal and Toronto is the CN line.

The CP line goes through Smiths Falls. Therefore, by switching the traffic to the CP line as per the proposal by VIA, what do you do? We no longer have access to our yard in Brockville and our yard in Belleville, and in addition, our connection with our main yard in Toronto, the MacMillan Yard, and our main yard in Taschereau in Montreal becomes more difficult.

In addition, it would reduce our competitiveness in terms of moving trains between Halifax and Chicago. Mr. Chairman, let me take a minute here to explain this, because I think it is very important.

Over recent years, because free trade is working, the trade flows between Canada and the U.S. have been increasing at about 10% or 11% per year. Canadian National has decided to invest a lot in order to make the Halifax-Chicago corridor a success story, and it has been a success story.

First of all, we invested $200 million to build a tunnel under the St. Clair River between Sarnia, Ontario, and Port Huron, Michigan. As a result of being able to accommodate double-stacked trains in our new tunnel, we have shortened the journey between the U.S. and Canada by 24 hours.

So let me tell you how we are selling and promoting the Port of Halifax. What we are saying is ships are getting bigger. Most of these ships are coming in the North Atlantic, and therefore most of them are going to the Port of New York, to Port Elizabeth, which is not a deep-water port. So what we say to the shipping lines is that the Port of Halifax is only 40 or 45 minutes off the main shipping lanes in the North Atlantic, so why don't you make the Port of Halifax your first port of call and why don't you stop in Halifax and unload the top three rows of boxes on your container ships? We will take them on our trains from Halifax into Chicago cheaper and faster than if that box remained on that ship and was being unloaded in New Jersey.

Well, if you force us to accommodate the VIA traffic on our line, you can kiss that service goodbye, which has been growing at 10% per year, because we would no longer be able to be competitive. Therefore, that's a major impact.

Finally, if you look at the end result of that, the shippers, wherever they are, would lose the benefits we have gained by improving the quality of our service. God knows it's not perfect yet, but we have made very significant improvements over the past five years.

I mentioned the St. Clair tunnel. I could mention, at the tail end, in Chicago, $27 million was invested in a new intermodal terminal, again to accommodate that traffic, and therefore it wouldn't be able to be competitive, if that were the case.

I'm using Halifax as an example, but this is true. I see the member for London, who has a GM plant in his riding. We are the railroad that serves the largest number of GM plants. It's very important that these automotive trains be right on time. Therefore, by slowing down out of Oshawa, we would, of course, penalize our customers, and GM is our largest customer.

Mr. Chairman, in conclusion I would say this: Freight trains are very important to the economy of this country. We have made tremendous progress over the last five years to provide better freight train services. We have increased the value to Canadian producers and manufacturers by providing better service. And therefore I can say to you, and through you to the other members, we are ready to do whatever has to be done to assist VIA, provided that a certain number of key principles be respected.

• 1550

First of all, we need a balanced approach to dealing with the various customers. I'm all for moving rail passenger services, or passengers on rail services, between Toronto and Montreal or Montreal and Toronto or between Toronto and Sarnia, but I would argue with you that it's very important we don't do this to the detriment of the freight railroads.

Secondly, concerning the allocation of capacity, I think that capacity on these tracks has to be allocated taking into account the economic return.

[Translation]

I think it is very important, given that Canadian National has been privatized and now belongs to investors, that these investors earn a fair profit.

Likewise, I think it is very important that return on investment be taken into account in the wheelage charges for our tracks.

[English]

Therefore trackage rights must reflect the need to manage the capacity in such a way that it makes economic sense.

Mr. Chairman, this is a quick summary of the text that you and the members have. My colleagues and I would be delighted to answer any questions you may have.

The Chairman: Thank you very much. You will have an opportunity for closing remarks.

I will reiterate to members of the committee the intended ground rules, because I don't wish to impose anything on members. They are free to do what they want. I would hope that if we have questions that are of a parochial nature, we would at least wait until the third round.

We've been able to get in all the questions that our members have because the questions have been short and succinct and the responses have been the same. Hopefully today we will be able to handle all questions. Usually we do this and we finish before 5.30 p.m.

I will read the list so far. I will do my best to ensure that every member has occasion to ask questions. After Mr. Morrison it will be Messrs. Keyes, Guimond, Alcock, Fontana, Mercier, Cullen, Casey— and I'm always taking names as we go.

[Translation]

That's why I put your name on the list.

[English]

Mr. Morrison.

Mr. Lee Morrison (Cypress Hills—Grasslands, Ref.): Mr. Bailey is second on the first round.

The Chairman: Mr. Bailey is on the list because he just indicated. Mr. Morrison is first.

Mr. Lee Morrison: Okay. We can't cut our man Bailey out.

Welcome, Mr. Tellier.

I think some of the questions I was planning to ask may be somewhat redundant, because I get the feeling that in your eyes VIA Rail is more of an affliction than an asset; it's something you have to live with.

However, I would like to know a little bit about your contractual arrangements with VIA. You alluded to priorities for track space, for example. Is there anything written into the contracts with respect to who goes first? I can remember when passenger mail trains had priority over everything on the rails. I know that's no longer true. What is the situation right now?

Mr. Paul Tellier: Yes, Mr. Morrison, when VIA Rail was created in 1976 a service agreement was signed between the two companies. It has been renewed a certain number of times. As a matter of fact, it was renewed—

Mr. Lee Morrison: Sorry, I didn't hear.

Mr. Paul Tellier: There is a service agreement between the two companies and it has been renewed a certain number of times since. The agreement provides for quality of service standards. As a result, the amount we get is based in part on our performance.

• 1555

Mr. Lee Morrison: In other words, if they have to sit on a siding for a great deal of the contractual period, you don't get as much money out of them. Is that what you're saying?

Mr. Paul Tellier: Exactly. To give you a precise indication, as a customer, VIA Rail paid us in 1997 just under $50 million; I think it was $46 million. Of this, about $14 million was directly related to our level of performance.

Mr. Lee Morrison: How does this compare, just in broad terms, with Amtrak's relationships with the people who own the steel in the United States? Do they have similar arrangements or do they give their passenger service down there priority? I'm leading up to something here.

Mr. Paul Tellier: I think it is roughly the same. When Amtrak was created, about five years before VIA Rail, the American Congress imposed a flat rate on the freight train companies. And if you are about to argue that Amtrak is getting a better deal from the freight companies in the U.S., I would say this is true. But if you're ready to argue, as a member of Parliament, that our tax bill should be the same on this side of the border as it is on the other side of the border, I'll be ready any day of the week to sit down with VIA and renegotiate their rates.

Mr. Lee Morrison: No, I'd never think of arguing with you, Mr. Tellier. The reason I asked the question was I was wondering what were the possibilities, if any, for VIA with respect to your purchase of Illinois Central. Is this going to open up possibilities for VIA or are you going to have to use Amtrak, or is there not going to be any passenger service on that?

Mr. Paul Tellier: No, there is already a passenger service. Amtrak has a right to run their train from Chicago to New Orleans, going through the states of Tennessee, Mississippi, Louisiana, and so on. Therefore IC, Illinois Central, which we're about to acquire, has an Amtrak service running south of Chicago.

Mr. Lee Morrison: And they have successor rights, so to speak?

Mr. Paul Tellier: They have rights that were recognized when they were created by the American Congress.

Mr. Lee Morrison: Oh, I see. It's legislated.

Mr. Paul Tellier: Yes, that's my understanding.

Mr. Lee Morrison: Thank you.

The Chairman: Mr. Keyes.

Mr. Stan Keyes (Hamilton West, Lib.): Thank you, Mr. Chairman.

Thank you, Mr. Tellier, for your presentation to the committee in its usual concise format. It feels a little odd talking to CN now, that great private company operating rail across our country. Congratulations to you and your employees.

You mentioned that CN and rail freight traffic are, in your words, very important to Canada and to the economy, and very important of course to be competitive. Mr. Tellier, then you got into the question of speed and 100 kilometres an hour for a train, etc.

I'm not so sure we're talking about speed. Maybe what we're talking about here is an opportunity for more frequency. We're talking about having a train running between not just Toronto and Ottawa or Montreal, but in other locations on other tracks across Canada.

You can see a chicken-and-egg situation has developed in the rail industry, because if there is not enough frequency, there will not be enough passengers for train movement in this country. More frequency might result in more on-time performance, which may result in increased passenger ridership on our passenger trains in this country.

Given that it's so important to the country and the economy, have you sat down with CP and addressed the optimization of infrastructure, not as it relates to speed for passenger rail service and the track that's necessary for the speed of that service, but to optimize freight traffic in this country? Because then you have a shared opportunity with CP to move freight that much more quickly and maybe that much more effectively or efficiently, but at the same time to free up track for a more efficient, on-time, frequent opportunity for passenger rail in the country as well?

• 1600

So it's a twofold question. First, are you sitting down with CP? Second, where are we in those discussions?

Mr. Paul Tellier: Two things. First of all, Mr. Keyes, my understanding from sitting down with Terry Ivany, who came to brief me about their plan, is that they are talking about frequency and speed, both. If memory serves me well at this time, one, maybe two, fast trains are doing Montreal to Toronto or Toronto to Montreal, in four hours. The impression he left me with is that he was not satisfied with this, and therefore what he was talking about was increasing the products he's offering to the ridership. Therefore it means both speed and more trains, faster trains and more frequent departures.

To your question, you're aware that I did try to do a transaction with CP in eastern Canada. When I came to CN five and a half years ago these two companies, CN and CP, over the previous five years had lost about $2 billion in eastern Canada. In this case we were defining eastern Canada in a broad way, all the way from Winnipeg to Halifax. Therefore something had to be done. I felt it would make a lot of sense to bring these two companies together in the east.

Unfortunately it didn't work out this way. As a result Canadian National had to rationalize its operations in quite a radical way in order to stop losing money. In 1992, if I'm not mistaken, we at CN were losing about $200 million in our eastern services. Last year for the first time we broke even. We did slightly better, with an operating ratio of about 92.

We had to do a great many things in order to get there. We had to downsize big-time, unfortunately inflicting a lot of pain on a great many people. But it had to be done. Then we had to rationalize the network. You're aware that we sold, for instance, many lines to shortline operators and what have you.

At this point some discussions are taking place with CP to do things better together, but not in the corridor between Quebec City and Windsor or Sarnia.

Mr. Stan Keyes: You share track there anyway, don't you? Or are there two separate tracks in the corridor?

Mr. Paul Tellier: Two separate.

Mr. Stan Keyes: And no discussion is happening there at all.

Mr. Paul Tellier: No. The main reason, Mr. Keyes, is that as you know, we are roughly 20% bigger than CP Rail. At the highest level of CP Rail there was a belief— rightly or wrongly, it was their view, and therefore I respect it— that for them to do a transaction with us in the east would tip the balance in our favour across Canada. Therefore CP Rail was not ready to do that.

Mr. Stan Keyes: What about the corridor?

Mr. Paul Tellier: That's it. That's what I'm talking about.

Mr. Stan Keyes: So even though there is plenty of infrastructure in the corridor to try to work out— You see, what I don't understand is if that's the way the set-up is in the corridor currently, and if the economy and competitiveness are so important to CN, as they are to CP, why wouldn't the two sit down to try to rationalize, to optimize their profit-making opportunities? Is the blood so bad?

Mr. Paul Tellier: It's a very good question, but you're talking to the wrong guy. I've been trying to put a deal together with CP for two and half years of my life.

Mr. Stan Keyes: Yes; and I've heard CP say the same thing about CN. I don't know which end of the dog is shaking which end of the dog.

Mr. Paul Tellier: Let's look at the end result. At this point CP is no longer anywhere to be seen east of Quebec City. We have not pulled out of the Maritimes. We're still serving the port of Saint John. We're still serving the port of Halifax. As a matter of fact, it's a very close partnership with the port of Halifax. We are increasing our market share in the port of Montreal. We are providing a much better service. At this time our service from Montreal to Chicago is 24 hours faster than that of CP. Therefore, we had to clean up our act, and we were trying to do it with CP. It didn't work out, so we decided to roll up our sleeves and clean it ourselves.

• 1605

Mr. Stan Keyes: So let's clear CP out of the equation and ask: are you prepared to sit down with Terry Ivany and work out a deal in the corridor?

Mr. Paul Tellier: What I am telling you is that the proposal he's putting on the table is not workable. I'm not ready to put in jeopardy the competitiveness of shippers, wherever they are, in order to run a business that represents 3% of the traffic.

I don't want to compare VIA to anything, but this is really the tail wagging the dog. CP and CN, in freight, are a $7-billion business; VIA Rail is a $600-million business, of which $200 million comes from taxpayers. So let's not try to fix a $600-million problem by putting in jeopardy one of the best rail systems in North America. That's what I'm saying to this committee.

[Translation]

The Chairman: Mr. Guimond.

Mr. Michel Guimond (Beauport—Montmorency—Orléans, BQ): Mr. Tellier, it's always a great pleasure to have you here with us at the Transport Committee. I'm sure it's an equally great pleasure for you. I don't know whether you're still annoyed with me for saying you received an interest-free loan from the taxpayers to buy yourself a house in Westmount. In any case, that's past. We have to think about the future now.

Mr. Tellier, I have one comment and one question. On page 8 of the French version of your brief, we read this first sentence in the second paragraph of the conclusion:

There is little wisdom, however, in attempting to strengthen the weak by weakening the strong.

And further on, you say:

And Canadian National is now on a fast track—

I subscribe to the comments by the Parliamentary Secretary, Mr. Keyes, who congratulated the management teams and workers who made this situation possible.

I wish very humbly to remind you that the current Liberal government, during the 35th Parliament, provided monetary support for the project to make CN a private company and granted it extraordinary conditions with a view to this privatization. So we mustn't forget that the taxpayers of Quebec and Canada have contributed to CN's excellent financial standing.

So I find it a bit pretentious to claim that "there is little wisdom in attempting to strengthen the weak by weakening the strong." Perhaps this is due to the use of the words. Or perhaps it is due to the way the English was rendered. I am not as bilingual as you are. Perhaps it's the French translation that causes this effect. Nonetheless, I find that a bit much and I'd like to know what you have to say to that.

Secondly, here is my question.

Mr. Paul Tellier: What exactly is your first question, Mr. Guimond?

Mr. Michel Guimond: Who are the strong and who are the weak you are talking about in your remark "there is little wisdom in attempting to strengthen the weak by weakening the strong?" Are the strong strong today because they have benefited from the generosity of taxpayers in Quebec and Canada? And why are the weak weak?

Mr. Paul Tellier: Why are the strong strong and the weak weak? That doesn't have anything to do with the study being done here. If you wish to answer the question, you're welcome to do so, but I'd like to stick to the study we're doing here.

Mr. Michel Guimond: Is VIA Rail regarded as being the weak one and CN as the strong one? By studying situations that could help the recovery of VIA Rail, is CN being weakened, CN, which is strong because the taxpayers of Quebec and Canada helped it? That is the meaning of my question. Is it explicit enough, Mr. Chairman?

The Chairman: It's becoming clear.

Mr. Paul Tellier: Mr. Chairman, I'm pleased to answer Mr. Guimond's question. When we talk about strength and weakness, Mr. Guimond, it's all relative. Basically, Canadian National, when it was a Crown corporation, was losing $100 million a year. Last year, Canadian National made over $400 million in profits. I'm not saying that's extraordinary, but it's a pretty remarkable improvement, and the investors have remarked on it.

Secondly, you say it's because of the taxpayers' money. I remind you that the privatization of Canadian National by Mr. Young has proved to be most successful of privatizations in Canada and that the Minister of Finance was able to put the profits from this privatization, which amounted to more than $1 billion, in the public purse.

• 1610

As far as adjustment of Canadian National's debt is concerned, basically what happened was that these debts reflected decisions imposed on Canadian National, at a time when Canadian National wasn't being managed on a commercial basis. From the time Canadian National management and the board of directors decided to pull out of Newfoundland, that cost CN $700 million. So the taxpayers' money you're talking about is basically a debt adjustment. It's precisely to reflect that situation.

Mr. Michel Guimond: In the same vein, if we look at the results obtained by CN, Mr. Ivany suggested three— You've read Mr. Ivany's brief, and I think you mentioned it in your report. In the brief, he suggests three options. What we, the members of the committee, regret is that he didn't recommend one particular option. In any case, he talked about three possibilities: privatization pure and simple, commercialization and franchising.

I didn't have time to read it closely. But could you provide us with some leads, as a manager of a newly privatized Crown corporation, to help us determine what direction the government should take regarding the future of VIA Rail? Which of these three possibilities should we pursue?

Normally, all questions are asked one after the other. You can note them because, at some point, you're going to have some lengthy replies. Then the Chairman is going to interrupt me and I won't be able to ask my other question.

Thirdly, you've come back to the issue of depreciation of investments in locomotives. I think that, the day the rail industry was lobbying, it was clearly brought out.

You conclude your brief by saying, in the final paragraph on page 9 of the French:

Changes to Canada's capital cost allowance rates would ease this cost significantly and I urge you to give this issue consideration during your deliberations.

So it's also for VIA Rail, on account of equipment modernization. Still, I think that the status quo is unacceptable. But if the current situation continues, depreciation of investments in equipment in a Crown corporation will be an irrelevant question.

Mr. Paul Tellier: Mr. Chairman, to answer Mr. Guimond, it's not up to me to theorize about the privatization of VIA Rail. I'm convinced this committee will have its own views on the matter and that the Minister of Transport will also have his.

As far as franchising is concerned, is an approach similar to the one adopted by the British government applicable to VIA Rail? Once again, I don't know. I haven't studied the problem. All I can say is that I know there's an attachment to passenger rail service among Canadians. Even if they don't use the train, they like it. So, what I'm saying is that Canadian National is prepared to examine some solutions. With regard to the solution proposed at present in the plan, however, we must be very careful not to weaken the freight railways, which are running relatively well, by imposing charges that might make them less efficient.

[English]

The Chairman: Mr. Alcock.

Mr. Reg Alcock (Winnipeg South, Lib.): Thank you very much, Mr. Chairman.

I have something in the order of three questions, and the first one is the shortest one. I think I understand your second concern here in your implication section about the capacity, but I just want make sure I'm right. When you say that it's a five-to-one ratio, passenger-to-rail, is that because you have to allow greater separation for passenger trains for safety reasons? Is it because they operate at a higher— What are the dimensions of that capacity role?

Mr. Jack T. McBain (Executive Vice-President, Operations, Canadian National Railway): The key is the difference in speed between the freights running at 60 to 65 miles an hour and the passengers running at 95 to 100 miles an hour. If you think of a freight train that's running at say 45 miles an hour followed by one at 55, you have to get out of the way about eight minutes in advance. But if you're in front of a 90-mile-an-hour passenger train, you have to get out of the way about 25 minutes in advance, and that chews up capacity.

• 1615

Mr. Reg Alcock: It's the clearance problem.

Mr. Jack McBain: Exactly.

Mr. Reg Alcock: Thank you.

Mr. Tellier, in your remarks and in the IBI report that you reference, you talk about this 30% productivity problem. Can you walk through the dimensions of this? What is it about this that is still causing that kind of difference between us and the U.S. routes?

Mr. Paul Tellier: Basically, it's a question of making some further progress on the operating rules and improving efficiency at every level— for instance, improving the asset utilization rates or how long the car cycle is. We measure the movement of every category of car, how long it takes to load a car, to go to a destination, to unload this car— be it potash or coal or what have you— and to have this car available again for reloading and so on. We have to improve this. We have to improve the way in which we work in the yards and what have you.

If you put these various factors together and look at the measure I was using a few minutes ago, i.e. the tonnage that we move on our trains and the number of employees that we have, the ratio is roughly about 30% higher on our side.

Jack, do you want to add anything here?

Mr. Jack McBain: The other area is density. We don't handle nearly the level of freight traffic per mile of our track that the U.S. roads do.

Mr. Reg Alcock: So when we look at some of the cost differences for shipping goods from given points in Canada when comparing points in Canada to points in the U.S., part of it is this capacity utilization or this cycling issue. You have a lower volume and therefore a lower scale, and that results in higher costs.

Mr. Paul Tellier: Right, and there are also taxes.

Mr. Guimond was talking to me about taxes, and a good example to use is a Burlington Northern train that you take out of Tacoma, Washington, or Portland, Oregon, and bring into Chicago. If you take a similar train out of Vancouver and bring it into Chicago, the tax bill on our train is roughly $10,000 higher.

When you run 200 to 250 trains per day and what have you, the tax issue is huge. In 1996 we estimated that if our tax bill had been the same as what we were paying in the U.S., the tax bill would have been $125 million lower than what we paid here. Therefore, all this comes into account.

Mr. Reg Alcock: In your brief, you talk about the problems with the trade avenues proposal, and you raise some important concerns about operating efficiency. Having been through privatization recently, having dealt with the effects of that, what if we were to simply set a deadline, a timeframe of three years to privatize VIA? What would be the likely effects of that?

Mr. Paul Tellier: It's difficult to speculate. I know that Mr. Ivany and his team have done a lot to improve productivity. They did a fair amount of downsizing and what have you.

Would a privatized VIA Rail be more productive? I don't know. It's very difficult for me to speculate on that.

Mr. Reg Alcock: It may not be a fair question, given that you're here to respond to the proposal that VIA's put forward. You do that in your brief, but you make no suggestions about how the situation with VIA could be improved. Has CN done any thinking about this? It's not really your job to think about that, but they're your roads. If you don't like the two-corridor or double-track proposal, have you thought through some potential solutions that would meet the same goal?

Mr. Paul Tellier: No, because we are not any smarter than anybody who has focused on this over the last 25 years. As I was saying a few minutes ago, Canadians love trains, but they don't ride trains very much. That's a fact of life. VIA Rail has produced the numbers in their brief, and the degree of subsidization is very high.

• 1620

What I was saying in the first part of my opening comments is that I'm not aware of rail passenger services in the industrialized world that are paying their way. People talk a lot about the TGV in France and so on. I mean, it is a wonder, but the degree of subsidization is very high. Look at the amount of debt of the German railroads. Look at the amount of debt being carried by the Japanese railroads and so on.

Therefore, is it an economic service? Is it a social service that is being provided? I think these are the kinds of policy issues that the members of the committee have to focus on.

Again, I'm not aware of places where it is paying its way. It is not paying its way in Amtrak in the U.S., for instance. People are in love with their cars. They love trains. There is a romance surrounding trains, as we all know, and especially in a big country like Canada. But the fact is it's very difficult to make this an economic venture that provides an adequate return.

Mr. Reg Alcock: So we're faced with what price for love?

The Chairman: Mr. Fontana.

Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman, and let me thank Mr. Tellier and the CN officials here for their presentation and also their success story. I also thank Paul for mentioning that the best locomotives in the country, of course, and the world are GM locomotives, of which CN hopefully will buy more.

First of all, I took it to suggest, Mr. Tellier, that you indicated you wanted to work with VIA as much as you possibly can, and the government, in order to ensure passenger rail service. I think you're right in terms of the utilization, but I think it's also a function of service and a function of frequency. The fact that the service was cut by 50% by the previous government has not helped the numbers.

I want to deal with some technical issues, just so I understand the network. I think Mr. Keyes started to ask whether there is a solution, because you do have two roads privately owned, by CN and CP, and I recognize that may have capacity on it. I guess it's up to hopefully three private sector companies, or VIA, CN, and CP, to try to accommodate— and I would prefer not to impose certain things by legislation, even though we impose it upon you now in CP— a workable solution to utilize the capacity that exists, recognizing full well that there's going to have to be a reinvestment in that infrastructure either by VIA, in a new commercialized form—

Obviously part of the proposal says they recognize they will have to improve that infrastructure— namely your infrastructure or CP's. That would be an added value to you, to a certain extent, because I wouldn't expect you to pay for VIA to run more trains. We understand that it should work the other way around, so that there is a quid pro quo for that increased infrastructure, increased investment in both of the private railroads, the roads that exist— that there is a value added to both freight companies.

I want to talk a little bit about that infrastructure investment, because it's key. You need the infrastructure investment now. Obviously you can't do it because of the big tax rates in this country. I'm fully supportive, and if there's a way of being able to show how, and allowing you to become that much more productive and competitive with those of the U.S. roads— thereby either purchasing more capital equipment or being able to maintain a workforce, there's an interest in it for us to look at those tax policies.

The sooner we get to that, I think, Mr. Chairman, as a committee, the better we will all be served in this country, because price is a function of our competitiveness, and 50% of the cost of our goods unfortunately happens to be transportation costs. The sooner we get to this issue the better, because our jobs are absolutely a function of that.

I think, Mr. Tellier, you indicated that VIA takes about 3% of the capacity that you now have. You mentioned that 3%; you threw it out. I just wanted to know how much of your total capacity now, in your own roads, is taken up by passenger service. Can you put it into a percentage formula?

• 1625

Mr. Jack McBain: The comment that Paul made earlier was about 3% of the revenue—

Mr. Joe Fontana: Oh, of the revenue.

Mr. Jack McBain: —rather than capacity. We don't have a capacity issue in any corrider other than the corridor from Quebec City to Windsor and Sarnia. And in that corridor, from Montreal to Toronto, let's say, there are about 25 VIA trains and 22 freight trains, so the number of trains is about two-thirds freight and one-third VIA. But in terms of capacity, more than 50% of the capacity is taken by the higher speed passenger trains.

Mr. Joe Fontana: I'm just wondering, because I want all of us to try to be creative and innovative. There are all kinds of reasons for and ways of finding out why something shouldn't work as opposed to looking at the ways where in fact there are winners on all sides.

If in fact it's a capacity problem and that capacity problem is primarily by speed, in the first instance, would infrastructure investment and being creative and innovative in working in a true partnership between government and the private railroads be able to accommodate that infrastructure investment and be able to solve a capacity problem?

And secondly, is part of the solution, if in fact— In the corridor especially, there are two private roads. They are not all being utilized 100% by freight. I know that you've been trying to work with CP, but there is a third player in this, and I'm just wondering how much investment would be required to accommodate additional passenger rail, either on your road or CP's road or collectively, because I think that's what it's coming down to. It's a question of money, investment and infrastructure.

Mr. Paul Tellier: At this point in time, Mr. Chairman, I think everybody would recognize that in the corridor CN has the better road. It's the more direct route, and therefore we have the better road. And if— and that's your question— it were agreed that the faster train, faster in terms of the passenger trains and in terms of our intermodal trains, which are our fastest trains, the 100 and 200 series— if all this and the CP trains were put on our line and the rest of the traffic was put on the CP line, would this make sense? Of course, this is possible, but at a fairly high cost in terms of beefing up the infrastructure on the CP line.

Mr. Joe Fontana: Do you know of any studies that you might have made—

Mr. Paul Tellier: Jack, do you want to—

Mr. Joe Fontana: —in terms of the kind of infrastructure investment required?

Mr. Jack McBain: I don't have definitive numbers because the infrastructure required would be virtually 100% on CP's territory. We currently have triple and quadruple track along our main line between Toronto and Montreal. The number that we've heard is a very high number— over half a billion dollars to improve the infrastructure on the CP territory in order to handle high-speed passenger trains.

The Chairman: Monsieur Mercier, you have another round.

[Translation]

Mr. Paul Mercier (Terrebonne—Blainville, BQ): Mr. Tellier, from your interesting presentation, I have retained one figure in particular: you say that, in Canada, only about 1 per cent of travellers take the train. That's very few, particularly compared to other countries. You say that Canadians love the train, but this love, quite obviously, is platonic, dare I say, and does not go so far as consummation.

Mr. Tellier, I wonder if it could be any different with the present structure of the railway network in Canada. CN owns a railway network and, furthermore, it operates this network, for part of the traffic, namely freight traffic. In addition, CN has a lessee, which is VIA Rail, which is in charge of passenger transportation.

It seems to me— and obviously this is not a criticism, because it's part of the market logic— that CN must logically, from a mercantile point of view, tend to favour its trains over those of a lessee, which is captive, moreover. I often have the time to think about this question and even meditate on it, given the time that elapses when, on my way to Quebec City, my train is sidetracked to make way for yours.

• 1630

I find quite significant this preference, which you very logically have to give your traffic over passenger traffic. I wonder whether this existential question is not at the very source of the impossibility for VIA Rail to guarantee the punctuality, speed and frequency required to attract a larger share of travellers, which would clearly be in the public interest, if only for environmental reasons.

Hence, my question: don't you think that the present structure makes it difficult to improve VIA Rail services?

As a further question, if I may, I've been told that in Great Britain the situation is different in that a company owns the network but does not operate it directly; it has lessees, perhaps under higher leasing conditions than those you require of VIA Rail.

In Great Britain, I've been told— I don't know whether it's true, I'm asking you— the owner is not the operator, but it has lessees, so that it doesn't have to have some trains go ahead of others. Everyone is on an equal footing. These are my questions.

Mr. Paul Tellier: Listen, I said earlier that VIA Rail gives us about $46 million in revenue. Of that, close to $14 million is linked directly to the punctuality and quality of the service we give VIA Rail to operate its trains.

In the East, we have about $1.5 million in revenue. Therefore, we do our utmost, on the one hand, to accommodate VIA Rail trains. But the other trains, which are our freight trains, our raison d'être, also have deadlines to meet.

So there's a conflict, and it's not for a lack of goodwill on either side. It's simply a conflict. When a container train has a deadline for transferring its load to a ship in Halifax, it's not Canadian National that controls the ship's departure time from the port in Halifax. If there's only one train a week, the consequences are very serious if the containers don't get there on time.

Now, as for the situation in Great Britain you were talking about, this is a franchising system. But once again, that's why I began my remarks the way I did. In Great Britain, 80 per cent of revenue is generated by passengers, whereas in Canada passengers account for 3 per cent of revenue.

Thus, when you establish a railway network, the main users of this network, in all European countries, are passengers. Quite often, for example in France, as I explained to the leaders of the SNCF, freight is incidental, whereas here it is the converse. Passengers, by definition, since they represent only 3 per cent of revenue, are incidental.

What I'm saying is that, in trying to find a long-term solution to the problems of VIA Rail, we mustn't harm the Canadian freight transportation network in order to find a solution to a problem which, in economic terms, is marginal.

Mr. Paul Mercier: Mr. Tellier, you say that in other countries the share of passenger transportation is much greater. Aren't you providing fuel for my fire? In other countries, they don't have this structure. Isn't it actually because this structure doesn't exist in those countries that they may have more passenger traffic? Don't you think that, if they had the same structure as here, passenger traffic would go down because service would deteriorate from the fact that freight trains, however infrequent, would be allowed to go ahead of passenger trains?

• 1635

Mr. Paul Tellier: We can get lost among speculations. What I can tell you is that the Swedes, in 1988, were the first to want to separate rail ownership from operation. Ten years later, or almost, the president of the railway in Sweden said that was not the way to operate trains.

[English]

The Chairman: Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman.

Thank you, Mr. Tellier. I'd like to add my congratulations to your team on your work in rebuilding CN. Your statement that Canadians like rail but don't use it reminds me of an analogy in the natural resource sector: Canadians love wilderness areas, but no one uses them as well.

Mr. Reg Alcock: That's why they're wilderness areas, Roy. It's an essential component.

Some hon. members: Oh, oh!

Mr. Roy Cullen: Oh, okay. I just got it.

I think, though, with the greenhouse gas targets we've set for ourselves, maybe Canadians are going to have to become more interested in rail.

I'd like to ask two questions. I'll follow the practice of my colleague, Mr. Guimond, and put in two questions. The institution of CN has a lot of experience in passenger rail, and I'm going to ask a question on which I'm not expecting you to have all the answers here today or to speculate.

If we assume that the federal subsidy to passenger is going to be at $170 million or lower, from your perspective, is it conceivable that we can have a viable national passenger rail system in Canada? If so, what's the environment within which that can happen, in your view?

My second question: Are there circumstances where you, CP, and VIA Rail could be put in a room and come up with some plan that would make sense for all of you? I put the question to Mr. Ivany: If you're talking about his proposal and the kind of investment that would be required in the infrastructure, how much would that be and who would pay? I'm not sure anyone had answers on that, because it may be premature.

Are there circumstances in which CN would have an interest in passenger rail in Canada? And in broad terms, what might that interest be and what might the conditions be that could make that happen?

Mr. Paul Tellier: Your two questions, Mr. Cullen, are very closely interrelated.

I have serious doubts that a viable— i.e., without public subsidies— rail passenger service is possible, given the distances, the low density, and the low ridership. I have my doubts. Is it possible to have a consensus on what is the best way to proceed, and would Canadian National be interested in getting back into the passenger rail services business? Given my answer to the first question, I have to say no, because we are not in business to lose money. I don't see, short of receiving subsidies, how we could make money.

I want to draw to the members' attention that Canadian National did try— and this was way before my days, and I was going to say before your days—

An hon. member: Almost.

Mr. Paul Tellier: We tried harder to stay in the rail passenger service. If today roughly 90% of the VIA trains ran on our tracks, CN's tracks, as opposed to CP's tracks, it's basically because we stayed in longer than our competition in trying to save rail passenger services. At one point in time, the conclusion was reached that it was not workable, and VIA Rail was created by Parliament.

I don't think it's a question of lack of goodwill, but Jack could describe that to you in the most minute detail. Today there is a trend, for instance, of increasing tonnage. When I got into CN five and a half years ago, we were running our trains at 266,000 pounds. Then it went up to 286,000 pounds. Now we're moving towards 315,000 pounds. North American freight companies are moving the heaviest cars in the business in the world, and the kinds of rail ties, ballast, and so on you need to move these trains— we're moving 6,000-foot-long trains. This is not the same business as running a six-car unit at 115 miles per hour. This is not the same business. You don't design your curves in the same fashion, you don't use the same materials and what have you. As I said in my opening comments, it's very difficult to run these fast passenger trains on a non-dedicated roadbed.

• 1640

Mr. Roy Cullen: Thank you. I have a follow-up.

In terms of subsidy, I don't think there are many in this room who would anticipate that a federal government subsidy is not part of the equation. But I do hear what you're saying.

VIA has presented some proposals, but it seems to me that we shouldn't be limited by those proposals. It seems to me that to make it win we have to start thinking outside the box. I'm wondering if we need to rethink. Is there a way to rethink passenger rail service in Canada that can make it work? Restructuring it totally— And by the way, as my colleague from London stated, there's some sympathy around for the notion of rail competitiveness and the capital cost allowance issue as well, and that may be part of your dilemma. I don't know. Is there a way to think outside the box, to take some painful decisions in Canada but think differently about passenger rail, or is it a lost cause in your view?

Mr. Paul Tellier: You're raising important issues here. One of the issues we're facing in order to be competitive— I don't like to say this, because everybody is saying that every big business is bitching about taxes, but the fact is that in the province of Nova Scotia we are not paying any tax on diesel fuel, and in the province of Saskatchewan it's 15¢ a litre. This is the fluctuation you have.

In terms of property taxes, we are at the mercy in many provinces of every single municipality. They don't provide us with any service, not even water or power, nothing, and basically we pay high taxes. The excise tax is another one. Mr. Guimond and others, and Joe Fontana, have already spoken about the depreciation tax rate in the capital cost allowance. We depreciate a locomotive and it takes us in excess of twenty years. In the U.S. they do it over eight years. So if you're telling me we are ready to give you the kind of tax regime the U.S. roads are enjoying and as a result of what kind of money could be spent in terms of improving the infrastructure and so on, asking if can we reduce the rate we're charging to VIA Rail, it's a different proposition. But I'm reacting to Terry Ivany's approach, and again he should be congratulated for trying to resolve the problem. But I'm reacting under the regime I'm facing today.

What I'm facing today is that I cannot afford to just lower the rates we're charging— and I recognize that they are higher than the Amtrak rates— because I'm barely competitive in that territory I'm talking about. Canadian National last year had an operating ratio across the system of 7 to 9.5. This is almost a 20-point improvement over the last five years. But in the east, as I have said, I have an operating ratio of 9 to 2. I'm just barely breaking even. So am I going to do something in order to assist VIA Rail where I would be shooting myself in the foot? I don't think I can do this in representing my shareholders.

Mr. Bill Casey (Cumberland—Colchester, PC): Mr. Tellier, I'd like to thank you for your intervention. It was an insignificant problem probably for you but was a significant problem for a small community in my riding, and I appreciate your help.

You said in your opening remarks that we couldn't use the countries of Japan, Germany, Britain, or France as models for rail passenger service in Canada. What countries that have passenger systems could we use for models?

• 1645

Mr. Paul Tellier: I don't know, Mr. Casey. The only thing I know is that a competitor of ours, Wisconsin Central, has decided to go for a very different corporate development strategy. As you know, they bought a franchise in Britain and a franchise in New Zealand. They are the operator of the privatized New Zealand railroads, and I understand that it is in the process of becoming a success.

So are there some models that could be used? I don't know. But the information I have is that wherever there is rail passenger service being provided to the population, some public funds, one way or another, are supporting that service.

Mr. Bill Casey: In New Zealand, did they take over the freight and the rail passenger service and combine them? Did they take over the entire rail system, or just parts of it?

Mr. Paul Tellier: I don't know.

Would you know, Jack?

Mr. Jack McBain: I believe it's freight only.

Mr. Bill Casey: Okay, so going back to the drawing board, then, is there any country that has a successful or nearly successful passenger rail system that we could compare as a model?

Mr. Paul Tellier: Successful, yes, but successful and paying its way, not that I'm aware of.

When you take the train in Europe, they are being run like a clock, and it's a very pleasant experience, and so on, but they are not paying their way.

Mr. Bill Casey: Which one would be the best model? What countries have the best models, then?

Mr. Paul Tellier: I wouldn't stick my neck out.

A voice: We're going to build the best model.

Mr. Bill Casey: All right, well, let's get to that. Let's say you were suddenly put in the shoes of Terry Ivany. What would you do?

Mr. Paul Tellier: I did it once, and it's enough.

Mr. Bill Casey: You have responded to his proposal almost item by item as to why you can't do his proposal. If you were in his position now, what proposals would you make, knowing that CN has a part to play and they have to be considered?

Mr. Paul Tellier: I would be very tempted to say that if there is any chance of making this pay its way, it should be taken out of the government as quickly as possible.

Mr. Bill Casey: And make it entirely free-standing, commercialized?

Mr. Paul Tellier: Again, I was being asked by one of the members; I was reacting to privatization. I don't want to speculate whether VIA Rail is privatizable. But if I compare CN today in private hands with CN three years ago in government hands, I'd think if there is any chance to turn that company around, the private sector has a better chance to do it. But whether it is doable or not, I wouldn't speculate on that.

Mr. Bill Casey: Let me ask you another question. We have a commitment in Canada to have passenger rail service from coast to coast. Is that a realistic commitment, a practical commitment?

Mr. Paul Tellier: It depends whether this is a government commitment or whether this is a people— a Canadian— commitment. Are Canadians ready to support that? Let's face it, people prefer to drive between many places, and that's the problem. It's a chicken-and-egg problem.

Terry Ivany is saying if we had more trains, if they were faster and what have you, you would take the train between Montreal and Toronto more often than you're doing now. Maybe, but somebody has to pay for it, and that's the problem you're trying to address as an MP on this committee.

Mr. Bill Casey: We know less about this than you do, so we're just trying to get some of your best ideas.

I have a specific question. In your presentation you said container business at the port of Halifax grew by some 423% as a result of your investments:

Negate our transit time advantage and we retrogress to where we were before the tunnel was built— our Halifax line barely profitable, and the Port itself with a questionable future.

How vulnerable is that Halifax line? There's one VIA train per day there now. How vulnerable is it with any expansion of VIA service?

• 1650

Mr. Paul Tellier: The Halifax line, as you know, is the Halifax-to-Chicago line. If you do anything in the corridor which would reduce our competitiveness, then you're affecting everybody along that line from Halifax into Chicago. It's a question of transit time.

About the port of Halifax, I can repeat here what I've said before. It's a first-class natural port: ice-free the year around, with deep water. The tracks are right there on the docks. It's close to the major shipping lanes in the North Atlantic. The problem is that there should be a consolidation of the terminals in the port of Halifax and some investments are required to be ready to accommodate the post-Panamax ships. It's a question of putting our act together and getting this done in a short while.

Mr. Bill Casey: When you say they should be amalgamated, you mean both container terminals in the port of Halifax.

Mr. Paul Tellier: Yes; and we have vested interests there, because one of them is 50% our property.

Mr. Bill Casey: Is it? I didn't know that.

Mr. Paul Tellier: The Halterm terminal is 50% owned by CN.

Mr. Bill Casey: You said earlier you're recommending to New York-bound ships that you would take the top three rows of containers. Why wouldn't you ask for them all?

Mr. Paul Tellier: Basically it's the competitive factor. The reason why we can take these top three rows is that if they were not calling in Halifax the ship would have to be lighter and as a result it would go straight into Port Elizabeth, New Jersey, or into New York. Therefore what we're saying to the shipping line is that you overload or you load more, and then we take this incremental shipment and we move it on our train.

Mr. Bill Casey: Then you go for the rest of it later.

The Chairman: Mr. Bailey.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): Thank you, Mr. Chairman.

I have found this tremendously interesting. I come from an area that perhaps relied on trains more than anything else. As a matter of fact, you've probably heard it said that an American humourist who came to the southern part of the prairies said Canadians were building railways just for the fun of it. I happen to live in that area, and I happen also to live in a town such that even I can remember when you could get on the train, albeit a mixed train, and you could go to Regina and you could come back within the same day. That's all gone, of course.

I was interested in the questions. Many of the questions I originally wanted to ask have been answered.

I was interested in your emissions chart comparing rail traffic, freight traffic with truck, which is your greatest competitor, and so on. I don't know whether it's for the CN or the CP; or maybe you did this together. If this country is going to get serious about emissions— and I'm not trying to score political points here; I don't think we are yet; let's be honest about it, I don't think we're anywhere close to being realistic about it— would you not see an increase in rail traffic? Freight would increase. According to the chart you provided me, it ranges from 3% to 7% less pollution in the air.

The same could be said for passenger traffic. The amount of passengers you can move for the amount of emissions that come out of car traffic is just— You can't even compare it.

Unfortunately, what you provided me with today was a disappointing thing, because you really didn't provide me— it's no surprise— with a realistic approach to what Canadians may be looking for in rail service. I don't see it. I'm not criticizing you. I believe what you're telling me is true. But I don't see any bright spot whatsoever for rail traffic unless we get serious about such things as the Prime Minister of Great Britain is now. He said, basically, look, we're going to start taking more trucks off the road, we're going to reactivate the railways, and we're not going to be spending money on super-highways.

We've been told in this committee— I believe it was in this committee— that in order for Toronto to handle the increased traffic, both passenger and rail, we're going to have to build another 401 right through it. Land is perhaps more important in Britain than it is here, but in the corridor here it's very important. When you think about the amount of acreage required to build an extra line from Windsor to Montreal compared with building another highway, there's no comparison.

• 1655

We should be looking at the brighter things. If you did that and you put in one line, then you're taking emissions off the road. You would be putting more into the railways. At the same time, you're putting a line in to handle a big-core passenger. I think this is where we should be looking. I'd just like your comments on that.

Mr. Paul Tellier: Mr. Bailey, Mr. Chairman, I agree with you 200%. Your words are music to my ears. You're perfectly right. A full freight train replaces 225 trucks on the highway.

Mr. Roy Bailey: Right.

Mr. Paul Tellier: Therefore, in terms of public policy, when we in the rail industry visited members of Parliament and ministers some months ago, that was the case a couple of weeks before the Kyoto summit. That's basically what we were saying. A dollar of public money invested in rail, as compared with investing it in highways, is very sound public policy. Therefore, the more competitive we become, the more trucks we can take off the highway. You're perfectly right. I agree with you 200%.

Mr. Roy Bailey: Could I just add this point? It doesn't matter if the passenger pays or the taxpayer pays, somebody has to pay for this. The users could pay.

Let's take a look at the amount of cost that it would take to put one additional line either on your right of way or in your case on the CN Railway. Put another rail line alongside. There would be one more track. The amount of land you would require would be small relative to that for a highway. It would also be small relative to the cost and the upkeep. Why aren't we thinking this way? You could move more freight, and you could free up one more line for passengers on VIA Rail.

With everything you told me today, I felt very bad about it because you offered me no hope. But this is a way out of it.

Mr. Paul Tellier: Mr. Bailey, I agree with you, but as you just said yourself, as for an additional line or more sidings and what have you, Mr. McBain gave you a ballpark figure of at least half a billion dollars. So say this committee is ready to recommend that rail infrastructure should be improved and that half a billion dollars of taxpayers' money should go into this in order to address that problem. It's a very different proposition. We're being asked to comment on a proposal. To the best of my knowledge, that half a billion dollars does not exist at this point in time. It's not on the table.

The Chairman: Mr. Mark.

Mr. Inky Mark (Dauphin—Swan River, Ref.): Thank you, Mr. Chairman.

I and my colleagues would like to thank Mr. Tellier for coming before the committee. I thank you for the report. I'd like to just follow up on the line of questioning of my colleagues, Mr. Alcock and Mr. Fontana.

It appears today that VIA Rail sounds like it is maybe the tail on the dog and the bad guy on the block. Certainly it sounds like VIA is a hindrance to the freight business. This is what I'd like to hear from you. Because VIA runs on 90% of your track, suppose they did not run at all. How much improvement would there be? What impact would that have on your business? This is what I'm interested in. You're talking about a 30% margin. Mr. Alcock indicated that you're lagging behind the trucking industry. So what would happen? In other words, what impact does VIA currently have on your business?

Mr. Jack McBain: First of all, we would have the $46 million of revenue, so there would be an impact there if the VIA traffic was removed. The only other area where there's a significant impact right now with VIA is simply in the Quebec City to Windsor corridor because of the capacity issues. If the VIA trains were removed from our corridor, then we would have roughly 50% more capacity than we currently enjoy. That would enable us to improve our service levels and things of that nature.

• 1700

Mr. Inky Mark: In terms of the percentage number of 30%, would that margin be reduced?

Mr. Jack McBain: Well, it still doesn't address the low volume of traffic we have to deal with. So while we would create 50% additional capacity, there isn't that traffic available to then fill back that capacity.

Mr. Inky Mark: The reason I asked that question first is I'd like to ask this follow-up question about what might happen because of Mr. Ivany's proposal. How would Mr. Ivany's proposal impact negatively on your current business?

Mr. Paul Tellier: Well, the way it would impact is— To simplify this, let's suppose we increase the number of trains that are being run today, which I think is seven VIA Rail trains. Let's suppose we double this to 14. It would slow down our traffic a lot. What we have been trying to argue with you is that there is a cost attached to this.

There is a cost attached to having slower freight trains, because this is a highly competitive business, and especially in the east, this is very truck-sensitive. Mr. Bailey was making the case that we should do everything we can to take trucks off the highway, but three or four hours is a big difference for the shipper, especially in this day and age, when more and more they are asking for just-in-time delivery.

Mr. Inky Mark: I agree with you, Mr. Tellier. I believe in rail freight transportation, because it certainly does save our roads. But in order for me to understand the VIA proposal, I need to have some idea of ballpark figures. How is it going to impact on the current business of CN?

Mr. Jack McBain: Let me put it in another way. The current capacity, with the mix of trains we run between Montreal and Toronto, is roughly 60 trains. The maximum number of trains we're running now is 55 to 56 trains. Each passenger train we add will take the equivalent of five freight slots. So with the first passenger train we run, we're already over the natural capacity, the practical capacity, of that line.

So what does that mean? Well, it means you affect the service reliability of both the freight and the existing passenger, because it's all going to slow down with the congestion.

Mr. Inky Mark: I guess I need numbers.

Thank you, Mr. Chairman.

Mr. Paul Tellier: Mr. Mark, the reason I cannot give you a number is that if I move paper, newsprint, or pulp from Quebec into the Chicago market, and at this point in time I'm moving it— pick a number— in 48 hours, if this goes up to 56, I cannot tell you today how many contracts I'm going to lose. But what I'm telling you is that when we bid for 48, it has to be 48. So therefore, what is going to be the erosion of our business? Are we talking of $200 million or $400 million or $600 million? It all depends.

As Mr. McBain has said, it's the same in terms of passenger services. If you put more trains and they are slower, are you going to increase your ridership? I don't think so. So it's difficult to speculate and give you a hard number.

The Chairman: Ms. Desjarlais.

Ms. Bev Desjarlais (Churchill, NDP): I probably would have held off even bringing this up, but since you brought his name into it, sort of praising Mr. Young's privatization as being a great thing, it would all depend, from my perspective, on who was benefiting. If I saw that the taxpayers of Canada as a whole weren't benefiting, I wouldn't feel that way.

Certainly, as far as the toll highway in New Brunswick goes, I see someone benefiting more than the Canadian taxpayers.

Mr. Guimond had commented on the weakening and the strengthening, and I tend to agree with him in the sense that it all depends on who was made stronger on taxpayers' dollars, and in essence another format was weakened. So I guess I was kind of a little annoyed at your approach to VIA, because taxpayers' dollars strengthen CN a great deal.

• 1705

There's no question about it. I didn't come in here expecting you to praise VIA and to be gung-ho on passenger rail, because as a private company you wouldn't have the same commitment to it that we all are going to be taxed to do, because we have to meet the needs of all of Canada for a variety of reasons, not just for the sake of making a dollar. I didn't expect to come here and see you support passenger rail service. I certainly acknowledge your concerns and the possible losses you'll have, but I certainly didn't come in here relying on the answer coming from you.

Mr. Paul Tellier: Mr. Chairman, it's not only our loss. We don't exist for ourselves. Pick any commodity you want. Pick potash in Saskatchewan, for example. If we cannot move it at a competitive rate, the potash producers are not going to sell it.

As Mr. Fontana said, in many cases the transportation costs equal 50% of the value of the commodity. Therefore, it's not a question of CN making more or less money. If you are a shipper, whatever you're shipping, be it furniture or agricultural products or forest products or whatever, and I cannot give you a rate that makes sense, you're going to do one of two things. If possible, you're going to shift to trucks, because they have better rates. If you cannot use trucks because of the business you're in, you won't be able to sell your product. It is that simple. The competitiveness of this country is very dependent on having a good rail transportation system.

Ms. Bev Desjarlais: You won't get any argument there. That's basic.

But you've also stated that you can fit that many more truckloads on that same train, so if you're able to work that into the system as well you're still able to accomplish those things and it still makes it more competitive than having to use the trucks.

It's sort of been said in jest already at a number of committee meetings about this squabble between the different groups involved, that quite frankly, if it's seen as a ridiculous squabble, let's get it over with and settle it and we'll get going on things.

The Chairman: Mr. Nault.

Mr. Robert Nault (Kenora—Rainy River, Lib.): Thank you, Mr. Chairman. I apologize for being a little late.

I want to ask a couple of questions. Quite frankly, it would interest me if you, as a private company, could tell me— I'm under the assumption that you have a commercial contract with VIA, which is, of course, as you know, private. How long does it run? And when it does expire? Based on your projections for growth in the company and especially in the corridor, would it be more lucrative economically for you not to renew that contract with VIA? Because of course when VIA was put onto CN, it was done because CN was a crown corporation. It was forced on you. I think that if you, as a private corporation, had your way today you would do what CP did and you would walk away from it.

I'm interested in knowing, based on Jack's numbers— and of course he was around when Mr. Lawless was the chairman of both, so he knows the numbers better than most people around this room, I can assure you— where the line is. You must be doing this out of a certain amount of goodwill right now. And in fact, you could run commercial freight trains and make a heck of a lot more money, especially in the corridor where you're running at near capacity now.

I'd like to get a sense of just where that line is where you're going to have significant trouble if your projections in the next five years suggest that you're going to increase your traffic because of your movement toward Chicago and the takeover or merger, if you want to put it that way, of the new railway.

Mr. Paul Tellier: There are two points, Mr. Nault.

First, the general service agreement between CN and VIA has been renewed recently and runs for another 12 years.

Secondly, if I had the choice, I would prefer not to have VIA Rail on our tracks, because I don't like to have a customer that I cannot satisfy. I'm very much aware that they are not totally satisfied, and again, it is not out of a lack of goodwill.

• 1710

But you know, there is a winter in this country, in the region we're talking about. We cannot fix our roadbeds— as you know, because you have experience in this, Mr. Nault— for four or five or six months of the year. So when the spring comes, we basically need work blocks where we have time to stop the traffic completely, replace ties, replace frogs, replace rail and what have you. When you have to do this and take into account that between this time and this time you're going to have so many VIA Rail trains going by and so on and so forth, it is a major, major inconvenience, and it is affecting our overall productivity.

We are living with this situation because of the facts you have put on the table. But today, would I recommend that CP Rail take on VIA on their tracks? No, I wouldn't.

Mr. Robert Nault: Let's put this in commercial terms, and I think that's where Mr. Mark was coming from. If you were to accept VIA's argument that they need to run half a dozen more trains each way in the corridor to be more successful economically, what would that cost be if it was put in terms of one of the most lucrative freights that you operate on that particular line, and that you would give up one contract to get another?

Let's face it, if the Government of Canada believes that's good public policy, and you're a private company that believes in making money, that's a commodity— passengers, people are a commodity. If we were to transpose people versus in this case your 100 and 200 series, which are, I assume, your money trains, what would that cost the Government of Canada in subsidies on that particular corridor?

I know that's a difficult one to give us, but at this point in time— I don't know if you can do that without telling your competitor what you charge.

A voice: We're in trouble right here.

Mr. Paul Tellier: The answer I was going to give you, Mr. Nault, is that this is more than only a question of dollars and cents. As we have been trying to explain, running frequent, fast passenger trains requires, as you know, an infrastructure different from moving slower, very heavy freight trains. This is where the conflict comes in.

Mr. Robert Nault: Okay. But if there were a proposal made in that fashion, you would be able to put some numbers together for us, obviously, from a commercial basis.

Mr. Paul Tellier: Mr. Nault, the reason I'm hesitant to say yes to your question is that you said your fastest trains are your best trains. No, they aren't. We are in that business because we have to be.

Where we are making our money, first and foremost, is in moving a 6,000-foot-long coal train or grain train from the prairies to the coast. But given the fact that roughly 18% of our business is moving containers and trailers on our trains, or automotive products— You know, we're not doing this because we like it better than moving coal or grain or potash; it's because it represents 18% of our business, and that business is very truck-sensitive. As soon as you say to a trucker, I'm going to put your trailer on my train, he's going to say, at what time is it going to be there?

Mr. Robert Nault: I understand that, but I'm talking about a particular area where you're running at full capacity. We can't have that conversation in Saskatchewan, Manitoba, or northern Ontario, where your capacity is so low you're talking about getting rid of track because you don't use it. I'm talking about in the corridor where you're running at full capacity. That's a unique problem.

What I wanted to ask you based on that— And this is all based on the fact that everyone in this country didn't think CN was worth selling, and of course if I had known what I know today, I'd have probably bought some shares, but I didn't, because I must have read the Globe and Mail too many times. I want to know whether you think, if we were to privatize one particular piece of VIA, which is of course the corridor, where the money is made— It's not made in the east coast, out in my region in northern Ontario, or in the prairies. The consumer, the taxpayer of Canada, would have to subsidize that forever and a day until we get up to 200 million Canadians living in this country. But in the corridor, there's a belief that those can run at capacity if it's done right, and I think that's what the debate is all about.

• 1715

If you were given the opportunity, do you think it would be worth while privatizing that particular sector of the track of the company called VIA?

Mr. Paul Tellier: I don't know. I understand Peter Armstrong is going to appear as a witness. He has been running the Rocky Mountaineer, which is the line that was “privatized”. I've been on it myself. The quality of service is extremely high. They are reliable. Can you have an operation like this between Montreal and Toronto, run by the private sector? I don't know. I think it is worth examining. It is worth exploring.

I think Peter Armstrong has done a good job. From my perspective, I understand it is a success. But I don't know whether it can be done on a larger scale in the corridor. I just don't know.

The Chairman: Mr. Morrison.

Mr. Lee Morrison: I have a number of brief questions I would like to ask. The first one is somewhat current.

You're looking down the gun barrel of a strike at CN. I want to know what effect that is going to have on VIA, particularly in the corridor. Will they be shut down as well, or will they be able to continue operating?

Mr. Paul Tellier: First of all, we have seven unions in CN. We have already signed with two major groups of employees an agreement that is in process of being ratified by the membership. I'm quite confident that with goodwill on both sides we should be able to reach a satisfactory negotiated agreement with all our unions. It may take a bit more time with one union than with the others, but I'm quite confident it is possible. Therefore to my mind the fact that one of the unions has decided to seek a strike mandate from its members doesn't at all mean we are going to have a strike.

Mr. Lee Morrison: The question was somewhat hypothetical. I asked what would happen to VIA Rail if there is a strike.

The Chairman: Mr. Morrison, time is of the essence. I don't think that will have an effect on our study. I'm sure it will be resolved by the time we put out our report. Do you have other questions?

Mr. Lee Morrison: Yes, I do.

Carriers of every type, whether they be trucks, trains, or planes, always complain about the other guy being subsidized. You made reference to your Halifax-Chicago intermodal run, which I think is a very profitable operation, a very efficient operation, but would you not have to say there is a subsidy on that in the sense that the port of Halifax, or in order to get business for the port, is waiving port fees in Halifax? If they weren't waiving the port fees, which is a significant saving, you might not be able to operate that intermodal train. What do you say about that?

Mr. Paul Tellier: We have nothing to do with the port charges in Halifax or elsewhere.

Mr. Lee Morrison: No, but you wouldn't be able to run your train without freight.

Mr. Paul Tellier: If you're implying that CN is being subsidized in any way, shape, or form by moving traffic from Halifax to Chicago, the answer is unequivocally no.

• 1720

Mr. Lee Morrison: Okay, I'll let that go by.

My last question is again with respect to VIA's access to your tracks. When you have rail-line abandonments, I think VIA's corporate plan is assuming there will be other operators to take over those lines. In the event that no short-line operators are found, do you have any fiduciary obligation to VIA to not abandon, and everybody will lose money together, if you will? Do you have any fiduciary obligation to keep a line open for VIA's purposes? I have some rather strong views about line abandonment because I come from a grain-dependent area. Anyway, perhaps you could answer that just as far as VIA is concerned.

Mr. Paul Tellier: Mr. Morrison, there is no responsibility for us vis-à-vis VIA. In all cases where they run and where we have decided to sell to a short-line operator, though, VIA was able to reach an agreement with the short-line operator. One of the most recent examples of this is two lines that we used to have going through New Brunswick. That was one too many, and it was the former Intercolonial Railway line that was put up for sale. A successful short-line operator bought 305 miles of track, sat down with VIA because VIA runs its trains through there, through Campbellton and so on all the way to Moncton, and there was an agreement reached. But we don't have any responsibility other than to offer them the chance to buy it at the price of salvage value.

The Chairman: Mr. Keyes.

Mr. Stan Keyes: Thank you, Mr. Chairman.

Mr. Tellier, we've heard about “franchise”, “privatize”, “public-private partnership”, and all the other options that are there. I've heard my colleagues talk about thinking outside the box. Unfortunately, you can't move track. The track is there in the box. I'd love to think outside the box, but if you only have one or two chunks of track in the corridor and they're owned by two private companies that are interested in making money, it gets more and more difficult to try to think outside of the box.

If money is the issue— and that's what it appears to be, since you said yourself that it's a $600-million problem or it may create a $600-million problem for a $7-billion, successful company— would a method of compensation to CN for access to track time in the corridor be a possible solution? I'm sort of dovetailing with what Mr. Nault said here about what would probably be a partnership situation, with both government money and private money.

Mr. Paul Tellier: If I understand what you're suggesting, or if I understand the meaning of your question, Mr. Keyes, you're asking if we would be ready to get additional trains on our track and therefore reduce our capacity to move freight trains if the government was ready to compensate us for the loss of revenues. Well, my answer would be that it would have to be for the current loss of revenues and also for the forgone revenues, because at this point in time the traffic is growing in the corridor. This is what we're talking about. So it would be extremely difficult to assess the cost of that.

Mr. Stan Keyes: Well, you have to run your train on your track in the corridor, and you have profits that you now make and expect to make by running that train. We want to compete with the potash delivery or the auto parts delivery that's running on that same chunk of track. I want to pay just as much as that guy wants to pay, because I want passenger rail transportation in this country and my government is prepared to pay for it— and this is all hypothetical. Now I'm in competition with those guys, with the auto industry, to buy that time on that track. Are you prepared to say you'll sit down with us and take our money as quickly as you'll take the auto parts guys' money?

• 1725

Mr. Jack McBain: Because there is a five-to-one ratio, the amount of money is phenomenal. If the passenger trains were able to run at the 65 or 70 miles an hour of a freight train, then it would be a one-for-one arrangement and in fact there would be the capacity to handle it at that speed. But when it has be run at 95 or 100 miles an hour you have to bear the cost of five freight trains.

Mr. Stan Keyes: I don't care. My train can run slowly. I just want frequency. I want to be able to run four trains a day.

Mr. Jack McBain: If it's only four trains a day, and at the speed of our freight trains, then this is not an issue at all. But you won't get Mr. Ivany talking about running at 65 miles an hour.

Mr. Paul Tellier: Mr. Keyes, my understanding of his reasoning— and obviously I'm not talking on his behalf— my understanding of the presentation he made to me in my office, is that he has to convince people like you and me, who are moving between Toronto and Montreal and vice-versa, no longer to take the plane. If I have a meeting at 2 p.m. in downtown Toronto, I leave my office at 11 a.m. It takes me three hours to move by plane, given that there is a taxi ride at both ends. I don't know how much traffic there will be on the Gardiner. It takes me three hours.

What he's saying is, if I'm at five hours, I'm not going to get that ridership. Therefore I have to move in the four-hour range, or somewhat below, using common technology. Therefore these trains are to move at about 100 miles per hour, if not faster. Secondly, it cannot be one express train per day. It has to be three, four, or five. So he's increasing speed and he's increasing frequency.

What Jack is saying is that it has an awful impact on the way we run our freight trains— an awful impact.

The Chairman: Mr. Alcock.

Mr. Reg Alcock: I would like to come at it from a slightly different perspective. I think in your statement you said you have about a 10% or 12% per annum increase coming out of the port of Halifax, in growth in that corridor. Is there a point at which, just given current levels of traffic, you begin to get squeezed by those kinds of increases and the passenger and freight you're carrying? You say you're getting close to capacity problems now. There has to be a point soon, then, at that rate of growth, as the post-Panamax boats come on line, when you really begin to encounter problems.

Mr. Jack McBain: Keep in mind that we're handling a good deal of that increased volume by simply filling out train length now, and we're not yet at the point where we've filled out train length to capacity. Once we do that we can begin to add additional trains at 100 cars a time. That will more than accommodate the additional growth at 10% per year.

Mr. Reg Alcock: So you can do both. You can accommodate your growth and existing VIA levels.

Mr. Jack McBain: Correct.

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Mr. Tellier, you said, if I understood you correctly, it's good public policy to rebalance road traffic with rail traffic through policy. I'm wondering whether, if it's good policy today, it was good policy yesterday. What has changed?

Related to that is this notion of just in time. I'm a little confused on that. If there were some rebalancing, for example, could the rail system meet those standards of just in time? In other words, could capacity come off the roads onto rail and still meet a service requirement for just in time?

Mr. Paul Tellier: The reason why the rail sector lost so much business until a couple of years ago is that we were not reliable and we were not fast enough. Now we're trying to be reliable and efficient in meeting our schedule. We are running more and more— and Mr. Nault was referring to this— the equivalent of a scheduled railroad and so on. We take into account the shipping plans of our customers and we deliver the product and so on. Therefore we're just in time.

Common play is that, be it a newspaper when they acquire their newsprint or be it a car producer or what have you, they don't want to invest in huge inventories. As a result, they want us to be reliable in making a delivery just at the time they need it.

• 1730

So this is why in that corridor we are very truck-competitive. There is a highway, the 401, next to our track, and therefore it's very important for us to be truck-competitive. As a result, if you increase congestion, the traffic and what have you, you affect our competitiveness directly. And basically, we're losing business to the truckers. Therefore, the public policy you're referring to comes up.

[Translation]

Mr. Paul Mercier: Mr. Tellier, first I'll ask you one question: between Montreal and Ottawa, does the line used by VIA Rail belong to CN or CP?

Mr. Paul Tellier: It's the CN's, leaving Montreal.

[English]

A voice: Montreal to Ottawa.

Mr. Paul Tellier: Yes.

[Translation]

Mr. Paul Mercier: Since, like me, you'll have read in the newspapers that ADM, Aéroports de Montréal, would like there to be a really good passenger network between Dorval and Ottawa so that it could compete with Pearson for the Ottawa-Hull clientele.

Moreover, I've been told that, on one part of this line, freight transportation does not seem to be considered cost- effective and consideration is being given to selling this section, which would endanger VIA Rail, unless it buys the track or a CFIL does so. What do you think about that?

Mr. Paul Tellier: You're quite right. In fact, about what we call the Alexandria subdivision, there has been an agreement between Mr. Ivany and myself, which CN has approved. Since CN wanted to give up this subdivision, it agreed to sell it for $1 to VIA Rail.

[English]

The Chairman: Ms. Desjarlais.

Ms. Bev Desjarlais: I just want to clarify this. Initially you were talking about the increased weights on the trains and you were saying that different types of tracks are needed, which is the problem with accommodating both passenger and freight. When Mr. Keyes asked the question about it being a compensation thing, it was mentioned it would have to be sort of five times. So I just want to clarify this. Is it the fact that the track can't handle the same— or is it the dollars that need to be compensated?

Mr. Paul Tellier: It's a bit of both, depending on what trains you're talking about. If VIA Rail wants to continue to increase the speed of their trains— and that's my understanding of what they want to do— then short of having a special track fully dedicated to this, it's very difficult to go at speeds much beyond what you have today.

Ms. Bev Desjarlais: And that's because of the type of track, not the capacity of the—

Mr. Paul Tellier: And the safety factor and so on.

[Translation]

The Chairman: Mr. Guimond.

Mr. Michel Guimond: Mr. Tellier, on the one hand, you have talked about selling the Alexandria subdivision to VIA Rail for $1. On the other hand, we're studying passenger rail transportation and we would like to have much more efficient service. Now, I asked Mr. Ivany a question, when he was talking about preferring intermodality, on the closing of the station in Lévis. I hope that the Chairman will allow me to ask it again.

Why, in Lévis, didn't they do the same thing and sell the Harlaka subdivision for $1 to VIA Rail?

Mr. Paul Tellier: You probably know that there was an ice storm in Quebec and eastern Ontario. In the case of the Alexandria subdivision, our communications systems suffered nearly $2 million in damage. If we had kept this section, in view of our agreement with VIA Rail, we would have had to spend a considerable amount of money to repair the communications system along the track. Since we were already negotiating with VIA Rail, in view of our intention to give up this section, we let it go at that price.

Mr. Michel Guimond: Why wasn't that done in Lévis, regardless of the ice storm? Why wasn't that done on the Harlaka subdivision?

Mr. Paul Tellier: Speaking of the Lévis subdivision, what we say basically is that we're ready to lease the equipment, that is, our railways, to VIA Rail until a plan, an alternative can be found.

• 1735

Mr. Michel Guimond: But instead of acting this way, instead of building a new station in the middle of a field, why didn't you sell the Harlaka subdivision for $1 in order to keep the Lévis station open?

Mr. Paul Tellier: Why would I give VIA Rail any presents? If you were a Canadian National shareholder, would you like me to sell lines I no longer needed or would you like me to give them away? If I can recover $2 or $3 million in rails, why would I give them away to VIA Rail? We're not a social service agency.

The Chairman: That completes the second round.

[English]

We can now attempt a third round at two minutes. Mr. Keyes then Mr. Cullen.

Mr. Stan Keyes: Mr. Tellier, I want to clear something up on this two-track business that Mr. Bailey first brought up. To run a track, as Mr. Bailey suggests, beside a piece of track that you currently run now would of course entail something a little better than what you have in order to run these passenger trains, either two systems, the ABB type or of course the TGV type, which is even a Cadillac system. First of all, if we did that isn't it true that we'd have to dispose of all level crossings between, in order to have—

You see, people don't care how fast you go. Everybody talks about speed, but it's not speed at all, it's time. If I want to go from Toronto to Ottawa I'd better be there in under three hours or I'll take a plane. If speed is the issue, it's not speed, it's time. Three hours is the benchmark. In order to do that, wouldn't you have to have no level crossings? In order to do that and to run that track beside your track, we'd have to change both to accommodate no level crossings, correct?

Mr. Jack McBain: If you were to run faster than the 100 miles an hour that's proposed, yes, you would need many more great separations than you have now. If you were to try to run a TGV-type operation it would all have to be grade-separated and therefore the freight would be as well.

Mr. Stan Keyes: I don't know who has the money for the Cadillac version, but maybe some public and private sector stuff would be the way to go. The other option of course is the ABB system, which is an improved track with better corners, etc.

What if the Government of Canada came along and said— and this all just conjecture, Mr. Chairman— all right, we're still going to have all of these grade crossings, etc., but we want to improve the track so we can go a little quicker, like 100 miles an hour? You say this isn't possible on the track you have, but at the same time it benefits your company, because now you can maybe move your freight a little faster because we're going to improve the bed, put the concrete ties in and make it possible for passenger trains to move at 100 miles an hour or more. It improves your opportunity to increase freight on that line because it's a better track. Would there be any room for discussion on that kind of a proposal?

Mr. Jack McBain: There's really not much of an opportunity for us on freight. There is really nowhere in North America where freight traffic with the heavy axle loads that we're talking about is moving at more than 60 to 65 miles an hour. In fact, when we get to the heavier tonnages even on the high-quality straight track those freight trains are running at 50 miles an hour.

Mr. Stan Keyes: Because they can't run at 60 miles or more?

Mr. Jack McBain: Because of the axle loads and the impact that would come from those axle loads even though the track may be a higher quality in terms of the geometric conditions.

Mr. Stan Keyes: So it would be no better for you to have a better track.

Mr. Jack McBain: No better than what we have now.

Mr. Stan Keyes: Man, we're in a major box here, aren't we?

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chair.

I don't want to turn this into a marathon; I'm sure you all want to go home. I'd like to rephrase and maybe digress a bit.

I wasn't really posing my question necessarily with respect to passenger rail, and with the indulgence of the chair I understand that putting passenger on freight lines will affect just-in-time. The essence of my question was that if there were a public policy environment that— I was involved in transportation in the forest sector, and we were shipping a lot of product by truck. It didn't make a lot of sense. It made sense to us because it was cheaper. It would seem to me that a lot of that freight could be rebalanced onto rail. It's a fine calculus, but I think it could and should be done perhaps.

I'm asking, given that just-in-time environment, if there is enough capacity to move, let's say, from the road to the rail. Is there a lot of illogical, from an economic point of view, freight going on the road now that could be put on the rail? That's my question. What kind of room do we have to manoeuvre?

• 1740

Mr. Paul Tellier: Yes, at this point in time there is capacity and we can increase our traffic, and it's a question of convincing, for instance, the forest products companies that they are better off dealing with us as opposed to dealing with trucking firms. So you're perfectly right.

Mr. Roy Cullen: But within that there are some public policy issues that we may be inclined to look at or that it will be recommended we look at. Is it a matter of just your cost base and your cost structure?

Mr. Paul Tellier: Yes. As I was saying, over the last 10 years, rates on the average have been going down by about 3% per year. This is the result of what we have done in controlling our cost structure.

As you know, we are a $4 billion company, $4.3 billion in 1997. Over the last five years we took about $650 million out of the cost structure. As a result, when we sit down with a shipper, we are able to provide either better service in terms of additional equipment, better-suited equipment, and what have you; or, depending on circumstances and so on, flat rates as opposed to increased rates, absorbing inflation, and so on and so forth. So this is what has happened.

As a result of our reliability and speed increasing, we have stopped the erosion that took place over the last 30 years of freight moving away from rail into trucks. That erosion has stopped, and now we are increasing our market share to the detriment, in some sectors, of the trucking industry.

The Chairman: Mr. Morrison.

Mr. Lee Morrison: I gather, Mr. Tellier, from what you say, that you're not enthusiastic about the idea of track-sharing in the corridor. What about the Fraser Valley, the Fraser Canyon? Every time I go through there, I shake my head when I see these two beautiful tracks side by side. Have there ever been any serious negotiations between you and your competitor to have one company run downhill and the other company run uphill in the Fraser Canyon?

Mr. Paul Tellier: Yes, sir. It is at this point in time under way. These discussions are taking place now.

Jack, do you want to comment on that?

Mr. Jack McBain: There are two phases to those discussions. One is to make it easier for us to divert our traffic on their line, or vice versa, on an emergency basis or when there is major work to be done. That's all under way right now. We are currently training our crews to operate on their line and vice versa.

What we are currently negotiating for with CP is just your proposal, to run what we call bi-directional: all the loads in one direction and all the empties in the other direction. But there's a very difficult set of negotiations there to ensure that both railways can equally share in not only the costs but the savings that come from that. And that's really where— The devil's in the details in trying to work that solution. But we're in the midst of that now.

Mr. Lee Morrison: Thank you.

The Chairman: Thank you.

This completes the questions by members. I can say that in a very short time, you handled 22 questions, which is quite a number of questions, and I feel you answered the questions. It's very comforting, as chair, to not have to draw information from witnesses, and I really appreciate it. You must have been very frustrated as a bureaucrat, being that efficient.

Some hon. members: Oh, oh!

The Chairman: And I'm not saying bureaucrats are not efficient.

Some hon. members: Oh, oh!

The Chairman: I'm just saying it's difficult, as a bureaucrat, to answer questions when you have to worry about all the repercussions and the memos the next morning. So I appreciate the information you shared with us.

Before I open it up for closing remarks, I want to thank you very much again.

Mr. Paul Tellier: Thank you, Mr. Chairman, and to all of you.

Let me just say, on my behalf and on behalf of my colleagues here, in closing, I sense your frustration. This is a difficult issue to come to grips with. Therefore, as Mr. Morrison and others said— and you said the same thing— we're somewhat disappointed and so on. I realize we have not come with a solution, but I want to assure this committee that we'll do everything we can to sit down with any reasonable people to examine or explore any solution.

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But again, the last word I want to leave with you is this. In your recommendation, I would plead with you that you don't put in jeopardy a good freight transportation system, which is critical, critical, to the performance of the Canadian economy— we are a nation of traders— in order to accommodate what represents 3% of the transportation business, i.e., VIA Rail.

We are receptive to any worthwhile solution to VIA that makes economic sense, but it has to make economic sense.

Thank you very much, Mr. Chairman.

The Chairman: Thank you very much.

The meeting is adjourned.