TRAN Committee Meeting

STANDING COMMITTEE ON TRANSPORT

LE COMITÉ PERMANENT DES TRANSPORTS

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, March 25, 1998

• 1531

[English]

The Chairman (Mr. Raymond Bonin (Nickel Belt, Lib.)): We will call the meeting to order, but at the same time we will suspend proceedings until we have a quorum.

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• 1636

The Chairman: We resume proceedings and we welcome, from Mercer Consulting, Mr. William Rennicke, and also a group of young Canadians who are in Ottawa for a special event. These are our future parliamentarians.

We welcome you. How many of you are there?

A voice: There are 13.

The Chairman: We invite you to sit at the table with us, unless I have problems with members of the committee. I know you're here for only 15 to 20 minutes, so you're welcome to join us at the table for the presentation by Mr. Rennicke.

A voice: Thank you very much, Mr. Chairman, on behalf of all of us.

The Chairman: Mr. Rennicke, I apologize for the delay, but it means a lot to us and also to them.

A voice: They may have some good questions.

Voices: Oh, oh!

The Chairman: I think they have to leave before question period.

Mr. Rennicke, we invite you to make a presentation of 10 to 15 minutes. The floor is yours, and then we will go to questions from the members.

Mr. William J. Rennicke (Vice-President, Mercer Consulting): Thank you very much, Chairman.

My name is William J. Rennicke and I am a vice-president at Mercer Management Consulting. Over the last eight or 10 years I have been involved with probably 25 major railroad restructurings around the world, including the recent privatization of the Mexican railroads, the concessioning and privatization of the Argentine railroads, and the recent privatization of British Rail.

I very much appreciate being invited. I'd like to be clear that I am here as a friendly neighbour from the U.S., and I'm not representing or being paid by any of the parties that are part of your transportation system. We have worked over the years for almost all of the North American railways at one time or another, but I just want to be clear that I'm here today essentially speaking on my own.

I got a very thorough list from the clerk of your committee about the topics you wanted to cover. I felt that in 15 minutes I could only really attempt to focus on three, so I will focus my comments essentially on the financial situation, the corridor, and also maybe some potential governance options.

The Chairman: I will share with you a secret we have in Ottawa. If you don't have time to complete your presentation, you integrate the balance of it into the answers to the questions.

Mr. William Rennicke: Okay. I'm open to learning new things all the time.

You've probably had a great deal of presentations on the overall financial structure and situation at VIA. Our firm was asked a couple of years ago to look at their long-term business position and their long-term strategy and to advise the chairman and the CEO as to what kinds of paths they could take to turn the railroad around.

We found some interesting things, and they're summarized in the first section of the document that's before you. Because of the time, I won't go through it page by page, but when compared against other railroads in the world that have tried to restructure passenger railroads, such as the passenger components of British Rail or Amtrak, VIA actually has done a superb job on the cost area. The graphics I present there will show you that they have really outdistanced.... I only wish, as a U.S. taxpayer, that we had such aggressive management with Amtrak on the cost side of the equation.

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The one place where I think VIA has basically held its own or lags somewhat is in the ability to generate additional revenue. In our analysis and look at the markets that VIA serves, I think a great deal of that comes from the fact that they have pretty well played out the market, not 100% but they've pretty well tapped out the kinds of market opportunities they would have, given the service configuration they're faced with today.

You'll see some comparisons in the document. They've done a very good job of filling the trains they have, but quite frankly in a situation where you have smaller population levels than you do in the U.S, for example, or other countries, sometimes it's hard to get sufficient ridership to cover the scale.

It was clear to us, though, that improvements in service patterns, changes in different types of markets, and different customer focus was something that would grow VIA's market. They have gone through a reorganization process where they have separated the business into more focused business units, and from what I am told, they are moving along the way to that.

The real problem, though, is that to capture the next layer or two of customers, they're really going to have to have, particularly in the more populated areas of the country, a much greater level of service and frequency. I think this more focuses on the core of what I would like to talk about today, and that's the issue of the corridor, or how might you find a situation where several parties can cohabit or use a national asset that is today currently in private hands. I think with VIA we looked very carefully at and we were asked by the management to check off all of the internal opportunities they had to fix the system, and we were pretty well satisfied that while you're never 100% of the way there, they've pretty well milked those situations.

So what was left was some external restructuring that we suggested they consider and talk about with the shareholders and stakeholders of the country, to say we may need a different type of governance structure and we may need to expand or change the kind of service package and profile we have.

There are a couple of clear points. When compared with other railways around the world, VIA's access to the infrastructure, because of the way the Canadian rail system evolved, is probably less, I would say, in terms of frequency and let's say ability to have a negotiating position than you would find in other countries. I'm not bringing that up in any way to question policy, but in terms of the items they would have in their tool bag to change frequency, to change the basis of operation, it pretty well has been played out.

The other thing that's clear—and we have been put in this position in several other countries in the world—is that there is an opportunity, and we have not found a situation yet where you couldn't create a win-win situation where all parties might benefit from different thinking or thinking out of the box with the transaction.

For example, you could ask yourself, if you had a crystal ball or a way of looking at this: Is there a solution that would, in one of these options, improve VIA's access to the corridor and help the freight railroads address the IBI issues in terms of their competitive position against the U.S. railroads?

I would say in Canada you're very fortunate that you have two excellent freight railroads that have done really incredible things in the last five years in terms of improving their position. However, structurally their density and some of their costs are higher than the U.S., and I think some of the other witnesses pointed that out, but maybe there's an option that would help rationalize part of the infrastructure.

Is there an option set that would maximize the share of value and competitive interest of the railroad so they would look at this option and say we're actually in a better position for participating in this, that this hasn't been a hindrance? Is there an option set that would reduce the long-term funding that would be required from the Canadian government? Is there an option that would protect, really, the property rights and the franchise of all private parties here? Here I'm talking about the CN and CP, because wherever we've worked in the world, whether it has been in eastern Europe, western Europe, or in the U.S., the one thing I think you don't want to do is turn back the clock and do anything that really detracts from having a private sector solution to your freight transportation situation.

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Of all of these things that are out there—and they're possibly issues or items of a solution set—is there a way of doing it? Is there a way of overcoming the obstacles you have had in the past?

We have found that even in far more difficult and complex situations, with railway systems in countries where the ridership was high and the population was greater, if you can get reasonable people to look at the opportunity from let's say a clean sheet of paper, you can usually find a solution set that's going to optimize or improve the conditions that you have today. Even the most difficult competitors often can find solutions.

I noticed in the press coming up in the plane, and I made a copy, that CN and CP are discussing joint options in the west. I've also included in the back of the document I gave you an article we wrote two or three years ago. That's a very healthy thing, where railroads voluntarily are saying “Not under government mandate, but for good, solid, private sector profit-making business reasons, we're going to get together and find a way to improve our cost structure by getting our density in line”.

I offer you an example not because Canada is anything like Mexico in terms of temperature, population, or any of the other measures—and I'd have to say we've never found two places on the face of the earth that are ever the same—but you can learn some lessons.

When we were faced with a very complex situation in restructuring in the Mexican railroads, which had lost $600 million three and a half years ago, one of the problems we had was a similar geographic situation to the corridor in eastern Canada, and that was the area around Mexico City. We basically created a common facility, a 300-kilometre-sized joint facility that will be owned by all the parties and by the soon-to-be-started commuter and passenger operations in Mexico.

I've offered for you nine steps. I can't say, because I have no power or leverage over any of the parties, that anybody will agree with those nine steps or want to listen to them, but these are nine steps that we have found very useful in getting over some of the hurdles and difficulties that you may face in looking at the situation you have here in Canada. I would like to very briefly go through those.

The first step is you really need to start with a clean sheet of paper. If anyone uses the can't word—“we can't do this because of the use of the railroad today or what the market will do”—I think you have to say “Could we just set those things aside? What if we start with a vision that we can find a solution here that will optimize everyone's interest?” This is not in a fantasy way—it's not that the tooth fairy drops in and gives you an ultimate solution—but a real, solid, business solution. But you have to leave behind a lot of the paradigms of the past.

The second thing is, you need to inventory the parties of interest. It's really not just VIA, the government, CN and CP. There are private parties, for example, who would be interested in investing in infrastructure projects.

The unfortunate problems in Asia, for example, have cut off billions of dollars of infrastructure investment that the insurance companies and various investors have. They come to Mercer and ask if we can find them good solid things like toll roads or railroad infrastructure investments, or, as I was spending time yesterday, helping the Government of Colombia come up with private funding for light rail systems to other cities.

If you look at the parties of interest, it's not just the usual set of companies you would have normally thought about. You might have Dorval Airport or Pearson Airport. You might have cities and communities. But the table of interest, although there will be some that will have a greater financial interest and others a lesser interest—part of the openness in the thinking should be to try to say “Let's do a complete inventory to find all of the parties of interest”.

The third step is to do something that we call unbundling. The most difficult task I've had in railroading—and I've been doing consulting since 1983, and actually worked in the railroad industry in the U.S. prior to that—is that railroads somehow tend to kind of lock up thousands of individual decisions or activities in one big box. I have an interesting drawing in here—something that looks like a Rubik's cube. The important point is that if you think of every one of those individual cells as a separate decision, there is no one set way that you should have to design that process.

The fourth step would be to develop a comprehensive set of options—I think there was one option that was offered by VIA, and counter-options in terms of the reactions to some of your other witnesses—but to really say, before anyone takes one position or another, “Let's have the complete inventory of options so that we can understand the pros and cons of each of those paths”.

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One path of options that I would like to use to illustrate, because it's one that we found, is to develop something called a strategic alliance, and that could be a joint venture, a partnership. It could be a simple handshake business relationship or it could be for example the creation of a privately funded infrastructure corridor corporation that might buy some of the properties from the current owners and turn them into a facility that could be very easily optimized.

You may notice that in everything I'm saying I'm not talking about any kind of confiscation or taking back any of the rights that are there.

Just to conclude, the only way that step process will work is if you can find an incremental layer of financial benefit for all the parties. If you wind up in a situation where somebody has lost the value, for example, of their freight franchise or if they could no longer, in the case of VIA or the commuter authorities, run passenger trains when they want, or if prior investment seemed to be not handled the proper way, then this won't work. But I very rarely run into a situation where, if you really understand the components and if you have an open-minded group of people addressing a national opportunity, you couldn't work on something like this.

The next step is you want to inventory what each of the parties can contribute. Then you want to very carefully do a financial analysis, because you would have to have a very credible measurement system so that each of the parties would know how the value was flowing as you put this partnership together.

Finally, just to give you an example, you would come up with an option—and I will just throw out the one option that I used in here purely as an example. I don't want to risk hanging it out as being a recommendation because I really have not had the opportunity to take the time to look at all the pieces. But one option might be to in some way create an integrated corridor authority. It would not be a government-run process; it could be that it's a sharing of operations like CN and CP announced they're looking at doing in the west. It could be where they say “I would like to be bought out of this corridor, but I want to be protected with all the operating rights and access that I had before”. If this is going to be a public asset, we'd like the cash-outs; we can redeploy our capital somewhere else.

But you could create a situation for the joint management of the corridor with additional capital and spending—done in a coordinated way, not a bit here to put a connection here or changing the signal system here and there—where you could come up with an integrated solution that really optimizes that infrastructure. That's what the private sector does in most places. This is illustrated in the article I gave you on the U.S. railroads doing it, and by what CN and CP are doing in the west.

What we're saying here is you have a situation in the east where you have many other interests besides just the two freight railroads. You have public transportation, you have commuter, you have the cities along the right of way, you have the interest of VIA. It's to enlarge the group of people, or the entities, that we'd be talking about.

Is it possible? Could this happen? I think it could and has in other places. You can mix high-speed and slower-speed trains essentially in the same corridor. Today you are doing it. You're running 100-mile-an-hour trains along with 40-mile-an-hour heavy freight trains. If you go to Europe you'll find places where they're running 125-mile-an-hour trains often in the same infrastructure with coal trains that run 40 and 50 miles an hour. You have to have a very good signal system. You have to have a plan to optimize it. You want to make sure that you're not running them one right after another, that you try to what they call “fleet” the different types of traffic so that you can maximize the throughput like it's a pipe.

And you may have to look at different kinds of signal systems. There are many new kinds of signal systems, like moving-block technology, that would give you a much greater flexibility. It's a very high investment, and that may have to be some type of a public contribution along with other infrastructure.

Would anybody be interested in it? I can't speak for VIA or the two freight railroads because I haven't really spoken to them. But I read Mr. Ivany's testimony, so I know VIA would be interested. But I can tell you that there are private investors, and these are people with the kind of appetite for projects in the billions of dollars, who would love to find a national project like this that isn't nationalization, but a private investment in infrastructure just like a toll road.

There are actually operators out there who would say if the parties don't feel comfortable running this themselves because they are concerned about how the time slots or whatever are allocated, we'd love to come in and be, in essence, the airport operator or the provider.

So those are my nine steps.

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I had a section on governance. I really think, regardless of what else happens, you need to think about a different type of governance structure for VIA, because right now it's neither fish nor fowl. I've found very few places in the world where, whether it's franchising or privatization—although I don't think privatization would work here, or the kind of power you would have under a crown corporation—you don't get multiple benefits.

I'll just give you one example. We talked about it earlier and I know it's a different country. In Argentina, when we started restructuring a commuter system, they moved 200 million people a year and lost $1.3 billion U.S. in subsidies. In one year we replaced the national operator with private companies with a mandate with concession operators. In three years they have doubled the ridership without any new investment in cars.

Last year they handled 450 million people a year in that system, when we thought they never could have handled over 300 million. The subsidy has gone from $1.3 billion U.S., which went almost entirely for operating expenses, to $250 million, which is used almost entirely for capital. It really showed me—that was the first project we did in the early nineties—that if a private company with a clear mandate or a company that has a private entrepreneurial orientation is freed up to act at arm's length where you're buying and selling services, you will really get paid back.

I think CN is an absolute classic example. You talk about a spectacular turnaround in financial performance and operating performance in the last couple of years. The question is whether something like that would also work with VIA.

The Chairman: Thank you very much. It was very interesting.

Again I want to apologize if it caused any distraction, but it meant a lot to us and I know it meant a lot to the young people. They are young achievers from across the country who are here for a week. Thank you very much for your tolerance.

We will move on to questions. I have on the list Mr. Bailey, Mr. Calder, Mr. Guimond, Mr. Grose, and Mr. Cullen. Mr. Bailey.

Mr. Roy Bailey (Souris—Moose Mountain, Ref.): I echo the words of our chairman. Thank you very much for the presentation. You might say it was a bit of fresh air compared to what we've had lately. You have some unique ideas.

I'm a little disappointed, you having been here before, that you didn't bring back some money. You knew VIA Rail was broke before, and to come back without any money is a little disappointment. However, you did tell us you knew where we could get some.

You mentioned you had been part of the restructuring of the British railway system.

Mr. William Rennicke: Yes, we were one of the many consultants that worked on it.

Mr. Roy Bailey: Some of the members here will be taking a look at that next month, and we'll be able to do an assessment of your work.

You mentioned too in your discussion there is no exact similarity between other systems—they are all somewhat different. We are looking here basically at the corridor system. The point you raised, which I liked, and the diagram you have given planted a thought in my mind of a corridor authority. As I look at it and the more we listen to various people on this subject, it seems to me that if you're going to get into improving passenger rail in the corridor it will require some planning.

You alluded to the clear sheet. I think I mentioned yesterday to a different group that it seems to me we won't really solve the problem of providing passenger rail in the corridor until we get down and do some planning. On page 10 you have shown the various bodies as the Government of Canada, the Province of Ontario, the Province of Quebec, and the local municipal governments—and there could be others. At this point, I really don't see, as I examine this—and I'm a novice perhaps—that group coming together, nor has it been together.

I welcome your thought of starting with a clean sheet, because you will have to involve highways, municipal roads, and other kinds of transportation. This authority would then be given the green light to go ahead and make some of the planning.

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My final comment is that I went to look at the new signals that are available throughout the world for the crossings, and it's remarkable what they have developed. As far as I know, we haven't latched on to those in Canada, but we could. I mentioned to one of the members of this committee that Europe does have those systems available whereby you don't close the crossing for any length of time because of the timing and the fact that it's all computer-controlled.

Thank you very much. I don't have any questions as such, outside of saying that I like what you said and I like the idea of starting with a clean sheet. I particularly like the idea, in Canada, of looking at the corridor of 40. I don't know where that would come from, but that's a group of people interested in the betterment of rail transportation without hindrance. This would be supplementing other means of transportation.

That's my contribution.

The Chairman: Do you wish to respond?

Mr. William Rennicke: Just a couple of things, quickly. You seized upon a very good point.

Often, what is missing is the party who calls the group together. Where there have been other kinds of opportunities like this, I think it comes in different forms. Sometimes the parties themselves say let's do it, let's hire somebody as a facilitator to make it work, such as a well-known person who knows the parties. Often, that may be all that's needed: somebody to get the folks to the table to talk about it.

The second thing I would just like to say is that sometimes words can be interpreted in different ways. Sometimes the word “authority” gives you the sense of a public entity. You could call it the corridor corporation, club, or association.

So I think the important thing is that you have private sector companies that are very successful and that see this corridor as a critical part of their national pipeline from Halifax to Chicago. The traffic is really growing at the expense of, I think, some of the U.S. ports. You don't want to touch that, so you want to make sure that when we talk about this, it doesn't give the connotation that you're trying to create, with all due respect to governments, a government authority of some kind, but a group of people. It could be a corporation or a joint venture. It could be something that works on the same structure as that of a shopping centre, whereby you have multiple entities that are tenants in an overall franchise.

The Chairman: Well said. Now Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

Bill, I'll use this. It's good stuff. I like it.

One of the things you mentioned in here, basically, improved ridership, is being hampered right now by service frequency and transit time. How would we go about improving that?

You've already seen the corridor we're dealing with that VIA has most of its traffic on. Would common running rights improve that, or do we even need to go in that direction?

You also said that it's possible to schedule high-speed passenger rail with slower-speed freight just by how the cars and trains are arranged. Is common running rights even an issue that we should be bothering to look at? Is it important enough? How do we improve this service and solve this problem?

Mr. William Rennicke: First of all, again, here's some terminology. I just want to be clear that sometimes, common running rights means that there is a superior entity that allocates the time slots on a line like this. If it's going to work, it really needs to happen based on the fact that the parties have come up with a mechanism of allocating the time slots.

As far as additional ridership goes, when we looked at one of the biggest market opportunities for growth for VIA, which was to even push the frequency in the Toronto to Montreal corridor just by several additional trains and run the ones that are there on a more reliable basis, plus get the service from Ottawa, we were looking at increases in traffic, if I remember correctly, in the 30% to 40% level.

Now, the current system works just like an airline. If there aren't sufficient and frequent time slots, business travellers—many of these travellers in this corridor are business travellers—don't want to schedule their time to match up because there are only a certain number of time slots and some of them are spread out in the middle of the day.

I'll give you a personal example. About 20 minutes from my home in Boston is the Manchester Airport, but I drive an hour to go to Logan Airport. Why? Because out of Manchester Airport there are only usually one or two schedules a day to any of the cities in the U.S., so if I get delayed in a business meeting, my options for getting home are much narrower. So I'll drive that extra hour to go to Logan.

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It's the same in this corridor, and it was what we found when we did a lot of our work for Amtrak. Amtrak is certainly not what I would call a success story; there are still a lot of problems with Amtrak. But when we looked at the northeast corridor, improving the frequency in the transit time could get them another ten or fifteen market share points from the shuttle. Our airline practice tells us that the two owners of the shuttles are concerned about that.

USAir just finished buying the shuttle from the banks that held it after the Trump shuttle. They're very concerned that because the new trains being built here in Canada by Bombardier are going to be faster because they can turn the equipment, the frequencies are going to be much higher. They think the railroad is going to pick up another ten or fifteen share points, which is a huge number of riders in that northeast corridor market.

I think you are going to have to come up with some way—and I hate to use this word—of “tinkering” with the running rights in a way that's done by edict. I think you could optimize the flow of traffic through the corridor in a much better way if all the parties were cooperating. Right now, that's not happening. You have certain times of the day when the traffic is light and certain rerouting of the freight trains could be done, but in a way that doesn't in any way affect the freight franchise or access to the customers belonging to CN and CP today.

Mr. Murray Calder: In other words, what you're saying here is that we're going to have to basically work with the class ones to make sure the scheduling for passenger freight is scheduled at a time when people are in fact going to take and use it.

Mr. William Rennicke: Right.

Mr. Murray Calder: One of the other things you've said here is that the cost structure of VIA is higher because it's of a smaller scale. In 1995 I was part of the task force to take and privatize CN. We compared CN to CP, and we found that the upper management level in CN was way higher than what CP's was. Quite frankly, we couldn't figure out what half these guys were doing, so that overhead cost was basically cut and pared back by making those upper management people disappear. Quite frankly, at that point in time we had trains running with an engineer and a brakeman, and I couldn't see where we could cut them any further. To cut down on the operating expenses of the company, we therefore had to go back and take a look at management.

You're saying here that the cost structure of VIA is higher because of the small scale. Does that mean VIA should be running smaller trains on the track, or does it mean we should maybe be taking a look at the upper level of management within VIA too?

Mr. William Rennicke: I think what you'll find is that by almost any benchmark, VIA would be more like your analogy to CP, where you found that they have skinnied down the management structures. I don't think you'll find too many other significant opportunities in the cost structure.

The point was that railroads are a volume business. VIA is hampered because there are certain essential things you must do to run a railroad, whether you have one passenger or a million passengers a year. If you are running a business that has not been able to attract a big enough market share, you don't have enough riders to write off those fixed expenses that exist in the business. You can either cut them out—and I think there may still be some that VIA can cut out, but there aren't many....

What you need to do is ask yourselves where you can go next with VIA to find more riders who aren't being forced on the train with a gun, but who want to come because the service is better, so that you can fill up the trains and can generate more revenue to cover the fixed costs of the business. They've actually done a very good job in variablizing their costs, but they have a lot of fixed costs.

Mr. Murray Calder: That would lead me into my—-

The Chairman: We'll come back to you on the second round.

Mr. Murray Calder: Okay.

The Chairman: Mr. Guimond.

[Translation]

Mr. Michel Guimond (Beauport—Montmorency—Orléans, BQ): Mr. Rennicke, I also want to congratulate you for the quality of your presentation, especially with regard to your brief. There are some very interesting elements in it that will certainly help us in our reflection as members of this committee.

• 1710

You said that you are here today speaking on your own and that your comments would not necessarily be binding on Mercer. You seem to be aware of some fairly precise items regarding VIA Rail. All the documents you presented bear the name of Mercer. Are you presenting them on your own behalf or on behalf of Mercer? I'd like you to shed some light on this before I ask any other questions.

[English]

Mr. William Rennicke: First of all, the reason I said that was that the comments I put together for this presentation were not the result of any very complex study. When I was invited by the committee, I sat down and, based on the topics that were there, determined what my personal feelings were about that. It so happens that I work for Mercer. There are no white covers. They all say “Mercer”, and that's why it's bound that way.

Mercer has a great deal of experience. We have worked for VIA. We have worked for Canadian National. We have worked for Canadian Pacific. We have worked for GO. We have worked for the Trimac trucking company. We have done a great deal of work over the years, but I want it to be clear that I am not here representing any of them. I am just expressing to you my feelings and my professional judgments about what you should do about your situation.

[Translation]

Mr. Michel Guimond: Were you the leading consultant for the restructuring of the rail system in Mexico? Were you personally involved in that exercise?

[English]

Mr. William Rennicke: Yes, I did. It was my primary responsibility.

[Translation]

Mr. Michel Guimond: Perfect. What are the percentage of freight and the percentage of passenger in Mexico?

[English]

Mr. William Rennicke: In many respects, the percentage of freight in Mexico is similar to the percentage of freight in Canada. The percentage of passenger in Mexico is about 3% or 4%, and, from reading some of the testimony, it's about 3% or 4% here in Canada. Both countries have relatively small passenger operations in a very big freight environment.

[Translation]

Mr. Michel Guimond: I may have missed some of your explanations because I was concentrating too much on my reading. Has the Mexican government taken any measures to promote the development of passenger transportation?

I don't know whether you have read the transcripts of our meetings which are available on the Internet, but in them you could read the testimony of the chairmen of CN and CP, the two big Canadian railroads. We shouldn't take for granted that they will be very keen to cooperate. As the Parliamentary Secretary to the Transportation Minister, Mr. Keyes, indicated, the government may have to order them to promote passenger rail more actively or be more directive if this committee decides to make some concrete recommendations on this. Are you aware of this problem here in Canada? Did you find the same problems with U.S. railroads which would lean more towards freight transportation and only be somewhat—to keep from saying not at all—interested to support passenger traffic?

[English]

Mr. William Rennicke: First of all, just to address the question of Mexico, the situation in Mexico was so poor that the first thing we had to do there was fix the freight railroads. They were 97% of the problem that had to be fixed first. So you are very fortunate in Canada.

The point I made there was that Mexico City itself is the equivalent of your high-density corridor in eastern Canada. We created a similar joint facility that would be owned by the three private freight railroads in Mexico, but the government has reserved operating rights for the passenger commuter and the passenger trains.

• 1715

As far as your second question goes, I actually have read copies of the testimony that was made by Mr. Tellier and by Mr. MacDiarmid from CP. Nothing in life is easy, but again, as you can see, when the railroads wish to be cooperative here to the major competitors in the west, where they're talking about a joint use of tracks in the canyon so they can move the traffic faster, or the examples where you have CSX and Norfolk Southern in the United States, two very aggressive rivals, sharing track to reduce cost, a private sector business person will be influenced by something that will help him make more money.

Right now, I really don't blame Mr. Tellier or not blame him, but I can understand why the two freight railroads have the position they have. Quite frankly, they have a very valuable franchise. They have customers. They've invested money in the Sarnia tunnel, and in the early stages an idea is tabled saying we need to improve the frequency in train service on a corridor that could affect them, without a lot of other details. My suggestion is that somewhere a more open dialogue needs to be had with those parties, and maybe some others.

I would say the best thing for Canada is if they come to a business-like solution without the government. Along the way, if you still believe that passenger operations are important, you may think: what could the government do to be a catalyst for that? If you believe that passenger rail is important to get people off the highway, you may say: we will put some seed money into this system. If there's a new signalling system, maybe this could be some investment that could be made to help VIA, to give them a position at the table to do this. Or maybe there's something we can do to give tax credits. I don't want to get into your politics or your tax structure, because I don't even understand the one in the United States that I have to live with. But I think what you would hope would happen is this process would start, and they would start developing solutions without the heavy hand of government saying....

I have found in most cases, again, on a volunteer basis, whether it's sharing routes out in the west, or the U.S. too, with the arch-rivals, finding ways daily to work together, that the profit motive, the better returns, the lowering costs, getting their revenues up, would lead people into that kind of a joint venture thing.

The Chairman: Mr. Grose.

Mr. Ivan Grose (Oshawa, Lib.): Thank you, Mr. Chairman.

Mr. Rennicke, I usually speak in homilies and parables, and please don't remember what we did to the last guy who spoke in parables, but I'll give you a couple of little stories.

First, in 1948 I came back from the United Kingdom. I was travelling on a military warrant. I got on the train in Montreal and it was packed—and it was a long train. I stood all the way to Brockville, which is about half way to Toronto, which is where I was going. At Brockville, enough people got off that I got a seat. Of course, a very pregnant lady got on, so naturally I lost the seat—yes, it said “Canada” on my shoulder, so I had to uphold the honour of the country. In any case, I stood all the rest of the way to Toronto.

My next experience with railroads was trying to get from Oshawa, which is just outside Toronto, to Ottawa, and I took VIA at a very inconvenient time. I got to Kingston and they dumped me off there, and then I stood for an hour on a platform—they have a little place with machines that dispense potato chips and so on, no bar—and I waited there for another train to take me the rest of the way to Ottawa. I could have almost walked the distance in the same time. This is the kind of service we're providing.

My question is, do you really think we can woo the people off Highway 401—I assume you're familiar with that—and back onto the train? I think we have fallen in love with the car, and we're not going to get back on the train.

I've listened to other testimony where they said we're going to do marvellous stuff and get a lot of those trucks off Highway 401. Well, then you're going to lose the few people that are still travelling VIA, and they'll go back on the highway. We talk railway; we love railway. We don't use it. Is this not part of your experience?

• 1720

Mr. William Rennicke: First of all, there are many market segments, if you look at all the origin and destination pairs, the city pairs, in eastern Canada, or for that matter in other parts of Canada. When we looked at the strategy for VIA, we found there was sufficient business traveller interest, not to be dropped off in Kingston by a potato chip machine, certainly, but it's no different from what Amtrak is facing in the U.S.

If you go back to the first days when Amtrak took over the northeast corridor, their market share, if I remember correctly, was something like 25%. Well, it's up now, I believe, to well over 40% of all the travellers in the corridor, and they're hoping to push it over 50% to 55% or 60%. What has happened over the years? People have found it's a more convenient traveller.

For the family who wants to drive to an amusement park in northern New Jersey, you're not going to get them out of a car. To the business traveller who lives in southern Massachusetts or northern Rhode Island and has to drive to Boston or to some other station, he says, “This is a great deal for me. I don't want to take the shuttle any more, because I have to drive to the airport, so I'm willing to....” It's not just the end markets; it's the middle markets.

We found from the market research we did—and we didn't do an extensive amount—that it wasn't a love of the train. You have to make the train practical so that reasonable private sector people who are conducting their business lives want to get on.

I don't believe you're going to do much better than what you have right now with the train frequencies and speeds you have in that corridor. But will people come? You would certainly want to take a really hard look at it before you put any more capital funds in there, but I think you would attract additional segments. Will you get everybody off the 401? Probably not. Will you get some? I think you would get a significant number of additional riders onto a service like that.

Your country is as big as and has the same kind of geography as the U.S.

Mr. Ivan Grose: No.

Mr. William Rennicke: I'm talking about the lengths of trips, and the lengths are airline lengths in many markets. I would say Toronto to Montreal is a corridor, though, where if you're going to make it work anywhere, that's the place it's going to work.

The rest of it's going to be an entertainment business. It's going to be cruise trains, like when people go on ships. Nobody in their right mind really wants to get.... I'll say this to the U.S.; I would say this to Amtrak. Anybody who really wants to get from Chicago to Seattle isn't going to take the Empire Builder. If you want to look out the window for two and a half days and enjoy a leisure experience, you'll do it, but if you really want to get there, you'll get a Northwest flight with a $200 fare and you're there.

Mr. Ivan Grose: I'm glad you did acknowledge that the continent narrows down as you get out of Canada and into the U.S., and then into Mexico it's a completely different thing.

We have a different situation here. We long ago lost our passenger traffic. Can we woo them back? You say Toronto-Montreal is important. I don't think you'll ever woo them back. That's my opinion. If you have facts from the United States that are relevant, please tell me.

Mr. William Rennicke: In short-haul markets—and I mean markets where you can get close to the time it takes to drive to the airport, go from airport to airport, and then get from the airport to downtown, like New York to Boston or New York to Washington—you will get people to come back onto the railroad, primarily business travellers, and particularly business travellers where there are weather problems. Amtrak goes out of their way now.

For the rest of the country, you have to look at it—and I think VIA is beginning to spend more time, just from the work we did with them, looking at it—as really a leisure experience. Don't think of it as basic transportation. Try to make them have a love experience of some kind on the train, because they're not on it for basic transportation. But I think this happens to be a corridor where you have a place.

Mr. Ivan Grose: Thank you very much.

Thank you, Mr. Chairman.

The Chairman: We should note that three years ago we might have said we wouldn't woo passengers back to rail, and the ridership has increased tremendously with VIA. So if it was true for the past three years, it could be true for the next three.

Mr. William Rennicke: Also, if you look at the analogies, there was a time.... Our company also does work for ports, and we did work for the Port of Halifax, so I know there was a certain period of time when there was a lot of uneasiness there about what was going to be the future of the Canadian ports vis-à-vis some of the bigger ports in the U.S. But what does it take? CN builds a tunnel, they put in a high-quality service, and all the business that you said wasn't going to come through Canadian ports is coming through Canadian ports. You have Sealand and these other steamship companies now calling in Montreal. If you didn't have a good freight service, you wouldn't have that.

• 1725

Individuals make different decisions from corporations that move freight, but I think from a country standpoint it's not out of the question to ask if we will get a payback on the investment.

The Chairman: Mr. Cullen.

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

Mr. Rennicke, thank you very much for taking the time to come here and share your experience with us. I think this is going to be very useful to us.

I have a number of questions, and maybe if we don't have the time in this round we'll have a second round. But if we look at the corridor, if we had a better quality passenger rail service, which means more speed or more frequency, are we really going to take passengers off the road and onto the rail, or off the airplanes and onto the rail?

I have two related questions. One, as a matter of public policy, given Kyoto and greenhouses gases, if we wanted to move freight from the highways to the rail, that might be more important than moving people from the highways to the railway. When you do that, you move more freight onto the railroad, then you compound the capacity issue for the railway, right?

You've talked about the corridor, with the volumes the private sector might be more interested in. It seems to me there would be a huge investment of infrastructure. I don't know how big it might be, but if you start putting government subsidies in there, and you're really taking passengers from Air Canada and Canadian Airlines onto the passenger rail service, that's going to cause some difficulties as well. So maybe you could help me through that.

Mr. William Rennicke: In that corridor, I think the first step you'd want to look at is it's not all just Montreal to Toronto. You have a lot of the intermediate cities where the air service isn't as good.

Amtrak found this, and they used to call it—when we started the work down there—the conventional service. It was like the backwater of the business. What it was was places like New London, Connecticut, to Trenton. But when we went to work Amtrak, we said those are the markets where there are no airlines. So why go head-to-head Boston to New York; look at the secondary markets.

So I think where you're going to get most of the people out of their automobiles—if you do a good job in this—are the intermediate cities, and you have some big population centres that are along the way. This could include, for example, running through, once you get beyond Toronto, places like through the Windsor tunnel into Detroit in a much more convenient way than the way you serve them right now. So I think first of all there's that market.

I also think you're going to face population growth, and it's not just asking the question of how you handle the people who are there today. I think NAFTA and commercial activity are going to put more freight on the highways. So part of the thinking and planning for this has to be not just looking at the 1998 traffic flows, but where do you want to be x number of years from now?

If you look at the L.A. basin, where there are absolutely the most unbelievable levels of congestion you've seen, not just pollution but other problems, what finally got the California taxpayers to pay was when they started choking. Now they are putting more money into commuter service, short-haul passenger service. The biggest single state contributor to Amtrak's operation is California. As fast as they put money in and get people off the highway, they're being backfilled by other people who are just moving out there or growing in.

So I think it's not an either/or issue. I think it's part of building a network or a system. And I don't think.... Particularly with Air Canada, I think they have really done a marvellous job; to me, they're like the CN of the airline. I think they've done a marvellous job—and I travel with them quite a bit—of getting their service cleaned up. They have a lot of new planes. It's absolutely a first-class operation, as far as at least my experience goes.

They're going to have to be more competitive, but I don't think you're going to be basically drawing all the passengers away from them so that you would have a problem.

Mr. Roy Cullen: If you did, that wouldn't necessarily be an issue unless there were public subsidies in there.

In terms of the corridor, which you've focused on—and until you test the market you don't know for sure—your gut feel would be that if it were packaged right, and there's going to be some infrastructure investment, it could be privately financed without public subsidy?

Mr. William Rennicke: As I think Mr. Tellier very appropriately pointed out, even in Japan or with the TGVs, even where you have the highest-density markets, the reality you have to face is that there is never a passenger market that totally can take care of itself.

• 1730

I think some seed money would put the corridor into good running shape and you could probably get your operations to the point where you were at least covering operating costs and maybe making some contribution to interest and current costs.

Mr. Roy Cullen: I know you had to focus on certain areas and you focused on the corridor. If we look at areas like the transcontinental, do we know who uses that service? Would there be any private sector appetite? In the corridor you have the volumes and some beef there to look at. When you're looking at the transcontinental rail, is that something we should just forget about? Do you think the private sector could be enticed to make an investment there?

Mr. William Rennicke: I think if the private sector came, it would have to be along the lines of making something called the land cruise. I don't think the private sector would be interested. There's a public feeling in parts of Canada and the U.S. that you have to keep a national network. If you don't have a train that leaves at 2 p.m. from this place three times a week, somehow the country doesn't have a rail system.

The reality is, if you relaxed those rules and sailed the train whenever people wanted to go on a cross-country cruise, like the train that runs from Calgary to Vancouver, you'd probably have a market and get private sector involvement.

You have beautiful scenery. You have some big expanses in the middle. I think you could create an entertainment experience, particularly with the baby boomers, who our researchers show—not for VIA or anybody, but for other kinds of recreational things—want different kinds of recreational experiences. That includes those in my age group who are hitting 50 to 55 years old right now. They want a different kind of recreational experience.

Mr. Roy Cullen: The federal government has some levers in terms of public policy that would be of interest to VIA, CP, and CN. I think there's the carrot and the stick. I much prefer the carrot.

Do you think it's conceivable that you could get CN, CP, maybe other major stakeholders and VIA in one room and say this has to be sorted out? The difficulty I have with that is it sort of presupposes that VIA is part of the ultimate solution. We may, by doing that, sort of predispose any decision. There might be some private sector entrepreneurs out there with a lot of bucks behind them who are prepared to come in, think outside the box and come up with more lasting solutions.

Mr. William Rennicke: There are personalities and a long history of feelings about not only CN to CP but VIA, so that's why I put the question marks at the end. I can't guarantee it. That has to be managed.

But if you have business executives who are a core part of your transportation sector in the country—and whether it's VIA or you say you want a passenger representative because you don't want to call it VIA, but right now you'll use it as the stand-in because it knows something about the business—I think those are the kinds of people you want to try to encourage to come up with a solution with a carrot and not with a stick.

Let me give you an example of how difficult it is. In Argentina, when we started there were 100,000 railway workers. The only way we could make the privatization work was to fire 80% of them—80,000 people. In fact, when we delivered this message to Domingo Cavallo, who was the Minister of the Economy, he said “If I'm going to do this, the first 20,000 are going to get their telegrams before you leave”. But we had no strikes. Those are the kinds of really gut-wrenching difficult decisions.

In Mexico the workforce is being cut in half. There are no labour issues in what we're talking about in Canada, but if you can get over those kinds of kneecap-losing events, particularly for a foreigner in those countries, and get that kind of dialogue going, there's no reason why you can't at least start the process to talk about it here in Canada.

The Chairman: Mr. Casey.

Mr. Bill Casey (Cumberland—Colchester, PC): Thank you. Kneecaps, you say.

First of all, it's an incredible presentation you've made. It's very understandable, and you must have put a lot of work into that. Or is that a form you've used for other meetings?

Mr. William Rennicke: No. With this particular process, for example, yesterday we were working with some people from the Colombian government, telling them how they can get private sector investment for light rail systems. I would say some of these nine steps work in that regard also.

• 1735

Mr. Bill Casey: On the corridor issue, you're saying there could be some kind of a group venture among CN, CP and VIA. They say they're not interested. What incentives would there be for them to become interested?

Mr. William Rennicke: Again, I can't speak for them. They're not interested based on the proposition that's on the table. But if somebody were to say to them, for example—and this is just a hypothesis—that we are going to provide train pathways through this area that are superior to what you have today so that if you want to get your Halifax intermodal traffic, we will actually build capacity into this so that it will run better, and we will allocate the trainloads between the CP and CN lines and we will put some public investment in to improve the signal system for VIA, but also you'll run your...if they sit down and do the numbers they may say “This may not be bad.”

And if it takes getting a third-party entity to come in and cash them out and then they pay a user fee, almost like a sale and leaseback, which is one of 50 structures that you could use, they may say “We wouldn't mind that because we don't mind a sale and leaseback kind of a situation. We can use that capital to invest in the other parts of the country where there isn't a corridor, as long as”—and this is very important—“we can protect our easement.” In other words, “I don't want any less access than I have today and I don't want the competitor getting any of my customers.”

But all of those things are the kinds of issues, I think, that could be worked out or at least discussed. At the end of the day, they'll have to make a business judgment and think about the positives that came out of the process, and say “If I listen to what the IBI group says, have we fixed more of our capacity problems and density problems in Canada? Have we moved our cross-structure closer to what the North American competitive situation is? And if so, I like it because you've helped me. At first I may not have understood what we were talking about here, but I like it.”

And I would think that it would be worth at least the time they would put into having that kind of a discussion. I can't speak for them, but I think it would be worth it.

Mr. Bill Casey: It would almost for sure require some government investment to provide the incentive for CN and CP to—

Mr. William Rennicke: I think the government investment should come from you doing something to help the passenger corridor. And if, as a trade-off for that, as a by-product of that public investment, they also wound up being able to operate better, that might be enough of a carrot. They might say that's not a bad deal.

I don't think that they outright dismiss the use of, for example, trading traffic across each railroad's lines. They thought $500 million would need to be spent to try to have that kind of coordination. There are examples I've given you today that suggest maybe it's not that amount. Maybe an engineer putting pencil to paper would say, “You don't need $500 million. With a good signal system and a couple of connections, it could be done with $100 million, and another $100 million would give you the superior signal system that would let more traffic flow through the system.”

Mr. Bill Casey: It's pretty clear from your comments that you don't think there's much hope for a viable passenger system outside the corridor, from Altantic Canada or from western Canada, for example.

Mr. William Rennicke: I don't think there's much hope—and I want to be very clear about that—for a scheduled.... There's a great analogy. If you look at the scheduled ocean liner trade between Europe and North America, when the 707 came out in the 1950s people fought for years to save the U.S. lines and the French lines. Today there are more people using cruise ships—by a factor of five—than there were travelling on a transatlantic basis.

So for those kinds of experiences you're talking about there—and I'm not talking about the remotes where you're servicing a part of the country that maybe doesn't have other options—you might say “Let's think about it. In 1998 is this a service that people really need to go on a time schedule, or would it be best to play those assets in a recreational, entertainment kind of way and run them all on the weekends?” So you fleet them. Three train sets go off on the weekend.

I think it's a viable service. I think the product today is wrong, that it shouldn't be scheduled.... And I said the same thing in the U.S. The long-distance trains that Amtrak runs in many markets are just a waste of money. They go through the U.S. Rockies in the dark. Why? Because they have to leave Chicago at a certain time to get into Los Angeles at a certain time.

So I think you should have a passenger service, but probably not one that's doing the same thing it's doing today.

Mr. Bill Casey: What's the best model in the world that's comparable to our situation of a large expanse and a small population?

• 1740

Mr. William Rennicke: Do you mean for rail?

Mr. Bill Casey: Yes, for rail service. What's the best model we could look at?

Mr. William Rennicke: Probably the closest geographic model that I can think of is Australia. There, the government has created a national freight operation, and they're creating something called Track Australia.

I would never suggest that you go back to have a nationalized right of way. But in terms of their fix, they're doing that to force coordination between the state railroads. It wasn't just different railroads; they were even different gauges.

I can't think of other countries that have the kind of dispersed geography over the vast distances that are like that.

As for the business technique, though, I think you can find a lot of examples of these kinds of joint facility arrangements. Look at the airport structure in Montreal. Think of a situation where maybe Canadian had one airport and Air Canada had the other. What's going on there, you're saying. A consolidated, well-integrated facility is what the marketplace wants, not two things. So whatever went on there, they decided to coordinate and put public money into fixing up the one airport, and they'll have more volume there.

That's what we're talking about—that same kind of a mental process or business process, only thinking of this as a sort of long airport, a long facility of that kind.

Mr. Bill Casey: Just offtrack a little bit, no pun intended, what was your company's involvement with the Halifax port?

Mr. William Rennicke: We have a ports practice, and over the years it has done marketing plans for the port. I've been there since 1983, and I think on four or five different occasions they've looked at how they would position themselves in the evolving world trade market.

Mr. Bill Casey: Okay, thank you.

The Chairman: Mr. Fontana.

Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman.

Mr. Rennicke, I too am very impressed. I've been looking for someone who, along with VIA, has some creative ideas as to how in fact we change the mindset for passenger rail. I know the committee has been looking for some creative ideas, and I think you're right on the mark in a number of areas.

I have three questions that relate to this governance. There's no doubt that under the present governance stuff we have for VIA, they need to be unshackled. No matter what we do, obviously they cannot continue under the same corporate regime, which doesn't allow them any corporate commercial flexibility. In fact that ties a corporation's hands, no matter what, to the point where.... And I think our chairman said so.

When you think that at one time we used to subsidize VIA to the tune of $600 million in 1989-90, and they now get a subsidy coming up of about $170 million, and had their service cut in half by the former government, and now have managed to achieve the same ridership that they had back seven or eight years ago, that's a remarkable, remarkable achievement—dealing with the tools in that toolbox without being given the flexibility.

I think you're right on, that in terms of the governance issues, be it a private crown...or whatever we design, that's absolutely unnecessary, and joint ventures or partnerships are key to that thing.

But I want to talk about this infrastructure, because no matter what we do—and I'm impressed that you read word for word the testimony of everyone so far, which means that you like to do your homework—at the end of the day we're talking about private infrastructure by two main railroads. In some cases VIA in fact has had to buy their own infrastructure to make sure the connection has been done. They did it in the Windsor-Chatham area, and they want to do more of it, because as you know, as the majors start shedding some of their infrastructure, somebody is going to have to buy it. If it's not VIA, it's either the municipalities, short-line operators, tourist trains—who knows. But that's what's going to happen.

But my question is, in dealing with this infrastructure problem we have a public train company trying to access as much as it can on private infrastructure. I think Bill asked the question, what's in it for those people to give up some of their capacity? We heard that, hey, it's money: 97% of their money comes from freight; 3% comes from passengers. Why would they give up any capacity unless there was something in it for them? They say that the deal they give to VIA is probably a very, very good one. I suppose it practically pays for their....

• 1745

I want to just ask you a little more about how, in fact, based on your past experience with the model we have here in Canada, we're going to be able to structure an incentive program that will allow CN and CP to have more access without legislating that access, which I wouldn't be in favour of. At least that's a starting point.

Mr. William Rennicke: As I mentioned in here, there are absolutely no guarantees, because there are cases where this doesn't work. Let's assume that it's worth the try, and you may have to go back two or three times to do it.

Here's one of the most telling things that I've read and heard. I think it's a very accurate recognition by Mr. MacDiarmid and Mr. Tellier. They said that if they were going to be competitive in the North American economy, they had to get their costs down. Far more has been done than I could have ever predicted or than those two railroads have done already just without a lot of consolidation.

For 15 years I read about the opportunities that would come if you had a facility-sharing situation, or a situation that was more cooperative, between the two railroads, and it swung back and forth. But if you just read the railroad press, there's always somebody saying.... I believe they just have not been able to break whatever business reasons there were.

Say you have a goal whereby there's a 15% or 20% hiring cost. I don't know, maybe it's not that much. They want to get their cost structure down so that they're as competitive or better than the U.S. railroads. You have private companies here who don't want to be left out in the cold just like the ports and the steamship operations.

You've done great. They could be enticed by saying is there something about this deal that greases the skids? Maybe it's the tie-breaker that finally gets us to talk about some coordination in the east, like we're beginning to talk about in other parts of the country, or other cooperative things. Or maybe we haven't been able to figure out how to justify moving-block technology, which is a new type of signal technology. We can't pay for this ourselves, so maybe some seed money from the government would make that go.

Mr. Joe Fontana: I would agree that there has to—

The Chairman: Mr. Fontana, I'll cut in. Our witness has a flight at 6.40. I would ask you to ask your question. I have three other names for a second round, Mr. Calder, Mr. Bailey, Mr. Cullen, and others. I would ask that we have questions of one minute, maximum. At the end, you can attack all of them. This is so we're sure you're on your flight on time.

Mr. Joe Fontana: Okay.

Mr. William Rennicke: I don't mind. I would not like to get into writing a lot back, but if you have other questions, I'd be happy even to talk to your committee people by—

The Chairman: I'll be in touch again.

Mr. Joe Fontana: I would agree that the solution with the privates is based on fact that you have to grow in their business. It's obviously making them that much more competitive. If that means using capital cost allowances or a tax structure or improving their infrastructures so that they're competitive, that's the answer, because VIA also needs infrastructure. Passenger rail would need infrastructure.

Third, I wonder if you believe this. You talked about a corridor authority. Wouldn't it work in the reverse, because that corridor authority would indicate that somebody would impose their will on that private infrastructure? Maybe VIA, or anybody else, could be the broker that, in fact, coordinates all of the intercity commuter travel, such as the GO Trains, the corridor service, and perhaps tourist trains so as to fully integrate a passenger rail system altogether.

You need someone who could broker all of the various different kinds of services into a package that, in fact, will facilitate the ultimate consumer, which is the one who wants to travel from point A to point B regardless of whether or not it's to have fun or for business purposes. Is that something that you looked at?

Mr. William Rennicke: First of all, again, very quickly, as for the concept of the authority, let's call it the corridor joint venture. Just like in a business association or joint venture, CN and CP are not going to give up their equal seat at the table. So if a guy came in with a $2-billion chequebook and said that he would buy the assets out, it would probably be unwise. In fact, the investor probably wouldn't want them.

We're talking about a governance structure that would integrate them. So you wouldn't need to have Big Brother.

The terminal company we set up in Mexico is done up that way. The big terminal companies in the U.S. in Chicago between the railroads are done as collections. I think that's a better model.

Mr. Joe Fontana: It's the same thing.

The Chairman: Mr. Calder, Mr. Bailey, Mr. Cullen, short questions, please.

Mr. Murray Calder: Thanks, Mr. Chairman. I'll do this as quickly as possible.

• 1750

After reading through this report right here, I see four points that you have basically made. The first is that we should be looking at a detailed operating plan for passenger rail. The second is that we need a management structure that allows a coordinated decision-making process. Thirdly, we need good rolling stock. And the final one is basically the three above taken together, which means a new way of looking at railroading.

I think one of the things we're probably looking at in this new way of looking at railroading is track sharing. At the back of this one magazine, I see this Norfolk Southern railway system track sharing. How does that work?

The Chairman: Can I suggest that we go on to the three questions so that we know you'll make your flight on time?

Mr. Bailey.

Mr. Roy Bailey: It's not so much a question as it is to say that I would like to get some information on the electronic signalling if I could. I think this committee would like it, Mr. Chairman, because it directly ties in to track sharing, and very much so.

The second thing is that if we determine that we're going to reactivate and make passenger rail become a reality, the quickest way and the cheapest way may be what I mentioned the other day. It may be cheaper to build that corridor railway on its own, leaving one rail for passengers alone. That may end up being cheaper. When I mentioned that to an engineer—and I'm not going to give you his name—he mentioned the high cost of all the overpasses. With this new electronic system, though, that great cost that he's talking about may disappear.

So could I get something on that? I'm really interested in that angle, because it would help us a great deal.

The Chairman: Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman. I wanted to talk about the remote rural areas, but I won't have time. I'll instead focus on British Rail and the model there.

I agree that we've really sort of hamstrung VIA in terms of their ability to think outside the box. In fairness, they've really done a number on productivity, which you mentioned earlier.

If we wanted to go the route of applying the British experience to Canada, would you have one main franchise, or would you chunk it? How do you ensure that customer service and reinvestment are carried out?

The Chairman: Mr. Casey.

Mr. Bill Casey: It's a short, stupid question.

The Chairman: If it's short, it's okay.

Mr. Bill Casey: What's the relative difference between the revenue from a full freight car and a full passenger car?

The Chairman: Mr. Rennicke, I suggest you take five minutes. We'd like you to make your flight.

Mr. William Rennicke: Just a couple of things: as far as the experience with sharing is concerned, it's just one example, and I think it works very well. Why? Because it's not government-imposed. The worst sharing in the United States is found in those cases in which that happened, in which the government said there must be sharing. I think I showed you an article today that said CN and CP are voluntarily talking about it. I believe anything they do voluntarily is a far better model, and you'll get those kinds of positives about that.

As far as the signalling goes, I think it might be worth it. I can give you the names of some of the vendors of those systems. I'm not a signal engineer, but the thing I want to point out is that it has less to do with the crossing gates. When you start running trains at 100 miles an hour or 120 miles an hour, a crash with a vehicle—a truck or a car on the road—is devastating. The signalling system is a signalling system that allows you to pack more.... It's like a pipe. You pump more water through the pipe by having a better signalling system. That's one big investment in the signalling system.

As for the grade crossings, I don't think you're going to get away from having to put money into grade separation, because once you get over 100 miles an hour.... I believe you may even have a law on this here in Canada. In the U.S., I don't think they can run faster than 100 miles an hour unless they have grade separation. That's a secondary use of the signal system. I think you can get people to help you on that.

As for the differences in revenue per car, I believe that for two or three containers coming from Halifax on a stack car, for example, the rate may be $300 or $400 per container, so you're looking at $800 for two containers. If you think of the miles all the way from Halifax to Chicago, I think you're talking about something in that order of magnitude.

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I think the VIA fare between Toronto and Montreal—numbers are escaping me at this hour—is maybe $40 or $50 and you have 50 people or so in the car. I think you're generating more revenue in the car. But that's a really difficult comparison, because you have to look at the velocity of how many times a day you turn the passenger car and earn the revenue.

I would like to suggest to those of you going to the U.K. that if it gets into the franchising you might want to also take a trip to Argentina, because the U.K. is such a—

Mr. Roy Bailey: Yes, that's a good idea.

Some hon. members: Oh, oh.

Mr. William Rennicke: I can say that without being a taxpayer.

I would say that the kind of arm's-length.... The regulations, and this was not something Mercer was involved in.... In fact there are certain parts of the British privatization whereby they made life much more complicated. They have telephone-book-sized access agreements to get on rail track. I would say take a real hard look.

We sent the Mexicans there because they wanted the British system. I said we don't want to give it to you, but we'll go away for a month. You all get on a plane. They all wanted to go to London. They went over there. They came back. They said “You're right, we're not going to do it.” That was for freight.

But the kind of franchising you want is you want to put private sector pressure on whoever the franchisee is. You want them to feel the same. The only difference is you have to recognize that you can't make up 100% of the cost out of the fare box.

So a good franchising system says it's a private sector business. They think they're making 100%, but they have two customers. They have all the people who get on the train and they have a layer of money that the government gives them. Other than that, if they don't service equally as well, they're out of there and you get a new party.

Did I answer all of it?

The Chairman: It was an excellent presentation. Thank you very much.

I feel confident that you have time to make your plane. You have 42 minutes.

Mr. Ivan Grose: I find it interesting that the witness is taking a flight, not a train.

Some hon. members: Oh, oh.

Mr. William Rennicke: When you have time to spare, go by air.

The Chairman: Thank you very much.

Members, if you could stay a few minutes in camera, we'll talk about future business.

[Proceedings continue in camera]