Om­ni­trax, Ot­tawa deal le­gal blows over Man­i­toba rail­way

The Globe and Mail (Atlantic Edition) - - REPORT ON BUSINESS - ERIC ATKINS

Af­ter U.S. rail com­pany is­sues NAFTA claim, fed­eral gov­ern­ment files suit over Hud­son Bay Rail­way

The dis­pute over a bro­ken-down rail­way in north­ern Man­i­toba es­ca­lated on Tues­day, as the fed­eral gov­ern­ment and a U.S. rail com­pany ex­changed le­gal blows.

Ot­tawa filed a law­suit against Den­ver-based Om­ni­trax Inc., al­leg­ing the com­pany’s fail­ure to re­pair and re­open the flood-dam­aged Hud­son Bay Rail­way is a vi­o­la­tion of an agree­ment reached in 2008.

Om­ni­trax, mean­while, served Ot­tawa with a no­tice of in­tent to file a claim un­der the North Amer­i­can free-trade agree­ment, al­leg­ing Ot­tawa’s move to dis­solve the Cana­dian Wheat Board in 2012 made its pur­chase of the rail­way and the Port of Churchill a money loser.

Om­ni­trax says it bought the rail­way and port in 1997 with the ex­pec­ta­tion that grain ship­ments from the Cana­dian Wheat Board would con­tinue. But the gov­ern­ment’s dis­man­tling of the wheat board and its pri­va­ti­za­tion in 2015 “pulled the rug out from un­der Om­ni­trax’s in­vest­ment” by di­vert­ing crop ship­ments to other rail­ways, the com­pany said in a no­tice of in­tent to seek ar­bi­tra­tion, filed on Tues­day.

The gov­ern­ment’s ac­tions have de­val­ued Om­ni­trax’s in­vest­ments and stymied its ef­forts to sell the rail­way and port, Om­ni­trax al­leges in its claim.

“Om­ni­trax would not have pur­chased the HBR or the Port of Churchill but for the ex­pected con­tin­u­a­tion of the CWB busi­ness,” Om­ni­trax said in its no­tice. Om­ni­trax said it is seek­ing a ne­go­ti­ated set­tle­ment that will re­pair the rail­way and port and trans­fer own­er­ship to the gov­ern­ment or a third party. Fail­ing that, Om­ni­trax said it will sue Ot­tawa for $150-mil­lion.

In a state­ment, Om­ni­trax Canada pres­i­dent Merv Tweed called the ac­tion a “last re­sort” to “help fa­cil­i­tate an amicable res­o­lu­tion to the dis­pute.”

“We re­main open to the pos­si­bil­ity of reach­ing an agree­ment with the fed­eral gov­ern­ment, should they demon­strate a will­ing­ness to come to the ta­ble and dis­cuss a rea­son­able ar­range­ment for re­pair and trans­fer of the HBR, Port of Churchill and re­lated as­sets,” said Mr. Tweed, a Con­ser­va­tive mem­ber of Par­lia­ment from 2004 to 2013, when he gave up his seat in the gov­ern­ment of Stephen Harper to take the job with Om­ni­trax.

Ot­tawa’s law­suit against Om­ni­trax seeks the re­turn of $19-mil­lion it con­trib­uted to the rail­way’s up­keep, and un­spec­i­fied da­m­ages.

Sec­tions of the rail­way, Churchill’s only land link, were heav­ily dam­aged in a May flood and re­main closed. Res­i­dents and busi­nesses are re­ly­ing on air ship­ments for all their needs.

“As the pri­vate owner of the line, Om­ni­trax had the obli­ga­tion to re­pair the rail line when it was dam­aged and it is ir­re­spon­si­ble that they have not com­menced re­pairs,” said Mélany Gau­vin, a spokes­woman for Trans­port Min­is­ter Marc Garneau.

Mr. Garneau was un­avail­able to com­ment on Tues­day, his of­fice said.

Om­ni­trax is re­ly­ing on NAFTA’s Chap­ter 11, in­tended to set­tle dis­putes be­tween in­vestors of a NAFTA coun­try and gov­ern­ment. Om­ni­trax’s no­tice of in­tent is the first step in a com­plaint process that has been un­der­taken by com­pa­nies such as United Par­cel Ser­vice of Amer­ica Corp. and Res­o­lute For­est Prod­ucts Inc.

Un­der NAFTA, a gov­ern­ment is not al­lowed to dis­crim­i­nate against or treat a NAFTA-coun­try in­vestor less favourably than a do­mes­tic party.

Mr. Harper in 2012 ended the wheat board’s mo­nop­oly on buy­ing and sell­ing western wheat and bar­ley for ex­port to al­low farm­ers to sell their crops in the open mar­ket. The wheat board was bought in 2015 by a part­ner­ship be­tween Bunge of the United States and Saudi Ara­bia’s state-owned Saudi Agri­cul­tural and Live­stock In­vest­ment Co.

Re­named CWB, the for­mer wheat board now moves crops through its own net­work of ter­mi­nals and ports on Bri­tish Columbia’s coast and the Great Lakes-St. Lawrence Se­away. Other grain com­pa­nies have also stepped into the mar­ket, buy­ing and sell­ing western crops for ex­port. Vol­umes sent on the HBR to Churchill plunged, a de­cline wors­ened by the loss of fed­eral ship­ping sub­si­dies, Om­ni­trax says.

“When Om­ni­trax ac­quired the HBR and the Port of Churchill, it was led by the gov­ern­ment of Canada to ex­pect that the rail­way would con­tinue to carry his­tor­i­cal lev­els of grain, as it had for the past sev­eral decades. This was to form the eco­nomic base for the vi­a­bil­ity of Om­ni­trax’s in­vest­ment, upon which Om­ni­trax could build by di­ver­si­fy­ing and ex­pand­ing the range of goods that were trans­ported through Churchill,” Om­ni­trax said in its no­tice.

“By elim­i­nat­ing the [CWB’s mo­nop­oly] and pri­va­tiz­ing the CWB, the gov­ern­ment of Canada set in mo­tion a se­ries of eco­nomic forces which, pre­dictably and in­evitably, wiped out the eco­nomic foun­da­tions on which the com­mer­cial vi­a­bil­ity of the HBR and the Port of Churchill rested.”

Om­ni­trax bought the HBR from the re­cently pri­va­tized Cana­dian Na­tional Rail­way in 1997 for $11-mil­lion. At the same time, it took over the Port of Churchill from the fed­eral gov­ern­ment for $10. Ot­tawa con­trib­uted $28-mil­lion for dredg­ing and other re­pairs. Other in­vest­ments and sub­si­dies made by Ot­tawa amounted to in­duce­ments for Om­ni­trax to keep spend­ing on the sys­tem in the mis­taken be­lief the gov­ern­ment was com­mit­ted to the ship­ment of grain through the route, the com­pany says.

Since buy­ing the port and rail­way, Om­ni­trax says it has in­vested more than $100-mil­lion but never made a profit.

Churchill is a deep­wa­ter port on Hud­son Bay that can han­dle large ships and is favoured by ship­pers for its fast tran­sit time to for­eign mar­kets. How­ever, the port is iced in for much of the year and open only from July to Oc­to­ber.

Climate change raises the pos­si­bil­ity the port could be­come more vi­able. The same forces, how­ever, ren­der un­sta­ble and flood prone the frozen muskeg over which much of the rail­way trav­els.

ALEX DE VRIES/THE CANA­DIAN PRESS

Om­ni­trax al­leges Ot­tawa’s move to dis­solve the Cana­dian Wheat Board made the rail­way in Churchill, Man., a money loser.

OM­NI­TRAX

Dam­age along the Hud­son Bay Rail­way af­ter flood­ing is seen above. Om­ni­trax said in its no­tice of in­tent to file a claim that it ex­pected to carry ‘his­tor­i­cal lev­els’ of grain along the route.

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