Alto - High Speed Rail (Toronto-Quebec City)

[Northern Light]

Thanks Andy Takagi and colleagues: "Why Union Station may not be a stop on Canada’s new high-speed rail line"

Gift-redeem

www.thestar.com

The headline is a bit misleading. Which editors not reporters normally pick. That said, good article.

 

[robmausser]

For $100B (plus another $130B in a short-term loan) we probably could buy both CPKC and CN Rail, move all the Canadian railway corridor to a separate entity, then spin them off again. Charge fees to operate on the Canadian track using something like the airport model, where a non-profit manages most of the fixed [non-moving] capital and the operators have significant input.

That doesn't actually solve anything though as giant slow trains and short fast trains still don't mix well. A very large capital investment into tracks would also be required; much longer and more frequent sidings if nothing else.

All of this would probably cost way more in the long term as well than just building separate tracks for passenger rail.

Freight traffic is still very important to Canada and the USA. It keeps millions of trucks off our highways. It is a very efficient mode to transport goods. The private sector does a good job at it. They just hate passenger rail, and rightly so because passenger rail and freight do not mix well on the same line.

 

[crs1026]

Freight traffic is still very important to Canada and the USA. It keeps millions of trucks off our highways. It is a very efficient mode to transport goods. The private sector does a good job at it. They just hate passenger rail, and rightly so because passenger rail and freight do not mix well on the same line.

Which speaks to a very valid question - if Alto and CN are investments of roughly equal amount, which delivers more value to the economy? Will Alto deliver the same overall value as CN does to North America? Will Alto offer an enterprise which is as efficient as CN? Can Alto do as good a job as a public entity as CN does as a private entity? If CN needs to be privately owned and run, and with such a firewall from public policy, to do its work so well, then what hope does Alto have with the inevitable political hand on the wheel? On a risk versus reward basis, who is taking more risk - CN or Alto? And on a risk versus reward basis, will Alto deliver the same return?

Some of us will agree that Alto responds to a valid public need (for which we simply need to swallow and accept the price tag)....but.... would we buy stock in it ?

NIMBY's aside, the skeptics aren't wrong. We are very far from being able to say that this is a safe no-brainer bet.

- Paul

 

[urbanclient]

I very much doubt it would ever happen - but you raise a good point as a benchmark for just how big a venture Alto is. The combined market cap of CPKC and CN is about $200B.

We have a lot of debate here that ends with "Ottawa could never do that, it would harm shareholder interests, and the railways are just too big an investment to ever nationalise". It seems that building Alto is in the same fiscal ballbark as buying out one of CPKC or CN altogether. Perhaps doing so would indeed enable a high speed passenger line, while advancing other societal goals.

As I say, I don't see any reason to pursue it, but the theoretical argument may not be the fantasy we've been labelling it as.

- Paul

If fully nationalizing one only costs $100 billion, then a controlling stake is, half of that (edit: +30% premium at most). What's to stop a government backed takeover of one or both companies? My guess is A. they think the money could be better spent elsewhere, B. outcry from the Americans and business-y Canadians, which has to do with C. ideology, we can't have communism here. Finally, D. how much of their infrastructure is in desperate need of repair?

All of this would probably cost way more in the long term as well than just building separate tracks for passenger rail.

Will it though? If the government doesn't get involved in day-to-day operations, but uses its control to make them build some passenger infrastructure (e.g. the missing link for Milton Line), how much of the profits are we sacrificing here? CN and CPKC are oligopoly cash cows. The controlling stake could plausibly pay itself back in 50 years. Last year, CN spent 2 out of 4.7 billion in net income on share buybacks...

 

[PL1]

If fully nationalizing one only costs $100 billion, then a controlling stake is, at most, half of that. What's to stop a government backed hostile takeover of one or both companies? My guess is A. they think the money could be better spent elsewhere, B. outcry from the Americans and business-y Canadians, which has to do with C. ideology, we can't have communism here. Finally, D. how much of their infrastructure is in desperate need of repairs or rebuilds?


Will it though? If the government doesn't get involved in day-to-day operations, but uses its controlling stake to make them build infrastructure for passenger rail, how much of the profits are we sacrificing here? CN and CPKC are oligopoly cash cows. The investment could easily pay itself back in 50 years. CN spent 2 out of 4.7 billion CAD in net income on share buybacks last year...

Counterpoint (and I know close to nothing about how CN was operated at the time): CN was a crown corporation that bled cash until it was privatized. Would nationalized CN and CPKC continue to be cash cows that pay it back within 50 years? No idea

 

[urbanclient]

Would nationalized CN and CPKC continue to be cash cows that pay it back within 50 years? No idea

Hence, I would hope the "government doesn't get involved in day-to-day operations". Being a wholly owned crown corp could be different to majority government ownership. The CN Commercialization Act prohibits more than 25% ownership, but that can easily be amended.

 

[micheal_can]

All of this would probably cost way more in the long term as well than just building separate tracks for passenger rail.

Freight traffic is still very important to Canada and the USA. It keeps millions of trucks off our highways. It is a very efficient mode to transport goods. The private sector does a good job at it. They just hate passenger rail, and rightly so because passenger rail and freight do not mix well on the same line.

When we have roads, we do not prioritize one over the other. We do build so that as much can fit. Trucks are passed all the time on highways. This goes more to a private system being about maximizing profits and a public system maximizing equity. If the rails were nationalized, and each carrier had a contract to run freight and another carrier had passenger service, and the line was maximized like our highways, we might see better passenger service. We might even see more double track so as to maximize movements and reduce delays.

 

[Woodbridge_Heights]

The issue is not who will pay for it or not, it is the almost opaque way ALTO is handling this. They should have contacted people like the OFSC and OFATV for them to voice their concerns. The other thing is, because HSR requires arrow straight lines, the old Havelock sub will not be used in its entirety. So, they are creating unnecessary anxiety. It is almost like they do not want it built.

Sorry but there is always going to be some special interest group that comes out of the woodwork to oppose any project. Expecting the consultants to know EVERY group that should be contacted is an impossible task.

I mean come on, a recreation snowmobilers association? What next? Friends of the storm water management pond down the street?

 

[crs1026]

If fully nationalizing one only costs $100 billion, then a controlling stake is, half of that (edit: +30% premium at most). What's to stop a government backed takeover of one or both companies? My guess is A. they think the money could be better spent elsewhere, B. outcry from the Americans and business-y Canadians, which has to do with C. ideology, we can't have communism here. Finally, D. how much of their infrastructure is in desperate need of repair?

I can certainly imagine a fantasy scenario where someone with enough capital to buy controlling interest could compel CN shareholders to sever and devolve the Sarnia-Montreal segment of the company, just by threatening to seize control of the entire company. Perhaps under that kind of threat, the shareholders would see reason to tolerate one less freight-prioritised corridor in exchange for the someone keeping their mitts off the rest of the system (which I agree is generally better run by private investors than by government, especially respecting the cross border implications).

If that were done, it might be possible to secure a better passenger route likely sub-HSR but at much lower expense than Alto's budget. And even if one did buy out all of CN, most of the rest of its network could be arbitraged to recoup most of the original spend.

That kind of "grandiose threat to get what you want" strategy seems to be working for some people south of the border, but I doubt anyone up here has the necessary predatory mindset or deep pockets to pull it off. It certainly seems that spending that much money and stirring up that many hornets to gain control of a continent-wide asset, just to secure inroads in one corridor, is a sledgehammer to drive a nail proposition. Like I said, a fantasy scenario.

But that brings us back to Alto being a really monumental proposition, with good reason to question whether it can be successfully built as a public sector enterprise by our lacklustre governments, comprised of politicians and bureaucrats who can't help being themselves.

- Paul

 

[micheal_can]

Sorry but there is always going to be some special interest group that comes out of the woodwork to oppose any project. Expecting the consultants to know EVERY group that should be contacted is an impossible task.

I mean come on, a recreation snowmobilers association? What next? Friends of the storm water management pond down the street?

That would be like if we were building a new arena not contacting any of the local teams or the local association to ensure there won;'t be any issues. Landowners and people who use the land should be consulted. And it is not like either of those 2 are fringe groups.

 

[lenaitch]

yes the travel times in the 70s were pretty good, but the freight companies have made it so its almost impossible to schedule trains on the existing corridor. requiring Via to wait behind CN's trains. It feels like the author is suggesting to nationalize our railroads instead

In the 1970s, freight trains were probably more frequent, but much shorter. Probably easier to interweave.

 

[lenaitch]

I can certainly imagine a fantasy scenario where someone with enough capital to buy controlling interest could compel CN shareholders to sever and devolve the Sarnia-Montreal segment of the company, just by threatening to seize control of the entire company. Perhaps under that kind of threat, the shareholders would see reason to tolerate one less freight-prioritised corridor in exchange for the someone keeping their mitts off the rest of the system (which I agree is generally better run by private investors than by government, especially respecting the cross border implications).

If that were done, it might be possible to secure a better passenger route likely sub-HSR but at much lower expense than Alto's budget. And even if one did buy out all of CN, most of the rest of its network could be arbitraged to recoup most of the original spend.

That kind of "grandiose threat to get what you want" strategy seems to be working for some people south of the border, but I doubt anyone up here has the necessary predatory mindset or deep pockets to pull it off. It certainly seems that spending that much money and stirring up that many hornets to gain control of a continent-wide asset, just to secure inroads in one corridor, is a sledgehammer to drive a nail proposition. Like I said, a fantasy scenario.

But that brings us back to Alto being a really monumental proposition, with good reason to question whether it can be successfully built as a public sector enterprise by our lacklustre governments, comprised of politicians and bureaucrats who can't help being themselves.

- Paul

Both CN and CPKC are much different corporations than they were back in CN's Crown Corp days. They are both now multi-national corporations. I suspect any attempt by the government to nationalize or even take a controlling interest in one or both of them would be met with calls from the US for dissolution.

Both are such integrated networks that severing or selling off a certain section could have major financial impacts on other areas. Take CN's control of their sole corridor connection Toronto (and, by implication, western Canada), Montreal and the Maritimes, and what does that do to the value of the rest of the network and the Canadian economy? I recall at one time after CP started moving a lot of their western traffic through the US via Chicago, that there was at least some thought of abandoning the northern Ontario route as superfluous (it could have been during the Hunter Harrison era). Wouldn't that be a great strategic move for Canada.

I'm not sure cutting large chunk of the Canadian economy off at the knees in favour of a passenger service is a great idea.

It seems some people want to either nationalize the railway(s) - full stop, or somehow have them privately owned and operated but at the complete beck-and-call of the government.

If the government doesn't get involved in day-to-day operations, but uses its control to make them build some passenger infrastructure (e.g. the missing link for Milton Line), how much of the profits are we sacrificing here? CN and CPKC are oligopoly cash cows. The controlling stake could plausibly pay itself back in 50 years. Last year, CN spent 2 out of 4.7 billion in net income on share buybacks...

How is that not getting involved in day-to-day operations?

 

[urbanclient]

How is that not getting involved in day-to-day operations?

Speaking to how badly they were managing CN compared to private CP back in the day.

Taking 1 billion out of 2 billion in stock buybacks (CN and CP historically have high stock buybacks) for investments in passenger rail infrastructure seems entirely to everyone's economic benefit with little downside.

Unless you believe the interests of duopoly shareholders matter more. Investments in transit can spur entrepreneurship and business investment. Also alleviating the problem of all investment going into housing.

 

[Woodbridge_Heights]

That would be like if we were building a new arena not contacting any of the local teams or the local association to ensure there won;'t be any issues. Landowners and people who use the land should be consulted. And it is not like either of those 2 are fringe groups.

Nah more like a group of people who get together on Sunday mornings to play street hockey at an old abandoned parking lot, complaining that they weren't consulted when the parking lot gets redeveloped into a new arena. The only difference is that the snowmobile association has a semi official 'association'. The snowmobile association doesn't own the land its trails are on, and only uses the land, and marks out the trails at the pleasure of the land owners. It may sound crass but they have no more stake in those lands than you or I. If Ontario hydro suddenly decides they don't want snowmobile trails on their utility corridors than there's really nothing they can do.

Besides. My point wasn't specifically towards the snowmobile association. It was that it's difficult to think of every possible group that might be impacted.

 

[micheal_can]

In the 1970s, freight trains were probably more frequent, but much shorter. Probably easier to interweave.

I feel that the creation of the "over siding" trains was the start of the problems. Add to that the desire for freight operators not to run passenger service and you get what we have now.

Nah more like a group of people who get together on Sunday mornings to play street hockey at an old abandoned parking lot, complaining that they weren't consulted when the parking lot gets redeveloped into a new arena. The only difference is that the snowmobile association has a semi official 'association'. The snowmobile association doesn't own the land its trails are on, and only uses the land, and marks out the trails at the pleasure of the land owners. It may sound crass but they have no more stake in those lands than you or I. If Ontario hydro suddenly decides they don't want snowmobile trails on their utility corridors than there's really nothing they can do.

Besides. My point wasn't specifically towards the snowmobile association. It was that it's difficult to think of every possible group that might be impacted.

I guess I see it different, it is not like they are a small, fringe thing. They have been around for over 30 years. They are not just in a small area.And if they cannot be thought of by these consultants, they are. not very good. Isn't that why they are paid the big bucks?