Canadian Government Goes Slow On Possibility of Major Rail Merger

CANADA'S new Liberal government may soon have to weigh the politically tricky question of whether to allow a partial merger between Canada's two big railroads, the Canadian Pacific (CP) and the Canadian National.

The two companies, which have lost millions of dollars competing with the trucking industry and each other in eastern Canada, have been negotiating a merger of their operations east of Winnipeg, Manitoba since early last year. Canadian National (CN) President Paul Tellier says that a deal is near.

``I'm hopeful that some time in January, we should be able to reach a joint conclusion that a merger is very much the best way to go,'' Mr. Tellier told the Toronto Star recently.

But as the railroads rev their engines, the government seems likely to put on the brakes. Permitting such a merger would be touchy because it would cost thousands of jobs and involve cutting service to remote parts of the country that have money-losing branch lines.

Prime Minister Jean Chretien was elected largely on the promise of creating jobs to ease the nation's 11 percent unemployment rate.

``You can bet that we will remind the Liberals of the promises they made during the election regarding jobs,'' says Theo Stol, vice president of the Canadian Brotherhood of Railway, Transport & General Workers, which represents 5,500 of Canadian National's 29,000 employees. ``We want to know the details of the [merger] plan, and when that is known, we will react.''

Merger as money saver

The CN is a government-owned ``crown'' corporation with about $2 billion (Canadian; US$1.5 billion) in debt. It operates more than 18,000 miles of track - much of it sparsely used. The CP is a publicly owned corporation with 24,000 employees and about the same amount of track. The two companies' main lines in eastern Canada run parallel, and combining traffic on one of those would save them huge sums of money.

Together, the two companies lost $1.3 billion (US$98 million) in 1992. CN says it expects its loss last year to be $80 million (Canadian). To cut costs, the CN is cutting 10,000 employees over three years and reported last fall that it would like to halve the 8,700 miles of track it operates east of Winnipeg.

Under federal law, however, any merger of the two railroads' operations or track abandonment is prohibited pending review by the National Transportation Agency and the Bureau of Competition policy.

Doug Young, a spokesman for the Minister of Transport, told the Monitor that any such proposal for a merger would be reviewed by government regulators. Their recommendations would then be weighed before the government makes a decision. That process, several observers say, could take a year or more.

``The railroads are going to have a meeting with the [transport] minister in the next few weeks,'' says an executive within the railroad community who asked not to be named. ``We have to have an expression of response from the government, to at least let us know that the government isn't going to nuke [the merger plan] if we come forward with that.''

Mining firm view

Mining companies, whose ores make up about two-thirds of the freight hauled by the two railroads, were cautiously supportive of a rail merger, provided the government prevents the monopoly railroad that would result in exorbitant freight charges.

``Clearly it doesn't make a lot of sense to have two completely independent rail lines in eastern Canada,'' says George Miller, president of the Mining Association of Canada. ``Some costs can be merged.

``But we don't want to see a competitive system turned into a monopoly. We would look for safeguards to see that cost savings passed back to the shippers.''

Of even greater concern to railroad insiders than the fears of their customers is the possibility of a public backlash to any merger discussion involving cutting links to Canada's remote regions.

``The government is going to have to weigh the angst that's going to come out of the body politic,'' the unnamed railroad executive says. ``How that distress will get translated politically, we don't yet know.''