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Sat, 03 Aug 2013 15:00:00 GMT | By Deirdre McMurdy, MSN Money

Canada’s railway dependence

The economic argument for using trains to move product must be balanced with public safety and competitiveness in the train business.

Deirdre McMurdy

For Canada, it all started with a railway. Its construction is what made us a nation and defined our economy.

Although a great many other things have changed since 1871, the importance of our railway has not. Canada has the third largest rail network in the world and it moves 70 per cent of all exports every year — the fourth largest volume of goods in the world.

Canada is not alone in its use of tracks and trains. In the U.S. and many other countries, technological refinements and soaring fuel costs have led to a recent revival of interest — and investment — in moving goods to market by rail.

The question, however, is whether recent rail disasters like last month’s tragic accident in Lac-Mégantic, Quebec, will slow or even reverse that trend. And the answer to that question has significance for almost every sector in a country that derives about 60 per cent of GDP from exports.

Two particular issues have emerged in the after-math of Lac Mégantic that could have a negative, long-term effect on the rail sector: after-the-fact regulations that make it more expensive to operate railways and the issue of insurance and liability for the tremendous damage that rail accidents have on human life, communities and the environment.

Neither of these are small matters.

Montreal, Maine & Atlantic Railway has conceded that it doesn’t have the money to cover the cost of the damage it caused in Lac Mégantic. The company, which could face bankruptcy because of its liability, has to rely on its insurance to provide what financial compensation it can.

Unlike pipeline companies which are required to set aside at least $1 billion to cover the cost of remediation and clean-up in the case of accidents, rail operators don’t have the same requirements.

Under the federal Transportation Act, railways are required to have enough liability insurance to cover the cost of accidents. There are no more specific requirements, despite the massive cost of remediation when things go wrong, as they did in Lac Mégantic.

It falls to an independent regulator, the Canadian Transportation Agency, to decide on a case-by-case basis whether a rail operator has adequate coverage when it applies for a certificate of fitness.

But even in cases where a company has insurance, it can take years of legal wrangling for any claims to be settled — which is the case with BP in the aftermath of its 2010 oil spill disaster in the Gulf of Mexico. And while the remediation cases are being resolved, there’s limited money to repair the immediate damage.

In the case of Lac Mégantic, sparring started almost at once between the railway and World Fuel Services, owner of the 50,000 barrels of oil that spilled, sparked and incinerated the town. And the immediate clean-up has, to date, left the tiny town on the hook for $8 million.

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