Proposed Canadian Law Opening CN Rail to Bill Gates Faces Delay

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(Bloomberg) -- A proposed law that would increase ownership limits in Canadian railways and airlines has run into a delay as politicians wrangle over what new powers companies should have.

Canada’s Senate has changed Bill C-49, a law originally proposed by Transport Minister Marc Garneau as a sweeping overhaul of the country’s transportation industry. The chairman of the Senate committee behind the changes said Garneau’s original version too heavily favored Canadian National Railway Co. and Canadian Pacific Railway Ltd. and airlines including Air Canada. The altered bill strengthens powers for farmers, shippers and airline passengers.

“There was nobody who was extolling the virtues of this bill except basically CN, CP and the government of Canada,” said David Tkachuk, a senator from Saskatchewan, a Prairie province where farmers have fought railways over a backlog of grain. As for airline changes, “people were very concerned that this was not about consumers, this was about airlines.”

The wrangling will probably delay the law’s enactment. Canada’s elected House of Commons and appointed Senate each need to approve the same version of a law. The House of Commons, including Garneau, passed the original version. It will now review the changes to C-49, and could agree or send it back to the Senate -- either in its original form or with some of the amendments -- and leave the Senate to respond.

Cascade Stake

Many parts of the original bill introduced 11 months ago are unchanged, including a proposal to raise the ownership limit for CN to 25 percent from 15 percent. The railway’s biggest shareholder is Cascade Investment LLC, Bill Gates’s investment company, which owns 13.6 percent, double anyone else’s stake. The bill would also raise airline foreign ownership limits to 49 percent from 25 percent and establish new airline-passenger rights.

Marc Roy, Garneau’s director of communications, says it’s unclear how long a review of the changes will take. “We are currently analyzing the amendments and haven’t expressed what position the Minister will take yet,” he said by email. “We are hoping that the House can debate them quickly once Parliament returns.”

Air Canada, in a submission to lawmakers, said it was “generally supportive” of the bill but requested certain changes. It warned new categories of foreign ownership could be too complex, potentially making the airlines less attractive to investors. It declined to comment on the Senate changes.

Airlines, Railways

WestJet Airlines Ltd. doesn’t support the Senate changes. Canada’s second-biggest carrier “is supportive of the joint venture provisions put forth by the Government when the bill was introduced last year,” Lauren Stewart, a spokeswoman for the Calgary-based company, said Thursday by email.

The original proposal changes rules for so-called inter-switching, used by shippers served by only one railway, a common situation in a country as vast as Canada. The original bill allows for certain shippers to force a monopoly railway to carry a product up to 1,200 kilometers (745 miles), up from the current 30 kilometers, to deliver it to another railway.

Both CN and CP have warned that will advantage U.S. railways who could essentially cherry-pick shipping routes. CN Vice President Janet Drysdale told the Senate in February the bill increases the regulatory burden for railways and shippers and could have “significant, unintended consequences.”

The senate amendments empower shippers to demand fair treatment from railways and should be passed, said Francois Tougas, partner and co-chair of transportation with law firm McMillan LLP who testified to the Senate. “Captive shippers need viable remedies. That’s why the Senate amendments are so important,” Tougas said in an interview. “In the absence of these amendments, we’re a long way from heading toward a balance, particularly because of the big wins in the legislation for rail carriers.”

‘Not Perfect’

CP called for the original bill to be passed -- not the Senate version. “We call on Parliament to pass the original version of the bill, without amendment, in order to materially improve railway safety and unlock potential investments in new grain hopper cars to increase capacity,” spokesman Jeremy Berry said.

CN echoed that sentiment, with spokesman Patrick Waldron calling the original version “a balanced compromise between customer and railway interests.”

Read more about how Canada’s rail crunch is leaving oil and wheat stranded

Tkachuk agreed the Senate changes generally beef up the powers of rail shippers, rather than railways, and airline passengers rather than airlines. “Our amendments were very helpful and needed by the resource sector and the commodities sector,” Tkachuk said. “These are all to help the shippers.”

Canada’s senators are appointed by the government of the day and serve until age 75. Prime Minister Justin Trudeau has moved to overhaul the chamber by appointing independent senators, a move that’s made the institution more unpredictable and less of a rubber stamp.

Tkachuk, a Conservative, said he didn’t know what would happen if the Liberal-dominated House of Commons rejected the Senate changes. “We’re going to fight it,” but it’s unclear if all senators will, he said. Canada’s Senate has historically backed down when the House insists on an original version.

©2018 Bloomberg L.P.

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