The Dubious Privatization of BC Rail: The History of BC Rail’s Privatization

November 27, 2002

The Dubious Privatization of BC Rail: The History of BC Rail’s Privatization

We’ve spent the last two weeks examining the political perspectives surrounding BC Rail from opposing political factions, the Liberals and the NDP’s. Today, we continue our discussion by delving deeper into the history of BC Rail itself.

Let us examine how BC Rail has been, and continues to be, privatized over the past decade right under the noses of British Columbia’s public. First, as mentioned in the last issues article, the railway was split into numerous divisions residing under the common umbrella BCR Group of Companies. Once arranged thus, the sales and divestitures could begin without actually “privatizing” BC Rail per se. In other words, politicians can claim that “the government hasn’t actually sold BC Rail””?merely everything that made it worth anything. The first to go was BC Rail’s restructured communications system, Westel Telecommunications Ltd. “Its estimated revenues [in 1997] were close to $50 million. BC Tel, which ha[d] long viewed Westel as a small but irritating thorn in its side, applauded the [government’s decision to sell Westel] and said it [would] consider bidding for the assets” (Boei, 1998). As is the case with the vast majority of privatizations, Westel was not sold to a local, regional, or national interest; it went for $55 million to New York-based RSL Communications. Was the money garnered from the sale returned to BC Rail from whence the communications division originated. Of course not, “Money from the sale [was] used to pay for capital projects within the provincially owned BCR Group and to return a dividend to the government” (Wilson, 1998). Not only were the assets and money from their sale removed from BC Rail, but its formerly in-house supplied communications needs would thereafter have to be purchased from a private communications supplier”?a foreign one at that.

The next portion to go was BC Rail’s truck and intermodal service. Although it was known that “the trucks [were] necessary to help BC Rail remain “?competitive'” (Landry et al, 2000), the company divested itself of its truck and intermodal services in a move that was “more of a political decision than a business decision” (Hogben, 2001). Some might say that closing down a business is not the same as moving it from the public to the private sector”?privatizing it. But the fact is that the shippers who were utilizing BC Rail’s trucking and intermodal service had been doing so because it had provided the service at the most competitive pricing. Those shippers still needed to move their products after BC Rail was forced politically to close down those portions of its operations. And who do you think ended up with all of that business? Why, the private-sector member-companies of the BC Trucking Association, of course. Did the move increase private-sector competition, as privatization proponents claim should have occurred? One need only inquire of BC Rail’s former intermodal customers for the answer to that question. In any case, from BC Rail’s perspective, it had now had its communications arm severed and its trucking business, which was purportedly necessary to help it remain competitive, removed. It wouldn’t take a business genius to predict an impending decline, not for the BCR Group, but certainly for BC Rail. The government told the railway to “sink or swim” without government subsidy, while simultaneously abrogating its means of staying afloat.

Next to go was the Royal Hudson, world-famous tourist attraction and the biggest draw to BC Rail’s other passenger services. “The 60-year-old patient needs a new boiler and fire box at a cost estimated at $1 million” (Spencer, 2000). And yet, “The B.C. government, which owns the 1940-vintage Royal Hudson, revered by train buffs around the world, but out of service since 1997, has said it will not offer the money”?estimated at $8 million to $10 million”?to fund the restoration” (Daniels, October, 2001). And so there sits BC Rail’s greatest tourist attraction, in moth balls, cover by a sheet. The divestitures, unbeknownst to the general public, had only just begun. The employee unions were being provided with numerous notices of material change by the company. Months before the general public was aware of BC Rail’s plans to cease operation of its North Vancouver-Prince George passenger service”?the Cariboo Prospector”?the company had already made the decision. In a letter dated April 15, 2002, the unions representing conductors and locomotive engineers were instructed to “be advised that the Company will cease operation of the Cariboo Prospector on or about October 31, 2002″ (D. A. Lypka, personal communication, April 15, 2002). This cessation of service is planned in the face of the fact that the government’s own Transport Minister Judith Reid has stated that: “We [the Liberals] have made our promise that we are not going to privatize or sell BC Rail: The passenger service is really important to the lives of people in northern communities” (emphasis added) (Daniels, July, 2001). In June, the unions were informed that “the company proposes to transfer the Fort Nelson Subdivision to a third party (shortline company):It is expected that a commercial agreement with a shortline company will be completed by September, 2002″ (D. A. Lypka, personal communication, June 17, 2002). Carefully missing from any of the communications was the word “privatization”, a fact not at all surprising since the government’s own web site still caries the promise that “a BC Liberal Government will: not sell or privatize BC Rail” (Campbell & BC Liberals, n.d.). The most recent notice to the unions came in September 2002, it stated that “The company has now decided that it will not reinstitute the operation of its Northwinds and Starlight Dinner Trains following the completion of their normal seasonal operation this year” (D. A. Lypka, personal communication, September 12, 2002).

Meanwhile, the BCR Group of Companies, which had arisen out of, and divided up the profits and assets of, BC Rail, had been dissolved and BCR Marine put up for sale. Would it be sold to another government? Of course not, it would be sold to the private sector”?privatized. However, nowhere in the mass media would the word be used to describe the sale of assets formerly held by BC Rail. The dissolution of the group was touted to the employees as a purportedly positive business move:

Today’s announcement that the Board has decided to sell BCR Marine is the first step in implementing a new direction for the two major companies in this Group; a direction that will allow them to pursue their goals and objectives free from the restrictions imposed on them by the BCR Group structure. This decision is consistent with my earlier messages to you about the need to consider BCR Marine and BC Rail, as two separate, disparate businesses requiring unique solutions to the business challenges facing them (Phillips, B., personal communication, March 28, 2002).

Hindsight is always 20/20, so they say. It appears clear that a profitable crown corporation, regarded as a Crown jewel by politicians, has been systematically dismantled over the last decade; its profitable divisions having been sold off to the private sector, or profitable business opportunities abandoned to the private sector. Today, with the empty shell of BC Rail wallowing in a $600 million debt, it is an easy thing for politicians, who promised the British Columbian public that they would not sell the “people’s railway”, to make glib statements such as that recently made by Walt Cobb, Liberal MLA for Cariboo South:

Tell me how I can be best representing my constituans (sic) by spending everyones (sic) hard earned money on a Rail line that has such a poor record of managing, promoting or operating a financially viable service. I believe we need the infastructure (sic) to get our goods to market but we need to find a way to at least break even in that operation. Trucking companies seem to be doing fine so the rail service better clean up its act if it wishes to stay competetive (sic) (W. Cobb, personal communication, August 29, 2002).

To those who truly believe in the doctrine of privatization, nothing will get in the way of their plans”?not even a public which does not ascribe to it. The BC public has clearly and consistently rebuffed the notion of a privatized BC Rail, and yet, that state has practically come to pass. Only a few strings are left to tie up. In 1987, Briton Madsen Pirie Ph.D. traveled to Canada to deliver a speech on behalf of the right-wing think-tank The Fraser Institute on the Principles of Privatization. Not surprisingly, his speech did not touch on a single issue of concern expressed by opponents of privatization, of which there are many. Presumably, everyone in the audience already believed that privatization is a good thing and that no debate was necessary. The speech was not a rebuttal of the many challenges against privatization, but rather a “how to privatize” guide for those already motivated to promote governmental divestiture of public assets”?the private sector business community. Pirie proposed numerous rules that politicians undertaking privatization should follow: “the public does not take kindly to governments which cancel their human rights. So, never cancel a benefit especially if you can buy it instead; determine who could become your enemies and make them your friends, whether it’s the management, the workforce, customers or the general public; identify all possible objections to privatization:disarm the opposition. Find out every single objection and deal with it in advance; spread share ownership very widely, it’s going to be very difficult for subsequent [governments] to come along and reverse the process; don’t do the difficult and unpopular [privatizations] first. Do the easy ones first and use the success and popularity of those to gain support for the other ones; privatization is easy:because it’s about politics as well as economics” (Pirie, 1988, pp. 109-113 & 115-116). Entirely devoid of social commentary on the subject of state divestiture of public holdings, Pirie’s speech was narrowly geared toward methods of manipulating public opinion into the support of privatization. It would be interesting to know how many members of the present BC Liberal government sat in the audience that day.

After Pirie’s speech had concluded, a question and answer session ensued. The following question was raised:

When privatization occurs, has management changed; i.e., have civil servants remained or has new management come in?

And Pirie’s response:

The basic answer is, no. When we privatize, management stays right through, normally. That said, we often change the management in order to prepare for privatization. It’s very important that you put someone at the top who believes in it. If you have management that has long been tied to the traditions of state ownership and control and locked into bureaucratic ways, then it’s a good idea to change to someone who’s given the brief, “go in and privatize, you’ve got four years”. It concentrates the mind wonderfully, and you’d be quite amazed at the amount of restructuring and reorganization that can be packed into a couple of years. So, you might want to change management if the thing needs to be prepared for privatization (Pirie, 1987, pp. 123-124).

The fact that BC Rail’s entire upper management was changed out several years ago could be mere coincidence. However; the evidence seems to indicate otherwise. Whether one believes in private capital accumulation, shared public ownership, or a combination of the two, there is no denying that 1) the BC government promised the electorate that it would not sell or privatize BC Rail; and, 2) BC Rail has and is undergoing privatization in spite of that fact. Evidence would indicate that the plans for its privatization were laid before the Liberals even came to power. Anyone who is surprised, in this day and age, that politicians would lie in order to achieve power, is naive at best. But even the most ardent opponent of privatization must give those who orchestrated BC Rail’s obscure privatization credit for the plan’s sophistication and the insidious manner in which the public has been fooled for over a decade.


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Wayne E. Benedict is a Locomotive Engineer at BC Rail and President of the Canadian Union of Transportation Employees Local 1. He is working toward his Bachelor of Administration in Industrial Relations and Human Resources at Athabasca University.