A worker checks the engine of a Montreal Maine & Atlantic locomotive - 11 Jul 2013 Graham Hughes.
22 August 2013
Canadian Transportation Agency Orders CP Rail to Keep Doing Business with MM&A
Ottawa Ontario - Canadian Pacific Railway Ltd. said Thursday it has been ordered by federal regulators to continue to do business with Montreal Maine & Atlantic Railway (MMA), despite concerns its embattled former partner is no longer fit to operate in the country.
The move comes after the Canadian Transportation Agency served notice earlier this month that it intends to suspend MMA's licence over concerns it lacks sufficient insurance coverage.
"While we disagree with this order, we have taken immediate steps to comply," said Hunter Harrison, CP chief executive, responding to the order. "The CTA, as federal regulator, has satisfied itself that MMA is fit to operate and has adequate insurance to do so. We will review our legal options."
The CTA is just the latest government agency to try to force the hand of CP in the aftermath of the Lake Megantic disaster, in which 47 people are believed to have perished after a runaway MMA crude train derailed in the heart of the Quebec town in the early morning of 6 Jul 2013.
The Quebec government has also ordered CP to help with the cleanup costs associated with the disaster because CP had subcontracted MMA to help move the crude contained in the derailment from North Dakota to New Brunswick.
The latest issue revolves around a portion of CP's tracks that MMA uses to transfer goods onto the lines of Canadian National Railway Co. at the Saint Jean sur Richelieu interchange point.
Federally regulated railways, like CP, are required to accommodate the transfer of rail traffic between themselves and others, said Jacqueline Bannister, a CTA spokeswoman, in an email.
"While commercial agreements are usually negotiated between the railways, the law stipulates that the agency shall investigate a complaint that a railway company is not fulfilling its service obligations and may order the company to fulfill its obligations," she said.
That is what the CTA said its decision Thursday was based upon after MMA filed a complaint this week with the agency saying CP was no longer allowing it to move its goods across its tracks. Without access to those lines, MMA argued it is unable to reach "most, if not all customers" it currently services using CN's lines.
But CP raised concerns about MMA's ability to safely handle hazardous substances in a letter to the CTA this week obtained by the Financial Post. Those concerns included whether MMA had adequate insurance to operate.
The CTA issued an order on 13 Aug 2013 to suspend MMA's licence to operate after the railway failed to provide documentation to prove it had adequate third-party liability insurance and the funds to cover the self-insured portion of its coverage that is required to operate in the country. It also issued an embargo on other railways doing business with MMA at that point, including CP and CN.
The CTA originally ordered MMA to halt its operations as of 20 Aug 2013 for failing to do so, but extended that order last Friday to 1 Oct 2013 at MMA's request. The agency said the extension was granted because MMA had shown that it had sufficient third-party coverage through to 1 Oct 2013.
But the CTA order was conditional on MMA, which has filed for creditor protection in the U.S. and Canada, proving by 5 p.m. Friday it had sufficient funds to cover the $250,000 self-insured portion of coverage as well.
The railway has submitted a motion to the Quebec Superior Court, which is expected to be heard Friday morning. If granted, that would allow it to secure those funds and continue to operate until 1 Oct 2013.
The CTA also lifted the embargo for doing business with MMA Friday, with which which CN complied. CP only followed suit Thursday after the CTA order.
CP said in a letter to the CTA this week arguing against the MMA complaint that it was concerned about the safety and welfare of the public and its employees given the uncertainty of MMA's insurance coverage.
It disputed MMA's claims that failing to allow it to cross its lines would do irreparable harm to its business, arguing that in the aftermath of Lake Megantic, the sole reason MMA continues to exist is "for the purpose of finding a potential buyer." Any revenue generated in the interim will simply be used to benefit its secured creditors, it added.
CP also said it had agreed to partially lift its embargo on doing business with MMA, allowing the railway to move its goods across its lines on case-by-case permit basis and excluding the movement of hazardous materials.
The CTA, however, deemed that level of service insufficient.
"The agency finds that, on balance, MMA will suffer irreparable harm as a result of CP's embargo," the CTA said in its decision.
"The agency also finds that the balance of inconvenience clearly favours MMA as the refusal to grant the interim order would result in the virtual cessation of MMA's operations," it added.
MMA must still provide proof to the CTA that it has sufficient funds for the self-insured portion of its insurance by end of business Friday, or face the suspension of its licence, the CTA said.