Manitoba

'Never a dull moment': Lawsuit, NAFTA claim, Fairfax partnership spur optimism, tension in Churchill

Heavyweight investment company's entry into rail line negotiations raises both hopes and questions

HBR Rail Churchill

For communities along the Churchill rail line, a week that saw a federal government lawsuit, a NAFTA challenge and the entrance of a Toronto investment firm into negotiations has left some hope the tracks may finally get fixed. (CBC)

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The future of the rail line to Churchill remains uncertain after a week that involved a lawsuit, an international trade challenge and the entry of a new, powerful player into the picture.

The week's developments have raised cautious optimism in northern Manitoba, but also questions about the future of Arctic shipping and of communities along the northern rail line.

"It's never a dull moment here," said Churchill Mayor Mike Spence.

"It's been difficult, it's been tough [but] there's some hope there, that's for sure."

That hope comes this week from the Thursday announcement that the Toronto-based investment company Fairfax Financial Holdings is joining two groups representing northern communities and First Nations — Missinippi Rail LP and One North — which have been trying to purchase the Hudson Bay Railway and Port of Churchill from Omnitrax, the Denver-based company that owns the northern Manitoba assets.

At the same time, legal wrangling over responsibility for repairing the damaged northern rail line intensified, as Omnitrax indicated it intends to launch a challenge under the North American Free Trade Agreement, and Ottawa countered with a multi-million dollar lawsuit against the company.

All of this follows spring flooding that washed out sections of the railway earlier this year, leaving Churchill without any ground transportation access. Food prices dramatically rose in the town of about 750 on the shore of Hudson Bay, 1,000 kilometres north of Winnipeg, and business in the tourism sector dropped.

Hopes for the railway's repair before winter disappeared as the legal arguments over the line have dragged on.

'A shot across the federal government's bow'

On Tuesday, Omnitrax filed a notice of intent to submit a claim under Chapter 11 of the North American Free Trade Agreement, which allows a business to sue a government without first going through the country's court systems. 

Omnitrax said it wanted a "reasonable arrangement to repair and transfer the [Hudson Bay Rail] Port of Churchill" and the rail line, and if that isn't forthcoming, it will seek damages of $150 million and legal costs, according to the notice of intent.

Port of Churchill

Fairfax Financial Holdings' decision to partner with two local groups on an attempt a purchase the now-closed Port of Churchill shows that the port can be a key player in the future of Arctic shipping, says Churchill Mayor Mike Spence. (CBC)

The move is the company "firing a shot across the federal government's bow," said Scott Sinclair, director of the Trade and Investment Research Project for the Canadian Centre for Policy Alternatives.

"[Omnitrax is] trying to increase its bargaining position and maybe even get out of its responsibilities to maintain the line in good working order or, failing that, to be compensated for any damages that might be awarded against it in the domestic courts," Sinclair said.

If the company goes through with the challenge, it could be years before there is a resolution.

While Sinclair said Omnitrax doesn't have a strong case, Canada doesn't have a great track record with NAFTA challenges — paying out more than $200 million in fines since the trade agreement was signed.

In response to the Omnitrax challenge, the federal government filed a lawsuit against the company for breach of contract. Ottawa is demanding $18 million, plus interest.

After the two major players fired legal shots at each other, another twist came Thursday when Fairfax threw its hat into the ring.

Fairfax enters the conversation

That brought some hope to leaders in the communities that rely on the rail, with Spence saying "Fairfax brings long-term experience and capital that is required."

The move also shows that the Port of Churchill, which was closed by Omnitrax in 2016, can be a key player in the future of Arctic shipping, he added. 

"I am somewhat relieved. I knew that at some point something would happen," said Jim Scott, mayor of The Pas, a major hub for the railway about 700 kilometres southwest of Churchill.

"I was concerned in the last couple days that this was going to get lost in the courts, but I'm glad to see something come forward."

The port of Churchill has been closed all summer due to flooding earlier in the season.

This section of the Hudson Bay Railway is just one of 24 areas between Gillam and Churchill, Man., that have been impassable since flooding in the spring. (Omnitrax)

Fairfax's entry is an essential development for the local consortiums Missinippi Rail and One North, said Adolf Ng, director of the University of Manitoba Transport Institute.

It's very likely the local groups would have always had limited funding and may not have the extensive knowledge of the markets — transportation and Arctic shipping — that would make the rail self-sustaining in the long term, he said.

Climate change is opening up the Arctic Ocean to shipping, and powerful players like Russia and China are forging toward a so-called "Ice Silk Road" and other Arctic routes.

Container ships aren't common yet in Canada's Northwest Passage but the Chinese icebreaker Xue Long, or Snow Dragon, recently steered through the Canadian Arctic archipelago — it was allowed as a scientific expedition — and the United States is moving toward Arctic drilling.

Fairfax's involvement is a reflection that, if Omnitrax's assets are sold, it can serve both the transportation and regional systems, Ng said. That means serving the emerging Arctic import and export markets, as well as making sure people get necessities like food and fuel at a reasonable cost. 

That will be a major change.

When Omnitrax purchased the railway and the port in 1997, it was clear the company wanted to make money through transporting and shipping grain. With the sale of the Canadian Wheat Board and decline in use of the railway and the port from that market, Ng said, Omnitrax lost an incentive to maintain or invest in the line.

"I would say regional concerns was never their top priority and I think that's normal for a private transport operator," he said. 

Ng said he suspects the NAFTA challenge is a stalling tactic, so that Omnitrax can stay at the bargaining table longer and get a better offer for its assets, and avoid any repair costs — especially now that Fairfax is involved. 

'Not out of the woods'

But an Omnitrax spokesperson told CBC News in an emailed statement that it's heard nothing official on the partnership involving the business heavyweight. 

"To date, Omnitrax has not been contacted by Fairfax Financial Holdings regarding a transaction involving the Hudson Bay Railway and the Port of Churchill," the email said.

"That said, we continue to welcome a sale that would provide fair value for the assets and a solution for the people of Churchill."

Mike Spence

Churchill mayor Mike Spence says he is cautiously optimistic moving forward. (CBC News )

While the federal government and Omnitrax continue to face off through lawyers, the communities along the rail line — especially Churchill — remain cautiously optimistic.

Scott said people in The Pas are seeing a light at the end of the tunnel.

"Of course everybody wants to see a positive ending on this. A lot of people depend on the railroad for their incomes, to pay their mortgage and their car payments and to just generally live. Having this happen, it just puts a smile on your face," he said. 

But further north, after a week of highs and lows, Spence said it's important not to hitch all hopes to the latest announcement. 

"We have a bit of work to do," he said.

"We are doing pretty good but we are not out of the woods yet."

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