Canadian National Railway will pay the British Columbia government $1 billion in cash to acquire publicly-owned BC Rail Ltd., the company said.

B.C. Premier Gordon Campbell confirmed the sale on Tuesday, going against a 2001 election campaign promise not to sell the railway.

CN will pick up the shares of Canada's third-largest rail company along with the right to operate on BC Rail's roadbed under a renewable 60-year lease. The roadbeds will remain in public hands, while CN will take over rail transportation and maintenance.

"Purchasing the BC Rail franchise is a strategically important initiative for CN, one that will strengthen our forest products business and that has significant scope for shareholder value creation," CN president and CEO Hunter Harrison said.

"We firmly believe our plan for BC Rail will best serve the province's forest products industry, northern communities and vital tourism trade. The rail combination will offer BC Rail shippers unparalleled routes to major NAFTA and international markets," he said.

About 430 jobs will be cut from BC Rail's current workforce of 1,380 staff, CN said. About 250 BC Rail employees will be eligible for early retirement, while the remaining 180 job cuts will be through attrition and layoffs.

Another 60 workers will be relocated in CN's western Canadian rail system.

CN said it expects the deal will boost its earnings and cash flow in the first year after the sale.

BC Rail links north and central parts of the province with the Lower Mainland. The company has 2,315 kilometers of mainline and 740 kilometers of industrial, yard and track sidings.

About 80 per cent of BC Rail's revenue comes from the transport of forest, energy and agricultural products.

CN's shares were down 28 cents to $76.95 on the TSX on Tuesday.