Alberta farmers say government crude-by-rail plan puts grain at risk

Alberta grain farmers are worried the government's plan to move more oil by rail will burden the railway system, despite the premier's assurances.

Premier Rachel Notley announced Tuesday the government has signed contracts to lease 4,400 rail cars to deliver oil sands crude to market. The $3.7-billion plan includes contracts with Canadian National and Canadian Pacific railways to move up to 120,000 barrels per day by 2020.

Grain farmers have lost billions of dollars from two major backlogs in the past five years, said Tom Steve, general manager of the Alberta wheat and barley commissions.

"We have some strong reservations about putting additional oil cars onto the system and potentially putting grain at risk," Steve told CBC News in an interview Wednesday.

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Railways already face routine struggles to keep up with demand from grain producers. Steve said only 60 per cent of orders for rail cars have been delivered to the country's grain elevators in the past two weeks.

When grain producers can't deliver to the elevators, they don't get paid.

"It's a huge risk and it also affects our international reputation with our customers," Steve said. "The risk is we lose sales and we lose reputation, and ultimately all those costs are borne by the farmers."

CN and CP gave assurances: Notley

Premier Rachel Notley said CN and CP have assured the government that the crude-by-rail plan would not hurt other industry, including agriculture. 

"We made it very clear that we were not going to do anything that would compromise or jeopardize the shipping capacity of our agricultural producers or other producers," Notley told CBC's Edmonton AM on Wednesday morning.

"They're fundamentally important parts of our economy in the past, now and well into the future."

Crude oil exports by rail reached a record high of nearly 354,000 barrels per day in December.

The federal government passed Bill C-49 last May to level the playing field between farmers and railways. Under the legislation, producers can impose fines on railways when they don't fulfil their contracts. In other cases, farmers can switch carriers. 

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"It was a major step forward in terms of making the railways more accountable for their performance. But at this stage, major elements of Bill C-49 are still being put in place," Steve said.

Skepticism in farming communities

Within weeks of the bill's passage last May, CN and CP also announced new investments towards its grain transportation capacity.

CN said it would buy 1,000 grain cars as part of a $3.4 billion capital spending program in 2018. The plan earmarked $320 million worth of investments in new tracks in Alberta. CP followed with its own plan to order 5,900 grain cars over the next four years.

"But in a lot of cases they're simply playing catch-up to investments that should have been made in the past to maintain the current levels of service," Steve said.

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Ward Toma, general manager of the Alberta Canola Producers Commission, said skepticism toward the two national railways still runs high in agricultural communities.

"Frankly, the railways have provided assurances to the government of Alberta and that's nice," he said. "But they've provided assurances to lots of people over time and those things don't always happen."

UCP would cancel contracts, Kenney says

A United Conservative Party government would "do everything we can" to cancel the crude-by-rail contracts, UCP Leader Jason Kenney said Wednesday. The pledge came one day after Kenney vowed to review the contracts if his party wins the upcoming Alberta election.

Kenney called Notley's plan "reckless" and a "catastrophic mistake," insisting the private sector would increase crude-by-rail capacity when the market conditions were right. He said he would contact CN and CP on Wednesday to notify them of his intention to cancel the contracts if elected premier.

"We would suggest not spending a lot of money on implementing this contract," Kenney said.

But the contracts would not be easy to cancel, said railway consultant Dick Kloster. 

Cancelling $3.7 billion worth of contracts could cost upwards of $1 billion, said Kloster, senior vice-president for U.S.-based consulting firm AllTranstek.

"Well guess what — there are these things called courts and lawyers and it's going to be a negotiation," Kloster said.

"Those things are called contracts and you are held to them."

When the government announced plans to buy rail cars to move oil back in November, Kenney said the purchase might prove useful in the "midterm."

Notley used Twitter on Wednesday to accuse Kenney of trying to "score political points over standing up for Albertans."

Provincial officials say the crude-by-rail plan will net the province $2.2 billion over three years. The government is also projecting a $4 US per barrel narrowing of the price between Western Canadian Select crude and the baseline West Texas Intermediate from early 2020 to 2022.