Canadian Grain Legislation a Failure in Public Policy, Says CN's Paul M. Tellier.

Business Editors

OTTAWA--(BUSINESS WIRE)--June 6, 2000

(TSE:CNR.) (NYSE:CNI)

Confiscating Railway Revenues to Subsidize Farm Incomes Will

Further Weaken the Grain Transportation System

The Canadian government's grain reform package announced on May 10 is an abject failure in public policy, said Canadian National President and Chief Executive Officer Paul M. Tellier in Ottawa today. In a presentation to the House of Commons Standing Committee on Transportation, Mr. Tellier said the government's proposed grain transportation legislation will do nothing to modernize the country's grain handling and distribution system. Instead, it will weaken the system further.

"The federal government failed in its purpose to create a more commercially-oriented grain system," Mr. Tellier told the committee. "The reforms were hijacked by those who saw the legislation as a politically-expedient means of solving the western Canadian grain farm income crisis."

CN has proposed a number of amendments to the draft legislation in an attempt to mitigate some of its worst effects. CN hopes to clear up confusion over the Canadian Wheat Board's role and responsibilities by more clearly defining shipper and carrier relationships, as the bill's current wording makes those relationships even more unclear than before. Other amendments suggested by CN relate to earlier compromises on dispute resolution and branchline abandonment that are not contained in the present package.

The federal legislation largely ignores two years of intensive work by representatives of every sector of the grain industry, Tellier said. In the summer of 1998, the industry agreed to work together to reform a grain handling and transportation system that wasn't responding to the challenges of the intensely competitive world grain market. The federal government then appointed one of Canada's outstanding jurists, Mr. Justice Willard Estey, to conduct a full review of the industry.

His review produced 15 recommendations that proposed a more commercially-driven grain transportation system. The federal government agreed with his approach. The Minister of Transport said the report "showed a consensus among stakeholders that the status quo is not acceptable and a more commercial system is required."

In May, 1999, the Minister appointed one of Canada's most distinguished public servants, former deputy minister of transport Arthur Kroeger, to advise on means of implementing Justice Estey's recommendations. Mr. Kroeger spent the summer of 1999 in an exhaustive consultation process with the industry, and submitted his report in October, 1999.

The federal government pondered these recommendations for the better part of seven months. When it finally acted, it produced a piece of legislation that ignores most of the work done by Estey, Kroeger and the grain industry.

"Instead of the 12 per cent revenue reduction proposed by Kroeger, we get 18 per cent," said Tellier. "Instead of a gradual phasing-out of the Canadian Wheat Board's controls over grain transportation, we get only partial, timid modifications. Instead of agreed-upon compromises on dispute resolution and branchline abandonment, we get an entirely new and much harsher set of rules."

"An observer could be excused for thinking that Mr. Kroeger and Mr. Justice Estey had wasted their time," Tellier said.

Tellier also told the members of the Committee that CN understood the financial challenges being experienced by western Canada's grain farmers, but that confiscating railway revenues to supplement farm income is a transfer by the government of public responsibility to the private sector.

"That's a shameful practice," said Tellier, "especially when you consider that rail freight rates represent the only farm input costs to have decreased over the last 15 years. They've fallen by 5 per in that time, while other input costs have increased dramatically."

Tellier said grain rates over that time could have decreased even more under a deregulated system. Non-grain bulk freight rates decreased by 35 per cent in that period. If grain rates had been deregulated, similar decreases would likely have occurred.

Tellier warned the committee the 18 per cent reduction in grain freight rail revenues will have consequences. "As a private sector corporation, we make annual commitments to our shareholders," he said. "Those commitments will be met."

Meeting those commitments will entail difficult decisions regarding CN's activities and expenditures in the grain sector and elsewhere across the country. This will affect shippers, suppliers and employees as CN reduces its costs in response to lower revenues.

"We hope we can persuade the federal government to undo some of the worst features of this bill," said Tellier. "In its present form, it fails to address the very weaknesses it was originally meant to solve. In fact, those weaknesses are likely to be made worse. That is the real tragedy."

Canadian National Railway Company spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key cities of Toronto, Buffalo, Chicago, Detroit, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America.