Railways and crude shippers weigh in on changes to liability rules

CALGARY - Railway operators and the petroleum industry have weighed in on how they think the risks of shipping dangerous goods by rail ought to be divvied up — and it's clear the two aren't on the same page.

Rail carriers aren't happy with the status quo, in which they're legally required to move whatever customers want shipped, but are entirely on the hook if something goes wrong. The energy players, on the other hand, are generally satisfied with how the current system works, although they say changes are needed to how small rail lines are insured.

Transport Canada and the Canadian Transportation Agency, an independent regulator, have been reviewing liability rules in light of last summer's fiery crash in Lac Megantic, Que., which killed 47 people and incinerated much of the town's centre.

In a joint submission, the Canadian Association of Petroleum Producers (CAPP) and Canadian Fuels Association (CFA) say the current framework is "fundamentally sound."

But they say the Lac Megantic tragedy demonstrated that some gaps need to be filled to ensure smaller railways — like Montreal Maine & Atlantic, the one involved in last summer's disaster — can cover their costs in the event of a catastrophe.

According to a Transport Canada discussion paper laying out the parameters of its review, small railways usually carry between $5 and $50 million in third-party liability coverage. Larger counterparts like Canadian Pacific and Canadian National normally have coverage of up to $1.5 billion.

The cleanup costs alone in Lac Megantic have been estimated at about $200 million. MM&A, which has gone bankrupt, had insurance coverage of just $25 million.

"The scope of the rail disaster in Lac-Megantic and the amount of liability insurance carried by Montreal, Maine and Atlantic Railway have highlighted weaknesses in the current liability and compensation regime," Transport Canada says.

CAPP and CFA want to see a "hybrid" model that draws from current marine and pipeline liability regimes, both of which Ottawa has beefed up over the past week.

For small players unable to afford the same insurance as their larger counterparts, the petroleum industry is proposing a pooled, or collective approach similar to the marine model.

For large carriers, CAPP and CFA like the status quo, in which railways are responsible for their own insurance, as pipeline operators are.

"The petroleum industry is of the view that the rail liability and compensation regime should be guided by key principles that are already in place such as 'polluter pays' and railway accountability," CAPP and CFA say in their submission to Transport Canada.

But the Railway Association of Canada, writing to the CTA on behalf of local and regional railways, said the rules must change.

As it stands now, railways don't have the right turn down cargoes their customers want moved — that goes for the substance being shipped and the tank cars themselves, which railways don't typically own. The volatility of the crude and the design of the tank cars involved in Lac Megantic have been cited as key contributors to severity of the disaster.

"Preferably, railways should be given the right to decline carrying dangerous goods," the association said. "Alternatively, railways should not be the only party held responsible for the movement of dangerous goods in Canada. This responsibility should be shared by producers and carriers."

Last month, Ottawa moved to phase out tens of thousands of older tank cars used to transport oil and ethanol by rail within three years, as part of a series of measures in response to the Lac Megantic disaster.

In its submission to the CTA, Canadian Pacific Railway Ltd. (TSX:CP) said it wants Ottawa to require shippers to have "appropriate insurance coverage."

"Catastrophic incidents can arise without fault or negligence on the part of the railway and there is no accountability in the existing Railway Third Party Liability Insurance Regulations for those who create, own, and put high risk products into the supply chain," CP wrote.

Canadian National Railway Ltd. (TSX:CNR) also flags the "common carrier obligation" in its submission, saying it restricts the company's ability to manage risk.

"The transfer to the railways of all liabilities associated with the movement of dangerous goods, together with the carrier's inability to refuse to carry, provide no incentive for shippers to consider source or product alternatives," the company wrote.

Comments for the Transport Canada review closed in March and the department is now going over the feedback, said department spokesman Daniel Savoie.

He said Transport Canada's review "builds on" the one being done by the CTA, whose job it is to ensure federally regulated railways have proper insurance coverage when granting them licences.

Ottawa has signalled changes would be coming, saying in last fall's throne speech that "our government will require shippers and railways to carry additional insurance so they are held accountable."

Greenpeace campaigner Keith Stewart said oil companies should shoulder some of the risk.

"One of the best ways to make sure companies do everything they can to prevent spills is to legislate that they are on the hook for the cost of any damage they cause," he said.

"If the oil companies were looking at hundreds of millions in costs from another Lac Megantic-type disaster, I don't think they wouldn't be loading what they know is an explosive liquid into rail cars they know are unsafe."

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