VIA Rail network developments

[Mikeed]

Originally Posted by acottawa

I think the project is a good idea, but Via is putting out a lot of contradictory information and few details, which leaves me lacking confidence in its implementation.

It is currently in the evaluation by bureaucrats stage, which the budget says is is a 3 year process. Then there probably needs to be a feasibility study, which took three years in SW Ontario, then an environmental assessment, which takes a few years, then an RFQ, then an RFP, then it goes into the queue of projects that need funding, then the design and engineering, then a few years of construction.

I have a hard time believing it can be fast, frequent, cheap and attract private sector funding (certainly other rail projects do not meet all of these criteria). That sounds like a project where communications experts have had a leading role, rather than transportation experts.

Considering that Marc Garneau is really one of the few stars in the Trudeau cabinet - he's a seasoned pro compared to some of the rookied mistakes the others are making. And his Transport 2030 plan - or whatever it's called - is reportedly really solid work. Transport Canada isn't a — (well to us it might be) file, but Marc Garneau is a real hardworking policy nerd. He was sidelined in the Liberal leadership convention because as Justin Trudeau put it- "Canadian's don't want a 5 point plan" Ohhhkkkk

So this will likely make a splash in the next budget in the lead up to 2019 election. They need a win for the Infrastructure Bank and they need to control the narrative for political reasons.

That being said I don't think this can really move much faster given the challenges and the fact they already have the money to do the pre-reports for the "High-Frequency Rail" HFR and the rolling stock replacement.

But if you're trying to get private capital onboard you need the numbers to be 100% solid- and that takes time.

I'm also hoping the Liberals - and it's only Marc Garneau that really gives me faith this might happen unless it gets sunk at the cabinet table- will finally fix the corporate governance mess that is VIA Rail. Which would require a Act of Parliament to reform to be a true Crown Corporation. VIA Rail was created by a Order-in-Council to take over the passenger rail service of the Class 1 railroads and reportedly this makes it hard to like raise capital and makes it dependent on the government of the day.

So this may not happen, but preparing an Act of Parliament to reform the Corporate Governance of VIA Rail will take time- but this is also the kind of thing one would assume you'd do like the year before you do the HFR/Rolling-Stock Improvements, but one could also see how it would have to fall in line after the Infrastructure Bank is up and running because who knows- maybe you do a deal where the Federal Government retains 51% or 49 ownership - that's what I would do. (I would do 51% partial privatisation- having private pension funds at the boardroom table should make VIA rail take more long-term growth positions, which will make rail service better in Canada as 'the corridor" can support the other rural routes that will never fully be profitable services but are important non-the-less to the country)

But my bias is I also swoon over Marc Garneau, for some reason, I think Canadians would love a 5 point action plan over the various —-shows the Liberals are currently slopply pushing forward. Could have used a 5 point plan for electoral reform, or the F35/SuperHornet mess,

We could have had a former Naval Officer with a major in Engineering physics- and Oh wait, he's also an astronaut! and head of the CSA. But nope, "not shiny enough."

[Truenorth00]

@acottawa

Like I said. I'm optimistic. The bank launches this year. They've just passed some enabling legislation. The bank needs a win where they can showcase how effective private sector capital can be on public infrastructure. How many other large projects can you think of with such a solid business case?

People just don't realize how big the Canadian pension funds are and how much they invest in infrastructure. They are some of the biggest players in the world. This is a great article explaining their prominence:

http://business.financialpost.com/news/f...on-plans-the-new-masters-of-the-universe

And one of their biggest complaints has been that the projects in Canada are too small for them to pursue. The bank was created to give them a way to invest in big projects. And other than some massive utility projects, intercity rail fits the bill.

We'll know more later this year. But I am optimistic specifically because of the players involved. These aren't run of the mill investors. They have experience investing in and managing big infrastructure pieces like this. Yes, VIA was given a 3 year study period. But it's clear that was to buy time getting the bank going and putting a consortium in place. The fact that the business case was submitted to Transport Canada shows that there's been movement behind the scenes. In any case, we'll know by the end of the year where this is all going.

[acottawa]

Originally Posted by Truenorth00

@acottawa

Like I said. I'm optimistic. The bank launches this year. They've just passed some enabling legislation. The bank needs a win where they can showcase how effective private sector capital can be on public infrastructure. How many other large projects can you think of with such a solid business case?

People just don't realize how big the Canadian pension funds are and how much they invest in infrastructure. They are some of the biggest players in the world. This is a great article explaining their prominence:

http://business.financialpost.com/news/f...on-plans-the-new-masters-of-the-universe

And one of their biggest complaints has been that the projects in Canada are too small for them to pursue. The bank was created to give them a way to invest in big projects. And other than some massive utility projects, intercity rail fits the bill.

We'll know more later this year. But I am optimistic specifically because of the players involved. These aren't run of the mill investors. They have experience investing in and managing big infrastructure pieces like this. Yes, VIA was given a 3 year study period. But it's clear that was to buy time getting the bank going and putting a consortium in place. The fact that the business case was submitted to Transport Canada shows that there's been movement behind the scenes. In any case, we'll know by the end of the year where this is all going.

Pension funds need return on their investment. Railway lines rarely cover their operating costs anywhere and that is even less likely if it is supposed to be priced to be competitive with greyhound.

Via currently loses (i.e. taxpayers pay) $36 per passenger in the Toronto-Ottawa-Montreal corridor, so HFR as you describe it would have to make up that $36, plus make up the price cut to match greyhound (another $30 or so), plus provide a return on capital of 5-10% to the pension funds (say $500 million per year). Even if via more than doubles it's current 2.1 million passengers on the route (say to 5 million) a pension fund would need $100 per passenger to provide a return.

Either the government has to massively increase the subsidy, tickets have to be very expensive or the government has to pay all of the capital. There is nothing wrong with that, governments pay for all of the capital for most transportation projects, but then this wouldn't be an infrastructure bank thing.

[Truenorth00]

Originally Posted by acottawa

Pension funds need return on their investment. Railway lines rarely cover their operating costs anywhere and that is even less likely if it is supposed to be priced to be competitive with greyhound.

Via currently loses (i.e. taxpayers pay) $36 per passenger in the Toronto-Ottawa-Montreal corridor, so HFR as you describe it would have to make up that $36, plus make up the price cut to match greyhound (another $30 or so), plus provide a return on capital of 5-10% to the pension funds (say $500 million per year). Even if via more than doubles it's current 2.1 million passengers on the route (say to 5 million) a pension fund would need $100 per passenger to provide a return.

Either the government has to massively increase the subsidy, tickets have to be very expensive or the government has to pay all of the capital. There is nothing wrong with that, governments pay for all of the capital for most transportation projects, but then this wouldn't be an infrastructure bank thing.

We're going in circles here. Remember what I said about increasing asset utilization.

Any transport business has the same problem. How much can you use your asset (plane, bus, car, train) in a given day. And how does asset utilization scale with cost. Balancing those makes a transport company profitable.

Take airlines for example. Emirates is one of the most profitable airlines on the planet. People always says because of hidden subsidies, blah, blah, blah. Turns out they fly all widebodies (low unit costs) and have high utilization (2 hrs more per aircraft per day) than any other international carrier.

If you reduce a trip from 4 hrs to 2.5 hrs, you can achieve the same throughput with 38% fewer trains, in theory. Or you use that increased asset utilization to increase supply and lower the equilibrium price.

Sure, the funds want returns. But none of those returns are crazy as people imagine. They want stable long term returns that are above prime. And they prioritize stability more than higher returns. Hence the infrastructure investments.

I foresee a scenario where the government puts in what it was going to invest in the fleet recapitalization ($1.5B) and then maybe a tad more (say $1B) and the investors put in the rest ($4B). They'd get a nice steady 5-8% return (or some form of equity return) and VIA could still make enough to not require subsidies for the Corridor.

See this interview:
http://www.cbc.ca/news/business/dedicate...-performance-via-rail-ceo-says-1.2937951

D-S makes the point that government should not be subsidizing the Corridor. Not that VIA has to be net profitable. Just that government should not be putting in $200 million per year for what should be a profitable area of operation. That to me implies that VIA should make $400-$520 million in additional profits per year. $200 million more to offset the subsidy. And $200-$320 million per year in profits for investors (depending on how much above prime they want to be). The success of Acela Express in the US is instructive here:

http://cs.trains.com/trn/b/fred-frailey/...ortheast-corridor-really-profitable.aspx

And the Americans don't have cities as far apart as ours, our weather, our gas prices, or our road infrastructure (much larger interstates between major cities there). And Acela only beats driving by a maximum of an hour. Acela was able to capture 75% of the combined air-rail market between New York and Washington DC. Imagine what the profits would be if VIA had the same success on Toronto-Ottawa alone. Ottawa-Montreal and Toronto-Montreal are really bonuses here.

Looking at today's numbers will not give you an accurate picture here. The only way HFR or HSR can be successful is by capturing market share from planes, buses and cars. The business model which captures the most share profitably wins. And in this case, you don't need HSR to be competitive with air for Toronto-Ottawa. HFR will be competitive with flying on downtown to downtown travel, particularly given where Ottawa airport is (there's no Island airport on this end). HFR being competitive with the car and buses for Toronto-Montreal and Ottawa-Montreal is just added income gravy.

[Truenorth00]

Originally Posted by Mikeed

But if you're trying to get private capital onboard you need the numbers to be 100% solid- and that takes time.

Exactly. The private sector doesn't move like the government. People assume that always means faster. There's the rare occasion where they move slower because they'd rather have facts before plunking down billions.

Hopefully they go before the 2019 budget. Hopefully, it's in the 2018 budget. Because if there aren't shovels in the ground and the conservatives come back, VIA and the bank are probably finished. This also has to be a multi-phased project with concurrent activity. It's not one rail lines. It's several lines tied together. There are place they could start work right away. They could work on getting new equipment while the EA is done for the other portions, etc.

Unfortunately, you may be right that the only person that really cares or understand is Marc Garneau. He's also one of the few ministers that takes the train.

The only reason I am optimistic is that this is the only real high vis project they've got and all the players from the bank to the government to the investors want this to work so they can show off to the world. If it fails, they all walk away looking bad (admittedly some worse that the others).

Originally Posted by Mikeed

But my bias is I also swoon over Marc Garneau, for some reason, I think Canadians would love a 5 point action plan over the various —-shows the Liberals are currently slopply pushing forward. Could have used a 5 point plan for electoral reform, or the F35/SuperHornet mess,

We could have had a former Naval Officer with a major in Engineering physics- and Oh wait, he's also an astronaut! and head of the CSA. But nope, "not shiny enough."

Believe me, there's more than just you thinking that. I voted for this government. Donated monthly to both the national campaign and local riding association. 6 months in cancelled my donations. It became apparent how superficial Trudeau really is. And now the only thing I want from this government is a well run choo-choo.

Unfortunately, I have to concede that Trudeau was probably more electable. Garneau would have been the better leader and statesman. It says a lot more Canada than Garneau that we prefer the shiny pony over the old work horse that delivers every time.

[1overcosc]

^ It also says a lot about Canada that Trudeau is still very popular. I mean in the Nanos weekly tracking, in the entire time they've been in power--over a year and a half--they've always been either at or above the support level they got in the election.. never once did they poll statistically worse. I don't think any government has ever enjoyed that for 18 straight months before.

[Buggys]

Why should we give just the private sector 5-8 % return? Why not give the taxpayer-paid portion 5-8 % return to the taxpayers as well?

Why only give large entities the opportunity to make investments with this high rate of return? Why prevent regular middle class peons from participating?

[1overcosc]

Pension funds have a different sort of profile as investors. Because they're looking for long term stability, they're happy with investments that don't have particularly high rate of return as long as that rate of return is reasonably certain to continue for decades.

[Truenorth00]

Originally Posted by Buggys

Why should we give just the private sector 5-8 % return? Why not give the taxpayer-paid portion 5-8 % return to the taxpayers as well?

Why only give large entities the opportunity to make investments with this high rate of return? Why prevent regular middle class peons from participating?

Two points

1) Most of the investors will be Canadian pensions funds. So this really paying ourselves so to speak. The biggest players here are the CPP Investment Board (CPPIB), Ontario Teachers Pension Plan (Teachers), the Healthcare of Ontario Pension Plan (HOOPP), and Caisse de dépôt et placement du Québec (CPDQ). There might be a few outside players like Blackrock, but most of the funding will be coming from Canadian pension plans serving mostly middle class Canadians.

2) We could do this without institutional investment if Canadians were willing to tolerate higher deficits and debt. But any government that blows up the deficit is likely to get booted, so that leaves no alternative other than borrowing from the private sector. Governments could cut programs and re-allocate spending. But that's politically difficult too.

In a perfect world, the infrastructure bank would just borrow on the government's credit and get things built. But it's not a perfect world. And years of hoping that all this could be done solely on public funding has proven to an abject failure of a strategy. If government cannot or will not build the necessary infrastructure, they should enable the private sector to do so.

[Truenorth00]

Originally Posted by 1overcosc

Pension funds have a different sort of profile as investors. Because they're looking for long term stability, they're happy with investments that don't have particularly high rate of return as long as that rate of return is reasonably certain to continue for decades.

Exactly. They'll even accept returns as low as 5% if they are super secure. They only care about preservation of capital and returns above inflation and prime. A 5% rate of return will still double your money over and above the 2% inflation target rate, in 24 years. That's solid for a pension plan.

[acottawa]

Originally Posted by Truenorth00

I foresee a scenario where the government puts in what it was going to invest in the fleet recapitalization ($1.5B) and then maybe a tad more (say $1B) and the investors put in the rest ($4B). They'd get a nice steady 5-8% return (or some form of equity return) and VIA could still make enough to not require subsidies for the Corridor.

Originally Posted by Truenorth00

Exactly. They'll even accept returns as low as 5% if they are super secure. They only care about preservation of capital and returns above inflation and prime. A 5% rate of return will still double your money over and above the 2% inflation target rate, in 24 years. That's solid for a pension plan.

Ok, we can use your numbers.

A 5% return on $4B is $200 million per year. That means before Via can pay a cent to workers, maintenance, energy, utilities or toilet paper they have to give the pension plans $200M.

The Toronto-Ottawa-Montreal corridor current attracts 2.1 million pax/year (from the 2015 Via Annual Report). If HFR leads to a 100% increase in passengers, each ticket would have an average payment to the pension plan of $47.51, so without paying for the train, it is already more expensive to pay the pension plan than it is to take the bus, buy gas, or even take Via's current service if you book in advance. Even if you assume all of the HFR efficiencies lead to a 50% reduction in cost (from $107 to $53) - which is a huge assumption- you're looking at an average ticket price of $100, which is not going to lure people off the bus (which was your original assertion that started this conversation). As I said earlier, a train service can have cheap tickets, it can have high capital costs, it can have significant private sector funding, but it can't have all of the above.

I think Via is trying to follow the UPX playbook. Step 1) Distract politicians and the public with talk of big private sector funding. Step 2) When the private sector funding falls through (because the numbers don't add up) assure politicians it will "pay for itself" based on fanciful revenue expectations. Step 3) Act "surprised" that the high ticket prices in the projections did not lead to high interest from passengers. Step 4) Force the government decide between permanent subsidies and a white elephant and hope they will choose the former.

[kwoldtimer]

I'm confused. Isn't it just a given that any passenger rail service in Canada will be subsidized? I would have taken it as a given.

[HighwayStar]

Originally Posted by Truenorth00

.
.
1) Most of the investors will be Canadian pensions funds. So this really paying ourselves so to speak. The biggest players here are the CPP Investment Board (CPPIB), Ontario Teachers Pension Plan (Teachers), the Healthcare of Ontario Pension Plan (HOOPP), and Caisse de dépôt et placement du Québec (CPDQ). There might be a few outside players like Blackrock, but most of the funding will be coming from Canadian pension plans serving mostly middle class Canadians.
.

Originally Posted by Truenorth00

Exactly. They'll even accept returns as low as 5% if they are super secure. They only care about preservation of capital and returns above inflation and prime. A 5% rate of return will still double your money over and above the 2% inflation target rate, in 24 years. That's solid for a pension plan.

So let me understand this... a healthy chunk of the VIA revenue from the tickets purchased by Joe Public will go to (at above market rates) to Teachers pensions (thanks for the calculations acottawa!).

If the average citizens don't by enough tickets... then the revenue will certainly made up by Federal Taxpayers...

Anybody else see anything wrong with this model??

[1overcosc]

The CPPIB will likely be the biggest investor and the CPPIB is all of us (outside Quebec that is).

[acottawa]

Originally Posted by 1overcosc

The CPPIB will likely be the biggest investor and the CPPIB is all of us (outside Quebec that is).

So one crown corporation is going to borrow money from another crown corporation with the transaction brokered by a third crown corporation.

[HighwayStar]

Originally Posted by acottawa

So one crown corporation is going to borrow money from another crown corporation with the transaction brokered by a third crown corporation.

At above market... and government guaranteed.. rates.

Wow... how do I invest in the "infrastructure bank" ????!!!!! What a freakin shell game

[roger1818]

I found an interesting map shared by Yves Desjardins-Siciliano last November.


See VIA Rail officials propose to bring commuter train service to Peterborough

This is the first I have seen from VIA about possible routings for HFR.

[Mikeed]

Originally Posted by Truenorth00

Believe me, there's more than just you thinking that. I voted for this government. Donated monthly to both the national campaign and local riding association. 6 months in cancelled my donations. It became apparent how superficial Trudeau really is. And now the only thing I want from this government is a well run choo-choo.

Unfortunately, I have to concede that Trudeau was probably more electable. Garneau would have been the better leader and statesman. It says a lot more Canada than Garneau that we prefer the shiny pony over the old work horse that delivers every time.

Marc Garneau as party leader/PM, and Trudeau is Minister of Global Affairs (I actually think that is a smart retitling of the Foreign Affairs Department. Marc Garneau for two mandates, while Justin Trudeau deals with Trump and the global face of Canada, gains experience and then takes over party leadership could have- I honestly think- put the LPC into a path of power for possibly 8 mandates.

just my 2cents

edit: lol, that actually mirrors Pearson/Trudeau quite well

[phil235]

Originally Posted by Truenorth00

Did the Schabas report recommend a bypass? I foresee either a tunnel through town with the station or a bypass with the station located just before it.

There are two options proposed. One through town on the existing alignment, with the line below grade, and the other with a southern bypass.

I expect that the first option will be crazy expensive, and will meet with a tonne of opposition. The tunnel would be ideal, but I think that would have a big impact on cost.

[roger1818]

Originally Posted by phil235

There are two options proposed. One through town on the existing alignment, with the line below grade, and the other with a southern bypass.

A Southern bypass? Seems to require either a lot of new ROW or a significant detour since Guelph is in the way. For fun I created a rough map showing the existing VIA routes and potential bypasses (rough guesstimates on my part).

Southern Ontario HSR Map

I expect that the first option will be crazy expensive, and will meet with a tonne of opposition.

I don't think the cost would be terrably expensive compared to all the land required to build a detour. Granted there will be NIMBYs, but in reality it would an improvement over the current situation for those near the tracks (no more level crossings and less noise).

The tunnel would be ideal, but I think that would have a big impact on cost.

True, but in time the trench could be capped to effectively turn it into a tunnel (especially if the line is electrified to reduce the need for ventilation).