VIA Rail

[kEiThZ]

I remain skeptical too of the business case. Wish it was available for public consumption. They are claiming that VIA won't need $150 million in subsidies for the Corridor (and I thought the Corridor was profitable....). How will they get those savings while paying back investors the return they want?

To justify $3.8 billion in spending, they need the $1.5 billion spent on replacements anyway, $150 million in annual savings and an assumption of a generous 5% interest rates.....if my math's right. Still off by $200 million. And that's before considering the extra $2 billion to electrify the corridor.

Hopefully that business case becomes public soon.

 

[steveintoronto]

How will they get those savings while paying back investors the return they want?

Detailed many times in this string.

Desjardins-Siciliano was very open and prolific in stating it, you can find it online in many places, mostly newspaper articles. It might even be on the VIA website.

 

[MisterF]

I don't see what's disingenuous in my post. Airports and airlines are constantly managing throughput. Up the aircraft size and you can move the same amount of people through. And Pearson can certainly increase throughput. This is what I was referring to with regards to increasing efficiencies. Pearson can even stand to bump up slots with better airspace management (still a little disjointed in the Toronto Terminal Area).

You're right that reducing flight movements is only one reason among many to build HSR. But you are being disingenuous in ignoring the context of this current discussion and the main motivation behind Pearson supporting HSR.

Your claim that I was responding to was "what incentive is there for the government to build HSR (at a massive $20-30 billion for the whole QW corridor), to reduce ~200 movements a day. It would cost a fraction of that to make Pearson more efficient and gain some additional slot frequency."

There are several problems with this. First, you're refuting the straw man that the reason for building HSR is to reduce 200 movements a day at Pearson. Nobody is claiming that. It is simply one reason among many. And you're using the entire Windsor-Quebec corridor in your comparison when the vast majority of impact to Pearson would be from the Montreal-Toronto portion. On top of that, you word the question in a way that implies that making Pearson more efficient is an alternative to HSR and would have the same benefits. This is the most disingenuous part. Making Pearson more efficient is about as much of an alternative to HSR as a trycicle is an alternative to the space shuttle. Besides, if airport efficiencies are attainable they can happen with HSR or without it.

People are acting like Pearson is Heathrow. It isn't. And the slots really aren't that valuable. Certainly not valuable enough to prompt a multi-billion dollar investment in rail only to offset a fraction of those slots. As @MisterF rightly pointed out, there are reasons to build HSR that go beyond improving slot availability at Pearson. But there's no business case that could ever be made where slot availability will be enough of an issue to drive HSR development. Indeed, there's an easier business case to develop a proper secondary GTA airport, either in Hamilton or Pickering, before HSR, if we're just looking at aviation constraints in the region. The case for HSR will always be the impact it has on tying economic regions together. Making the TOM triangle and the Golden Horseshoe truly one economic region.

Well that's just it, a business case would never look exclusively at aviation constraints in the region. That's just one small part of it. There's a long list of benefits of HSR that a second airport would never have. And a long list of negative impacts of a second airport that are much less severe with HSR.

Next, nobody is looking for profit from rail. Passenger rail will never be profitable in Canada.

Not according to multiple studies over the last few decades, all of which concluded that HSR would make a profit.

 

[kEiThZ]

Your claim that I was responding to was "what incentive is there for the government to build HSR (at a massive $20-30 billion for the whole QW corridor), to reduce ~200 movements a day. It would cost a fraction of that to make Pearson more efficient and gain some additional slot frequency."

There are several problems with this. First, you're refuting the straw man that the reason for building HSR is to reduce 200 movements a day at Pearson. Nobody is claiming that. It is simply one reason among many. And you're using the entire Windsor-Quebec corridor in your comparison when the vast majority of impact to Pearson would be from the Montreal-Toronto portion. On top of that, you word the question in a way that implies that making Pearson more efficient is an alternative to HSR and would have the same benefits. This is the most disingenuous part. Making Pearson more efficient is about as much of an alternative to HSR as a trycicle is an alternative to the space shuttle. Besides, if airport efficiencies are attainable they can happen with HSR or without it.

Well that's just it, a business case would never look exclusively at aviation constraints in the region. That's just one small part of it. There's a long list of benefits of HSR that a second airport would never have. And a long list of negative impacts of a second airport that are much less severe with HSR.

And then there's this absurdity:

Making Pearson more efficient is about as much of an alternative to HSR as a trycicle is an alternative to the space shuttle. Besides, if airport efficiencies are attainable they can happen with HSR or without it.

Honestly, not even going to bother. You're an HSR apologist. We get it. I'm a realist. Let's agree to disagree. We go through this debate with regular periodicity it seems. We're now arguing over strands of what you perceived to be the immediate discussion at hand and what I perceived it as. I don't want to bother going back and forth, so I'll summarize and leave it at that. We were discussing Pearson's advocacy of HSR. So capacity at Pearson is very relevant to that. Given that HSR will not happen without federal funds, it's a valid point to discuss whether the feds are motivated to invest in HSR to relieve Pearson. Note, that I have never said there aren't other reasons to build HSR. In fact, I've pointed them out. Enjoy your strawman on this one. I'm done.

Not according to multiple studies over the last few decades, all of which concluded that HSR would make a profit.

With some utterly massive assumptions from the cost of capital, construction inflation costs, and most importantly availability of capital. I'd love to see updated numbers, especially the inflation in the construction sector and energy prices now. The Ecotrain study had this to say:

"In the wholly public case, all scenarios were projected to produce negative NPV. The MT-200 and MT-300 scenarios were projected to produce the best financial results in terms of NPV and FRR. The MT-200 scenario was projected to have the best NPV, at negative $1,215 million, followed by the MT-300 scenario with NPV of negative $2,032 million. The scenario with the highest FRR would be the MT-200 scenario at 3.32 percent, followed by the MT-300 scenario at 2.92 percent."

So if we're talking profitability, with an actual revenue stream, it's definitely not for the taxpayer. They had to include everything from consumer surplus to atmospheric emissions to make it "profitable" as a whole to society. What private investor cares about any of that? That said, losing a few billion over 30 years (for a full Quebec-Windsor), is definitely justifiable for me and I'd love to see HSR built. But if you think HSR can be done with full profit solely on capital and operations spending, please consider applying for Desjardins-Siciliano's job. I am sure you can convince institutional investors to pour in billions for HSR where he failed.

 

[rbt]

They are claiming that VIA won't need $150 million in subsidies for the Corridor (and I thought the Corridor was profitable....).

From VIA financials, Corridor is profitable if you only consider direct costs (operations for the train on the tracks, station, and staff in both). Corridor is the only route that covers it's own direct costs.

It becomes unprofitable when you add in administration, marketing, maintenance facilities, and the like. However, those costs are applied as a straight %age of the total and not based on what they impact or benefit. I expect part of that corridor subsidy is actually spent outside the corridor.

Either way, HFR ought to improve corridor profitability and reduce federal subsidy requirements for VIA as a whole. Considering the Amtrak gutting that's being proposed, this is probably a good thing for VIA long-term stability.

 

[crs1026]

So if we're talking profitability, with an actual revenue stream, it's definitely not for the taxpayer. They had to include everything from consumer surplus to atmospheric emissions to make it "profitable" as a whole to society. What private investor cares about any of that? That said, losing a few billion over 30 years (for a full Quebec-Windsor), is definitely justifiable for me and I'd love to see HSR built. But if you think HSR can be done with full profit solely on capital and operations spending, please consider applying for Desjardins-Siciliano's job. I am sure you can convince institutional investors to pour in billions for HSR where he failed.

This is where I'm still struggling with the value add of the Bank....if the intent is to impose business case discipline on infrastructure, the BCA will fail in many cases. Or, it will be contrived.....does a sewage treatment plant really represent an "investment opportunity"?

If it's a vehicle to borrow at a rate below the "market rate", government has never had a problem selling low-rate long term bonds. There has always been a source of capital willing to invest at low rates given the low risk and stability of income.

If the Bank is just a super Project Oversight Agency that gives some public assurance that execution is on track, so we don't read that something is behind schedule and over budget, then it will be short lived.....stuff happens. Infrastructure is inherently risky. The reason why government is in the infrastructure business is to self-insure. Over the long run the cost of the occasional failures is lower than what one would pay private investors to fund everything at a risk-appropriate rate of return.

In VIA's case, the Bank is at best a lower bar for the BCA than what Bay Street would demand to invest private money on an open market. (If the thing were truly profitable, we wouldn't be having this discussion...investors would want in, and CP or CN would be at the front of the line wanting to run it). At worst, the Bank is the messenger of bad news that lets Ottawa turn away HxR advocacy without getting its political hands dirty.

I am convinced that London-Toronto remains the best candidate for HxR, because the BCA here is not about rate of return - it's about relative cost compared to investment in roads. GO Transit owes its existence to this reality. HxR is just the next step in that.

- Paul

 

[steveintoronto]

does a sewage treatment plant really represent an "investment opportunity"?

Absolutely. However, the emphasis of the present Cdn Infrastructure Bank nascent is on transportation and transit. You do realize that Thames Water in the UK is massively owned by Cdn pension funds?

Financial Times:
Macquarie sells final stake in Thames Water for £1.35bn
Canadian pension fund Omers and Kuwait Investment Authority buy 26% of UK utility

March 14, 2017 by: Gill Plimmer
Macquarie, the Australian infrastructure bank, has sold its final stake in Britain’s biggest water supplier Thames Water for an estimated £1.35bn. The infrastructure arms of the Canadian pension fund Omers and the Kuwait Investment Authority have bought the 26 per cent stake. It highlights a growing appetite for shares in British utilities as they are increasingly seen as “prized assets” for investors because they deliver steady returns. Borealis Infrastructure and Wren House, the infrastructure investing arms of Omers and KIA respectively, bought the stake in Kemble Water Holdings, the holding company of Thames Water. Thames Water has a regulatory capital value of £11.9bn, providing about 2.6bn litres of tap water to about 9m customers per day in London and the Thames Valley region. The financial details of the deal were not disclosed, but it is understood Macquarie has received about £1.35bn for the sale, which had been delayed from last year in part due to uncertainties over the impact of Brexit. [...]
https://www.ft.com/content/63ae6f88-08a5-11e7-97d1-5e720a26771b

Why is our money flowing overseas when it can be...*SHOULD BE* offered an environment here to build things we are failing to build?

I'm a Centrist, I can't overemphasize that, but the 'social programs' of successive governments have not only failed us in the past, we've now reached a point where those limitations have become critical disincentives to further progression of our productivity and quality of life.

You don't have to be a full-blown Capitalist to realize government money to provide necessary infrastructure is sadly remiss.

Edit to Add: Just catching up on Cdn news (I read the int'l news first) and lo and behold, up at the Globe:

Report on Business
Canadian companies may be wary of investing in post-Brexit Britain, Morneau says

I call that a "Golden Opportunity" for repatriating a good chunk of our own money.

government has never had a problem selling low-rate long term bonds.

You haven't been following the business press lately...

The All-Powerful Bond Market Is Getting Rocked by Trump
November 10, 2016
By Christopher Whittall and Sam Goldfarb

A selloff in government bonds picked up more momentum Thursday, spreading across the world as investors reacted to the prospect of increased fiscal stimulus under a Donald Trump presidency.

Investors are now asking whether Mr. Trump's victory marks a turning point for fixed-income markets that have been on lengthy bull run.

[...]

https://www.gfmag.com/topics/syndic...werful-bond-market-is-getting-rocked-by-trump

Canada Savings Bonds are being discontinued. Segue to Investment Banks...

 

[kEiThZ]

This is where I'm still struggling with the value add of the Bank...

The more I read, the more I'm convinced, this about politics, not about what is good for the country. And that's not necessarily a bad thing, perverse as that sounds.

There's very little likelihood that government would outright give VIA $6 billion to build HFR. Especially not when facing annual $20-30 billion deficits. The optics just aren't gonna be good. So what do the Liberals do? Create a way to get the infrastructure built while keeping government's contributions as low as feasible. The whole project will cost more (because industry will want a higher rate of return than government bonds). The tickets will cost more than they would have been. Services will be less frequent than they might have been under government ownership. But it allows the government to build something without having to blow up the deficit.

It's stupid. Traditionally, an infrastructure bank was about offering government financing rates for projects. For example, let the City of Toronto build a subway and issue bonds at near Prime through the IB. And as the cities paid off infrastructure, money rolled into new projects. This bank seems to be about leveraging private capital to keep the deficit artificially low.

In any event, if it's the only way to actually get major rail improvements in Canada, so be it. This is at least more vision than this country has had in decades.

 

[crs1026]

Absolutely. However, the emphasis of the present Cdn Infrastructure Bank nascent is on transportation and transit. You do realize that Thames Water in the UK is massively owned by Cdn pension funds?

I didn't realise that. It's not that different than privatising Hydro One, or contracting for garbage collection.

I probably used the wrong term when I called that "investment opportunity". It undoubtedly is. What I meant was.... we seem happy to pay someone a very handsome rate of return for that kind of enterprise, even when there are no customer choices, no competitors, and price is inevitably determined by regulatory bodies rather than by any true market dynamic. And where the true cost of capital is distorted by indirect government backstopping. It's not the same league of 'business' as an airline or a hotel. which is true "private sector business" operating in a true open market.

I take your point and @kEiThZ's that this is all about people having developed a huge aversion to government's hand in anything, even when no one else will do it and government has a legitimate accountability to deliver it. Which is a reality, even if we agree it's stupid.

The take away from all this is - VIA has yet to run the gamut of the IB. We don't know the IB's rules of engagement, and we don't know the fine points of VIA's BCA. So we don't know if this is progress or not, yet. The good news is, the IB's decision will be based on some economic premise, as opposed to the bureaucracy's opinion of HxR, or politicians' appetite to support it. That may be a fairer and more objective hearing. If VIA fails on the first attempt, it may succeed on a further attempt if it can address the bank's reservations. So it is not a bad game to be playing.

I did worry a little when I saw that the BCA had been submitted to Transport Canada for approval. I would not call TC an unbiased cold-body peer reviewer. Lots of room for anti-pax-rail undermining in that shop.

- Paul

 

[steveintoronto]

I didn't realise that. It's not that different than privatising Hydro One, or contracting for garbage collection.

Yes and no. Yes, since it gets "expenditures off the books" and thus allowing government full discretion in how it spends the released funds, no in that the taxpayer is still holding the bag in terms of risk (some or all depending on the nature of agreement) and still holds what can be an agreed to *controlling interest* even if a minority. This happens in family owned companies, BBD immediately comes to mind. Investors, however, would want a steep trade-off for that, like a guaranteed return, rather than a fraction of yield. Each agreement will abide by its own terms. And some will have Parliamentary approval behind them, something very easy for the government of the day to do, next to impossible for private companies nowdays, chartered or not. The big advantage is being able to borrow at the lowest market rates, since if anyone has the might to underwrite the risk, it's the Gov't. Do governments go bankrupt? Yes! But very rarely. We ain't Greece.

I take your point and @kEiThZ's that this is all about people having developed a huge aversion to government's hand in anything, even when no one else will do it and government has a legitimate accountability to deliver it.

I have to disagree....at this point in time, Governments are looking to be exceedingly good partners, and that's why the flow from Cdn Funds overseas is massive. Other nations are way ahead of us. We've got to tap into that vast pool of capital. .

The take away from all this is - VIA has yet to run the gamut of the IB. We don't know the IB's rules of engagement, and we don't know the fine points of VIA's BCA.

It's still not determined whether the HFR will become a stand-alone model outside or inside the Bank. Morneau is wisely holding his cards close. He *HAS TO* get this right. The vast pool of US funds is still sloshing, not knowing which way the the wind out of Trump is blowing. Look for a lot of interest, as Morneau is now pointing out, from the UK. Historically, it was mostly UK and then US money that built our railroads.

The good news is, the IB's decision will be based on some economic premise, as opposed to the bureaucracy's opinion of HxR, or politicians' appetite to support it. That may be a fairer and more objective hearing. If VIA fails on the first attempt, it may succeed on a further attempt if it can address the bank's reservations. So it is not a bad game to be playing.

Yes, yes and yes! Some of the projects our money is being thrown at are nauseatingly bad moves. I think we have a common understanding on that, and Metrolinx also has made some incredibly bad decisions. That being said, as much as McCuaig was in on a lot of those decisions, his role at the InvBank will be one of transportation advisor, not investment advisor. The latter will be a panel of those, or appointed by those with the investment funds, and that will include the taxpayer. As capitalistic as that sounds, somehow I think we'll get a hell of a lot better results and accountability than we get now! By law, the InvBank will have to make public it's accounting. Trade secrets can remain, as they are now with government agencies. Toronto Hydro is a terrible example in that it is a totally taxpayer owned agency, with next to zero accountability. That's something we have to avoid. https://www.thestar.com/news/city_h...-hydro-and-the-power-of-secrecy-analysis.html

I did worry a little when I saw that the BCA had been submitted to Transport Canada for approval. I would not call TC an unbiased cold-body peer reviewer. Lots of room for anti-pax-rail undermining in that shop.

I know exactly what you mean. It's like submitting your incredibly artistic work to a panel of prison guards. TC still live in the last century when it comes to regs and best practice, but Garneau is on record as championing this with Morneau.

 

[urbanfan89]

If you look at London UK's attempt in the 70's/80's to do this you will see it as a total failure. They gave tax incentives for commercial to move to former market towns with good transit connections. Once the tax credits dried up the employers packed up and left. Either back to London or offshored their work. 15 story office towers were vacant for 10+ years and only recently have they been converted into condo's for workers living in London.

And there are positives and negatives in creating additional bedroom communities. Socially do we want that or do we want unique clusters with their own culture?

There shouldn't be any need for (direct) government incentives to move to satellite cities. And besides, our economy today is much more fragmented, with more jobs created by smaller businesses. This makes specific incentives less and less effective. We wouldn't be creating bedroom communities - we'd be bringing the GTA into stagnating industrial towns. For instance, a startup could be based in Brantford, paying a fraction of the rent in Liberty Village. Their staff could make site visits, negotiate with partners, and attend networking events in the GTA within an hour thanks to faster VIA/GO service (Brantford is unlikely to ever get HSR, but you get the gist). Compared to the Bay Area's horrendous housing costs and congestion, it makes the Greater Golden Horseshoe much more competitive.

I honestly don't see what's so unique about the culture of Woodstock or Cambridge, which are dying slow deaths. This isn't Europe where every town has its own dialect, beer, or cheese, and host weekly local markets; even then, the convenience of many European towns to major cities hasn't diluted their identity anyway. And who here still cares about Brampton's past as a stronghold of the Orange Order? Markham was once a colony of loyalist Mennonites from Pennsylvania. Thankfully, Canada's political geography is much less divided than the US, but this cannot be taken for granted.

 

[dowlingm]

Kitchener Waterloo has spent years working on a reputation as a technology hub. That's not something that transfers to Stratford or even London just because there's a fast train. There are two (well, one and a half) subways to North York Centre and it failed as a commercial centre.

 

[SaugeenJunction]

Kitchener Waterloo has spent years working on a reputation as a technology hub. That's not something that transfers to Stratford or even London just because there's a fast train. There are two (well, one and a half) subways to North York Centre and it failed as a commercial centre.

Interestingly, the entire City of Stratford is wifi enabled in a bid to get tech companies to locate there, especially autonomous car companies. We will see how this strategy works. I do agree with your point however that as a city you need to earn a reputation as friendly towards a certain industry. My hope is that with a few new rumoured Stratford-Toronto runs using RDCs (told to me by a VIA employee, posted a few pages back) that there can be more of a "spill over effect" from Kitchener-Waterloo to surrounding communities.

 

[steveintoronto]

You can lead a horse to water. But you can't make them dance.

Thinking that building transportation structures and building dance emporiums will produce a slew of dancers is suspect. If the talent is already there, it may enable their development. But if the potential doesn't exist in the first place, you're spitting in the wind.

There is very certainly a case to be made for catering to the present demand as witnessed by the traffic on the 401. To think it would take HSR to do it faster and better does not follow. HFR would be the most apt choice, all things considered, not the least the cost to benefit ratio.

 

[MisterF]

And then there's this absurdity:



Honestly, not even going to bother. You're an HSR apologist. We get it. I'm a realist. Let's agree to disagree. We go through this debate with regular periodicity it seems. We're now arguing over strands of what you perceived to be the immediate discussion at hand and what I perceived it as. I don't want to bother going back and forth, so I'll summarize and leave it at that. We were discussing Pearson's advocacy of HSR. So capacity at Pearson is very relevant to that. Given that HSR will not happen without federal funds, it's a valid point to discuss whether the feds are motivated to invest in HSR to relieve Pearson. Note, that I have never said there aren't other reasons to build HSR. In fact, I've pointed them out. Enjoy your strawman on this one. I'm done.

What exactly is an "HSR apologist"? I like how you accuse my post calling out your straw man as a straw man itself. It's like straw man Inception.

Our positions aren't as far apart as you think. Pearson is now advocating for HSR. That helps the case for it, if only slightly. The question isn't about whether the federal government is motivated to build HSR to relieve Pearson, it's whether the federal government is motivated to build HSR for a list of reasons that just got one item longer.

With some utterly massive assumptions from the cost of capital, construction inflation costs, and most importantly availability of capital. I'd love to see updated numbers, especially the inflation in the construction sector and energy prices now. The Ecotrain study had this to say:

"In the wholly public case, all scenarios were projected to produce negative NPV. The MT-200 and MT-300 scenarios were projected to produce the best financial results in terms of NPV and FRR. The MT-200 scenario was projected to have the best NPV, at negative $1,215 million, followed by the MT-300 scenario with NPV of negative $2,032 million. The scenario with the highest FRR would be the MT-200 scenario at 3.32 percent, followed by the MT-300 scenario at 2.92 percent."

So if we're talking profitability, with an actual revenue stream, it's definitely not for the taxpayer. They had to include everything from consumer surplus to atmospheric emissions to make it "profitable" as a whole to society. What private investor cares about any of that? That said, losing a few billion over 30 years (for a full Quebec-Windsor), is definitely justifiable for me and I'd love to see HSR built. But if you think HSR can be done with full profit solely on capital and operations spending, please consider applying for Desjardins-Siciliano's job. I am sure you can convince institutional investors to pour in billions for HSR where he failed.

As I've pointed out before, the Ecotrains study was riddled with problems. It had questionable assumptions, excluded key ridership sources, and inflated construction costs through unnecessary infrastructure. Better to rely on the previous studies.

And yet even the Ecotrains study projected a positive NPV between Toronto and Quebec City. A much larger positive NPV was projected for the main Toronto-Montreal portion, which is the part of the system that would impact Pearson the most. And that's with their inexplicable decision to not serve Pearson with HSR at all. Even the route to Windsor, which is consistently evaluated to be the least favourable section, would look better if they had seen the value in serving Pearson. Also keep in mind that recent developments like RER and other transit improvements throughout the corridor would improve the numbers further.

So as you can see, all HSR studies, even the Ecotrains one, projected that intercity rail can be profitable in Canada.

I'd love to see HSR in Canada. I really would.

And yet everything you post says the opposite.