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What we know about Alberta’s plan to buy thousands of oil tank cars

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In late November, Alberta Premier Rachel Notley announced that within « a few weeks » her government would unveil its plan to buy thousands of railcars to help transport the province’s oil to market. 

Eight weeks later and the provincial government is still in negotiations with railway companies and suppliers. The latest update from Energy Minister Marg McCuaig-Boyd was only to say « it’s an ongoing conversation. »

The government says it needs the cars because there’s a backlog of oil in the province and a lack of pipeline space to export it.

With few details coming from the Notley government, here’s what we know — and don’t know — about its plan.

Total cost

The government hasn’t provided an estimated cost for buying the railcars, as negotiations are ongoing. It’s difficult to hazard a guess considering how few details are known about what the government is trying to acquire.

Notley has said Alberta needs to buy as many as 7,000 tank cars to meet its goal of shipping an additional 120,000 barrels of oil a day by train. She has also said that could include about 80 locomotives, with each train pulling 100 to 120 cars.

Workers prepare to start loading a tank car at an Altex Energy terminal. (Dave Rae/CBC)

Each tank car can hold nearly 700 barrels of oil.

The province likely won’t buy the cars, but instead lease them for between three and five years, which experts say is the industry standard.

The government also wants to sign agreements with railway companies and secure capacity to load oil in Alberta and unload the trains at destinations in North America.

Railcar shortage

Finding that many tank cars may prove difficult because of a shortage throughout North America.

In the third quarter of 2018, railcar manufacturers received orders for 11,000 new tankers, according to data from the Washington-based Railway Supply Institute (RSI). About 3,000 new cars were produced in that quarter and the backlog of orders now sits at about 31,000.

The shortage of tank cars is partly the result of Canada and the U.S. both transitioning away from the old model DOT-111 tank cars, which were involved in the deadly rail disaster in Lac-Mégantic, Que., in 2013. The new standard is the TC-117 in Canada (DOT-117 in the U.S.), which features a thicker steel hull, thermal protection, and protective valve covers, among other safety features.

Premier Rachel Notley has said she’s disappointed with Ottawa’s lukewarm response to the province’s plan to ease oil bottlenecks by buying more railcars. (Canadian Press)

Some rail companies are also retrofitting the older tank cars to meet the new safety standards in North America.

« We’re seeing fairly strong demand over the last few quarters in terms of tank car manufacturing and retrofits, » RSI president Mike O’Malley said in an interview.

Premium price

The shortage is one reason why Alberta will likely have to pay a premium to secure the thousands of tank cars it wants.

One of North America’s largest railcar leasing companies said prices are increasing.

On a conference call with investors and analysts earlier this week, GATX executive Thomas Ellman said market lease rates for tank cars were up 25 to 50 per cent in 2018 compared to the previous year.

Another factor driving up tank car prices has been an increase in the amount of crude shipped by rail in both Canada and the U.S.

Canada set several records in 2018 for shipping oil by train. (Dave Rae/CBC)

For eight straight months, Canada’s rail system set new records for crude volumes, according to the National Energy Board. The NEB’s most recent data is for November 2018, although recent statements from CN and CP Rail indicate crude-by-rail volumes have since dropped. 

In the U.S., volumes increased to more than 20 million barrels in October, but the numbers are still lower than in 2014, when oil prices were about $100 US per barrel and more than 35 million barrels were transported by rail, according to the U.S. Energy Information Administration.

‘Insurance’ plan

The potential impact of the Alberta government’s railcar plan is debatable. The first railcars are only expected to arrive at the end of this year, with the bulk of them arriving in 2020.

By then, Alberta should have more space to export oil by pipeline, which is cheaper and faster compared to rail. Enbridge’s Line 3 replacement project, which runs from Alberta to southern Manitoba, is expected to be complete by December 2019, just as the first of the government’s railcars are expected to roll into the province.

« If that’s the case [with Line 3], we really don’t see a need for crude-by-rail volumes to continue to grow, » said Michael Dunn, an analyst for GMP FirstEnergy.

Considering delays that pipeline projects can face, Dunn said the government likely wanted to have backup measures in place in case Enbridge wasn’t able to get the pipeline up and running on time.

« I view their purchase as basically an insurance policy. »

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‘Business as usual’ for Dorel Industries after terminating go-private deal

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MONTREAL — Dorel Industries Inc. says it will continue to pursue its business strategy going forward after terminating an agreement to go private after discussions with shareholders.

« Moving ahead. Business as usual, » a spokesman for the company said in an email on Monday.

A group led by Cerberus Capital Management had previously agreed to buy outstanding shares of Dorel for $16 apiece, except for shares owned by the family that controls the company’s multiple-voting shares.

But Dorel chief executive Martin Schwartz said the Montreal-based maker of car seats, strollers, bicycles and home furniture pulled the plug on a deal on the eve of Tuesday’s special meeting after reviewing votes from shareholders.

“Independent shareholders have clearly expressed their confidence in Dorel’s future and the greater potential for Dorel as a public entity, » he said in a news release.

Dorel’s board of directors, with Martin Schwartz, Alan Schwartz, Jeffrey Schwartz and Jeff Segel recused, unanimously approved the deal’s termination upon the recommendation of a special committee.

The transaction required approval by two-thirds of the votes cast, and more than 50 per cent of the votes cast by non-family shareholders.

Schwartz said enhancing shareholder value remains a top priority while it stays focused on growing its brands, which include Schwinn and Mongoose bikes, Safety 1st-brand car seats and DHP Furniture.

Dorel said the move to end the go-private deal was mutual, despite the funds’ increased purchase price offer earlier this year.

It said there is no break fee applicable in this case.

Montreal-based investment firm Letko, Brosseau & Associates Inc. and San Diego’s Brandes Investment Partners LP, which together control more than 19 per cent of Dorel’s outstanding class B subordinate shares voiced their opposition to the amended offer, which was increased from the initial Nov. 2 offer of $14.50 per share.

« We believe that several minority shareholders shared our opinion, » said Letko vice-president Stephane Lebrun, during a phone interview.

« We are confident of the long-term potential of the company and we have confidence in the managers in place.”

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Anglais

Pandemic funds helping Montreal businesses build for a better tomorrow

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Many entrepreneurs have had to tap into government loans during the pandemic, at first just to survive, but now some are using the money to better prepare their businesses for the post-COVID future.

One of those businesses is Del Friscos, a popular family restaurant in Dollard-des-Ormeaux that, like many Montreal-area restaurants, has had to adapt from a sit-down establishment to one that takes orders online for takeout or delivery.

“It was hard going from totally in-house seating,” said Del Friscos co-owner Terry Konstas. “We didn’t have an in-house delivery system, which we quickly added. There were so many of our employees that were laid off that wanted to work so we adapted to a delivery system and added platforms like Uber and DoorDash.”

Helping them through the transition were emergency grants and low-interest loans from the federal and provincial governments, some of which are directly administered by PME MTL, a non-profit business-development organization established to assist the island’s small and medium-sized businesses.

Konstas said he had never even heard of PME MTL until a customer told him about them and when he got in touch, he discovered there were many government programs available to help his business get through the downturn and build for the future. “They’ve been very helpful right from day one,” said Konstas.

“We used some of the funds to catch up on our suppliers and our rents, the part that wasn’t covered from the federal side, and we used some of it for our new virtual concepts,” he said, referring to a virtual kitchen model which the restaurant has since adopted.

The virtual kitchen lets them create completely different menu items from the casual American Italian dishes that Del Friscos is known for and market them under different restaurant brand names. Under the Prasinó Soup & Salad banner, they sell healthy Greek options and their Stallone’s Sub Shop brand offers hearty sandwiches, yet the food from both is created in the same Del Friscos kitchen.

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Anglais

Downtown Montreal office, retail vacancies continue to rise

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Some of downtown Montreal’s key economic indicators are heading in the wrong direction.

Office and retail vacancies in the city’s central core continued to climb in the fourth quarter of 2020, according to a quarterly report released Thursday by the Urban Development Institute of Quebec and the Montréal Centre-Ville merchants association. The report, whose first edition was published in October, aims to paint a socio-economic picture of the downtown area.

The survey also found office space available for sublet had increased during the fourth quarter, which may foreshadow even more vacancies when leases expire. On the residential front, condo sales fell as new listings soared — a sign that the downtown area may be losing some of its appeal to homeowners.

“It’s impossible not to be preoccupied by the rapid increase in office vacancies,” Jean-Marc Fournier, the former Quebec politician who now heads the UDI, said Thursday in an interview.

Still, with COVID-19 vaccinations set to accelerate in the coming months, “the economic picture is bound to improve,” he said. “People will start returning downtown. It’s much too early to say the office market is going to disappear.”

Public health measures implemented since the start of the pandemic almost a year ago — such as caps on office capacity — have deprived downtown Montreal of more than 500,000 workers and students. A mere 4,163 university and CEGEP students attended in-person classes in the second quarter, the most recent period for which figures are available. Border closures and travel restrictions have also brought tourism to a standstill, hurting hotels and thousands of local businesses.

Seventy per cent of downtown workers carried out their professional activities at home more than three days a week during the fourth quarter, the report said, citing an online survey of 1,000 Montreal-area residents conducted last month.

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