TRAN Committee Report

SUPPLEMENTARY REPORT
OF THE
NEW DEMOCRATIC PARTY OF CANADA 

 

High Frequency Rail

Modern passenger rail presents a tremendous opportunity for Canada to embrace sustainable, efficient, safe, and equitable transportation. Yet, our country continues to lag behind most of our global peers when it comes to infrastructure and investment. While Canada’s New Democrats support investing in dedicated passenger rail infrastructure on the Toronto-Quebec City corridor, we are disappointed the Standing Committee on Transportation, Infrastructure and Communities’ report on the government’s High Frequency Rail (HFR) project fails to address major concerns witnesses brought forward over the course of the Committee’s study.

New Democrats are happy to have worked with other parties to support several of the report’s recommendations, based on strong witness testimony. These recommendations include:

• looking to countries with successful publicly operated high-speed rail systems to inform the procurement and operations model of the HFR project;
• releasing the Joint Project Office’s full, unredacted report on the HFR project;
• ensuring seamless connectivity between HFR and local and regional transit systems, through collaboration with provinces and municipalities; and
• guaranteeing that HFR does not result in a reduction of service to communities currently served by VIA Rail.

However, these recommendations do not address significant concerns regarding the public-private partnership model and the likely impact of the HFR project on Canada’s current public passenger rail system.

This supplementary report highlights witness testimony not included in the Committee’s main report, as well as recommendations New Democrats feel are necessary to achieve a modern, efficient passenger rail system that benefits all Canadians. These recommendations include:

• developing policy and legislation that gives VIA Rail a mandate, and promotes reliable passenger rail all across Canada; and
• meeting Canada’s climate goals by shifting passenger travel from flights and car trips to rail transportation.

Prioritizing public ownership over privatization

Despite the majority of witness testimony regarding the procurement model of the project expressing grave concerns with the government’s decision to use a public-private partnership (P3), rather than a public model, the main report does not include recommendations reflective of this testimony.

Witnesses expressed concerns with the HFR P3, including lack of transparency; timeline delays; increased financial burden on taxpayers; loss of economic benefits; prioritization of private profit over public good; conditions for workers; adverse effects on the rest of VIA’s service; and numerous international examples of poor outcomes from P3 rail projects.

Transparency

For a project as big and costly to the Canadian taxpayer as HFR, transparency and accountability are essential to ensuring the viability of the project. But handing planning, development and operation of the project over to private corporations comes with significant risks. As Dr. Ryan Katz-Rosene pointed out:

“[A] private firm has a fiduciary responsibility to obtain profits. I see a couple of risks there. One that's well-documented in the literature is a lack of transparency. If this is a government-funded project, a public project, there's an accountability process and a transparency process built into that, and I think that's worth keeping.”

This sentiment was reiterated by Dr. Yonah Freemark from the Urban Institute, who pointed out that a lack of accountability and oversight could lead to major changes to the project, resulting in considerable cost escalations:

“[T]he key issues—more than who is ultimately building or managing the line—are transparency, and assurances from the government that the government is controlling the day-to-day project design, planning and construction. Without high levels of capacity coming from the public sector, you're likely to see some major problems with cost escalation and major problems with design changes over time.”

The government’s decision to use a P3 has already resulted in a lack of transparency, and the timeline delays and cost overruns that Dr. Freemark described. Mr. Terrence Johnson, President of Transport Action Canada, pointed out moving the HFR project from its original public model under VIA Rail to the current P3 model has already contributed to timeline delays and cost overruns, information about which has been hidden from the public:

“HFR was decision-ready by summer of 2018, but our government hesitated. Had it followed its Crown corporation's advice, HFR would already be in the final stages of construction today and would be in service by 2025. Instead, the JPO (Joint Project Office) was created with the Canada Infrastructure Bank in 2019 with a mandate to de-risk the project and a budget of $71 million. The tasks it was assigned, including further engagement with indigenous communities, do not appear to have been accomplished. Its report wasn't published. Information obtained under an access to information request was in heavily redacted form.”

The NDP is concerned about the lack of transparency and accountability shown to date and is glad the Committee recommended the federal government release the Joint Project Office’s full report.

Increased costs to taxpayers

Witnesses highlighted evidence that P3s have much higher rates of project failure and cost overruns than publicly developed projects. Mr. Bruno Dobrusin from the International Transport Worker’s Federation shared that the organization’s experience with both public and P3 models has shown that P3 projects are far more likely to experience significant cost overruns, which, despite the claims that P3s reduce risk and financial burden on taxpayers, fall to taxpayers and passengers to subsidize:

“The ITF has found that privatization has led to fragmented and inefficient rail systems and contributed to a decline in the quality of the services and the quality of work for the workers involved through P3s. Public-private partnerships in major national and international transport services have incurred some significant financial losses. Unrealistic bids from the private sector to secure contracts have resulted in failures on major routes, burdening governments with financial responsibilities and often leading to substantial subsidies from taxpayers and passengers. Private sector financing has proven more expensive than the public sector alternative, with profits going directly to shareholders and thus causing underinvestment in services.”

This sentiment was echoed by Dr. Katz-Rosene, who shared how academic research has shown that P3s are far more likely to result in project failure, resulting in increased costs to taxpayers:

“[T]he scholarly research on P3s suggests that the model could pose greater risk of cost overruns and project delays and could further limit the ability of the government to use the project to achieve broader public objectives. Failing to meet those objectives, in turn, could also translate into costs for the Canadian public down the line.”

Dr. Freemark cited a specific example from the United States, in which a P3 light-rail project collapsed entirely, resulting in massive delays and cost overruns, borne by the government and taxpayers:

“I would recommend that folks check out the example of the Purple Line. That is a light rail project in suburban Maryland outside of Washington, D.C., where a public-private partnership was expected to provide construction and 30 years of operation. That partnership collapsed entirely and resulted in the project having two years of construction and then a pause. Then the government had to re-contract the whole situation. The result was way more money than originally proposed being spent on the project.”

Mr. Dobrusin also discussed the myth that P3s offload project risk onto private companies:

“A 2012 study of rail P3s globally revealed that these projects are successful only when public authorities guarantee profits for private concessionaires. Rail projects for which concessionaires assume financial risks tend to fail.”

Mr. Johnson noted the government’s initial plan for a public model would have cost less than the current P3 approach, and that switching to the new approach has already resulted in significant project delays:

“By taking revenue risk and putting it on the table, it's going to cost more, it's going to be years before we even begin to lay any track and, at the end of the day, it's going to cost Canadians more for the same train that we had a blueprint for in 2018 and could have got on with building.”

While the mantra of the current government and P3 advocates is that public-private projects offload project risk from taxpayers onto private companies, the reality is quite the opposite. Time and time again, it has been shown P3s not only cost the public more, but also result in the public sector assuming risk if and when private-sector “partners” run into problems.

Loss of economic benefits

If the HFR project can be profitable for a private consortium, it can also be profitable for a crown corporation. As such, handing future profits over to private investors precludes government reinvesting them in developing Canada’s passenger rail network for public benefit.

Dr. Freemark noted in his testimony that the government would likely profit from the project, as is demonstrated around the world:

“From an operational perspective, high-speed rail service operations in other parts of the world are almost universally profitable, which means they pay for their day-to-day operations.”

Ms. Jennifer Murray from Unifor pointed out that, since the Canadian taxpayer is already going to be subsidizing the HFR project, we should not give up the opportunity to acquire the profits:

“Because they are costly, we must also make sure the wealth created by building and operating these systems stays right here. Rail is about nation building and economic development—not just the products and people who roll across the tracks, but the building, maintenance and work done to keep it going. If we continue to privatize these services to companies outside of Canada, or anywhere, we forgo a significant part of the economic benefits of building rail and further divide our rail system.”

This opportunity cost was echoed by Dr. Katz-Rosene in his testimony:

“There are also a lot of real challenges or risks associated with privatizing that entity, one of which is how we value these incredible assets if we're turning them over to the private sector. I'll leave my comments there, but yes, there's no reason that a publicly owned line could not derive revenues that could support the rest of the service.”

The NDP finds it irresponsible that the government is willing to forego the clear long-term benefits of a project model that reinvests future profits in the public good.

Effect on the rest of VIA’s service

The privatization of VIA’s most profitable corridor raised red flags for several witnesses, who expressed concern with how VIA Rail would continue to fund the rest of its passenger service nation-wide. The Toronto–Quebec City corridor accounts for the vast majority of VIA’s revenue. Under the government’s HFR scheme, revenues from passenger service on this corridor will flow to a private consortium, leaving VIA to operate its public services in the rest of the country with a small fraction of current ticket revenue. Mr. Johnson described his concern for the future of VIA’s less-busy routes:

“[I]f the rest of Via Rail continues to operate as a public service, it needs a very much larger subsidy to provide all the core services that are currently shared with the corridor. That, I think, would be something that we feel wouldn't actually happen at all, and you would in fact see trains like the Skeena just disappear, because the government would look at that and say, “We can't possibly subsidize that.”

These concerns were echoed by Mr. Joel Kennedy, National Rail Director for Unifor, who predicted VIA could suffer a similar fate to that of Greyhound:

“What we've seen here is similar to the Greyhound story across Canada. We saw that was very good service at one time that was diminished, diminished and diminished, and it doesn't exist any more. That's exactly our fear once we start siphoning off the profits from the corridor. What's going to happen to the rest of the fleet? Via's fleet right now is aging. It's poor. It's not really practical at all anymore, and it's not reliable. It's a major concern of ours.”

While VIA’s rural routes generate less revenue than the Corridor, they provide a vital service to people living in rural communities, who often lack access to other transportation options. Rail service can play an important role in helping rural residents access services such as medical treatment that are less available in smaller communities.

Lack of access to transportation in rural communities can force vulnerable populations into dangerous situations, such as hitchhiking. This is why access to affordable and reliable transportation is referenced in the Calls for Justice from the National Inquiry on Missing and Murdered Indigenous Women and Girls.

In order to avoid the degradation of critical services to rural Canada, the government must not hand over the majority of VIA’s revenue to private interests.

Private profits vs public good

Private companies have a fiduciary responsibility to generate profits for shareholders — a goal that can be at odds with the public interest. In the case of HFR, witnesses expressed concern this conflict could lead to increased fares, higher greenhouse gas emissions, lower safety standards, and poorer conditions for workers. As Dr. Katz-Rosene told committee members:

“Another potential risk is a safety risk, or other risks, as a result of a private firm trying to cut costs to maximize the value gain. That's a real potential concern. If a firm is focused on maximizing the value and the return on investment, and all of a sudden something comes up that might be more expensive but is the right thing to do today because it's the climate-friendly option or the safer option, that could get pushed down as an objective. Another risk is that a private firm might want to see greater returns on investment quicker. We might end up seeing fares, the fee structure for tickets, go up. That places additional risks. It's like a ladder of risk in terms of the project potentially amounting to failure, because a firm may want to see greater returns.”

Dr. Katz-Rosene expanded on the issue of private companies deriving profits by increasing ridership fares, expressing concern that the higher fares would drive passengers away from the service, leading to even higher fares:

“One of the main risks there in terms of having a quicker intended return on investment is the potential for a higher fare structure. [..] The number one determinant for modal choice for intercity transport is the cost, the price. That ties in with HRS over HFR, because if you spend billions and billions of dollars on this massive project and you have a private firm trying to recoup those costs, you need to charge higher fares, and that is going to have an influence on your ability to take a share of the competing modes.”

Mr. Dobrusin told the committee that these adverse effects on passengers have been seen in other jurisdictions around the world. He specifically noted the United Kingdom:

“Nowhere is this clearer than in the United Kingdom. The privatized rail system requires more public funding than it did before the wave of liberalization. Ticket prices for passengers have surged, and U.K. rail users are some of the most dissatisfied passengers in Europe.”

He also described the effect privatization has on unionized rail workers, and how this in turn can affect the public at large:

“[U]sually these companies basically try to underbid each other, and one of the areas where they cut in those bids is labour costs. That later transfers not just to working conditions but to safety as well.”

Mr. Kennedy agreed with Mr. Dobrusin’s point, describing how P3s tend to diminish good union jobs:

“When we see private enterprises come into these proposals, as my colleague, Bruno, has also mentioned, we see working conditions, wages and all sorts of things towards health and safety diminish as well.”

Through HFR, the federal government is considering investing tens of billions of public dollars in Canada’s passenger rail system. It is imperative that the long-term public interest remain paramount, and that profit-seeking by private investors not be allowed to diminish important public objectives. We believe a publicly developed, owned and operated passenger rail system is the best way to achieve this.

Benefits of a public system

Witnesses not only expressed concerns with the P3 model, but also discussed the benefits of a publicly owned and operated passenger rail system, citing successful examples around the world.

Counterbalancing his critique of rail privatization in the UK, Mr. Dobrusin pointed to public systems in Spain, Germany and South Korea:

“Conversely, Germany, Spain and South Korea demonstrate successfully publicly funded high-speed rail systems. Positive outcomes include reduced travel times, economic development and improved connectivity.”

Dr. Freemark additionally pointed to Spain’s successful public model; specifically how it has decreased costs to taxpayers:

“Spain has some of the lowest high-speed rail infrastructure costs in the world, which is interesting, because it is true that it has taken a purely public sector approach.”

Ms. Murray likewise noted that the consortia bidding on the HFR project include state-owned rail companies that operate successful public rail systems in their own countries:

“The fact that the RFP (Request for Proposals) involves two state-owned European rail companies just shows how ridiculous the notion that we need private sector expertise is.”

The NDP is pleased the Committee’s main report recommends the government examine international examples of public rail systems to inform the procurement and operations model for HFR, especially since the government failed to consider public examples when evaluating potential procurement models for the project.[1]

The NDP strongly recommends the government heed the testimony referenced above, scrap its P3 approach for the HFR project, and instead pursue a public model that emphasizes public benefits while minimizing risks and cost.

Legislative changes

Over the past several decades, successive Liberal and Conservative governments have failed to adequately invest in passenger rail, and as a result, Canada has fallen further and further behind our international peers. Dr. Freemark described this situation to the Committee:

“I have demonstrated that Canada's per capita rail investment has been the lowest of all G7 members in every year but one since at least 1995. In recent decades, its investment levels have been less than half, and sometimes as low as one-tenth, of the levels of those in countries like France, Italy and Japan.”

Related to this lack of investment is the fact the federal government has never provided VIA Rail with a legislative mandate. This leaves its funding and service delivery expectations entirely at the discretion of the Minister of Transport, with no formal Parliamentary accountability. In the United States, federal legislation provides Amtrak with the mandate to provide passenger rail across the country. The NDP has long proposed the federal government pass similar legislation in Canada to define the crown corporation’s public purpose, protect service levels and guide future expansion.

Another example of Canada lagging behind its southern neighbour is the lack legislation giving passenger trains priority on shared tracks. This has made it extremely challenging for VIA to deliver consistent, reliable service to passengers, as described by CEO Mr. Mario Péloquin:

“Since Via Rail owns only 3% of the tracks we use, our trains often have to wait behind freight and commuter trains, which unfortunately makes them chronically late. For example, on the Montreal-Ottawa line, where we have complete control of the tracks, our trains are on time more than 90% of the time, while on the rest of the network, where we run trains on other host railroads, we struggle to achieve 60% punctuality. This is very frustrating for passengers and for our company.”

The NDP recommends the government support legislation giving passenger trains priority on shared tracks, as is currently the case in the U.S. In 2023, MP Taylor Bachrach tabled private member’s bill C-371, which would achieve this objective. Such legislation would allow for VIA to deliver better on-time performance, which would in turn attract greater ridership.

Emphasis on basic transportation and mode shift

While the NDP supports tourism as a vitally important component of Canada’s economy, and while VIA’s long-distance trains are world-renowned tourist attractions, we recommend the federal government’s HFR project heavily prioritize passenger transportation objectives over other ancillary benefits such as tourism.

Passenger rail provides an affordable, sustainable mode of transportation for commuters, students, persons with disabilities, and people making regular trips to attend appointments, shop, or see family.

Canada’s failure to invest sufficiently in passenger rail infrastructure has contributed to the current dominance of automobile and air transport. As the committee heard from Dr. Freemark regarding ridership statistics compared to international examples:

“Rail ridership in Canada is extremely low compared to that in other G7 nations, with the average Canadian taking an intercity rail trip just once every 10 years. That compares to rail travel in a country like Germany, where the average resident takes 25 intercity rail trips a year. […] Unavailability of frequent, rapid and affordable intercity rail access limits the ability of people without a car, with inadequate funds to afford a flight, or living far from an airport to move around the country.”

The dominance of car travel in the Toronto-Quebec City corridor was highlighted by Mr. Karl Blackburn from the Quebec Employers Council:

“Right now, only 2% of all trips in the corridor are by passenger rail service, compared with 94% by car.”

However, Dr. Freemark pointed out that providing fast, reliable and affordable passenger rail around the world has resulted in marked increases in rail’s modal share:

“Based on evidence from corridors around the world, the HFR project may be expected to increase the rail share of the market on the Toronto-to-Montreal segment to between 30% and 60%. However, an investment in faster high-speed rail service could expand that market share to 70% to 90%.

He further noted that Canada’s poor passenger rail system has contributed to high emissions:

“The nation's dependence on flights and cars has resulted in Canada having some of the highest per capita transportation sector carbon emissions in the world—up to three times as high as in peer countries.”

The federal government has committed to reduce greenhouse gas emissions to 40 percent below the 2005 level by 2030, but a 2023 audit from Canada’s Commissioner for the Environment and Sustainable Development found it is not on track to reach that goal. If the government is serious about reaching its 2030 and 2050 targets, it must reduce emissions from the transportation sector, which is among Canada’s fastest growing sources of climate pollution. Facilitating mode shift from individual car trips and flights to rail travel should be an important part of this effort.

Conclusion

Building dedicated passenger rail infrastructure along the Toronto-Quebec City corridor represents an important opportunity for Canada, but New Democrats believe the federal government’s decision to use a P3 model is misguided. This decision will cost taxpayers more, while facilitating private profits that could be better used to improve passenger rail across the country. The government’s shift to the P3 model has already delayed the project timeline, and reduced transparency and accountability for Canadians.

There is a better way. The federal government should invest in new passenger rail infrastructure connecting Canada’s most densely populated urban centers. It should do so in a way that builds on VIA Rail’s proud legacy as a rail transport provider, and results in tangible long-term benefits for all Canadians, no matter where they live. In doing so, we can build a transportation system that is affordable, efficient, safe and convenient. We can support well-paid rail sector jobs. We can catch up to our international peers. And we can ensure our children and grandchildren have clean, sustainable transportation options for decades to come.

Recommendations

That the government re-orient the HFR project to emphasize public ownership and operation by VIA Rail.

That the government pursue legislation giving passenger trains priority on shared tracks throughout Canada, similar to that in the United States.

That the government introduce and support legislation giving VIA Rail a legislated mandate.