(Adds comments by Canadian National, forest producers)
By David Ljunggren
OTTAWA May 16 The Canadian government said on
Tuesday it planned to maintain a revenue cap on western grain
that Canadian National Railway Co and Canadian Pacific
Railway Ltd haul for export, a move farmers praised.
The rail firms oppose the cap, formally known as the maximum
revenue entitlement (MRE). It dates back to 2000 and aims to
balance the market power of the rail industry with that of
farmers and grain companies, which in many areas rely on one
"We're going to maintain the MRE ... It's a good thing,"
Transport Minister Marc Garneau told a news conference.
Ottawa will tweak the system to give the railway companies
more reasons to invest in rail cars to move grain, he said, an
announcement that Canadian National welcomed.
Reuters first reported on Monday that the cap would stay.
Railways say it reduces their incentive to invest in grain
Farmers say the cap controls costs when they deliver grain.
Railways are critical to moving crops the vast distances from
western grain elevators to ports in British Columbia and on the
The Western Canadian Wheat Growers said the measures
outlined in the bill should boost competition and capacity.
"We see all of this as positive and hope it ensures improved
service of railways," said Daryl Fransoo, the group's director.
Maintaining the revenue cap is contained in draft
legislation on modernizing Canada's rail transportation system.
The ruling Liberals have a majority in the House of Commons,
which means the legislation will be adopted.
Canadian Pacific said it was studying the bill. In a note to
clients, RBC Dominion Securities Walter Spracklin said the bill
was "a mild negative for railroads."
Shares of Canadian Pacific closed down 1.5 percent while
Canadian National stock slipped 0.8 percent.
The draft legislation would also allow shippers of grain and
other commodities such as lumber to seek financial penalties in
service agreements with railways.
The Forest Products Association of Canada said the bill
would help keep costs under control.
"Most of our mills are in rural and northern communities and
have few options on how to get products to market," said head of
the association Derek Nighbor.
The bill, which Ottawa hopes will be adopted in early 2018,
would also extend limits on interswitching, the transfer of cars
from one railway's line to the line of another. The measure is
designed to boost competition from U.S. carriers such as BNSF
Rail companies are now obliged to transport hopper cars a
maximum of 160 km (100 miles) to another firm's tracks. Under
the new rules, that distance would be extended to 1,200 km in
(Reporting by David Ljunggren; Editing by Andrea Ricci and Lisa