Rail officials in the United States are preparing contingency plans for the potential shutdown of Montreal, Maine & Atlantic, the railway at the centre of the train disaster in Lac-Mégantic, Que., should the cash-strapped company be forced to stop service temporarily or cease operations altogether.
MM&A has sent strong signals in recent days that it could be financially challenged after the Lac-Mégantic derailment, in which tankers carrying crude oil exploded in the heart of town, killing at least 47. There are doubts within the company about whether MM&A has enough insurance to cover cleanup costs and lawsuits stemming from the catastrophe, a company source told The Globe and Mail.
On Monday, the Quebec government ordered MM&A and Miami-based Western Fuel, which was shipping the crude to New Brunswick, to finance the cleanup of Lac-Mégantic’s ravaged downtown. MM&A missed deadlines on payments for the operation, leaving local officials saddled with a bill that is $4-million and rising by the day.
The lack of funds could complicate the cleanup and lawsuits. Businesses that rely on the railway in Lac-Mégantic and other communities are already looking at other options. Tafisa Canada, the region’s largest private employer and one of MM&A’s biggest customers, has been building a trucking network.
In light of the challenges for the company, officials in Maine, where MM&A is headquartered, have started drawing up contingency plans for a potential shutdown or other disruption.
“We’re discussing it. I wouldn’t be straight with you if I said we were not,” said Nathan Moulton, director of rail for the Maine Department of Transportation. “We’re preparing. We’ve talked with our lawyers so that we’re prepared, and we’re doing our background.”
The railway’s chairman, Edward Burkhardt, declined to discuss the company’s options, including the potential for seeking bankruptcy protection. “We’re actively researching that subject right now,” Mr. Burkhardt said.
Although MM&A is tight-lipped about how the next few months could unfold, a source close to MM&A told The Globe the railway’s future is bleak because of concerns about insufficient insurance coverage to pay clean-up and litigation bills that will mostly likely be billions of dollars.
Regulators in the United States are watching closely, because a sudden shutdown of MM&A would snarl shipping in the northeastern part of the country. Maine is a hub state for rail transport, and the small railway has served as a key link in the chain that transports oil cars from the Bakken region of North Dakota to a large refinery owned by Irving in Saint John, NB.
MM&A’s cash problems are not new. The company has lost money almost every year since MM&A parent company Rail World Inc. bought it in 2003, and has cut staff salaries and routes. However, the railway was able to find some financial footing in 2012, helped by booming crude exports from the Bakken oil fields.
Given the signals being sent by the railway, U.S. transportation officials are not wasting time. Mr. Moulton said his office has started talking to other railways in the region, including MM&A rival Pan American and other players, about picking up MM&A business on an emergency basis if needed. Oil can be shipped into Canada through Maine in three or four ways. As well, oil could be shipped to Albany, N.Y., and barged part of the way, where it would link up with other railways before crossing the border.
Another scenario is a possible sale of MM&A’s assets to another railway. However, should MM&A suddenly shut down, federal officials at the Surface Transportation Board in Washington, D.C., would appoint someone to oversee the railway to keep it running while a new operator is found. The plans have been discussed in recent weeks.
“It’s laid out. If it’s a bankruptcy, here’s what happens. If it’s a break in service, here’s what happens,” Mr. Moulton said. “What that will look like, I can’t tell you right now.
“We’ve been through some railway bankruptcies before, and some abandonments, whatever it is. So we know a little bit about it.”
MM&A has laid off staff in recent weeks, and has cut the number of trains it is running, but the company continues to operate most of its routes.
“They’re still operating,” Mr. Moulton said. “We’ve seen a few cutbacks. Some roads have gone from three days a week to two days a week, or things like that. People are still getting service from what we’ve seen.”