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Canadian National Railway Co. is paying $1-billion in cash to acquire provincially owned BC Rail Ltd., unveiling a plan yesterday to expand its fleet of rail cars and chop 430 jobs.

B.C. Premier Gordon Campbell and CN chief executive officer Hunter Harrison announced the deal in front of provincial Liberal cabinet ministers and MLAs in Victoria, with Mr. Campbell's caucus applauding the long-awaited move to unload debt-laden BC Rail's freight operations.

"It creates a very strong franchise," Mr. Harrison said.

The combination of Montreal-based CN, Canada's largest railway, and North Vancouver-based BC Rail, the country's third largest, will ensure the long-term health of rail service in B.C., he said.

Mr. Campbell emphasized that the provincial government will maintain ownership of the tracks, rail beds and rights-of-way, while CN will pick up an operating lease that could last up to 90 years.

The price tag for the deal includes $750-million for the business value of BC Rail and $250-million for the right to use a pool of roughly $850-million in potential tax writeoffs.

The deal is expected to close by the end of next March if it is approved by the Competition Bureau.

CN must adhere to a five-year moratorium on any track closings in British Columbia and has agreed to add 600 rail cars, upgrade 1,500 others, open a regional office in Prince George and provide training for aboriginals.

The new rail cars would help boost CN's market share in transporting forest products.

CN estimates that, over the next three years, 250 BC Rail workers will qualify for early retirement, while 180 layoffs could be required to reach the forecast 430 job cuts, or nearly one-third of the work force. Most of the cuts will occur in Greater Vancouver and are designed to keep BC Rail competitive, CN said.

The government's proceeds from the $1-billion sale will go toward paying off BC Rail's $500-million debt. Another $135-million will be invested in a program to bolster northern B.C. communities and $17.2-million is earmarked for expanding the port at Prince Rupert. Nearly 500 port-related jobs could be created in Prince Rupert in economically depressed northwestern British Columbia.

More investments will be announced in the months ahead, including the possibility of new passenger train services to take advantage of the tourism demand.

The B.C. New Democratic Party, labour leaders and other critics denounced the transaction, saying it amounts to a broken promise by the Liberals to protect BC Rail.

During the successful 2001 election campaign, Mr. Campbell pledged that BC Rail would not be sold -- a promise that political observers described as a reversal from his 1996 vow to sell the Crown corporation. The B.C. Liberals lost the 1996 election to the NDP, with pundits pointing to the loss of votes in ridings along BC Rail tracks as the main reason for the NDP win.

Paul Nettleton, an independent MLA who was ousted from the Liberal caucus last year for criticizing the government's hydroelectric policies, said the Liberals have alienated voters in rural communities that rely on BC Rail jobs.

Although he is pleased to see that CN will establish a regional office in Prince George and invest in a wheel shop, he expressed skepticism about the government's motives in selecting CN over two other bids.

"This is an attempt by the Liberals to buy back votes, but I don't think they will be successful," said Mr. Nettleton, who represents the riding of Prince George-Omineca.

CN, Calgary-based Canadian Pacific Railway Ltd. and a partnership between Denver-based OmniTrax Inc. and Burlington Northern Santa Fe Corp. of Fort Worth, Tex., filed their proposals in mid-September.

CP Rail and the OmniTrax-led bid have said that CN appeared to have been the front-runner from the outset. Yesterday, OmniTrax president Dwight Johnson said he's disappointed by the government's decision to select CN.

Mr. Harrison dismissed speculation that CN would virtually gut BC Rail by axing 1,200 of 1,380 workers, saying his goal is to run a railway and not slash costs for the sake of doing so.

CN will have the right to operate BC Rail under a 60-year lease, with a clause allowing it to renew for another 30 years.

Mr. Campbell shot back at his critics by saying the rail beds will stay in public hands under Crown-owned BC Railway Co., and there will be tax revenue from having CN as the operator.

Writedowns on BC Rail operations have reached $860-million over the past 15 years, he said.

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