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A firefighter walks past some piles of debris inside the red zone in Lac-Mégantic, Que., on July 14, 2013.

Canadian Pacific Railway Ltd. has significant concerns about the ability of Montreal, Maine & Atlantic Railway to ship oil safely, warning regulators in Ottawa that there are "serious and alarming risks" in allowing the railway at the heart of the Lac-Mégantic, Que., disaster to resume transporting crude.

The Canadian Transportation Agency ordered CP on Wednesday to lift its embargo on handing off oil tankers and other rail cars to MM&A, saying the freeze would cause irreparable harm to the small railway, which has filed for bankruptcy protection in Canada and the United States.

Maine-based MM&A served as a key link in the chain of rail operators that connect oil producers in North Dakota with a refinery in New Brunswick before one of its trains derailed in Lac-Mégantic in July, killing 47 and decimating the downtown.

CP and Canada's other national carrier, Canadian National Railway, ceased doing business with MM&A last week after the CTA ordered the carrier to halt operations in Canada over concerns it had insufficient insurance coverage. The regulator reversed its decision a few days later, saying it was satisfied that MM&A had obtained the necessary insurance to continue operating for a few more months. It has allowed the regional carrier to continue business until October.

Federal laws require railways to work with any rail operator that connects to their lines, but CP refused to lift its embargo, worried that MM&A does not have enough insurance to cover another derailment and can't ship hazardous materials, such as crude, safely because of deep cuts it has made to its operations.

CP's chief executive officer, Hunter Harrison, said on Thursday that the railway will comply with the order, but is also seeking legal counsel.

"While we disagree with this order, we have taken immediate steps to comply," Mr Harrison said in a statement. "The CTA, as federal regulator, has satisfied itself that MM&A is fit to operate and has adequate insurance to do so. We will review our legal options."

MM&A chairman Ed Burkhardt said he is struggling to understand CP's position, particularly since MM&A announced it was getting out of the oil shipping business. As well, he said the railway has not contacted MM&A to discuss the state of its operations, nor has CP returned his calls.

"I disagree with nearly everything [CP is saying]," Mr. Burkhardt said. "They have no grounds for taking the position that they have. They have never inquired into any of this. We are regulated by Transport Canada in terms of safety. We're in compliance."

The CTA order follows days of confidential and high-stakes discussions between the regulator and the two railway companies after CP's refusal last week to work with MM&A.

In a letter to CP, the CTA said: "The agency finds that, on balance, MMA will suffer irreparable harm as a result of CP's embargo."

CP said there are "serious and alarming risks associated with MMA's ongoing operations," including shipping crude over its aging rail infrastructure. "The issue before the agency is not one that is rooted in contractual or commercial law, but is instead one that is hearted in the protection of the safety and well-being of all Canadians," the railway said.

CP said it is "overwhelmingly concerned" about the risks of transporting crude that is still being analyzed by federal investigators to determine "why the oil created such a fierce fire" after the Lac-Mégantic derailment. MM&A transports North Dakota or Western Canadian oil from Montreal and other eastern hubs to a Saint John refinery owned by the Irving family.

MM&A is seeking to sell its business out of bankruptcy court and a spokesman for the Irving family's rail company, NB&M Railways, recently indicated that it was potentially interested in acquiring the Maine carrier.

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