Canada to Overhaul Rail Safety Rules; More Insurance Will Be Required

By and Frederic Tomesco | February 23, 2015

The Canadian government is overhauling its safety rules for crude oil shipments by train, creating a disaster fund and forcing railways to carry more insurance.

Oil companies will pay into the fund, which will be used when a railway’s insurance can’t cover the liabilities in an accident, according to the Safe and Accountable Rail Act introduced in Parliament last week.

The move will add to the oil industry’s costs and reduce competitiveness, the Canadian Association of Petroleum Producers said. The industry group was told payments from oil shippers would be capped once the fund reaches a certain size, Greg Stringham, a vice president at CAPP, said in a phone interview from Calgary.

“At this time of lower oil prices, it does provide an additional cost that is going to be somewhat impacting on the competitiveness,” Stringham said. “We knew it was coming.”

The minimum insurance railways must carry will range from C$25 million ($20 million) to C$1 billion, according to the bill. Transport Minister Lisa Raitt said the introduction of the new rules would be staggered over two years.

“This action today will protect Canadian communities,” Raitt told reporters in Ottawa.

Lac-Megantic

The legislation comes as regulators across North America seek to improve rail safety rules following the 2013 derailment in Lac-Megantic, Quebec, that killed 47 people. Montreal, Maine & Atlantic Railway Ltd., the railway involved in that crash, later filed for bankruptcy. At the time of the derailment its insurance wasn’t enough to cover the multimillion-dollar costs of evacuation, fire suppression, cleanup, injury and property damage.

“Everything that we’ve announced today has been in reaction to what happened in Lac-Megantic,” Raitt said. “You don’t see something like that and talk to the people without realizing that you want to do something to do things better.”

The levies on shippers of crude oil will be calculated based on how many metric tons are shipped, the bill says. The levy is set in the bill at C$1.65 per ton for the first year, and is tied thereafter to the Consumer Price Index.

The levy would be from 21 to 24 cents per barrel, depending on the type of crude being shipped, according to Jackie Forrest, vice president at ARC Financial Corp. in Calgary.

Emergency Response

CAPP has been working with the federal government to provide input on issues like emergency response and equipment standards for oil transport by rail, Stringham said.

The bill also boosts the minister’s oversight powers, such as forcing railways to correct their safety plans if necessary. It also will allow provinces or municipalities to apply to recover firefighting costs from railways in the event of a fire related to rail operations.

Mark Hallman, a spokesman for Canadian National Railway Co. in Toronto, said the company was reviewing the draft legislation and had no immediate comment. Martin Cej, a spokesman for Canadian Pacific Railway Ltd. in Calgary, didn’t return calls seeking comment.

–With assistance from Theophilos Argitis in Ottawa and Jeremy van Loon, Robert Tuttle and Rebecca Penty in Calgary.

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