TYEE ARTICLE: Railgate Bombshell: BC Gov't Ethics Scorched by Rail Firms

Angry bidders 'dismayed' by 'unfair' process in $1 billion privatization

View full article and comments here http://thetyee.ca/News/2009/03/03/BCRail/

By Bill Tieleman

Published: March 3, 2009

TheTyee.ca

Two major rail companies who dropped out of bidding on the $1 billion privatization of B.C. Rail angrily accused the BC Liberals of leaking vital secrets to the winning competitor and conducting an "unfair" process.

The allegations are contained in newly-released confidential government documents dating back to the time of the negotiations in 2003.

Canadian Pacific Railroad stated in a letter to Ken Dobell, Premier Gordon Campbell's senior deputy minister, that the "actual value of the bids" in the $1 billion privatization of B.C. Rail in 2003 were known by winning bidder Canadian National and others before the B.C. government made its decision.

And Burlington Northern Santa Fe Railway dropped out of its role supporting the bid of OmniTRAX, writing in a letter that it was "extremely dismayed with the handling of the B.C. Rail Transaction.... because of the lack of fairness in which the process has been conducted." That letter was sent to CIBC World Markets managing director Alan Wallace, whose firm handled the B.C. Rail sale for the province.

CPR also dropped out of the bidding before CN was announced as the winner, calling the process "unfair" because it believed the B.C. government had leaked confidential B.C. Rail information to CN, giving that company a clear advantage in preparing its bid.

CN given advantage: CPR

The Nov. 17, 2003, letter from CPR vice-president of strategy and law Marcella Szel to Dobell says that its "market intelligence" showed "that CN was speaking directly to B.C. Rail shippers about their bid, with what we must consider the approval of the [B.C. Rail] Evaluation Committee, since the confidentiality agreement clearly stated no such discussions were to be held without consent."

"This feedback included the marketplace being aware of the actual value of the bids," Szel wrote to Dobell, just eight days before the B.C. government announced the sale of B.C. Rail to CN.

The letters are part of 8,000 pages of documents ordered released by B.C. Supreme Court Justice Elizabeth Bennett last week in response to a court application filed on behalf of New Democratic Party MLA Leonard Krog.

Bennett also ordered that the documents be made available to media and the public for review but not photocopying at the court's Criminal Registry, where I obtained the information, taking notes in longhand for the Tyee and 24 hours newspaper.

[Applications to make photocopies must be decided by Bennett in court, which does not sit until March 9, including serving notice to lawyers for the B.C. government, B.C. Rail, the Special Prosecutor and the defence -- about 10 in total.]

The information was obtained through Freedom Of Information requests by defence counsel acting for David Basi, Bob Virk and Aneal Basi, three former government aides facing corruption charges related to the sale of B.C. Rail.

CPR sent the letter to Dobell three days after a Vancouver Sun story Nov. 14, 2003, speculated CN would be announced as the winning bidder -- a story that CPR says the government leaked.

"...Late on Thursday November 13, when we received an email from the CIBC advising us that they had 'commenced detailed discussions with one of the proponents.' It is now hard to believe that CPR would have been provided such clarification had the government parties in the process not been aware of the planned story in the Vancouver Sun and CIBC had not also been made aware of CPR's knowledge of CN's activities," Szel wrote Dobell.

'Irreparable impacts': Burlington Northern

For its part, BNSF was also furious with both the government and CIBC World Markets.

"We have been advised that the chosen proponent was provided, as early as the first half of October, with information from B.C. Rail including confidential inter-rail division information involving BNSF customers and business flows," reads a Nov. 24, 2003, letter from Peter Rickershauser, Burlington Northern Santa Fe vice president network development, to Allan Wallace, managing director of CIBC World Markets, and copied to senior bureaucrats, including deputy minister of Provincial Revenue Chris Trumpy and B.C. Rail chair John McLernan.

"Disclosure of such information to a competitor of BSNF places BSNF at a distinct competitive disadvantage, with irreparable negative financial impacts to our company and customers," Rickershauser complained.

In an earlier letter to Wallace dated Nov. 18, 2003, Rickershauser blasted CIBC World Markets with both barrels:

"I and Burlington Northern Santa Fe Railway are extremely dismayed with the handling of the B.C. Rail Transaction, especially in recent weeks as managed by CIBC World Markets. Our dismay arises because of the lack of fairness in which the process has been conducted so far, the apparent favoritism of certain bidders, and the lack of timely information provided to all participants involved in the process," Rickershauser wrote.

"Reports and rumours of CN talking directly with B.C. Rail shippers and communities have been circulating for several weeks in shipper, government and media circles.... In fact, reports from shippers indicate that CN has been discussing what it will or will not do when it is awarded the B.C. Rail concession." Rickershauser concluded.

'Process fundamentally flawed': BNSF

BNSF vented its spleen again in a Nov. 19, 2003 letter to OmniTRAX president Dwight Johnson telling him that it was withdrawing its support for the OmniTRAX bid for B.C. Rail.

"It is with much regret that I inform you that Burlington Northern Santa Fe Railway Company has decided to terminate the support we have provided to OmniTRAX Inc. in its efforts to obtain the B.C. Rail concession," Rickershauser wrote.

"As you know, BNSF has continually been frustrated by the lack of information, processes, and independence and candor of CIBC, as well as confirmed reports from CIBC advising that one of the other proponents has been selected to receive additional information as well as present information on their bid to shippers and others. Based upon these facts, BNSF cannot afford to spend any more time on this futile venture," he wrote, adding that the decision was "not a negative reflection" in any way on OmniTRAX.

"...Recently, however, the facts surrounding the bidding process which have came to light have illustrated that the process is fundamentally flawed because of the lack of credibility and ethics surrounding it," Rickershauser said. "The last straw was recent reports that have illustrated the blatant favoritism shown to one of the bidders (recently announced as a chosen 'proponent'). All of this leaves BNSF with no other option than to withdraw from the process."

Although it was known at the time of the bid announcement that both CPR and OmniTRAX had concerns about the process, the allegation by CPR that CN and others knew the "actual value of the bids" has never before been made public, nor have the letters from BNSF denouncing the government and CIBC World Markets.

The Vancouver Sun obtained some letters from CPR to Premier Gordon Campbell's office through FOI requests in March 2004, forcing the government to admit for the first time that confidential information was leaked to CN.

But Transportation Minister Kevin Falcon said at the time it was "an accident" that had no impact on the fairness of the process.

It's clear from the additional letters now made public that neither CPR nor BNSF believe the leaking was anything but deliberate.

The newly-released documents examined so far also show that CIBC World Markets response to the complaint letters primarily consisted of reminding the former bidders to honour their confidentiality agreements.

Dobell assailed for press report

CPR's Marcella Szel pulls no punches in her Nov. 17, 2003 letter to Ken Dobell, which is presented here in full.

"The story appearing in Friday's Vancouver Sun speculating on the outcome of the BCR sale was no surprise to CPR. Our market intelligence in the weeks prior to the story was that CN was speaking directly to BCR shippers about their bid, with what we must consider the approval of the [B.C. Rail] Evaluation Committee, since the confidentiality agreement clearly stated no such discussions were to be held without consent."

"This feedback included the marketplace being aware of the actual value of the bids. During the time we believe CN was talking to BCR customers, CPR was asked by the designated CIBC process representative if we would extend our bid to accommodate more study of all bids. We agreed to do so."

"There was no indication that one of the bidders would receive preferred access to BCR's shippers or other information on the railway's operation until late on Thursday, November 13, when we received an email from the CIBC advising us that they had 'commenced detailed discussions with one of the proponents.'"

"It is now hard to believe that CPR would have been provided with such clarification had the government parties in the process not been aware of the planned story in the Vancouver Sun and CIBC had not also been made aware of CPR's knowledge of CN's activities."

"This clear breach of general process fairness and a violation of the intent of the specific process established and communicated by the Evaluation Committee."

'CPR at risk of losing existing business'

Szel went on to say that the consequences for CPR are: 1) lack of fairness; 2) that the marketplace was aware of CN's presence and "judged CPR to be naïve and out of the process loop when we stated we were unable to discuss the process or comment on the information that they were conveying due to our obligation to adhere to confidentiality agreements in place; 3) "CPR is at risk of losing existing business or being disadvantaged in attracting new business."

Despite the bitterness of the letter, Szel still offers to "discuss with you how the British Columbia government can re-establish this kind of confidence with the CPR."

It appears unlikely that was easily accomplished, if at all.

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