February 28, 1934

CON

John Anderson Fraser

Conservative (1867-1942)

Mr. FRASER (Cariboo):

Was my hon.

friend referring to me?

Topic:   PEACE RIVER OUTLET
Subtopic:   PROPOSED CONSTRUCTION OF RAILWAY FROM DISTRICT TO PACIFIC COAST
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UFA

Donald MacBeth Kennedy

United Farmers of Alberta

Mr. KENNEDY (Peace River):

No, I

think it was some other hon. member. I should like to remind the house that the Peace River district is likely to be producing wheat even at a time when great difficulty might face other wheat producing parts of the world. Herman Trelle won the prize at Chicago three years in succession. His exhibit was such that a special order was passed preventing him from exhibiting for a period of three years. He was classed as a super-crop man and was not permitted to exhibit for three years as other exhibitors were becoming discouraged when they were forced to exhibit against him. It would seem, therefore, that we will be producing wheat just as long as the world requires that commodity. But I realize how much stronger our case is when we produce

other commodities, and this argument applies more particularly to that section of British Columbia referred to by the hon. member for Cariboo. When the minister says that certain steps will be taken as soon as circumstances permit, I am not quite willing to accept that on the basis laid down by the engineers. In all their reports- they make the point that until the present lines pay and leave enough over and above to make this outlet pay, the road will not be built. There never was a railway built in Canada on that basis and I do not think we should be asked to comply with such conditions, in order to justify our request for a railway, which never had to be complied by any pioneering settlement in anjr part of Canada. In 1927, notwithstanding the discouraging report of the engineers, the northern Alberta railways actually paid their operating expenses and had enough money left to pay their fixed charges of about $800,000. Yet that was the year in which they brought down this report which said there was no hope, even with the freight rate of 39 cents-and it was on the 30 cent basis that this surplus was acquired-of the lines paying even operating expenses with the immediate traffic or with many times the immediate traffic.

Something was made of the statement by Mr. Brownlee, and I have this to say to the minister: I am not asking for a vote of $13,000,000 or $10,000,000 this year or next j'ear, but there are at least 300 miles of line in that country that will be either part of the main line or branch lines and that will serve settlements now actually in existence. So there is no real conflict at all between the man who says we need branch lines and the man who says we should build the outlet. I do not think I need elaborate that point; in the one case, if you construct this 300 miles of road and take the Peace pass route, it will be part of the main line serving the settlements, but if any other line is built it will be a branch line that will be necessary in any event.

I am disposed, Mr. Speaker, to accept the amendment, always remembering that we can discuss the matter again, and also in view of the financial situation of the country, but I do submit that if we are going to undertake a program of public works in this country certainly we ought to consider whether or not some portion of that money should be spent in the development of a line that will be part of any Peace River outlet that is built. So, Mr. Speaker, while the motion and the amendment are in the hands of the house, I am disposed to accept the motion as amended if

C.N.R.-Capital Structure

the other hon. members are willing to do so; if they are not of course I shall have to vote for the motion.

Topic:   PEACE RIVER OUTLET
Subtopic:   PROPOSED CONSTRUCTION OF RAILWAY FROM DISTRICT TO PACIFIC COAST
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Amendment agreed to. Motion as amended agreed to.


CANADIAN NATIONAL RAILWAYS

PROPOSED CONSIDERATION OF CAPITAL STRUCTURE BY BOARD OF TRUSTEES

?

Mr. A. E. MIJNN@Vancouver North

Whereas, the attention of this house has been drawn by the Royal Commission to inquire into railways and transportation in Canada to the urgent necessity which exists for an early consideration of the capital structure of the Canadian railways (vide section 84-87 of that report), and

Whereas, that commission recognized that a very substantial part of the money invested in the railways comprised within the Canadian National System must be regarded as lost and that its capital liabilities should be heavily written down although the said royal commission did not deem the time opportune when making the said loyal report to deal with this important matter but suggested that the same receive early consideration by the board of trustees, and

Whereas, a board of trustees has been appointed by the government:

Therefore be it resolved, that, in the opinion of this house, it is of vital importance that the attention of the board of trustees of the Canadian National Railways be directed to this matter and that this house deems it highly desirable that the said board of trustees shall consider this question and report thereon with the least possible delay as being of vital and primary importance in the interests of all concerned.

He said: Mr. Speaker, it is not my intention to take up very much of the time of the house; the resolution speaks for itself. This is purely a matter of business and has nothing to^ do with politics. As hon. gentlemen have said already this afternoon, this railway situation is one of our big problems. Now we have a new board of directors, and when you, Mr. Speaker, or any other business man, put a board of directors in charge of that business your ambition is to see that they make it pay. If the new trustees are business men, as I think they are, in my opinion they would want this capital structure remoulded. A great deal of money has been lost, and it is not fair to ask this new board of directors to make provision for that money. It must be written off some time, and while perhaps it should have been done before this, in my opinion there is no excuse for further delay. I realize that this is a huge undertaking; we will be told that there are so many subsidiary companies that it is not possible to carry out this

suggestion, but this is a practical proposition, and in my opinion this resolution should be accepted by the government.

This resolution has as its object the early stabilization of what may be properly called one of the most important public utilities in Canada, the Canadian National Railway's, in which we are all interested because it is owned by the government of Canada. It is not my intention to dwell on how, when or why we became possessed of this great system of transportation; we now own it and, in my humble opinion, should control it and show an interest in its welfare, and in my judgment the first step in proper and intelligent control is to reduce the capitalization as soon as possible to its true present-day value. Such a step as is proposed in the resolution is essential if we are to expect that considerable measure of relief for the taxpayers of Canada to which the Duff report refers. I should like to refer to section 86, which is found at page 30 of that report:

It has been suggested that in view of the excessive capital liabilities in relation to the earning power of the system they should be reduced to an amount which would more nearly approximate the earning power of the railway. The net operating income (i.e., the amount available for interest and dividends) of the Canadian National System for the period 1923 to 1931 inclusive averaged $24,414,447 per annum. This figure would' require adjustment if adequate provision were made for depreciation.

It is obvious that on this basis of earnings the capital liabilities would require a very drastic writing down. And while this commission is of opinion that it must be frankly recognized that a very substantial part of the money invested in the railways comprised within the Canadian National System must be regarded as lost and that its capital liabilities should be heavily written down, they do not consider that the time is opportune to deal with this important matter.

That was their opinion at the time this report was made, but they go on in the next section, 87;

This question as well as that previously referred to, dealing "with the present involved financial structure of the Canadian National System, should, in the opinion of the commission, have the early attention of the board of trustees, which it is recommended should be entrusted with the control and management of the System.

That the problem is a great one, there can be no two opinions, and it is worthy of serious consideration. I would remind the house that the demands of the Canadian National Railways upon the federal treasury have been an important factor in disastrously impairing international credits, so much so that there is

C.N.R.-Capital Structure

difficulty in securing immediate relief in an acute situation through fresh borrowings from 'Great Britain and the United States. I would refer hon. members to the report, paragraph XII, page 31 in regard to this matter. This situation, so graphically described by the commission, is in itself sufficient justification for our beginning at once a wise stock taking.

But there are other reasons. It is a well known fact that the demands of the Canadian National Railways upon the federal treasury have created a financial problem which have been the cause of an increase in taxation.

The resolution, in my opinion, is a step in the right direction and will permit of a better solution of present difficulties. By way of further justification of the resolution I would again refer to the report, for it clearly indicates "the excessive capital liabilities in relation to the earning power of the system should be to an amount which would nearly approximate the earning power of the railway."

Without labouring the question by quoting facts and figures, I would direct the attention of hon. members to paragraphs VIII, IX and X, pages 27 to 30 of the report, wherein will be found facts the seriousness of which will convince the reader that now is the opportune time to direct the attention of the board of trustees to the fact that now is not too soon to take stock and put into operation a rigid course of assessment by revaluation of what, in my humble opinion, is a national asset which, if properly and judiciously managed, may become of infinite worth to the people of this far-flung dominion. To the members of this house as representatives of the people, as custodians of the system, in fairness to all concerned, the board of trustees, the bondholders and employees, but above all to the people as taxpayers and owners, this resolution is submitted in the hope that it may receive favourable consideration.

I do not know just what attitude the government intends taking in connection with this matter. As I said before, it is purely a business proposition and not by any means a political move, and some action should be taken in the very near future. I move the adoption of the resolution.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   PROPOSED CONSIDERATION OF CAPITAL STRUCTURE BY BOARD OF TRUSTEES
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CON

George Brecken Nicholson

Conservative (1867-1942)

Mr. G. B. NICHOLSON (East Algoma):

8386,000,000. The water, whatever there was in it, was squeezed out of the Canadian Northern, and nio cheaper railroad mileage in its physical condition, no better asset from a railway standpoint, was ever produced in this country than the Canadian people secured in the Canadian Northern lines at a cost of 8386,000,000 when they were taken over in 1919.

Then we come to the Grank Trunk. The capital charge and present liabilities of the National railways on account of the Grand Trunk Railway when it was taken over by arbitration was 8216,000,000, making a total for these four sections of the national system of around 8913,000,000. It is frequently stated that the people of Canada were loaded with a lot of deadwood obligations because of the Grand Trunk Railway. But what are the facts? The stockholders of the Grand Trunk, the English people who put their money into it, are the people out of whom that money was squeezed.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   PROPOSED CONSIDERATION OF CAPITAL STRUCTURE BY BOARD OF TRUSTEES
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LIB

Albert Edward Munn

Liberal

Mr. MUNN:

May I ask the hon. member a question? Is he speaking in favour of the resolution or against it?

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   PROPOSED CONSIDERATION OF CAPITAL STRUCTURE BY BOARD OF TRUSTEES
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CON

George Brecken Nicholson

Conservative (1867-1942)

Mr. NICHOLSON:

I am speaking in favour of the resolution. I am speaking in favour of having the capitalization of these roads fixed, and fixed on a proper 'basis, so that the people will know exactly what the roads cost them, and why, and what the roads must earn if they are to compete on a proper basis with other railways. As I have said, the Grand Trunk, the best planned railway system in eastern Canada, second to but few comparable systems in the United States, came into the possession of the Canadian people for the sum of 8216,000,000, in round figures.

Now we come to the fifth section, the Grand Trunk Pacific, built in association with the National Transcontinental under terms by which the Canadian people were responsible in the same degree for the money spent on it.as they were for the money spent on the transcontinental in the east. Why? Because under the terms of the contract entered into with the Grand Trunk the Canadian engineers, or the officials of the transcontinental east of Winnipeg, were responsible for checking the expenditures on the Grand Trunk Pacific west of Winnipeg. Likewise the officers of the Grand Trunk Pacific, in reality of the Grand Trunk, were responsible for checking the expenditures on the transcontinental. The figure for the Grand Trunk Pacific was

8124,826,000. If I wanted to take the time I think I could find where I have said in this house that it always seemed to me that

these two groups of men vied with each other to see which would waste the most money, all chargeable to the Canadian people; for in reality that is what happened-it was a campaign of extravagance equalled only by what has taken place since the lines were taken over by the people themselves.

The gross total of charges against all these lines at the time they were taken over was

81.106.000. 000 odd. To put them on a proper basis and show what should have been charged up to them at that time, there should have been written off from the cost of the transcontinental east of Winnipeg and the Grand Trunk Pacific west of Winnipeg the sum of

8265.000. 000. That is the total sum that should be written off, because the management of the Canadian National Railways has been responsible for every dollar that has gone into them from that day to this. That would have made the total at the time they were taken over, $841,000,000 odd.

At the time the railways were taken over and consolidated into the Canadian National system an accurate estimate was made of what it would require to bring this whole system into such a condition that it could be rated as a class one road as that term is used in reference to railway lines all over North America. Had that been followed out it would have resulted in a basis of approximately $60,000 a mile for the whole Canadian National railway system, including the roadbed and everything that goes with it, and equipment. It may be interesting to the house to know that we secured the Canadian Northern with everything it possessed on a basis of $33,000 odd per mile. But to bring it up to standard would require further expending. I have the figures under my hand but will not take the time to put them into the record, showing what would have been required to bring that line up to a class one basis or 860,000 a mile covering the whole system. The old Grand Trunk, as it is commonly termed, which forms the main connecting link through eastern Canada for the Canadian National system, was a double track line and properly should carry a higher capitalization than the single track lines that constituted the major portion of the system all across Canada. The point is that meanwhile the Canadian people, through the management of the national system, have added something like $1,500,000,000 to the capitalization of the whole. Some say that should all be written off and the lines left with a capital of $840,000,000. Bot if the Canadian people are to have a proper understanding of what the Canadian National railway system means to them

Questions

and has meant to them and will mean to them, the proper thing is to begin where we started and squeeze out the water that was in the lines at the time they were taken over. But the water we have ourselves pumped in should properly remain so that the people will realize what they are doing.

I beg to move the adjournment of the debate.

Motion agreed to and debate adjourned.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   PROPOSED CONSIDERATION OF CAPITAL STRUCTURE BY BOARD OF TRUSTEES
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At six o'clock the house adjourned, without question put, pursuant to standing order. Thursday, March 1, 1934


February 28, 1934