G&W: Kinks On P&W Line Spook Brookfield Acquisition

STB-Ordered Comment Period Closes. Nearly All Filings Relate to Continuation of P&W Trail Project and Excursions. Finance Expert Warns Brookfield Misrepresents its Status, Intentions, and History.

21 August – Following the STB’s 22 July decision to delay granting a control exemption1 to Brookfield Asset Partners/DJP XX ( the latter is the company set up by Brookfield to acquire the GWI acquisition – Ed.), multiple comments have been filed by groups and individuals. Of the 106 railroads that G&W operates in the United States, only the P&W has aroused public interest.

Eleven letters from Rhode Island and Massachusetts local political leaders, municipal governments and departments, tourism and development councils, and others request with varying strength that the new ownership continue the P&W’s traditional efforts to support the communities along its line. One letter from a private citizen presents significant arguments that Brookfield is misrepresenting its status and intentions to win a speedy exemption decision.

Blackstone Valley Greenway

The most-cited concern is the Blackstone River Valley Greenway, a 48-mile multi-use path being made within the Blackstone Valley National Historical Park.2 The Greenway follows the P&W corridor between Worcester and Providence. Approximately half of the Greenway, in several disconnected segments is either completed or under development, following decades of planning that has been encouraged and supported by P&W (and G&W?). None of the comments filed exerts any demands upon the railroad that would purposely limit or impede freight operations or growth. In general they are requests for continued cooperation in siting and developing the trail so as to coexist with the tracks. The Chairman of the Blackstone Heritage Corridor Chair, which is the federally authorized agency overseeing the Corridor’s development wrote, ” The BHC requests that the STB include, as a requirement of the acquisition, that the PW and its new owners will work cooperatively with BHC, municipalities along the Blackstone River, the Commonwealth of Massachusetts, the State of Rhode Island and the US Department of the Interior to complete the Greenway ” {STB filing #248336, 19.Aug.2019}.

Excursions

For more than 20 years, the Blackstone Valley Tourism Council has operated the seasonal Polar Express trains from Woonsocket. It is the oldest operating Polar Express program in the nation, and The Polar Express author Chris van Allburg is a Rhode Island native. the BVTC has been running excursion trains on the P&W for more than 30 years, and expects to sell 23,000 tickets this year. In his letter, BVTC President says that, if the excursion program is unable to count on the P&W’s ongoing cooperation, ” the economic effects for the Valley would be devastating.” He and several other commenters express that they are “hopeful that the Brookfield Asset Management company will want to continue the excursion service along the Providence and Worcester Railroad lines.” { STB filing #248351, 20.Aug.2019 }.

Is Brookfield a railroader, or not?

Lengthy comments by a private individual call into question Brookfield’s standing before the STB, and its commitment to providing reliable, safe, and cost-effective rail service, based on analysis of its existing railroad operations. In the second paragraph of the seven-page filing, the commenter asserts that , ” The 49 C.F.R. § 1180.2 (d)(2) exemption is not applicable to the transaction … there is ample and specific evidence that adverse competitive impacts are both likely and substantial as a direct result of the proposed transaction. Moreover, the negative safety, environmental and decapitalization outcomes will impact over 106 rail carriers and the communities in which they operate. { STB filing #248352, 20.Aug.2019 }”

Pointing to contradicting statements by Brookfield executives, and the company’s nine-year history as the lease-operator of 5500 miles of track in Australia, the commenter provides detailed arguments in support of four points:

  1. Railroad operator history of Brookfield resulting in anticompetitive outcomes
  2. Decapitalization of rail assets
  3. Troubled maintenance and safety record across multiple assets
  4. Foreign influence in controlling key infrastructure assets

Next steps

The comment period ended 21 August ( though the Second Worcester District filed a comment on 22 August – Ed.). The reply period per the 22 July Decision concludes on 5 September. Brookfield filed a preliminary ( premature? – Ed.) response to comments on 16 August, urging the Board to allowing the exemption to take effect on 15 September. There is also a review of the transaction underway by the Committee on Foreign Investment in the United States (CFIUS) to determine whether and how the transaction and ensuing operations will be influenced by the demands of foreign investors, including Brookfield’s major investment partner in the deal, Singapore’s sovereign wealth fund manager, GLC. In its 16 August filing, Brookfield asserts that the STB’s decision should not ride on the outcome of the CFIUS review, and should rightly be rendered expeditiously { STB filing #248336, 16.Aug.2019}. Brookfield’s $4.6 billion purchase of nuclear reactor builder Westinghouse last year was quickly approved by the CFIUS.

Objects in mirror may be closer than they appear

After the 22 July decision to delay the exemption, one analyst said, “We view the comment period as a CYA [cover your ass] exercise for the agency in an attempt to let various industry stakeholders feel their voices are heard on this sizeable financial deal.” { Susquehanna Financial Group transportation analyst Bascombe Majors, 23.July.2019, as reported by Joanna Marsh ca. 25.July.2019 in Freightwaves}. The outing of such patronizing sentiment, in the face of deep public concern over the P&W line, and the surprise broadside by the individual commenter might cause the Board to compel the new ownership to keep the decent hopes of a few New England hamlets on track.


1 STB Docket# FD 36326 ID# 47128 22.July.2019

2 In 2014 Congress established the Blackstone River Valley National Historical Park within the Corridor. See Public Law 113-291 at§ 3032.