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Clock ticking on Chicago rail deal: CN

Canadian National Railway (CN) wants U.S. rail regulators to approve its proposed takeover of a Chicago-area shortline, then hold the environmental review later, to keep the deal from dying.

CN on Friday said it has asked the U.S. Surface Transportation Board (STB) to take a “new approach” to CN’s proposal to buy the Elgin, Joliet and Eastern Railway Co. (EJandE) from U.S. Steel for $300 million (all figures US$).

CN has asked the STB to issue a final decision on the transportation merits of the deal, giving CN and U.S. Steel time to close the sale before the end of this year, but “to preserve the environmental status quo pending further STB action on the environmental issues posed by the transaction.”

Such a move would assure “adequate protection of the environment” for communities along the Illinois rail line, but also “would avoid the risk to the broader public interest in improved rail transportation posed by regulatory delays that threaten termination of the transaction.”

More specifically, the railway said, U.S. Steel recently rejected CN’s request to modify the stock purchase agreement or take other action that would allow the two companies to seal their deal if approved sometime after Dec. 31 this year.

Thus, CN has asked the STB to decide by Sept. 15 if it will change its schedule to allow a decision on the “transportation merits” of the deal by Oct. 15, thus clearing it of any federal concerns over rail competition.

“CN contends that, so long as the environment is not affected by the transaction during environmental review, the law requires the (STB) to approve the transaction on its competitive merits,” CN wrote in a release Friday.

CN said it’s “entitled to and requires” this approach because the STB previously rejected CN’s request for a fixed timetable that would otherwise conclude the regulatory and environmental review by the end of this year.

If the STB doesn’t move on CN’s proposal by Sept. 15, the company said it plans to petition the U.S. Court of Appeals, District of Columbia Circuit, for a court order forcing the STB to make a final decision that would allow CN to close the deal by Dec. 31.

“Congestion issues”

“This transaction enjoys significant support from a broad array of shippers and the range of other parties who have a stake in making sure that the serious rail congestion issues plaguing Chicago are being addressed by sound transportation initiatives such as the acquisition by CN of the EJandE,” CN CEO Hunter Harrison said in the Montreal company’s release.

EJandE is a Class II railroad with 198 mainline miles of track circling Chicago from Waukegan in the north through to Joliet, Ill., Gary, Ind., and South Chicago. When it announced the proposed deal in September last year, CN said the line would “improve the fluidity” of its operations by allowing its through traffic to bypass the city, and fill the “missing link” between CN’s eastern, western and southern rail networks.

That, in turn, would improve operations on the CN system and the rest of the Chicago rail network by moving CN trains out of the urban core to EJandE lines on the outskirts of the Chicago area, the company said at the time, when it had expected to deal to be closed by mid-2008.

“We have consistently stated that we understand and are willing to address the concerns of communities that will experience train traffic increases as a result of this transaction,” Harrison said.

CN said it has been “actively engaged” in the STB’s environmental review process and will take part in public hearings in the region. CN also said it will work with affected communities along the line toward “voluntary mitigation agreements” to deal with “reasonable” environmental concerns related to increased train traffic on the line.

The company said it already plans to spend $40 million on mitigation work and $100 million more on new connections and improved infrastructure on the line.

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