As of August 20, the Canadian-American company owning the runaway tanker train that leveled the center of historic Lac-Mégantic, Québec, on July 6 must cease all operations in Canada. Toronto's Justin Giovannetti reported Wednesday in the Globe and Mail that town officials already have plans for a new main street south of the former town center.
The town expects the street to open in October, but meanwhile there's a rather disturbing question of who will pay for the work, the relocation of damaged businesses, and the spiraling injury claims.
FLASHBACK: In the early hours of Saturday, July 6, a driverless MM&A train carrying 72 cars of crude oil from North Dakota's Bakken shale development slipped its brakes in Nantes, eastern Québec. The runaway accelerated seven miles on a downhill slope before jumping the tracks. It spilled millions of gallons of unspecified crude oil that ignited in a flash, vaporized block upon block of buildings, and injured or killed hundreds of people.
Damage, recovery, and consequences for the rail company
The railroad accident, oil spillage, and subsequent explosion took 47 lives, destroyed 125 businesses, and caused an estimated $200 million in damages.
After a month-long review following the crash, the Canadian Transportation Agency determined on Tuesday that the Montreal, Maine & Atlantic Railway will not be able to acquire enough third-party insurance to run trains. CTA then revoked its certificate of fitness, which required the company to be able to settle the first accident claims and retain enough prudent reserve coverage to handle additional claims if two more accidents should occur.
The disaster was said to be "the worst of its kind in North America in two decades." Recovery and cleanup began immediately, and by Wednesday there were over 200 searchers combing acres of ruins for survivors, bodies, and evidence. The Transportation Safety Board and Québec provincial police, among others, are conducting investigations, and liability and criminal probes are under way.
"[Shutting down the carrier] was not a decision made lightly, as it affects the economies of communities along the railway, employees of MMA and MMAC, as well as the shippers who depend on rail services,” said Geoff Hare, chair and CEO of the Canadian Transportation Agency.
The CTA told Canadian reporters that there are only around 30 to 40 companies involved in rail insurance, all highly specialized. Canadian law requires no set minimum amount of insurance coverage. Coverage amounts are derived from a risk assessment carried out by both the insurance and railway companies. MMA reportedly has $25 million in coverage, about the median for rail companies of similar size in North America.
The CTA said that before now, no federally regulated railways had exceeded its third-party liability cap during the past 10 years. However, the cleanup costs for the Lac-Mégantic accident are expected to top $200 million, not counting multiple lawsuits filed by victim families, homeowners, and businesses in the accident area.
A spokesman for the United Steelworkers union reported that 13 workers have already been laid off from the company and still have not received the pay they were owed. Close to 60 other people will probably lose their jobs. The consequences for companies that depended on the railway for transporting freight are also dire.
Last week, MM&A applied for and received bankruptcy protection from its creditors in both Canada and the United States. (Shared jurisprudence is common for border-straddling companies.) The creditor protection means that the Québec provincial government is now first in line to be paid with the company's remaining funds.
Quebec Health Minister Réjean Hébert said the government’s plan is "to pass on the majority of the money they receive from the company to the people of the town and business owners who lost their livelihood last month.... The first objective will be to support the victims, and then when the victims will have the money to compensate (for) the disaster, we will then use the (rest of) money for the cleaning up work that is needed.”
Because of the trouble at Lac-Mégantic, the Canadian Transportation Agency is now reviewing insurance coverage requirements for all federally regulated railways.
With no income-generating traffic, MM&A has lost its major revenue stream. The U.S.-Canadian company has only $18 million in assets (less than half of its earlier claim), not nearly enough to cover the disaster. "It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as a direct result of the tragic derailment at Lac-Mégantic, Québec, on July 6," the company president said two weeks ago.
Knowing that MM&A is broke, the Québec government is seeking other companies involved to pay for the environmental cleanup. Canadian Pacific Railway, the main contractor responsible for the overall oil shipment from North Dakota, has been added to MM&A legal notice. Also, the government has named World Fuel Services, who owned the oil being transported.
Until the bankruptcy, MM&A had been supervising the environmental cleanup at the center of town. The government turned over responsibility for cleanup work, which has cost $9.5 million so far, to a construction management company, Pomerleau Ltd.
Much of the oil spilled from derailed train cars leached into the air (via gas emissions, smoke, and soot), soil, and water of Lac-Mégantic and its surroundings. The Société pour Vaincre la Pollution, a nongovernment organization, conducted initial tests with the help of Greenpeace that found significant impacts on water quality and soil.
The SVP analysis found that local surface waters tested almost four hundred thousand times the Québec standard for carcinogenic polycyclic aromatic hydrocarbons. They detected arsenic on the water's surface at almost 30 times the government's acceptable standard. SVP lacked the resources necessary to quantify other pollutants. The soil contamination may prove even more extensive than the water impacts and make the land virtually unusable for years or decades.
A day after the environmental group released its results, the Québec government's environment ministry said that the quality of air and water in the vicinity were returning to normal levels and there was no sign yet of grave danger to human health.
SVP criticized the government for not having or holding back information about the contamination, especially as the province has conducted widespread sampling already but not yet issued a report. The government agreed with SVP that floods or abrupt changes in water levels could loosen and resurface currently submerged oil and soil-trapped hydrocarbons at the water's edge.
Plans to rebuild
The Toronto Globe and Mail reports the town's new building plans and funding sources:
"Two blocks from the main thoroughfare, a new downtown will be driven through forests and mud and across a planned bridge over the narrow Chaudière River. The historic downtown will be replaced with a memorial park honouring the disaster’s 47 victims, after a large-scale, years-long cleanup is completed."
At least one insurance company has refused to pay for reconstruction due to contamination.
The office of Lac-Mégantic's Mayor Colette Roy-Laroche has said that the Canadian and Québec governments have pledged $120 million for the cleanup and rebuilding. The local economy will receive $35 million of these funds. Private donations already pledged and being actively pursued will also be directed to rebuilding. With zoning changes, the private sector expects to be able to pay for much of the building construction necessary. The relocation plan may also change the character of the town’s working-class Fatima district by infusing new businesses there.
“Everyone in the government is aware of the problem and they are all talking,” said Pascal Hallé, president of the local chamber of commerce. “This will cost money. It won’t be bric-à-brac, we are going to build something pleasing.”
Bottom line for the petroleum industry
Some pundits, like Diana Furchtgott-Roth in the Globe and Mail and Queen’s Professor Warren Mabee in the Toronto Star, have commented that the train disaster may swing the public's perception of safe oil transport in the direction of pipelines rather than trains or other moving vehicles. However, in Canadian Business immediately after the accident, energy and environmental economist Andrew Leach of the University of Alberta's School of Business opined that the tragedy would be felt industry-wide. To date, his vision seems to have prevailed.
"I expect... that there will be three first-order effects that will be very similar to those that followed the BP spill [from the Deepwater Horizon drill rig in the Gulf of Mexico]: (1) increased public consciousness of the dangers inherent in transporting oil and oil products, and more aversion to having these products moved nearby; (2) increased calls for alternatives to oil rather than alternative means of transporting oil; and (3) decreased trust in regulators’ and firms’ abilities to sufficiently mitigate risks from transporting oil."
Award-winning science writer Sandy Dechert covers environmental, health, and energy policy and issues. She has reported extensively on climate change, extreme weather disasters, including superstorm Sandy, the 2012-2013 drought, and the massive summer wildfires of the past decade. She also detailed events and policy at last fall's 18th UN climate change summit meeting in Doha, Qatar.
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