February 18, 2014 / 8:39 PM / 5 years ago

CP Railway weighing options for C$2 billion in surplus real estate

CALGARY (Reuters) - Canadian Pacific Railway Co (CP.TO), the country’s second-biggest rail operator, is considering what to do with C$2 billion ($1.83 billion) in surplus real estate, its chief executive said on Tuesday as he defended plans to impose a surcharge on oil tankers he considers unsafe.

Hunter Harrison said at a Calgary event that he has begun talking to the railway’s board of directors about options for the assets.

“We’re not real estate people,” Harrison told the business audience. “We’re not going to go out and sell that. We are however, as we speak, having a dialogue with the board about putting a model in place on what is the best way to optimize, monetize those assets.”

Harrison, the railway turnaround expert appointed as chief executive of CP Railway in 2012 following a bitter proxy battle led by activist investor William Ackman, said he expects the sale process to last as long a three years once the board identifies a method for the dispositions.

However, he spent much of his speech condemning the use of older rail tankers for transporting crude oil. Canadian Pacific levied a $325 surcharge on each DOT-111 tanker, the car type that derailed and spilled explosive crude in Lac-Megantic, Quebec last summer, killing 47 people.

Railroads, shippers and regulators across North America have acknowledged that older DOT-111 tank cars, manufactured before higher standards were adopted in 2011, often fail during accidents, making them more likely to spill their cargo and catch fire.

Harrison said the railway has no choice but to accept the cars because they are approved for use by regulators and the surcharge, condemned by some shippers as way to boost revenue, was solely a way to encourage customers to use safer tankers.

“We’re just trying to discourage people from using DOT-111 tank cars,” he told reporters. “That’s what it’s about. ... It’s not a cash grab.”

Shipping crude by rail has boomed over the past few years because of squeezed pipeline capacity in Canada and the United States. But in the wake of the Lac-Megantic tragedy, Canadian Pacific debated whether it wanted to be in that business.

In the end, because it cannot refuse shipments as a common carrier, it decided to encourage customers to use safer tank cars.

“Oil can be shipped safely,” Harrison said. “If we get the right vessel and if we do it in the proper manner.”

($1 = 1.0957 Canadian dollars)

Reporting by Scott Haggett; Writing by Susan Taylor; Editing by Andre Grenon and Jonathan Oatis

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