September 22, 2014 / 9:04 PM / 3 years ago

Canada may spread oil-by-rail insurance burden, mulls special fund

OTTAWA (Reuters) - The Canadian government is looking at extending the insurance burden for crude-by-rail disasters beyond just railways and is weighing the idea of a special fund similar to one once set up for maritime oil spills, a government official said.

The potential policy move comes over a year after a runaway oil train exploded in Lac-Mégantic, Quebec, leveling the heart of the town and killing 47 people. The cleanup and reconstruction bill, now being covered by governments, is expected to be at least C$400 million ($360 million).

The country's Conservative government pledged last year to make railways carry more insurance to deal with such disasters, but is coming around to the idea that it is unrealistic for the industry to bear the entire cost, said the official, speaking on condition of anonymity as he was not authorized to speak publicly.

"It's not likely to be the railways alone," he said.

A representative for Transport Minister Lisa Raitt declined to comment on whether there would be a maritime-type fund set up but confirmed that she was looking to shippers in addition to railways for extra coverage.

"The taxpayer should not have to fund the cost of damages after an incident," said Raitt's press secretary, Jana Regimbal.

Railways and other groups have argued shippers and brokers should also have adequate insurance, and even then some say it may be necessary to set up a separate fund.

Montreal Maine & Atlantic Railway - the carrier responsible for the Lac-Mégantic crash - exhausted the C$25 million insurance that the government had required it to carry and swiftly went bankrupt.

The federal government promised last October in its overall policy document, to change the rules, mindful that extraordinary expansion of shipping oil by rail is rapidly increasing the risks.

"As efforts to clean up and rebuild Lac-Mégantic demonstrate, railway companies must be able to bear the cost of their action. Our government will require shippers and railways to carry additional insurance," it said.

In consultations with the federal government, the Manitoba government said taxpayers should in no way have to deal with the fallout, but that it may be unrealistic to have each railway get enough insurance to cover extreme accidents.

"Such an insurance requirement may pose a significant burden for shortline and regional railways," said Esther Nagtegaal, assistant deputy minister in the province's infrastructure and transportation department.

She pointed instead to the Ship-Source Oil Pollution Fund, which was funded with levies on oil tanker shipments between 1972-76.

The federal government official who spoke to Reuters also said this was among the options Ottawa was considering.

If a rail-disaster fund were funded with a levy on cargoes of dangerous goods, the idea is it would not unduly burden the small railroads and would particularly leave free those which concentrate on hauling safer cargoes such as grain and lumber.

Stephen Stewart, chief agent at Ironshore Canada, which offers specialty insurance, said such a fund would essentially be a pool, which lessens everybody's exposure. "Pools are used all over the place," he said.

(U.S. $1 = 1.1010 Canadian dollar)

Editing by Jeffrey Hodgson, G Crosse and Lisa Shumaker

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