Government Incompetence and Waste at its Worst
How is a small upper-Midwest, financially troubled railroad, with absolutely no substantive private investors to date going to repay a $2.5 billion dollar, low interest, government subsidized loan?
This is the most recent financial question, on an ever expanding list of economic concerns, by a steadily growing number of skeptics about the ability of the Dakota, Minnesota and Eastern railroad to survive, as a third rail carrier, in the very competitive coal hauling industry of the Powder River Basin in Wyoming. Many concerned taxpayers are wondering how would such a financially strapped railroad have become eligible for such a sweet and lucrative loan in the first place and most of all who will be left holding the bag if and when the DM&E defaults on the loan?
In 1998 the DM&E proposed building 280 miles of new track and rebuilding 600 miles of existing track, the largest railroad proposal/expansion in the 20th century. To date, the Surface Transportation Board (STB), a federal promotional and regulatory agency that governs the nations railroads, has given their blessing to the coal train expansion project despite what appears to be a seriously flawed Environmental Impact Analysis.
Despite purported claims of a growing demand for low sulphur coal the project’s necessity and subsequent viability are dubious to say the least. This is particularly true when it is taken into consideration that the other two rail carriers, the Burlington Northern and the Union Pacific, currently operating out of the Powder River Basin not only have the infrastructure necessary to transport the coal but they also have the majority of the long-term contracts to transport the coal to the utility plants thereby leaving the DM&E with next to nothing to pay back such a huge loan. Not only does the Burlington Northern and the Union Pacific have the infrastructure in place to haul the coal to where it needs to go but they are also investing heavily in upgrading their current lines to handle heavier demands. The DM&E ‘s and STB’s assertions that a third rail carrier is needed are further diminished by the Surface Transportation Board’s (STB) own admission that the DM&E’s presence in the Powder River Basin would have little impact on the consumption of coal nationally.
It appears that no known large private investors are willing to buy into the DM&E coal train expansion project because the disadvantages by far outweigh any perceived advantages. Both the DM&E and the STB have said on a number of occasions in the past that the marketplace will decide whether or not this project will go ahead; so the big question becomes why else the need to go after government money when the whole point of the project was to add competition, to bring rates down through the market process?
It would seem, however, that there are those that are unwilling to accept the lack of private investors as an indication that the DM&E coal train expansion project is a bad business proposal. Instead former DM&E railroad lobbyist and current South Dakota Senator John Thune (R), slipped tailor-made language into a recently passed federal transportation bill that practically guarantees that the DM&E railroad will be the recipients of a $2.5 billion dollar low interest government loan through the Federal Railroad Administration (FRA).
The FRA has not yet acted on the loan but expectations are, unless reason prevails, that they will grant the loan and the American taxpayers, not to mention the people that live along the DM&E railroad corridor, will be left paying through the teeth for years to come on another government screw up.
