From Crain’s Detroit Business:
The $400 million effort to build a new rail tunnel underneath the Detroit River has been put on hold because its private-sector backers say the business case for new tunnel doesn’t exist.
“It’s idle for now,” said Marge Byington Potter, executive director of corporate affairs for the Continental Rail Gateway. The project has been in the planning stage since 2001.
She did not explain why the project is on hold and deferred all other comment to the project’s primary financial backers, Toronto-based Borealis Infrastructure Management Inc. and Calgary, Alberta-based Canadian Pacific Railway Ltd.
The companies issued a joint statement via email Monday afternoon: “The Continental Rail Gateway replacement tunnel is being idled pending review by the partners, Canadian Pacific and Borealis Infrastructure. At present, the business case and economics of the project are not sufficient to proceed with a majority privately funded development. We continue to focus our attention on the existing tunnel, which remains in full commercial operation and is a key component of Canadian-United States border infrastructure.”
CP and Borealis had committed $200 million to the project, with the remainder expected to come from government sources.
The state of Michigan last year committed $10 million to the tunnel project, contingent on its getting all its other funding and approvals. No other government funding had been secured.
Borealis is the investment arm of the Ontario Municipal Employees’ Retirement System. It is financing most of the tunnel work and owns the land necessary for the project near Detroit’s current rail tunnel. Borealis increased its stake in the tunnel and the project to 83.5 percent from 50 percent in an $87.7 million deal in 2009.
Montreal-based Canadian National Railway Co. had been part of the project but sold its share to Borealis in February 2000.
Byington Potter told Crain’s this month that project officials were in talks with the U.S. Federal Railroad Administration for a $190 million Railroad Rehabilitation & Improvement Financing loan to round out the capital costs. For the loan to happen, Canadian federal environmental approval and all other permits had to be in hand. That process was ongoing, Byington Potter said at the time.
She said she expected Canadian environmental approval by the end of summer. The project wasn’t seeking any other Canadian and U.S. grants to offset the borrowing, she said.
Once all the capital was in place, the project had to receive approval to proceed under the Canadian International Bridges and Tunnels Act and get a U.S. presidential permit from the U.S. State Department.
Construction was estimated to take two years.
The financing premise is that the project would recoup its costs from tolls that rail companies negotiate. Such tolls are typically based on each kind of rail car, such as tankers and boxcars. Byington Potter didn’t have toll estimates.
Land for the new tunnel is near the current rail tunnel’s Detroit entrance, just southwest of the U.S. post office at West Fourth and Eighth streets. It handles about 400,000 rail cars annually.
The traffic volume with the new tunnel was expected to be about the same but would be done more efficiently with the use of double-stacked rail cars, Byington Potter said.
The new tunnel was planned to be about 50 feet below the riverbed, 30 feet deeper than the current tunnel. It also would be several hundred feet longer and would be dug by specialized boring machinery rather than constructed as tubes sunk into the river, which is how the current tunnel was built in 1910.
Design and engineering work on the new tunnel has been done by Omaha, Neb.-based HDR Inc.; Toronto-based MMM Group; and Iselin, N.J.-based Hatch Mott Macdonald Group Inc.
The current twin-tube tunnel underwent a $27 million enlargement of one tube in 1993 that allowed it to accept some but not all modern stacked container rail cars.
That expansion of what’s known formally as the Michigan Central Railway Tunnel eliminated the need to move cargo, especially automobiles and trucks, by ferry across the Detroit River. The tunnel remains unable to accommodate the largest stacked rail cars, especially the 9-foot-6-inch “high-cube” shipping containers that are stacked.
Canadian National built a large, modern tunnel underneath the St. Clair River between Port Huron and Sarnia that opened in 1994 at a cost of $200 million. CN maintains that tunnel almost exclusively for its own trains.
The new tunnel would be open to all rail companies, Byington Potter said.
The plan for a new tunnel originally called for the current tubes to be converted into a commercial truck link, but that was scrapped after Canada and Michigan opted to build a new bridge about a mile from the Ambassador Bridge — a span scheduled to open by 2020 and be called the Gordie Howe International Bridge.
Before taking on its current name, the tunnel effort was called the Detroit River Tunnel Partnership, and the tube itself was nicknamed the “Jobs Tunnel” because of the thousands of jobs backers predicted it would create or preserve.
Tunnel backers also noted that the new tube would be near the proposed $445 million Detroit Intermodal Freight Terminal being built by CSX, Norfolk Southern, Canadian Pacific and Canadian National as a consolidated terminal near Wyoming Avenue and I-94. The terminal is designed to accommodate existing and future freight demands.
John Taylor, chairman of the supply chain management department at Wayne State University’s School of Business Administration, has been on record for years as skeptical about the tunnel project.
“It’s very difficult financially because there’s so little traffic that doesn’t fit now,” he told Crain’s this month. “It’s just hard to justify the financing. Until we get to the point most of the container traffic does not fit, it’s just hard to justify a new railroad tunnel. I think it’s up in the air. The business case is very difficult.”