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5/8/2006



Rail News: Rail Industry Trends

Rochester, DM&E officials continue to squabble over Powder River Basin project



Today, a coalition of Rochester, Minn., business and government leaders submitted a study to the Federal Railroad Administration (FRA) that questions whether the Dakota, Minnesota & Eastern Railroad Corp. (DM&E) could repay a $2.5 billion federal loan to finance its $2 billion Powder River Basin (PRB) project.

Commissioned by the Mayo Clinic, conducted by independent consulting firm BearingPoint and released by the Rochester Coalition, the study determined that if the DM&E receives the Railroad Rehabilitation and Improvement Financing (RRIF) program loan, the railroad would be “seriously undercapitalized,” with long-term debt 23 times greater than its current equity value of $111 million. The study also found that the project “appears speculative, with strong existing competition, uncertain construction costs and timing, limited access to customers and no customers in place,” according to the coalition.

The FRA should require the DM&E to resolve the financial issues as part of the administration’s evaluation of the RRIF loan application, coalition officials believe.

“We question whether taxpayers should be asked to hand over $2.5 billion to a company worth only a fraction of that amount,” said John Wade, president of the Rochester Area Chamber of Commerce, in a prepared statement. “If coal trains are such a solid business proposition, why couldn’t the DM&E get private financing?”

The coalition plans to continue negotiating with DM&E officials. The city of Rochester and Mayo Clinic oppose the project under which the railroad would build a 262.3-mile line through western South Dakota and eastern Wyoming, and upgrade 600 miles of other lines in South Dakota and Minnesota to access the PRB.

However, city and clinic officials publicly claim they don’t oppose the project while they have taken measures aimed at killing it, said DM&E President and Chief Executive Officer Kevin Schieffer. Last week, he sent a letter to the clinic asking for more openness during negotiations. Rochester is the only city out of 56 communities on the DM&E’s line that opposes the project and has filed a lawsuit in federal court seeking to stop it, said Schieffer.

“The time has come for Mayo and Rochester to decide whether they want to kill this project or work something out,” he said. “They need to stop saying one thing publicly and doing the opposite.”


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