The Conference Board of Canada 
The Effectiveness of the Canada Transportation Act Framework in Sustaining Railway 
Capital Spending

This paper outlines considerations related to the railways' need to provide for and maintain their own infrastructure. This responsibility, along with the high capital intensity of railways, imposes a large annual investment requirement and highlights, in turn, the need for a policy and regulatory environment conducive to generating the necessary funds. The paper notes that over the past forty years, the railways' real net investment in plant and equipment was negative more often than positive; it was strongly negative between 1985 and 1995, in part because the regulatory regime did not sufficiently facilitate productivity improvement and contributed to a low return on capital. By contrast, policy initiatives such as privatization of CN and passage of the Canada Transportation Act contributed to a significant upsurge in railway capital spending after 1995. From an investor point of view, Canadian railways have improved their financial performance significantly. Nevertheless, there remains an overhang of long years of under-investment, uncertainty about the future regulatory environment, and questions about the railways' ability to sustain earnings across the economic cycle. The Class I freight railways will need to invest an estimated $1.3 billion annually over the next five years, and maintaining a climate conducive to attracting capital will be important.