(Adds details, comments, reaction)
By David Ljunggren and Rod Nickel
OTTAWA/WINNIPEG, May 15 (Reuters) - The Canadian government intends to keep in place a revenue cap on western grain that Canadian National Railway Co and Canadian Pacific Railway Ltd haul for export, two sources familiar with the matter said on Monday.
The measure is contained in draft legislation that Minister of Transport Marc Garneau is due to unveil on Tuesday at 10:30 am ET (1430 GMT), said the sources, who requested anonymity because of the sensitivity of the situation.
“The revenue cap stays. There’s no question about that,” a source said. “It’s not being phased out.”
Garneau’s chief spokesman, Marc Roy, declined to comment.
The grain revenue cap, formally known as the maximum revenue entitlement (MRE), has been in place since 2000 and is intended to balance the market power of the two big railways with that of farmers and grain companies, who in many areas rely on one rail company. Keeping it would be popular with farmers, who say the annual revenue cap controls costs they pay when they deliver grain.
“Our grain is captive,” said farmer Todd Lewis, president of Agricultural Producers Association of Saskatchewan. “If there was lots of competition, you probably wouldn’t need (the cap). We need some assurance that rates aren’t going to go through the roof.”
Railways oppose the measure, saying it reduces their incentive to invest in grain hauling.
A CN spokeswoman declined to comment. CP could not be immediately reached.
A study ordered by the previous Conservative government recommended last year phasing out the revenue cap over seven years.
Western farmers rely on railways to move wheat and canola crops great distances to ports, and do not benefit from a river barge system as in the United States. (Reporting by David Ljunggren in Ottawa and Rod Nickel in Winnipeg; Editing by Phil Berlowitz and Andrew Hay)