Virginian-Pilot


DATE: Friday, July 18, 1997                 TAG: 9707180669

SECTION: BUSINESS                PAGE: D2   EDITION: FINAL 

SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER 

                                            LENGTH:   68 lines




RAILROAD DISPUTE IS CHUGGING FORWARD, BUT STILL NO SETTLEMENT

A heated lease dispute between Norfolk Southern Corp. and the North Carolina Railroad Co. over railroad tracks may be taking a turn for the better.

Norfolk Southern agreed to pay the North Carolina Railroad $1.3 million to cover NCRR's ``out-of-pocket'' expenses since last July.

NCRR President Sam Hunt said the agreement allows his railroad to pay its bills while the North Carolina General Assembly considers a state plan to buy out the private shareholders of his railroad.

The two railroads have been sparring since last July when a federal judge in Greensboro barred Norfolk Southern's new lease agreement for the 317-mile line owned by the NCRR.

Norfolk Southern continues to use the line while trying to iron out the dispute.

But settlement of the dispute is being delayed by the proposed buyout. The state, which owns 75 percent of the railroad, has agreed to buy out the NCRR's minority shareholders, who fought for a more lucrative lease to enhance the return on their shares.

The state wanted to give Norfolk Southern a favorable lease to encourage economic development along the line, which is an important link in Norfolk Southern's southeastern rail network.

Hunt said the NCRR cannot begin to discuss the lease until the General Assembly approves the buyout. ``The good news is we're talking in a positive vein,'' Hunt said.

Still Norfolk Southern insists that the NCRR honor the terms of the 30-year, $8-million-a-year lease agreed to in 1995, said Robert Fort, a spokesman for the Norfolk-based railroad.

``Both sides are trying to tone down the rhetoric,'' Fort said.

Hunt is confident Norfolk Southern and NCRR can settle the lease dispute if and when the General Assembly gives the state the green light to buy out its private shareholders.

Norfolk Southern had leased the NCRR since 1895, paying $600,000 a year until the lease expired at the end of 1994. In 1995, the two railroads agreed to the new 30-year lease.

However, dissident private shareholders boycotted the meeting at which the lease was approved. Despite the state's majority stake, the company's bylaws say any new lease must be approved by at least half of the private shareholders. The dissidents sued and the judge nullified the lease.

The NCRR sued Norfolk Southern for not continuing to pay the new lease and also appealed its case to the Surface Transportation Board, asking for even higher lease payments. In response, Norfolk Southern asked the federal rail regulatory agency to uphold and enforce the new lease.

The dispute grew more heated in the fall after Norfolk Southern stopped doing all but the minimum line maintenance on the tracks, slowing service of passenger trains in North Carolina. Norfolk Southern argued it wasn't responsible for the tracks since its lease had been invalidated. It also threatened to stop service on the line.

In April, the state of North Carolina signed a letter of intent to buy out the NCRR's private shareholders for $71 million.

In June, the Surface Transportation Board prodded the two railroads to settle their dispute. The STB rejected the NCRR's request for higher payments as well as Norfolk Southern argument that no more payments should be made until the matter is settled.

The board said interim payments should equal the North Carolina Railroad's out-of-pocket costs, adding, ``Norfolk Southern cannot reasonably be expected to provide rail service indefinitely at current freight rates, while the North Carolina Railroad seeks a lease compensation prescription at a significantly higher level.''

The order prompted cordial talks that led to the $1.3 million payment and better feelings on both sides.



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