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The federal government is threatening to sue the owner of a broken rail line that has left people in the northern Manitoba town of Churchill without a land connection to the outside world.

The government says Denver-based Omnitrax has 30 days to fix the Hudson Bay Railway to Churchill or face an $18.8-million lawsuit.

Ottawa says Omnitrax, which bought the rail line from the government in 1997, has a legal obligation to fix and maintain it under a 2008 agreement that included $18.8 million in federal support for repairs and upgrades.

"Notwithstanding that your Sept. 6 letter indicated you would be effecting the necessary repairs to the (rail line), you have since failed to do so, and time is running out with winter's approach," reads a letter sent to Omnitrax by Transport Canada Friday.

"As a result of the above, it has become clear to Transport Canada that (the company) is in default of its obligations under ... the agreement."

Omnitrax responded by saying the rail line is no longer economically viable, due largely to federal government decisions that include ending the Canadian Wheat Board's monopoly on western wheat and barley. The wheat board used to ship grain along the rail line to the Port of Churchill.

"It is our view that, as a result of the federal government’s actions — or inactions — recently and over the past 10 years, the (rail line) is not commercially viable," Omnitrax Canada president Merv Tweed said in a written statement.

"Culminating in the threat of legal action from Transport Canada today, it has become clear to us that the federal government has no intention of constructively solving this problem for Churchill."

The rail link was severely damaged by flooding last spring and Omnitrax has said it cannot afford the estimated $43 million in repairs.

For months, goods and people have had to be flown to the subarctic community at a much higher cost. The town of 900 on the coast of Hudson Bay, known for its polar bears and beluga whales, has seen a dramatic drop in tourism numbers as well.

Prime Minister Justin Trudeau said in July that the government was willing to use all options to force Omnitrax to get the line running again.

Even if Omnitrax was to start repairs immediately, a 30-day time frame is too short, according to a recent report from an independent engineering firm, AECOM.

The report projected 60 days would be needed to get the 250-kilometre stretch of track repaired enough to handle lighter loads, and another 90 or so days next spring to be fully repaired.

The Manitoba government recently increased its subsidy for some food to Churchill and ordered large amounts of propane to be sent by ship to ensure that homes have enough heating fuel to last through the long winter and spring.

​Natural Resources Minister Jim Carr, who represents the Manitoba riding of Winnipeg South Centre, said in a statement Friday that the federal government is focused on "restoring rail service" and seeing "a transfer of ownership."

"We are also preparing for the challenges that may lie ahead," Carr said. "The Government of Canada continues to make concerted efforts to ensure the safety and security of the people in Churchill and other communities along the Hudson Bay Rail line. These efforts pertain to food affordability, fuel resupply and storage, community support and economic development. ...

"In addition, as the new Arctic Policy Framework is developed, the role and opportunities for Churchill and the Hudson's Bay Rail line in serving as a transportation and supply link to Canada's North will be emphasized."

Omnitrax has been in talks to sell the rail line to a consortium of northern Manitoba communities and businesses — a move that would likely require government aid. Carr, who represents Manitoba in the federal cabinet, said Friday he is hopeful a deal may come soon.

"We understand that the partnership is very close to a deal and the elements are in place."

Tweed's statement hinted at another result, but provided no details.

"While we remain of the view that the best outcome for all concerned is a negotiated sale to the First Nations coalition, based on Transport Canada’s actions today, we are now contemplating steps to bring this protracted matter to a close."

— With files from National Observer

Editor's Note: This story was updated at 3:15 p.m. EST. It was updated a second time at 5:32 p.m. EST with comments from Omnitrax.

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