November 7, 2005

Rail project seeks $2.5 billion in funding

NEW YORK (Reuters) - The biggest U.S. railroad project in a
century could get under way next year and ease transport
constraints from the primary U.S. coal-mining region, a
railroad executive said on Monday.

Construction on a three-year project to carry coal from
Wyoming to Eastern power plants could start in late 2006 if an
application for $2.5 billion in U.S. government loans is
approved, said Kevin Schieffer, chief executive of privately
held Dakota, Minnesota and Eastern Railroad (DM&E).

"This is about a lot more than just coal. We have capacity
problems all across the country," Schieffer said on conference
call with analysts. "Everybody's service is going to improve as
a result of this," he said.

The railroad's plan depends on a loan from the Federal
Railroad Administration, part of a $286 billion transportation
bill enacted earlier this year. A law authored by South Dakota
Sen. John Thune amended the agency's loan rules to tailor them
to the project, Schieffer said. The FRA has to make a decision
within 90 days of a completed application.

The 1,300-mile reconstruction includes a new 262-mile rail
extension to the Powder River Basin, a region in Wyoming and
Montana with vast coal reserves. The loan package would also
fund unrelated line upgrades in three states.

Rivals Union Pacific Corp. and Burlington Northern Santa
Fe, which jointly operate a line into the region, have
struggled to boost capacity to meet demand from utility
companies. The railroads are still recovering from two major
derailments in the area this year.

Sioux Falls, South Dakota-based DM&E said it could
eventually haul 100 million tons of coal a year, once upgrades
are in place.

Coal accounts for more than half of all U.S. power
generation. Powder River Basin coal is lower in sulfur and can
be burned more cheaply.

Schieffer said the success of the project, which faces some
opposition from landowners and environmental groups, will ride
on demand from utilities.

"Competitors will be off to the races to pick off potential
customers," he said. "If the utility industry allows that to
happen, this project will not be built."

The plan would be the largest new railroad construction in
the United States since a 1909 link between Seattle and the