By Howard Schneider
Washington Post Foreign Service
Sunday, October 5, 1997; Page A24

The economy of this town rests on two pillars: Polar bears and an aging grain elevator on the banks of Hudson Bay.

The polar bears are dependable. They leave the Arctic ice after a winter of seal hunting and spend the summer wandering around a countryside of scrubby willow bushes and marsh.

Tourists come to watch them from a safe distance, inside specially constructed "tundra buggies" that rumble over rocks and through ponds. At the peak of bear season, it is hard to get a room in the town's three or four small motels.

The grain elevator has been less predictable.

A departure point for Canadian grain bound for South America and Europe, the facility handled as much as 700,000 tons of cargo each year in the 1970s. But recently, changes in shipping patterns and grain markets cut that volume by more than half. The flow had dropped so low, in fact, there was talk of closing the elevator and the local port altogether, and the Canadian National railroad was debating whether to end rail service to the town.

For a community just below the Arctic circle, with no road access to the rest of the world, the prospect was disturbing. Local leaders did not think Churchill could survive on polar bears alone.

"The port was recommended for closure . . . and a lot of people were making noise," said Rod McKenzie, Churchill's chief executive officer. "If it closed, you would lose all the employees and you would also be killing the rail line. . . . That would have been a good reason for people to pull out completely."

Enter OmniTRAX, a company from faraway Denver. In a deal that showed how integrated even the most far-flung points in Canada have become with the United States, the company in August bought the grain elevator, the port, a nearby collection of storage tanks, and 810 miles of the Canadian National railroad, from Churchill south to a terminal at The Pas.

The nearly $50 million project is part of a larger sell-off of track Canadian National has undertaken since the deregulation and privatization of the railroads here. It is also part of the trend, long evident but accelerated under trade treaties between the United States and Canada, of businesses moving across the border with increasing ease. And it is a lifesaver for Churchill.

"The company has been here and talked with us and gave us the assurance that they will be here for a long time and will make it a viable operation," said McKenzie. "We feel quite comfortable."

McKenzie said the hope in the town is that, with more aggressive marketing and lower operating costs, OmniTRAX will be able to raise shipments from the Churchill port to their earlier levels – and add jobs in the process.

Churchill could certainly use them. The town's population is down to about 1,000 these days, a far cry from the roughly 7,000 people who once lived here.

In the years after World War II, Churchill experienced a sort of Cold War boom. The remote town thrived as a missile testing site and staging area for American and Canadian troops involved in Arctic surveillance against the Russians.

"We were protecting Canada from invasion, from Russia," McKenzie said, a mission evident in the town's 9,000-foot airstrip, carved out of the Hudson Bay tundra.

There has been more effort recently devoted to protecting people from the bears. Skittish by nature, the bears generally keep to themselves. In summer they undergo a period of "walking hibernation" and spend a lot of time sleeping in the bush, foraging where food is available and waiting for the ice to return so they can wander out to sea in search of seals.

Still, the locals do not go too far from town without shotguns; and when the bears do wander into Churchill, they are tranquilized and put in a "polar bear jail" until they can be returned to the ice in winter.

On a recent August day, a bear knocked out the door window of a Parks Canada guard shack, apparently trying to get into the garbage. Unsuccessful, the animal was content to clamber out on the rocks of a nearby point and rest for most of the next day.

"We built the town where the bears are, so we kind of have to put up with them," said Lanette Huculak, an interpreter at the park facility that the bear invaded.

It was only last year that the rail and port deal became possible. Like many basic industries in Canada, the Canadian National railroad was for most of this century government owned. Concerns about access, and the central role played by the railroads in Canada's history, kept the railroad from changing: Service to remote areas like Churchill was considered part of the mission.

That all changed in this decade. Rail deregulation in the United States led to the growth of many strong "short line" rail companies, said Canadian National spokesman Mark Hallman. At the same time, competition from the trucking and shipping industries, and changes in container technology drove down Canadian National's prices, even though its costs continued increasing.

Two years ago, the government privatized Canadian National. A year later it deregulated railroad operations so it could begin restructuring its service on the basis of profitability. Since then, the company has sold or closed about 20 percent of its roughly 19,000 miles of track – including the line leading into Churchill.

Although not long ago the sale of such a national asset to an American company would have raised concerns about Canadian sovereignty, no such complaints were heard in this case. The community is behind the deal, and the governments of Canada and Manitoba even helped pay for it.

"It was a drag on Canadian National, there is no question about that," Hallman said of the line. "[OmniTRAX] can get better profit out of it. . . . It is a win-win" situation.