Mitchell-Rapid City Railroad deal with Watco gets state approval
Sale price is $13 million
PIERRE – The South Dakota State Railroad Board has authorized the South Dakota Department of Transportation to sell the rail line from Mitchell to Rapid City (MRC) to Ringneck and Western Railroad, LLC for $13 million.
The purchase price will be paid to the department, with $5 million paid at closing and the remaining balance paid in equal installments of $1.6 million over the next five years. Ringneck and Western is a subsidiary of Watco Transportation Services, the nation’s largest short-line railroad holding company. The purchase was authorized on Feb. 17.
“We appreciate the board’s thoroughness in finalizing the sale of this state-owned railroad to Ringneck and Western Railroad,” SDDOT Interim Secretary Joel Jundt said in a statement. “The sale of the MRC line is another step in fulfilling our mission to enhance rail transportation for this important corridor. The MRC railroad provides critical freight movement for many shippers. The capital investments made in the line provided great benefits to the state in the short term. By transferring ownership to Ringneck and Western Railroad, many additional opportunities will occur for years to come.”
Watco is based in Pittsburg, Kansas, and the line will be the first owned by Watco in South Dakota.
“Watco has a reputation for providing safe and efficient service to its customers,” said Steve Scharnweber, Secretary of the South Dakota State Railroad Board. “We expect this sale to spur development along the line and boost the state’s economy.”
Immediately after the sale is closed, Ringneck and Western will take over rail operations, and shippers will receive a $25 reduction in the current $50 surcharge per loaded railcar. After the purchase, the railroad has committed to spend at least $2 million per year for 10 years on track maintenance, with plans for new relay ties, ballast and tamping.
“Thank you to the State DOT, the Board, and the citizens of South Dakota for being such good stewards of these rail assets,” Watco’s Executive Chairman Rick Webb said in a statement. “We are honored to continue building from this tremendous foundation and excited to be coming to South Dakota.”
Ringneck and Western has also agreed to work with the department to complete construction of a rail siding near Kimball. The project will improve shipping efficiency and is partially funded by a federal grant. Once the siding is completed, the agreement requires Ringneck and Western to pay the department $1.5 million in three yearly installments of $500,000.
The sale agreement also includes provisions aimed at protecting the quality of future rail service. If the owner plans to abandon the line or discontinue service, the department may repurchase the line.
The line has historically stretched 285 miles from Mitchell to Rapid City. Currently, 190 miles of that is considered active, going from Mitchell to Kadoka. Until now, the line was leased to the locally operated Mitchell-Rapid City Regional Railroad Authority through 2031. Dakota Southern Railway subleases the rail line. The MRC Authority will likely continue to exist to help serve as an intermediary for Watco to receive loans.
Extensive upgrades have been made in the last decade, including nearly $30 million in upgrades for a 41-mile stretch from Chamberlain to Presho, bolstered by $12 million in federal grant money. Another 61 miles west of Mitchell was upgraded for $29 million in 2010, with $16 million in federal grant money.
The South Dakota State Rail Board mostly rejected a first round of proposals in late 2019, including two for the MRC — from the Rapid City, Pierre and Eastern, and from Watco. The both were rejected based on the net cost to the state and the lack of return on investment, but Watco improved its offer in October 2020 and the State Rail Board agreed in principle to making a deal with Watco.