German Rail Privatization
July 24, 2007
The cabinet decision envisions the government selling off a quarter of Deutsche Bahn shares by the beginning of 2009. Another 24 percent could also be sold -- according to the German constitution, the state is obliged to retain a majority holding as part of its duty to provide Germany with rail services.
"With this decision, we've taken a huge step toward implementing the government's rail reform program," said German Transport Minister Wolfgang Tiefensee in Berlin on Tuesday.
The government estimates that selling a 25 percent stake in the German rail company would bring in some 3 billion euros ($4.1 billion). Deutsch Bahn is Europe's largest rail company and services almost 1.9 billion passengers a year. It also handles 300 million tons of freight annually. Last year it made some 1.7 billion euros ($2.3 billion) in profits.
The cabinet also decided the Deutsche Bahn would retain control of the track network for the next 15 years.
If the flotation goes through, it would be the biggest since the sale of Deutsche Post stock in 2000. But the government's plan will have to be approved by both houses of the German parliament.
Hard Fight Ahead
But it is by no means certain that the proposed IPO will go ahead amidst protests from local governments, unions and consumer groups. Many fear severe disruptions to services such as occurred in previous privatizations -- most notably that of British Rail in the 1980 and 90s.
Contentious issues include the potential canceling of local routes and job losses.
"We're afraid the Deutsche Bahn will cherry-pick the profitable, long-distance routes between the big cities," said the head of the German Association of Cities and Towns, Gerd Landsberg. "That would also endanger the necessary expansion of jobs in rural areas. That's unacceptable."
"The privatization of Deutsche Bahn threatens to derail the central goal of the rail reform, namely to get more people to use train services," added German Union Association board member Claus Matecki.
Consumer advocacy groups also fear that privatization could mean price hikes and have called on parliamentarians to reject the proposed flotation.
But one union representing rail workers, who have staged strikes recently for better pay, said it welcomed the partial privatization.