Rail IPO Plan Falters
November 1, 2006
A deal to privatize the Deutsche Bahn is likely fall apart amid debate over ownership of train tracks and stations, according to the Wednesday edition of German daily newspaper Tagesspiegel.
The paper cited a source close to the Social Democrats (SPD) as saying "the deal will go bust," since both factions of the ruling government coalition -- the SPD and Christian Democratic Union (CDU) -- are unable to agree on a privatization model.
The head of Deutsche Bahn, Hartmut Mehdorn, has long been pushing for a partial privatization as a way to get a much-needed cash infusion. He says the time is ripe for a deal, but warns the company is losing its momentum as the issue continues to remain unresolved.
Who'll get the tracks?
Nonetheless, the discord between the two government factions appears to be too great to overcome. At question is whether Deutsche Bahn will be privatized with or without its network of tracks and train stations. The CDU would like to transfer the tracks to the state, but the SPD would like Deutsche Bahn to keep them.
"We don't see the (Christian Union) making any move toward us," an SPD source told Tagesspiegel. The CDU was failing to take advantage the opportunity to make Deutsche Bahn more competitive, the source said.
The SPD and CDU have said they want to make a new attempt to reach an accord in the coming weeks.
Alternate sell-off plan
Uwe Beckmeyer, the SPD spokesman on transportation issues, urged the CDU to change its approach. "The Union cannot always just step on the brakes," he told Tagesspiegel.
He added that the best way for Deutsche Bahn to get its needed capital injection is via IPO.
Meanwhile, CDU spokesman Dirk Fischer told Tagesspiegel he did not yet see a "bridge for a compromise" on privatization. Instead, he suggested alternative way for the company to get cash -- by selling off part of a lucrative subsidiary.
Should privatization plans fall through, Fischer said, Deutsche Bahn should put half of its logistics and freight unit Schenker up for sale.
"If the IPO fails, (Deutsche Bahn's) Hartmut Mehdorn can take 50 percent of the freight unit, Schenker, public," he suggested. This would allow the rail company to retain corporate control and also give it a 3 billion euro ($3.8 billion) cash infusion.
No compromise yet
"In any case, the railway will not get any boost for its own shareholders' equity out of the federal budget," Fischer added.
Last week, German Transportation Minister Wolfgang Tiefensee had already hinted at the difficulty both parties were having reaching a compromise.
The date for setting the groundwork for privatization had already been pushed back many times, most recently to late October. Now, however, participants are talking about having an agreement by Nov. 8.