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Rail Privatization

DPA News Agency (sp)
May 30, 2008

The German Parliament gave the green light on Friday for the partial privatization of Deutsche Bahn AG by agreeing to a controversial plan to sell off shares in Europe's biggest rail group.

Deutsche Bahn train
Privatization advocates say the move will benefit rail passengersImage: AP

Chancellor Angela Merkel's ruling coalition on Friday, May 30, approved a proposal in parliament to allow private investors to buy up to 24.9 percent of Deutsche Bahn's passenger and logistics operations with Deutsche Bahn expected to make its stock market debut later this year.

The Bundestag vote saw 355 deputies approve the measure with 153 against and three abstaining. Nearly 100 MPs did not cast a ballot.

The move by the Bundestag to sign off on the privatization plan came despite the three opposition parties voting against the sell-off and stiff resistance from the influential leftwing faction of the Social Democrats, the junior member of Merkel's conservative-led coalition.

Hartmut Mehdorn, Deutsche Bahn chief
Mehdorn promises the sell-off will benefit passengersImage: AP

"It is a good day for (rail) travelers, taxpayers and employees," Deutsche Bahn chief Hartmut Mehdorn said.

"Today's decision secures the future of the company and its 237,000 employees," he said in a statement. "Now we must make the partial privatization a success together in the coming months and strengthen Germany's position as a place to do business."

Compromise between parties

The privatization of Deutsche Bahn has been on the cards since 1994, when the rail operators of the former West and East Germany merged.

But the plans were delayed by the company's disastrous financial situation following the unification of the country.

The left-right government was sharply divided between Christian Democrats backing the privatization and Social Democrats raising concerns about potential job cuts at Deutsche Bahn.

They struck a compromise to avoid handing a foreign investor a blocking minority, which German law has set as a 25-percent stake in a company.

Deutsche Bahn and trade unions have also agreed on a plan that would prevent any layoffs at the company until 2023.

Analysts say the planned partial privatization should generate about six billion euros ($9.3 billion) with proponents of the sell-off saying it would help to mobilize capital for the railway.

Experts criticize plan

But the 24.9 percent share sell off, which was proposed by Social Democratic chief Kurt Beck as a compromise, falls short of the 49.9 percent that Merkel's supporters have argued for.

Indeed, senior members of Merkel's Christian Democratic Union have indicated that they see the 24.9 percent as representing possibly the sale of the first tranche of shares in the railway company.

Die Deutsche Bahn geht an die Börse
Deutsche Bahn's partial privatization follows years of wrangling between Germany's politiciansImage: AP

Moreover, analysts have criticized the privatization model as resulting in only a small parcel of shares being sold off. This could result in the stock ending up principally in the hands of big institutional investors, some analysts say.

Under the plan, the state would have a 75.1-percent stake of Deutsche Bahn's passenger and freight operations.

The partial privatization, however, means that Berlin would retain a 100-percent control of the rail company's railway stations as well as its 34,000 kilometers of track network and energy supplier operations.