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Deutsche Bahn moves towards privatisation
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| 12 August 2003 |
By Anthony O'Connor
Hartmut Mehdorn, chairman of Europe's largest national railway, Deutsche Bahn, has firmly underlined his intention to rid the company of its "civil service mentality" and to offer more integrated and modern transport opportunities both for the rail company and for Germany.
After years of losses, Mehdorn said recently the company will post an operating profit in 2004 ahead of its partial privatisation, which will take place possibly as early as 2005. For 2003, the company hopes to halve the EUR439 million ($502 million) loss it sustained last year.
In the last six months, preparations for the Deutsche Bahn initial public offering (IPO) beauty parade have been heating up, with a decision on the bank or banks expected in October when an official preliminary document is likely to be made public.
The IPO process is still exclusively in the hands of the German government and no specific preparations have been made yet at Deutsche Bahn, head of investor relations Karsten Nagel told JTF.
The possible step-by-step process for the Deutsche Bahn sale is very different from the way the UK sold off its rail industry. The UK rail industry was split into the infrastructure company Railtrack (now Network Rail) and train services were franchised to a series of train operating companies. It was also a 100% sale.
"Whereas the UK has tended to sell off 100% of its public utilities, privatisations in Europe have tended to be in smaller tranches," said Neil King, director of global structured finance infrastructure at WestLB in London. "The idea of putting 100% up for sale has never really found favour," he added.
What the German and UK sales share, however, is that both rail systems translate into much-needed revenue for tax cutting policies. In Germany, not only is this an attempt to keep Chancellor Gerhard Schroeder in political power, but the fundraising is also seen as a way of stimulating the country's flagging economy.
Although a tried-and-tested economic strategy across Europe in other sectors, the privatisation of national rail companies is still a contentious issue.
"The actual effect of privatisation is a good thing, as long as it is structured well enough and managed accordingly," said Howard Bate at consulting firm Franklin + Andrews in London. "Privatisations allow for businessmen outside of government regimes to have an influence on what should be a service but has turned into a business. So, by privatising you allow alternative funds to come and support the infrastructure," Bate added.
The demise of Railtrack can generally be put down to two very key factors which undermined the company from its outset. A culture of underinvestment in the UK rail network leading up to privatisation, and the lack of a clearly defined value of the company's assets, are said to have eroded the company's viability.
The big question is whether Deutsche Bahn is investing enough in its future. Some commentators are doubtful, while other observers believe the company typifies the overspending habits that have resulted in Germany's poor economic climate.
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