[OPE] A lift for the banks: the accelerating privatisation of the railways in Germany

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Sun Jun 01 2008 - 10:09:21 EDT

In 1991, the European Union Council of Ministers adopted guideline 91/440/EWG, to turn European state railways into private enterprises. This has been happening in Germany too. Over there Deutsche Bahn and about 150 railways companies operate about 23,500 powered railway vehicles across about 76,000 km of track, of which about 20,000 km is electrified. In 2006, railways in Germany carried ca. 120 million passenger trips in long-distance trains (at an average distance of 288 km), and 2 billion passenger trips in short-distance trains (21 km on average). In the same year they carried 346 million tonnes of goods at an average distance of 309 km. (Federal Statistical Office of Germany, Fachserie 8, Reihe 2: Verkehr, Eisenbahnverkehr 2006). Deutsche Bahn ranks 188 in Fortune Global 500 list.

"The privatization of Germany's railway company has been on the cards for 14 years, but disagreements over how to privatize the company, and if it was even desirable, held up the sell-off. (...) After years of wrangling between Germany's two main political parties, the country's lawmakers have approved a controversial partial privatization of Deutsche Bahn, the national railway company. Politicans from Germany's grand coalition government, which comprises the center-right Christian Democratic Union (CDU) and the center-left Social Democratic Party (SPD), voted for the sell-off of part of Germany's last major state-owned company. The opposition parties -- the far-left Left Party, the Greens and the business-friendly Free Democratic Party (FDP) -- opposed the privatization."

The total domestic DB rail asset is valued at between 200 and 300 billion euro, but the German transport ministry officially listed DB's valuation at only 55.4 billion euro. Critics argue the government is deliberately undervaluing a public asset, to make the 24.9% IPO attractive and sell it. Moreover, only a third of the capital raised from the issue will be actually used for investment in the railways. The rest ends up in the government's coffers. 

The privatisation strategy effectvely means that the passenger, freight and logistics divisions established in the second Bahnreform of 1999 (which specifically generate profit revenue) will be turned into a holding company owned by Deutsche Bahn (DB Mobility Logistics AG), while the divisions of the nationwide infrastructure of stations and the tracks (which are a cost) will remain government property.  The state so far retains control over 75.1 percent of passenger and freight transport, while a 24.9 percent stake in the business is being sold off. Angela Merkel's government initially want to sell up to 49 percent of DB, but the Social Democrats feared that giving shareholders too much of a stake would result in a decline in the quality of services. The 24.9% cap means that private investors will not have rights to seats on the holding company's supervisory board.

The maximally 8 billion euro ($12.6 billion) IPO of equity is listed with Deutsche Bank, Morgan Stanley, UBS and Goldman Sachs and probably around 80% of the issue will be bought by institutional investors, which the bankers hope will add some buoyancy to the stockmarkets. So the "privatisation" will not involve many "private" owners. They hope to sell at least 3-5 billion worth of stock. RDZ Russian railways is also interested in getting a stake. The financial institutions get a fee of about 100 million euro for the prospectus issue. 

The European rentier class and foreign investors whizzing around in their BMW's don't really care too much about the railway system as such (actually, running the railways will just be subcontracted and outsourced to technocrats some more). They are interested only in extracting a revenue stream from owning lucrative parts of the DB empire (especially the freight business, but also paying passengers, and logistical systems). Billions of euros are involved. Recently Deutsche Bahn for example profited from an economic upturn and the world football championship, the turnover rose by 20% to 301 billion euro. Last year again DB posted a net profit of 1.7 billion euro with a turnover of 313 billion euro. A change in property relations is supposed to make even more good things happen. 

In fact, already the majority of the German railway workers are not public servants anymore - they are hired by subcontracting companies. Deutsche Bahn now has about 216,000 employees working for it, and the railways are run by about 80 subsidiary companies. In 1994, when the first Bahnreform created a fusion of the Eastern and Western railways, it had a workforce of 500,000, so basically the workforce was cut in half since then. About a quarter of the rail network has been closed down meantime, mostly in rural areas. 

DB generates about half its revenues from freight transport, and has significant foreign investments in places like Britain, the US, Spain, the Asia-Pacific region and Eastern Europe. In Britain, DB bought up English, Welsh & Scottish Railway (70% of the UK railfreight market) and John Laing Rail. The railway magnates are eying the Eastern European railways as well, because if they can buy up and restructure all those, then they can control a whole trans-European door-to-door rail network and implement the "Brazilian model" - combining high technology equipment with low-paid coolies, raising profit margins. Since the EU supports the integration of a Europe-wide transport system, this creates a lucrative opportunity for a pan-European railway empire.

"The federal government does not have the capital we need for strategic expansion. Germany is an export nation and if we don't serve this market then someone else will take it from us. In today's Europe you need to be of a critical size to do what it is you want," claims DB's international communications director Bernd Weiler. "As the Americans say, we offer 'one-stop shopping' whether it is moving freight from door to door or offering passengers rental cars and bikes at mainline stations. We look after 7m customers a day, 5m of those are passengers. Cash flow is not our problem." http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article4038943.ece?token=null&offset=12are
Obviously the German government could also raise loans, but the idea of privatisation is that by privatising you will get better management. Yet there are no guarantees about that - you get better management by getting rid of bad management, and installing good management. But good management is scarce, and that drives up the price - the idea is, that by a change in property relations, you will at least dislodge bad management, because other people will be in charge than you had before. Of course, as a reward for private initiative, you will need to pay them handsomely. Yet the property relations do not of themselves determine the organisational culture and organisational system you will have. A change in property relations of itself means just that another class of capitalists and technocrats pockets the profit from the revenue stream. 

The German middle class is still fascinated by American capitalism although there is not much reason for that, except that the German trade and legal system contains a welter of anachronistic rules and regulations which make little economic or commercial sense. But in reality, American bureaucracy is just as bizarre as German bureaucracy. It is just that American bureaucracy very strongly favours the rich, whereas German bureaucracy favours the bureaucracy, which justifies itself by redistributing funds to the less well-off and creating jobs. They don't do that in America, where they justify themselves with religion while plundering the public purse. The American capitalists are good at marketing, but their organisational methods often don't really work - you just get a tissue of lies.

In the end, however, the costs involved in the "reorganisation" are paid by the direct producers, whose wages and working conditions deteriorate; by consumers dependent on rail transport, who face higher fares; and by taxpayers who subsidize the corporations - typically it is mainly the financial intermediaries, top bureaucrats and managers who get richer.  Meantime Deutsche Bahn's new director of employment Norbert Hansen (known as DB boss Harmut Mehdorn's "poodle") swapped his job as Transnet union boss for a DB salary package of 1.4 million euro - 15 times what he was getting before. Most likely, more layoffs will follow. What's next? Probably Deutsche Postbank, of which the German Government owns 30%.


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