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Home News German railway privatization clears another hurdle

German railway privatization clears another hurdle

Published on 22/04/2008

Berlin -- The privatization of Germany's railway company, Deutsche Bahn AG, cleared another major hurdle Monday after Social Democratic Party (SPD) leaders agreed to a controversial plan to sell-off shares in Europe's biggest rail group.

The move by the SPD national executive to sign off on party chief Kurt Beck’s proposal to allow private investors to buy up to 24.9 percent of Deutsche Bahn’s passenger and logistics operations came despite stiff opposition from the SPD’s influential leftwing faction.

"The 24.9 percent is not negotiable," said SPD general secretary Hubertus Heil following the executive’s meeting in Berlin, ruling out a special party conference to consider the rail privatization and insisting that Monday’s vote brought to an end the party debate about the sell-off.

While Berlin’s popular SPD mayor Klaus Wowereit has rejected the planned sell-off of shares in the railway company in the run-up to Monday’s meeting, the party’s Bavarian branch has called for more debate on the implications on the privatization.

Party officials said that while 77 members of the SPD executive voted for the privatization plan, 25 voted against it and two abstained.

Analysts say the planned partial privatization should generate about 6 billion euros ($9.5 billion) with Heil stressing the SPD saw the sell-off as helping to mobilize capital for the railway.

Chancellor Angela Merkel’s Christian Democrat-led conservative bloc has signaled support for the privatization plan drawn up the SPD, which is the junior member of Merkel’s ruling coalition.

This is despite the compromise unveiled last week by Beck falling short of the 49.9 percent that Merkel and her supporters have argued for.

Coalition leaders are due to meet next Monday to hammer out details of the privatization with Deutsche Bahn chief Hartmut Medhorn hoping that the partial sell-off of the Berlin-based rail company will launched later this year.

However, with the SPD having announced its rail privatization model, Heil challenged Merkel’s party to set out details of how it envisages the railway company should be sold off.

While welcoming the Beck plan, senior members of Merkel’s party have indicated that they see it as representing possibly the sale of the first tranche of shares in the railway company.

But the SPD executive rejected Monday any plans to sell off the stock in Deutsche Bahn as part of a so-called people’s share action.

The party sees the shares being sold to both private investors and institutional investors.

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

Under the SPD plan, the state would have a 75.1-percent stake of Deutsche Bahn’s passenger and freight operations, which together includes about 140,000 employees.

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