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LQD: Deutsche Bahn privatization derails

by Magnifico Sat Oct 11th, 2008 at 11:00:24 AM EST

On Thursday, the partial privatization scheme for Deutsche Bahn by the German government was postponed and, according to German commentators, it is unlikely ever to get back on track. The privatization scheme was disrupted by the worldwide financial crisis.

Deutsche Welle reports the German Government Postpones Deutsche Bahn Share Listing.

The German government has announced that it will postpone an initial listing of shares in the national railway Deutsche Bahn "for at least several weeks," a source close to the matter said on Thursday...

Turbulence on equity markets caused by the international financial crisis prompted the delay of the sale of a 24.9 percent stake, in what is set to be the last major privatisation in Europe's biggest economy.


Promoted by -- you never guess it -- DoDo


Spiegel Online has a round up of German newpaper reports about 'A Deathblow to Privatization' for Deutsche Bahn.

Among the objects of second-guessing are plans to privatize Deutsche Bahn, Germany's national railway company. The initial public offering process had been scheduled to begin on Monday and the company, expecting to take in upwards of €4 billion, had already been courting international investors for months.

Thursday, government officials announced that the privatization would be delayed until further notice. "We are not going to put the assets on the capital markets at the wrong time," Finance Minister Peer Steinbrück said.

Politicians insist that they reckon only with a delay, not a cancellation of Deutsche Bahn's privatization. As Angela Merkel told reporters Thursday, "I assume that there will eventually be a business environment in which the privatization can take place."

Despite assurances from Germany's ruling "Grand Coalition" between Christian Democrats and Social Democrats, German newspaper commentators are skeptical.

My personal favorite comment came from the business daily Handelsblatt that wrote:

The fact is, the already botched, partial privatization of the Deutsche Bahn received on Thursday ... it's death blow. And that's a good thing.

The Wall Street Journal reports on the IPO delay

Getting the IPO back on track could prove a challenge. German politicians have long been divided about privatizing Europe's largest railway network, and efforts by free-market advocates have been stymied for years...

Observers warn the latest delay could allow lawmakers to reconsider their positions, especially as Germany heads into what are expected to be heavily contested national elections next year. DSW, a German shareholder-rights association, said Thursday that the IPO "will be more difficult politically" in a campaign year.

I wonder why that is?

Maybe this international financial meltdown, where financial institutions are being nationalized, shows how capitalism has failed? Maybe because taking something owned by the public and putting it into to private hands isn't such a winning idea after all?

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In my (often expressed) view, the privatisation of the German Railways is the longest-running, most crackpot and most dangerous project of neoliberals in Germany.

The idea, which was since foolishly made into the EU plan, too, is to cut up the company into separate train and infrastrucutre operating companies for sale on the stock market, which take over different operations and run in competition to other private operators. The separation was partially achieved in re-organisations of the company in preparation for such a privatisation, on-going since 1992.

And already did lots of damage.

A big complex railway is no parallel to roads and the lorry and bus companies operating on them. Infrastructure and operation, what's more, freight and local and express train operation are much more linked: be it the wear & tear effects of wheel-rail (and pantograph-catenary) interaction, issues of technical compatibility or capacity; between different trains, wear vs. ride comfort, capacity and the issue of speed differences, economic use of locos and repair shops for different services; and so on and so forth.

And that's just the issue of coherence that calls for an integrated railway. Then there are the effects of profit push and the tricky assortment of externalities in competition. One effect is mad cost-cutting, also involving the elimination of reserves that -- surprise, surprise -- leads to cascading delays and angry passengers when there is some small operational problem or demand surge. Another is the cut-back of long-term investment, which is a basic necessity for a good railway. But the privatisers would be content with the closure of remaining branchlines...

So, if the privatisation of the German Railways would be buried at last, and some future transport minister and railway top exec would at last have some ideas about how to get DB to operate better rather than merely a financial machine, I would be very happy.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sat Oct 11th, 2008 at 07:30:56 AM EST
There is no doubt, imm, that nationalization is needed for all basic national infrastructure that requires long term planning and investment, with service to the population at the core.

But I also think that there could be more creativity in organizational structures that would allow an element of competition for efficiency. That is, for-profit 'privatized' units would be allowed in certain operational areas at a local level: training programs, station management, maintenance etc. It would also be important to ensure that all the staff of such a unit would have a stake and say in the running.

You can't be me, I'm taken

by Sven Triloqvist on Sat Oct 11th, 2008 at 07:45:44 AM EST
[ Parent ]
Part of the victims of efficiency are always redundancy and robustness, as is also seen in the current markets crisis. Making maintenance too efficient means that there's not enough of it.

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Sat Oct 11th, 2008 at 08:06:33 AM EST
[ Parent ]
The UK record on practical privatisations tends to be mixed, veering towards negative. For private companies 'competition' doesn't mean service provision, it means profit.

There is very little evidence that private companies are inherently more efficient or creative than nationalised ones. In the UK BR had a good record of innovation. What it didn't have was cash. After rail privatisation cash support more than doubled, so - surprise! - the network could suddenly afford new trains. But it also wasted billions on consultancy, franchise bidding, interface management, and insane bureaucracy which was never necessary under a nationalised railway.

The issue is really management culture. Nationalised industries should not, ever, be run by civil servants, because civil servants typically know nothing about anything and usually have no managerial skills either. The best management comes from building up pride in public service and choosing individuals within that culture who have a record of making good things happen. Nationalised industries tend to develop that kind of culture in patches, but it's not common for nationalised industries to select top management for the right reasons.

In fact what people tend not to appreciate is that for both nationalised and privatised industries the management is usually the same. It's drawn from the same small pool of people. The biggest difference is whether management teams report to their government, or to financial analysts.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Oct 11th, 2008 at 08:18:57 AM EST
[ Parent ]
One idea would be to do something along the lines we have here, having all the rail and stations owned by the state but the train operators private (though the biggest operator is state owned).

The problem here though is that the ticket administration should really be centralized in the interest of customer service.

Another problem is that operators can't build their own new lines, only the state can do that, and the the private operators become free riders. That is a problem even if you have it all state owned.

As an example, I have some financial interests in this old iron mine which is reopening north of the city. We want to ship our ore from the mine to the port on the old mining railway. But we really don't want to invest like 10 million euros in repairing this crappy old rail which hasn't had any maintenance in 15 years.

So instead we lobby local politicians to lobby the state rail authority to repair the rails for us, and until that's done we'll have to use huge numbers of trucks instead, even though it's apparent that it is in the interests of everyone to get the old rail working ASAP.

That is, if we ever get this mine working. Because of the stupid fucking corrupt Wall Street assholes it's kinda hard getting financing...

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Oct 11th, 2008 at 12:24:57 PM EST
[ Parent ]
Our Bonk Museum is situated in Nystad on the west coast of Finland. The loss of the railway connection was a big blow to us. But most of the network is still there so I presume it could be revitalized.

You can't be me, I'm taken
by Sven Triloqvist on Sat Oct 11th, 2008 at 12:52:13 PM EST
[ Parent ]
They still run feight traffic on it, I think.

"The basis of optimism is sheer terror" - Oscar Wilde
by NordicStorm (m<-at->sturmbaum.net) on Sat Oct 11th, 2008 at 01:05:27 PM EST
[ Parent ]
Oh - I didn't know that. I guess the harbour creates a demand. Kemira etc.

You can't be me, I'm taken
by Sven Triloqvist on Sat Oct 11th, 2008 at 02:16:22 PM EST
[ Parent ]
One idea would be to do something along the lines we have here, having all the rail and stations owned by the state but the train operators private (though the biggest operator is state owned).

No, that still contains the main problem of separation, and the tricky shifting of externalities. I won't call the Swedish reform a big success (you mention tickets and freeriding), not to mention the similar British one.

That is a problem even if you have it all state owned.

I'm not sure. Present-day state unwillingness to finance line construction is linked to an intention to sell it all off with time; and also to a lack of real interest in public transport and moving freight onto the rails and sustainability, whatever the rhetoric -- but that's again linked to the privatisation drive, too. So a "fully state-owned railway that's meant to remain so" is a hypothetical -- one predicated upon some policy motivation on the part of politicians.

E.g. I think a 100 years ago, you would have gotten that rail link.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sat Oct 11th, 2008 at 02:11:21 PM EST
[ Parent ]
E.g. I think a 100 years ago, you would have gotten that rail link.

One question to ponder: should the taxpayers fund railroad investment just because a mining company wants the rail to increase the profits?

I'm not saying yes or no here, just that it's something to ponder.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Oct 11th, 2008 at 05:48:23 PM EST
[ Parent ]
The mine will pay for track access for decades, won't it?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat Oct 11th, 2008 at 05:50:34 PM EST
[ Parent ]
The current proved ore reserves should last for 13 years, but it's very likely there's much more down in the deep.

I'm not aware if and or how the company will pay for track acess and such. Something to ask at the next annual meeting.

By the way, do check out this really cool video about the huge glacier at the bottom of the Dannemora mine.

http://www.nationalgeographic.com/adventure/video/will-gadd-ice-mines.html

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Oct 11th, 2008 at 06:06:26 PM EST
[ Parent ]
I'm not aware if and or how the company will pay for track acess and such.

Would the company runs its own trains in an open-acces regime, it would have to pay itself.
Would the company pay a railfreight operator to run the trains, track access would be paid by that operator, which of course would make part of the money the company asks for from the mine.
Would the freight branch of a state company broken into separate organiations do it, it would be the same story but with internally paid track access charges.
In a fully integrated state (or private) railway, track access would feature in internal price calculations.

At any rate, I note the gain for railways would be the transport of the ore on the entire route, not just the new track; would be nice if cost/benefit analyses for new line construction would reflect that.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Oct 12th, 2008 at 04:22:49 AM EST
[ Parent ]
Taxpayers should pay for rail if they wish the mine to use rail carts for its transit. Because rail is infrastructure, and the state does infrastructure. That's one of its big jobs. Just as the state should invest in light rail trolleys to carry food from the main railway station to supermarkets in the city centre, if it wants to encourage the supermarkets to use rail to transport their stuff.

Of course, the owners of the mine should pay a property tax for the mine (and for the deposits in it). And since the value of the mine goes up when the railroad is added, that property tax would go up as well.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 12th, 2008 at 03:14:08 AM EST
[ Parent ]

Looks kinda sad, doesn't it? They've had to reduce the speed from 70 to 40 km/h. The track is used by trains carrying wood to a paper mill, nine trains a day. The mine will ship 5000 tonnes of ore every day, on four trains a day. Investments are needed. Until they arrive we'll use hordes of heavy trucks which will not only be much more expensive for us, but also a nuissance to people living in the area, an environmental problem and will be bad for the local roads.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Oct 11th, 2008 at 05:46:14 PM EST
[ Parent ]
Ten trucks an hour, one every six minutes. I'd hate to live next to that road.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Oct 11th, 2008 at 05:55:40 PM EST
[ Parent ]
The problem with private rail operators is that they don't compete for the end-users. Screaming "competition" and then actually doing outsourcing is one of the biggest scams in the whole privatisation circus.

Due to the necessities of scheduling, you can almost never have more than one operator on each bit of rail anyway, so once the decision has been made (typically for a period of several years and typically on the basis of nothing whatsoever but price), there is no competition.

So outsourcing government functions to private companies is more closely analogous to the granting of royal merchant charters than to the operation of supermarkets as far as competition is concerned.

Oh, and competition isn't magic. In fact, it introduces a number of costs that are not present for state-run entities - advertising, lawyers to do tax evasion and profit, to name some obvious wastes of money.

It also introduces redundancy into the system, because to operate two companies you need two entire structures that can perform essentially the same service. Now, redundancy isn't necessarily bad, but it's not magically good either. Having 20 % more staff than you need to cover all your bases on a normal day is A Good Idea. Having two CEOs, however, is just a waste of money. (Of course, having one CEO is very often a waste of money too... but I digress.)

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 12th, 2008 at 03:07:06 AM EST
[ Parent ]
Screaming "competition" and then actually doing outsourcing is one of the biggest scams in the whole privatisation circus.

Wow, very true! Would you write a diary on this, it should become a classic.

once the decision has been made (typically for a period of several years and typically on the basis of nothing whatsoever but price), there is no competition.

That's not necessarily true in railfreight. In practice, for medium to large sized customers over medium distances, private railfreight competition can be very lively -- and chaotic and too risky. In Germany, it is a quite frequent occurence that some event -- extra demand, breakdown of a locomotive -- leads to a whole cascade of companies lending locos from other operators  (you read that right: one company borrows another's suplus loco, but the second company then discovers it would still need it and borrows a loco itself from a third company) or passing off a regular transport to another company. Always operating on the edge, bankrupcies happen regularly, which mean quick market re-organisations (remaining operators buy up locos and rush in to take customers).

But, I wonder if lower prices are worth the chaos and unreliability for customers. (Then again customer friedliness and fast response are things most nationalised railways could greatly improve upon...)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Oct 12th, 2008 at 04:37:22 AM EST
[ Parent ]
Regarding wasteful redundancies in organisation. The IMO most important aspect of these on railways is maintenance. All private operators need regular loco maintenance bases of their own, either that or use the services of some centralised maintenance shops run e.g. by manufacturers.

But this is very inefficient. In an integrated railway, locos can simply go to the nearest maintenance shop. In the open access system, they have to waste many train-kilometres to reach the own or the manufacturer depot. Already the separation of different operations in a to-be-privatised state railway has this effect.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Oct 12th, 2008 at 04:43:55 AM EST
[ Parent ]
yes.. yes yes...

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat Oct 11th, 2008 at 05:19:33 PM EST
[ Parent ]
Hey...those choo-choos look almost as nice as the best in the world we have down here!
by redstar on Sat Oct 11th, 2008 at 05:25:41 PM EST
Are you travelling from Barcelona to Madrid?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat Oct 11th, 2008 at 05:48:54 PM EST
[ Parent ]
Ummm..no.

And don't even get me started on my last Toulon - Paris/Gare de Lyon.

by redstar on Sat Oct 11th, 2008 at 07:04:38 PM EST
[ Parent ]
Not sure if this is open for general discussion about railroad projects and public-private relationships in such projects, but there is a related discussion going on in Colorado.

The historical railroad routes in the western U.S. were from east to west, because they were used to move manufactured goods to the undeveloped western areas (like Colorado) and raw materials and agricultural products to the big cites back east. Nowadays there is a huge amount of coal traffic ("death trains") that travel mostly from Wyoming to Texas.

A few lines ran north-south, primarily the old D&RG and UP lines that hug the front range of the Rocky Mountains in Colorado. They originally carried both passengers and freight. Nowadays there's no passenger traffic, and the freight trains carrying coal, chemicals, and general freight pass right through the middle of the big cites in Colorado, including Pueblo, Colorado Springs, Denver, and Fort Collins. Fort Collins is perhaps the worst case, because the city was literally built around the railroad line and the tracks still go right down main street.

Anyway, a proposal is out there to build some new tracks out on the dry, flat eastern Colorado prairie that would connect the required existing lines so that the freight traffic could be re-routed to avoid the front range cities. This would be good on several counts: Shorter freight trip, less hazard of accidents in populated areas, less noise, and the tracks through the cities would become available for passenger traffic.

The proposed financing system is to be a public-private arrangement. I can't judge whether this is good or bad in this case, but the real hangup is that the eastern farmers don't want to give up their land. Politically it's a mess. Here's a relevant website if anybody's interested...  :-)

http://www.dot.state.co.us/RailroadStudy/FAQ/default.asp

by asdf on Sat Oct 11th, 2008 at 08:48:07 PM EST
The proposed financing system is to be a public-private arrangement. I can't judge whether this is good or bad in this case

Me neither, depends on the details -- if risks and profits are shared properly and it isn't shaped up to give lots of money to construction companies, it may be a step ahead in the US situation. Especially if the railroad companies don't have the capital to build the new lines, but especially not if they do and only drag their feet.

the eastern farmers don't want to give up their land.

Is that a categoric rejection, or do they think the offered compensation is insufficient?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Oct 12th, 2008 at 04:49:34 AM EST
[ Parent ]


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