If Augusto Pinochet’s Chile was the first country in the world
to really embrace the concept of privatization, it was Margaret Thatcher
who shepherded it into a global force, privatizing anything and everything she
could, including British Airways, British Gas, and British Telecom. Even Thatcher,
however, balked at the prospect of privatizing British Rail – something
which eventually happened under her successor, John Major,
and which was more or less an unqualified disaster. So what on earth is Angel
Merkel doing privatizing
Deutsche Bahn, the sleek and efficient German railroad system? Doesn’t she
know that no good can come of this?
Actually, the planned DB IPO could go very well. For one thing the proposed
valuation seems decidedly modest: DB made an operating profit of €2.5 billion
in 2006, and is planning to sell a 25% stake for €3 billion: by my calculations,
that’s a trailing p/e of less than 5.
And a lot of the problems which faced British Rail don’t apply in the case
of DB. For one thing, DB is actually profitable: there’s no need for thousands
of bankers and lawyers to work on highly complex franchising agreements whereby
companies bid to operate rail lines for the lowest government subsidy. And for
another thing, DB is not reliant on notoriously unprofitable passenger services
for its profits. According to Reuters, CEO Hartmut Mehdorn
the company very successfully:
His aggressive growth strategy has turned Deutsche Bahn into a transport
and logistics giant with tentacles spread across Europe and into Asia and
the Middle East. Freight transport accounts for 50% of sales, up from 20%
It has 80 subsidiaries – including sea, trucking and air freight operations
– and is proud that only half of its 30 billion euros in turnover now
comes from the rail business.
I don’t know the details of how this privatization is going to work. What constraints
are there on DB’s ability to raise passenger rail ticket prices, or to cut unprofitable
services, or to prioritize freight trains over less-profitable passenger trains?
Is there any attempt to separate ownership of the tracks, or otherwise to create
the conditions for some allowing some kind of competition to DB in the future?
Given DB’s status as a privately-owned monopoly, how can the German public be
reassured that its regulator will have teeth?
There are certainly lots of ways this can go wrong, but it also seems that
this privatization could be vastly more successful than the UK experience. Not
that that would be difficult.