Germans feel railroaded by Bahn's foreign focus

David Crossland: The state-run rail operator is looking to major foreign acquisitions and contracts, but German taxpayers fear moves to privatise are affecting the quality of service

Deutsche Bahn will continue to market its reputation for punctuality as it woos passengers outside Germany.

BERLIN // Deutsche Bahn, the German railway operator, has been trying to allay fears in its homeland that it is overreaching with its foreign expansion drive. Rudiger Grube, the chief executive of the state-owned group, has been reassuring the public he will press ahead with plans to invest ?41 billion (Dh179.3bn) in the railway's domestic operations over the next five years, despite the company having just made its largest acquisition with the ?2.7bn takeover of the British train and coach operator Arriva in April.

Since November, Deutsche Bahn has signed agreements that could be worth billions of euros to build railway systems in Qatar and the UAE, in both cases boosted by its reputation for Made in Germany quality. In March it signed a memorandum of understanding with the Al Masaood Group of Abu Dhabi to build and operate "ultra-modern" rail systems in the UAE. But its image has received a battering at home over the past year and Germans increasingly disagree with the cliche that their trains run on time.

Punctuality dropped during the winter and the network has been hit by persistent technical problems affecting its fleet of high-speed ICE trains and Berlin's commuter train system. Rail users say the company's drive to maximise profits in the past decade has led to a creeping rise in delays as Deutsche Bahn has shed staff, rolling stock and track equipment. Deutsche Bahn will continue to market its reputation for punctuality as it woos passengers outside Germany. But in the long term, its expansion and profit drive risk undermining the quality of its service in foreign markets such as the UAE and Qatar.

Train users in Germany already fear that its eventual privatisation will prompt a new series of cost cuts, fare increases and the closure of unprofitable regional routes. Critics say Deutsche Bahn, as a wholly nationalised firm, should focus on its core purpose of providing reliable train services for the German public. They want it to concentrate on modernising its stations and trains and reducing its ?15bn of debt before risking taxpayers' money with forays into foreign markets.

For Deutsche Bahn, though, the purchase of Arriva and the agreements to tap into the huge market for new railway networks in the Gulf region make perfect business sense. Ownership of Arriva will enable Deutsche Bahn to overtake the French national railway SNCF as Europe's biggest passenger carrier, with more than 3 billion bus and rail services a year. Arriva runs regional rail franchises and bus services in 12 countries and the deal will greatly boost Deutsche Bahn's international market presence.

Europe's passenger rail services were liberalised at the start of this year, which means any company can compete for business in foreign markets. Operators are fighting for market share. Deutsche Bahn has already lost about 20 per cent of its domestic market to private-sector competitors and its only chance for growth is abroad. Before it bought Arriva, its foreign presence was confined to Britain, Sweden and Denmark.

If Deutsche Bahn does not seize opportunities such as the purchase of Arriva, rivals will step in and it will become increasingly sidelined in an industry widely expected to shrink to about five or six big rail companies in Europe. "If we don't grow, others will," says Mr Grube. Despite his assurances that the Arriva purchase will not affect the quality of service in Germany, the fact remains that German taxpayers are liable if the acquisition turns into a costly flop.

Politically that is unacceptable, which is why there are growing calls for a fresh attempt to privatise Deutsche Bahn. A previous bid to sell off part of it was shelved in 2008 because of the market turmoil caused by the financial crisis. Germany has opted to keep Deutsche Bahn intact as the dominant rail operator even after its sell-off. The centre-right government of the chancellor Angela Merkel's centre-right government is not standing in the way of Deutsche Bahn's foreign expansion.

But it is likely to dust off the privatisation plans as soon as financial markets recover from the European debt crisis, because it desperately needs the proceeds to reduce its bloated budget deficit. @Email:[e-mail]