Investment vehicle underpins Germany’s exit from coal – Financial Times

In the pitch-black confines of a steel-cage cable lift, Stefan Roßbach embarks on a seven-minute descent to the tunnels of the Zollverein coal mine, almost a kilometre beneath the German city of Essen.

His task is to supervise the seven water pumps that have stood there since the site’s closure in 1986 and which are replicated in the collieries that criss-cross the Ruhr Valley, the country’s fading industrial heartland. 

These 10-tonne contraptions, and the 500-strong team that service them, are all that stand between the region’s 5m inhabitants and the permanent risks resulting from 150 years of mining — contamination of surface-level drinking water and widespread flooding.

“This task is without precedent in economic history,” said Bernd Tönjes, a former miner who worked in the industry for almost 40 years. “We extracted 10bn tonnes of hard coal from the ground — and therefore the surface is sunk and we have groundwater problems.” 

Mr Tönjes now runs the RAG Foundation, a unique investment vehicle that as of January had amassed €18.5bn in assets and that will underwrite the maintenance of the shuttered mines in the Ruhr, Saar and Ibbenbüren districts in perpetuity, at a cost of roughly €300m a year.

Its deep pockets have not escaped the attention of German lawmakers, who would like to see the foundation’s fortune used to spur the economic revival of former coalfields.

Set up 13 years ago to prepare for Germany’s exit from hard — anthracite — coal mining in 2018, the organisation in North Rhine-Westphalia is also attracting the attention of policymakers around the world.

“We are already in contact with China, for example, to shut down some of their coal-mining sites,” said Mr Tönjes.

The RAG foundation, one of the richest of the 21,000 “Stiftungen” that have played a central role in Germany’s postwar economy model, was becoming a blueprint for how to manage the global energy transition, he said.

Some foundations, such as Bosch or Krupp, own all or part of Germany’s largest companies. But the Essen-based investor has a unique mandate: to ensure that the legacy costs of the coal industry never fall on the German taxpayer. Instead, they are financed via the dividends of the foundation’s controlling stake in local chemicals giant Evonik and smaller holdings in more than 20,000 companies across the globe. The RAG foundation also has a large private equity arm and invests in property in New York and Detroit.

“The eternal obligations could not be met by a normal business model,” said Marc Eulerich, business administration professor at the University of Duisburg-Essen. 

“Thousands of people [in the Ruhrgebiet] lost their jobs because of the coal exit,” he said. “Thus, we have to have a structural change — you need money to get from the dirty industries to the clean industries.”

At its peak in 1957, continental Europe’s then largest coal-producing region in terms of volume employed almost 600,000 miners. But in what is often referred to as “the long goodbye”, Germany’s coal industry, like others in Europe, became unprofitable in the 1970s. To avoid social upheaval, the industry was subsidised until 2018, when almost all its employees had moved on.

Mr Tönjes said it was important that “the whole thing was managed in a socially considerate manner”, in contrast to the UK, which in 1984-5 experienced a bitter miners’ strike over pit closures.

“[The then prime minister Margaret] Thatcher and [trade union head Arthur] Scargill in the UK did exactly the opposite,” he said. “If you visit that region [in England] today, there is still scorched earth.”

The former mining communities of the Ruhr are hardly thriving, however. Gelsenkirchen, the city at the heart of North Rhine-Westphalia’s mining region, has one of the worst child poverty rates in Germany, at almost 40 per cent. In many parts of the Ruhr, life expectancy is lower and municipal debt is significantly higher than the country’s average, a report by the left-leaning Friedrich-Ebert-Stiftung found last year.

The RAG foundation is beginning to shift its investment focus closer to home. Through a subsidiary, it has brought Boston-based Rethink Robotics to the Ruhr. It is also investing tens of millions of euros in start-ups and cultural projects across the Ruhr Valley, including Essen’s 120-year-old Colosseum Theater, which will be turned into a Berlin-style start-up incubator.

Last month, the foundation helped clinch a €17bn deal to buy ThyssenKrupp’s elevator business in what could turn out to be Europe’s biggest ever private equity deal and help the ailing conglomerate shore up its remaining businesses and fund its pension liabilities.

“It is not completely apolitical,” said Professor Eulerich, of the investment decisions by the RAG foundation — which counts foreign minister Heiko Maas and finance minister Olaf Scholz among its trustees.

The recent flexing of its financial might has brought the foundation into focus in Berlin, where lawmakers are preparing for seismic changes to Europe’s largest economy.

After closing its last hard coal mine two years ago, Germany is decommissioning its six remaining nuclear plants and aims to phase out its lignite industry, on which tens of thousands of jobs rely, by 2038. Its core car industry, which supports some 3m jobs, is under threat from the transition to electric vehicles.

The candidates in the race to lead Angela Merkel’s CDU party, including the frontrunner Armin Laschet, all hail from North Rhine-Westphalia and are well acquainted with the multibillion-euro war chest in Essen.

But Mr Tönjes is adamant that the foundation will not deploy its assets at the behest of elected officials. For Germany’s longest-term investor, the interventions of politicians are only a temporary distraction.

“Ewigkeit ist eine lange Zeit,” the 65-year-old said. “Eternity is a long time.”

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