Investment vehicle underpins Germany’s exit from coal

In the total darkness of a steel cage cable car, Stefan Roßbach sets out on a seven-minute descent to the tunnels of the Zollverein coal mine, nearly a kilometer below the German city of Essen.

Its mission is to supervise the seven water pumps which have been there since the site was closed in 1986 and which are replicated in the coal mines that crisscross the Ruhr valley, the country’s declining industrial heart.

These 10-ton machines, and the team of 500 people who maintain them, are all that stands between the region’s 5 million inhabitants and the ongoing risks resulting from 150 years of mining – contamination of the surface drinking water and widespread flooding.

“This task is unprecedented in economic history,” said Bernd Tönjes, a former miner who worked in the industry for almost 40 years. “We’ve taken 10 billion tonnes of hard coal from the ground – and so the surface is sunk and we have groundwater issues.”

Mr Tönjes now heads the RAG Foundation, a unique investment vehicle which, in January, had amassed € 18.5 billion in assets and which will ensure the maintenance of closed mines in the districts of the Ruhr in perpetuity, Saar and Ibbenbüren, at a cost of around € 300 million per year.

Its deep pockets have not escaped the attention of German legislators, who would like the foundation’s fortune to be used to revive the economy of the old coal basins.

Created 13 years ago to prepare for Germany’s exit from hard coal mining – anthracite – in 2018, the North Rhine-Westphalia organization is also attracting the attention of policy makers around the world.

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

The RAG foundation, one of the richest of the 21,000 Stiftungen which played a central role in Germany’s post-war economic model, were becoming a model for managing the global energy transition, he said.

Some foundations, such as Bosch or Krupp, own all or part of the largest German companies. But the Essen-based investor has a unique mandate: to ensure that the costs inherited from the coal industry never fall on the German taxpayer. Instead, they’re funded by dividends from the foundation’s controlling stake in local chemicals giant Evonik and smaller stakes in more than 20,000 companies around the world. The RAG Foundation also has a large private equity arm and invests in real estate in New York and Detroit.

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

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

At its peak in 1957, the largest coal-producing region in continental Europe by volume employed nearly 600,000 miners. But in what is often called “the long farewell”, the German coal industry, like others in Europe, became unprofitable in the 1970s. To avoid social upheaval, the industry was subsidized until ‘in 2018, when almost all of its employees moved.

Mr Tönjes said it was important that “the whole thing be run in a socially caring way”, unlike the UK, which in 1984-1985 experienced a bitter miners’ strike over well closures.

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

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

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

Last month, the foundation helped secure a € 17 billion deal to buy the elevator business of ThyssenKrupp in what could turn out to be Europe’s largest private equity deal and help the conglomerate struggling to consolidate its remaining activities and finance its retirement commitments.

“It is not completely apolitical,” Professor Eulerich said of the investment decisions of the RAG foundation – which has Foreign Minister Heiko Maas and Finance Minister Olaf Scholz among its directors.

The recent flexing of its financial might has put the foundation at the center of attention in Berlin, where lawmakers are bracing for seismic changes in Europe’s largest economy.

After closing its last coal mine two years ago, Germany is dismantling its six remaining nuclear power plants and aims to phase out its lignite industry, on which tens of thousands of jobs depend, by 2038. Its industry Basic automotive, which supports around 3 million jobs, is threatened by the shift to electric vehicles.

The candidates vying to lead Angela Merkel’s CDU party, including frontrunner Armin Laschet, are all from North Rhine-Westphalia and are familiar 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 the longer-term German investor, politicians’ interventions are only a temporary distraction.

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

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