Ruhrkohle AG

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Ruhrkohle AG

Rellinghauserstrasse 1
4300 Essen 1
Federal Republic of Germany
(0201) 1771
Fax: (0201) 177 34 75

Private Company
Incorporated: 1968
Employees: 119,500
Sales: DM23.00 billion (US$15.39 billion)

Ruhrkohle AG is the largest coal-producing company in Germany. Of approximately 71 million tons produced by the Federal Republic of Germany in 1990, the company—based in Essen, at the heart of the Ruhr Valley—produced 50 million tons, about 70% of the total. The group has several well-known subsidiaries. Through its subsidiaries and associates, as well as directly, Ruhrkohle AG owns 82% of Rutgerswerke AG (Rutgers) a company active in the sectors of basic chemicals, plastics, and building, whose turnover stands at DM3.6 billion per year. In 1989, Rutgers paid out a profit of DM18 billion to Ruhrkohle.

Ruhrkohle also holds 71% of the share capital of Steag AG at Essen, whose main activity is the production of electricity from coal power, and which has a total share capital of DM220 million. In 1989 Steag produced 19 billion kilowatt hours (kWh) of electricity, achieving a turnover of DM3.2 billion. Of Steag’s profits, DM22 million were paid out to Ruhrkohle. The Eschweiler Bergwerks-Verein (EBV) is one of Ruhrkohle’s newest subsidiaries. Ruhrkohle took a majority stake (97%) in the long-established coal-mining company on the Aachen coal field in 1988-1989. In 1989, EBV produced approximately 4.2 million tons of coal and achieved a turnover of DM1.9 billion. A second investment in the coal sector followed, also within the framework of Ruhrkohle’s goals in coal politics, when the group took over 99.72% of Sophia Jacoba GmbH at Huckelhoven, from the Robeco Group of the Netherlands, on January 1, 1990. Sophia Jacoba is essentially an anthracite mine, with production of around 1.7 million tons in 1989 and a turnover of DM570 million.

Ruhrkohle’s foundation came about in several stages. It was brought into being on November 27, 1968, by 19 companies in the Ruhr area, which holds the largest coal resources in Germany. This foundation was provisional; since the Grund-vertrag (Articles of Association) had not yet been signed. This contract was concluded on July 18, 1969; the parties to it were the Federal Republic of Germany, that is, the federal government; 23 mining companies, which had declared their willingness to enter into the treaty; and the company Ruhrkohle AG itself.

The foundation of the company had come about mainly as a result of political pressure, but on a private basis. Not all of the 26 independently operating, privately structured companies in the Ruhr coal field were willing to submit to this massive exertion of political influence. Ruhrkohle’s commercial structure is without parallel in Germany. Although the company is run according to the principles of private enterprise, it has been dependent on support from the state from its beginnings. This support is given mainly in the form of subsidies but also through laws protecting German coal interests in some sectors. The evolution of Ruhrkohle AG must be understood in the context of the development of West Germany’s energy policy after the end of World War II. In the years immediately after the war, German coal was a highly sought-after commodity. In the years of hunger before the currency reform in 1948, miners—or Kumpel, as they were known—received special grocery rations to enable them to carry out their heavy work. They were also given special advantages in looking for accommodation in the towns of the Ruhr area, which had suffered great destruction during the war. The largest of these towns are Essen, Duisburg, Bochum, and Dortmund. The byword of those years was coal production at any price.

The market economy of the 1950s and early 1960s, with liberalized external trade, was introduced by Professor Ludwig Erhard against strong opposition, and formed the basis of the German economic miracle. At this time an idea was aired which had prevailed in many economic circles in the years immediately after 1945, particularly among the unions and the Social Democratic Party—that the basic industries of coal and steel should be nationalized.

In 1956 disaster struck more or less overnight for German coal mining industry, which, in the mid-1950s, produced 150 million tons of coal and employed over 600,000 miners. The steady rise in oil consumption, especially in the form of light fuel oil on the heating market and of heavy oil for industrial use, had gone almost unnoticed. As a result, within a relatively short period, coal stockpiles had grown so big that short-time work had to be introduced extensively for the miners in 1958, to prevent these stockpiles, suddenly unsaleable, from reaching the sky. Coal, so long in demand, which had been particularly sought after in the early postwar years, could now find no buyers. As late as 1957, when 133 million tons of coal were produced in the federal republic, the high commission of the European Coal and Steel Community—later to become the European Community—was still demanding a rise in production in Germany of 40 million tons within 20 years.

At first it was believed that the fall in demand at the end of the 1950s was merely a transient economic phenomenon. Yet stockpiles grew to over 15 million tons, and for the first time pit closures had to be considered. At this point it became clear that this was no short-term economic crisis. It was, rather, a structural crisis, based on long-term shifts in demand. Imported oil was, in the long term, much cheaper than German coal, and ousted coal from the heating market. Cheaply produced imported coal, especially from the United States, forced its way into the growing German industrial and heating markets.

Confronted with the prospect of multiple pit closures in the German coal fields—the Ruhr accounted for around 70-75% of coal production in the Federal Republic—as well as by protest demonstrations by miners, public demand for a coal and energy plan grew. Increasing weight was given to the suggestion that the mining industry of the Ruhr area, which at the beginning of the 1960s still consisted of around 30 independent private companies, should be brought together in a single company or group.

More than a dozen plans were proposed in those years to rehabilitate the coal industry. Yet all these plans had a common focus in the assertion that the sharp reduction in work force numbers, which would have to be faced, must take place in a socially acceptable manner.

From 1958 to the end of 1990, during which time the number of employees in the German coal mining industry declined from 607,000 to around 130,000, not a single miner was dismissed via the unemployment office. All the affected miners received special state support payments, whether these took the form of compensation, pension supplements, or some other type of payment. Support was given not only to the miners affected by pit closures but also to the companies, who received millions of marks’ worth of finance from the state. These payments were given in the form of closure premiums; that is, the companies received a certain sum of money when they closed pits with the aim of adjusting the overcapacity to the sharply reduced overall demand.

Federal governments attempted to get a grip on the retreat of the coal industry; since its disordered beginnings it had already swallowed billions of marks. Too many attempts had been made to cure the symptoms, with restrictions on coal imports, agreements of voluntary restrictions with the oil industry, the promotion of coal-fired power stations, and taxes on fuel oil. Finally, in 1967-1968, the measures which had been taken to reconcile coal production and demand were standardized and new targets were formulated.

In May 1968 the Kohleanpassungsgesetz—coal adjustment law—was passed. The basis of the law was that optimal cost effectiveness was only possible in a single company; in this way the pits which were least profitable would be closed, whereas individual closures in over 30 separate companies might prevent the continued functioning of relatively profitable pits while allowing unprofitable pits to survive. Measures to concentrate the coal businesses therefore formed the core of the Kohlean-passungsgesetz. As the government’s most important instrument in achieving this aim, the law laid the foundations for the removal of a series of privileges which had hitherto been granted, especially the high premiums for pit closures and the subsidies for coke production. It was this legal threat above all—that subsidies would be withdrawn from companies below the optimal size after January 1, 1969—which hastened the process of concentration and thus the foundation of Ruhrkohle AG. Without subsidies, at this time practically any mining company was condemned to a swift demise, as is still the case.

During the foundation phase of Ruhrkohle AG, the concept of optimal size became a magic formula. The fact that no one defined it exactly, not even the government, made it seem all the more ominous for the independent survival of most small and medium-sized companies. The law defined it simply as “such size as is necessary to achieve the greatest possible economic efficiency.”

In the public sphere this abstract threat was received exactly as it was meant by the politicians, who were tired of throwing good money after bad, namely as a means of exerting pressure, to drive the hesitant pits to join a common company in the Ruhr. There were to be no subsidies without “optimal size,” that is, the merger of the coal companies—all of them if possible—to form a single company.

The two largest coal mining companies on the Ruhr, the Gelsenkirchener Bergwerks AG (Gelsenberg) and the Bergs-werksgesellschaft Hibernia, part of the Veba group, made renewed efforts to achieve their own form of concentration, in the form of a conventional merger of the two businesses. Investigations as to the viability of a merger had been undertaken at an earlier stage. Karl Schiller, the minister of economics, could hardly have denied the attribute of optimal size to the company which would have resulted, but the moment for this project had already passed.

The creation of a single Ruhr mining company could no longer be prevented. The miners’ union IG Bergbau und Energie had demanded that such a company be created—with as strong a state influence as possible—for a long time, and the managers of the mining companies, a notable number of whom had until then operated under the protection of a steel company, could no longer draw back.

After lengthy negotiations, the Grundvertrag was, as stated, signed in July 1969; this formed, and still forms today, the basis of the existence and business activities of Ruhrkohle AG. The parent companies undertook to provide Ruhrkohle AG with a share capital of DM600 million. Ruhrkohle AG and the parent companies made Einbringungsvertrage, or contribution agreements. The members of the work force had to be kept on. A provision of the Grundvertrag states that “profit is not the principal aim of Ruhrkohle AG.”

Thus the parent companies made various financial commitments. Although they could not, according to the company’s Articles of Association, expect a profit from the capital they had invested, they were to be paid interest on their contributions at a rate of 6%. The government also took on extensive commitments; initially giving guarantees of up to DM2.2 billion, two-thirds from the federation and one-third from the state of Nordrhein-Westphalen.

These founding arrangements were accompanied by two treaties which were vital to the company’s existence: the Hüt-tenvertrag, regulating the agreement between Ruhrkohle and the seven steel-producing Ruhr groups which had brought their pits into the joint company, and the power-station treaties or agreements with the electricity supply businesses. Both are essentially concerned with competitive prices: Ruhrkohle has to supply the steel companies with coal at world market prices, and public money will be paid to compensate for any difference.

For sales of coal to power stations, the electricity consumers would pay the difference between the price of the expensive Ruhr coal and cheaper imported coal—or oil—in the form of the Kohlepfennig, or “coal penny.” This amount would be added to the bill of each individual consumer.

Complaints were made from the beginning by all parties, and especially by the managers of Ruhrkohle themselves, that this company joined, eventually, by 26 of the 28 mining companies on the Ruhr had been brought to life in skeletonized form, stripped of its assets, without the large, productive, and thoroughly profitable power stations and above all without the valuable land holdings which the companies, some of them well over a century old, had accumulated over time. Apart from the land needed for operational purposes, none of this extensive property had remained under the ownership of Ruhrkohle AG.

Ruhrkohle is structured as a private enterprise but is unable to exist without the support of the state, unless energy prices are extremely high, around $35 for a barrel of oil. It must operate as efficiently as it can, and it may not, according to its constitution, make any profit. It should manage itself alone as far as possible, yet it is not allowed to undertake all that it may wish. The state—the Federal Ministry of Economics—ensures that nothing is undertaken which lies outside the company’s main area of operation, the production of coal, and which could involve any risk. This restriction is meant to prevent the need for additional subsidy requirements. The former owners, the Altgesellschafter, pay close attention to ensuring that Ruhrkohle does not become a competitor in sectors in which they are active—for example, in certain trading and service sectors, such as waste management. The principal companies concerned here are Veba AG with a shareholding of 39.2%, the electricity supply company Vereinigte Elektrizitatswerke Westfalen AG with 30.2%, Thyssen Stahl AG with 12.7%, and Hoesch AG with 7.2%.

Indeed from its inception, Ruhrkohle AG has been a company sui generis, and continues to be so. The company had a bad start. In 1969, its first year of operation, it had to overcome a loss of DM330 million which used up more than half of its share capital. According to the laws governing shares, this loss should have been reported and an extraordinary shareholders’ meeting should have been called. However, Heinz P. Kemper, the first chairman of the supervisory board and formerly chairman of Veba’s management board, together with the first chairman of the management board Hans-Helmut Kuhnke, was able to reduce the loss to DM199 million and so to gain time: this was achieved through what Kemper called “accounting policy measures.” When a steel crisis developed in 1971, leading to a dramatic reduction in sales to the steel industry—which, along with the electricity industry, was the largest purchaser of Ruhr coal—it became essential to strengthen the company’s weak capital base. Otherwise bankruptcy would have been inevitable, with incalculable consequences for the 170,000 employees. Again a joint action resulted: the shareholders decided to forego, in part, the interest income owed to them, amounting to approximately DM700 million. Also, the government conceded a debt register claim, which the company was to pay back if it made profits, of DM1 billion.

Although the company’s financing and balance-sheet arrangements were stabilized, it became clear that Ruhrkohle AG could not become competitive in the long term, even with the most modern mining technology and the continual adaptation of its production to demand, because of difficulties presented by the nature of German coal deposits. Kuhnke, his successor Karlheinz Bund, and Heinz Horn, chairman of the management board of Ruhrkohle AG since 1985, have emphasized the company’s function in ensuring the coal supply, embodied in the three energy programs produced by the federal government after 1973. The theory of a necessary safe base provided by German coal in the face of Germany’s very high dependence on imported oil and gas for its energy requirements, has for many years been an important, and controversial, component of Germany’s energy policy.

In recent years the European Commission has made repeated interventions. The commission has underlined the incompatibility of German coal subsidies with policies within the European Community—subsidies without which Ruhrkohle could not survive. In reaction, the German government has produced another program to adapt production to demand and thus to reduce the need for subsidy payments, which now amount to DM8 billion to DM10 billion per year as a result of low world energy prices and the low U.S. dollar rate. Ruhrkohle AG has been hopeful that the union of East and West Germany may result in additional markets for coal in the five new federal states, although energy experts warn that such expectations should not be too high.

The long-term survival of Ruhrkohle seems certain, even with the prospect of a reduction in coal production in the federal republic in the years to come, following the recommendations of a state commission that production should stand at between 45 and 55 million tons annually, rather than 70 million tons. Despite the high, economically controversial subsidies needed by Ruhrkohle AG, a halt to coal production will not occur in Germany, as has been the case in some neighboring western countries in past years. The option of coal, in the form of Ruhrkohle AG, remains as a safeguard in Germany’s energy policy.