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RAG AG

 


Address:
Rellinghauser Strasse 1-11
D-45128 Essen
Germany

Telephone: (49) (201) 177-01
Fax: (49) (201) 177-3475
http://www.rag.de

Statistics:
Private Company
Incorporated: 1968 as Ruhrkohle AG
Employees: 65,200
Sales: DM 26.7 billion ($13.6 billion) (1999)
NAIC: 212111 Bituminous Coal and Lignite Surface Mining; 212112 Bituminous Coal Underground Mining; 212113 Anthracite Mining; 213113 Support Activities for Coal Mining; 325199 All Other Basic Organic Chemical Manufacturing; 42152 Coal and Other Mineral and Ore Wholesalers; 42181 Construction and Mining (Except Oil Well) Machinery and Equipment Wholesalers


Company Perspectives:


RAG AG's roots are in domestic mining. It is among the most important driving forces of structural change in the mining regions of the Ruhr and Saar. The tasks connected with this role are diverse as well as demanding. Between our tradition and the demands of the future, RAG takes responsibility for the people in the mining regions. Beyond that, trend-setting innovations create profitable national and international growth. This growth, together with continued efforts to train our employees, create new perspectives and contribute in a major way to secure domestic jobs.


Key Dates:


1968: A new German coal conglomerate, Ruhrkohle AG, is established.
1985: RAG's new CEO Heinz Horn begins a policy of diversification.
1987: Plans made to reduce coal production and coal industry workforce by about 18 percent by 1995.
1991: New plans to regulate the industry result in RAG's Coal Concept 2005.
1994: An agreement with the German government allows RAG's non-coal subsidiaries to keep 25 percent of their profits.
1995: Horn steps down as CEO and is replaced by Gerhard Niepp. 1999: RAG acquires 95 percent of Burton Coal Joint Venture and Cyprus Amax Coal Company.


Company History:

RAG AG is one of the world's leading hard coal producers and Germany's number one coal producer. Based in Germany, the company consists of an international group of more than 450 companies active in mining, coal trading, engineering, power generation, and chemicals, and has over 220 subsidiaries around the world. RAG's domestic coal and coke mining activities are managed by Deutsche Steinkohle AG. Its international mining activities, including the American coal producer Cyprus Amax Coal and the Australian Burton Coal Mine, are managed by RAG Coal International AG. STEAG AG is an power generation engineering firm. RÜTGERS AG is a producer of plastics, basic organic and specialty chemicals, and a construction firm. RAG's activities in the fields of environment and coal trading are organized through Saarberg AG. About two-thirds of RAG's revenues come from its domestic and international coal subsidiaries and one-quarter of total sales originate outside Germany. The three main RAG shareholders are German energy suppliers VEBA with 37.1 percent, VEW with 30.2 percent, and steel maker Thyssen Stahl AG with 12.7 percent of the share capital.

Origins in 1968

RAG's history is inextricably linked to the postwar history of the German coal industry. It was a history of reducing production of hard coal and closing down coal mines, determined by German economic politics. After World War II, Germany was confronted with a serious shortage of energy, due primarily to the destruction of many power plants and transmission systems during the war. Previously the coal industry was one of Germany's motors of economic growth--but it also fed the German war economy. The formerly powerful coal cartel was put under control of the occupation forces after the war. However, when the Western Allies gave up control over Germany, the German coal industry together with the West German government began making plans for a new coal conglomerate.

Hard coal had fueled German power generation for half a century, and in the mid-1950s the country was faced with a dilemma when coal production had surged so that stockpiles grew and sales plummeted. Three main factors contributed to this development. First, domestic coal had to compete with imported coal which was cheaper due to falling shipping costs. Second, cheap oil from the Middle East was replacing coal as a fuel. Third, the German energy and steel making industries, two of the main consumers of German coal, implemented new, more energy efficient technologies which radically cut the amount of coal needed.

By the middle of the 1960s it became clear that a fundamental structural change in Germany's energy industry was on its way and that, unchecked, it could lead to an economic and social crisis for the country. Most of Germany's coal mines and processing facilities were located in the Ruhr; an unregulated decline could have had serious consequences for the whole region. In 1968 the German government issued legislation aimed at the regulated reorganization of the German coal industry. At its core was the establishment on November 27, 1968 of Ruhrkohle AG--RAG for short--which was owned by 24 companies, including VEBA, Hoesch, Mannesmann, Thyssen, and Klöckner.

RAG became the national umbrella organization for 52 coal mines, 29 coke producers, and five briquette manufacturing plants with combined sales of DM 5.8 billion and 182,650 employees. On November 30, 1969, all these plants and employees were reorganized into seven companies, the Bergbau AG Niederrhein, Oberhausen, Gelsenkirchen, Herne/Recklinghausen, Essen, Dortmund, and Westfalen. RAG was thus unique in Germany, operating as a private enterprise yet dependant on support from the state. This support was given mainly in the form of subsidies but also through laws protecting German coal interests in some sectors.

Oil Shocks and Energy Policy: 1970s-80s

In August 1970 RAG enacted a strategy that became the foundation of the gradual transformation of the German coal industry into a leaner but more efficient industrial sector. This strategy included six major points: 1) concentration on the most productive coal mines and an optimized allocation of coal reservoirs to the mines; 2) the creation of combined coal mines as an alternative to closing some of them down completely; 3) to protect the environment, satellite mines would be planned and operated in regions with new coal deposits; 4) downsizing activities were to take into consideration the effects on the regional economies and job markets; 5) job cuts had to be timed in such a way that employees had enough time to prepare for the change by either moving, training for a new job, or retiring; 6) downsized employees had to be supported in this transition through job offers from other companies or early retirement programs.

RAG's basic strategy did not change much during the following decades. However, it had to be modified in response to the economic turbulence that came with the 1970s and 1980s. When the first oil price increases hit the German economy in 1973, they brought an increase in unemployment and a sudden decline of economic growth. The government realized the dangers of dependence on foreign fuel supplies and demanded that German coal production be kept at then-current levels. A second oil price shock followed in 1978 and the government went so far as to request the domestic coal industry to prepare for expansion. Much development work was initiated which resulted in a decline of productivity.

In 1973 RAG consisted of 38 coal mines, 22 coke production plants, and two briquette factories which employed a total of 148,425 people. By 1984 the numbers declined to 23 mines, 12 coke plants, one briquette factory and 122,257 employees. During the same time period, coal production dropped by 22 percent while sales climbed by 50 percent. In the 1980s, after the oil crises of the 1970s were forgotten, the market for coal started declining again.

In 1985, when Heinz Horn became RAG's new CEO, the German coal industry seemed to have stabilized. However, when the U.S. dollar abruptly lost almost half of its value, energy prices on the world market declined, making German coal far too expensive. To prevent economic disaster, the German government subsidized the German coal industry heavily, despite regulations of the European Community (EC). However, the German public became more and more critical towards this policy. In 1987 a so-called 'Kohlerunde' took place, a get-together of government officials and representatives from the industry. The result was an agreement to gradually diminish coal production and the number of employees by about 18 percent by 1995.

Coal Concept 2005 in the Early 1990s

In 1989 the European Community (EC) pressured Germany to reduce subsidies for steam coal. That year government subsidies for the German coal industry amounted to approximately DM 66,000 per employee. The EC formed a Coal Commission to develop a new policy for the German coal industry after 1995. The commission came to the conclusion that the coal industry was a strategic factor in securing Germany's energy supply and that it was not able to survive without government subsidies. However, the industry agreed on reducing the annual output of steam coal from 45 million MT to 40.9 million MT annually. At the end of 1989 RAG reorganized its subsidiaries. The three remaining Bergbau AGs were merged with RAG. At the same time, two new companies were founded to manage RAG's mining business: Ruhrkohle Niederrhein AG and Ruhrkuhle Westfahlen AG.

After East and West Germany were reunified in 1990, coal subsidies became an issue once again, because the high cost of integrating the East German economy was putting the German government under extreme financial pressure. In 1991 a second 'Kohlerunde' was held to find a solution. The result was the Coal Concept 2005, a mutual agreement between the coal mining industry, the miner's trade union, the electricity industry, the state governments of coal-producing states, and the federal government. According to Coal Concept 2005, subsidized sales of domestic coal to energy and iron and steel producers was to be reduced from 66 million MT in 1991 to 50 million MT by 2005. Any steam coal output that exceeded this limit would not be subsidized. Existing contracts with power stations to buy domestic coal--the 'Jahrhundertvertrag'--were continued but with gradually reduced volumes until 1997 and a fixed volume after that until 2005. Another existing contract with steel mills--the 'Hüttenvertrag'--was also extended until 2005. For RAG the Coal Concept 2005 meant reducing coal mining capacity by nine million tons a year. The number of active coal mines was reduced from 17 to 12 by the end of 1991. In connection with those measures, the number of RAG employees would be reduced by 27,000 by the year 2000.

While coal mining was gradually reduced, RAG began transforming itself into a diverse technology concern. Specifically, the company became active in logistics, coal-based chemistry, and environmental technology. One field of activity for environmental services became the clean up, recultivation, and reforestation of areas where coal mines and processing plants had been closed down. The government subsidies were used more and more to strengthen growing markets instead of conserving old structures in declining industries. One of the new areas of activity was logistics. RAG owned a 600-kilometer-long railway system and 140 locomotives which were used to ship 70 million tons of coal across the Ruhr. In addition, Ruhrkohle owned ten harbors and a shipping company at Duisburg harbor on the river Rhine and a share in another shipping company at Rotterdam harbor.

Between 1970 and 1992, the percentage of RAG's total sales generated by activities other than coal jumped from two percent to over 30 percent. By 1992, 27 percent of RAG's 124,000 employees worked in areas other than coal mining and production. In October 1992 the RAG advisory board approved a new company structure. All of RAG's non-coal activities were organized under the umbrella of a new management holding company, the RAG Beteiligungs GmbH. They included the energy division STEAG AG, chemicals producer Rütgerwerke AG, the environmental division Ruhrkohle Umwelt GmbH, the logistics complex RAG Umschlags- und Speditions GmbH and the real estate arm RAG Immobilien AG.

In 1992 and 1993 there was a sudden decline of prices in the steel market, and sales dropped. This in turn led to rising coal reserves, and demand for coal went down. Moreover, cheap coke from countries such as China and Australia flooded the world market. Not surprisingly, the German steel making industry put pressure on RAG to significantly reduce coal prices. The conflict escalated when Klöckner, one of Germany's largest steel makers, was granted the right in 1993 to purchase up to 30 percent of its coal supply abroad in order to avoid bankruptcy. German steel giants Krupp/Hoesch and Thyssen claimed they needed similar consideration. However, while those companies partly relied on their own coke production facilities and bought additional volume only as needed from RAG, Klöckner depended completely on the expensive RAG coke. Finally, in May 1994 an agreement was reached between RAG and the German steel makers. The latter agreed to buy between 3 and 3.5 million tons of coal from RAG annually until the end of 1997. As a result of the crisis period in the early 1990s, RAG closed down one coke plant and cut the output of the other three from seven million tons in 1991 to 4.2 million tons in 1995. At the end of the same time period, RAG's briquette factory had produced 0.2 million tons of briquettes, only half of the output from 1991.

Diversification and Reorganization After 1995

At the end of 1994, RAG CEO Heinz Horn, who had managed the company through a crucial process of diversification for almost a decade, retired and was succeeded by Gerhard Neipp. Under Horn's leadership, RAG had managed to generate almost half of its total sales in areas other than coal mining. Moreover, a new agreement with the German government reached at the beginning of 1994 had allowed RAG's non-coal subsidiaries to keep 25 percent of their profits instead of transferring them to the parent company. In July 1995 a new company structure was introduced that transformed RAG into a pure management holding company. To express the new, broader focus of its activities, Ruhrkohle AG was renamed RAG AG. A new subsidiary--RAG Vertrieb und Handel AG--was established to better coordinate all activities connected with the distribution and trading of coal, as well as other logistics activities and services.

In 1996 the German electricity lobby finally won its battle against the 'Kohlepfennig,' a tax on electricity that was collected as a partial funding for the coal subsidies, which diminished the competitiveness of the German electricity industry by keeping the prices at an artificially high level. The highest German court ruled the policy to be against the German constitution, which at the same time voided the 'Jahrhundertvertrag,' the treaty that had subsidized the German steam coal.

In March 1997 a new 'Coal Compromise' was negotiated between the coal industry, the mining trade union, the German federal government, the state governments of North Rhine-Westfalia, and the Saarland. That year total government subsidies for the German coal industry amounted to over DM 9 billion--DM 7 billion to subsidize German steam coal and DM1 billion for the steel industry. According to the new agreement, coal subsidiaries were to be cut gradually until 2005 and the industry would be downsized to about ten coal mines and an annual output of 30 million tons of coal. The 90,000 employees in 1997 would be cut in half by 2005. At the same time a new regulation allowed RAG to use more of its profits derived from its non-coal activities to invest in its non-coal and international business. In the same year RAG Bergbau AG took over the Saarbergwerke AG, a government-owned coal mining company based in Saarbrücken, and was renamed Deutsche Steinkohle AG which included RAG's domestic coal mining activities. Another new subsidiary, the new Saarberg AG, organized all non-coal activities of the former Saarbergwerke, RAG's environmental services and oil trade.

RAG's domestic coal activities were still dominated by closing down coal mines, training the staff that had been laid off in new professions, and making existing coal mines more efficient. At the same time, however, the company expanded its international coal business. In 1996 RAG Coal International was founded to manage all RAG's coal activities abroad, including the exploration and development of new coal reservoirs; the planning, development, and operation of coal mines and processing facilities; and the manufacture of mining equipment. In the fall of 1999, when RAG bought 95 percent of an Australian coal mine, Burton Coal Joint Venture, and the American firm Cyprus Amax Coal Company based in Denver, Colorado, it was suddenly the world's second largest private coal producer. Cyprus-Amax included seven coal mines and two strip mines in Wyoming and Colorado. In 1999 RAG Coal International generated an output of 65 to 70 million tons of coal in 17 coal mines, totaling almost $1 billion in sales. Geographic advantages and more efficient technologies in the United States made the costs for coal mining one-tenth those of Germany. In American strip mines the difference was staggering; while it cost about $137 to produce a ton of coal in Germany, it cost not much more than $5 in an American strip mine. Another new market for RAG was China, with its international coal trading firm RAG EBV AG and its mining equipment arm DBT Deutsche Bergbau-Technik GmbH.

RAG's non-coal activities also became increasingly successful in the late 1990s. STEAG AG invested in a petrochemical power plant in Leuna and was also active in STEAG's Micro Tech division. It was the market leader for wet-process engineering for semiconductor production, serving clients such as IBM, Intel, and Hewlett Packard. Moreover, RÜTGERS AG subsidiary Isola, which was merged with the electro plating business of Allied Signal, became a world market leader in its field.

Principal Subsidiaries: Deutsche Steinkohle AG; RAG Beteiligungs-GmbH; RAG Coal International AG; RAG EBV AG; STEAG AG (72%); RÜTGERS AG (95%); Saarberg AG; Ruhrgas AG (18%); RAG IMMOBILIEN AG (99%); RAG INFORMATIK GmbH; RAG BILDUNG GmbH; Harpen AG (23,5%).

Principal Competitors: The Broken Hill Proprietary Company Limited; Peabody Holding Company, Inc.; CONSOL Energy Inc.





Further Reading:


'Building Round Coal,' World Mining Equipment, September 1995, p. S4.
Garding, Christoph, 'Ruhrkohle: Es kommt noch dicker,' Focus, July 5, 1993, p. 118.
'Heinz Horn 65 Jahre,' Sueddeutsche Zeitung, September 15, 1995.
Hessling, M., 'German Hard-Coal Industry,' Engineering & Mining Journal, October 1992, p. 16.
Husemann, Ralf, 'Ruhrkohle hat sich vom Bergbau emanzipiert,' Süddeutsche Zeitung, September 12, 1996.
Knop, Carsten, 'Die RAG löst sich langsam aus der politischen Umklammerung,' Frankfurter Allgemeine Zeitung, September 5, 1998, p. 21.
Pollard, Sidney, 'The German Tradition of Organized Capitalism: Self-Government in the Coal Industry,' Business History, January 1995, p. 127.
Sturm, Norbert, 'Von der Kohle zum High-Tech-Konzern,' Süddeutsche Zeitung, January 30, 1992.
'The Energy to Export,' World Mining Equipment, September 1999, p. S22.

Source: International Directory of Company Histories, Vol. 35. St. James Press, 2001.




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