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December 18th, 2012

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State rail operator DSB is getting a much-needed lifeline. It's been reported that parliament will approve a bill tomorrow that will give DSB eight billion kroner in state guarantees. 

The move comes in advance of the expiration of numerous government-backed loans and will put DSB in a better position to refinance its debts. 

"We need to hold DSB's hand and give a state guarantee; it's necessary to get DSB back on track," the transport minister, Henrik Dam Kristensen (Socialdemokraterne), said in parliament according to Berlingske newspaper. "I can't say that it will result in bankruptcy if [DSB] doesn't get [government backing]. But I think that it is essential for DSB's future."

DSB entered 2012 with a debt of 17.55 billion kroner. The company will enter the new year tasked with finding a billion kroner in savings. One of its biggest costs is in the salaries received by employees. According to Ritzau news bureau, a DSB train conducter earns an annual salary of 525,000 kroner. 

Kristensen stressed, however, that he would not get involved in DSB's savings plan and that there would not be a repeat of the much-discussed move by the finance minister, Bjarne Corydon (Socialdemokraterne), who injected himself into the negotiations between SAS airline's management and employees' unions. 

"This is between DSB's leadership and its employees," Kristensen told Ritzau. "Under no circumstances will I get involved."

But that the government is forced to step in and help DSB with its refinancing is a sign that further state help will be needed, according to Jens Kristian Elkjær, an economics professor at Copenhagen Business School. 

"This state guarantee and DSB's running debt show that running a public railway cannot be done without the state giving a helping hand," Elkjær told Berlingske. "And there is a risk that the state will be forced to hold DSB's hand for a long, long time."

Among the reasons for DSB's financial troubles are the long-delayed high-speed IC4 trains that DSB purchased from Italian train company Ansaldobreda. This summer, it was calculated that the numerous delays will end up costing DSB one billion kroner more than the original price tags for the 83 train sets. The IC4s that have hit Danish tracks were forced to be pulled out of use because of braking malfunctions. Although they were able to get back on the railways, it led to DSB declaring in June that due to the delays and the unsatisfactory quality of the trains, it would refuse to pay Ansaldobreda. 

After months of trying to get out of the contract, the two companies struck an agreement this week that states that all remaining train sets must be delivered by October 2013. If they are not, DSB can annul the rest of the order. The Italians still need to deliver 22 IC4 train sets and 14 IC2 train sets.

According to DSB, the Italian company has granted DSB 550 million kroner in compensation for the delays. 

"The agreement clarifies a number of significant issues and uncertainties, but doesn't change the fact that the deliver of the IC4s has been a disastrous situation for all involved parties," DSB's Frank Olesen said in a statement.