HKCF advises the City of Düsseldorf as exclusive M&A and Debt Advisor

Transfer of Municipal Sewer Assets to the City’s Wastewater Utility

The sewer network, wastewater treatment plants, and pumping stations — currently recorded as fixed assets in the municipal core budget — are to be transferred to the Düsseldorf municipal wastewater utility (SEBD).

These assets, previously leased by SEBD from the city, are to be transferred for a consideration of approximately €599 million. This transaction will have no impact on wastewater fees for residents. The City Council is scheduled to deliberate the proposal on July 13, ahead of the summer recess. The asset value of around €599 million was determined by an independent external valuation expert.

The SEBD is a municipally owned enterprise operating with full economic responsibility. Until now, the so-called sewer assets remained part of the city’s core budget and were made available to SEBD for operation and management. In its December 2016 budget session, the City Council decided that the currently leased assets should be fully transferred to the utility and instructed the administration to continue the ongoing negotiations. As a result, the assets will be economically reassigned to the municipal enterprise and brought under its direct responsibility. From the city’s perspective, the agreed consideration represents a more economical solution than the present-value sum of decreasing annual lease payments.

Mayor Thomas Geisel stated: “The current split between the owner and operator of the sewer system is unnecessary, complex, and uncommon. With this transfer, we are reuniting what logically belongs together. The determined price of €599 million is a fair and objectively calculated value, based on the replacement cost less any past third-party subsidies. There will be no changes to fees for citizens.”

Background
In 2000, the Düsseldorf City Council resolved to convert the municipal wastewater department into a publicly owned utility, effective January 1, 2001. With this resolution, the operation became responsible for its own economic cycle, managed outside the municipal core budget as special-purpose assets. While the utility took over operations, ownership of the sewer infrastructure — comprising pipes, treatment plants, and pumping stations — remained with the city. Since 2001, the utility has made its own investments within its economic structure.

Current Developments

Düsseldorf: Old Sewer Infrastructure Expected to Generate €599 Million for the City Budget
In its December session, the City Council gave the green light to sell the old sewer assets to the municipal utility SEBD, which had previously leased them. The newer facilities already belong to SEBD, prompting Mayor Geisel to state, “we’re bringing together what belongs together.” The split in ownership had been inefficient, he noted. Treasurer Dorothée Schneider welcomed the anticipated €599 million, which will support the 2018 city budget.

Underground Assets
The sewer system includes pipelines, wastewater treatment plants, and pumping stations. While new infrastructure already belongs to SEBD, older assets have been leased. The city budget currently earns €43.5 million annually from these lease payments, which decrease by €2 million each year due to declining depreciation.

A Good Deal for Both Sides
Mayor Thomas Geisel, City Treasurer Dorothée Schneider, and Dr. Frank Karbenn (HKCF Corporate Finance) outlined the plans for the transaction.

According to Mayor Geisel, the transaction benefits both sides: the city receives urgently needed capital to finance upcoming investments, particularly in school construction, while SEBD gains valuable assets. Given the current favorable interest rate environment, the utility can borrow at low cost — the market test yielded a maximum interest rate of 1.9%. The valuation of €599 million was confirmed as reasonable by an independent auditor, based on replacement cost. The auditor also confirmed that SEBD’s financial capacity will not be impaired and that it retains sufficient liquidity to service both new and existing debt obligations.

No Impact on Fees – But Price Adjustments Expected
Mayor Geisel emphasized that citizens should not worry about increased wastewater fees due to the purchase. However, he did point out that current fees cover only about 90% of actual costs, making future increases likely — though unrelated to the asset transfer.

Opposition Criticism
The City Council will formally vote on the transaction at its July 13 session. The CDU opposition criticized the process and communication around the deal. CDU faction leader Rüdiger Gutt objected that the media were informed before the Council’s committees could review the matter. Vice-chair Andreas Hartnigk strongly opposed forcing SEBD to take on debt for the transaction, warning that if SEBD defaults, the city would bear financial liability. The CDU argued that the deal is economically unsound, as the city is giving up approximately €500 million in lease revenue over the next 20 years.

Mayor Geisel and Treasurer Schneider disagreed, emphasizing that the transaction represents a financially prudent decision.