(Bloomberg) -- Germany’s failure to finalize a deal to buy part of grid operator Tennet Holding BV is exposing fresh rifts within Olaf Scholz’s ruling coalition.

The economy ministry, led by Robert Habeck from the Greens, approved the acquisition last November and is frustrated that the buyout has still not gone through after the chancellery took over the negotiation and the finance ministry delayed it, according to people familiar with the matter. It is embarrassing for the government that the issue has dragged on for so long, said the people, who declined to be identified.

The tensions are just the latest of a host of policy disagreements within the unwieldy ruling alliance led by Chancellor Olaf Scholz ahead of European and regional elections in the coming months.

Germany has been negotiating since late 2022 on the purchase of the domestic business of Tennet, a Dutch electricity grid operator. It already holds minority stakes in 50Hertz and TransnetBW and plans to merge the grids and modernize them — a key part of its ambitions to decarbonize its economy and meet climate targets.

While a deal has largely been agreed with Tennet, there are still unresolved issues within the coalition, including what stake the government will have.

This is particularly important to the finance ministry, led by Christian Lindner from the market-liberal Free Democrats. It’s pushing to bring private investors on board and reduce the state’s stake to 25% as soon as possible, according to a senior government official.

Financing Disagreement

The deal is valued at around €22 billion ($24 billion), and financing costs have also been contentious. Although the acquisition would be done via the state-owned bank KfW and not affect the country’s borrowing rules, there’s disagreement over which ministry would cover the interest payments on the debt that KfW takes on, according to the person.

The tensions over Tennet come as the three parties in the coalition try to stitch together next year’s budget and find around €20 billion ($21.7 billion) in savings. 

A huge investment in the grid would look at odds with Lindner’s mission to cut public spending. It could make his push for fiscal restraint even harder to sell to the public and further damage the reputation of the deeply unpopular government.

Amid the ongoing delay, Tennet on Thursday said it’s exploring “alternative structural solutions” — including a sale to private investors or an initial public offering — causing its bonds to slump.

Germany’s economy ministry said it’s continuing to negotiate with the Dutch government on the purchase of Tennet Deutschland. The finance ministry and the chancellery declined to comment. 


--With assistance from Michael Nienaber.

(Updates with finance ministry in final paragraph)

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