BERLIN, Aug 16 (Reuters) - Germany's coalition

government has reached an agreement on how to narrow a 17

billion euro ($19 billion) budget gap, paving the way for a

draft plan to be submitted to parliament, government

spokesperson Steffen Hebestreit said on Friday.

The German cabinet passed its 2025 budget in July after

months of wrangling, even though the gap between projected

spending and revenue was still to be covered.

At that time, German Finance Minister Christian Lindner had

said the government was looking at innovative ways to reduce the

shortfall to 9 billion euros.

The options under scrutiny were using extra funds from the

state bank KfW, and converting the grants of Germany's national

rail operator Deutsche Bahn and the highway company into loans.

The advisory board to the German Finance Ministry had said

those three options were problematic, so negotiations had to

continue for the coalition parties to find a solution.

A narrowing of the gap will be achieved by giving 4.5

billion euros in equity to the infrastructure division of

Deutsche Bahn, which will replace subsidies that were

included in the previous version of the draft budget.

In addition, Deutsche Bahn will receive a loan of 3 billion

euros from the government, which can be used to redeem

infrastructure bonds previously issued on the market.

The equity injection and the loan do not count towards the

debt brake, which limits public borrowing to 0.35% of gross

domestic product.

The government will also get 300 million euros extra from

energy utility Uniper, as the company will pay 2.9

billion euros instead of 2.6 billion as it has set aside more

funds for the payment obligation to the federal government for

aid received in 2022.

($1 = 0.9080 euros)