Vito GamberaleVito GamberaleStrategic role of gas and power networksDaily relayRome – February 19, 2013Vito Gamberale
Vito Gamberale2Table of contents– Foreword Pg. 3– Deficiencies in the integrated water cycle Pg. 8– Deficiencies in the wa...
Vito Gamberale3Foreword
Vito Gamberale4Foreword– This meeting will focus on the strategic role of gas and power networks: thistopic has been widel...
Vito GamberaleA higher concentration of this sector could provide a balanced developmentof the system, both in terms of ne...
Vito GamberaleMore efficiency in this sector could be achieved by aggregating the too smalloperators and, in particular, t...
Vito Gamberale7Foreword– Despite some necessary improvements in the distribution, the energy networksremain balanced, adva...
Vito Gamberale8Deficiencies in the integrated water cycle
Vito Gamberale9Deficiencies in the integrated water cycleThe Italian market of water services, compared to those of the ma...
Vito GamberaleDeficiencies in the integrated water cycle– low concentration levels: determined by the local dimension(muni...
Vito Gamberale11Deficiencies in the integrated water cycle– Rates are much lowercompared to the Europeanaverage…– …prevent...
Vito Gamberale12Deficiencies in the integrated water cycleThe issues described determine the critical conditions of the wa...
Vito Gamberale13Deficiencies in the integrated water cycleSuch conditions determine a low level of trust in water quality ...
Vito GamberaleDeficiencies in the integrated water cycle– The current critical situation of the water sector has also been...
Vito Gamberale15Deficiencies in the integrated water cycleThis situation peaked with the June 2011 referendum, a thoughtle...
Vito Gamberale16Deficiencies in the integrated water cycleThe referendum therefore had additional negative effects on an a...
Vito GamberaleIn order to achieve such objectives, it is necessary to apply modern financing tools,to create a new «instit...
Vito Gamberale18Deficiencies in the waste disposal sector
Vito Gamberale19Deficiencies in the waste disposal sectorWaste disposal follows a very similar profile as water supply.–Th...
Vito Gamberale20Deficiencies in the waste disposal sector– On the contrary, the European waste management market – particu...
Vito Gamberale21Deficiencies in the waste disposal sector− The market fragmentation, as well asthe fundamentalist environm...
Vito Gamberale22Deficiencies in the waste disposal sector− Germany and France could dispose over half of their solid urban...
Vito Gamberale23Deficiencies in the waste disposal sector− The lack of WTE plants in Italy makes it the country with the h...
Vito Gamberale24Deficiencies in the waste disposal sectorExactly as with the power sector, the Italian waste sector is ext...
Vito Gamberale25Deficiencies in the waste disposal sectorExactly as for the water sector, developing the waste sector does...
Vito Gamberale26A modern finance example: the role of F2i
Vito Gamberale27– The lack of public financing, which prevents from creating newinfrastructures and from efficiently manag...
Vito GamberaleA modern finance example: the role of F2i28– Thanks to a fundraising of 1,852 mil €, F2i is the biggest fund...
Vito GamberaleA modern finance example: the role of F2i29F2i investors (per category) Following its mission and the insti...
Vito GamberaleA modern finance example: the role of F2i3011For SAGAT all commitments until 2014 areconsidered (share acqui...
Vito Gamberale2i Gas (ex E.On Rete)31ENEL Rete GasAlerionHFVInfracisMediterranea delleAcqueRete Idrica ParmaGESACSEASAGATG...
Vito GamberaleA modern finance example: the role of F2i32− In the timelapse of a few years, F2i offered a new business mod...
Vito GamberaleA modern finance example: the role of F2i33Thanks to F2i, important assets managed by foreign companies have...
Vito Gamberale34F2i was created as a private, yet institutional investment tool to aggregateexisting infrastructures in pr...
Vito GamberaleA modern finance example: the role of F2iExamples of industries35WATER− F2i approached the water system with...
Vito GamberaleA modern finance example: the role of F2iExamples of industries36WATER− Following MdA’s successful case, F2i...
Vito Gamberale37The objectives of F2i’s operations are:−access a strategically crucial sector in Italy that requires impor...
Vito Gamberale38− In the past two years F2i has frequently searched for an entry point in thissector, by analysing various...
Vito Gamberale39A modern finance example: the role of F2iExamples of industriesENVIRONMENT− F2i accessed the environmental...
Vito Gamberale40Conclusions
Vito GamberaleConclusions41− Energy networks (particularly the power delivery and gas carriagesystems and, given a few cri...
Vito GamberaleConclusions42− To function properly, these infrastructures have to be created andmanaged as networks. They h...
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  1. 1. Vito GamberaleVito GamberaleStrategic role of gas and power networksDaily relayRome – February 19, 2013Vito Gamberale
  2. 2. Vito Gamberale2Table of contents– Foreword Pg. 3– Deficiencies in the integrated water cycle Pg. 8– Deficiencies in the waste disposal sector Pg. 18– A modern finance example: the role of F2i Pg. 26–Industry examples Pg. 35– Conclusions Pg. 40
  3. 3. Vito Gamberale3Foreword
  4. 4. Vito Gamberale4Foreword– This meeting will focus on the strategic role of gas and power networks: thistopic has been widely discussed with extreme competence by the previousspeakers, among whom SNAM and Terna’s Chief Executives. These companiescan be addressed as “European champions” in the field of gas distributionand power supply.– These networks are managed on an unbundling model basis, i.e. with separatedownership and management: they represent an example for all the otherinfrastructure networks in Italy, granting the following for users and operators:– equal access terms to networks– asset rationalisation– adequate investments and plant improvement– standardisation of the provided services– measurement transparency– Ffair rates.– With regards to energy networks, the gas and power supply sectors have not yetachieved the evolution level mentioned above.
  5. 5. Vito GamberaleA higher concentration of this sector could provide a balanced developmentof the system, both in terms of network reconditioning, development andmeasurement transparency (electronic meter remote reading). 5ForewordThe Italian gas supply sector is still very fragmented, especially when comparedto those of other big countries, despite the presence of two big operators, such asItalgas (proceeds: 900 mil €, EBITDA: 663 mil €; margins: 74%) and F2i Reti Italia- ERG (proceeds: 606 mil €, EBITDA: 326 mil €; margins: 54%):22,6%17,0%6,5% 6,5% 6,1%3,1%2,3%1,7%F2iRetiItalia23.1%17.3%6.5% 6.1% 5.9%3.2%2.3%2.1%ERG10.1%2iG3.2%G64.0%UKGDFSuez94%Altri 6%FranceGasNatural69%Altri31%Spain250 operators (mainly public)+ItalyMarket shares in gas supply (per carried volumes)NationalGrid51%Altri49%Others
  6. 6. Vito GamberaleMore efficiency in this sector could be achieved by aggregating the too smalloperators and, in particular, through a network spin-off by the incumbent.This would particularly favour investments for the creation of a smart-grid, inorder to also include the significant generation from non-programmablesources (renewables).6ForewordThe Italian power supply sector is much more concentrated, with the ENEL Groupholding over 85% of market share. However, this sector also includes many playerson the market (134), mainly public and holding microscopic shares.131 operators+Market shares in power supply (per carried volumes)86.0%3.9% 3.2% 1.4% 0.7%ENEL A2A ACEA IREN Dolomiti Energia
  7. 7. Vito Gamberale7Foreword– Despite some necessary improvements in the distribution, the energy networksremain balanced, advanced regarding plants and offered services, thanks to:– a (relatively) clear and consistent regulation system– rates apt to grant an adequate remuneration to investors– a minor gap between existing and necessary infrastructures.– In the area of infrastructures, there are still, on the contrary, deficit sectors that showopposite features compared to «balanced» sectors; these are often publicly ownedand ususally characterised by:– a great number of members (often without a reference stakeholder) withdifferent concerns that usually influence each other– a lack of the necessary financial resources (determined by public shareholders’issues) to initiate important investments to maintain and develop the managedassets– fragmentation of the sector in which they operate, caused by parochial politicsthat do not integrate in a national common strategy.– The integrated water cycle and waste disposal sector are among thedeficiting sectors, which I will address later in this presentation.
  8. 8. Vito Gamberale8Deficiencies in the integrated water cycle
  9. 9. Vito Gamberale9Deficiencies in the integrated water cycleThe Italian market of water services, compared to those of the major Europeancountries (Germany representing the sole exception, thanks to a system stillmanaged publicly and locally for the main part), is characterised by:– low privatisation: private operators represent 30% of the market (only5% excluding publicly-controlled operators)Privatisation in this sector (%)Data from: BCG30%80%88%>60%0%10%20%30%40%50%60%70%80%90%100%Italy France UK Spain
  10. 10. Vito GamberaleDeficiencies in the integrated water cycle– low concentration levels: determined by the local dimension(municipality/province) of the managing companies:10MdARIEOthers134295125122Data from: BCGData from: BCGITALY SPAIN FRANCEFirst 3operators25.8%Others74.2%Others65.0%Others38.0% Others30.0%First 3operators35.0%First 3operators62.0%First 3operators70.0%LISTED MULTI-UTILITY COMPANIES BIG MUNICIPALISED COMPANIESAbout 3,000otheroperatorsMarketshare1. Other minor subsidiaries: SAP, AM Ter, Idrotigullio, Acos and Asp (Piedmont), ASA Livorno (Monza), Astea (Marche), Aquenna (Sicilia)
  11. 11. Vito Gamberale11Deficiencies in the integrated water cycle– Rates are much lowercompared to the Europeanaverage…– …preventing an adequate level ofinvestment:Yearly investments (€/m3 carried water)Average supply and sewage rates (€/m3)Dati BCG e UtlitatisHowever, area plans foreseeinvestments for 64 bil € in 30 years, ofwhich 11% are covered by publicassets!0.371.241.000.91-0.200.400.600.801.001.201.40Italy Germany France UK1.255.303.103.80-1.002.003.004.005.006.00Italy Germany France UK
  12. 12. Vito Gamberale12Deficiencies in the integrated water cycleThe issues described determine the critical conditions of the water networkin the entire industry (water system, depuration, sewage):Water network leakages (%)Data from: BCGWater services – population coverage (%)At least 8 million people, connectedto the network, are not adequatelysupplied with drinkable water.From a healthcare point of view, Italy’swater system is at the same level asthose of third world countries!32%7%26%19%0%5%10%15%20%25%30%35%Italy Germany France UK95.5%84.7%70.4%99.0%94.5% 94.5%0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%Water system Sewage DepurationItaly European average
  13. 13. Vito Gamberale13Deficiencies in the integrated water cycleSuch conditions determine a low level of trust in water quality amongItalians, which accounts for the large consumption of bottled water (Italy is thebiggest consumer in Europe):Bottled water consumption per person (l/year)Source: “Vento a favore” – Colucci / Ronchi 2011On average, each year the expenses in Italy for mineral water per person (3%of total water consumption) equals to the expenses for the water systemsupply (97% of total water consumption): 90 €!19712514223133050100150200250Italy Germany France UK Spain
  14. 14. Vito GamberaleDeficiencies in the integrated water cycle– The current critical situation of the water sector has also been determined byfragmented and uncertain regulations.– In the last 20 years, there have been numerous law interventions piled up (over 10national laws and almost 70 regional regulations since 1995) that have not alwaysbeen consistent with each other and have often been misunderstood:142011LD 70-2011 – «Development Decree»Creates the National Surveillance Agency for waterresourcesReferendum June 12/13, 2011Abolishes art. 23 bis of the Ronchi Law and the assignmentin fees of the invested capital remuneration14Inconsistent featuresLD 135-2009 – «Ronchi Decree»Initiates liberalisation of local public services and setsminimum levels for private participationLD 2-2010With the objective of reducingpolitical costs, the 2010budget abolishes the areaauthorities1and confersRegions with the power toassign the TerritorialAuthorities functions by law.Eg: non-separation between managementand ownership in LombardyLD 222-2007One year delay on the assignmentto SII and to private subjects•December 2007 – December 2008•Based on a population law promotedby the «Italian Forum of movementsfor water»LD 152-2006Abolishes and replaces the Galli Law•Updates the Galli Law and officialisesthe Territorial Authorities and the AreaAuthorities•Rules the management of waterresources and water protectionNational LawsLaws to determine rates and themodalities for the assignment ofthe managementDecree1/8/1996MD280-2001LD 36-1994 – «Galli Law»Starts the Italian water system reformby:•dividing the territory in macroareas(Territorial Authorities)•integrating the functions of the watercycle management segments in a singleIntegrated Water System (SII)•separating ownership from managementof the water network•setting a fee to cover operational costsRegional Laws63 regional laws to put into action theGalli Law, mainly developed between1995 and 2001, sometimes clashingwith the inspiring principles of thereform1. Approved on March 16 by the Deputy Chamber and on March 23 by the Senate. Source: Press Search, www.parlamento.it
  15. 15. Vito Gamberale15Deficiencies in the integrated water cycleThis situation peaked with the June 2011 referendum, a thoughtless actioncaused by a lack of information and by the demagogic belief of «publicwater» (by «public» the idea in this case meant «free»).–Only rain water is free!–Water is collected, filtered and delivered to end-users for domestic, agricultural orindustrial use: this process requires massive infrastructures and expensivedepuration procedures!–Waste water must then be filtered additionally and disposed through sewage networks.–Therefore, distributed and depurated water cannot be delivered for free, exactly asgas and power are not supplied for free (for example, delivery and distribution costsand system management fees for gas and power almost equal the «raw material» costs).–A fair rate for water would determine a more conscious cunsumption of such avital and limited resource. This input should be also determined through the abolition offees and rates (still widely spread) that take responsibility away from users:– single building meters (to be replaced by separated meters for each home unit)– flat rates (to be replaced by rates based on consumption).
  16. 16. Vito Gamberale16Deficiencies in the integrated water cycleThe referendum therefore had additional negative effects on an alreadydeficiting sector, as it:– stopped the sector privatisation at its starting point (envisioned in the«Ronchi Decree») that could have determined a water system developmentbased on the European model– led to a feeling of uncertainty, still ongoing, due to the effort of meetingthe referendum requirements without causing an economic and financialunbalance of the managing bodies– created an even bigger overlap of competencies between governmentauthority, regional agencies and their province sections (the formerlyabolished Territorial Authorities) leaving management afflicted by localconflicting interests.Although this sector needs concentration, the efforts in coordinating theoperators at a regional level have still not brought results. The persistingparochial needs still allow «one water system for each municipality».
  17. 17. Vito GamberaleIn order to achieve such objectives, it is necessary to apply modern financing tools,to create a new «institutional capitalism»! It is indeed necessary for institutionalinvestors (banks, foundations, insurance companies, pension funds, etc.) to financebig sector «public companies», to generate «national champions» able topromote an efficient management and asset development. 17Deficiencies in the integrated water cycleWhat should be done to bring the Italian water sector at the same level asthe rest of Europe?– The Italian water sector has, to a certain extent, the same features of the powersector 50 years ago: it is inadequate, made of many small operators – mainly localand public – that have insufficient resources to provide a service of good quality.– We need to quickly resort to create the necessary investments to ensure thehealthiness of the water we drink and in which we bathe.– The solution to the power sector issues was «nationalisation», i.e. concentrating thebusiness in one single national operator able to provide an adequate and standardlevel of service.– Today that kind of nationalisation would not be feasible, as it would go against theEuropean economic policies.– The nationalisation process could however be undertaken by rationalising andconcentrating the thousands local operators in a few – maximum three – big«public companies» of national outreach.
  18. 18. Vito Gamberale18Deficiencies in the waste disposal sector
  19. 19. Vito Gamberale19Deficiencies in the waste disposal sectorWaste disposal follows a very similar profile as water supply.–The national waste market presents high levels of «pulverisation»: in 2011 themain 9 operators (whose ownership is mainly held by local bodies) have managedonly 7% of the total volumes:Main operators on the Italian market – per volumes disposed (data 2011 - kt)Analysis: BCGBusiness modelCollection YES YES YES NO YES NO NO YES NOTreatment YES YES YES NO YES NO NO NO NOWaste to energy (WTE) plants YES YES YES YES YES YES YES YES YESLandfills YES YES NO YES YES YES NO NO NO3,3822,8001,8001,100 1,017600331208 9001,0002,0003,0004,000Hera A2A AMARomaVeolia Iren Acea APSAcegasWasteItaliaACSM
  20. 20. Vito Gamberale20Deficiencies in the waste disposal sector– On the contrary, the European waste management market – particularly in France,Germany and in the UK – is made of large operators, usually private, integratedin the whole industry business:Main operators on the Italian market – per volumesdisposed (2011 data)France: a consolidated market, over60% controlled by the two mainoperators (Veolia and Sita Suez).These operators have alsoaccomplished important acquisitionson all major European markets.Germany: the German market hasexperienced an intensive M&Aphase, with also the participation ofsome investment funds (Apax,Blackstone, KKR) and in whichRemondis established its leadership.UK: this market has experienced arapid and important consolidationprocess in the past 10 years; in thistimespan the share held by the 5major operators grew from 15% toover 60%.Analysis: BCGBusiness modelCollection YES YES YES YESTreatment YES YES YES YESWaste to energy WTE plants YES YES YES YESLandfills YES YES YES YES60,00027,00018,00013,000010,00020,00030,00040,00050,00060,00070,000Veolia Remondis Sita Suez Biffa
  21. 21. Vito Gamberale21Deficiencies in the waste disposal sector− The market fragmentation, as well asthe fundamentalist environmentalismthat slows down the sectordevelopment, are the reasons for Italy’sfew active plants compared to the othermain European countries…− …and for the plants’ limiteddimensions.Operating WTE plantsWTE plants average capacity(thousands of tons of disposed solid urbanwaste [SUW]/year)Analysis by F2i, based on data from BCG and Eurostat5270130020406080100120140Italy Germany France100429154050100150200250300350400450Italy Germany France
  22. 22. Vito Gamberale22Deficiencies in the waste disposal sector− Germany and France could dispose over half of their solid urban waste (SUW) withwaste to energy plants. Italy just one-sixth!WTE capacity per inhabitant(kg/inhabitant/year)WTE capacity compared to total SUW 16.2% 62.3% 57.9%− The excess capacity allows some European countries to profit from waste disposalcoming from countries in difficulty, setting very high fees (e.g. waste from Naplessent to Germany).86367309050100150200250300350400Italy Germany FranceAnalysis by F2i, based on data from BCG and Eurostat
  23. 23. Vito Gamberale23Deficiencies in the waste disposal sector− The lack of WTE plants in Italy makes it the country with the highest numberof landfills in Europe (to dispose over 50% of Italy’s SUW)…SUW disposal modalities in the main European countries− …thus causing recurrent environmental emergencies (in Naples, Palermo,Rome, etc.).Data from: Eurostat14%38%34%53%0%31%32%62%35%0%10%20%30%40%50%60%70%Italy Germany FranceWTE Landfills Recycling
  24. 24. Vito Gamberale24Deficiencies in the waste disposal sectorExactly as with the power sector, the Italian waste sector is extremelyfragmented and suffers from a lack of information caused by pseudo-environmental beliefs and a «NIMBY» logic:–waste to energy plants in Europe and northern Italy (where they are managed bymulti-utility companies such as A2A, Hera, etc.) stand for progress, while in centraland southern Italy they stand for pollution–opposition against the creation of new WTE plants is based on utopic (and wrong)beliefs, according to which the full waste production could be recycled through thesorting of waste. This theory has no real foundation as even the countries thatachieved the «zero landfill» status (e.g. Germany) resort to WTE anyway for a third oftheir waste production–potentiating the sorting of waste is an extremely important objective, it cannothowever be the right solution for the full disposal of waste. The only alternative towaste-to-energy are landfills (extremely pollutant and soon to be forbidden by law inEurope) or sending waste abroad (extremely expensive).Today Italy keeps on creating new landfills, procrastinating the closure ofexisting landfills and paying stellar fines. This heavily (and often hidden)affects the rates for customers: we estimate that the new tax on waste(TARES) will approximately equal to the tax on estate (IMU).
  25. 25. Vito Gamberale25Deficiencies in the waste disposal sectorExactly as for the water sector, developing the waste sector doesn’trequire extra-complicated science. We just need to «replicate» thegood practices established in other European countries.–The Italian market is now in transition and, as it happened in other Europeancountries, seems to be about to face a consolidation phase. This should bring themajor operators, active today at a province/regional level, to aggregate and extendtheir scope of action to a national level and start to reach out for international grounds.–This sector, however, needs relevant investments to achieve the same WTEcapacity as Europe. For example, to match Germany’s capacity (i.e. dispose 1/3 of allSUW through WTE) Italy should enable an additional capacity of 7 Mt, with aninvestment of about 5−7 bil € (assuming an investment of 700–1,000 €/t).–The players currently acting on the market cannot provide such resources, as theyare too small and controlled by shareholders, mainly public, who are facing more andmore pressing financial problems.Therefore, a strong aggregation force should be also foreseen in the wastesector, with the creation of a «national champion» (following the Veoliaexample in France), which is a big «public company» financed by«institutional assets» that can provide for efficient management and adequateinvestments.
  26. 26. Vito Gamberale26A modern finance example: the role of F2i
  27. 27. Vito Gamberale27– The lack of public financing, which prevents from creating newinfrastructures and from efficiently managing the existing ones, canonly be balanced today with private financing.– The key topics brought out through this analysis include:o the fragmentation of infrastructures, the often public ownership andthe need for privatisation of some key sectorso a lack of public financingo the possibility to create «national champions» specialised in thevarious infrastructure sectors following the model of big Italian andforeign players.…we therefore came up with the idea of F2i, a private yet institutionalfund that can aggregate the existing infrastructures in industriesusing funds from this asset management to allow for theirdevelopment.A modern finance example: the role of F2i
  28. 28. Vito GamberaleA modern finance example: the role of F2i28– Thanks to a fundraising of 1,852 mil €, F2i is the biggest fund operatingin Italy and counts among the biggest country infrastructure fundsworldwide.– Recently, F2i has performed the first closing of a second fund, whichalready raised 575 mil € (final target: 1,200 mil €).– F2i was created as a private, yet institutional tool by high standingsponsors, who contributed to the establishment of the Fund’s solidreputation: the government, through CDP major Italian banks (Unicredit, Intesa SanPaolo) an important international bank (Merrill Lynch – BoA) the networks of former banking foundations and private welfarefunds life insurance companies and pension funds.
  29. 29. Vito GamberaleA modern finance example: the role of F2i29F2i investors (per category) Following its mission and the institutional nature of its investors, F2iaims for long-term participation with an industrial understanding.Categories (Fund I) N. Invest. Subscribedamount% on theFundBanks 7 593 M€ 32.02%Welfare funds 13 487 M€ 26.30%Foundations 26 439 M€ 23.70%Insurances 4 175 M€ 9.45%Public financial institutions (CDP) 1 150 M€ 8.10%Management SGR / Sponsors 1 8 M€ 0.43%Total 52 1,852 M€ 100.00%Categories (Fund II) - First closing N. Invest. Subscribedamount% on theFundBanks 2 200 M€ 34.78%Welfare funds 2 90 M€ 15,65%Foundations 6 185 M€ 32.17%Public financial institutions (CDP) 1 100 M€ 17.39%Total 11 575 M€ 100,00%
  30. 30. Vito GamberaleA modern finance example: the role of F2i3011For SAGAT all commitments until 2014 areconsidered (share acquisition by otherprivate partners)F2i has created 7 industries now reunited in a structured group, committing over 2,190 mil € (90% of totalfundraising).175% 85.1%100%100%100% 40%40%49.0%100%60.0%100% 70%67.7%44.3%87.2%100.0%53,8%85.0%15.9%100%49.8%26.3%2,134.4 97.4%Dismissions 31.7 1.4%Fund management costs 25.3 1.2%TOTAL COMMITTED 2,191.4% of raised funds 90.3%Highways272.9 12.5%242.5 11.1%53.5 2.4%AirportsTLCRenewables747.6 34.1%WaterEnvironmentInfracisAlerion CPCommittedRIE ParmaF2iReti ItaliaERG2iGasG6F2i ReteIdrica ItalianaMediterraneadelle AcqueFunds 1+2436.5 19.9%GasSAGATIren AmbienteF2iEnvironmentTRMHFVF2iAirportsGESACSEASaster NetMetrowebItaliaMetrowebBresciaMetrobit252.0 11.5%129.5 5.9%F2i RenewableResources
  31. 31. Vito Gamberale2i Gas (ex E.On Rete)31ENEL Rete GasAlerionHFVInfracisMediterranea delleAcqueRete Idrica ParmaGESACSEASAGATG6 Rete GasMetrowebSasterNetMetroBit, BresciaGASRENEWABLESHIGHWAYSWATERAIRPORTSTLCF2i acts as a true «public company»: each project is developed with theobjective to create an industry within a specific sector, fosteringcooperation among subsidiaries and the integration of the managedinfrastructure networks:A modern finance example: the role of F2iObjective: to represent the first independent manager of gas distributionnetworks and to act as an aggregating entity in a currently strengtheningsector. Envisions independence between sales and distribution.Objective: to develop two independent entities with authoritativeshareholders, managers and management. Today the renewable energysector is afflicted by contradicting regulations that prevent its futuredevelopment in Italy.Objective: to access the closed sector of highways as referencestakeholders for companies with extremely fragmented publicshareholders.Objective: to create a «national champion» in a sector crucial to Italy,which requires great investments to modernise the existing plants,despite the demagogy created by the referendum in 2011.Objective: to create an aggregation focus in a strongly fragmentedsector, characterised by a distorting and worrisome «low-cost»predominance, mainly publicly-owned, with no specific strategy.Objective: to facilitate the development of optic fibre in the mostpopulated and developed areas of Italy.TRMIren AmbienteENVIRONMENTObjective: to promote alongside Iren a national leader (following Veolia’smodel) that can operate according to the best European practices in astill very fragmented sector that needs development.
  32. 32. Vito GamberaleA modern finance example: the role of F2i32− In the timelapse of a few years, F2i offered a new business model forinfrastructures in Italy, creating a structured group of companies andcompany industries, each representing a benchmark in theirrespective sector.− The companies where F2i holds the majority of shares or plays animportant role in their governance, registered in 20111:o aggregated turnover: 1,608 mil€o EBITDA: 650 mil€ (EBITDA margin: 40%)o employees: 8,550o investments: 593 mil€ (91% EBITDA).1Aggregated closing data 2011. Referred to: ERG, 2i Gas, G6 Rete, Alerion CleanPower, HFV, Mediterranea delleAcque, GESAC, SEA, Metroweb, SasterNet and SAGAT.In 2011 F2i subsidiaries have invested over 90% of their EBITDA.No infrastructure system invests such a high portion of their EBITDA!
  33. 33. Vito GamberaleA modern finance example: the role of F2i33Thanks to F2i, important assets managed by foreign companies havereturned, together with their cash flows, under Italian control:− E.On Rete Gas− Gesac− G6 Rete− Metroweb
  34. 34. Vito Gamberale34F2i was created as a private, yet institutional investment tool to aggregateexisting infrastructures in production chains in order to guaranteesubsidiaries with:– operational effectiveness– a balanced financial management, avoiding that companies becomepoorer through exaggerated debts and extraordinary high dividends– a focus on development, reinvesting a great part of the cashflows generated by strengthening managed networks and assets.A modern finance example: the role of F2iIn a time of very poor public financing, the infrastructure gap – bothquantitative and technological – needs to be filled with the modernfinance model proposed by F2i: using resources from an efficientmanagement of existing infrastructures to finance the development ofnew plants and works.
  35. 35. Vito GamberaleA modern finance example: the role of F2iExamples of industries35WATER− F2i approached the water system with the acquisition of 40% ofMediterranea delle Acque (“MdA”) in 2010.− The company manages the integrated water system of both municipalityand province of Genoa; it delivers water to about 875,000 inhabitants.− It reports to the Iren Group, a multi-utility group in Genoa, Turin, Parmaand Piacenza, born from the merge of Iride and Enìa.− Thanks to its long waternetwork of over 2,500 km andits long sewage anddepuration network of 1,600km, MdA delivers to the networkabout 95 mil m3 of drinkablewater.− Its current area plan includesabout 700 mil € ofinvestments, of which 600 mil€ still to be accomplished.− MdA employs about 415people.The water and environment industries are practical examples ofhow F2i acts to aggregate infrastructure assets.100% 100%60% 40%49% 66.50%IREN SpAIREN Acqua e Gas SpAMdAF2iF2i Rete Idrica ItalianaAM.TER. IDRO-TIGULLIO
  36. 36. Vito GamberaleA modern finance example: the role of F2iExamples of industries36WATER− Following MdA’s successful case, F2i and Iren are currently andprogressively assigning the water activities of the Group to MdA in theEmilia Romagna region (provinces of Piacenza, Reggio Emilia andParma).− This operation rationale is to dimensionally increase MdA following, forinstance, a geographical proximity pattern.− MdA’s dimensions (turnover andEBITDA in 2011 were,respectively, about 130 mil € and48.5 mil €) may actually double atthe completion of the assignment.− This operation will develop inthree different steps: each willfocus on assigning activities ineach of the three provinces.Based on the politicalopportunities available, bothpartners decided to start in theprovince of Parma (this first step– currently facing opposition bythe Water System Agency of theEmilia Romagna Region – shouldbe completed by the first half of2013).Water network EmiliaRomagna region
  37. 37. Vito Gamberale37The objectives of F2i’s operations are:−access a strategically crucial sector in Italy that requires importantinvestments and bringing fresh financial resources to developthe managed assest−create a partnership with IREN, the major operator in the utilitysector in Italy. This partnership scored a positive result with the MdAoperation and is currently further developing through the aggregationof the IREN Group’s water system assets in the Emilia RomagnaRegion−use the growth and consolidation opportunities of a fragmentedsector, creating a «national champion».To achieve this, F2i will operate on new initiatives with the objectiveto aggregate some of the major national entities of this sector.WATERA modern finance example: the role of F2iExamples of industries
  38. 38. Vito Gamberale38− In the past two years F2i has frequently searched for an entry point in thissector, by analysing various unsuccessful opportunities (HeraAmbiente,Acegas, Marcegaglia Group’s plants).− In December 2012 F2i, together with IREN, obtained the managementof TRM, the new WTE plant with 520,000 t/y capacity, currently in itsbuilding phase in Turin, to be operational at the beginning of 2013.− This plant, which received approval for about 420,000 t/y (load factor: 80%),will dispose urban waste (after sorting it out) from special wastes similar tosolid urban and non hazardous waste.− Moreover, the fund is now closing the acquisition of an importantshare of Iren Ambiente (the fifth national operator), operating in this sectorwith 2 WTE plants, a landfill, 16 treatment plants, an environmental hub(currently being built).A modern finance example: the role of F2iExamples of industriesENVIRONMENT− In addition, another landfill and3 plants are being developed.OtheroperatorsParma•1 automatic selectionwaste plant•2 storage andtreatment plants•Integratedenvironmental hubPiacenza•6 storage andtreatment plants•WTE technotownReggio Emilia•WTE via Gonzaga•Poiatica landfill•5 storage and treatmentplants•2 compost plants
  39. 39. Vito Gamberale39A modern finance example: the role of F2iExamples of industriesENVIRONMENT− F2i accessed the environmental sector with the objective to push it forwardfollowing the best European practices, meaning working to achieve amore concentrated and efficient market.− F2i and Iren (already cooperating in the water sector) would like topromote and grow their partnership at national level by creating a«national champion» (following Veolia’s example in France), whichcould set its leadership in the market together with Hera and A2A(currently leaders in this sector).− There are various growth opportunities for external lines; the most feasibleprojects include consolidated entities, also characterised by significantrevamping initiatives and new site development plans.− The development of this sector also implies changing the approach andattitude of public administrations and population towards waste disposal (inparticular in central and southern Italy), whose opinion can sometimes bemanipulated by pseudo-environmental outlooks.
  40. 40. Vito Gamberale40Conclusions
  41. 41. Vito GamberaleConclusions41− Energy networks (particularly the power delivery and gas carriagesystems and, given a few critical issues, the distribution networks as well)clearly represent a balanced sector characterised by a stableregulatory system, adequate infrastructures and fair rates.− A different situation is presented by the infrastructure sectors, especiallythe water cycle and the waste disposal system.− These sectors are still very much fragmented and characterised by alocal dimension, mainly public ownership, uncertain regulations anda lack of information, caused by scientifically-unfounded, pseudo-environmentalism.− These factors limited and, in some cases, hastily discontinuedinvestments for infrastructure development, creating a gap incomparison with other main European countries.− In addition, in this sector in particular, the lack of infrastructuredevelopment can bring out health issues (excessive leakage fromwater systems, water unhealthiness, soil and groundwater pollution) whichcan lead to putting people’s health at risk.
  42. 42. Vito GamberaleConclusions42− To function properly, these infrastructures have to be created andmanaged as networks. They have to develop and be coordinatedrationally: their management should succeed on a «country system»basis, replacing the «parochial types of management» and financialspeculation.− In order to achieve this, an amendement of art. 5 of the Constitutionmay be necessary to avoid obstacles and gridlocks from the currentexcessive local autonomy to devlop the necessary infrastructures ofnational outreach.− In Italy, as in other big countries, it is necessary to concentrate andcentralise such sectors, to create a few «national champions» able toensure adequate investments, efficiency and transparency inmanaging the assets.− In order to achieve this, we need to create an «institutionalcapitalism», to provide the necessary funds to develop the networks,finance big sector public companies while granting their managementindependence.F2i is the Italian example of this model. A true «public company» thatcould start an infrastructure network system (able to interact to pushthe country forward) with optimised management and carefuldevelopment.

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