Vito gamberale - Italy's infrastructure system structure, characteristics, boundaries - possible evolution and the role of modern finance

Italy’s infrastructure system: structure,
characteristics, deficiencies, boundaries −
Possible evolution and the role of modern
finance
Inaugural lecture for the academic year opening
2012-2013
Cassino (Italy), January 24, 2013
Vito Gamberale

2
TABLE OF CONTENTS
– Evolution of the Italian infrastructure system Pg. 3
– Lack of public funding, privatisations Pg. 7
– An anti-infrastructure attitude Pg. 11
– Characteristics, deficiencies and boundaries of the
Italian infrastructure system Pg. 16
– Highways Pg. 18
– Airports Pg. 20
– Waste disposal Pg. 23
– Regasification terminals Pg. 26
– Gas distribution Pg. 29
– Water system Pg. 30
– Possible evolution for the financing of infrastructure Pg. 32
– A modern finance example: the role of F2i Pg. 38
– Examples of industries Pg. 47
– Conclusions Pg. 55
– Back-up slides Pg. 60

3
Evolution of the Italian infrastructure system

4
Until the mid-70’s Italy was historically recognised for being a country
with a great tradition of building big productions:
–Italy was the first country in the world to have a highway («Autostrada dei Laghi»,1924)
–in 1970 the extension of the Italian highway network (3,913 km)1
was second only to the German
highway system (4,461 km)1
–during the 60’s Italy ranked among the «leading countries» in nuclear power production (3rd
biggest
installed power – 640 mw – in the world, after the USA and Great Britain)
–Italy was among the first countries to develop hydroelectric plants on a large scale; in 1960 these
plants had already achieved the current installed capacity (about 20 gw) and covered almost 100% of
the national power demand
–during the 80’s Italy was the first country, together with France, to launch the project of a high speed
railway network (Rome-Florence).
After World War II and during the «economic miracle phase», the creation
of infrastructures in Italy was an important development driver and a
reference worldwide.
1
Data from: Eurostat.

5
Infrastructures in Italy have been mainly supported by public financing,
through institutions and public national bodies...
– IRI: transportation (Autostrade, Alitalia, Tirrenia), telecommunication (STET, RAI),
building sector (Finmeccanica, Fincantieri)
– ENEL: power energy
– ENI: natural gas transportation and distribution (SNAM, Italgas, etc.), petrochemical
sector (Snamprogetti).
…and local bodies:
– Mainly former municipality bodies, operating in the integrated water cycle management,
local distribution (power and gas), waste disposal management (especially in northern
Italy), local highways, airports, intermodal ports, etc...
Until the 80’s Italy had an adequate infrastructure system. The high cash flow
from the existing infrastructures contributed to the development of new works.
This model worked usually well, while the government could support
development through national debt.

6
The main obstacles to the creation of new infrastructures in Italy arose in
the mid-70’s and are are still ongoing today.
These obstacles were generally caused by two different causes:
1) first of all, the lack of public financing (worsened by the recent global
crisis), which had always been a driving force behind the development of
the new big productions, added to the obstacle
2) secondly, in Italy, a set of new attitudes against infrastracture were born
from pseudo-environmentalistic beliefs, which contributed heavily to
burden and, in some cases, to block the decision-making process.
After 20 years, the opinion on infrastructures in Italy went from being
perceived as a development opportunity to an environmental threat.

7
At the beginning of the 90’s, Italy was involved in important processes
that forced the country to radically change its economic policy choices:
–the First Republic’s economic crisis
–economic decline: Italy’s GDP constantly ranks below the European average
–the adoption of the Euro, accounting for the need to drastically reduce deficit, debt and inflation with
very strict financial actions
–the European Community urged a reduction of the public commitment in the member states’
economies (Commissioner Van Miert will take advantage of Italy’s particular weakness to «push» the
country a great deal).
The following governments were forced to cut public expenditure and
«cash in».
Italy could no longer maintain its role of investor for building and
managing public works, and consequently began entering a phase of
«big privatisations».
Lack of public funding, privatisations

Privatisations are usually seen negatively. Contrary to popular belief, they often
had positive effects, even if they are different, based on the applied strategies:
8
1. Initially, all suffering manufacturing companies were privatised. Such privatisations
were usually achieved by selling to private entities operating in the same business
sector, which ensured a successful result of the privatisation itself (e.g. Nuovo
Pignone in 1994 and ILVA in 1995).
2. The second step was to extend privatisation to companies operating in the service
and infrastructure sectors, which earned the greatest revenues. These
privatisations were accomplished through:
a) Quotation of part of the assets at the stock exchange, with very successful results
for the government (ENI since 1994, ENEL since 1999), but not always for the
investors (ENEL).
Former public bodies became (and still are) real efficient «public companies» able to
compete at an international level;
b) Direct sales to private entities, often on a «family-like» basis (Telecom, 1997;
Highways, 1999; ADR, 2000), and with disappointing or contradicting results (in
particular for TLC companies).
This model generated a «hit and run» attitude, risking the ownership of foreign entities
of strategic Italian assets (together with their cash flows), which would locally be
managed from a financial point of view only.

9
– for infrastructures/service, it is better to favour stock exchange
quotations (such as ENI or ENEL) or share ownerships of «public
companies» (such as F2i, see further down)
– set lock-up bonds (for at least 5-7 years)
– always introduce the concept of «earn-out» to favour the public
vendor in case of re-selling the company within 5-10 years
– set up bindings to prevent selling the company to buyers who would
place an exceeding acquisition debt on the company itself.
A couple of rules taught by the privatisation of the infrastructure
sector:

10
The difficulties in creating new productions in Italy aren’t just due to a
lack of assets, but also by a lack of authorisation processes.
Since the mid-70’s infrastructure came to a halt following some
thoughtless political actions…
− in 1975, Law 492 in 1975 prevented the construction of new toll highways
− the referendum against nuclear power in 1987 («confirmed» by a new referendum in 2011)
destroyed an important part of the energy sector in Italy, at which the country used to excel.
…that affected and slowed down the authorisation and building
process:
− the Contracting Regulation, although aspiring for transparency and competition,
contributed to increasing the building process of productions and their costs. The pitching
terms in particular tended to privilege mark-downs, often benefiting untrustworthy
companies. This had a negative affect on the quality of the productions and their final costs
(e.g. the so-called work-in-progress variables)
− the inclusion of infrastructures in the competition on regulation between government and
local bodies (art. 117 of the Constitution) lengthened the authorisation process and took
responsibility away from the subjects involved in the decision-making process.

11
The anti-infrastructure attitude translated in a series of obstacles for the
building of new productions, such as the following:
− an overall lacking of strategic synergy (productions were often driven by local interest and
were not included in the national plan)
− an extreme fragmentation of the authorisation process (VIA, service conference, fire
brigades, ENAC, air force, superintendence of architecture and landscape, regions,
municipalities, etc.)
− an environmental policy with a «fundamentalist», unscientific approach
− excessive burden from local authorities – often following a «NIMBY» logic – in the
decision-making process with «permanent tables» (inherited from 1968)
− territorial «compensation» requirements altering the financial plans
− frequent appeals to regional administrative courts and to the Council of State, which
accounts for slowing down the process
− continuous and repeated violation of concession rights and inadequate rates.
An anti-infrastructure attitude
The exaggerated «democratisation» of the decision-making process and
the indiscriminate appeals to judicial authorities lengthen the approval
process indefinitely and prevent the creation of new productions.

12
– Since 1975, Italy seems to be stuck in an «anti-infrastrcuture
Khomeinism».
– All obstacles reflect a «fundamentalist culture».
– Khomeinism lasted for over a decade in Iran, from 1978 to 1989.
That religion however still lives on today. It will take time to eliminate it.
– The anti-infrastructure Khomeinism in Italy has been living on for
over 35 years! That’s over three times longer than the case of Iran!
Because of this attitude, certain forms of private funding, which could
replace the public funds, and were successful in other countries, such
as project financing, have to face many difficulties to establish
themselves in Italy.

13
− M6 Toll (43 km), is a toll bypass for the overcrowded M6 (160,000 vehicles/day
compared to the estimated 72,000) in the Birmingham area.
− The production was achieved thanks to the project financing through private
entities (25% Highway Group, 75% Macquarie Group), who acquired the M6 Toll
concession for the following 53 years.
Characteristics
− 1989: birth of project
− 1992: concession assigned
− 1997: project approval
− 2000: start of construction work
− Opening to traffic: 2003 (3 months in
advance) – average: about 14
km/year
History
Timespan: 6 years after project
approval
− Total cost was about 880 mil € (about 20 mil €/km).
− The project financing was characterised by a financial leverage of about 80% (debt
ratio ≈4:1).
− This was made possible thanks to two promoters (one of which was Italian), and to an
innovative toll regulation that grants the concessionary company complete freedom in
setting the tolls.
Costs/
Financing
The M6 Toll highway in Great Britain is an example of project financing.

14
– Italy’s main highway projects are, on the contrary, largely delayed.
– The heterogeneity of partners and the cost increase – which ranges from 8 to over
100% during the approval process (usually due to compensations, variables and
higher expropriation costs) – are the main causes behind the delays on the set
timelines.
– The cost per km is at least 3 times higher than the European benchmark (M6 Toll –
UK).
– The necessary condition to successfully finance a functioning project is the
certainty of the presence of all elements (especially: project, costs/resources and
timelines).
– Due to cost and time increase, the project construction did not start because the
financial sources could no longer balance such increased expenses.
– It should not surprise that no project financing has been closed to date!
M6 Toll (UK) 43 1989 1997 2000 2003 6 880 880 +0.0% 20.5 Completed
Pedemontana
Lombarda
157 1950 2006 2010 2016 10 4,560 4,945 +8.4% 31.5
Bre-Be-Mi 62 1996 2001 2009 2013 12 1,174 2,518 +114.5% 40.6
TEM 33 2003 2005 2012 2015 10 1,578 2,225 +41.0% 67.4
*If currently estimated timelines are met.
Highway km Concept Construction
kick off
Construction
completion*
(b)
Timing
(b)-(a)
Cost
increase
Cost
per km
(mil €)
Project
financing
status
Preliminary
project
approval (a)
Initial
costs
(mil €)
Final
costs
(mil €)
To be
completed
Completed
To be
completed

15
Existing
highways
Highways in
development
Existing Italian highways and and highways in
development
EXPO
highways

16
Characteristics, deficiencies and boundaries of the
Italian infrastructure system

17
– The anti-infrastructure attitude and the lack of public financing
consequently produced a phase of extreme shortage of new
big productions and a lack of maintenance for the existing
infrastructures.
– This determined:
– an «infrastructure gap» between Italy and other
European countries, which widened during the last 10
years
– an overall ownership fragmentation of the assets, often
held by small local bodies, with a very poor presence of big
players of national standing.
Characteristics, deficiencies and boundaries of the Italian
infrastructure system

18
− Italy’s highway sector is quite closed
off to new players because of the
presence of two big private operators
(Atlantia and Gavio) and numerous
public concessions:
o the longitudinal highways are managed
by the Atlantia Group
o the main highways in the North-West are
managed by the Gavio Group
o in the Lombardy and Veneto regions, the
authorities are often managed by very
fragmented public share ownerships
o the southern regions (the highways of
Salerno-Reggio Calabria, and Autostrade
Siciliane) are managed directly by ANAS.
Italy’s highway networks
Other operators
Public concessionary companies, in particular, come with numerous partners (often with
no reference stakeholder) and differentiating issues that affect each other.
infrastructure system – Highways
About 6,700
km network

19
– Therefore, it should not come as a surprise that the network extension,
compared to population, lies much below the European average:
European highway network – Density per inhabitant
(km per million inhabitants)
Average = 181 km/mil inhabitants
Data from: CIA The World Factbook 2011
This shows that Italy needs to develop over 4,000 km of new highways to
match the European average, which would imply a cost ranging between
80 and 180 bil €1
!
infrastructure system – Highways
1
Average cost: between 20 mil €/km (European benchmark) and 45 mil €/km (average costs for the EXPO highways)
111
212
184
251
0
50
100
150
200
250
300
Italy Germany France Spain

20
− The Italian airport sector is made of 38
national/regional airports – about 100 if the
smallest ones are considered.
− The airport managing companies are
mainly public. Only a few are privately
controlled:
− Gemina, which handles the Rome
airports, is private and listed
− SAVE, (airports of Venice and Treviso),
is listed, and includes the participation
of public and private shareholders
− SEA, SAGAT and GESAC (Milan, Turin
and Naples) are now in the airport
industry managed by F2i.
− The others (small to middle-size airports −
Bologna, Catania, Bari, Palermo, Cagliari)
are mainly under public or public/private
control.
Main Italian operators
infrastructure system – Airports
PMO
CTA
TRN
CUF
MXP
VBS
LIN
BGY
BZO
TSF
TRS
VCE
VRN
PMF FRL
FLR
PEG
BLQ RMI
AOI
PSR
FCO CIA FOG
BRI
GOA
NAP BDS
SUF
CRV
TPS REG
AHO
OO
OLB
CAG
PSA
SIE
This is a very fragmented sector: with exception of F2i, and in part of the Rome and Venice
cases, the other many airports are not aggregated into systems controlled by a single
operator.
Airports >10 mil passengers
Airports >5<10 mil passengers
Airports >2<5 mil passengers
Airports >0,25<2 mil passengers
Airports <0,25 mil passengers
High concentration area

21
– Italy is the first European
country for airport density on
the territory1
…
Regional/national airport density (n. of
airports/100,000 km2
- 2011)
1
Airports with over 100,000 passengers/year
Average number of passengers per airport – in
millions
(airports with over 100,000 passengers/year - 2011)
Source: Assaeroporti and the main airport associations
of the represented European countries.
– …these airports are usually small
compared to those of major
European countries…
4.50
9.01
3.54
6.18
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11
6
8
7
0
2
4
6
8
10
12

22
– …the gap widens if we consider the average traffic in the biggest
airports (>1 mil passengers/year):
Average number of passengers per airport –
in millions (airports with over 100,000
passengers/year - 2011)
The uncoordinated fragmentation of this sector, often due to ownership by local
public bodies, prevents the development of a strategy and leads to lack of
resources for investments.
Other than the other big European airports (Madrid, Paris, Frankfurt), that
underwent in recent years significant renovation and expansion works (see back-
up slides), there have been no relevant works in this sector in Italy.
Source: Assaeroporti and the main
airport associations of the
represented European countries.
6.26
10.89
9.01
8.30
0.00
2.00
4.00
6.00
8.00
10.00
12.00

23
– The national waste market presents high levels of «pulverisation»: in 2011 the
nine main operators (whose ownership is mainly held by local bodies) have
handled only 7% of the total volumes:
infrastructure system – Waste disposal
Main operators on the Italian market – per volumes disposed (data 2011)
− The European waste management market – especially in France, Germany and the
UK – experiences the presence of very big, usually private operators (Veolia,
Remondis, Sita Suez, Biffa).
Business model
Collection YES YES YES NO YES NO NO YES NO
Treatment YES YES YES NO YES NO NO NO NO
Waste to energy (WTE) plants YES YES YES YES YES YES YES YES YES
Landfills YES YES NO YES YES YES NO NO NO
3,382
2,800
1,800
1,100 1,017
600
331
208 90
0
1,000
2,000
3,000
4,000
Hera A2A AMA
Roma
Veolia Iren Acea APS
Acegas
Waste
Italia
ACSM

24
− The market fragmentation, as well as
the fundamentalist environmentalism
slowing down the sector’s
development, are the reasons behind
Italy’s few active plants compared to
other main European countries…
− …as well as the plants’ limited
dimensions.
Operating WTE plants
WTE plants average capacity
(thousands of tons of disposed solid urban
waste [SUW]/year)
100
429
154
0
50
100
150
200
250
300
350
400
450
Italy Germany France
52
70
130
0
20
40
60
80
100
120
140

25
− Given an average of 1kg/inhabitant of waste production per day, Germany and
France could dispose of almost their entire waste production with waste-to-energy
plants. Italy just one-fourth of it!!
The lack of WTE plants makes Italy, of all big European countries, the
country that most resorts to landfills for waste disposal (over 50% of its
total solid urban waste production)!
WTE capacity per inhabitant
(kg/inhabitant/year)
86
367
309
0
50
100
150
200
250
300
350
400

26
Regasification terminals are important strategic reserves for countries with a
high consumption of natural gas to supply thermoelectric plants (Italy) and/or
insufficiently connected to international gas pipelines (Spain).
infrastructure system – Regasification terminals
− In Spain there are 6 operating regasification terminals – Barcelona (1969),
Huelva (1988), Cartagena (1989), Bilbao (2003), Sagunto (2006) and El Ferrol
(2007) − with a total capacity of 1.9 mil m3
(44m3
per 1,000 inhabitants).
Three of these terminals were initiated in the last decade.
Operating terminals
Terminals in development
Canary Islands
− The Barcelona terminal is located just a few km away from the city centre.
− Three other terminals are being developed: two on the Canary Islands (with
participations by ENEL through Endesa) and one at El Musel.

27
− Italy largely depends on natural gas for its power production (75%): the country
recently installed ony one regasification terminal with a capacity of 250,000 m3
capacity (Rovigo), in addition to the terminal in Panigaglia (100,000 m3
) – for a total
of 6 m3
per 1,000 inhabitants, which is one-seventh of Spain’s capacity):
Rovigo
Panigaglia
Operating terminals
Terminals in development
Livorno
Priolo
Porto
Empedocle
Gioia Tauro
Brindisi (the project was
suspended by the sponsors)
Zaule Trieste
Monfalcone
Ravenna
Taranto
Porto Recanati

28
− Italy is increasingly becoming «gas dependent»: Gazprom’s «cut» in February 2011
– during some rigidly cold days – forced Italy to «empty» the gas stocks, and came close
to facing an emergency situation.
− Even without considering the Italian «dream» of being a European gas «hub», annalists
estimate that the country needs 30 bil m3
/year more2
in the short term (vs. the current
consumption of 70 bil m3
/year1
).
− This means that there is a need for three to four2
new regasification terminals.
Compared to big international gas pipelines, regasification terminals are easier to build
and allow for bigger geographical supply diversification (Italy is connected today to
Russia and Algeria’s supply). For quite some time now, the European Union has been
pushing for the most gas dependent countries to diversify their gas imports by building
regasification terminals (financed by the EU in Poland and Spain).
− At least 11 projects are currently being carried out in Italy (in some cases – Livorno
and Trieste – there are more than one projects focused on the same geographical area),
none of them however are at an advanced-stage in their construction development! (see
back-up slides)
Italy is proceeding in a very «disorganised» way in this sector too, and
it’s not achieving any result!
1
Consider that before the economic crisis, the consumption was already reaching about 85 bil m3
/year.
2
Source: Il Sole24Ore 8/2/2012. This need was recognised de facto in 2006 by the Prodi Government. Minister Antonio Di Pietro stated:
«Italy needs 11 regasification terminals, of which at least 4 are to be initiated now». The environment minister (and committed
environmentalist) Alfonso Pecoraro Scanio replied: «The environment policy refuses to use Italy as the entry point to European gas, and
requires to create only the 4 regasification terminals that will cover our local demand».

29
infrastructure system – Gas distribution
– Besides the presented examples above, another feature to be considered is the
very small dimension of network operators for local public services, which are
characterised by low concentration and, therefore, by small investments to
provide a strictly standardised, innovative and quality service.
– Some examples: the gas distribution sector, with over 250 operators, whose
rationalisation F2i is contributing to (see further down)…
22,6%
17,0%
6,5% 6,5% 6,1%
3,1%
2,3%
1,7%
F2i
Reti
Italia
23,1%
17,3%
6,5% 6,1% 5,9%
3,2%
2,3%
2,1%
ERG
10,1
%
2iG
3,2%
G6
4,0%
GDF
Suez
94%
Altri 6%
Gas
Natural
69%
Altri
31%
250 operators
+
Market shares in gas supply (per carried volumes)
National
Grid
51%
Altri
49%UK
France
Spain
Italy
Others

30
infrastructure system – Water system
– …and the water system, also characterised by limited concentration because of a
local (municipality/province) outreach of its managing companies:
30
MdA
RIE
Others1
342
95
125
122
Data from:
BCG
Data from: BCG
ITALY SPAIN FRANCE
First 3
operators
25.8%
Others
74.2%
Others
65.0%
Others
38.0% Others
30.0%
First 3
operators
35.0%
First 3
operators
62.0%
First 3
operators
70.0%
LISTED MULTI-UTILITY COMPANIES BIG MUNICIPALISED COMPANIES
About 3,000
other
operators
Market
share
1. Other minor subsidiaries: SAP, AM Ter, Idrotigullio, Acos and Asp (Piedmont), ASA Livorno (Monza), Astea (Marche), Aquenna (Sicily)
29.5%
24.3%
46.2%

31
infrastructure system
– Therefore, overall, Italy is characterised by relevant deficiencies and limits
in the infrastructure sectors:
– an often public and fragmented ownership that presents a growing
inability to finance the building of new works and the development of the
existing ones
– inefficient management of some infrastructure networks, which
determines a gap with Italy’s most direct competitors in Europe
(Germany, France, as well as Spain)
– sluggish decision-making processes, obstacled by a pseudo-
environmental culture thath is basically against infrastructures.
– Infrastructures in Italy need big, credible and finanacially solid entities
in each sector, operating at a national level and capable of providing
significant investments to develop and innovate the networks.
– The government can no longer play this role nowadays because of a
lack of public financing that, in the past, was the engine of infrastructure
development. An efficient management of infrastructure can therefore
only be achieved through private financing, as long as this source of
funding remains healthy and non-speculative.

32
Possible evolution for the financing of infrastructure

33
New infrastructures need to be financed by existing infrastructures!
– Indeed, infrastructures generate significant profits (EBITDA margin ≥50%),
which can, and must, finance development.
Obviously, in order to be able to finance new projects, the existing
infrastructures need to have considerable dimensions and should not be
fragmented.
– My self-evident answer to this question is:
As we just discussed, the lack of public funding and the anti-
infrastructure attitude are developing a series of hurdles that slow down
the new work development.
Who, then, can finance infrastructure nowadays?

34
– Many infrastructure assets have been created and managed according to the (often
political) needs of the local entities in which they are set, far from a global vision of
strategic network for a «country economic system».
– Even the so-called «multi-utility» companies have, at best, only an
interprovincial outreach and manage local assets in very differentiated
segments (which does not favour a sector specialisation).
– Even in the cases where the companies turned to a private – or private-like –
management (privatisation, listing at the stock exchange), the new shareholders
have often focused an exaggerated amount of attention on financial aspects
and political/local balance vs. development.
– This is why many sectors are still very fragmented today, they lack a reference
«national champion» (following for example Veolia or GdF’s example in France)
and can hardly provide an adequate service and operate on a larger number of
international markets.
– Without a national strategy for infrastructure, the other countries’ «national
champions» (E.On, GdF, EdF, etc.) could acquire important Italian assets.
– To date the concepts of «aggregation» and «industry» are missing in the
single sectors.
The infrastructure sectors in Italy are very fragmented and also
characterised by a localistic management approach.

35
– energy: after their privatisation, ENI (turnover: 110 bil €, EBITDA: 27 bil €, margins: 24%) and
ENEL (turnover: 80 bil €, EBITDA: 18 bil € - 22%) became public companies at a European level.
The same happened with Terna (turnover: 1.64 bil €, EBITDA: 1.22 bil €, margins: 75%)
– highways: the Atlantia Group is the sector’s European leader and generates a turnover of about
4 bil €, with an EBITDA of 2.4 bil € (margins: 60%). The Gavio Group (turnover: 939 mil €,
EBITDA: 570 mil €, margins: 61%) is an example of how creating a player, at least at a national
level, is possible by aggregating single local assets
– airports: SEA (turnover: 583 mil €, EBITDA: 133 mil €, margins: 23%) and AdR (turnover: 620 mil
€, EBITDA: 296 mil €, margins: 48%) could take the leadership in the (still too fragmented) Italian
system to rationalise and develop it
– gas distribution: Italgas (turnover: 900 mil €, EBITDA: 663 mil €; margins: 74%) and F2i Reti
Italia - ERG (turnover: 606 mil €, EBITDA: 326 mil €; margins: 54%) could provide the system with
a balanced evolution through network reconditioning and development, with innovation and
measurement transparency (electronic remote meter reading)
– water system: there are a few potential future «national champions» in this sector (ACEA, Hera,
Mediterranea delle Acque) that may be small if considered separately but could act as aggregation
centres (separating however the water system from the other managed businesses)
– TLS networks: this sector’s uncontested leader is Telecom Italia (turnover: 30 bil €, EBITDA:
12.2 bil €; margins: 41%). On the other hand, Metroweb (turnover: 56 mil €, EBITDA: 43.5 mil €;
margins: 78%) represents a specific leader with an ongoing important project in optic fiber.
Unfortunately, Metroweb has a big project, Telecom has a big debt, but they cannot find an
agreement to cooperate together!
Despite some big players most of the assets are still partitioned and cannot
therefore create «the system».
The managers of the existing infrastructures embrace a very wide
spectrum, ranging from European leaders to embarrassingly small players:

36
– The big «national champions» (ENI, ENEL, Atlantia), specialised in one single sector, have
higher profits and more solid capital structures compared to multi-utility companies (in addition,
the listed companies are more efficient than many others in Italy) and can provide more
resources to investments.
– This is also explained by the fact that inefficient business segments within multi-utility
companies consume the resources produced by the profiting segments.
– Multi-utility companies are currently trying to compensate their cash flow deficiency for
investments through a debt increase that, in some of these companies, has peaked to
levels impossible to sustain on the long run (>4 times their EBITDA!).
The analysis of the main infrastructure groups quoted at the stock
exchange explains the importance of dimensions and sector
specialisation.
Data (mil €) Turnover EBITDA % Profit % Invest. PFN Mkt Cap EV EV/EBITDA Inv./EBITDA PFN/EBITDA
National champions
ENI 110,522 26,753 24% 7,803 7% 13,438 28,032 69,860 97,892 3.66x 50% 1.05x
ENEL 79,514 17,717 22% 5,358 7% 7,589 44,629 30,640 75,269 4.25x 43% 2.52x
Atlantia 3,976 2,385 60% 840 21% 1,619 8,970 8,900 17,870 7.49x 68% 3.76x
Terna 1,636 1,230 75% 440 27% 1,220 5,123 6,110 11,233 9.13x 99% 4.17x
Main multi-utility companies
A2A 6,198 942 15% (916) -15% 310 4,021 1,480 5,501 5.84x 33% 4.27x
ACEA 3,288 744 23% 86 3% 413 2,326 1,030 3,356 4.51x 55% 3.12x
HERA 4,106 645 16% 127 3% 325 1,987 1,660 3,647 5.65x 50% 3.08x
IREN 3,520 592 17% (108) -3% 493 2,652 615 3,267 5.52x 83% 4.48x
Note: data from 2011 budget, with exclusion of Mkt Cap, updated January 11, 2013
«National campions» average 45% 15% 6.13x 65% 2.87x
Main multi-utility comp. average 18% -3% 5.38x 56% 3.74x

37
– Only big and specialised players (such as ENI, ENEL, Atlantia, etc.) can
generate enough cash flow to create new investments.
– It is necessary for each player to specialise in one single sector (or
«industry») to allow an efficient and high quality management. The multi-
utility companies’ efforts to aggregate into «macro-utility companies» show how
the parallel management of different businesses affects the service efficiency
and the company expenses in a very negative way.
The infrastructure sector in Italy should promote homogeneous
aggregations able to create «national champions» throughout different
sectors!
In order to achieve such objectives, it is necessary to apply modern financing
tools, to create a new «institutional capitalism»! It is indeed necessary for
institutional investors (banks, foundations, insurance companies, pension funds,
etc.) to finance big sector «public companies», to generate «national
champions» able to promote an efficient management and infrastructure asset
development.

38
A modern finance example: the role of F2i

39
– The lack of public financing, which prevents the creation of new
infrastructures and the efficient management of existing ones, can
only be balanced today through private financing.
– The key topics brought out through this analysis include:
o the role that infrastructure played in Italy’s development after
World War II
o the fragmentation of infrastructures, the often public ownership and
the need for privatisation of some key sectors
o a lack of public financing
o the possibility to create «national champions» specialised in the
various infrastructure sectors following the model of big Italian and
foreign players.
...we therefore came up with the idea of F2i, a private yet institutional
fund that can aggregate the existing infrastructures in industries
using funds from this asset management to allow for their
development.

40
– Thanks to a fundraising of 1,852 mil €, F2i is the biggest fund operating
in Italy and counts among the biggest country infrastructure funds
worldwide.
– Recently, F2i has performed the first closing of a second fund, which
already raised 575 mil € (final target: 1,200 mil €).
– F2i was created as a private, yet institutional tool by sponsors of high
standing, who contributed to the establishment of the Fund’s solid
reputation:
o the government, through CDP
o major Italian banks (Unicredit, Intesa SanPaolo)
o an important international bank (Merrill Lynch – BoA)
o the networks of former banking foundations and private welfare
funds
o life insurance companies and pension funds.

41
F2i investors (per category)
 Following its mission and the institutional nature of its investors, F2i
aims for long-term participation with an industrial understanding.
Categories (Fund I) N. Invest. Subscribed
amount
% on the
Fund
Banks 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. Subscribed
amount
% on the
Fund
Banks 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%

42
1
1
For SAGAT all commitments until 2014 are
considered (share acquisition by other
private partners)
F2i has created seven industries now reunited in a structured group,
committing over 2,182 mil € (90% of total fundraising).
1
75% 85.1%
100%
100%
100% 40%
40%
49.0%
100%
60.0%
100% 70%
69.3%
44.3%
87.2%
100.0%
53,8%
85.0%
15.9%
100%
49.8%
26,3%
2,124.7 97.4%
31.7 1.5%
25.3 1.2%
2,181.7
89.9%
Transportation
272.9 12.5%
242.9 11.1%
53.5 2.5%
AirportsTLCRenewables
749.4 34.3%
WaterEnvironment
Infracis
Alerion CP
RIE Parma
F2i
Reti Italia
ERG
2iGas
G6
F2i Rete Idrica
Italiana
Mediterranea
delle Acque
436.5 20.0%
Gas
SAGAT
Iren Ambiente
F2i
Ambiente
TRM
HFV
F2i
Aeroporti
GESAC
SEA
Saster Net
Metroweb
Italia
Metroweb
Brescia
Metrobit
240.0 11.0%
129.5 5.9%F2i Energie
Rinnovabili
Dismissions
Fund management costs
TOTAL COMMITTED
% of raised funds
Committed
Fund 1+2

2i Gas (ex E.On Rete)
43
ENEL Rete Gas
Alerion
HFV
Infracis
Mediterranea delle
Acque
Rete Idrica Parma
GESAC
SEA
SAGAT
G6 Gas Network
Metroweb
SasterNet
MetroBit, Brescia
GAS
RENEWABLES
HIGHWAYS
WATER
AIRPORTS
TLC
F2i acts as a true «public company»: each project is developed with the
objective to create an industry within a specific sector, fostering
cooperation among subsidiaries and the integration of the managed
infrastructure networks:
Objective: to represent the first independent manager of gas distribution
networks and to act as an aggregating entity in a currently strengthening
sector. Envisions independence between sales and distribution.
Objective: to develop two independent entities with authoritative
shareholders, managers and management. Today the renewable energy
sector is afflicted by contradicting regulations that prevent its future
development in Italy.
Objective: to access the closed sector of highways as reference
stakeholder for companies with extremely fragmented public
shareholders.
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 fragmented
sector, 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 most
populated and developed areas of Italy.
TRM
Iren AmbienteENVIRONMENT
Objective: to promote, alongside Iren, a national leader (following
Veolia’s model) that can operate according to the best European
practices in a still very fragmented sector that needs development.

44
− In the timelapse of a few years, F2i offered a new business model for
infrastructures in Italy, creating a structured group of companies and
company industries, each representing a benchmark in their
respective sector.
− The companies where F2i holds the majority of shares or plays an
important role in their governance, registered in 20111
:
o aggregated turnover: 1,608 mil €
o EBITDA: 650 mil € (EBITDA margin: 40%)
o employees: 8,550
o investments: 593 mil € (91% EBITDA)
1
Aggregated closing data 2011. Referred to: ERG, 2i Gas, G6 Rete, Alerion CleanPower, HFV, Mediterranea delle
Acque, 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!

45
Thanks to F2i, important assets managed by foreign companies have
returned, together with their cash flows, under Italian control:
− E.On Rete Gas
− Gesac
− G6 Rete
− Metroweb

46
F2i was created as a private, yet institutional investment tool to aggregate
existing infrastructures in production chains in order to guarantee
subsidiaries with:
– operational effectiveness
– a balanced financial management, avoiding that companies become
poorer through exaggerated debts and extraordinary high dividends
– a focus on development, reinvesting a great part of the cash
flows generated by strengthening managed networks and assets.
In a time of very poor public financing, the infrastructure gap – both
quantitative and technological – needs to be filled with the modern
finance model proposed by F2i: using resources from an efficient
management of existing infrastructures to finance the development of
new plants and works.

47
GAS
− The F2i Reti Italia Group was born through the acquisition of ENEL Rete Gas (2009),
E.On Rete (today 2i Gas ─ 2010) and, more recently, G6 (formerly GdF Group – 2011).
− By aggregating three important networks, F2i Reti Italia became, after just two
years, the second biggest national player for market share in a still very partitioned
sector (over 250 operators).
The group dimensions allow significant investments that favour development, innovation,
efficiency and safety of the network. The absence of conflicts of interest allows for
transparency (particularly as to measurements) and efficiency towards customers. This
investment commitment creates a quality service, recognised and awarded by the gas
authority!1
1
In 2010 F2i Reti Italia was awarded by the AEEG with 50% of the incentives for safety recovery works, compared to 17% market
share (see back-up slides)
A modern finance example: the role of F2i Examples of industries
The industries of gas distribution, airports and optic fibre networks are
examples of how F2i operates to aggregate infrastructure assets.
• Rab (mil€): 2,684
• Revenue (mil€): 605
• EBITDA (mil€): 326 (54%)
• Investments (M€): 189
• Employees (#): 2,112
• Customers (#): 3,820,000
• Managed network (km):
56,833
• Concessions (#): 1,970
F2i Reti Italia
54%
of the EBITDA

Examples of industries
48
− F2i Reti Italia Group represented the main innovation in the gas
distribution sector in 2000: the group fostered and guided the
concentration process of the market.
− The group’s acquisitions could bring back to Italy strategic
networks previously controlled by foreign companies.
− The presence of a big independent operator, which can rely on
solid investors, brings actual significant benefits to the gas
sector, by promoting efficiency and technological development to
the network.
− F2i Reti Italia aims to consolidate its role as a big independent
operator in gas distribution, capable of representing a safety,
transparency and efficiency benchmark for the authorities and
the entire sector.
GAS

49
− At the end of 2010 F2i accessed the airport sector by acquiring 70% of
Gesac, the company managing the Naples airport, Capodichino, thanks
to a concession expiring in 2043.
− GESAC was founded in 1980 through the input of the Naples Municipality
and Province, and by Alitalia. In 1997, following the privatisation process,
the public bodies sold a participation of 70% to the UK Group BAA (later
purchased by the Spanish Group Ferrovial).
− The airbase spreads out on a 2.8 km2
ground with a 2,628 m long and
45 m large runway, including 27 airplane parking lots. It includes 56 check-
in desks and 15 gates.
− In recent years, the company promoted a significant investment plan to
develop the airport infrastructures (over 190 mil € of cumulative Capex
between 1998 and 2009, compared to net cumulative gains of 47.6 mil €),
partly financed with public funds (63 mil €) and parlty self-financed.
− The investment plan for 2009-2012 amounts to a total of 90 mil €, of
which about 65 mil € have been accomplished by 2011.
− In 2011 Gesac managed a passenger traffic of 5.8 mil/passengers, and
employed about 300 people.
AIRPORTS

50
AIRPORTS
− At the end of 2011, F2i purchased 29.75% SEA shares from the Milan
Municipality; SEA manages the airport network of Milan (Linate and
Malpensa airports) since 1948. The current 40-year agreement has been
undersigned alongside ENAC in 2001.
− SEA and the group companies provide all the related activities and
services, such as airplane landings and take-offs, airport security, the
activities related to passengers and the handling of merchandise, as well
as commercial services.
− Milan’s airport network is located in one of the most important areas
of economic development in Europe (Lombardy’s GDP exceeds the
national GDP by 20%) and represents a bridge between the Mediterranean
region and continental Europe.
− In 2011 Milan’s airport network registered 28.4 million passengers,
310,00 air flights and over 470,000 t of merchandise.
− Turnover is about 580 mil € (net profit 54 mil €); over 5,000 people
employed.
− Development plans include investments of about 600 mil € by 2015
(capacity increase, and a third runway at the Malpensa Airport,
enlargement of the Cargo area, etc.).

51
AIRPORTS
− At the end of 2012, F2i acquired, together with the Turin Municipality, 28%
of SAGAT, the company that manages Turin’s Sandro Pertini airport since
1956. F2i has also acquired another share of this company (22.8%) from
Sintonia (Benetton Group) becoming thus the leading shareholder of
SAGAT. Further acquisitions are planned by private partners within 2014,
for a total share of 67.7%.
− SAGAT will manage Turin’s airport until 2035.
− Turin’s airport is located in one of the richest Italian regions (Piedmont) –
ranking fifth for GDP (about 124 bil €, 8% of the total national GDP), fourth
for exports (10% of the total national exports), sixth for number of
inhabitants and second for area.
− Piedmont’s strong business and tourist vocation and its low
passengers/province inhabitants ratio (1.6 times vs. 2.4 times on national
average) provide the airport with a solid development potential.
− In 2012 the airport registered a total traffic of 3.5 mil passengers (average
annual growth 2000-2012: +1.9%).
− Its turnover reaches 64 mil € (net revenue 3.6 mil €) with margin levels that
represent a benchmark for the country (EBITDA/passenger 4.2 € vs. 2.4
national average). The airport employs almost 410 people.
− SAGAT is also involved in the airports of Florence and Bologna.

52
− F2i started in the airport industry with a particular know-how and a track
record with a bright growth perspective:
o thanks to Gesac, F2i «brought back» important company-generated cash
flows to Italy, which they used to foster development and growth
o thanks to SEA and SAGAT F2i recognised the local bodies’ needs to sell
stretegic assets to Italy to reduce their debt and, again, prevent them from
going under foreign control.
− Together, these three companies managed 37.9 mil/passengers in 2011,
over 25% of the total national traffic.
− The long-term objective is to promote infrastructure and business
development, as well as the rationalisation and achievement of high
profitability levels, with benefits for satellite activities and for the socio-
economic system.
− F2i pursues an investment strategy that aims to create a new airport
network: a concept, therefore, of «national network» instead of a «runway-
focused» network, which would favour aggregation, the closing of
unemployed airports, and a recognisable, modern airport format of quality.
AIRPORTS

TLC
53
− Metroweb, founded in 1997, is the F2i controlled company with the largest
urban optic fibre network in Europe, with about 3,640 km of infrastructure
(lines) – corresponding to about 426,000 fibre.
− The company operates as a dark fibre provider: it rents its infrastructure
to TLC operators that subsequently implement their value-added
connection services in an autonomous way.
Infrastructure Dark Fibre Connectivity WEB IP-TV
Wireline -
Wireless
Business
Residential
Telecom Operators and Service Providers End Users
Infrastructure Dark Fibre Connectivity WEB IP-TV
Wireline -
Wireless
Business
Residential
Telecom Operators and Service Providers End Users
Value chain in the optic fibre sector
− In 2011 Metroweb generated about 56 mil € revenues, with operational
margins of about 80%. This company employs 34 people.
− Metroweb services, through Fastweb, initially addressed businesses.
At a second stage, also thanks to professionals who needed fast domestic
connections to work from home, the company’s offer extended to end
consumers.

TLC
54
F2i and Metroweb are trying to aggregate new fibre providers
operating in Italy, to develop new network extensions and supply
Italy with a modern and strategic infrastructure, starting with the
most economically-developed cities.
In 2012, order to achieve this, F2i:
–acquired 85% of SasterNet – owner of Genoa’s optic fibre network –
from the IREN Group
–founded a new company, Metrobit, for the «vertical» cabling of
Milan’s buildings
–got involved in the Cassa Depositi e Prestiti (Deposits and Loans
Fund, «CDP») through the Italian Strategic Fund, whic will bring new
resources and certify a more «institutional importance»
–operated to acquire more already existing fiber networks in Italy (e.g.
in Brescia).

Conclusions
56
− Infrastructures have driven Italy’s development for decades.
− The anti-infrastructure attitude and the following decision-making
paralysis that hit Italy in the last decades, worsened by the public
finance crisis, led to Italy’s decline, especially when compared with
major European countries.
− The ownership evolution (from public to private), which started in the
90’s with the first privatisation changes, has not been completed, and is
causing market fragmentation as well as, in some cases, management
inefficiency.
− These deficiencies have limited and brutally blocked the development of
infrastructure at times, blocking the whole national economy as a result.
− Today, Italy has much work to do to catch up: it is necessary to close the
gap within the infrastructures, which represent the connective tissue of
any modern economy.

Conclusions
57
− To function properly, these infrastructures have to be created and
managed as networks. They have to develop and be coordinated
rationally: their management should succeed on a «country system»
basis, to replace the «parochial types of management» and financial
speculation.
− In Italy, as in other big countries, it is necessary to concentrate and
centralise such sectors, to create a few «national champions» able to
ensure adequate investments, efficiency and transparency in
managing the assets.
− In order to achieve this, it is necessary to establish an «institutional
capitalism model» that can access the necessary resources to
develop the networks (applying, if necessary, innovative tools such as
«project financing» and «project bonds») to finance the growth of big
public sector companies and guarantee their management
independence.

58
– The Fund has basically exhausted its dotation before the first deadline
of the investment period.
– This happend even though F2i operated with extreme caution in order
to avoid hasty operations in a time of great uncertainty and a progressively
worsening global crisis.
Conclusions
This achievement led F2i to launch a new Fund that will allow its work
to progress further.
F2i is a clear example of this model in Italy. A true «public company»
that could start an infrastructure network system (able to interact with
each other to push Italy forward) by optimising their management and
controlling their development.

59
− The new Fund (already operating and committing about 60% of the funds
raised at the first closing), will particularly allow F2i to:
o reinforce its presence wherever it had already participated
(capital injections to support development, acquisitions of new
partners, etc.)
o inject new investments in industries already established
o launch new industries also starting from the investment
opportunities determined by Italy’s current economic-financial
situation.
Conclusions
To allow the progress of group creations leaders in
their own sector and to finance the development of
national infrastructures.

61
Back-up slides
Airports
– In recent years, a number of big European airports have undertaken
important extension and renovation projects:
o Spanish airports:
• Madrid Barajas: Terminal 4 opened in 2006, increasing the airport’s yearly capacity
from 45 to 70 mil/passengers. The construction was completed in a timespan of 4
years.
• Barcelona El Prat: the construction of Terminal 1 was completed in 2009, increasing
the airport’s yearly capacity to 55 mil/passengers. A new satellite for Terminal 1 (T1S)
is under development, and will increase the airport capacity to 70 mil/passengers.
o Paris Charles de Gaulle is constantly evolving:
• the renovation works of Terminal 2 were completed in 2008, including the construction
of a new sub-terminal dedicated to the Schengen area (2G) and the transformation of
the sub-terminal 2E into a high-security area
• in 2008 (with estimated completion in 2015) the renovation of sub-terminals 2A, 2B,
2C, and 2D began; in 2012 the construction of the S4 satellite started, for a capacity
of 7.8 mil/passengers and will host Air France’s long-distance flights
• plans for a new terminal (T4) with a 30 mil/passenger capacity have been devised: it
should be operational (initially for 9 mil/passengers) by 2024.

62
Back-up slides
Airports
o Frankfurt Fraport: Terminal 2 opened in the mid-90’s. The airport has
a current capacity of about 60 mil/passengers and is preparing to an
expected traffic growth (80 mil/passengers by 2020 vs. 56
mil/passengers in 2011):
• the airport’s fourth runway opened in October 2011
• the expansion works for Terminal 1 concluded in October 2012, increasing the
airport’s yearly capacity to 6 mil/passengers
• the construction of Terminal 3 is scheduled to start in 2013 (+25 mil/passengers per
year).

63
− Italy keeps on missing important opportunities because of a lack of planning,
which translates into difficult authorisation processes:
o After 11 years of never-ending authorisation processes and about 250 mil €
already spent, British Gas left the project for the creation of a regasification
terminal in Brindisi in March 2012. Although the project had already
received the Environmental Impact Assessment (in 2010), after 2 years the
authorisation process was far from being completed, because of opposing
local bodies that would not provide the necessary authorisations. The terminal,
with a planned capacity of 160,000 m3
, was an estimated investment of 800
mil €, 1,000 jobs during the 4-year construction project and 250 after the
start of activity.
o Another similar case in which Italy is risking to miss an important foreign
investment is the regasification terminal in Zaule-Trieste. The Spanish
Natural Gas Fenosa has been stuck in the authorisation process for seven
years and is still far from completion. The municipality is currently against the
project, without considering the benefits for the area (500 mil € of
investments, 4,500 jobs during the construction phase, 390 after the start
of activity – including direct coworking and satellite activities).
Back-up slides
Regasification terminals

64
− Two terminals are planned in Livorno:
o The onshore terminal, promoted by Edison, Bp, and Solvay, had faced the
opposition of the Tuscany Region for a long time because it had already given
aurhorisation to another one (see below). Recently, the Region opened to
discussion to review the project, but Edison is apparently currently no longer
interested because as the company structure is focusing on its internal
reorganisation.
o The offshore terminal, created by IREN and E.On, should finally start operating
in 2013, but the planned investments doubled compared to the initial plan (600
mil € vs. the estimated 300 mil € in 2002), also because of a long 8-year
authorisation process that involved 25 institutional bodies!
− After a never-ending series of appeals by environmental associations, in 2011 the
Council of State approved the construction of a regasification terminal at Porto
Empedocle, promoted by ENEL. This terminal estimates an investment of 800 mil
€ and the employment of 1,000 operators during the construction (4-5 years)
and 120 after the start of activity. The construction project should have started in
September, but in the meantime ENEL had to cut on the investment plan (because
of rating and debt issues) – at Group level – and the start of construction was
postponed until the following year. The construction site opened in October 2012.
Back-up slides
Regasification terminals
Indecisiveness accounts for (both Italian and foreign) asset drains, even in
times of economic crisis, when assets are desperately needed!

Back-up slides
65
GAS
− The group dimensions allow significant investments that favour
development, innovation, efficiency and safety of the network:
Investments mil €
ERG + + +
189
93
108
54% of the
EBITDA
Other operators ~47
F21 Reti Italia
Group
~49
Benchmark €/customer
Others
Transparency, quality
and safety
Growth

Back-up slides
66
− The absence of conflicts of interest allows for transparency (particularly
as to measurements) and efficiency towards customers:GAS
Inspected network (%) Actual average time for assistance
Source: AEEG
Year: 2010
AEEG1
request
~30’
F21 Reti Italia
Group
60’
78%
77%
63%
57%
54%
41%
36%
29%
Enel Rete Gas
Hera
A2A
Iren
G6 Rete Gas
Eni (Italgas)
E.On Rete
Toscana Energia
Average
in Italy:
55%

Back-up slides
Esempi di filiere
67
Incentives from AEEG for safety recovery(1)
(k €)
(1) Includes incentives distributed during 2010 per number of odorisation measurements and dispersion in the network.
50%
22%
12%
2%
14%
% incentives
compared to total
% market
share
844
114
696
1.314
273
Others
2.9632.311 379 17%
23%
2%
6%
52%
− The investment commitment creates a quality service, which has been
recognised and awarded by the gas authorities!GAS

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