Vito Gamberale - Local public services between the public and private domain
Vito Gamberale – Local public services: between the public and private domainLocal public services: between the public andprivate domainLaboratory of ideasAlessandria (Italy), November 26, 2012Vito GamberaleCARECS
Vito Gamberale – Local public services: between the public and private domainInfrastructures in Italy Pg. 3Privatisations– Privatisations at a central level Pg. 11– Privatisations at a local level Pg. 16– Privatisations today Pg. 18The financing of infrastructures Pg. 20– Aggregation and «national champions» as public companies Pg. 22The financing of infrastructures: the role of F2i Pg. 31– Examples of industries Pg. 42– Development of new industries Pg. 56Conclusions Pg. 582Table of contents
Vito Gamberale – Local public services: between the public and private domain3Infrastructures in Italy
Vito Gamberale – Local public services: between the public and private domain4Infrastructures in ItalyUntil the mid-70’s Italy was historically recognised for being a countrywith 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) was second only to the Germanhighway system (6,061 km)– during the 60’s Italy ranked among the «leading countries» in nuclear power production (3rdbiggest 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 theseplants had already achieved the current installed capacity (about 20 gw) and covered almost100% of the national power demand– during the 80’s Italy was the first country, together with France, to launch the project of a highspeed railway network (Rome-Florence).The creation of infrastructures in Italy was an important driving force fordevelopment after World War II and during the so-called «economicalmiracle».
Vito Gamberale – Local public services: between the public and private domain5In Piedmont, the greater part of the highway network was also builtbetween the 50’s and 80’s:– A4 TO – MI – TS (517 km): one of the first highways in Italy. The construction began in 1930,the most important actions were undertaken during the 50’s– A5 TO – the Mont Blanc Tunnel (146 km): the Turin-Ivrea-Quincinetto road opened in 1961after only 3 years of construction. During the 60’s and 70’s the roads connecting Aosta werefinished (1970)– A6 TO – SV (130 km): this road was built in segments, starting in 1956 until 1972. Since1973, the construction project to double the number of lanes began– A21 TO – PC – BS (240 km): the works of the TO-PC segment started in 1964 and lasted forover 5 years. The connection with the PC-BS road was then completed in 1973– A55 Turin ring roads (58 km): initiated in 1969 and completed in 1976– A26 GE – Gravellona Toce (221 km): the biggest part of this segment was built between1977 and 1988.The same applied for the airport system: Turin’s Caselle airport was built in 1953, Cuneo’sLevaldigi airport between the 60’s and the 80’s.Thanks to the efforts made throughout those years, today the region ofPiedmont can still rely on the biggest highway network in Italy (820 km,which represents 184 km per million inhabitants, vs. the national averageof 111/km per million inhabitants).Infrastructures in Italy
Vito Gamberale – Local public services: between the public and private domain6Infrastructures in Italy have been mainly supported by public financing,through institutions and national public entities:– 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).Until the 80’s Italy had an adequate infrastructure system. The highcash flow from the existing infrastructures contributed to thedevelopment of new projects.Infrastructures in Italy
Vito Gamberale – Local public services: between the public and private domain7Local public services and infrastructure followed a very similarpathway:– the origins of the development of local services in Italy dates back to the end of the 19thcentury, after the fast urbanisation process led to a significant rise in demand for publicservices (these were initially limited to road lights and agricultural services)– in the beginning, services were managed by private, often foreign (Austrian) monopolieswith no form of regulations, who developed and provided serviced communities– this led the local administrations to take direct action in the construction andmanagement of the plants, both to limit costs and to invest profits in the developmentof the plants (mid-’800, several municipalities started to directly handle certain localpublic services: Genoa, Vercelli, Brescia, Rovigo, La Spezia and Cesena)– at the beginning of the 20th century, municipalisation was included in Giolitti’sadministration decentralisation plan, as it reflected a need for innovation determined bythe industrialisation process and its related migration movements.– despite the municipalities were given freedom of choice on the opportunity to make theservices public, this practice quickly spread: gas and power distributions, water services,transportation, waste disposal, dairy manufacturers, pharmacies, etc., weremunicipalised.Until the 60’s, the municipalisation model of public services andrevenue reinvestment allowed for the rapid infrastructure growth ofItalian cities.Infrastructures in Italy
Vito Gamberale – Local public services: between the public and private domain8– the most evident signs of crisis were found in the uncontrolled rise of costs and the deficitof public companies, as well as in the insufficient level of quality and efficiency– the deficit that municipalised companies cumulated for local public services – slightly above3.5 bil Lira in 1960 – grew to 800 bil in 1975 and reached 1,800 bil in 1980– this was combined with a significant worsening of the overall financial status of localbodies and central Government, with rising deficit and debt rising beyond control.The decline of public finance was responsible for blocking the creationof new infrastructure that, until then, had driven development, as well asthe continuous deterioration of the service quality.This model was based on the combination of «public financing-efficientmanagement-development»; it had already begun to experience acritical phase during the 70’s-80’s, both for central government and localbodies:Infrastructures in Italy
Vito Gamberale – Local public services: between the public and private domain9At the beginning of the 90’s, Italy was involved in important changes thatforced 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 andinflation 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 dealThe following governments were forced to cut public expenditure and«cash in».The public sector could no longer continue acting as an investor for thebuilding and managing of public projects, and consequently beganentering a phase of «big privatisation», especially at a central level.Infrastructures in Italy
Vito Gamberale – Local public services: between the public and private domain10Privatisations
Vito Gamberale – Local public services: between the public and private domainPrivatisations are usually seen negatively. However, despite popularbeliefs, they often had positive effects, even if they are different,based on the applied strategies:1. Manufacturing companies, in a critical shape.Such privatisations were usually achieved by selling to private entitiesoperating in the same business sector, which ensured thesuccessful result of the privatisation process itself.A few examples :– in 1994 Nuovo Pignone: ENI sold 70% of the company to General Electric 70% for 700bil Lira– in 1995 ILVA: IRI sold the iron and steel company to the Riva Group for 2,332 bil Lira,and got rid of its 1,500 bil Lira debt11All these companies have experienced progressive developments.PrivatisationsPrivatisations at a central level
Vito Gamberale – Local public services: between the public and private domain2. The second step was to extend privatisation to companiesoperating in the service and infrastructure sectors, which earnedthe greatest revenues. These privatisations were accomplishedthrough:a) Quotation of part of the assets at the stock exchange, with verysuccessful results for the government, but not always for theinvestors (see ENEL)...– from 1995 to 2001 the Treasury introduced 60% of ENI’s assets on the market,obtaining a total of over 21 bil €. Today, the share is worth over three timesas muchcompared to its first listing (17.5 €/sh vs. 5.4 €/sh)– from 1999 to 2005 78% of ENEL was sold for about 33 bil €. The first tranche wascollected at 4.3 €/sh – an extremely good price for the government: 13 years after,the share is worth 2.8 €/sh.ENI and ENEL are Italy’s biggest companies and rank among the few Italiancompanies that can compare with their global peers.Through privatisation, former public bodies become true efficient«public companies» that are able to compete at international level.12PrivatisationsPrivatisations at a central level
Vito Gamberale – Local public services: between the public and private domain131After numerous ownership changes, Gemina’s current relative majority (about 35%) is held by Sintonia (reporting to EdizioneHolding), either directly or through its subsidiary Investimenti e Infrastrutture SpA.PrivatisationsPrivatisations at a central levelb) Direct sales to private entities, often on a «family-like» basis, andwith disappointing or contradicting results (in particular for TLCcompanies):– In 1997 35% of TELECOM ITALIA was sold for 13 bil € (one of the biggest privatisations and the leastprofitable). The company’s owner then changed several times (Colaninno, Pirelli Telco, Telefonica), whichled to a heavy debt (PFN/EBITDA from 0.7 times in 1999 to 3.2 times in 2005), the backing out of a big part offoreign participation, and the loss of the international prestige it had acquired in the years of STET management.– Between 2000 and 2001 the Leonardo company (led by Gemina and supported by Falck, Italpetroli andImpregilo) acquired 96% of ADR for 2,237 mil €, with a dividend of about 1,519 mil €, achieved by thecompany in 2001 thanks to new debt (over 1,200 mil €). Therefore, the actual cost paid by Leonardo was808 mil €.In 2002, the Australian Macquarie Fund purchased about 44.7% of ADR’s asset from Leonardo for 480 mil€ (1,704 mil € for 100%), which means the Fund had almost a 30% premium of the carrying value.In 2007 Gemina1 became Leonardo’s only shareholder, purchasing 44.7% of ADR’s assets from Macquariefor 1,237 mil € ─ that is 2.5 times the price paid by Macquarie just 5 years before and over 3 timesLeonardo’s net expenses during the privatisation process!This heavy debt, began in 2001 to pay the extraordinary maxi-dividend and never significantlydecreased, which led to a very slow growth in the decade following privatisation (CAGR revenues 2001-201: +3%, basically ceasing all investments).Over a period of 10 years ADR went through three different ownerships and accumulated a netdebt, which today amounts to about 1,250 mil € (PFN/EBITDA >4.5 times!), after paying capital gainsto shareholders (and 190 mil € dividends between 2000 and 2007)!
Vito Gamberale – Local public services: between the public and private domain14– The privatisation of AUTOSTRADE had a more positive outcome. In 1999 70% ofthe company was sold for about 13.5 bil €. Schemaventotto (led by Edizione Holding)purchased 30% of the company through IRI at about 7.05 €/sh. The market absorbedabout 40% at 6.75 €/sh. In 2006 Schemaventotto agreed on the transfer of Autostradeto Abertis at 25 €/sh, which was over 250% more than the price IRI paid, but thisoperation was not accomplished. Autostrade is still a solid company under Italiancontrol today.Infrastructure and service privatisations through direct sales toprivate entities, have seemingly entered a «hit and run» game, puttingstrategic assets at risk of being acquired by foreign entities – as wasthe case with Telecom and was about to happen for Autostrade (whichimplies their cash flow management as well), or risking theirmanagement responsibility to be reduced to a mere financial role.Comparison of the main privatisationsAmong big privatisations, Telecom wasthe less profitable for the government:the EV/EBITDA ratio, for example, is3.4 times (compared to 7.2 times forENEL and 5.4 times for ENI).PrivatisationsPrivatisations at a central levelCompany Year EV/EBITDA Price/PNNuovo Pignone 1994 7.39x 2.90xILVA 1995 4.03x 1.17xENI (average 5 tranche)1995 - 2001 5.40x 2.10xENEL(just 1st tranche) 1999 7.20x 3.00xTelecom Italia 1997 3.40x 1.70xAutostrade 1999 9.40x 4.50x
Vito Gamberale – Local public services: between the public and private domain15– for infrastructures/service, it is better to favour stock exchangequotations (such as ENI or ENEL) or share ownerships of «publiccompanies» (such as F2i, see ultra)– set lock-up bonds (for at least 5-7 years)– always introduce the concept of «earn-out» to favour the publicvendor in case of re-selling the company within 5-10 years– set up bindings to prevent selling the company to buyers who wouldplace an exceeding acquisition debt on the company itself.A couple of rules taught by the privatisation of the infrastructuresector:PrivatisationsPrivatisations at central level
Vito Gamberale – Local public services: between the public and private domain16– the transformation of the companies into SpAs usually takes place in a generalisedmanner: the SpAs in the local public service sector grow from 22 in 1995 to 56 in 1997, andexceed 450 in 2002. AEM in Turin, for example, is turned into an SpA in 1997, AMAG inAlessandra in 2002– the cession of shares is a more scarce procedure: in 2000, in 75% of the cases, thecapital share sold to private entities is below 10%– very frequently the management of the services, even those with «industrial relevance»,remain under direct control of local bodies, especially in the waste disposal and watersectors (that today, not by chance, are still the most troubled segments).Even the biggest municipalised companies, that usually choose to belisted at the stock exchange (AEM in Milan – today A2A – in 1998, ACEAin 1998, AEM in Turin – today IREN – in 2000) usually remaincharacterised by a public majority.– At local level, privatisations underwent a much less determined process.– Turning the «special companies» into SpAs (Italian: società per azioni, limitedcompany) was usually a preferred process, that should then have beenfollowed by a (total or partial) dismission of the shares by the public bodies.– However, the dismission process remains often apparently uncompleted:PrivatisationsPrivatisations at local level
Vito Gamberale – Local public services: between the public and private domain17– This process led to the building of companies, which were obviously «slightly bigger» thanthose before the merging, but were internally divided by local contrapositions.– Unlike what happened in other main European countries, Italy pursued a strategy of«horizontal», rather than «vertical» aggregations.– Such multi-utility companies manage in fact an aggregation of different services –among which there cannot be synergy – instead of specialising in delivering only onetype of service.Such companies cannot fully develop the necessary synergies andscale economies to ensure an efficient management and theinvestments necessary to provide quality services.During the 2000’s a phase of managing companies aggregationsoperating in different sectors started, especially in northern Italy (A2A,IREN, HERA, Acegas-APS, etc.).PrivatisationsPrivatisations at a local level
Vito Gamberale – Local public services: between the public and private domain18− high debt, more and more frequently used to cover the current expenditure, not just forinvestments− decreasing transfers from the government− more and more binding restrictions for the internal stability pact.Today some local bodies are facing critical financial conditions, due tothe persisting international economic crisis as well…<…which explains the great difficulties to collect funds to:− participate in the capital increase of the controlled companies, necessary to ensure thedevelopment and efficiency of the services delivered to citizens− further develop existing infrastructures and finance the construction of new ones,which are more and more needed by the territory.PrivatisationsPrivatisations todayThis background explains why privatisations are now back on theagenda for local bodies.
Vito Gamberale – Local public services: between the public and private domain19An example of this is the Turin Municipality, which needs resources tocover its investment campaing in the last decade (subway train, districtheating, WTE, railway link, olympic facilities).PrivatisationsPrivatisations today– The Municipality is now dismissing its estate assets and shares from public assets, such asTRM, AMIAT, GTT and SAGAT, with the objective to recover about 330-350 mil € from thesale of subsidiaries’ stakes. In particular:– TRM and AMIAT (SUW disposal and management) will be privatised, respectively, at80% and 49%, through a single tender that allows, however, separate allocations– GTT (public transport): in June 2012 the Municipality agreed to sell 49%– SAGAT (Turin’s airport Caselle): a first tender for the sale of 28% (at about 59 mil €)was deserted. In October 2012 the deadline for preemption for the other partners,which was never applied, was missed. In November 2012 a new tender had beencalled out, without the setting of an auction base.It is now necessary to find the right partner. A «public company», publicand institutional at the same time, suitable for long-term partnerships,financially strong, respectful of the public role and interests.
Vito Gamberale – Local public services: between the public and private domain20The financing of infrastructures
Vito Gamberale – Local public services: between the public and private domain21The financing of infrastructures– As we just discussed, in the past, infrastructures in Italy played a veryimportant role in the country’s development.– Today this contribution is no longer available, mostly because of thecurrent critical conditions of public financing.– It is now necessary to find a way to reactivate the infrastructurecontribution to development and to collect the necessaryresources.– A «replacement» for the public financing of infrastructuredevelopment has to be identified, still guaranteeing the control andsurveillance of delivered services to public bodies.
Vito Gamberale – Local public services: between the public and private domain22The financing of infrastructuresAggregations and «national champions» as public companiesNew 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 existinginfrastructures need to have considerable dimensions and should not befragmented.– My self-evident answer to this question is:Who can finance infrastructure nowadays?
Vito Gamberale – Local public services: between the public and private domain23The financing of infrastructuresAggregations and «national champions» as public companies– Many infrastructure assets have been created and managed according to the (oftenpolitical) needs of the local entities in which they are set, far from a global vision ofstrategic network for a «country economic system».– Even the so-called «multi-utility» companies have, at best, only an interprovincialoutreach and manage local assets in very differentiated segments (which does notfavour 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 haveoften focused an exaggerated amount of attention on financial aspects andpolitical/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 canhardly provide an adequate service and operate on a larger number of internationalmarkets.– 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 singlesectors.The infrastructure sectors in Italy are sometimes very fragmented andalso characterised by a localistic management approach.
Vito Gamberale – Local public services: between the public and private domain24–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 samehappened 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 byaggregating 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 torationalise 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 balancedevolution through network reconditioning and development, with innovation and measurementtransparency (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 aggregationcentres (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 hasa 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 (38 national/regional airports – actually 100considering the smaller ones, 3,000 operators in the water system, 250 in gas distribution, etc.) and cannottherefore create «the system».The managers of the existing infrastructures embrace a very wide spectrum, ranging fromEuropean leaders to embarrassingly small players:The financing of infrastructuresAggregations and «national champions» as public companies
Vito Gamberale – Local public services: between the public and private domain25– The big «national champions» (ENI, ENEL, Atlantia), specialised in one single sector, havehigher 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 moreresources to investments.– This is also explained by the fact that inefficient business segments within multi-utilitycompanies consume the resources produced by the profiting segments.– Multi-utility companies are currently trying to compensate their cash flow deficiency forinvestments through a debt increase that, in some of these companies, has peaked to levelsimpossible to sustain on the long run (>4 times their EBITDA!).The analysis of the main infrastructure groups quoted at the stockexchange explains the importance of dimensions and sector specialisation.The financing of infrastructuresAggregations and «national champions» as public companiesNational championsENI 110,522 26,753 24% 7,803 7% 13,438 28,032 63,310 91,342 3.41x 50% 1.05xENEL 79,514 17,717 22% 5,358 7% 7,589 44,629 27,080 71,709 4.05x 43% 2.52xAtlantia 3,976 2,385 60% 840 21% 1,619 8,970 8,270 17,240 7.23x 68% 3.76xTerna 1,636 1,230 75% 440 27% 1,220 5,123 5,850 10,973 8.92x 99% 4.17xMain multi-utility companiesA2A 6,198 942 15% (916) -15% 310 4,021 1,720 5,741 6.09x 33% 4.27xACEA 3,288 744 23% 86 3% 413 2,326 921 3,247 4.36x 55% 3.12xHERA 4,106 645 16% 127 3% 325 1,987 1,450 3,437 5.33x 50% 3.08xIREN 3,520 592 17% (108) -3% 493 2,652 544 3,196 5.40x 83% 4.48xNote: data from 2011 budget, with exclusion of Mkt Cap, updated October 25, 2012«National champions» average 45% 15% 5.90x 65% 2.87xMain multi-utility comp. average 18% -3% 5.30x 56% 3.74xData (mil €) Turnover EBITDA % Profit % Invest. PFN Mkt Cap EV EV/EBITDA Inv./EBITDA PFN/EBITDA
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructuresAggregations and «national champions» as public companies26The Monti Government tried to promote the aggregation of local publicservice management with LD 1/2012 («decree on liberalisations»)introducing (art. 25):− the obligation to reorganise the Local Public Services (LPS) through local authorities(ATOs, Italian: Ambito Territoriale Ottimale) with at least provincial outreach, topromote a scale economy and service efficiency− limits to in-house assignment of LPSs (with the exception of the water service, which isstill determined by the referendum results), in particular:o lowering of the maximal level of annual value of an LPS, beyond which a tender becomesmandatory (from 900,000 to 200,000 €/year)o inclusion of the budget data of the in-house companies in the calculation of thelimits for the internal stability pact (the debt of the in-house companies is not the sameas the one of the municipalities and, therefore, the local bodies will no longer be able tocreate formally external companies to detract the expenses in the framework of the stabilitypact)o reinforcement of the Antitrust Authority judgment (which, however, stays non-binding)based on the market analysis of the local bodies in order to choose between in-house orexternal assignment.The Decree therefore aims to make LPSs more efficient, by promoting thedimensional growth of the management companies and discouraging theassignment to public entities. However, a more determined action wouldbe necessary.
Vito Gamberale – Local public services: between the public and private domain27– Based on the government-approved Decree, provinces will be reduced from 86 to 51.– In Piedmont, for example, provinces will be reduced from 8 to 5. The Municipalities, for theadministration of new provinces, should become: Turin, Cuneo, Alessandria, Novara and Vercelli.– Note: Alessandria will merge with Asti.The aggregation process in ATOs, as envisioned by the government, couldbe strengthened by the territorial aggregation process, which was recentlyintroduced with the project of merging provinces.The financing of infrastructuresAggregations and «national champions» as public companiesNote: data refer to legal population, as per the provisional results ofthe ISTAT 2011 census.Alessandria Asti Totale % PiemonteInhabitants (n.) 428,417 217,870 646,287 14%Area (km2) 3,560 1,511 5,071 20%Density (inh/km2) 120 144 127 n.s.Municipality (n.) 190 118 308 26%
Vito Gamberale – Local public services: between the public and private domain28The local bodies should take advantage of the province merging torationalise the local public service management.– In some adjoining territory, for example Alessandra and Asti, the water system, gas distributionand SUW disposal are managed by different operators. Assignments are even differentiatedamong the municipalities of the same province!– The province-merging operation may present the opportunity to reactivate and complete theaggregation process started in 2000, but this time, following a different pattern, which wouldinclude:– the «disaggregation» of the existing multi-utility companies and aggregationaccording to «industries»– the assignment of the control shares of companies to one single referenceinstitutional shareholder (such as in the case of ENI and ENEL) in order to turn theminto true independent «public companies».Overall, there should be a shift of «in-house» management, which, accordingto the Decree on LPS, imposes a debt consolidation of the contracting companieshead of the controlling body, to an «in-hands» management, which will allow thepublic body to get rid of its debt through minority shares, as well as to monitor thequality of the services delivered to citizens.Selling control shares of the assets to institutional entities (that ensuredevelopment and transparency) would represent an opportunity for local bodiesto «heal» the public accounts, without risking the start of a «wildprivatisation» process.The financing of infrastructuresAggregations and «national champions» as public companies
Vito Gamberale – Local public services: between the public and private domain29The financing of infrastructuresAggregations and «national champions» as public companies– Only big and specialised players (such as ENI, ENEL, Atlantia, etc.) cangenerate enough cash flow to create new investments.– It is necessary for each player to specialise in one single sector (or«industry») in order to allow for an efficient and high quality management.The multi-utility companies’ efforts to aggregate into «macro-utility companies»shows how the parallel management of different businesses affects the serviceefficiency and the companies’ expenses in a very negative way.– In order to meet these goals, a modern financing approach is necessary, anew «institutional capitalism»! Institutional investors (banks, foundations,pension funds, etc.) need to finance the creation of big sector «publiccompanies», «national champions» capable of promoting an efficientmanagement and the development of infrastructure assets.In the infrastructure sector, Italy should promote homogeneousaggregations able to create «national champions» in the different sectors!
Vito Gamberale – Local public services: between the public and private domainThe Gavio Group is an example of successful aggregation, developedright in the surroundings of Alessandria: Gavio, the second biggestItalian Group– and among the biggest in Europe – could start workingin the highway sector in a few years.– In 1996 Gavio, which was already operational in the transportation and building sectors, entered thehighway sector with the acquisition of the TO-MI highway from the Ligresti Group.– Between the late 90’s and early 2000’s, thanks to the reinvestment of the TO-MI highway profits,the group developed a complex programme for the acquisition of – both public and private – sharesand of other highway companies in the north-west of Italy (Turin ring road, the highway to Aosta, theSestri Levante-Livorno highway, the Viareggio-Lucca highway, Sitaf, the Cisa highway).– The group is still growing today: only just a few days ago, the group purchased the TOA-SA highwayfrom the Atlantia Group.– Today the group manages a network of 1,350 km (23% of the entire Italian toll network). Over theyears its dimensions and its management cash flow allowed it to plan and perform importantinvestments in the development of the network (e.g. Sitaf, Asti-Cuneo, Broni-Mortara, ect.).30The «Gavio example» indicates how it is possible to create a player ofnational dimensions, at the very least, through the aggregation of singlelocal assets.The financing of infrastructuresAggregations and «national champions» as public companyData (mil €) Network (km) Turnover EBITDA % Profit % Invest. NFP Mkt Cap EV EV/EBITDA Inv./EBITDA NFP/EBITDASIAS + ASTM 1,350 939 570 61% 181 19% 281 1,756 2,203 3,959 6,95x 49% 3.08xAtlantia 5,079 3,976 2,385 60% 840 21% 1,619 8,970 8,060 17,030 7.14x 68% 3.76xAbertis 3,772 3,915 2,454 63% 775 20% 676 13,882 8,810 22,692 9.25x 28% 5.66xBrisa 1,305 670 459 69% (82) -12% 89 3,517 1,060 4,577 9.97x 19% 7.66xAPRR 2,244 2,022 1,399 69% 395 20% 233 6,202 4,630 10,832 7.74x 17% 4.43xNote: data from 2011 budget, with exclusion of Mkt Cap, updated November 11, 2012
Vito Gamberale – Local public services: between the public and private domain31The financing of infrastructures: the role of F2i
Vito Gamberale – Local public services: between the public and private domain32– The lack of public financing, which prevents the creation of newinfrastructures and the efficient management of the existing ones, canonly be balanced today with private financing.– The key topics brought out through this analysis include:o the role of infrastructures in the development of post-war Italyo the lights and shadows of the privatisation phase in the 90’so the need for a new privatisation phase, as a solution to the high debts oflocal bodieso the possibility to create «national champions» specialised in thevarious infrastructure sectors following the model of big Italian and foreignplayers....we therefore came up with the idea of F2i, a private yet institutional fundthat can aggregate the existing infrastructures in industries using fundsfrom this asset management to allow for their development.The financing of infrastructures: the role of F2i
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2i33– Thanks to a fundraising of 1,852 mil €, F2i is the biggest fund operating inItaly and counts among the biggest country infrastructure funds worldwide.– 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 sponsors of highstanding, 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.
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2i3434 Following its mission and the institutional nature of its investors, F2iaims for long-term participation with an industrial understanding.(FONDO I)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%F2i investors (per category)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%
Vito Gamberale – Local public services: between the public and private domain– F2i created 6 industries, reunited in a structured group, committing over1,685 mil€ (91% of total fundraising).The financing of infrastructures: the role of F2i31.7 mil € (1.9%)26.8 mil € (1.6%)351,668.1 mil €GASRENEWABLESTRANSPORTATIONWATERAIRPORTSTLCCommitted436.4 mil € (26.2%)272.9 mil € (16.4%)129.5 mil € (7.8%)489.2 mil € (29.3%)228.1 mil € (13.7%)53.5 mil € (3.2%)Investments currently in the portfolio+ Dismissions+ Fund management costs= COMMITTED TOTAL75% 85.1%100%100%100% 40%40%100% 70%29.8%87.5% 61.4%15.7%100%49.8%26.3%Water branchParmaSasternetF2i TLC MetrowebMilan and BresciaprojectsInfracisAlerionCleanPowerF2i RenewableResourcesHFVF2i Airports GESACSEAF2iReti ItaliaENELRete Gas2iGasG6 Rete GasMediterraneadelle AcqueF2i ReteIdrica Italianak1,609.6 mil € (96.5%)
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2i36F2i is present in Piedmont with:− F2i Reti Italia, the first regional gas operator for the number of licences (withabout 33% of shares) in the sector. It is the third operator for the number ofcustomers (about 16%).1 It manages 356 licenses and employs 150 people (thenumber doubles if satellite companies are considered).− Metroweb, which holds a «long distance ring network» and connects Turin,Milan and Genoa (420 km in total, about half of which is in Piedmont).− In addition, F2i is considering to add other important assets in theregional area, such as Turin’s airport and WTE plant.1The first operator in terms of number of customers is Italgas, with about 30% of market share, followed by AES (51% IREN,49% Italgas), holding a share of about 24% even if it manages distribution in the Turin municipality only.Provinces N. of licenses Market %Alessandria 95 48%Asti 24 21%Biella 45 63%Cuneo 32 16%Novara 54 58%Turin 18 7%Verbano-Cusio-Ossola 52 69%Vercelli 36 56%PIEDMONT TOTAL 356 33%
Vito Gamberale – Local public services: between the public and private domain37The financing of infrastructures: the role of F2i2i Gas (formerlyE.On Rete)ENEL Rete GasAlerionHFVInfracisMediterranea delleAcqueParma Water SystemGESACSEAG6 Rete GasMetrowebMoon and Link ProjectsSasterNetGASRENEWABLESHIGHWAYSWATERAIRPORTSTLCF2i acts as a true «public company»: each project develops with theobjective to create an industry within a specific sector, fosteringcooperation among subsidiaries and the integration of the managedinfrastructure networks:Objective: to represent an important independent manager of gas distributionnetworks and to act as an aggregating entity in a currently strengthening sector.Foresees 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 fiber in the mostpopulated and developed areas of Italy.
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2i38− Within four years, F2i managed to offer a new business model forinfrastructures in Italy by creating a structured group of companiesand company industries, each representing a benchmark in theirrespective sector.− The companies where F2i holds the share majority or plays an importantrole in their governance, registered in 20111:o aggregated turnover: 1,530 mil €o EBITDA: 630 mil € (EBITDA margin: 41%)o employees: 8,130o investments: 583 mil € (91% EBITDA).1Aggregated closing data 2011. Referred to: ERG, 2i Gas, G6 Rete, Alerion CleanPower, HFV, Mediterranea delleAcque, GESAC, SEA, Metroweb.In 2011, F2i subsidiaries have invested over 90% of their EBITDA.No infrastructure system invests such a high portion of their EBITDA!
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2i39− Thanks 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
Vito Gamberale – Local public services: between the public and private domain40o participate in the acquisition of brownfield assets sold by public bodies too, tosupport its own development. As an important innovation, selling institutionalparties are often granted an earn-out, a protection against future valorisationsabove specific limitso involve both national and local financial systems in management companies,the same as real international public companieso ensure an industrial management, aiming for effectiveness and thecompanies’ managing development. To be able to take action onmanagement, F2i aims to obtain the majority of stakes in the subsidiarieso foster aggregation processes in sectors characterised by great fragmentationand high national and European development potentialo ensure management enhancement of the subsidiaries by involving themanagement in corporate development and personal improvement projects.– The institutional characteristics of F2i guarantees a stable and longlasting partnership with no financial speculations, thus making theFund the ideal partner for public entities. Indeed, F2i can:The financing of infrastructures: the role of F2i
Vito Gamberale – Local public services: between the public and private domain41F2i was created as a private, yet institutional investment tool to aggregateexisting infrastructures into industries in order to guarantee subsidiarieswith:– operational effectiveness– balanced financial management, preventing the companies frombecoming poorer through exaggerated debts and extraordinarily highdividends– focus on development, reinvesting a great part of the cash flowsgenerated by strengthening managed networks and assets.The financing of infrastructures: the role of F2iIn a time of very poor public financing, the – both quantitative andtechnological – the infrastructure gap needs to be filled with themodern finance model proposed by F2i: using resources from anefficient management of existing infrastructures to finance thedevelopment of new plants and projects.
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries42Some actual examples of how F2i operates to aggregateinfrastructure assets – with a particular focus on local publicservices – are visible on the gas distribution, airport and watersystem industries.
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries43GAS− The F2i Reti Italia Group was born through the acquisition of Enel Rete Gas(2009), E.On Rete (today 2i Gas, 2010) and G6 (former GdF Group, 2011).Enel Gas NetworkF2i Reti Italia2i Gas*14.9%85.1%100%75% 25%Managed by F2i since April 2011In the future,these threecompanies willmerge in asingleoperationalcentreG6100%Managed by F2i sinceSeptember 2011* Formerly E.On Rete1Pro-forma consolidated data (2iGas and G6 are included on a 12month basis), net of IFRIC 12principle effects and extraordinarygains and losses.• Rab (mil €): 2,684• Proceeds (mil €): 6051• EBITDA (mil €): 3261 (54%)• Investments (mil €): 189• Employees (#): 2,112• Customers (#): 3,820,000• Managed network (km):56,833• Concessions (#): 1,970F2i Reti Italia54%of the EBITDA
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries44GASCapillary presence of F2i Reti Italiaon the territoryF2i Reti Italia− By aggregating three importantnetworks, F2i Reti Italiabecame, after just two years,the second biggest nationalplayer for market share in a stillvery partitioned sector (over 250operators).Municipalities with Enel Gas NetworkMunicipalities with E.onMunicipalities with G6
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries45GAS− The group dimensions allow significant investments that favourdevelopment, innovation, efficiency and safety of the network:Investments mil €ERG + + +1899310854% of theEBITDAOther operators ~47F21 Reti ItaliaGroup~49Benchmark €/customerOthersTransparency, qualityand safetyGrowth
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries46− The absence of conflicts of interest allows for transparency(particularly as to measurements) and efficiency towards customers:GASInspected network (%) Actual average time for assistanceSource: AEEGYear: 2010AEEG1 request~30’F21 Reti ItaliaGroup60’78%77%63%57%54%41%36%29%Enel Rete GasHeraA2AIrenG6 Rete GasEni (Italgas)E.On ReteToscana EnergiaAveragein Italy:55%1. Authority for Electricity and Gas.
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries47Incentives 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%% incentivescompared to total% marketshare8441146961.314273Others2.9632.311 379 17%23%2%6%52%− The investment commitment creates a quality service, recognised andawarded by the gas authority!GAS
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries48− F2i Reti Italia Group represented the main innovation in the gasdistribution sector in 2000: the group fostered and guided theconcentration process of the market.− The group’s acquisitions could bring strategic networks, whichwere previously controlled by foreign companies, back to Italy.− The presence of a big independent operator, which can rely onsolid investors, brings actual significant benefits to the gassector, by promoting efficiency and technological development tothe network.− F2i Reti Italia aims to consolidate its role as a big independentoperator in gas distribution, capable of representing a safety,transparency and efficiency benchmark for the authorities andthe entire sector.GAS
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries49− At the end of 2010 F2i accessed the airport sector by acquiring 70% ofGesac, the company managing the Naples airport, Capodichino, thanksto a concession expiring in 2043.− Gesac was founded in 1980 through the input of the Naples Municipalityand Province, and by Alitalia. In 1997, following the privatisation process,the public bodies sold a participation of 70% to the UK Group BAA (laterpurchased by the Spanish Group Ferrovial).− The airbase spreads out on a 2.8 km2 ground with a 2,628 m long and45 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 todevelop the airport infrastructures (over 190 mil € of cumulative Capexbetween 1998 and 2009, compared to net cumulative gains of 47.6 mil €),partly financed with public funds (63 mil €) and partly self-financed.− The investment plan for 2009-2012 amounts to a total of 90 mil €, ofwhich about 65 mil € have been accomplished by 2011.− In 2011 Gesac managed a passenger traffic of 5.8 mil/passengers, andemployed about 300 people.AIRPORTS
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries50AIRPORTS− At the end of 2011, F2i purchased 29.75% SEA shares from the MilanMunicipality; SEA manages the airport network of Milan (Linate andMalpensa airports) since 1948. The current 40-year agreement has beenundersigned alongside ENAC in 2001.− SEA and the group companies provide all the related activities andservices, such as airplane landings and take-offs, airport security, theactivities related to passengers and the handling of merchandise, as wellas commercial services− Milan’s airport network is located in one of the most important areasof economic development in Europe (Lombardy’s GDP exceeds thenational GDP by 20%) and represents a bridge between the Mediterraneanregion 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 peopleemployed.− 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.).
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries51AIRPORTS− Italy’s airport system is characterised by:o an excessively large number of airports with low-specific traffic,particularly in northern and southern Italy (lower concentration in thesouth)o mainly public ownershipo uncertainty of rate regulationso lack of investments (no significant interventions in the main airports inrecent years).PMOCTATRNCUFMXPVBSLINBGYBZOTSFTRSVCEVRNPMF FRLFLRPEGBLQ RMIAOIPSRFCO CIA FOGBRIGOANAP BDSSUFCRVTPS REGAHOOOOLBCAGPSASIE− SEA and Gesac represent two exceptions inthe national situation:o SEA manages Milan’s airport system, theonly one, besides Rome, which has a trueinternational dimension and is located inItaly’s most developed areao Capodichino is located in a «low-density»airport area, even though it has a large poolof potential users with a significantdevelopment potential.o Together, these two companies managed34.2 mil/passengers in 2011, which isabout 23% of the total Italian traffic.Airports >10 mil passengersAirports >5<10 mil passengersAirports >2<5 mil passengersAirports >0.25<2 mil passengersAirports <0.25 mil passengersHigh concentration area
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries52− F2i started in the airport industry with a particular know-how and a trackrecord with a bright growth perspective:o thanks to Gesac, F2i «brought back» important company-generated cashflows to Italy, which they used to foster development and growtho thanks to SEA F2i recognised the local bodies’ needs to sell stretegicassets to Italy to reduce their debt and, again, prevent them from goingunder foreign control.− The long-term objective is to promote infrastructure and businessdevelopment, as well as the rationalisation and achievement of highprofitability levels, with benefits for satellite activities and for the socio-economic system.− F2i pursues an investment strategy that aims to create a new airportnetwork: a concept, therefore, of «national network» instead of a«runway-focused» network, which would favour aggregation, theclosing of unemployed airports, and a recognisable, modern airportformat of quality.AEROPORTI
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries53WATERS− 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 themunicipality and province of Genoa; and provides water to about 875,000inhabitants.− It reports to the Iren Group, a multi-utility group in Genoa, Turin, Parmaand Piacenza, born from the merging of Iride and Enìa.− Thanks to its long waternetwork of over 2,500 km andits long sewage anddepuration network of 1,600km, MdA delivers about 95 milm3 of drinkable water to thenetwork.− Its current area plan includesabout 700 mil € ofinvestments, of which 600 mil€ have yet to be placed.− MdA employs about 415people.100% 100%60% 40%49% 66.50%IREN SpAIREN Acqua e Gas SpAMdAF2iF2i Rete Idrica ItalianaAM.TER. IDRO-TIGULLIO
Vito Gamberale – Local public services: between the public and private domainThe financing of infrastructures: the role of F2iExamples of industries54WATERS− 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 € and 48.5 mil €)may actually double at thecompletion of the assignment.− This operation will develop in threedifferent steps: each will focus onassigning activities in each of thethree provinces. Based on thepolitical opportunities available,both partners decided to start inthe province of Parma (this firststep – currently facing oppositionby the Water System Agency ofthe Emilia Romagna Region –should be completed by December2012).Water network EmiliaRomagna region
Vito Gamberale – Local public services: between the public and private domain55The objectives of F2i’s operations are:− to access a strategically crucial sector in Italy that requiresimportant investments, and bring fresh financial resources todevelop the managed assets− to create a partnership with IREN, the major operator in the utilitysector in Italy. This partnership scored a positive result with theMdA operation and is currently developing further through theaggregation of the IREN Group’s water system assets in the EmiliaRomagna region− use the growth and consolidation opportunities of afragmented sector to create 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.ACQUAThe financing of infrastructures: the role of F2iExamples of industries
Vito Gamberale – Local public services: between the public and private domain56− An example of a new industry, in which F2i could invest, is the wastedisposal management (collection, treatment, disposal and energyrecovery).– The national waste market presents high levels of «pulverisation»: in2011 the nine main operators have managed only 7% of the total volumes:Wastemanagement− On the contrary, the European waste management market – particularly inFrance, Germany and UK – is made of large operators (Veolia, Remondis,Sita Suez, Biffa).The financing of infrastructures: the role of F2iExamples of industriesMain operators on the Italian market – per volumes disposedBusiness 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 1,017600331 208 9001,0002,0003,0004,000Hera A2A AMARomaVeolia Iren Acea APSAcegasWasteItaliaACSM
Vito Gamberale – Local public services: between the public and private domain57− We have reasons to believe that the Italian waste management market will have aconcentration similar to the ones of our neighbouring countries, to overcome itscurrent inefficiency and the constant environmental emergencies that it causes (Naples,Palermo, Lazio, etc.).− Over the past two years, F2i has looked many times for an entry point in this sector,analysing different previous opportunities that were not finalised (HeraAmbiente,Acegas, Marcegaglia Group’s plants).− Currently, the Fund is considering to acquire a significant share of Iren Ambiente(the fifth biggest national operator), which operates in this sector with two WTE plants,one landfill and 16 waste treatment plants.− F2i and Iren would like to promote the company growth to a national level,turning it into a «national champion» that could operate on the market as aleader, together with Hera and A2A (currently the leaders in this sector).− Among the growth opportunities abroad, the most solid projects already focus onestablished entities, still characterised by significant revamping plans and projects forthe development of new sites.− Particularly in Piedmont, IREN and F2i are considering the opportunity tocompete jointly for the management of the TRM, the new WTE plant with acapacity of over 420,000 t/y, which is currently being built in Turin.WastemanagementThe financing of infrastructures: the role of F2iExamples of industries
Vito Gamberale – Local public services: between the public and private domain58Conclusions
Vito Gamberale – Local public services: between the public and private domainConclusions59− The transformation of the local public service management thatbegan during the 90’s is still incomplete.o The local bodies are still the majority shareholders in manycompanies and: have no «fresh resources» to invest in the managed assets are very often forced to use the profits from their subsidiaries to finance theirown expenditures cannot therefore finance the development of new projects.o It explained, in many cases, the local dimension persistency –often even at a municipality level – of the managing companies.It implies: a higher risk of political interference in the management difficulties to guarantee an adequate quality level of the services, because ofoperational inefficiencies and a lack of scale economies inadequate competition on the market, which is becoming more and moreinternational.− In addition, the aggregations accomplished during the 2000’s havecreated multi-service, non-specialised companies which are oftengridlocked by internal contrasts due to local motivations.
Vito Gamberale – Local public services: between the public and private domainConclusions60It is therefore necessary today to actively pursue the aggregationprocess of small local entities and to aim at creating «nationalchampions» specialised in a specific sector, capable of ensuring:o synergies, efficiency and adequate rateso high-quality services and technological developmento management transparencyo the development of existing assets and the creation of newprojectso the development of services also in areas of economicshortcomings (southern Italy).In order to achieve these objectives, it is necessary to apply an«institutional capitalism» pattern that can rely on the necessaryresources to develop infrastructures, finance the creation of big publicsector companies and ensure their management independence.
Vito Gamberale – Local public services: between the public and private domainConclusions61This requires a clear trade-off of roles on behalf of the government,private entities and local bodies:o the government needs to ensure strict timelines and profitable rates, andoversee and regulate a correct market functioning through authoritieso the private sector needs to adopt a long-term overview on infrastructures,bring «new resources» to prevent the burdening of target entities withexcessive debts, and improve the efficiency of management to reduceexpenses, while committing to a significant reinvestment of profitso local bodies need to keep their minority shares in the managing companiesto oversee the quality of the services provided to the citizens.F2i is a clear example of this trade-off model in Italy. A true «publiccompany» that could start an infrastructure network system (able tointeract with each other to push Italy forward) by optimising itsmanagement and controlling its development.
Vito Gamberale – Local public services: between the public and private domain62– The Fund virtually exhausted its resources well before the earliestdeadline of the investment period.– This happened even though F2i operated with extreme caution in orderto avoid hasty operations in a time of great uncertainty and aprogressively worsening global crisis.ConclusionsThis achievement led F2i to launch a new Fund that will allow its workto progress further.F2i wants to take an active role in the evolution of the local publicservice sector, continuing with the same model applied to the gasdistribution, airport and the integrated water cycle sectors.
Vito Gamberale – Local public services: between the public and private domain63− The new Fund will allow F2i to:o reinforce its presence wherever it was already participating(capital injections to support development, acquisitions of newpartners, etc.)o inject new investments in industries already establishedo launch new industries starting from the investment opportunitiesdetermined by Italy’s current economic-financial situation.ConclusionsTo allow the progress of groupcreations, leaders in their ownsector, and to finance thedevelopment of nationalinfrastructures.