January 21, 2016

FS privatisation - bridging the gap

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THE partial privatisation of Italian State Railways (FS) moved a step closer on November 23, when Council of Ministers granted preliminary approval for the sale of a 40% stake in the company, which is expected to take place this year. However, the resignation of the entire FS board just a few days later came as a reminder that not everyone agrees on how it should be achieved.

The discussion is now largely in political hands after the steering committee of FS was invited by the prime minister Mr Matteo Renzi and minister of finance Mr Pier Carlo Padoan to resign. Despite strong revenue performance, which is attributed primarily to the high-speed market and the success of German subsidiary Netinera, FS CEO Mr Michele Mario Elia and the president Mr Marcello Messori disagreed on the terms of privatisation.

 

Italy STELLINIElia, an experienced railwayman, is against a separation of infrastructure from the holding company. Messori on the other hand argues privatisation will only benefit the state if it is done step-by-step, separating subsidiaries from the holding and rationalising them. He warns that the government could sacrifice revenue in the rush to achieve a quick sale.

Mr Graziano Delrio, minister of infrastructure and transport has said that Italy's rail infrastructure must remain in public ownership to guarantee equal access rights to all operators and ensure adequate public investments for maintenance and development. To achieve this, Delrio wants to split infrastructure manager Italian Railway Network (RFI) from the holding company, which means a significant part of the invested capital in FS will not go into private hands.

While debate on the sale continues to rage, privatisation is already underway in some parts of the business.

Grandistazioni, which is responsible for managing and modernising 14 of Italy's most important stations, is 60%-owned by FS and 40% by Eurostazioni, a consortium of Benetton, Pirelli, Caltagirone, and SNCF. The company is being split into three units - GS Rail, GS Real Estate and GS Retail - and the latter will be privatised. In December FS completed the sale of its electricity grid to Terna, a public company owned by Cassa Depositi e Prestiti, for €757m.

The Transport Commission of the Senate has now begun talks on what other parts of FS should be privatised, and how this might be achieved. The matter will then go to the corresponding commission at the Chamber of Deputies, but there is evidence of political contradictions in the process, which may be ideologically-motivated. The big risk is that the debate may be left to deputies who have little understanding of the complexities of running a railway.

Hopefully the government will seek to focus FS on its railway activities, putting those services which might benefit from competition to the market. These could include long distance trains, freight and logistics, and Busitalia.

Before his departure, Elia had been attempting to improve the efficiency and operations of the freight business, which could be a candidate for privatisation because of its potential profitability. Trenitalia's high-speed and regional business units are the company's most profitable and the sale of stake in this FS subsidiary could interest potential investors.

At present all doors are open, but Italy's politicians have a heavy responsibility in placing part of FS on the market because of its strategic role in the country's economy. A poorly-executed privatisation might yield €4-8bn in short-term revenue but it will ultimately make little impact on a national debt of €2 trillion.

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