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International Political Science Association 24th World Congress of Political Science July 23-28 – Poznań Panel: State-Owned Companies and the State

Back to State Intervention? Perspectives and Limits: The Role of CDP in Italian Network Industries

DRAFT Marco Di Giulio, Politecnico of Milan marco.digiulio@polimi.it Maria Tullia Galanti, University of Milan maria.galanti@unimi.it

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1. Introduction

While it is not still clear whether the economic downturn that affected European countries after 2008 is definitely over, the agenda for economic policy seems to have undergone an impressive restructuring in the last few years. The large consensus over the necessity to implement state’s retreat and market liberalizations (Schuster et al 2013; Pack and Saggi 2006) is now challenged by a new line of thinking, coming both form the academia and institutional fora, advocating for a new industrial policy (Bailey et al 2015). This paper describes and interprets the Italian industrial policy in local utilities and urban services as a case in point. In particular, it focuses on the attempts pursued by national and local governments to overcome the fragmentation of local providers by fostering the creation of regional champions. During the period considered, several national governments approached the sector with a variety of strategies and instruments, sometimes blended in a non-coherent way. Nonetheless, it is possible to assess that policy makers turned their initial regulative mind-set into a more interventionist strategy, through the revival of ownership-based policy tools, mainly through the development of Cassa Depositi e Prestiti (CDP), a financial body owned by the Treasury with the presence of major private banks as minority shareholders. However, over the years of privatisation and liberalizations, local actors, large municipalities in particular, had developed their own strategies as shareholders of local providers in the utility sector in order to foster ‘regional champions’. Hence, the paper investigates the multi-level dynamics behind these developments, as the utility sector constitute an interesting case in the panorama of contemporary industrial policies in Europe. More generally, the paper aims to contribute to the debate on industrial policy both empirically and theoretically. On the one hand, it provides insights on utilities and urban services, a policy sector that has been often neglected in the academic debate due to the fragmentation of the actors on the floor and of the different regulatory design of the subsectors of utility. While offering an original multi-leveled perspective on the framing of the policy, the paper will explore the evolution of both national and local drivers to industrial policy, by focusing on the evolution of multi-utilities companies in the centre-north of Italy and the role of the State in coordinating a national strategy. Besides, its aims at a giving a theoretical contribution by shedding a light on the different instruments of industrial policy and its multi-level dimension, trying to uncover the conditions under which institutional fragmentation could be neutral to the successful implementation of a national strategy.

2. Reframing Industrial policy in Europe: Institutions, actors and (possible) pitfalls.

Industrial policy has been commonly framed within a developmental policy paradigm, whereby governmental institutions are understood as strategists, directly intervening in the economy to modify the structure of a given

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business, which the market alone is not thought to be able to produce (Hall 1986: 51). In his seminal study on policy paradigms, Peter Hall highlighted how the state normally uses alternative sets of instruments of intervention, as it can allocate financial resources, fix standards and targets, or directly operate in the market (1986: 52). While such an approach has endured in the studies on evolution of the emerging economies of South America and Asia (Evans 1995; Steinfeld 1998; Musacchio and Lazzerini 2014), it is only in recent years that a re-focus on the role of governments as industrial players gained new prominence in the European area (Thatcher 2007; Schmidt 2009; Buigues and Sekkat 2009; Jackson and Deeg 2012; Skidelsky et al 2011; Colli et al. 2013; Bailey et al 2015). Although the neo-liberal policy framework could seem still dominant at the EU level (Schmidt and Thatcher 2013), a change of perspective seems effectively on the rise, fuelled by the EU policy reactions to the financial crisis. Three features have so far altered the policy paradigm of the EU economic policy: i) The recast of Community rules of State’s aids to allow member state to

rescue their financial institutions; ii) A new monetary policy aimed at boosting inflationary trends in the

Eurozone taking over State’s bond from institutional investors; iii) The creation of an institutional framework to finance investments for both

infrastructures If in the last decades the focus on strategic investments has been undermined (Robinson 2009), this new context seems to pave the way for a new paradigm shift toward a more industry-oriented economic policy. In 2008, the Commission traced the guidelines for a demand-oriented economic policy with the European Economic Recovery Plan (European Commission 2008). The programme envisaged the European Investment Bank (EIB) to have a greater role in the economic governance of the European area. Some months later, the EIB in partnership with some of the major European publicly-owned financial institutions such as the French Caisse des dépôts et consignations (CDC), the German Kreditanstalt für Wiederaufbau (KWA), the Italian Cassa depositi e Prestiti (CDP) and the Spanish Istituto de Crédito Oficial (ICO) have established the Long-term investors Club, a network promoting strategic investments in the economy. This pool of actors has recently emerged as privileged arena of the European Commission for the implementation of the Junker’s Investment Strategy1 (Bassanini 2015), aimed at boosting internal demand by means of a 315 bln investment scheme for the improvement of existing infrastructures and the construction of new one. This emerging trend allows a different evaluation of the main economic policy implemented at both the Community and the member-state level. The first 1 “European commission unveils €300bn infrastructure fund to kickstart growth”, The Guardian, 24.11.2014.

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consideration concerns the very nature of EU market integration. Although traditionally considered as a regulative policy (Majone 1997), the implementation of liberalizations in Europe has not been insensible to the development of the industry. As such, the growth of EU business has often prevailed over the enforcement of market competition (Thatcher 2014a, 2014b; Finger 2011), while, in other cases, the latter has been strategically used to create national champions and promote their internationalization (Soda et al 2012; Di Giulio 2016; Di Giulio and Moro 2016). Eventually, this reorientation of EU regulative approach is in tune with the global restructuring of capitalism, which highlighted the rising influence of state owned companies and sovereign financial institutions in the corporate governance of strategic sectors (The Economist 2012; Amighini et al 2013; Victor et al 2012; Musacchio and Lazzarini 2014). A second point is about the sectors affected by the change. Whether or not the Commission would get the financial resources to implement its infrastructural programme, each member state has in the meanwhile activated endogenously interventionist strategies to give strength to their strategic industries (Financial Times 2007). Schemes for the privatization of motorways are currently debated in Britain and Germany, as a solution to meet the need for new investments. France, for its part, continued to held strong stakes in crucial national players in sectors such as Energy, Transportation and Aerospace, and has recently expanded its ownership in the automotive sector, acquiring a 14% stake in the PSA group in 2014.In Italy, the current national government is launching an investment plan to expand the broadband infrastructure and rescue the collapsed steel industry (Affari e Finanza 2015: 1-2). While the new role of the state in boosting industrial re-launch is currently underpinned by a rising strand of academic literature (Mazzucato 2013; Skidelsky 2011), little attention seems to be paid to the issue of feasibility (Majone 1975). A first hurdle is related to the identification of strategic sectors to invest in. Contrary to what happened in the early phases of state intervention, today the identification of what among alternative technological infrastructures will be crucial for the development of contemporary economies is much less clear. Conversely, studies showing the crucial impact of state intervention in the economy, in fact, often focus on very specific fields of activities concerning emerging high-value-added segments (Link and Link 2009). The transfer of such a neo-keynesian paradigm to a wider program of public investments might not go in the very direction of development sectors, as the lobbying of incumbents mostly presents in mature industries might be successful in extracting resources for private purposes. Another problematic issue potentially undermining the effective design and implementation of industrial policy is certainly constituted by the complexity of contemporary governance. If at the beginning of the industrial era it had been easy for the state to identify strategic sectors to invest in and implement

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huge programmes with little or no attention to the preferences of sub-national tiers of government, today the scenario is much more complicated. While a more inclusive decision-making has been considered positively (Cowling 2000; Crouch et al 2003), there is also the risk that a complicated implementation chains might constitute an hurdle for genuine industrial policy (if any). From a public policy research perspective, the problems linked to the multi-level character of implementation in industrial policy can be seen both at the meso-level of analysis, looking for instance at the national regulation of the sector and its evolution over time, and at the micro-level, paying attention to contextualized and actor-centred policy arenas. Thus, our paper aims at describing the instruments and strategies of State intervention in utilities as an example of industrial policy and at exploring the reactions of local actors. As a matter of fact, the tone (cooperative vs conflictual) of the intergovernmental relationship in multi-level governance may influence also the strategic behaviour of local decision-makers in utilities. Moreover, the leadership dynamics inside political parties may shape advocacies coalitions distributed in the three levels of government (national, regional and local, in the Italian case (Di Giulio et al. 2016). The following sections analyse the industrial policy in the sector of local and urban services in Italy as complexity in action. The case is particularly fit to uncover the mechanisms and pitfalls behind contemporary industrial policy, in a sector that is undergoing a major reshuffle in terms of business strategies and regulatory options all over Europe (Financial Times 2011). In fact, the shift from a liberal towards a more interventionist paradigm holds also in Local Public Services as a mature business where strong multi-level dynamics are at play.

The paper adopts a longitudinal analysis of this policy field considering at the same time strategies, instruments and reactions of situated policy actors. The study is based on a wide set of primary sources such as official documents and qualitative interviews with key decision makers, as well as secondary sources and press analysis.

3. Italian Public utilities : privatization, liberalization and their limits This section describes the strategies adopted by the Italian national government to cope with the industrialization of public utilities. The analysis covers a time-span of two decades, from the mid-1990s, when the sector’s reform started, up until today. In particular, it draws attention on the alternation of two distinct policy paradigms by which national policy makers have framed the policy. At first, the industrialization of local utilities was understood as one of the main goals behind a large-scale programme of privatizations and liberalization. More specifically, in the late 1990s, three centre-left cabinets championed such a programme. As time passed by and several shortcomings have occurred, decision makers started to change their mind and gradually adopted a more interventionist mindset. Such a change,

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initially prompted by the right wing coalition after 2003, seems to constitute now a stable frame for industrial policy in the network industries and in utilities in particular. 3.1 Industrialization by steering at distance (1990-2003) Since the Giolitti law in 1903, municipal enterprises were considered as the basis of the municipal capitalism and as a sign of autonomy of local authorities from the central state (despite some form of strong oversight from the national government) (Sapelli 2006). Indeed, Municipal enterprises or “aziende municipalizzate” were strongly linked and dependent on municipal governments, and were used by Socialists and Catholics local notables to foster urbanisation before the WWI and industrialisation after WWII in the main urban areas of the peninsula, especially in the case of the energetic municipal enterprises (Baraggioli 2012). Nonetheless in the Nineties, the lack of efficiency and uniformity in Local Public Services (LPS) and the long-lasting mismanagement of municipal enterprises as direct managers of the services (Merusi 1990) suggested a first reform of LPS, aimed at intervening on the organizational form of service operators. By introducing the possibility to transform municipal public enterprises into more private-like organizations, the law 142/1990 aimed at separating local politics from service management. So, corporatisation, namely the transformation of public enterprises into private companies with distinct capital and structures (Thynne 1998), turned local governments into shareholders of companies under the civil code and opened the way to more substantial privatisation of local service operators through their transformation into Joint stock companies, and, later on, the listing of main utility companies in the stock market (Citroni 2007, 127; Citroni, Lippi, Profeti 2012, 43-46). Local executives and mayors in particular acquired a crucial role in this process after the 1993 reforms of local governments that empowered them vis à vis the council (Citroni and Di Giulio 2014). A decisive push towards corporatisation and privatisation then came after the introduction of sector reforms in LPS. The water reform introduced with the s.c. Galli law in 1994 (n. 36) introduced the design as a reference also for other “local” public services, such as waste and local public transports in particular. The reform was inspired by the emergency in the water management system. Unsustainable economic balances, inefficient management and the extreme fragmentation of local water operators were widely judged as the main diseases in the industry (Carrozza 2008, 10; Massarutto 2011, Massarutto and Ermano 2013). Hence, the reform design aimed at the introduction of regulation and at the industrialisation of the service operators, in a general framework of retreat of the State from direct management (Citroni, Lippi and Profeti 2012, 26-27). Most importantly for industrial policies, industrialisation was seen as the way to overcome the fragmentation of service operators and to attract resources for investments (Galanti and Moro 2014). In the original design, industrialisation would spread from a new system of financing (full cost

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recovery of service and remuneration of investments though tariffs), from corporatisation, privatisation, growth in size and finally listing on the stock markets of the utility and multi-utility companies heirs of the former “aziende municipalizzate” (Lippi et al. 2008). Hence, the industrialisation of local utilities, along with the passage from direct management to regulation, became the main goal of LPS reforms. Indeed, this design was sustained by an explicit theory of change that was widespread in the centre-left coalition, and in particular at the head of government (Romano Prodi, Prime Minister since 1996, but also Pierluigi Bersani and Enrico Letta as Ministers of Economic Development). This theory predicted the opening of markets in public services, the shift towards a Regulatory kind of State (Majone 1997) as a way to both bring efficiency and industrialise local utilities, making them grow in size and expertise, especially to resist the appetites of European champions and multi-nationals (Interview 1; interview 2). After these first reforms, mayors and top managers of the local utilities themselves reacted to the new environment by taking advantage of the opportunities that the new legislation offered. The more entrepreneurial cities and utilities played then a pro-active role in the successive liberalisations of the production and the commercialisation of electricity (in 1999) and of the supply and sell of gas (2000). In particular, the energetic former “municipalizzate” of Milan, Turin, Genoa, Brescia, Bologna and Rome participated with national and international champions (such as EDF, E.ON) and private investors (such as FIAT and De Benedetti) to the sell of energetics plants from ENEL, starting in 1999. In those same years, both medium and small multi-utilities in water, waste and other local services started to merge, in order to cope with the possible opening of local markets, due to the national legislator’s attempts to introduce compulsory tendering for the awarding of concessions. 3.2 Back to state intervention (2003-2015); the new CDP. Between 2003 and 2004, while the implementation of regulative reforms was gradually accumulating hurdles and shortcomings, the government led by Silvio Berlusconi enacted two reforms introducing the possibility for the state to play a more active and direct role in steering the restructuring of national industry in several sectors. The market oriented imprinting that the past government gave to LPS franchising policy has been suddenly revised, with the reintroduction of “in house” provision, in September 2003 (Lippi et al. 2008, 626). Such a policy change was part of a larger protectionist strategy, started as a reaction to the financial crisis occurred to Parmalat, the leading player in dairy and food, later taken over by the French competitor Lactalis. Under this circumstance, the s.c. Marzano Law, a new regulation for the management of industrial crisis, was enacted. This allowed the government special powers in the restructuring of major corporations. In the same period of time, the finance minister Giulio Tremonti arranges a major reform of the Cassa Depositi e Prestiti (CDP), a financial body managing postal savings which had

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traditionally backed state liabilities and financed local governments investments. The reform transformed CDP into a limited company controlled by the Treasury, with bank foundations, which acquired a 20% stake. Since that moment on, CDP started to gain relevant statutory autonomy, which include the possibility for the body to pursue private equity operations. The idea behind such a reform was that the national economy would have required a long-term investment player to be competitive with countries such as Germany or France, already equipped to sustain their national industries (De Cecco and Toniolo 2014). Such a re-organization has immediately reintroduced the debate on the limit of state intervention. In fact, CDP has been several times compared to IRI, the state-owned conglomerate which dominated Italian industrial scenario from 1933 to 2000 (Artoni 2014; Barca and Trento 2010), somewhat depicting at least in the public debate, the icon of state failure. Coherently, an intense political struggle has soon taken place over the CDP scope as investor. In 2007 in fact, CDP statutes has been emended in order to restrict its scope only to “financially sustainable“ projects. Nonetheless, in 2011 relevant exceptions have been allowed in order to protect companies and sectors of “national interest”. Two years later, CDP has been allowed to support the financial system in order to boost the mortgage market, while in 2014 CDP enlarged its scope over corporate finance (Tab 1). Despite the business-orientation seems to be to date disputable, a significant difference from IRI is constituted by the fact that CDP does not directly deploy public resources, as its assets are mainly postal savings (Financial Times 2012)2. Tab 1. Evolution of CDP organizational scope

Year Target Profit orientation

Governmental organization and enterprises

Financial Sector

Corporate (private)

Limits to non performing projects

2003 Yes No No Not defined

2007 Yes No No High

2011 Yes Yes No Low

2013 Yes Yes No Low

2014 Yes Yes Yes Low

Source: Decreto legislativo n. 269/2003 and emendements.

2 The impact of this interventionist turn spread out only as the financial crisis started to spread its effects. In 2008, the Marzano law has been emended allowing government to manage industrial crisis also in the cases of corporations providing public services, which were initially ruled out by the regulation. Such a further enlargement of state powers in steering industrial recovery has been once again promoted by the right-wing coalition. In fact, back in power after two years of centre-left government, Silvio Berlusconi’s first claim was to stop the privatization of Alitalia, since the government led by Romano Prodi had convinced Air France to take over the national company with its huge burden of liabilities.

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All in all, CDP effectively started to deploy its assets in real economies. Two trajectories seems to emerge here. On the one side, CDP contributed to create funds, acting as development banks; on the other, it took over some of the more important Italian state enterprises. More specifically, CDP activated five investment funds (Tab 2), each with specific mission and different partners, both public and private. The focus on infrastructure is clear as four out of five funds are dedicated to this target. The most important actor, in this sense is probably F2i. Set up in 2007, F2i institutionalizes the partnership with the most important Italian private investor, Intesa San Paolo and Unicredit. So far, the fund entered in a variety of business within the network industries (Tab 3). To this respect, two different features deserve attention. First, F2i is collecting ownership rights in sectors which have been formerly dominated by IRI, such as Airports, Motorways and TLC, and have been massively privatised in the 1990s. Second, as far as F2i enters the market of public utilities it is facing a variety of business partners. The Italian market, in this sense, reveal a strong presence of local public actors, such as major cities in the governance of airports, and municipal companies such as IREN (Turin) in water and waste management. Tab. 2. CDP Investment funds

Investment Fund

Year Scope Partners

F2i 2007 Investments for infrastructures in Italy

Intesa San Paolo; Uncredit; Other financial players.

Inframed 2008 Urban, transport and energy infrastructures in the Mediterranean area.

CDC; EIB; Public investment banks of Marocco and Egypt.

CDP Investimenti SGR

2009 Social housing Associations of Italian banks (ABI) and savings banks (ACRI)

Marguerite Fund

2009 Investments for sustainable infrastructures

CDC; KfW; EIB; ICO; PKO

FSI 2012 Financial support for the internationalization of Italian SME

Bank of Italy

Source: Institutional web sites, 2015.

The case of Metroweb is, on the contrary, a case in which CDP substituted a local corporation. The company was founded in 1997 by AEM, the utility company owned by the City of Milan, to develop a dark-fiber network in that urban area and dismissed in 2006 to an investment fund. In 2011, CDP took over Metroweb through both F2i and FSI, to implement the extension of the programme to other major cities such as Genoa, Turin and Bologna.

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Also CDP investimenti SGR is based on a partnership between CDP and the national banking sector and it is aimed at developing social housing programmes. Inframed and the Maguerite Fund, instead have a more international focus and a different configuration of actors. The first is in fact oriented to develop strategic infrastructure in the Mediterranean bordering countries. To this respect CDP, CDC and EIB engaged a structured public-public partnership with development banks of Morocco and Egypt. A similar corporate governance is at the basis of the Marguerite fund, were CDP participates with public investors of France, Germany, Spain and Poland to sustain projects in the field of sustainable infrastructures, such as renewable energy plants and so on. CDP Involvement in utilities has been implemented also by direct ownership. Although both decision makers and academics have since long time claimed that CDP should assume a strategic role in the governance of networks, granting both public control and a business-oriented management culture, the very process by which the body entered in the sector reveals a more erratic attitude. Three major operations has been so far concluded. In 2005, CDP took over Terna, the manager of the Italian Electricity grid, from the state-owned Enel. In 2011-12, a similar shift occurred in the gas market, as CDP participated to the deconsolidation of TAG and SNAM from ENI. Tab. 3. F2i Portfolio

Company Domain Year of investment

CDP share (%)

Main partner

Alerion Renewables 2008 15,7 MPS ALLIANZ Other private

2i Rete Gas Gas distribution 2009 72,0 ARDIAN

HFV Renewables 2009 49,8 Private (International)

Infracis Motorways 2009 26,0 Private (National)

GESAC Airports 2010 70,0 City of Neaple

Mediterranea delle Acque

Water management

2010 40,0 IREN

Metroweb TLC (Broadband) 2011 53,8 FSI

SEA Airports 2011 44,3 City of Milan

TRM Waste management

2012 60,0 IREN

SAGAT Airports 2013 54,5 Intesa San Paolo City of Turin

SIA Services for infrastructure management

2014 10,3 FSI

Source: Institutional web sites and balance sheets, 2015.

More than a whole strategy to steer network industries, the expansion of CDP toward regulated industries seems so far to be driven by the alignment of several interests within the Italian public and private capitalism. First of all,

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CDP acquisitions of SOEs previously held by the Treasury contributed to relief state balance in a moment of acute stress such as 2011-12. Second, the ownership of Terna and Snam such as other regulated industries have granted a high and stable return in terms of both profits and dividends, which have been particularly remunerative for its private minority shareholders3 (Battilossi 2014). A third rationale behind CDP acquisition in network industries has to do with the compliance with EU constraints concerning the independence of networks’ management. The emerging role of CDP, in this sense, attenuates the conflict of interest the government had until it held the control of vertically integrated national champions such as ENI and ENEL. All in all, although different from IRI in terms of both structure and strategies, there is no doubt that the rise of CDP as an active player in industrial policy marks a revitalization of state capitalism in Italy. Despite privatizations have been kept as strategic goals for national governments, the two cabinets which faced the financial crisis, chaired respectively by Mario Monti and Enrico Letta, and the current one led by Matteo Renzi have so far implemented a re-organization of public economy, not a retreat. Next section describes the evolution of Italian public utilities by focusing on the strategic management of the main municipal corporations. The role of CDP in the current governance of utilities emerged as highly problematic because it has to cope with actors whose strategies and goals might diverge from those of the state owned financial body. Moreover, CDP’s commitment to this market seems to be dependent on the preferences of national and local elites and their changing coalitions.

4. Managing industrial policy in the Utility sector. As remarked, LPS is a sector where the intervention of the public hand has been particularly present. The introduction of privatisation and regulation, though uncertain and scattered in the different sub-sectors of waste, water and transports, continuously modified the strategic options for shareholders, either public or private, for the top management of utilities. Hence, the process of industrialisation in the utility sector can be seen as the result of the continuous interplay between local governments, as shareholders, and national executives, as decision-makers, and national agencies, as institutional investors with certain degree of autonomy. In this interplay, the different actors resist or chase each other. If we focus on the frontrunners of the reforms in LPS in the centre-north of the country, we may see that these relationship change through time, according to the prevalent attitude of national actors towards the sector and according to the configuration of actors in multi-level partisan politics. As a matter of fact, the intervention of the State in this sector presents different phases. In a first moment, the State decides to create windows of 3 “CdP batte I bilanci delle banche ai soci dividend per un milardo”, La Repubblica 21.03.2013, p. 28.

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opportunity for market building by changing the rule of the game in LPS and acting as supervisor (not a very attentive one, indeed) of the implementation of the new regulatory design. In fact, after the push towards privatisations, the State steered at distance regions and local authorities implementing the marketization of LPS, in the hope that this process would led local governments to merge their multi-utilities. This attitude slightly changes after 2003, when the State comes back in other sectors, as described in the previous sections, and seems more concerned in (awkwardly) building a market for local utilities than directly intervening in the game of the mergers at regional level. At the same time, local politicians actually play the game of the restructuring of local utilities, with personal traits and entrepreneurialism, more than partisan alignment, to determine the success or the failures of M&A operations. Later on, the onset of the economic crisis and the prospect of a return to the season of tenders, especially in water, waste and LPT, hits local governments in particular. Hence, the attitude of local actors towards the national government changes, especially thanks to the activism of mayors of national standing, as we will see. At the same time, the State seems to abandon the legislative instrument and to act as a broker and a facilitator in critical situations in the difficult dialogue among the main utilities. Starting from 2012, the State pushes this new interventionist attitude forward, playing apparently as a “Dr Jekyll and Mr Hyde”. On one hand, the Monti, the Letta and the Renzi governments put the “plethora” of “small and inefficient” municipal companies at gunpoint, approving specific regulations that limit the members and wages of BODs and punish local shareholders in case of mismanagement of their utilities. On the other hand, this attack favours the four front-runners in the panorama of local utilities, namely A2A (Milan and Brescia), ACEA (Rome), HERA (Bologna) and IREN (Turin, Genoa and Reggio Emilia) 4, who are excluded from some measures as listed in the stock market (Bussu and Galanti 2015). Moreover, the State through CDP declares the sector a target for industrial policy and approves growing investments. In particular, institutional investors (FSI, F2i) activates towards the Municipal panorama to provide capital for direct acquisitions (in the networks and in infrastructures) and to support the four front-runners in nearby acquisitions. Two different attitudes of the State towards the utility sector emerged. In the first the State had been a “spectator”, who trusted in the power of regulatory incentives aimed at industrializing the sector. Such a phase lasted until the beginning of the economic downturn. Thereafter, national governments started to adopt more interventionist approach. Here the State played the role of “broker” and “entrepreneur”, as it has alternated regulatory and ownership-based policy tools. The cases of the success and of the failures of M&A operations of A2A, ACEA, HERA and IREN, the main four Italian multi-utilities, can be discussed here to single out the different reaction of local actors to the industrial policy design and to detect some common patterns in this multi-level dynamic. In this

4 Municipalities who are dominant or main public shareholders are in brackets.

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sense, each phase presents a distinctive framing of the goals of industrial policies for local utilities: the creation of regional champions between 1999 and 20105; the “larger multi-utility of the North” from 2010 to 20156. Tab.4 – The local frontrunners in the utility sector in Italy.

Name

Ownership structure in 2012

A2A SpA Municipality of Milan: 27.50%; Municipality of Brescia:

27.50%; Carlo Tassara: 2.50%; ALPIQ Holding: 5.00%; Others

< 2%: 37.60%

History: A2A is a multi-utility specialized in the energy and waste sector. It was

created by the merger of ASM Spa, a utility in the waste and energy production

sector owned by the municipality of Brescia, with AEM Spa, the multi-utility

controlled by the municipality of Milan, in January 2008.

ACEA SpA Municipality of Rome: 51.00%; GDF Suez: 11.52%; Gruppo

Caltagirone: 16.40%; Others < 2%: 21.08%

History: ACEA was born as a municipal company in 1909. After the merger of Suez

and Gaz De France in 2008, GDF-Suez maintained its stock of shares but at the

same time decided to end the joint venture with Electrabel for management of

the electric plants in 2010-2011.

IREN SpA Finanziaria Sviluppo Utilities (owned by Municipalities of

Turin and Genova): 35.96%; Municipality of Parma: 6.60%;

Municipality of Reggio Emilia: 8.38%; Fondazione Cassa di

Risparmio di Torino: 2.51%; Intesa Sanpaolo Spa: 2.97%;

Others< 2%: 43.58%

History: IREN was constituted in July 2010 after the merger of IRIDE spa and ENIA

spa. IRIDE spa was the multi-utility born in 2006 from the merger of AEMT spa

(specialized in energy production; mainly owned by the municipality of Turin) and

AMGA spa (specialized in water provision and owned by the municipality of

Genoa). ENIA spa specialized in the water and waste sectors, and was created

through a series of mergers of APSA spa (the multi-uility owned by the

municipality of Parma) and TESA spa (waste, owned by the municipality of

Piacenza) in AGAC spa (gas and water, municipality of Reggio Emilia).

HERA SpA Municipality of Bologna 13.7%; Municipality of Rimini 2.2%;

Municipality of Cesena 2.1%; Municipality of Ferrara 0.6%;

HSST S.p.A. 12.5%; Con. Ami 8.8%; Ravenna Holding 7.8%;

Holding Ferrara Servizi S.r.l. 2.2%; Livia Tellus Governance

S.p.A. 2.0%; Other Municipalities 8.9%; Others 39.2%

History: HERA was constituted as a joint stock company in 2002 from the merger

of SEABO spa owned by the municipality of Bologna and 11 other utilities of

municipalities. The mergers with Agea spa (owned by the municipality of Ferrara)

and Meta spa (owned by the municipality of Modena) occurred in 2004 and 2005.

In July 2008 HERA acquired Megas trade (energy and gas) and in 2013 it merged

5 “Le vie di HERA al superpolo”, Il Sole 24 Ore, 30.07.2006. 6 “Multiutility: Fassino lancia la fase due”, La Repubblica, 24.02.2012; “IREN apre al risiko delle utility. Piano di acquisizioni mirate”, Il Sole 24 Ore, 19.6.2014.

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with Acegas-Aps spa (energy, gas and waste).

4.1 Creating regional champions: bottom-up attempts (1999-2010) Starting from 1996, Prime Minister Romano Prodi publicly sustained the design to boost industrialisation by imitating the model of the German RWE, the energetic company resulting from the merger of several Staadtwerken playing as a prominent actor in international markets. This project was initially translated from both centre-left and centre-right mayors into different models of privatisations (Bianco Mele e Sestito 2010), mostly oriented towards dimensional expansion via M&A operations. HERA is considered the model for a “geographically ordinated” expansion (Interview 3). The multi-utility was born in 2002 after a complicated merger of fourteen former municipal multi-utilities, eradicated in the city and in the province of Bologna, and extended also in Romagna and towards the Adriatic Sea (Imola, Ravenna, Forlí and Rimini). HERA continued to expand by acquiring the multi-utilities AGEA (Ferrara) in 2004, META (Modena) in 2005, GEAT DISTRIBUTION GAS (Riccione) in 2006. In that same year, HERA acquired majority shares in ASPES, a multi-utility in the Marche Region, and initiated a negotiation to possibly merge with the Roman ACEA, though showing to share the national orientation toward a larger operation, as in the word of its top manager: “After a four year growth and aggregation, though weakly favoured from a legislative point of view in the end, (…) at least five territorial poles have emerged: the Lombard, the Piedmont-Liguria, the Triveneto, the Roman and the Emilia-Romagna one indeed” 7.

Also Milan’s AEM and Brescia’s ASM – both manly focused on energy –merged pursuing a strategy of horizontal expansion in their territories. The 2008 merge can be considered a case of success, again driven both industrial and political motivations. The mayor of Brescia and the top managers of the AEM Milan considered it as a first step towards: “an industrial federalism of the North, following the RWE model (…) to build a federative structure to assemble all the municipal companies of the north, to product and commercialise electricity and gas, to play worldwide too” (Interview 1).

Quite on the contrary, Turin aimed at developing each utility subsector separately, thus avoiding at first a multi-utility model and corporatizing different companies for energy (AEMT), waste (AMIAT) and water (SMAT).

7 “Le vie di HERA al superpolo”, Il Sole 24 Ore, 30.07.2006.

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Thus, to strengthen in the energy sector, AEMT acquired the water and gas company of the Municipality of Genoa, AMGA: the creation of IRIDE as the result of the Piedmont-Liguria merge resulted in 2006 also thanks to the closeness of the mayors of Turin, Sergio Chiamparino, and Genoa, Giuseppe Pericu. The alliance was based on a “similar vision over the development of their cities”, more than on belonging to the Democratic Party (interview 4). Another attempt was made to aggregate three of them, namely IRIDE, HERA and ENIA8. In 2007-2008, the negotiations among the top managers of the three utilities were in progress with the favour of the mayors representing the main shareholders (Turin, Genoa and Reggio Emilia in particular). The final agreement was not reached because HERA proposed its model of integrated corporate governance, perceived as an unbearable attempt of “colonization” by ENIA and Genoa (Interview 5). So HERA step back and IRIDE and ENIA remained in the negotiation that brought in 2010, after almost three years of quarrelling between the mayors of Turin and Genoa on the by law and the corporate governance, to the merger of ENIA in IRIDE into the new IREN. Indeed, the creation of regional champion got more and more difficult with the passing of time, as “mergers are not easy stuffs” and “incorporated companies always want to maintain their autonomy” (Interview 1). A further strategy s that followed by ACEA, which decided to build an alliance with international partner such as Suez to expand its activities in the domestic market. In particular the company extended its domain in the energy sector and participated in several tenders in water in Centre and South Italy (Citroni 2007). Nonetheless, between 2006 and 2007 the Roman utility was also involved in a formal negotiation around the possibility to merge with HERA. Interestingly, the withdrawn of ACEA from the negotiation got clear after the alternation at the Municipal government in 2008, when a centre-left, Roman committed mayor, Gianni Alemanno, was elected (Interview 6). 4.2 Creating regional champions: a national strategy? (2010-2015) The federative drive re-emerged in 2010-2011 after the negotiations with the French partners, and EDF in particular, over the control of the energetic EDISON and EDIPOWER, that A2A and IREN partly controlled. In this case, the national government directly intervened. After the June referendum against the privatisation of water and the re-introduction of the nuclear power, in summer 2011, the Ministry of Economy Giulio Tremonti stopped the negotiations on the basis of the defence of the national interest. An agreement was reached in December 2011 with the new government Monti and the Ministry of Economic Development Corrado Passera9, whereby the

8 ENIA is the outcome of the 2005 merge of three Emilia multi-utility in the wealthy Reggio Emilia, Parma and Piacenza. 9 During the 1980s and the 1990s, Corrado Passera advanced his career as a manager in the private sector. In 1998 was appointed CEO of Poste Italiane by the government led by Romano Prodi to promote the corporatization of the group. In 2002, he come back to the private sector, becoming CEO of Intesa San Paolo, one of the leading financial institution of

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French partners maintained the control of EDISON and A2A and IREN (through DELMI) controlled EDIPOWER. For a prominent politician such as the new mayor of Turin, Piero Fassino10, EDIPOWER was the vehicle to catalyse the project of the “large multi-utility of the North” that would aggregate IREN, HERA and A2A, sponsored also by Passera at the national level. In the words of Fassino, such a large aggregation was “a strategic design of industrial policy”11. The aggregation was also aimed at avoiding the risk “to be plunder of French, English and German companies, who already merged and are now much larger than we are”12. Moreover, in 2012, HERA autonomously started the negotiations for a merge with ACEGAS-APS (controlled by the Municipalities of Padua and Trieste), after the attempts to aggregate with the nearest but (politically and managerially) hostile ASCOPIAVE and VERITAS from Veneto.

The project of the large multiutility of Passera had a stop with the exit of IREN from the capital of EDIPOWER, in January 2013. In this very phase, however a parallel emerging strategy seems to emerge. More specifically CDP and the political and economical elites of Piemonte strengthened their partnership, already established in 2010 with the acquisition of Mediterranea delle acque, that manages water services in Genoa, in partnership with IREN (Fig. 2). The mayor of Turin, Piero Fassino emerged in this phase as the most active player in the restructuring of the industry. He explicitly asked for the financial help another institutional player, the Cassa Depositi e Prestiti (CDP) with its subsidiaries Fondo Strategico Italiano (FSI) and F2i (interview 2), thus expecting the shift of the State from a brokerage to a more active role in industrialisation of LPS. In November 2013, the government reshuffled CDP governance, appointing Piero Fassino, the president of the Province of Turin, Antonio Saitta, and the Lombardy’s finance minister Massimo Garavaglia in the board of directos13. Contextually, F2i became the main partner of IREN in the tender for the control of the 80% of the waste disposal plant of Turin (TRM spa), closed in September 2013. FSI decided to invest one billion of Euro to acquire minority shares with governance powers in utilities, bringing new capital to support the aggregations14. The same year, CDP also became partner of the City of Turin, taking over the 54% stake of the city airport (tab 2).

the country. San Paolo emerged as one of the main private investors in network industries and is currently partner of CDP. In 2008, Passera played a key role in the Alitalia affaire, since Intesa led a coalition of national investors which helped the Berlusconi government to challenge the Air France offer. 10 Pero Fassino was the former national secretary of the PD, new mayor of Turin. Currently is the President of ANCI, the association of the Italian Municipality protagonist of intergovernmental relations and member of the CDP board of directors. 11 “Multiutility: Fassino lancia la fase due”, La Repubblica 24.02.2012. 12 “Multiutility, shopping con IREN se non ci saranno aggregazioni”, la Repubblica, 23.3.2012. 13 CDP, Press release 58/2013. 14 “Il risiko delle multiutility con FSI e F2I”, Il Sole 24 Ore, 3.01.2013.

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A similar alliance was about to be developed also with HERA. In fact, FSI had already concluded an agreement with HERA in autumn 2012 to enter in the capital after the conclusion of the merge with ACEGAS-APS. The initial agreement was to enter with 7,3 mln of euros (corresponding to 0,382% of the total shares) and to eventually grow in the capital up to a 6% of the shares, with 100 mln of liquidity. FSI actually entered in HERA after the merger in November 2013, but it dismissed the shares right after may 2014. The reasons for such a dismissal are not clear; still, early in November 2013, HERA’s management was clear about the fact that the entrance of FSI was functional to a strategic interest of the Ministry in industrialisation of the utility sector, because: “the entrance if FSI was not our necessity. Instead, they came to us first, saying that we were the excellence in consolidation, so they wanted to join us” (Interview 3).

The project of aggregation experienced another phases with the Minister Zanonato (PD) and again the mayor Fassino in promoting a meeting with him and the managers of the four utilities in September and October 201315. In the medium run, CDP would have favoured wider aggregations, but other incentives where needed for Municipalities to dilute their control. Such incentives depended on the position of the Ministry of Economy and Finance (MEF) on the Internal Stability Pact (interview 2). Then, the strategies of local and national actors changed again with the Renzi government, who aimed at diminishing the number of local companies sharply. In fact, the 2015 law of stability introduced most of the incentives to dismissal Fassino was pledging for, and invited de facto the listed utilities to act as “aggregation points” for mergers in the sector. Therefore, starting in summer 2014, the mayors and the managers seems to have forgiven the project of the larger merger among the listed utilities, and to promote the idea that HERA, IREN, A2A and ACEA should act separately to aggregate small and medium utilities in the nearby16. The “larger design is not in the agenda now”17 according to the President of IREN Francesco Profumo, former Minister of Education in the Monti Government indeed.

5. Discussion and directions The paper described the evolution of Italian industrial policy in the field of local services provision, focusing in particular on its multi-level dynamics. It both looked at the transformation of the national regulative framework and the evolving strategies of the industry at the local level.

15 “Un piano per il risiko delle ex municipalizzate”, Il Sole 24 Ore, 15.10.2013. 16 “ACEA, Irace: tra 2015-2016 scenario per aggregazioni”, Quindici – Federutility, anno 16, n. 9, Maggio. 17 “Le Municipalizzate rompono l’ultimo tabú, dall’Emilia a Milano i comuni sotto il 50%”, La Repubblica, 6.05.2015.

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The first observable change in this field concerns the role of the national government, whose strategy for industrializing the sector underwent a neat change toward direct intervention. Nonetheless, state intervention seems so far to have achieved little results. More specifically, the pre-existent attempts pursued by major utilities companies to increase their scale seems in fact not consistent with the logic of expansion of CDP in the sector. CDP’s investment fund F2i has effectively developed strong relationships with utilities companies in the country and in particular in the area of Turin, while in other regions underwent major steps back, despite attempts have been made to establish alliances and joint-ventures. The narrative suggests a combination of factors that could account for such an outcome. The choice not to expand local utilities horizontally, pursues by the City of Turin in the early 2000s, could be one of the reasons behind its pursuit of CDP as a strategic partner. Moreover, this collaboration has been also endorsed by the former national government, as it appointed both the Mayor and the President of the province of Turin in CDP board of directors. Conversely, companies such as HERA and A2A, despite negotiations with CDP for equity-based partnerships have been arranged, they all failed. In the case of HERA is of particular interest, because the local companies manifest little interest in the financial support of the national institution. More generally, the paper emphasized the highly problematic role of multi-level governance in the implementation of industrial policy. To this respect, the role and the governance structure of CDP emerges as an issue of particular interest, which deserve further analysis and reflections. If, on the one side, the institution has been designed as (and is supposed to pursue the role of) industrial strategist, on the other it seems so far captured by both its shareholders and shareholders. In fact, national governments proved to have instable preferences about what sectors are to be considered strategic. While the former executive led and Enrico Letta was committed to invest in utilities to promote aggregation, and accordingly modified CDP’s governance, the current government has a different perception of the national interest and is currently oriented to completely replace the board of directors trying to build a coalition to support investment in sectors such as TLC and steel industry18. Such are-orientation, in turn, ingenerates a conflict with CDP minority shareholders – mainly private financial institutions – which aim to maintain CDP portfolio mainly focused on remunerative and low-risk investments such as the national network industries19. List of interviews Interview 1: former mayor of Brescia, representative in A2A Interview 2: mayor of Turin, representative in IREN, AMIAT and SMAT.

18 “Consiglio della Cassa depositi, si cambia”, Corriere della Sera, June 17 2015, p. 11. 19 “La priorità è far crescere il paese ma CDP non diventi una nuova IRI” (The priority is to make the country grow but CDP should not became the new IRI, our traslation), Interview with Giuseppe Guzzetti (representative of CDP minority shareholders), Corriere della Sera, June 14, 2015.

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