Italy Pays for Grandstanding over the Benettons

A day after the Morandi Bridge collapsed in Genoa in August 2018 claiming 43 lives, Giuseppe Conte said he would strip Autostrade per l’Italia SpA of its motorway concessions. Two years later, Italy’s prime minister is making the same noise — but has not yet made up his mind.

The case is a prime example of Conte’s dangerous habit of postponing difficult decisions to hide the divisions within his weak government majority. It is also a warning to investors about the uncertainty of putting their money into a regulated business in Italy at a time of whimsical politics.

The prime minister had three options to deal with the aftermath of the tragedy. He could have stuck to the existing contract, perhaps seeking to renegotiate parts of it by demanding that Autostrade spend more on maintenance. He could have nationalized Autostrade, paying the existing shareholders a fair price for their stakes and allowing for penalties. Finally, he could have revoked the concession, opening a legal fight with the company over possible damages.

Instead, Italy’s prime minister and his government colleagues issued a number of threats, without taking any decision. A change of government — from an alliance between the populist Five Star Movement and the right-wing League, to one between Five Star and the center-left Democrats — did not help. But Conte also failed to take responsibility for the choice, leaving the company, its employees and investors in a seemingly never-ending limbo.

There is no doubt that Autostrade has much explaining to do over what occurred two years ago. It says it always met its obligations under the concession agreement following privatization. But for years, the company could charge relatively high tolls, allowing for a hefty rate of return, and is now proposing multi-billion euros settlements to keep the concession. It appears it could have afforded to spend much more on investment than it did.

What went on in Genoa remains unclear — the painful wait for the conclusion of the investigation continues — but the company clearly needs to show that it took adequate precautions to ensure that the bridge would be safe.

Still, this does not justify the way the last two Italian governments have handled Autostrade and its main shareholder, Atlantia SpA, in which the Benetton family has a 30% stake. Conte sought to show that he was taking the high ground, defending the victims and their families, but then kept bargaining with Atlantia over the concession and other deals — including a possible rescue of Alitalia, Italy’s chronically loss-making flag carrier.

This month, Autostrade made a revised offer for a possible settlement. The proposal includes tariff cuts and extra capital and maintenance spending. Atlantia would also cede control of Autostrade to infrastructure fund F2i and state lender Cassa Depositi e Prestiti SpA while retaining a minority stake. However, Conte rejected this offer, telling newspaper Il Fatto Quotidiano it was “embarrassing” and hinting that the Benettons should fully exit Autostrade. This looks like a vendetta more than a point of principle.

The sorry saga can only make a terrible impression on foreign investors. The Italian government passed a law in February cutting the cost of revoking the concession. The lesson funds will take is that any promises from Italy are not worth the paper they are written on. The European Court of Justice could also have a future look at this decision, as it seems to infringe on property rights and the sanctity of contracts.

Italy’s government is clearly stuck amid difficult options. Autostrade's existing ownership structure is unpopular; leaving it unchanged would make a mockery of the earlier political grandstanding. Nationalizing the business, or revoking the concessions, could be expensive, and could force the Italian state to run these assets amid conspicuous legal and economic uncertainty.

But the cost of these difficulties cannot be Italy’s reputation as a credible investment destination. Conte must take a decision soon — and live with its consequences.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

©2020 Bloomberg L.P.

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