1. Watertime Final WorkshopUniversity of Greenwich25 November 2005 Four Italian Cities Emanuele Lobina PSIRU, Business School, University of Greenwich e.lobina@gre.ac.uk The findings are the responsibility of the author and should not be construed as representing the views of the European Commission

2. Watertime Final WorkshopUniversity of Greenwich25 November 2005Summary National Context: legislation and practice National Context: legislation and practice Arezzo: Arezzo: Competitive concession to semi-privatised PLC (operated by MNC) Rome: Rome: Uncompetitive concession to semi-privatised PLC listed on stock exchange (infrastructure not floated) Bologna: Bologna: Uncompetitive concession to semi-privatised PLC listed on stock exchange (with infrastructure) Milan: Milan: BOT contracts and direct award of short term water concession to POE Conclusions Conclusions

3. Watertime Final WorkshopUniversity of Greenwich25 November 2005 The National Context 1994 Galli Law: Water supply and sanitation restructured in broader concession areas (ATO), unique operator subject to regulation. Private sector participation (PSP) not compulsory 1994 Galli Law: Water supply and sanitation restructured in broader concession areas (ATO), unique operator subject to regulation. Private sector participation (PSP) not compulsory Budget laws 2002-2004: Scope for public water operations restricted, subject to conditions as in “Teckal” judgment Budget laws 2002-2004: Scope for public water operations restricted, subject to conditions as in “Teckal” judgment 1990s to date: Growth in PSP but public operations remain large majority 1990s to date: Growth in PSP but public operations remain large majority

4. Watertime Final WorkshopUniversity of Greenwich25 November 2005 Public-private concession in Arezzo 1999: 25-year concession to public-private joint venture Nuove Acque (NA) run by Suez; longest example of application of Galli Law; controversial 1999: 25-year concession to public-private joint venture Nuove Acque (NA) run by Suez; longest example of application of Galli Law; controversial Motivations: Attract large MNC and tap experience; tap project finance; fiscal considerations Motivations: Attract large MNC and tap experience; tap project finance; fiscal considerations Issues: Competition; achievement of intended objectives; efficiency; conflicts regulator vs. operator; trade off pricing vs. investment Issues: Competition; achievement of intended objectives; efficiency; conflicts regulator vs. operator; trade off pricing vs. investment

5. Watertime Final WorkshopUniversity of Greenwich25 November 2005 Public-private concession in Arezzo Conflicts: Arise as regulator probes efficiency and effectiveness of operations Conflicts: Arise as regulator probes efficiency and effectiveness of operations NA’s reaction: Suspension of payment of concession fees; resort to administrative justice; municipalities perceive threat of multi-million compensation NA’s reaction: Suspension of payment of concession fees; resort to administrative justice; municipalities perceive threat of multi-million compensation Outcome: Regulatory pressure ceased; renegotiation favourable to NA (prices increase and investments are postponed) Outcome: Regulatory pressure ceased; renegotiation favourable to NA (prices increase and investments are postponed)

6. Watertime Final WorkshopUniversity of Greenwich25 November 2005 Part-privatisation of Acea in Rome 1992-1998: Restructuring of municipal multi- utility Acea follows investigations on corruption (“Tangentopoli”); Acea finances improve but listed on stock exchange for fiscal reasons 1992-1998: Restructuring of municipal multi- utility Acea follows investigations on corruption (“Tangentopoli”); Acea finances improve but listed on stock exchange for fiscal reasons 1998-2003: Acea becomes small MNC, expands in Italian water market, but telecoms operations fail with losses (change in strategy and back to basics) 1998-2003: Acea becomes small MNC, expands in Italian water market, but telecoms operations fail with losses (change in strategy and back to basics) 2002 to date: Suez becomes Acea shareholder; operational alliance in Italy (water & energy) 2002 to date: Suez becomes Acea shareholder; operational alliance in Italy (water & energy)

7. Watertime Final WorkshopUniversity of Greenwich25 November 2005 Part-privatisation of Acea in Rome 2003: Acea starts water operations in Rome ATO under 30-year (non competitive) concession 2003: Acea starts water operations in Rome ATO under 30-year (non competitive) concession Sustainability: Investment programme not fully covered by tariffs; need for future price increases or public grants Sustainability: Investment programme not fully covered by tariffs; need for future price increases or public grants Concerns: Acea with crucial role in planning (asymmetry of information); future demands of shareholders and sustainability Concerns: Acea with crucial role in planning (asymmetry of information); future demands of shareholders and sustainability

8. Watertime Final WorkshopUniversity of Greenwich25 November 2005 Listing on stock exchange of Bologna’s multi-utility Hera 1984-2002: Restructuring of operations under public ownership; satisfactory quality 1984-2002: Restructuring of operations under public ownership; satisfactory quality 2002 to date: Hera set up after M&As with nearby multi-utilities and listing on stock exchange (including part of infrastructure) 2002 to date: Hera set up after M&As with nearby multi-utilities and listing on stock exchange (including part of infrastructure) Motivations: fiscal considerations and commercial ambitions Motivations: fiscal considerations and commercial ambitions

9. Watertime Final WorkshopUniversity of Greenwich25 November 2005 Listing on stock exchange of Bologna’s multi-utility Hera 2004: 20-year water concession awarded to Hera (non competitive, only mock competition among local enterprises) 2004: 20-year water concession awarded to Hera (non competitive, only mock competition among local enterprises) Investments: Postponed (similar to Arezzo and Rome) and partly funded by public grants Investments: Postponed (similar to Arezzo and Rome) and partly funded by public grants Concerns: Dubious sustainability as resources diverted and not reinvested due to fiscal gains and Hera’s dividend policy; doubts on whether expected efficiency passed on to consumers Concerns: Dubious sustainability as resources diverted and not reinvested due to fiscal gains and Hera’s dividend policy; doubts on whether expected efficiency passed on to consumers

10. Watertime Final WorkshopUniversity of Greenwich25 November 2005 Wastewater treatment BOTs in Milan BOTs: 3 plants (2 large ones); long overdue; delays and EU proceedings BOTs: 3 plants (2 large ones); long overdue; delays and EU proceedings Issues: Competition; corruption; rising costs; MNCs and legal resources Issues: Competition; corruption; rising costs; MNCs and legal resources Outcomes: Two MNCs dominate local market; municipality does not control process Outcomes: Two MNCs dominate local market; municipality does not control process

11. Watertime Final WorkshopUniversity of Greenwich25 November 2005 In-house restructuring of water supply and sewerage in Milan Up to 2003: Direct municipal management with low UFW (10%) but problems with underspend as resources diverted to municipal budget Up to 2003: Direct municipal management with low UFW (10%) but problems with underspend as resources diverted to municipal budget 2003 to date: Direct award of short term concession to municipally-owned plc MM (avoidance of competitive tender to prevent French MNCs’ success) 2003 to date: Direct award of short term concession to municipally-owned plc MM (avoidance of competitive tender to prevent French MNCs’ success) Concerns: MM appears capable to address problems of the past, but mayor considers privatisation for fiscal reasons and commercial ambitions (not sustainability) Concerns: MM appears capable to address problems of the past, but mayor considers privatisation for fiscal reasons and commercial ambitions (not sustainability)

12. Watertime Final WorkshopUniversity of Greenwich25 November 2005Conclusions Principal-agent relationship: Problematic under private operations (control depends on resources of the parties); Problematic under public operations (state autonomy leads to skewed decisions – e.g. fiscal considerations) Principal-agent relationship: Problematic under private operations (control depends on resources of the parties); Problematic under public operations (state autonomy leads to skewed decisions – e.g. fiscal considerations) Decision making and sustainability: Dominance of commercial considerations vs. Potential of commercial discipline (discipline as means to an end, not viceversa) Decision making and sustainability: Dominance of commercial considerations vs. Potential of commercial discipline (discipline as means to an end, not viceversa) Fiscal considerations: Impediment to exploiting full potential of public water operations; Legitimate considerations but more transparency and participation required to adequately address sustainability objectives Fiscal considerations: Impediment to exploiting full potential of public water operations; Legitimate considerations but more transparency and participation required to adequately address sustainability objectives Need for a new organisational culture: Beyond the mere commercial dimension; More oriented towards sustainability through transparency, participation and accountability Need for a new organisational culture: Beyond the mere commercial dimension; More oriented towards sustainability through transparency, participation and accountability