1. 1 THE ROLE AND TASKS OF THE DIFFERENT AGENCIES INVOLVED IN REGULATION AND SUPERVISION OF SOEs. THE ITALIAN EXPERIENCE Presentation by Roberto Ulissi, Director General, Ministry of Economy and Finance, Head of Directorate “Bank and Financial System. Legal Affairs”

2. 2 The SOEs in Italy Large privatization program in Italy, started in 1993 Large privatization program in Italy, started in 1993 Present situation: still many SOEs Present situation: still many SOEs 26 directly owned; some are 100% controlled26 directly owned; some are 100% controlled large groups: many indirect shareholdingslarge groups: many indirect shareholdings diversified sectorsdiversified sectors listed and non-listedlisted and non-listed

3. 3 ENTITIES INVOLVED IN REGULATION AND SUPERVISION OF SOEs Ministry of Economy and Finance Ministry of Economy and Finance Other Ministries Other Ministries National Commission for Corporations and Stock Exchange (CONSOB, the Securities and Financial Market Regulator) National Commission for Corporations and Stock Exchange (CONSOB, the Securities and Financial Market Regulator) Other Independent Authorities Other Independent Authorities Stock Exchange Operator Stock Exchange Operator Court of Auditors Court of Auditors Parliament Parliament

4. 4 Ministry of Economy and Finance Two separate roles: Owner Owner Shareholder Shareholder Two levels of responsibility: Minister: guidelines and political decisions Minister: guidelines and political decisions Officers: proposals, implementation of political decisions, administrative and contractual activity Officers: proposals, implementation of political decisions, administrative and contractual activity

5. 5 … The Ministry of Economy as owner MEF is only the formal owner; it is not free to sell shares MEF is only the formal owner; it is not free to sell shares Some limited exceptions to MEF ownership exist Some limited exceptions to MEF ownership exist Decision to sell and how (political decision): Decision to sell and how (political decision): In general: Prime Minister on a proposal by the Minister of Economy and the Minister of Productive ActivitiesIn general: Prime Minister on a proposal by the Minister of Economy and the Minister of Productive Activities Only for minor shareholdings: the Minister of Economy aloneOnly for minor shareholdings: the Minister of Economy alone Exception for national broadcasting company (RAI): CIPE resolution (Interministerial Committee for Economic Planning); comprehensive resolutionException for national broadcasting company (RAI): CIPE resolution (Interministerial Committee for Economic Planning); comprehensive resolution Implementation of sale: the Ministry of Economy alone (officer level) Implementation of sale: the Ministry of Economy alone (officer level) Permanent assistance of an Advisory and Transparency Committee, appointed by Government Permanent assistance of an Advisory and Transparency Committee, appointed by Government

6. 6 …The Ministry of Economy as shareholder Exercise of rights (political level): Exercise of rights (political level): in major companies: Minister of Economy with other Ministers (competent for the specific sector) and according to guidelines of Prime Ministerin major companies: Minister of Economy with other Ministers (competent for the specific sector) and according to guidelines of Prime Minister in some cases, Minister of Economy alone;in some cases, Minister of Economy alone; in some limited cases, competence of other Ministers alonein some limited cases, competence of other Ministers alone Content of rights: the same as common shareholders, with limited exceptions: Content of rights: the same as common shareholders, with limited exceptions: non application of ceilings on shareholding established in by- lawsnon application of ceilings on shareholding established in by- laws golden sharegolden share No involvement in the management of the company (company law prescription) No involvement in the management of the company (company law prescription) Only monitoring of management (particularly of non-listed companies): monitoring of industrial objectives and to prevent critical situations (officer level) Only monitoring of management (particularly of non-listed companies): monitoring of industrial objectives and to prevent critical situations (officer level)

7. 7 The role of other Ministries General role, not specific for SOEs: General role, not specific for SOEs: regulation of industrial sectors; licences;regulation of industrial sectors; licences; licence and control of public services managementlicence and control of public services management Specific role as to SOEs: Specific role as to SOEs: participation in selling decisionsparticipation in selling decisions participation in the exercise of shareholder’s rights; for appointments of directors, actual involvement of whole Government and coalition party leadersparticipation in the exercise of shareholder’s rights; for appointments of directors, actual involvement of whole Government and coalition party leaders CIPE guidelines for specific tariffs (e.g. railways)CIPE guidelines for specific tariffs (e.g. railways) guidelines to specific companies in sensitive sectorsguidelines to specific companies in sensitive sectors

8. 8 Securities and Financial Market Regulator (CONSOB) Exclusive competence in supervision and regulation of securities market and listed companies Exclusive competence in supervision and regulation of securities market and listed companies Limited exceptions for SOEs in the law: Limited exceptions for SOEs in the law: non application of provisions on investment solicitation, if securities issued or guaranteed by the State. No occurance as to SOEs’ shares and not permitted by EU law. Only for public debt sec.non application of provisions on investment solicitation, if securities issued or guaranteed by the State. No occurance as to SOEs’ shares and not permitted by EU law. Only for public debt sec. facilitations in reporting indirect shareholding;facilitations in reporting indirect shareholding; market abuse exemption for public debt transactions (permitted by EU directive)market abuse exemption for public debt transactions (permitted by EU directive) No exemption for SOEs granted by CONSOB No exemption for SOEs granted by CONSOB MEF must comply with all regulations and obligations and it is subject to common supervision and sanctions; also payment of fees to CONSOB MEF must comply with all regulations and obligations and it is subject to common supervision and sanctions; also payment of fees to CONSOB

9. 9 Other Independent Authorities Regulatory and supervisory authorities for specific sectors; general competence for all enterprises: Regulatory and supervisory authorities for specific sectors; general competence for all enterprises: electricity and gas; telecommunicationselectricity and gas; telecommunications banking and insurance (Bank of Italy and ISVAP); some competences shared with CONSOBbanking and insurance (Bank of Italy and ISVAP); some competences shared with CONSOB Antitrust authority (national and EU): compliance with competition rules (e.g. as to sales, assignment of exclusive licences, public procurement); State-aid control; actions against monopolies or dominant positions Antitrust authority (national and EU): compliance with competition rules (e.g. as to sales, assignment of exclusive licences, public procurement); State-aid control; actions against monopolies or dominant positions

10. 10 Stock Exchange Operator Listing and delisting Listing and delisting Regulation of transactions Regulation of transactions Disclosure of prices Disclosure of prices No specific rules for SOEs No specific rules for SOEs

11. 11 Court of Auditors Control of financial management of State- controlled companies for possible damages to public finance; prosecution against directors and managers. Control of financial management of State- controlled companies for possible damages to public finance; prosecution against directors and managers. Judge attending board meetings Judge attending board meetings

12. 12 Parliament Opinion on sale of State’s controlling shareholding in public utilities Opinion on sale of State’s controlling shareholding in public utilities Opinion on industrial plan in case of sale of State’s controlling shareholding in national airline (Alitalia) Opinion on industrial plan in case of sale of State’s controlling shareholding in national airline (Alitalia) Specific powers as to the national broadcasting company (RAI): Specific powers as to the national broadcasting company (RAI): participation in appointment of directors; permanent supervisionparticipation in appointment of directors; permanent supervision qualified majorities needed: participation of opposition partiesqualified majorities needed: participation of opposition parties

13. 13 Assessment of the allocation of responsibilities Clear distinction Clear distinction No overlapping between Ministry of Economy and CONSOB No overlapping between Ministry of Economy and CONSOB Some overlapping between Ministries: overlapping of shareholder’s rights and regulatory competences Some overlapping between Ministries: overlapping of shareholder’s rights and regulatory competences De facto interference in some decisions by other Ministers and coalition party leaders De facto interference in some decisions by other Ministers and coalition party leaders Statutory political influence by Parliament in specific companies Statutory political influence by Parliament in specific companies More rational distinction of responsabilities between financial sector supervisors is possible (CONSOB, Bank of Italy and ISVAP) and between Bank of Italy and Antitrust authority More rational distinction of responsabilities between financial sector supervisors is possible (CONSOB, Bank of Italy and ISVAP) and between Bank of Italy and Antitrust authority

14. 14 ACCOUNTABILITY Ministry of Economy Officers: accountable to Minister Officers: accountable to Minister Minister: accountable to Parliament Minister: accountable to Parliament Minister and officers: to Court of Auditors; personal liability for damages to public finance; formal control, inadequate to market transactions; it may affect decision making Minister and officers: to Court of Auditors; personal liability for damages to public finance; formal control, inadequate to market transactions; it may affect decision making General principles of administrative action: rule of law, due process, transparency, justiciability, possible liability for individual damages General principles of administrative action: rule of law, due process, transparency, justiciability, possible liability for individual damages Accountability to the market: decisions may affect market value and further sales Accountability to the market: decisions may affect market value and further sales

15. 15 Consob To Parliament through MEF: annual report and information on major events To Parliament through MEF: annual report and information on major events To Parliament and Government: To Parliament and Government: appointment of Commissionersappointment of Commissioners To the Prime Minister and the Minister of Economy To the Prime Minister and the Minister of Economy approval of internal regulations (formal control)approval of internal regulations (formal control) removal of Commissioners, only in exceptional casesremoval of Commissioners, only in exceptional cases To the Minister of Economy To the Minister of Economy annual report; regular reporting of major events and duty to submit info requestedannual report; regular reporting of major events and duty to submit info requested To the Court of Auditors: control of accounts and personal liability To the Court of Auditors: control of accounts and personal liability General principles of administrative action General principles of administrative action To the market: consultations (now mandatory) To the market: consultations (now mandatory) To CESR (Council of European Securities Regulators) To CESR (Council of European Securities Regulators)

16. 16 Other Authorities To Parliament To Parliament appointment of governing bodiesappointment of governing bodies annual reportannual report To the Court of Auditors To the Court of Auditors Bank of Italy: accountability to be better defined Bank of Italy: accountability to be better defined Stock Exchange Operator To CONSOB To CONSOB To the market To the market

17. 17 CONFLICTS Internal conflicts within MEF Different roles and functions of Ministry of Economy Different roles and functions of Ministry of Economy owner and shareholder; multiple shareholdings; responsibility for State budget; responsibility for general economic policyowner and shareholder; multiple shareholdings; responsibility for State budget; responsibility for general economic policy possible conflicts in decision to sell, dividend policy, intercompany transactions, economic and tax policy measurespossible conflicts in decision to sell, dividend policy, intercompany transactions, economic and tax policy measures statement in prospectuses to protect shareholders’ value in his role as shareholderstatement in prospectuses to protect shareholders’ value in his role as shareholder Conflicts between Minister and officers: formal independence Conflicts between Minister and officers: formal independence

18. 18 Conflicts between competent entities. Conflicts between Ministries On sale (timing and modalities) and exercise of shareholder’s rights On sale (timing and modalities) and exercise of shareholder’s rights On tariffs, within CIPE On tariffs, within CIPE Different approaches and different interests protected Different approaches and different interests protected Resolution at Government level (Council of Ministers) Resolution at Government level (Council of Ministers) Conflicts on board appointments: often general political compromise Conflicts on board appointments: often general political compromise

19. 19 Conflicts between Ministry of Economy and CONSOB CONSOB is an independent authority; it can not be forced to take a decision CONSOB is an independent authority; it can not be forced to take a decision No fiduciary relationship No fiduciary relationship The supervision of MEF over CONSOB does not affect the institutional activity The supervision of MEF over CONSOB does not affect the institutional activity Possible conflicts on sanctions, in the past Possible conflicts on sanctions, in the past Judicial review available Judicial review available Possible effect on re-appointment Possible effect on re-appointment In fact, CONSOB is cooperative; smooth relationship In fact, CONSOB is cooperative; smooth relationship

20. 20 Conflicts between MEF and other independent authorities Possible conflicts in particular with the Authority for electricity and gas (e.g. on tariffs), the Authority for telecommunication (concerning the national broadcasting company, RAI) and the Antitrust authority Possible conflicts in particular with the Authority for electricity and gas (e.g. on tariffs), the Authority for telecommunication (concerning the national broadcasting company, RAI) and the Antitrust authority Independence of the authorities Independence of the authorities Judicial review available Judicial review available No leverage as to re-appointment No leverage as to re-appointment More formal relationship More formal relationship

21. 21 Conflicts between Ministry of Economy and Parliament Parliament opinion not binding; MEF may override it, disclosing reasons Parliament opinion not binding; MEF may override it, disclosing reasons Conflict may involve political confidence Conflict may involve political confidence Conflicts on the national broadcasting company (RAI): Conflicts on the national broadcasting company (RAI): conflicts and uncertainty on political orientations may affect the regular management of companyconflicts and uncertainty on political orientations may affect the regular management of company possible internal conflicts preventing the formation of qualified parliamentary majorities; delaypossible internal conflicts preventing the formation of qualified parliamentary majorities; delay

22. 22 PROSPECTIVE REFORM Bill on the protection of saving. Issues being discussed, concerning financial sector authorities: Strengthnening of CONSOB (partly achieved) Strengthnening of CONSOB (partly achieved) Clearer distinction of responsibilities (by objectives) Clearer distinction of responsibilities (by objectives) Stronger independence Stronger independence Stronger accountability to Parliament and transparency; regular consultation of market Stronger accountability to Parliament and transparency; regular consultation of market Coordination Coordination