Home to the largest and most advanced railway company in Europe, and with sea and land borders which connect the MENA, Mediterranean and northern European areas, Italy is investing heavily in its transformation into a strategic and diversified logistics and energy platform
It is as important to understand as it is difficult to understate the tidal wave of change that is set to sweep over Italy.
One of the new strategic roles envisioned for Italy involves the pan-European process of cohesion and convergence, and calls for the country to form part of a 21st century logistics platform extending from Africa and the Middle East, tunneling through mountains over, up and into the continental landmass, to the heart of northern Europe.
In that spirit, the 28 current EU members have committed to building the Trans-European Transport Network (or TEN-T), a system of high-speed rail corridors, Alpine tunnels, seaports and highways, and other big-ticket infrastructure work. A key component of TEN-T is the Motorways of the Sea (MoS) initiative, maritime-based intermodal logistics chains intended to take some of the weight and wear off Europe’s over-stretched road system. “The multimodal TEN-T Core Network with its Core Network Corridors will strongly contribute to European cohesion and strengthen the internal market,” is the word out of Brussels.
The official EU position is that the benefits will not be long in coming and more than justify the massive outlay, notes Italy’s Infrastructure and Transport Minister, Graziano Delrio. But the project has already been shunted once onto the budgetary sidings when EU-imposed austerity measures mandated deep cuts in government expenditure, reform of the tax system, and rebuilding a dysfunctional pension system.
“In the past, austerity forced us to combine our resources towards projects undertaken in conjunction with the European Commission. We were not able to freely make use of the full amount of available funds because the Commission forced us to respect the established deficit bill limit,” says Mr. Delrio.
What makes the TEN-T project so important to Italy? Mr. Delrio explains, “Italy has 8,000km of coastline, so we already constitute a sizeable hub in the Mediterranean. A recently finalized reform has reduced from 54 to 14 the number of national port authorities, so that we can remain competitive with the other large ports of Europe.”
Apart from that, one salient fact is that 70% of Italy’s exports leave the country by sea. Another is the 10 million passengers on the cruise ships that ply the Mediterranean every year.
The government is convinced that “improvements in rail, inland waterways and maritime infrastructure, as well as innovative technologies in the field of transport, will induce a modal shift, reduce road congestion, cut back emissions of greenhouse and polluting gases, and boost transport safety and security.”
When all is said, done and legislated, investment on the astronomical magnitude required for the mega makeover of an entire sector can only be contemplated when the odds for getting tangible returns on it are a lot better than reasonable.
But Italy’s Minister of Transport and Infrastructure and the rest of Europe’s decision makers are convinced that a full service network can be the linchpin of a more competitive economy that produces more jobs.
To get the ball rolling, Italian lawmakers passed a package of reforms known as Unlock Italy, coaxing out the public funding needed for real estate revitalization and for promoting future investment in public infrastructure and transport-related projects. Those reforms include simplification and tax incentives for REITs (Real Estate Investment Trusts), and support for long-term leasing deals to give new vigor and flexibility to the real estate market.
“Prime Minister Renzi has been effective so far in implementing changes both in terms of the labor market, in how democracy works and the inefficiency of the parliamentary system,” says Paolo Scaroni, the current Vice Chairman of Rothschild Bank, and the former head of the Italian electricity company ENEL, and Italy’s largest oil and gas firm ENI.
“There’s a long way to go, we are just at the beginning. The problems have been there for ages.”
Rail’s record investments
After a long period of neglect, Italy is preparing to reinvent its railroads and Gruppo Ferrovie dello Stato Italiane, its state-owned railway network, has emerged as the country’s number one destination for investment, receiving almost three times as much capital as its nearest rival, ENEL. “That worked out to $6.5 billion in 2015,” says Renato Mazzoncini, the rail operator’s CEO.
“This amount is even more important if you consider the multiplier effect of transport and infrastructure investment. Public transport is the emblem of the country’s modernization. To give you an idea of the magnitude of the policy change, I’d point out that in 2014 our investment budget was €3 billion. In two years, we more than doubled the amount of investment in Italy,” explains Mr. Mazzoncini.
Half the total investment is to be channeled into projects from the TEN-T agenda. Another 30% will be used to improve and extend the regional train system. “That’s because 80% of Italians don’t utilize our high-speed trains but travel instead on the regional train or bus system. The problem there is that a considerable part of the network is still single track and needs to be doubled. Money also needs to be spent on upgrading more than 2,200 train stations on the regional lines and making them more attractive to users.
“Train stations in Italy have always been very important in terms of social development. Entire towns grew up around stations built 100 years ago in the middle of nowhere. So we have to improve the quality of this sector because I think it is possible to have over 30% of Italy’s residents traveling and commuting by public transport instead of by private car.”
Mr. Mazzoncini acknowledges the need to lay new track to handle cargo but would not want to see it happen at the expense of modernizing the links between seaports and the logistic platforms that will allow the cargo to reach its ultimate destination. Freight handling infrastructure has been prioritized under the TEN-T initiative.
“Currently, ships have to go around Spain and up to Rotterdam, from whose port cargo gets transported to Italy. This is the paradox. We have to work continuously to connect ports of the south of Italy to the north, just like the ports of Trieste and Genoa that provide easy access to the north of Europe.”
At the present time, Ferrovie’s flagship fleet of ultra-modern high speed Freccia 1000 trains links Milan, Bologna, Florence, Rome and Naples. By the end of 2016, the Freccia 1000 will be reaching speeds of up to 350km/h on segments of its route without special tracks. “It is also possible to export Freccia 1000 in many other countries,” says the railroad chief. “We are already working in 30 countries around the world with our subsidiary, Italferr. Our technology and know-how in the railway system are globally recognized as avant-garde.”
As far as Italy’s d’Amico family is concerned, anything seaborne is a business opportunity and Paolo d’Amico, the Chairman of the family-run shipping firm, insists that he wouldn’t have it otherwise. “We have been in many niches, including containers, and if an opportunity presents itself, it can be an element of growth,” he says.
In Mr. d’Amico’s view, the ocean is the greatest infrastructure of them all, and since it covers two-thirds of the planet’s surface, d’Amico Shipping must try to consolidate a presence in as much of that area as it can. “We have gradually been opening offices located at the main international shipping hubs. Our strategy is to continue to grow and develop while at the same time paying attention to investment, responsibility, experience, client relationships and competence.”
The volume of goods arriving or leaving Italy by sea is certain to increase significantly once the TEN-T program kicks in, and its sea lanes, highways, and tunnels are up and running to move merchandise across around Europe. Mr. d’Amico is certain it is the smart thing to do. “Italy has a fantastic role to play in the infrastructure between south and north, and as a gateway to Europe,” he says. “Certainly we have to increase port efficiency, so that is what the government is focused on.”
Diversifying the energy network
Enhancing Italy’s transportation and logistics platform in the high-growth corridor connecting the Middle East, Mediterranean and northern Europe is also creating trade opportunities and enabling a more mixed energy network to emerge.
“Italy is already the most diversified country in the world from an energy infrastructure perspective,” says Marco Alverà, CEO of SNAM, a leader in Europe in the construction and integrated management of natural gas infrastructure.. “If you take Europe, there are five sources of gas flowing into the continent. We are adding the sixth one, which is the Caspian area and specifically Azerbaijan, through the TAP pipeline. This huge project goes from the Caspian Sea, across Azerbaijan and Greece straight into Apulia, thereby providing another channel for bringing gas into Europe.”
Left: Graziano Delrio, Minister of Infrastructure and Transport | Center: Renato Mazzoncini, CEO, Gruppo Ferrovie dello Stato Italiane | Right: Marco Alverà CEO, SNAM
“SNAM today has a market capitalization of close to €18 billion. We have an enterprise value of close to €33 billion. The return for shareholders in terms of TSR (total shareholder return) has been over 500% since our listing in 2001.”
Throughout all this time and long before it became a cliché of corporate governance, SNAM was known in the industry for its environmental sensitivity. “Sustainability is no longer a buzzword,” Mr. Alverà maintains. “The number one concern most people have, apart from war, terrorism and economic crisis, is global warming. People all around the world have very strong feelings on this issue. I believe politicians have realized this and consequently are taking action.”
Funded by the Ministry of Economy and Finance and working closely with the government, the GSE is Italy’s state-owned agency charged with promoting and supporting new and improved renewable energy sources and certifying compliance with current standards. “Italy strongly believes in sustainability,” comments Chairman and CEO Francesco Sperandini. “In fact, the BlackRock Investment Institute ranks Italy fourth behind Sweden, France and Brazil on their ‘Carbon Saints and Sinners’ index. Similarly, the American Council for an Energy-Efficient Economy voted Italy into the world number-two spot in energy efficiency after Germany, and first place in co-generation.”
The big news, however, is that Italy met and exceeded its stated goal of achieving a 16% share of energy production from renewables in 2014 – six years ahead of the original 2020 target date. Official figures indicate 121 terawatt hours were generated from renewable sources, equivalent to 38% of that year’s overall electricity consumption.
How do you get performance like that? Simple: just invest 1% of your GDP in developing renewable energy sources, and have €16 billion of that routed through GSE to invest in sustainability initiatives, such as technical training consulting and assessment. The agency also helps stabilize the energy market by purchasing electricity generated by renewable-energy plants to be injected into the grid for resale.
“We need to optimize the use of renewables that are scattered around Europe with different technologies,” comments Matteo Del Fante, CEO of Terna, operator of the dense grid of interconnected cable that constitutes Europe’s second most extensive electricity network after Britain’s. “You might have more wind in the north, more solar in the south. Given the fact that these technologies are scattered geographically and are non-programmable from a management standpoint, to capture all the production they bring to the table, you need to have a grid that allows the perfect flow of electricity in the system.”
The high demand for infrastructure spells good news for the country’s contractors. “We believe in the power of partnerships,” says Guido Stefanelli, CEO of Pessina Costruzioni, the Milan-based builder that specializes in public building construction.
Willingness to work in collaboration and draw on the expertise that another team of professionals might bring to the project at hand has helped Pessina win important contracts in places like Slovenia, Albania, Iran and Kazakhstan.
In Italy, Pessina was one of the pioneers in introducing project financing, a tool that allows public and private sectors to work together to create major public works and ensures the availability of funds for their construction, operation and management.
“I hope that encouraging the participation of foreign companies in our projects will result in more innovative and safer cities with certified energy savings over 10%,” says Mr. Stefanelli, who is particularly keen on his firm’s involvement in construction of the new Juventus Village, a development that will include a range of infrastructure such as hotels, soccer academies, shopping malls and an auditorium.