Merging Italian rail and road infrastructure is a costly distraction

Alfredo Del Monte and I have produced a new version of our study of Italian rail privatisation and the proposed sale of Italian rail group FSI, revised and enlarged to cover the proposed merger with ANAS, the state-owned road operations and construction business.

We find that, for a number of reasons, the merger between FSI and ANAS is against the interests of taxpayers and railway users.  Key points on the merger are:

 

  1. The logic of a merger is between two infrastructure operators – ANAS and FSI’s infrastructure subsidiary RFI, not the FSI group as a whole.  Under European law, accounting separation is required between RFI and the rest of the FSI group. The government has previously proposed to split RFI off from FSI before privatisation. This would mean a merged RFI/ANAS in the state sector.
  2. The claimed €400m annual saving – around 5 per cent of FSI’s turnover – is relatively small, compared with the advantages of competition between two separate and potentially innovative, competing groups.  FSI CEO Mr Renato Mazzoncini argues that “eliminating competition is a strategic imperative”  (quoted 25 ottobre 2016 in Teleborsa).  On the contrary, suppression of competition and innovation is likely to lead to less efficiency, which could be extremely costly on the proposed €88bn infrastructure investment programme.
  3. Italy’s roads network already benefits from competition in infrastructure operation and construction on the autostrade, its principal strategic routes.  Many of the main autostrade are managed under private concessions, not by ANAS.   A merger with FSI or RFI will not change this.  This weakens the argument that a merged state-owned company will be able to manage the principal strategic corridors.  That is the role of the Ministry of Transport and Infrastructure,  working to get the best value from competing infrastructure providers.
  4. The process of merging ANAS and FSI or RFI represents a major administrative and political distraction from the real prize: greater competition in the transport sector which brings better services for transport users, and helps to promote growth.

The merger with ANAS therefore presents large downside risks: it would be a complex merger with limited scope for efficiencies, and would likely prove major distraction from reforms to make each organisation work well. That would be bad news for almost everyone.

On the other hand, our paper identifies positive opportunities to reform the structure of FSI before a revenue-raising privatisation. Introducing competition in train services would leave customers and taxpayers better off, and give the railway an opportunity to contribute more to economic growth.

———

Alfredo Del Monte and Richard Price: Privatisation without Liberalisation? The Strange Case of Italian Railways, and How Adjustments to the Government’s Reforms Could Achieve Gains for Rail Users and Taxpayers, Studi Economici, 2016

http://www.francoangeli.it/riviste/Scheda_Rivista.aspx?IDArticolo=57635&Tipo=ArticoloPDF&lingua=en&idRivista=59

A previous study on FS privatisation, in Italian, is available here:

Alfredo Del Monte e Richard Price: Privatizzazione senza liberalizzazione? Lo strano caso delle ferrovie italiane, Nel Merito, luglio 2016,

http://www.nelmerito.com/index.php?option=com_content&task=view&id=2255&Itemid=166

 

Picture: ANAS-managed road SS16 in Puglia.

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