Italian Energy On The Auction Block With Privatization Push

This week, Rome announced that by year’s end they would outline a privatization plan intended to chip away at the country’s daunting public debt, which has ballooned to around 133 percent of its gross domestic product. According to Prime Minister Enrico Letta, the privatization push is just one part of the country’s economic recovery plan - one Italy is ready for. “I think now the markets are ready to buy and we will sell public assets,” he told Lally Weymouth of Slate just before a meeting with President Obama this month. “We will sell one part of Terna, which is the national electric grid. Of course, not 100 percent, but 49 percent.” While not exactly new - the OECD pushed for an Italian privatization program last year - the end of year effort is a fresh effort to avoid the kind of political crises that have plagued Italy over the last two years. While Rome has been light on details, except for Finance Minister Fabrizio Saccomanni offering that those holdings considered would be from both “quoted and unquoted” companies, there has been considerable attention given to the government’s assets in energy giant, Eni. Earlier this month, Reuters reported that Rome was considering putting their 4 percent stake in the oil and gas firm up for sale, bringing in an estimated 2.8 billion euros ($3.85 billion). Although the Eni stake is minimal in terms of influence, it does raise the question of what will it mean for Rome to lose what modest foothold they have in the energy world? For a country so detrimentally reliant on imports, does it really make sense in the long run to let go of a giant like Eni? Even if it does chip away at the country’s daunting debt burden. These questions are not just issues of potential, long-term revenue, but arise from Italy’s recent energy challenges. Like many of its Southern European neighbors, Italy looks abroad to meet most of its energy needs. Despite significant reserves of its own, Italy has seen domestic production wain in recent years in favor of new import options, including North Africa. This heavy dependence on imports was exacerbated by the collapse of the country’s nuclear power revival in 2011 following the Fukushima meltdown. In response, Italy has announced plans to boost local production by 150% over the next several years, with the hope that it will bring in an estimated $18 billion in new investment and cut about $8 billion from the country’s energy bill. While ridding themselves of their Eni stake will not necessarily hinder that progress, Rome’s exit could remove them from a position of influence when it needs it most. According to the Reuters report, Rome is aiming to produce a privatization program that allows them to retain some level of influence in the companies following the sales. With holdings in Eni already so low, any sale would likely erode what little say they have. A Dismal Regional Track Record If Italy needs any needs any help on what to avoid when it comes to privatizing the government’s Mediterranean assets, they need not look any further than Greece. Over the last two years, Athens has pursued a bailout mandated privatization effort that has been slowed by dwindling foreign interest and corruption allegations.

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