Italy revs up privatisation to plug budget gaps

Italy's government is embarking on its biggest-ever privatisation programme, with state-owned jewels from electricity to TV to the post office potentially up for grabs, in a bid to slash the world's third-largest debt.
The Treasury started the sell-off race on Wednesday, when it announced it would sell up to 20 percent of dominant utility Enel to Italian and international investors. A financial source said it aims to raise up to 6 billion euros ($7.24 billion) with the deal.
But that is just a nibble from Italy's debt pile, which at the end of last year was equal to 106.2 percent of annual gross domestic product.
To chop it below 100 percent, the government aims to raise 120 billion euros ($145 billion) from the privatisation programme by 2008.
"We are selecting the menu," Prime Minister Silvio Berlusconi said this week.
With the utility, 51 percent Treasury-owned, offered as an appetiser, the focus is on what will be served up next.
The state controls Poste Italiane, broadcaster RAI and electricity grid GRTN. It has 70 percent of financing firm Cassa Depositi e Prestiti, 62 percent of flag carrier Alitalia, 35 percent of oil major ENI and 32 percent of defence firm Finmeccanica.
A study by consultants KMPG valued state assets, including property, at 1.77 trillion euros, Italian media reported on Friday. But only a part of the government's announced fund-raising scheme will involve the sale of state firms.
A chunk of the proceeds will come from complex market operations and the shuffling of assets between state agencies.
"Privatisation's of 100 billion euros over a 4-year span may look ambitious, but clearly this is a much broader approach, which could include securitisation of credit and real estate assets as well," Morgan Stanley economist Vincenzo Guzzo said.
The focus, however, is on how the government will disentangle the web of state firms built up by dictator Benito Mussolini.
Renato Brunetta, an economic adviser to Berlusconi, said the privatisation programme was tied to a re-assessment of what Italy considers to be strategic assets in the light of closer European Union co-operation.
He said those assets no longer seen to be vital included ownership of a national airline, an armaments manufacturer, a ship builder and regional, partly state-owned utilities. He declined to mention specific companies. "This is a good moment in the international market for privatisation's ... and this government will probably liberalise and privatise not only at the level of the large central structures, great companies like Enel, ENI and Finmeccanica, but also at the local level of public utilities," he said.
RAI is also proposed for partial privatisation, as laid out in recent media reform. Poste Italiane CEO Massimo Sarmi said on Friday it would be ready for a bourse debut by year-end.
But whether Italy will fling open its entire portfolio of state-owned firms to independent investors remains in doubt.
Brunetta and other politicians have said financing agency Cassa Depositi e Prestiti would play a major role in the privatisation process. Last year, it bought stakes in Enel, ENI and Poste Italiane from the Treasury, helping to ease debt but keeping the stakes in state hands.
This process effectively enables the government to sell with one hand and buy with the other, allowing the firms, some of them overstaffed and inefficient, to be sheltered from the private sector a little longer. Government critics say this could mean forever.
"I have grave doubts about the chances of privatising the railways and postal system. To list, you need to have profits. To have profits you need to raise tariffs, which is complicated in Italy," said Vincenzo Visco, a former finance minister in the left-wing government of Romano Prodi.
"The privatisation plan is the most uncertain thing the government has proposed," he told Reuters.