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08/07/2013
LESS TRAFFIC, MAJOR WORKS AT RISK

INFRASTRUCTURES
The number of cars on our roads is decreasing so banks are raising doubts about loans to public and private entities for building infrastructures. The following is the mechanism that could deprive Italy of important investments

Fabio Quinto

THE CRISIS puts large road infrastructures at risk. And it is not due to cuts by the State, but simply to the decline in car and truck traffic on Italy’s motorways, which is threatening private investments in the delicate project financing mechanism.
The numbers:  in 2012, there was a 7% downturn in light vehicles and 7.5% in heavy vehicles on Italian motorways.  According to Aiscat data for the first six months of 2012, the highest negative peaks were on the A5 Turin-Monte Bianco (about -10% between light and heavy vehicles), on the A6 Turin-Savona (-10.7%), the A32 Turin-Bardonecchia (-11.7%), the A15 Parma-La Spezia (-9.8%), the A24 Rome-Teramo (-12%) and the A25 Torano-Pescara (-12.8%). In the south, the highest were -10.2% on the A1 between Rome and Naples and -13.3% on the A14 between Canosa and Bari.
What has this to do with the completion of work like the Pedemontana Lombarda, the TEM and the Brebemi? Before answering we must briefly describe the project financing mechanism. It envisages that a motorway can be built by a public or private entity (the contractor), which will cover the cost with income from future tolls as specified in an economic-financial plan. But until the motorway is opened, the contractor must apply to the banks so that he can pay the builders.  But because of the downturn in traffic, they now seem to doubt the contractors’ ability to repay the loans in the timescale indicated in the economic-financial plan. So motorways are also subject to the credit squeeze that is now affecting Italy’s entire manufacturing sector.
Let’s take the Pedemontana Lombarda as an example. In 2010 work began on the first Cassano Magnago-Lomazzo stretch and the first sections of the Varese and Como ring roads. In the spring of 2011, work should have started on the second stretch, the most important and demanding one between Lomazzo (Como) and Osio Sotto (Bergamo), 52 km out of a total of 67 km. But there was not a sign of any road works. What happened? Simple. Given the economic crisis and general downturn in vehicle traffic, the banks asked the shareholders to review the financial coverage of the project. The cost of the work is €5 billion: 1.3 billion had already been allocated  by the State; 536 million in equity, in other words added to the plate directly by Pedemontana SpA shareholders (Milano Serravalle 76.4%, Banca Intesa 19.9%, UBI Banca 3.7%); and just over 3 billion to be found on the credit market. The banks asked the shareholders to put in more money and reduce the amount to be found on the credit market. Small problem: the main shareholder, Milano Serravalle, is owned by the Province of Milan (after the controversial purchase of Gavio shares urged by the president of the Province at the time, Filippo Penati), which does not have any money. The Province attempted to remedy the matter by selling its shares in Milano Serravalle. The first public auction on 26 November 2012 had no bidders; the second must be concluded by 10 July 2013 at the latest. While awaiting the outcome of the auction, everything is at a standstill. In the meantime, there was concern for the current work between Cassano Magnago and Lomazzo. It required all the commitment of company management to decide on a €32 million increase in capital, obtain the extension of a €200 million bridging loan from the banks and the possibility of dipping into state funding as quickly as possible in order to save what could be saved. So the first stretch of the Pedemontana should be open to traffic in 2014.  But for the majority of the work, there are no signs of any road works and completion in time for Expo 2015 is simply impossible now.
Something similar happened to TEM – the east ring road outside Milan. The work cost €1.659 billion, which came entirely from private sources. 42.4% of TE SpA is controlled by Tangenziali Esterne di Milano SpA (the rest is in the hands of builders like Impregilo, Pizzarotti, etc.), whose majority shareholder is… Milano Serravalle, obviously. So the problem comes up again.  On the basis of the economic-financial plan, the shareholders would have had to fork out over €500 million of the amount required, but the company was struggling to find it. On 4 April, it managed to decide on a €100 million increase in capital and to obtain a bridging loan of 120 million from the banks. The work on building this motorway began in June 2012 and now it can continue. But over €1 billion is still missing: negotiations with the banks are underway and should conclude by the end of the year.
Even the Brebemi, the new Milan-Brescia motorway of which over 60% is now complete, was in danger of dropping dead. It needed the intervention of the Cassa Depositi e Prestiti and the European Investment Bank to settle the issue with a loan of €1.519 billion. In the light of these developments,  we can understand the problems that various structures are facing throughout Italy  and for which – given the chronic lack of public funds – either project financing was anticipated or construction by contractors working on existing motorways: the Cremona-Mantua, the Broni-Mortara, the Rome-Latina, the Gronda di Genova, the Tiber and the lamented bridge across the Strait of Messina are just some examples.

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