April 12, 2016

FS eyes improvements ahead of privatisation in 2017

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Renato Mazzoncini was appointed CEO of Italian State Railways (FS) on December 1 2015 following the resignation of the entire FS board on November 26 because of a failure to agree on how to privatise the national railway. Mazzoncini, who was previously CEO of FS subsidiary Busitalia, outlines his priorities and objectives for FS in an exclusive interview with David Briginshaw.

THE Italian government has now decided to postpone the initial public offering (IPO) for FS until 2017 and Italian State Railways (FS) CEO Mr Renato Mazzoncini says attention should not be focussed on when the IPO will take place but how.

"We must arrive at it well, readying the group, improving the areas that are currently not profitable, whilst also keeping an eye on market trends," Mazzoncini told IRJ. "Right now, the only sector truly ready to enter the market is high-speed, in as much as it is the only one in which we are operating within a clear regulatory context, but even that is not enough for it to look attractive to investors.

FS April1"Our goal is to substantially improve the other sectors as well, in order to have an efficient company throughout its component parts. That is why we are fine-tuning the industrial plan and looking with interest at what the Ministry of Transport & Infrastructure is doing in order to create a stable regulatory framework, a sine qua non for us to develop our business optimally. The parameters for the stock market listing will only be resolved at the end of this process.

"The company will in any event remain vertically integrated, and a decision will have to be made on the issue of ownership of the railway network, an asset worth €26bn, although it is not remunerated under the current regulatory system."

The 16,700km network is currently managed by Italian Rail Network (RFI), a wholly-owned subsidiary of FS.

In the meantime, the financial performance of FS is going from strength-to-strength. FS reported a 2.5% increase in net profit in the first half of 2015 to €292m, and Mazzoncini says the trend for the full-year results is going in the right direction. "What is emerging is a balance sheet I am pleased with, marked by a result showing clear growth compared with 2014," Mazzoncini says. "Thanks also to the work of the previous management and the whole FS team, FS is profitable and with excellent prospects. The 2016 budget confirms the positive trend, but we are waiting for the industrial plan which will be presented to all our stakeholders this summer."

A key element of this plan is a rationalisation of FS' railfreight activities, as Mazzoncini explains: "In the FS Group, we currently have 10 different companies dealing with traction and logistics. Some of the activities are managed by Trenitalia, as is the case of the Cargo division, others by RFI, such as Terminali Italia, while yet another group is directly controlled by FS.

The goal is to create a freight sub-holding that groups together all the traction and logistics companies." Mazzoncini says he wants to present FS' freight business as a "unified, plausible and reliable interlocutor" so that FS can compete more effectively with road transport, its main competitor.

Transapline

Mazzoncini says the opening of the Gotthard and Brenner base tunnels will put rail in a strong position to develop transalpine rail traffic which will become "the future cornerstone of our business." He says the keyword is intermodal: by using rail over long distances and road for collection and delivery "we might subtract market share from trucks, with far-reaching benefits to the environment as well. In 2015 alone, we have removed 1.5 million trucks from the road, thereby saving 1.1 million tonnes of CO2."

Mazzoncini says the other main challenge for the new business plan is local public transport. "We have to convince commuters to choose the train for their daily transfers, and to do that we need to improve the service," he says. "We have to rethink mobility in the big cities, and FS intends to play a prominent role in this."

FS wants to work with public transport companies, and incorporate complimentary activities such as car sharing and cycling into its offer. "In order to do this, we need a stable regulatory framework, something the government is currently working on," Mazzoncini says.

Meanwhile, FS will continue to purchase new commuter trains. Since 2009 FS has ordered 360 new trains, 200 of which have already been delivered. This will continue under a €4.5bn framework contract for the purchase of 500 trains. Mazzoncini says development of commuter services might include taking over urban road transport companies.

As far as expansion outside Italy is concerned, Mazzoncini says the plan envisages bidding for turnkey contracts to realise high-speed lines, especially in developing countries, and operating trains on profitable European corridors. "Our Frecciarossa 1000 is interoperable, and is ready to travel on the high-speed networks of eight European countries," Mazzoncini says. "We will do whatever is needed to export the quality of Trenitalia high-speed services to other networks, and we feel that the Paris - Brussels route is an excellent opportunity for us to focus our efforts.

"Unfortunately, at present there are technical obstacles that threaten competition: for example, the KVB signalling system on this line, which has unfortunately been discontinued since 2012, is still active. In short, we are ready to launch an assault on foreign markets, so let's hope they allow us to do so."

Referring to the extra €17bn allocated by the Ministry of Infrastructure & Transport in February to develop the infrastructure, Mazzoncini says: "The improvement of the network is essential, since it will enable us, for instance, to improve the regularity and punctuality of regional and suburban trains within the large urban hubs." Mazzoncini says the funds will also be used to complete the Italian sections of the four TEN-T Corridors which cross Italy, to increase capacity for freight, and develop the network in southern Italy.

The total value of the FS 2015-2020 programme ageement master plan is €74bn, but only part of it has been funded so far. €45bn is earmarked for the works relating to the TEN-T corridors, €17bn is for the development of the national network, €8bn relates to network safety and improving maintenance, and €4bn to technical innovation. "As of 2015, FS was still the leading company in Italy in terms of investment, spending more than €5bn annually," Mazzoncini says.

Liberalised

Mazzoncini is enthusiastic about the opportunities the Fourth Railway Package will offer when it is adopted resulting in the creation of a liberalised single European rail market, although he has qualms about some of the elements which have been dropped. "FS is ready to compete in the other European countries," Mazzoncini explains. "At present, Italy is the only country in the world where there is a competitor on the high-speed network: a positive experience for the companies and the passengers alike. Competition has prompted us to improve our service and make it more attractive, both from a qualitative viewpoint and in terms of ticket prices. All European citizens must be able to avail themselves of these benefits.

"We have lent full support to the technical pillar of the Fourth Railway Package, which has been reduced in scope, but ERA will be responsible for authorising the rolling stock earmarked for trans-border traffic, as well as for the installation of ERTMS. We regret that the obligation to call tenders for public service contracts by 2019 has completely disappeared. What is left is opening up the market to commercial traffic, but it will be necessary to assess the conditions and limitations."

FS already has two passenger operations outside Italy: Thello, a joint venture with Transdev which has been operating Italy-France cross-border services since 2012, and Netinera which it acquired from German Rail (DB) following Arriva's acquisition by DB in 2011.

Thello generated a turnover of about €29m in 2014, which increased significantly in 2015 to around €45m. "It is undoubtedly an important international partnership in the European rail passenger market, and we are assessing the possibility of extending the activity to other continental routes as well," Mazzoncini reveals.

Mazzoncini says Netinera, which operates passenger concessions in Germany, is also doing very well and ended 2014 with a €423m turnover, which increased by around 35% in 2015 €573m. "We are counting on further expansion in the German public transport market over the next few years," he says.

With additional capital funding for infrastructure, a willingness to advance rail technology, improving financial performance, and a determination to expand into new markets once the obstacles to competition have finally been swept away, FS looks set to grow still further as it prepares for partial privatisation in 2017.

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