As David Briginshaw reports, these changes could have major implications for rail transport in Italy.

ONE of the first acts of Italy's new prime minister, Mr Mario Monti, was to appoint Mr Corrado Passera as minister of the newly-formed Ministry of Economic Development, Infrastructure and Transport, which for the first time merges these important levers of the economy.

Passera is a successful business leader well known for his ability to turn failing companies and organisations around. He restructured and reinvigorated the Italian Post Office steering it to its first profit in 2002. Passera then moved to Banca Intesa where he set about restructuring the bank and reviving its image - by 2005 it had become one of Italy's most profitable banks. This helped to pave the way for a merger with Sanpaolo IMI bank to form Intesa Sanpaolo, one of the shareholders in NTV, Italy's new private open-access high-speed operator which launches its first services this month. Passera resigned from Intesa Sanpaolo when he joined the government.

One of Passera's first initiatives is to start releasing up to €60bn in funds blocked by the Berlusconi government but earmarked for infrastructure projects covering all modes. Most of the projects are either schemes already underway or at the "shovel-ready" stage. Rail is one of the first beneficiaries with around €2bn being allocated to a section of the Milan - Verona high-speed line between Treviglio and Brescia, which Italian State Railways (FS) says is one of its investment priorities, and a section of the Milan - Genoa high-speed line.

"Paradoxically, the long delay that Italy has accumulated in infrastructure is an opportunity - an engine for growth," says Passera, who hopes to have released all of the money by the end of the year which should give a huge boost to the Italian economy.

The new government is keen to reform the economy to slim down the public sector and stimulate private enterprise. One recently-announced ambition is to consolidate local public transport into large private operators to shrink what the government describes as the abnormal spread of public ownership in the area. "You can create operators of the first magnitude which could lead to the creation of some new large companies in the coming years," says Passera, clearly with his eyes on some of Europe's successful private operators such as Veolia Transdev.

For the moment Italy's infrastructure manager, Italian Rail Network (RFI), will remain part of the FS Group. However, a new transport authority is being set up which will examine whether Italy should retain a vertically-integrated railway or move to full separation of train operations from the infrastructure.


Mr Mauro Moretti, CEO of FS, is a firm believer in an integrated railway, although in an interview published in the Italian newspaper L'Espresso, he trotted out some rather dubious arguments in favour of integration. Moretti highlighted Britain where complete fragmentation of the national railway has led to a cost explosion, but failed to mention the other countries in Europe which have separated infrastructure from operations where costs have remained stable.

Moretti also claimed that the rolling stock manufacturing industry has disappeared in countries which have opted for separation. But it is the level of investment and government policy combined with the competitiveness of companies which determines the success of railway equipment suppliers in a particular country, and not the structure of the national railway. Spanish suppliers, for example, have flourished thanks to heavy investment in rail and have used this as a springboard for export success.

However, Moretti does have some valid arguments in favour of integration. "The railway system is complex and extremely technologically advanced: if a client does not have a systematic approach it cannot introduce and handle innovation," he says.

Moretti asserts that Italy is one of the most open countries in Europe when it comes to gaining access to the rail network. There are several open-access freight operators including those backed by foreign railways, and this month FS train operator Trenitalia will start competing head-to-head on the high-speed network with NTV, the world's first private high-speed operator.

"Let's get one thing clear, competition is always good for efficiency and quality," Moretti told L'Espresso. "And liberalisation, when done, must be done well.

"Every day, Trenitalia, at its own risk, runs about 400 long-distance trains, including the high-speed services. Of these, around 100 operate at a loss because they run on routes with a low population density. Moreover, we lost about €200m in 2011 for running universal passenger and freight services in the south. Today these losses are compensated by profits from the high-speed services: if new competitors only operate on the profitable routes, they reduce our ability to make up for these losses. The consequence for Trenitalia could either be a new gradual indebtedness until its collapse, or to abandon the loss-making routes."

Some contracts to operate local and regional passenger services are awarded through competition for tenders. "We've done six in three regions: Emilia-Romagna, Lombardy and Veneto," says Moretti. "We've won some of them, but others had no bids as no-one was prepared to submit an offer. The only thing that we can't ask the former state monopoly to do is this: if no-one comes forward, because the tender is too low to cover costs, it's down to Trenitalia to provide the service at a loss. What sort of liberalisation is that? Competitors must be able to compete on a level playing field and the client must have a responsible approach when holding competitions."

A private open-access passenger operator called Arenaways launched a conventional service between Milan and Turin in competition with Trenitalia, but FS prevented it from serving intermediate stations and it soon went bust.

Moretti is clear in his opposition to such competition: "Where a universal service contract exists, there should be no third-party operators who, working only on the good lines in the same region, upset the economic balance of the contract."

A major problem facing FS is government policy which forces it to set extremely low fares for local and regional passenger rail services, while at the same time the regional authorities, which specify the services they require, often fail to support them adequately. This makes it very difficult for FS to invest in new trains despite the fact that there is a shortage of rolling stock and much of the fleet is very old. The problem is most acute in the large conurbations of Milan, the Venice/Verona area, Genoa, Rome, and Naples, where Moretti says supply is 30-50% lower than demand.

For each passenger, Trenitalia gets 12.9 euro cents per kilometre, of which 3.68 cents comes from ordinary and season tickets and 9.23 cents are regional contributions. By comparison, Italian bus operators receive 17.2 cents, German Rail (DB) 19.5 cents, and French National Railways (SNCF) 22.9 cents.

"In Germany and France, the state also buys the trains, whereas in Italy, we have to manage with the same 12.9 cents which also includes the trains' depreciation cost," Moretti points out in L'Espresso. "We're only saying that those who operate the profitable services such as the high-speed routes, where it's almost impossible not to make money, should help finance the universal service."

FS wants resources to be found to refurbish and expand the local and regional train fleet. It received €2bn in 2011 to operate these services, but Moretti says it's not enough. "Fares must match the minimum levels in Europe and the increase must not be borne solely by commuters: in Europe, there are lots of cases of businesses that pay contributions for their employees in return for tax relief. All you need to do is increase the remuneration from rail transport from 12.9 to 17.2 cents per passenger-km. With those few cents more we could double the investment plan from €2bn to €4bn. If properly planned, it could be done in three or four years."

But Moretti says taxpayers must play their part because if people give up their polluting cars and take the train, cities would become better places in which to live, thereby benefiting society at large. "So if the state gives us another billion, we would have €5bn, and the improvement would be enormous," he muses.

A €2bn investment plan to acquire new commuter trains already exists, of which half has already been allocated while the other half is on hold until the regions receive confirmation that funds are forthcoming for 2012. "If the dream I described becomes a reality, we could buy 1000 new trains," Moretti enthuses in L'Espresso. "And there is no public investment that would have a better economic, social and environmental effect.

"Transport policy must be re-thought. Each mode of transport has its optimum operating space, and integration between the various modes must be encouraged in order to achieve the desired economic result and improve sustainability. Nowadays we have to support the least-polluting modes of transport. But companies cannot take on this burden. If the state buys Fiat cars, it pays for them, if it buys energy, it pays for that, so if it wants an uneconomic railway line to operate, it must pay for it."

FS has been trying for many years to put the financing of local and regional passenger on a more realistic footing, so perhaps the new government with its zeal for reform will finally start to listen.