Pnrr, the role of “state enterprises” and the hidden traps for consumers – Corriere.it

I have a memory related to the Recovery Fund that I had never thought about, because I thought it was insignificant. In itself, indeed. But it encloses an all too timely lesson for the National Recovery and Resilience Plan (Pnrr) and Italy today. It was the autumn of 2020, Italy was starting to deal with the 750 billion European program just launched the previous July. Then led by Giuseppe Conte with a majority of 5 Stars, the Democratic Party and Liberi e Uguali, the government struggled to put together a coherent project. The concern was such that one evening a famous minister of an important European country descended on Rome. He was visibly exasperated. He wanted to understand what was happening.

“State” companies put to the test of Recovery

The fact that I found insignificant at that moment was much smaller: also in that period I wrote, in an article, that a certain large company under public control had some projects that could enter the Pnrr; the next morning the CEO of another large publicly owned company called me and, for the first time, I was invited to meet him. He wanted to explain the projects of his group for the Pnrr. Both of those publicly held companies had good ones, as far as I could tell. And the two managing directors were enmeshed in an evident rivalry not for the conquest of the same funds – there were resources for everyone – but for which of the two would prove more effective in helping the country to solve the problems of implementation of the PNRR . I’m talking about two highly capable top managers, of course. Yet the normal industrial policy process in an open economy seemed reversed: here there was no government setting priorities – wind farms, a microchip or battery factory, hydrogen electrolysers – then launching tenders among many Italian and European companies for those who could make them better and at the lowest cost. No, it was the opposite. There were some large publicly controlled enterprises – efficient, well managed – which presented their priorities and projects to the government. Then the government would have launched tenders evidently tailor-made for those projects and for those companies, the only possible winners.

The question that the Conte 2 government did not ask itself was therefore simple: the plans of the large publicly controlled listed companies – legitimate, as well as in valid s – always coincide with the public interest of the Italians, for which the two hundred billion euros of the Recovery are spent (largely in debt)? At the time, for the most part, probably yes: those plans could at least come close to the public interest. But the question is relevant today because in the meantime Italy has made a complete turn and has returned to its starting point. Right and left are increasingly polarised, increasingly conflicting – and increasingly less centrist – but they are replicating each other’s moves on the PNRR. The Conte 2 government tried to resolve its difficulties on Recovery by relying on the projects of large state enterprises while, in parallel, it tried to centralize control of the Plan at Palazzo Chigi. Two and a half years later, the government of Giorgia Meloni follows in the footsteps of Conte 2: it tries to resolve its difficulties on the Recovery (and on the European energy independence projects called “RePowerEU”) by relying on large state companies and trying to centralize the direction del Piano at Palazzo Chigi. Again.

The script is very similar. Both these governments let it be known that important consultations are held in the presidency of the Council with the managing directors of publicly controlled listed companies. Both announce presentations of new projects and then, regularly, accumulate weeks behind schedules that they themselves indicate. Plus a change. Leaders of both sides criticize each other for reacting in the same way to the same problem.

Projects and the public interest

All of these politicians should be given the benefit of the doubt, for various reasons. For example, as I said, many of the projects involved are actually in the public interest. A Terna grid that transports electricity from photovoltaics from South to North. Eni’s technologies for capturing CO2 emissions from energy-intensive companies are. And so too the Rfi high-speed railway in the South, a strengthened gas transport capacity (and tomorrow hydrogen) for Snam along the Adriatic coast, or the storage of CO2 captured in the depleted fields off Ravenna by Eni and Snam. I could go on, but we will know more when the current government presents its revised plans: it had to happen by April, now perhaps they are expected in June.

But the other reason why governments of the right and left must be understood that the administration is essentially always the same for everyone. It works badly, while publicly-owned listed companies are well managed, equipped with better and more motivated professionals on average. In essence, those “state” companies are much more efficient than the state. There must be a strong temptation to rely on them to ensure certain government functions, when one sits in Palazzo Chigi and sees the sand flowing in the hourglass. But this is exactly the problem as well. The large listed groups over which the Treasury exercises control are not required to govern Italy. Not their job. They legitimately have other goals: they must maximize profits, profit distribution and stock market value for all shareholders, including some of the largest investment funds in the world (for example BlackRock, the Norwegian sovereign wealth fund Equinor or the People’s Bank of China). The managers of those groups answer to all members and will try – again, correctly – to make their groups earn well in order to earn well themselves. There’s nothing wrong with it. Indeed indeed the fact that these companies are listed, therefore subjected to market scrutiny every three months, explains why they are more efficient than many public administrations.

The risk of dependence on the investee system

What is not clear to me is what would happen in Italy, in the long run, if in order to be able to achieve its industrial policy objectives the government ended up depending on a small number of investee companies. Moreover, each in a position of absolute strength in its own market. Would the general balance of economic relations in the country be affected? For example, the Pnrr provides (also) for an investment of 2.2 billion in the so-called “local energy communities”: territories, often in internal areas, which can produce their own renewable energy and consume it locally. Among the benefits, according to the Plan’s official website: “Enable the supply of energy at affordable prices; promote market participation of users who would otherwise be excluded”. These are objectives in contrast with the interests of the large groups to which the government is addressing to implement some vital parts of the Pnrr. Will those groups have the nerve to refrain from raising questions about “local energy communities”? And would the government have the strength to hold the point if necessary? I’m actually the first to think that those big groups might also be the first to show a fair amount of fair play. But the problem here is that it will not depend on the quality – unquestioned – and personal courtesy of their current executive managers.

Who loses it?

There is a deeper problem: if a culture returns to Italy that delegates some of the exercise of the art of government to investee companies, dominant in their own market, not all of them could be as transparent as certain large listed groups. Below them are thousands of companies controlled by local public bodies, for the most varied and improper services. They are no longer talked about, but most have survived generations of spending reviews intact. For them, the myriad of local Recovery contracts are a unique opportunity. Would be a paradox if the implementation of the Pnrr marked a forty-year leap backwards in Italian economic culture. Consumers would pay, with higher than necessary tariffs; and the young, with more unproductive public debt on their shoulders.

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