Italy: Reforms Needed To Revive Italian Project Finance

Square Peg Round Hole

Italy's project finance rules have an awkward legal foundation. If investors and sponsors can gain the benefit of project bond technology, radical reforms are needed

The recent placement of project bonds to finance Belgium's A11 motorway made Italian lawyers wonder when it will be possible to structure a similar transaction under our national project bond laws. The asset class was introduced in Italy two years ago, with the aim of financing infrastructures and public interest services through bond markets rather relying solely on bank lending.

Italian project bonds feature a number of benefits for issuers and investors alike. First, they are applicable to a vast variety of infrastructure projects including motorways, electricity transportation, IT networks, gas storage and transportation. Second, project bonds issued before June 26 2015 are tax efficient, having the same tax treatment as Italian government bonds in respect of interest received by the bondholders. Third, bondholders have the benefit of special liens (privilegio generale, similar to a common law floating charge) over certain assets of the special purpose vehicle issuer. And fourth, Italian banks, financial companies and insurance companies are permitted to guarantee project bonds (albeit only during the construction phase).

Nevertheless, Italian project bonds are yet to experience any real success.

This is not due to structural inefficiencies or flaws in the financing tool, but rather the difficulty in finding financeable projects. This is the result of project financing, and therefore project bond regulations, having been created under the Public Procurement Code (Codice degli appalti pubblici) which was recently renamed the Public Works, Supplies and Services Contracts Code (Codice dei contratti pubblici relativi a lavori, servizi e forniture). In short, Italian lawmakers took the rules originally designed to govern the complex process necessary to select a supplier of works or services under a public procurement and tried to adapt them to public-private partnerships (PPPs) – including project financings.

This inevitably led to a lack of compatibility between the rigid and complicated public procurement framework and project finance schemes which, by their nature, need flexibility to achieve a financeable result. In addition, the timing of such financing procedures are often unpredictable and not constrained by law. Not only did this limit the number of projects launched under the framework, but most of those that did launch were unattractive for investors. To increase the number of market oriented transactions, the possibility for private parties to submit a PPP project to public entities for a potential tender was also introduced into the law. But due to these same difficulties regarding the rigid process, this had little success.

As a consequence, project finance tenders were and are mostly originated by public entities which often lack the commercial, financial and legal skills needed to see the project through. They also often look for private funding for those projects unable to generate enough revenue to attract private investments. Not surprisingly, a large number of project financing tenders originated by public entities fail to be awarded. Data released by ANCE (the Italian National Builders' Association) shows that between January 2003 and October 2013, of the 5,029 project finance tenders launched, only 1,896 – or 38% – were awarded. The Italian legislature has tried to correct these defects. In the last four years alone, 10 amendments have been made to the PPP regime (including in relation to project finance). All of them were heading in the right direction, but existing rules still struggle to fit the market's expectations of a project finance scheme. In addition, frequently adjusting the legal framework has the downside of keeping away investors who typically value stability. This may result in lost opportunities. By way of example, there is a lot of talk at the moment about Italy becoming a continental harbour for receiving shale gas supplies from the US. Unfortunately, the average timeframe for receiving authorisation for the construction of a gas storage plant means such a possibility could very easily vanish.

What must change

The Italian government seems to be aware of the lack of proper rules for project financing and, more generally, PPPs. It recently announced its intention to carry out a full review starting this Autumn. A radical reform of today's legal framework is necessary, namely by creating a new PPP Code that regulates project financing and other PPP transactions. This would clearly separate the PPP regime from public procurements which would continue to be governed by the existing Public Works, Supplies and Services Contracts Code.

Such a PPP Code should provide for a transparent, accountable, non-discriminatory and adequately advertised process, focused on two principles.

First, it should introduce a negotiation process. Standardised and rigid procedures remove the project parties' ability to address and allocate construction, management and operational risks. To the contrary, a genuinely interactive and competitive tender process would activate a virtuous dialogue between procuring public entities and the bidders, aimed at shaping a financeable project. In addition, when off-balance sheet treatment is a driver for a procuring public entity, it should be mandatory to monitor project compliance with Eurostat models during the negotiation process.

Second, it should ensure a manageable timeline for the project. For any investor, timing is an essential element of pricing and so having few firm deadlines should assist the project's process. At the same time, the absence of a rigid procedure should avoid challenges created in name only, and allow for a focus on breaches of law that materially impact on public interest.

A PPP Code would be a tool for generating solid, financeable PPP projects both by procuring public entities and private investors. Only then, are we more likely to see Italian project bonds on the market.

Originally published by IFLR.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.