Italy: Public Utilities Law: Government Bill Reforming Local Public Services

Last Updated: 8 April 1999
By Antonio Cuppone - Studio Legale Tonucci - Rome

The latest Government Bill reforming local public services, bound to be approved by the Parliament shortly, provides for up to June 30, 2000 to local public authorities to transform "local special companies" and consortia which ran local public services until December 31, 1998 into join-stock companies. If such transformation does not take place by the stated deadline, the local Mayor shall provide for it in the following three months, otherwise, in case of further inactivity, the Region will appoint with a special agent for such task.

With reference to these services that, at the date the law comes into force, are granted in concession or run directly by local authorities, the bill provides for an extension, from June 30, 2000, for a period of time no longer than 3 years for public urban transportation, 4 years for public health and 5 years for gas and water services.

Because of such Bill, local public services can only be run in three ways:

1. free competition, upon authorization of the competent territorial authority;

2. one or more public or private entities, chosen by the competent authority through EU tender procedures;

3. otherwise, through direct concession to joint-stock or public limited companies, controlled by the competent authority, which shall choose the private partners through public tender.

The local authority is likely to lose all direct power in the management of public services, in favor of new private businesses for sectors (i.e. energy and gas, water, collecting and discharging waste) in which a marked interference by the local public authority was known. Such private businesses had to take into account the entrepreneurial choices of said authority.

Only in special cases the authority could maintain the direct control of a public service, but at the condition of giving evidence- with an economic and financial report - of the validity of such choice because of the restricted size and the characteristics of the service.

The Bill, whilst obliging the local authority to withdraw in favor of new private companies, provides for powers of such authority in programming and regulating public services. These activities would even entail determining the maximum rate of the service, in the case of the law not providing for other regulating authorities.

With reference to the relations between the local authority and the concession holders, the Bill provides for: minimum content of the contracts that will regulate rights and duties, duration and the services' provision criteria, qualitative standards, economic aspects of such relationship, ways of determining maximum rates, users' rights, inspection powers of the local authority, consequences of defaults, and conditions of the anticipated withdrawal by the authority.

For some kinds of services (such as energy and gas supply, water cycle, collecting and discharging waste, and public transportation) the local authority, in order to encourage the growth of competition, may separate the management and the developing of networks and plants from the provision of the service to users, providing, for the former, that the authority regains the networks' and plants' ownership at the expiration of the concession period

Again, in relation to these particular services, it is also foreseen that the maximum duration of the concession shall not be longer than 10 years and that, with the expiration of the period, there will not be renewal if not following a tender run by EU tender procedures.

The provision of so such a short term to accomplish this "privatization" (i.e. June 30, 2000), forces local authorities and entrepreneurs of said services to evaluate difficulties and opportunities deriving from the above-mentioned law.

With regards to the first profile, authorities will have to proceed with evaluations necessary to select the best managing models for the provision of public services among the ones already known. They will have to justify decisions with studies, especially under the legal profile, but also with regard to the transformation of "local special companies", and the regulation of tenders and contracts; finally, under the profile of economic and social benefits the community will enjoy with the presence of several entities, public and private ones, operating in the field of public utility services.

Moreover, the local authority could not limit itself to the transformation of a "local special company" in a joint-stock company, but could also turn it into a "public company", while the town council or the province will always maintain a minority shareholding. In other words, the local authority could choose a company model that guarantees ownership to consumers, so as to make them part of and directly interested in the positive outcome of the service. The public company could also be listed in the stock exchange, as it happened successfully with the AEM Company in Milan.

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.

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