News Analysis: Italian plan to privatize train services too small to dent public debt: experts

Italian government this week took the first steps in its plan to privatize state rail company Ferrovie dello Stato, part of a broader plan to raise funds in order to cut debt. But experts say it's likely to raise too little cash to make a difference.

The government this week revealed it would work with U.S. bankers Merrill Lynch and Bank of America on the sale, and would confer with state officials, railway and labor representatives, and legal and financial advisers in order to overcome legal, regulatory, tax and labor hurdles.

The goal, government officials said, is to sell the first stake of the national rail company by the end of the year.

Details are still sketchy, but experts say that it is much more likely the services side of the rail company -- the part that operates trains -- will be privatized or partially privatized, and less likely that the side that owns and maintains the massive network of more than 16,000 km of rail and thousands of trains will be privatized.

"The side that runs the infrastructure is just so large and expensive that it would make no sense to privatize it," Andrea Boitani, a Universita Cattolica economist familiar with the rail privatization process, told Xinhua.

"A single kilometer of high-speed rail between Turin and Milan, for example, costs 56 million euros (59 million U.S. dollars) to construct," the professor continued. "The high-speed rail between Bologna and Florence costs around 75 million euros (79 million U.S. dollars) to build. These kinds of expenditures do not make sense for a company looking to show a profit on its bottom line."

The services side makes much more sense, since it would require relatively small capital outlays and would lend itself to be sold off in parts. One company could run the services in a single geographical region or group or regions, or in a specific class of service, according to Boitani.

The problem is the services side of the company would fetch much less than the infrastructure side. Experts said it is hard to estimate prices for such privatization, but the consensus is that privatizing the services side would raise something in the order of hundreds of millions of euros for the state treasury, while the rail network and the rest of the infrastructure would fetch billions.

Hundreds of millions is unlikely to make much of a dent in Italy's total debt that is approaching 2.8 trillion euros.

"Of course, no single sale or action will make a significant dent in Italy's overall debt level," Antonio Bolzano, an ABS Securities macro economist, said in an interview. "The real solution is to spark economic growth because that drives investment and spending and increases tax revenue. Will the partial sale of the Ferrovie dello Stato contribute to that?"

There has been speculation in the Italian press that such a sale could improve train-related services, ultimately increasing demand for services and over the long haul perhaps even creating new jobs. But Stefani Ricci, a transport economics expert with La Sapienza University in Rome, said that is probably unlikely.

"Whether it's sold off or run by the state, I don't think it will make a big difference in the way things are run," Ricci said. Endit