The SOEs in Italy

1. THE ROLE AND TASKS OF THE DIFFERENT AGENCIES INVOLVED IN REGULATION AND SUPERVISION OF SOEs.THE ITALIAN EXPERIENCE Presentation by Roberto Ulissi, Director General, Ministry of Economy and Finance, Head of Directorate “Bank and Financial System. Legal Affairs”

2. The SOEs in Italy • Large privatization program in Italy, started in 1993 • Present situation: still many SOEs • 26 directly owned; some are 100% controlled • large groups: many indirect shareholdings • diversified sectors • listed and non-listed

3. ENTITIES INVOLVED IN REGULATION AND SUPERVISION OF SOEs • Ministry of Economy and Finance • Other Ministries • National Commission for Corporations and Stock Exchange (CONSOB, the Securities and Financial Market Regulator) • Other Independent Authorities • Stock Exchange Operator • Court of Auditors • Parliament

4. Ministry of Economy and Finance Two separate roles: • Owner • Shareholder Two levels of responsibility: • Minister: guidelines and political decisions • Officers: proposals, implementation of political decisions, administrative and contractual activity

5. …The Ministry of Economy as owner • MEF is only the formal owner; it is not free to sell shares • Some limited exceptions to MEF ownership exist • Decision to sell and how (political decision): • In general: Prime Minister on a proposal by the Minister of Economy and the Minister of Productive Activities • Only for minor shareholdings: the Minister of Economy alone • Exception for national broadcasting company (RAI): CIPE resolution (Interministerial Committee for Economic Planning); comprehensive resolution • Implementation of sale: the Ministry of Economy alone (officer level) • Permanent assistance of an Advisory and Transparency Committee, appointed by Government

6. …The Ministry of Economy as shareholder • Exercise of rights (political level): • in major companies: Minister of Economy with other Ministers (competent for the specific sector) and according to guidelines of Prime Minister • in some cases, Minister of Economy alone; • in some limited cases, competence of other Ministers alone • Content of rights: the same as common shareholders, with limited exceptions: • non application of ceilings on shareholding established in by-laws • golden share • No involvement in the management of the company (company law prescription) • Only monitoring of management (particularly of non-listed companies): monitoring of industrial objectives and to prevent critical situations (officer level)

7. The role of other Ministries • General role, not specific for SOEs: • regulation of industrial sectors; licences; • licence and control of public services management • Specific role as to SOEs: • participation in selling decisions • participation in the exercise of shareholder’s rights; for appointments of directors, actual involvement of whole Government and coalition party leaders • CIPE guidelines for specific tariffs (e.g. railways) • guidelines to specific companies in sensitive sectors

8. Securities and Financial Market Regulator (CONSOB) • Exclusive competence in supervision and regulation of securities market and listed companies • Limited exceptions for SOEs in the law: • non application of provisions on investment solicitation, if securities issued or guaranteed by the State. No occurance as to SOEs’ shares and not permitted by EU law. Only for public debt sec. • facilitations in reporting indirect shareholding; • market abuse exemption for public debt transactions (permitted by EU directive) • No exemption for SOEs granted by CONSOB • MEF must comply with all regulations and obligations and it is subject to common supervision and sanctions; also payment of fees to CONSOB

9. Other Independent Authorities • Regulatory and supervisory authorities for specific sectors; general competence for all enterprises: • electricity and gas; telecommunications • banking and insurance (Bank of Italy and ISVAP); some competences shared with CONSOB • Antitrust authority (national and EU): compliance with competition rules (e.g. as to sales, assignment of exclusive licences, public procurement); State-aid control; actions against monopolies or dominant positions

10. Stock Exchange Operator • Listing and delisting • Regulation of transactions • Disclosure of prices • No specific rules for SOEs

11. Court of Auditors • Control of financial management of State-controlled companies for possible damages to public finance; prosecution against directors and managers. • Judge attending board meetings

12. Parliament • Opinion on sale of State’s controlling shareholding in public utilities • Opinion on industrial plan in case of sale of State’s controlling shareholding in national airline (Alitalia) • Specific powers as to the national broadcasting company (RAI): • participation in appointment of directors; permanent supervision • qualified majorities needed: participation of opposition parties

13. Assessment of the allocation of responsibilities • Clear distinction • No overlapping between Ministry of Economy and CONSOB • Some overlapping between Ministries: overlapping of shareholder’s rights and regulatory competences • De facto interference in some decisions by other Ministers and coalition party leaders • Statutory political influence by Parliament in specific companies • More rational distinction of responsabilities between financial sector supervisors is possible (CONSOB, Bank of Italy and ISVAP) and between Bank of Italy and Antitrust authority

14. ACCOUNTABILITY Ministry of Economy • Officers: accountable to Minister • Minister: accountable to Parliament • Minister and officers: to Court of Auditors; personal liability for damages to public finance; formal control, inadequate to market transactions; it may affect decision making • General principles of administrative action: rule of law, due process, transparency, justiciability, possible liability for individual damages • Accountability to the market: decisions may affect market value and further sales

15. Consob • To Parliament through MEF: annual report and information on major events • To Parliament and Government: • appointment of Commissioners • To the Prime Minister and the Minister of Economy • approval of internal regulations (formal control) • removal of Commissioners, only in exceptional cases • To the Minister of Economy • annual report; regular reporting of major events and duty to submit info requested • To the Court of Auditors: control of accounts and personal liability • General principles of administrative action • To the market: consultations (now mandatory) • To CESR (Council of European Securities Regulators)

16. Other Authorities • To Parliament • appointment of governing bodies • annual report • To the Court of Auditors • Bank of Italy: accountability to be better defined Stock Exchange Operator • To CONSOB • To the market

17. CONFLICTS Internal conflicts within MEF • Different roles and functions of Ministry of Economy • owner and shareholder; multiple shareholdings; responsibility for State budget; responsibility for general economic policy • possible conflicts in decision to sell, dividend policy, intercompany transactions, economic and tax policy measures • statement in prospectuses to protect shareholders’ value in his role as shareholder • Conflicts between Minister and officers: formal independence

18. Conflicts between competent entities.Conflicts between Ministries • On sale (timing and modalities) and exercise of shareholder’s rights • On tariffs, within CIPE • Different approaches and different interests protected • Resolution at Government level (Council of Ministers) • Conflicts on board appointments: often general political compromise

19. Conflicts between Ministry of Economy and CONSOB • CONSOB is an independent authority; it can not be forced to take a decision • No fiduciary relationship • The supervision of MEF over CONSOB does not affect the institutional activity • Possible conflicts on sanctions, in the past • Judicial review available • Possible effect on re-appointment • In fact, CONSOB is cooperative; smooth relationship

20. Conflicts between MEF and other independent authorities • Possible conflicts in particular with the Authority for electricity and gas (e.g. on tariffs), the Authority for telecommunication (concerning the national broadcasting company, RAI) and the Antitrust authority • Independence of the authorities • Judicial review available • No leverage as to re-appointment • More formal relationship

21. Conflicts between Ministry of Economy and Parliament • Parliament opinion not binding; MEF may override it, disclosing reasons • Conflict may involve political confidence • Conflicts on the national broadcasting company (RAI): • conflicts and uncertainty on political orientations may affect the regular management of company • possible internal conflicts preventing the formation of qualified parliamentary majorities; delay

22. PROSPECTIVE REFORM Bill on the protection of saving. Issues being discussed, concerning financial sector authorities: • Strengthnening of CONSOB (partly achieved) • Clearer distinction of responsibilities (by objectives) • Stronger independence • Stronger accountability to Parliament and transparency; regular consultation of market • Coordination