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The information contained in this report is the best available as
March 2003 and is subject to change.
Italy's 59th government since 1945 came to power in June 2001, headed by Prime Minister Silvio Berlusconi, leader of the Forza Italia party. The center-right government is a coalition of five parties called "House of Freedoms" which achieved majorities in both houses of Parliament, improving the new government's chances to implement reforms. Prior to Berlusconi's government, Italy had achieved a major economic policy objective: the reduction of its budget deficit to under 3% of gross domestic product (GDP) in order to comply with the EU's Stability and Growth Pact, a cornerstone of the EU's monetary policy.
The current government will face some difficulties in maintaining this budget due to slow economic progress. The economic slowdown has meant that tax revenue has decreased, making achievement of reducing the government's budget deficit to 1.5% of GDP in 2003 more difficult. Furthermore, this slowdown has complicated the realization of the government's 2001 election promises - tax cuts, privatization, deregulation of the labor market, and reform of the pension system. However, the 2003 budget plans to lower income taxes for employees earning below 25,000 euro a year, which addresses one of Prime Minister Berlusconi's campaign promises. Meanwhile, a new report issued from the European Commission characterized Italy as among the slowest EU members to make progress in reforming its economy. The Italian economy was weak throughout 2002, with an estimated real GDP growth of only 0.4% for the year. Real GDP is forecast to grow 1.4% in 2003.
The Italian energy sector has been undergoing considerable restructuring in recent years. EU Directives on electricity (96/92/EC) and on natural gas (98/30/EC) have established common rules for creation of internal markets and required privatization of Italy's dominant energy monopolies. In November 2002, European ministers set deadlines for complete energy liberalization across the EU. All business users will be free to choose energy suppliers by July 2004, and this will be extended to all domestic users in 2007.
In general, the Italian government has been working to liberalize its
energy sector since the beginning of the 1990s. In 1995, the government
created an independent body, the Electricity and Gas Authority, to
regulate these areas. The government also issued the Bersani Decree on
April 1, 1999, which seeks to accelerate the process of liberalizing
Italy's electricity sector in accordance with the criteria laid down by EU
Directive 96/92/EC. The Decree stipulated that, beginning on January 1,
2003, no single entity is authorized to produce or import, directly or
indirectly, more than 50% of the total electricity produced or imported in
Italy. This Decree has required Enel, the state-owned electricity company,
to divest 15,000 MW of its generation capacity by the 2003 deadline. In
addition, Eni, the partially state-held oil and gas conglomerate, along
with its main subsidiaries, Agip (hydrocarbons exploration and production)
and Snam (gas supplies and distribution) all have been partially
privatized. The Italian government sold off shares of Eni between 1995 and
1998, and now holds 35% of the company. Liberalization of the Italian
energy markets has resulted in increased competition over customers
between the traditionally state-owned companies and other key players.
With limited domestic energy sources, Italy is highly dependent on energy imports. Historically, the country has relied heavily on imported oil, much of it from North Africa (mainly Libya). After declining for a number of years, oil consumption has remained static recently (although Italy remains the third largest oil consumer in Western Europe). Italy has, however, increased its consumption of natural gas. Natural gas is a much cleaner fossil fuel that helps Italy to meet domestic, European, and broader international requirements for a cleaner environment. North Africa and Russia are large exporters of natural gas to Italy. There have been concerns that this reliance on North African sources could have potentially negative implications for Italian energy security.
Italy is in the process of decreasing its reliance on oil, especially for heating and electricity generation. Heating oil consumption in 2000 was about one-third of that of 1981 and fuel oil consumption has fallen 38% since 1995. Natural gas consumption is expected to rise as oil consumption falls in coming years.
Exploration and Production
In the Tempa Rossa field, neighboring the Val d'Agri fields, TotalFinaElf, which assumed operational ownership after purchasing Eni's 25% interest, is developing over 400 million barrels of oil equivalent in a joint venture with Enterprise Oil (25%) and ExxonMobil (25%). Tempa Rossa has much heavier crude than Val d'Agri, and TotalFinaElf has finished 5 of the 7 planned wells at Tempa Rossa (as opposed to 42 at Val d'Agri). Tempa Rossa will reach a production plateau of 50,000 barrels of oil per day. The oil will be transported by pipeline to the Taranto refinery.
Italy has more gasoline stations than any other country in Europe. The government maintains that reducing the number of stations will help reduce the cost of gasoline. In June 2000, in further efforts to address steadily increasing gasoline costs that went above $4 per gallon in the summer of 2000, Italy's antitrust commission found seven oil companies guilty of price-fixing at the retail level. The companies were fined about $300 million, and in November 2000 the courts upheld the ruling on appeal but reduced the fine to about $200 million. In 2001, Eni sold 261 gasoline stations to Tamoil and 257 stations to other retailers as part of Eni's plan to concentrate more on upstream activities.
Italy currently is the third largest natural gas market in Europe, behind Germany and the United Kingdom. Natural gas use has increased substantially in recent years, especially for power generation. In 2001, natural gas represented about 34% of total energy consumed in Italy, and this share is expected to grow to 44% by 2010. In 2000, residential and commercial sectors accounted for 35% of the market, industrial 30%, and electricity generation 32%. It is estimated that by 2010, 48% of electricity in Italy will be generated by natural gas and only 7% by oil.
As of January 1, 2003, Italian consumers gained the freedom to choose their natural gas supplier. Liberalization in Italy's gas market has ignited competition among large key players in the sector, such as Gaz de France, BG, BP, Shell and ExxonMobil, as well as hundreds of domestic distribution groups. This process began in 1998 with the EU Natural Gas Directive, directing member states to open their natural gas markets to competition. In May 2000, the Italian government unveiled a decree, authorizing that no single company can supply more than 50% of the natural gas sold to final users by 2003. No company will be able to send more than 75% of natural gas put into the transmission system beginning in 2002, and this will be reduced to 61% by 2010. The legislation also requires corporate and accounting separation of natural gas storage and transport activities. Snam will retain control of Italy's 29,000-kilometer (18,125-mile) pipeline natural gas grid, but parent company Eni must split Snam's pipeline transport activities from commercial and sales activities. In late November 2001, the new company controlling the natural gas grid, Snam Rete Gas Italia, had an initial public offering (IPO) of 40.24% of its shares, which was heavily oversubscribed. The launching of Eni's new gas distribution company, Italgas Piu, was also in November 2001. Through Stoccaggi Gas Italia, Eni also operates a system where it stores and modulates natural gas. Eni's storage system is made up by 9 fields, 8 of which are located in Northern Italy (one of them is not yet operational) and one in Central Italy. Enel received permission from antitrust authorities to acquire five gas distribution companies in Northern Italy in October 2001. They are: Arda Gas, Gead, Adda Gas, Geico, and Sein.
Libya, Norway, and Qatar (LNG) are major alternative natural gas suppliers for the Italian market. The biggest project under development is the $4.5 billion "West Libya Gas Project", which will draw natural gas from the offshore Bouri field and the Wafa field, located in southern Libya. The gas will be treated in Melitah, 80 kilometers from Tripoli, where it will be transported via the 600-kilometer (372-mile) pipeline "Green Stream", running under the Mediterranean and connecting with the TransMed pipeline in Gela in Sicily. About 282.5 Bcf per year will be able to flow through the pipeline. The project was finalized in July 1999 as a joint venture between Libya's state-held National Oil Company and Eni, and an Eni contract to buy 141 Bcf per year from the joint venture was signed in early 2000. In November 2000, Gaz de France agreed to buy another 70.6 Bcf from Eni. Start-up is planned for 2004. Snam began importing 6 billion cubic meters per year (212 Bcf) of Norwegian natural gas through existing pipelines in October 2001, and will continue to do so for 24 years.
At the end of 2002, the Algerian oil group Sonatrach along with Edison,
Enelpower, Germany's BASF, Wintershall and Eos Energia formed a joint
venture called Galsi. The joint venture will study the feasibility of
building a 1,500 km $2 billion pipeline from Algeria's eastern terminal
Skikda to Sardinia. A potential starting date for operation is 2008.
Russia's Gazprom also has plans to begin constructing a pipeline via
Bulgaria, with an operating capacity of 353 billion cubic feet per year,
but it is unlikely that the project will begin in 2003.
In order to increase LNG imports, a number of companies are in the process of building re-gasification terminals. Presently, Italy has one LNG terminal - Eni's 122.5 billion cubic feet (Bcf) per year in Panigaglia. BG Group (British Gas) recently won approval for its proposed LNG recovery terminal at Brindisi in southern Italy. BG is aiming to have the terminal on stream at the end of 2006 with a capacity of 3 million metric tons (equivalent to 146 Bcf) per year. Italy has five other LNG terminal proposals under consideration. Enel has proposed three sites located in Toranto, Vado Ligure and Muggia. The Italian company Falck is proposing two sites along the southern Calabrian coast. Edison is proposing an additional terminal in Tuscany.
Increased coal usage will be supplied by a combination of increased domestic production and increased imports. Main exporters of steam coal to Italy are South Africa, Indonesia, Colombia, United States, Poland, China and Australia.
Italy's extensive electricity network is linked to its neighbors. Electricity imports come mostly from France, Switzerland and a small percentage from Slovenia. In the summer of 2002, Italy and Greece completed the construction of a new 163-kilometer (102-mile), 400-kilovolt underwater cable to link Italy and Greece. The cable will allow Greece to transfer electricity to the EU, as well as serve as a back-up source for Italy.
The Decree also required Enel to divest 15,000 MW of its total 56,000 MW installed capacity by January 1, 2003. In order to comply with the Decree, Enel divested three electricity generation companies: 5,438 MW Elettrogen in July 2001 to Endesa, 7,009 MW Eurogen in March 2002 to Edipower, a consortium led by Edison , and 2,611 MW Interpower to Electrabel and Energia in November 2002. Furthermore, no company will be allowed to acquire or hold stakes in more than one of the three companies, and no buyer will be able to be more than 30% government-held. This last requirement was to prevent Electricite de France (EdF) from acquiring these companies. In 2001, EdF and Fiat took control of Edison. Edison is 76% controlled by Italenergia, an energy consortium in which EdF has an 18% stake. After EdF's acquisition of Edison, the Italian government passed a decree to reduce EdF's voting rights in Italenergia to 2% in the hope of blocking the French state-owned company from taking it over. This has resulted in a dispute over EdF between Italy and the European Union. Because liberalization of the energy sector has proceeded at a slower pace in France, EdF has remained a state-owned company. EdF's purchase of privatized assets would in effect transfer them from Italy to France, so Italy has attempted to restrict this sale. The European Commission ruled in June 2001, that capital flows may not be restricted merely because of varying degrees of liberalization. However, the initial privatization sale may be restricted, but such restrictions can only be in place for a limited period, after which the privatized companies can be resold to state-owned companies.
In January 2003, the European Commission issued statements of plans to take legal action against Italy for establishing the so-called "golden share laws", which allow the state to influence former state-owned companies. Enel and EdF have also been conducting their own negotiations to settle the dispute. EdF has offered Enel a stake in four nuclear plants in France in exchange for recovery its voting rights in Edison.
Another facet of liberalization is that Enel must also sell its distribution networks in Italy's large urban centers. It has already sold off many local grids, including the Rome network to ACEA for 568 million euros in April 2001 and the Turin and Milano networks to AEM. However, local electricity companies have complained that Enel is blocking some of their access and several lawsuits in this regard. In July 2002, the Italian government issued a bill that would require Enel to reduce its distribution network to less than 10% of market share within three years (This also applies to Eni's gas pipeline network). The bill was approved by the cabinet and has been transferred to parliament for ratification. Enel has 100% of the unlisted company Terna, which completely owns Italy's high voltage grid.
In early November 2000, the European Commission approved a merger that gave Italian conglomerate Compart SpA sole control of Falck SpA, forming the then third-largest electricity generation company in Italy. The deal also gave Compart control of Falck's subsidiary, Sondel SpA. Enel, while selling off domestic assets, has made some foreign acquisitions. In December 2000, for instance, Enel purchased CHI Energy of the United States for $170 million. In September 2001, Enel purchased Nueva Viesgo of Spain, making Enel the fifth-largest generator in Spain. Siemens and Fiat Engineering are to build a 390-MW, combined cycle power plant in Torino worth 190 million euros. Eni has also been expanding its electricity generation capacity in Italy. In May 2002, it began the construction of a 1,000-MW power plant in northern Italy. More recently, Eni announced that it plans to build five 2,000-MW power plants by 2005.
More recently, the Italian government has been reconsidering its policy towards nuclear energy. In December 2002, the Italian parliament considered a draft law which would permit Italian utilities to buy stakes in nuclear power plants outside of Italy. The document also included prospects of returning to nuclear energy generation in Italy. As mentioned in the previous section, Enel is already seeking to gain stakes in four nuclear power plants in France.
* The total energy consumption statistic includes petroleum, dry
natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and
waste electric power. The renewable energy consumption statistic is based
on International Energy Agency (IEA) data and includes hydropower, solar,
wind, tide, geothermal, solid biomass and animal products, biomass gas and
liquids, industrial and municipal wastes. Sectoral shares of energy
consumption and carbon emissions are also based on IEA data.
Sources for this report include: CIA World Factbook; Dow Jones; Economist; Economist Intelligence Unit; ENEL; ENI; European Union; Financial Times; Italian Regulatory Authority for Electricity and Gas; La Stampa; Petroleum Economist; U.S. Census Bureau, International Data Base; U.S. Commerce Department; U.S. Energy Information Administration; U.S. State Department; WEFA; World Gas Intelligence.
For more information from EIA on Italy, please see:
Latest EIA Detailed Annual Data
EIA Privatization Report (oil) - Italy
EIA Privatization Report - Italy
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