HIGH-SPEED SYSTEM SECTOR
PRESS RELEASE
The Italian Competition Authority has concluded its fact-finding investigation into the high-speed railway infrastructure sector. After having began this investigation in March 1993, the Authority then decided to initiate a full phase proceeding to ascertain whether infringements of the prohibitions provided by sections 2 and 3 of the Law. no. 287/90 had occurred. On the basis of the facts collected during the proceeding, the Authority ruled that no violations had been committed. In issuing its final report, at the conclusion of the fact-finding investigation, the Authority considered some aspects which were not analysed during the full phase proceeding that, even though did not constitute violations of the Competition and Fair Trading Act, might cause distortions to competition.
In particular, the Authority highlighted the following points:
a) in this network service, as well as in all similar services, the pluralism of operators and the existence of non-discriminatory access conditions are essential for guaranteeing an effective or potential competition.
In this way, it would be better to make a clear-cut distinction between those operators involved in the management of the network and those who work in the markets of the services designed for consumers and, therefore, use the network itself.
Wherever this sharp distinction is not possible, it is at least necessary to institute an accounting separation between the two economic activities in order to guarantee transparency and to ensure non-discriminatory access conditions. This minimum condition is provided for by the Directive no. 91/440 ECC.
b) another important element which influences the competitive context of these markets relates to the possibility for the General Contractor to subcontract specific tasks and projects. Indeed, the conventions between TAV and the General Contractors establish that the consortium will be obliged to subcontract, following the procedures established by the Directive no. 90/531 ECC, at least 40% of the activities needed for the construction of the high-speed system. The requirements and the conditions necessary to participate to the tenders will have to be objective and transparent in order to avoid distortions to competition.
The division of projects and the allocation of subcontracts should allow winning third parties to adjust their own productive capacity to the technological development and to acquire a volume of projects great enough to allow them to compete with members of the General Contractor consortia in the markets where these companies work.
On the basis of the facts collected in the course of the fact-finding survey, the Authority feels that this principle has not been adhered to in the construction of the route connecting Rome to Naples, the only route currently under construction.
So far, the behaviour of Iricav Uno consortium, given that we are dealing with a part of the whole TAV project, does not seem to limit access in the market involved.
However, the dual role played by the General Contractor consortium, as companies operating both in the construction of the infrastructures and as subcontractors, and the current pre-requirements system, might lead to a conflict of interest situation and to the adoption of discriminatory practices against companies competing with the General Contractor consortium members.
c) both in Italy and in the Member States, the construction of the high-speed system has been assigned to the main undertakings operating in their respective national markets. Even though the procedures followed in adjudicating these contracts were found to be lawful, since at the time Directive no. 90/531 EEC had not come into force yet, the Authority feels, nonetheless, that in a competition perspective, the absence of an adequate information, which the public tender procedure is likely to guarantee, is not compatible with the antitrust regulation.
The Authority has already stated that, whenever the appropriate economic and legal conditions are met, the construction of infrastructures or the supply of goods or services must be submitted to transparent and competitive procedures, even in presence of preexisting and already defined contractual relationships.
Along these lines, it is to be noted that the stipulation of the conventions between TAV and the General Contractors, which occurred before the entry into force of Directive no. 90/531 EEC, and thus resulted in the assignment of the Milano-Genova, Milano-Verona and Verona-Venezia routes, in accordance to non-competitive procedures could still be subject to review. This could happen since, even though the contracts have already been undersigned, the construction of these routes is still at an initial stage.
d) the relevance of the financing mechanisms of the High-Speed system and the allocation of risk among the various operators involved in its construction. The high-speed system can represent the first large scale experiment in project financing, constituted by a concession given by the Ferrovie dello Stato to the consortia members for the construction and management of the high-speed system itself, in return not for a payment but for the right to manage the infrastructure for a certain period of time. As such, the payment for the expenses incurred would depend on the results obtained from the management of the service for which the concessionaire enjoys an exclusive right. The Authority considers it important that the opportunities offered by this system could be realised completely. However, the fact that a little of the investment risk is undertaken by private companies can compromise the potentiality of the high-speed project and, in particular, can cancel the competitive effects of the financing project system.
On closer examination, the contracts regulating the agreements between Ferrovie dello Stato, TAV and the General Contractors are in contradiction with the potentiality and the goals of the projects financing system. In particular, it emerges that the Ferrovie dello Stato not only will contribute 40% of the equity capital needed for the project but that will also take on many other responsibilities. As such, it is clear that Ferrovie dello Stato will take on the entire risk of managing the high-speed system, while the economic exploitation, formally assigned to the TAV consortium, will be limited to a transfer of the management rights in exchange for payments that, independently of the financial results of the management, will have to guarantee the coverage of the debts, the economic balance of the business and provide an adequate investment return.
The substantial differences between the responsibilities and risks undertaken by Ferrovie dello Stato and those undertaken by the other private shareholders will not result in the attainment of those advantages which, in terms of participation of private capital and of risk allocation, the chosen organizational model seemed to look for.
Giving exclusive rights for the economic exploitation of large scale infrastructures to private operators is certainly a solution which is distant from the traditional regulating models concerning the management of large scale works. The reasons that justify this kind of solution are to be found whenever higher profits have to compensate for the risk undertaken by operators who make an otherwise not realisable investment.
However, these reasons are not valid when the beneficiaries of the exclusive rights are excluded from assuming a substantial portion of the risk involved in their business activities. This way, private operators who participate to the construction of public infrastructures would be impeded from achieving their goals and the community as a whole would incur higher costs.