The EU recovery fund and Italy’s green drive: Opportunities and challenges

Aperio Intelligence held a webinar on Wednesday 29^th September 2021 to discuss the EU Recovery Fund and Italy’s green drive, and related challenges and opportunities for investors.

The webinar was chaired by Tom Ready, Head of Aperio Intelligence’s Strategic Intelligence practice. Four external panellists joined us to share their experience and insight on the subject:

• Teresa Coratella, programme manager at the European Council on Foreign Relations’ Rome office, joined us from Rome;
• Arianna Barilaro, a legal consultant and expert in sustainable public private partnerships, joined us from Amman, Jordan; 
• Claudia Checchi, partner at Italian energy consulting firm REF-E, joined us from Milan; and
• Sergio Nazzaro, investigative journalist and spokesman for the President of the Anti-Mafia parliamentary commission, joined us from Rome.

Key take-aways

Political priorities (Teresa Coratella)

• The Mario Draghi government is busy on several fronts including: wrestling with the fall-out of the Covid-19 pandemic; balancing competing political forces within the current government; chairing the G20; and co-hosting COP26.
• Nevertheless, the successful allocation and spending of EUR 200 billion in Next Generation EU funding remains a key priority for the Draghi government, as part of the National Recovery and Resilience Plan (NRRP). The funds will be directed towards three interconnected pillars: the green economy, technology and infrastructure. For the first time, each pillar will be overseen by one of three so-called ‘technical ministers’.
• The green dossier matters for Italy; if Italy succeeds in implementing the deliverables and objectives, it can be a turning point for the development of the country.
• Furthermore, Italy’s success will be Europe’s success, and failure will have significant consequences for the European integration agenda. Draghi wants to act in order to help the EU become a major multilateral player in the green transition.

Allocation of funds (Arianna Barilaro)

• On 28^th July 2021, the Italian parliament issued a new Decree-Law (Decreto Legge) relating to the governance of the NRRP, in order to simplify administrative procedures.
• This gave stakeholders in Italy and abroad more clarity on how they would move ahead with the allocation of funds.
• Under the new law, the mechanism for allocation of funds will be centralised, with a strong dialogue with the regions, which will play an important role in the implementation of the plan.
• It appears that Italy’s procurement code (Codice Degli Appalti) will be implemented in full, but the new law will mitigate some of the complexities of the code in three main areas.
• Firstly, funds will be allocated through an ‘integrated procurement’ mechanism, which means that for the first time, a successful bidder will be awarded both the design and execution phases of the project within one contract. This will encourage the involvement of the private sector for specialised projects at an early stage.
• Secondly, projects won’t automatically be blocked in case of an appeal by a losing bidder. Rather, the winning bidder will continue to implement the contract, and the government will offer compensation to the losing bidders in the event their claims are upheld in the courts.
• Finally, successful bidders will be able to award up to 50% of the contract to a subcontractor, which is an increase from 40%. This increase is designed to enhance the efficiency of project implementation.

Renewable energy opportunities (Claudia Checchi)

• Italy’s renewable targets under the EU green deal are very demanding for the energy sector. The transition has already started, but there is much still to do to meet the 2030 emission reduction targets. Of note, the National Recovery Plan only partially tackles the energy transition issues, and explicitly accounts for only 3% (6MT of 170MT) of necessary CO2 reductions by 2030.
• Italy enjoyed a large wave of investment in the renewable energy sector in 2011. With the Green Deal an acceleration is needed in order to meet these ambitious targets. Part of this will hinge on Italy’s ability to transition from an incentivised market for renewable energy towards a merchant (unsubsidized) market for renewables. There are indications this is starting to happen.
• The paradigm of the energy market is changing, we are starting to see new price dynamics, new rules and regulations, and the taxation framework is changing. The current energy price rises is good news for renewable energy on one hand, but there are downsides too with increased volatility and risk.
• For outside investors, the most interesting sectors in Italy include: distributed energy; digitalisation and big data; alternative fuels; expansion of the energy network; hydrogen; and innovative batteries and storage.
• Permitting is one of the main obstacles for investments, there are coordination problems with local authorities for renewables. The lack of coordination between national strategy objectives and local requirements is causing issues for the sector. Of note, the average time for authorisation is 500 days, so permitting issues remain challenge for renewable energy investment in Italy and a priority for the Draghi government.

Financial crime challenges (Sergio Nazzaro)

• The Mafia in Italy works in silence and in the shadows. The Mafia and related organised crime groups were, and are, ready for any kind of money, as they were during COVID-19 for the emergency funds. Despite government controls, when there is a lot of funding, money can fall into their hands.
• It’s important to note that often the Mafia is characterised as a force that comes from the outside and infiltrates the legal economy. But this isn’t correct, the Mafia are already operating in the legal system, they pay taxes and work in white collar industries.
• So how can the Mafia be thwarted?  Firstly, Italy has a long tradition in fighting back and understanding what is going on in a business or corporation. The justice system and law enforcement know how the Mafia work and how they move. Secondly, there is a large amount of open source information from government websites and the press on what is happening on the ground, and what law enforcement is working on, for example, through wire-tapping investigations.  
• Undertaking adequate due diligence before entering an investment is essential in order to mitigate the risks of organised crime, which requires knowledge about how the Mafia works and the area and type of investment. For example, there are projects through which the Mafia might not wish to make a profit, but rather use as a means to launder money.