Federico Merola is the CEO of Arpinge, the project set up by the pension funds of Architects, Engineers, Surveyors and Industrial Experts which set up an infrastructure investment company with a vocation for project finance and construction sites. Merola will also be one of the protagonists of Wednesday's QPLab workshop on "How to design and build quality works and infrastructures" which will be held at the Auditorium in Via Veneto in Rome on the initiative of Bocconi professor Andrea Gilardoni. Here is his point of view.
Merola, do you share the idea that too often in our country there are abundant financial resources for works and infrastructures that we are unable to spend due to a poor ability to propose Quality Projects?
“If we look at the public and authoritative complaints of all the main international and supranational financial institutions - such as the BIS, the EIB, the OECD - the problem is not only Italian but is shared by many other European countries. The funds dedicated to so-called projects "greenfield” in Europe they invest negligible percentages of their funds. But the "scarcity of projects" cannot be reconciled with the "broadness of needs" and "available liquidity". It is, therefore, an apparent paradox that can only be explained by the presence of "bottlenecks" attributable to structural elements of the economic systems such as, for example: the inefficiency of the PA; the scarcity of investor-promoters with industry reading skills; the inadequacy of the general legislation on institutional investors and investments, typical of bank-centric countries used to reasoning on the two-way polarity of banks and public funds.
It is therefore necessary to work on traditional cultural taboos to which we have become accustomed. First of all, the traditional separation between the ownership of resources - which belong to investors - and the management of savings - which in a bank-centric system is largely entrusted to the banks or companies they issue. A separation that may perhaps work in the purely financial sphere but which does not work in specialized and industrial activities such as that of investments in equity for infrastructures, where however the conflicts of interest of credit institutions can be particularly accentuated.
In the light of the Canadian and Australian examples studied by the OECD as an international reference benchmark, the establishment of investor-promoters by pension funds, social security funds and insurance companies appears to be an effective and perfectly legitimate solution, which does not prevent the application of all those healthy principles of regulation and supervision envisaged today in the field of managed savings.
From these considerations the Arpinge project was born, which in an attempt to fill a "failure" of the market intended to be inspired precisely by the successful examples present in countries such as Canada and Australia. Without waiting for incentives and facilitations from above, the three social security funds of the technical professions – CIPAG, EPPI and Inarcassa, which represent Architects, Engineers, Surveyors and Industrial Experts – have set up a private but institutional investment company in infrastructure under Italian law , which operates as a promoter with a vocation for project finance and the construction site, spontaneously adhering to the robust baggage of "best practices"adopted by those international pension funds that act through their own vehicles characterized by the requirements of professionalism, integrity and transparency of the management".
In your opinion, what are the characteristics of a Quality Project? What are the KeyFactors that make an infrastructural project acceptable from a social, economic and financial point of view?
“I would say that the relevant factors of a project are undoubtedly three: social and environmental sustainability; the usefulness and efficiency of the services deriving from the investment, also in relation to any tariffs applied; the soundness of the financial structure. Therefore, in the first place, planning and the ability to grasp and analyze needs and the relationship between costs and tariffs. From a purely financial point of view, in my opinion, three main elements should be highlighted: robust analysis of risks and mitigating factors; solid structure of the operation, understood as the relationship structure between the parties and – last but not least – absence or adequate sterilization of any conflicts of interest”.
At European level, the quality of works and infrastructures is sought through, among other things, a formalization of the Cost Benefit Analysis for the selection of priorities, greater attention in the codes to the technical aspects rather than the bureaucratic ones, diffusion of the most virtuous practices in the public administrations, formal involvement of local populations in decision-making processes. Is this the recipe for Italy too? What reform interventions are needed to increase the quality of the planning and design of the works?
“Definitely all indications seem correct to me. The reform that the PA requires is so profound and extended to all fields that it must undoubtedly also reach the aspects more directly connected with the choices regarding the infrastructural works to be built, their design and implementation - even with financial and management of private individuals – of the priority initiatives identified. If you were to ask me where I would start, however, it is certainly from the financial markets. On the one hand, the PA needs to renew the procedures for interlocution with private individuals still following the logic of 50 years ago, on the other, there is a need for greater competence on the part of the legislator and the supervisory bodies in a matter which, despite the advanced age internationally, it has not yet taken off in Italy. I hope the agency being studied by the Italian government and l'hub informative that is being established at European level in the ambit of Juncker plan they aim precisely at spreading new and more sophisticated practices for accessing private financial markets in the public administrations of all EU member countries”.
What do you think are examples of Quality Projects at national and international level? Can you give us some examples?
“There are many and I have seen many, in truth sometimes even in Italy. But if I'm allowed a joke, I'd say the ones Arpinge is carrying on. In fact, it was enough to set up an investor-promoter of an industrial nature to find, until now in the private sphere but in the future hopefully also in the public sphere with the use of various legal instruments (eg. project financing with promoter rule; enhancement concessions; etc.) totally innovative investment formulas in the economy, capable of achieving many of the things desired above, operating in full compliance with the best practicesinternational. So I reply, optimistically, that if the general political will were to go in the direction hoped for up to now, we would suddenly find ourselves projected into a world in which the best project will always be the one that has yet to happen!”.
