Genoa Bridge Collapse Throws Harsh Light on Benettons’ Highway Billions

https://www.nytimes.com/2019/03/05/world/europe/genoa-bridge-italy-autostrade-benetton.html

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GENOA, Italy — Long before the Morandi Bridge collapsed in Genoa, Italy, last year, killing 43 people, an economics professor named Marco Ponti took aim at the private company that managed the structure, raising two fundamental concerns.

One was money. Mr. Ponti argued that Autostrade per l’Italia, or Highways for Italy, which managed the bridge and more than half of Italy’s 4,000 miles of toll roads, made “abnormal” profits.

The other was the lopsided power balance between Autostrade and the Italian government. Mr. Ponti, who served on an expert panel advising the government, said ministries did too little to regulate the company.

Taxpayers were being shorn “like flocks of sheep,” Mr. Ponti said in a newspaper interview in 2003.

It was a pointed dig. The Benettons, the Italian family famous for wool sweaters and a global clothing empire, controlled Autostrade. If Mr. Ponti hoped to shame them, it didn’t work: He says he was forced to resign from the panel and the Benettons later threatened him with a multimillion-dollar lawsuit before backing off.

The calamity in Genoa is now the subject of a criminal inquiry, with 21 people under investigation, including nine employees of Autostrade and three officials from the Ministry of Infrastructure and Transport. The authorities are sorting through years of email exchanges and documents, plus the contents of a few dozen mobile phones, to try to determine who is to blame.

But beyond potential negligence, the case has exposed what critics say are deep systemic failings in how Italy privatized roadways. Autostrade reaped huge profits and acquired so much power that the state became a largely passive regulator.

While no evidence has emerged that inspection findings were manipulated, the company effectively regulated itself — because Autostrade’s parent company owned the inspection company responsible for safety checks on the Morandi Bridge.

“The government was happy to leave the system to exploit drivers and share in the bounty produced by tolls,” Mr. Ponti said in a recent phone interview, having just headed a commission to assess the viability of a high-speed rail link with France.

“And because it’s a long concession, nobody is really looking at it, except bureaucrats and the superpower that is Autostrade,” he added. “And they became close friends.”

There is no doubt that Autostrade’s contract is extraordinarily favorable — and profitable — to the Benettons. It lasts until 2038 and allows Autostrade to raise tolls annually. Experts say that the inspection arrangement is unusual and that other governments require more oversight of privatized bridges and highways.

Autostrade officials have declined to discuss what caused the collapse but say the company spared no expense for safety. In the last three and a half years alone, the company reported spending more than $10 million maintaining and repairing the bridge. Crews worked on it five out of every seven days in that same period, the company said.

As for profiteering, an Autostrade spokesman said that the company had long abided by price caps and never raised tolls by more than 1 percent a year. Members of the Benetton family, none of whom are under investigation, declined to comment for this story.

The bridge collapse has become an explosive political issue in Italy, seized on by the Five Star Movement, one of the two populist parties that formed a coalition national government only months before the accident. Five Star has long denounced Italy’s spate of privatizations, most of which occurred in the 1990s, as sweetheart deals between politicians and their friends.

In that regard, the life and death of the Morandi Bridge is a parable of Italy’s current economic and political mess, and how it got there.

The structure was built during the flush, postwar era as a symbol of Italian engineering prowess and aesthetic style. It was then privatized when Italy was clawing its way out of debt and needed money to qualify for membership in the eurozone. And it has collapsed as Italy’s economy is stagnating and the politics that produced privatization are the object of populist scorn.

Now, the Benettons are suffering through their first encounter with national infamy. For years, the family has courted controversy through a series of provocative, socially progressive ads for their clothing brand, one of which featured President Barack Obama kissing his Chinese counterpart under the word “Unhate.”

Far from damaging the family, the ads shaped their image as skillful manipulators of the mass media. But when the Morandi Bridge collapsed, that narrative was upended. Three days later, the anti-establishment newspaper, Il Fatto Quotidiano, ran photographs of the Benettons on the front page.

The headline read, “We pay, bridges collapse, and they cash in.”

Today, some of the remains of the Morandi Bridge are taped off like a crime scene. Access is mostly blocked by armed soldiers. Workers started demolishing the western section, but much of the bridge is intact and as magisterial as ever, soaring 150 feet over a dry riverbed and parking lots. The missing span lends the tableau an eeriness that seems almost cinematic.

Autostrade is so synonymous with the Benettons — brothers Carlo, Luciano and Gilberto, and a sister, Giuliana — that when the bridge collapsed, Italians awaited their reaction to the tragedy. There were two days of silence before a statement was issued, expressing “deep sympathy” for the victims, and it came through Edizione, the family holding company.

In the last interview he gave before dying, in late October, 77-year-old Gilberto Benetton explained that the silence was a sign of respect.

But the muted response stirred outrage. It marked a sharp break from the Benettons’ reputation when Italy decided to privatize Autostrade in the late ’90s. Then, the family was considered the nation’s fresh new face of entrepreneurial energy.

“It’s quite ironic that they are now being painted as bloodsuckers,” said Andrea Colli, a professor of economic history at Bocconi University in Milan, “because through the ’90s and onward, they had a very positive image.”

Unlike most of Italy’s network of insiders and capitalists, none of the Benetton siblings attended college. They started with a single yellow sweater, which was hand-knit by Giuliana when she worked as an assistant at a fabric shop. Carlo Benetton died last July at 74.

Today, there are roughly 5,000 Benetton stores around the world, with nearly 8,000 employees and annual revenue of more than $1.7 billion. The name became a global brand, albeit with some notable bumps along the way.

In the late ’90s, Benetton was struggling against low-cost retailers, like Zara, and looking to diversify into businesses with steadier income streams. A natural monopoly like toll roads looked ideal.

It was the start of a hugely profitable venture. Though still linked in the public imagination with cashmere crew necks and velvet chinos, today just five percent of the Benetton’s $14 billion portfolio comes from textiles.

Fifty percent comes from infrastructure.

The family’s first step into this new realm was perfectly timed. Italy was still emerging from a brush with bankruptcy and it badly needed cash to reduce debt to swap the lira for the euro.

An ambitious push was underway to privatize a variety of industries. Seventy different transactions would ultimately net more than $100 billion. Founded in 1950, Autostrade was one of the last major state properties put up for sale.

The Benettons led a consortium of investors that paid 2.8 billion euros, worth about $4.5 billion in inflation-adjusted terms, for a 30 percent stake in the company. The rest was sold to the public, through the Italian Stock Exchange.

Far from winning through connections, as Five Star politicians have claimed, the Benettons easily beat out the lone rival bid, led by an Australian bank, which sought a mere 10 percent of the company.

There simply was not much interest in Autostrade, scholars say, largely because the regulatory framework looked daunting. The Ministry of Infrastructure and Transport had clear control over both inspections and toll rates. At least on paper.

“Any investor would have been worried about bidding,” said Carlo Scarpa, a professor of economics at the University of Brescia, in northern Italy. “The Benettons, though, knew the system and they understood that the Ministry of Infrastructure and Transport, which was supposed to supervise the whole thing, was weak. They were able to calculate the weight the company would have in the political arena.”

Italy was so desperate for cash that it was ready to strike a deal on very generous terms. There were price caps on tolls, but they were derived using a system described by Giorgio Ragazzi, a retired professor of economic science at Bergamo University, as “highly discretional.” And the contract lasted until 2018, later extended to 2038.

Autostrade had been highly profitable when it was owned by the state, and it grew more so in private hands. By 2003, the Benettons had increased their stake, leading another consortium to purchase a majority share.

One of Italy’s biggest clothing retailers and its partners had become, as Professor Ragazzi put it, “lords of the motorway.”

If the Benettons benefited, so did the Italian Treasury. Autostrade has poured billions of euros into state coffers, paying nearly 600 million euros a year in corporate taxes, V.A.T. and license fees. Autostrade became an indirect way for the government to continue taxing drivers for a system that, by the time it was privatized, had very nearly been paid for in full.

“The government,” said Giuliano Fonderico, professor of administrative law at Luiss Guido Carli University in Rome, “has always thought of Autostrade as an A.T.M.”

But the Morandi Bridge was showing signs of wear. It had already been through two rounds of maintenance — or “extraordinary works” — on the decks and some of its stays. It was a critical junction in the company’s network of toll roads in northern Italy, and local officials considered building a bypass to reduce the heavy traffic.

But a lot of Genoa residents did not like the idea of all that construction or a bypass that ran near their homes. The plans were put on hold.

Autostrade became a political powerhouse, acquiring clout that the Ministry of Infrastructure and Transport, perpetually underfunded and employing a small fraction of the staff, could not match.

The Benettons made occasional, bipartisan political donations but those did not explain the company’s influence. Autostrade could perform perfectly legal favors for politicians, like modernizing a stretch of local highway.

Several scholars say the skewed relationship resulted in a case of “regulatory capture,” the political scientists’ term for the situation when a watchdog bends to the interests of a company it is supposed to supervise.

When a center-left government took power in 2006, Autostrade’s contract came under scrutiny. The government blocked the company from selling itself to Abertis, a Spanish toll road operator, then signaled that Autostrade needed to be reined in.

“The problem was not the merger itself,” Antonio Di Pietro, then the minister of infrastructure and transport, said in a statement, “but concession rules that are too favorable toward the motorway operator, so much so that they led to the bad habit of automatic tariff hikes.”

The government approved a new law to encourage efficiency and lower tolls, except it never took effect. In 2008, the center-left government fell. The new conservative government of Silvio Berlusconi, a media tycoon, took power and amended the new law to stipulate annual increases in tolls right through to the end of the contract.

Though it aided all of Italy’s toll road operators, Autostrade, the biggest, was the biggest beneficiary.

It was labeled “Save Benetton” by critics.

Beyond fixing blame for the bridge collapse, a central question of the Morandi tragedy is what happened to safety inspections. The answer is that the inspectors worked for Autostrade more than for the state.

For decades, Spea Engineering, a Milan-based company, has performed inspections on the bridge. If nominally independent, Spea is owned by Autostrade’s parent company, Atlantia, and Autostrade is also Spea’s largest customer. Spea’s offices in Rome and elsewhere are housed inside Autostrade.

One former bridge design engineer for Spea, Giulio Rambelli, described Autostrade’s control over Spea as “absolute.”

“They even approve promotions inside of Spea,” Mr. Rambelli said.

Requests for interviews with Spea representatives went answered by Autostrade’s public relations team. Three Spea employees are now under investigation.

Experts in the field said the relationship opened the potential for conflicts of interest.

“The engineers inspecting the bridge would have their own professional liabilities to worry about, including the profits of the company that was paying them,” said Linwood Howell, an engineer who conducts bridge inspections in Texas through his firm, XR Structural.

Such potential conflicts are prohibited in other countries where Autostrade operates. In Chile, for instance, regulations block a private toll operator from hiring a company it owns to conduct inspections, according to Mariana Rocha, a spokeswoman at the country’s Ministry of Public Works.

In Poland, toll road operators can choose their own inspectors but the work is essentially double-checked.

“There will always be two kinds of inspections,” said Adrian Furgalski, an infrastructure expert from TOR Transport Consultants Group in Warsaw. “The first one is ordered by that company, but the second one is carried out by the state-owned General Directorate for National Roads and Highways.”

In Italy, the Infrastructure and Transport Ministry rarely conducted its own inspections of Autostrade properties. Instead, it reviewed documents provided by Spea.

Asked about the arrangement, a ministry spokesman, Ulisse Spinnato Vega, blamed the Autostrade contract, saying in a statement that “for too many years the ministry had its hands tied by a totally unbalanced highway concession, in favor of the concessionaire.”

“Controls, as well as responsibility for construction, were transferred to the operator, considered the ‘owner’ as per the contract,” he added.

Not true, Autostrade countered. The contract refers to ceding the management of the motorways, not their ownership. And the terms explicitly give the ministry powers to perform checks and inspections.

Mr. Fonderico, the administrative law professor from Luiss Guido Carli University, said the ministry actually lacked the expertise to carry out its oversight role, particularly on a bridge as vexing as the Morandi. Over time, he said, the government behaved more like its first priority was cooperating with Autostrade, rather than regulating it.

“All this,” he said, “suggests a system failure.”

In the weeks after the Morandi collapsed, Five Star’s political leader, Luigi Di Maio, called for the revoking of Autostrade’s contracts and renationalizing the management of the roadways. But that talk has quieted down. Though the relationship between Autostrade and the government is now defined by pure hostility, a divorce is unlikely.

The reason? If the company’s contract were terminated early, the state would need to pay Autostrade the remaining value of the contract, a sum that could exceed $17 billion.

“The company would take the state to court,” Mr. Ponti said, “and it would win.”