Italian govt must consider appropriate punishment carefully after bridge collapse

Italy’s deadly bridge disaster will shape the country’s infrastructure fix for better or worse. Shares in toll-road operator Atlantia have fallen as much as 30 percent since the Genoa viaduct collapsed on Tuesday. The tragedy reinforces the case for more investment. But the costs will depend on the government’s treatment of the Benetton family-controlled group.

The company, which operates around 3,000 kilometers of Italian motorways, rightly faces questions about its role in the collapse, which killed at least 38 people. Though the cause of the disaster is still unclear, the government, a coalition of radical parties led by the 5-Star Movement and the League, says it is considering a range of penalties.

Imposing a fine or revoking the contract over the affected stretch of motorway would be manageable. The section makes up less than 1 percent of its total network. Even if it is stripped of the concession, the government will owe it a fee of around 20 million euros ($23 million). RBC reckons the cost of rebuilding the bridge and paying out damages could reach 1 billion euros.

The government could also demand Atlantia invest more in its network, or cut the fees it charges. At worst, it might strip Atlantia of its entire Italian motorway concession – a business that brought in over half the company’s EBITDA last year. It doesn’t help that Atlantia’s revenue has grown by roughly 3 percent a year since 2006 while capital expenditure – which is fixed by contract – has been roughly flat.

That risk explains why Atlantia investors have wiped around 5 billion euros off the company’s market value since the disaster. Net debt, which Santander analysts estimate at 5 times EBITDA next year, adds to the volatility.

What’s bad for Atlantia may be good for the government, which wants to increase investment and strengthen the state’s grip. Italy could do with a boost: At about 2 percent of GDP, public investment is over a fifth below the eurozone average. However, if the government treats Atlantia too harshly, the public purse will suffer. The spread on 10-year Italian government bonds over equivalent German securities has widened by 10 basis points since the collapse. Too heavy-handed an approach could make any stimulus much costlier.

The author is Neil Unmack, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews. bizopinion@globaltimes.com.cn