Rome pledges to meet steel deadline

Date: 23/11/1995

THE Italian government will submit a plan this week detailing how it intends to cut capacity at steel-maker Ilva Laminati Piani, just days before a 28 November deadline set by Competition Commissioner Karel Van Miert.

The company, owned by Italy's largest steel manufacturer Riva, must reduce capacity by 500,000 tonnes in return for state aid approved in 1993.

“It's up to the Italian government to prove that the 500,000 tonnes of cuts will be carried out otherwise the Commission will take action,” said Van Miert after a recent meeting of EU industry ministers.

Ilva, a flat-products business sold to the Riva Group in April for 1.2 billion ecu, was allowed state aid worth 2.573 billion ecu in December 1993 by the Council of Ministers. This included a capital injection of 351 million ecu and a restructuring and winding-up expenditure of 643 million ecu.

The group had run into substantial losses during 1991-92 and was on course for a 2.1-billion-ecu loss in 1993, causing the company's indebtedness to mount steadily. However, this was offset by a state guarantee which amounted to a credit facility.

After originally blocking a 4-billion-ecu debt write off for the company, the Commission brokered an agreement in December 1993. This allowed the Italian government to write-off debt worth 1.58 billion ecu on condition that the company would be split into a flat-products business, Ilva Laminati, and a stainless steels business, Acciai Speciali Terni, both of which would then be privatised.

The rest of the firm's debts of 5.4 billion ecu would be transferred to the buyers of the new companies or covered by their sale price.

Ministers set strict conditions on granting the aid. In return for the subsidy, 1.2 million tonnes of hot-rolling capacity would have to be cut at Ilva's Taranto plant in southern Italy, with the closure of two reheating furnaces, and the Bagnoli wide-strip mill would have to be completely closed.

The key issue now is how the company intends to fulfil its commitment to cut another 500,000 tonnes of capacity within six months of privatisation.

At an expert-level meeting in October, Riva offered to shut down and dismantle 700,000 tonnes of hot-rolling capacity at Taranto - a proposal welcomed by the Commission.

But the Italian government, worried by the social effects of such a closure in an area of high unemployment, offered instead to find equivalent cuts elsewhere. The Commission agreed, but set three conditions: the cuts must total 500,000 tonnes, must be in Italy and must have been carried out in 1994-95.

At the 7 November meeting of EU industry ministers, the Italian government gave Van Miert a list of cutbacks totalling 270,000 tonnes and promised an additional list to reach the desired total.

Ruling out one offer of capacity cuts because it involved an Ilva plant in Brittany, Van Miert gave Rome until 28 November to come up with the new list of capacity reductions.

The new package will be submitted to the Commission at the end of this week, showing how the remaining 230,000 tonnes of cuts will be made, Italian officials said.