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Rome prepares to take control of troubled steel plant

by SuperiorInvest

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Giorgia Meloni’s government is preparing to place Europe’s largest steelmaker under special administration after failing to reach an agreement with ArcelorMittal over the plant’s future.

Rome’s announcement, scheduled for Thursday, would come after a tense standoff over the injection of 320 million euros urgently needed to keep the factory running, including paying outstanding gas bills.

The historic steelworks is being operated by Acciaierie d’Italia (AdI), a joint venture jointly owned by ArcelorMittal, the Luxembourg-based international steel giant, and Italy’s state investment agency, Invitalia.

Formerly known as Ilva, the plant located in the southern city of Taranto has long been plagued by environmental problems and has struggled to stay afloat, with production falling to less than 3 million tonnes last year, compared to its capacity of 8 million tons. Earlier this week, a court ruled that gas company Snam could stop supplying power to the steelworks due to some €200 million in unpaid bills, although AdI has appealed.

But closing a factory that employs about 10,000 people would become a political problem for Meloni, who has promised to strengthen Italy’s industrial base and create jobs.

Once it places the plant into special administration (an Italian insolvency regime aimed at keeping large illiquid industries running), Rome will be able to appoint its own interim executive to take over management of ArcelorMittal while it searches for a buyer.

Smoke comes out of the Ilva steel mill
The plant, formerly known as Ilva, located in the southern city of Taranto, has long suffered from environmental problems. © Giulio Napolitano/Bloomberg

The move would come full circle for the steelmaker in 2018, when ArcelorMittal took control of the plant from special administration and was briefly hailed as the plant’s potential savior before relations with Rome quickly deteriorated.

During emergency talks in Rome last week, Aditya Mittal, chief executive of ArcelorMittal, told Italian ministers that his company was not willing to pump more money into the business.

The government, which provided a 680 million euro emergency loan to the steelmaker last year, has said Invitalia could inject the money itself and convert last year’s loan into equity, thus becoming the majority shareholder.

But the partners are at odds over how AdI would be governed if Invitalia had a majority stake, according to several people familiar with the talks.

ArcelorMittal has also offered to exit the business entirely, but wants compensation of 200 million euros for its shares and an additional 200 million euros for supplies provided to the factory, those people said.

After last week’s failure to make a breakthrough, Italy’s economic development minister, Adolfo Urso, told parliament that a “drastic intervention” was needed to save the plant.

“These hours are decisive to immediately guarantee, in the absence of commitment from the private partner, the continuity of production and the safeguarding of employment in the period necessary to find other private industrial investors,” Urso told legislators.

Built in the 1960s, the Taranto plant was once a source of pride. But it turned out to be an environmental disaster, spewing deadly carcinogens that residents said were poisoning them and fueling a surge in cancer cases.

In 2014, Roma took control, intending to find new owners to clean up the old plant, restore its financial health and increase production. In 2018, after a competitive bidding process, ArcelorMittal agreed to a lease-purchase deal worth €1.8 billion, promising hundreds of millions of additional funds for environmental cleanup.

It sold several of its other European steel plants to get the green light from the EU competition authority. But the following year, the anti-establishment Five Star party came to power and withdrew the legal immunity clause that protected ArcelorMittal from criminal liability for the plant’s environmental problems.

ArcelorMittal threatened to withdraw, but instead agreed to form a joint venture with the public investment agency to jointly manage the plant.

However, relations remain tense with both sides accusing each other of failing to honor their commitments. Rising gas prices in 2022 will put further pressure on operations.

“It’s a situation that says a lot about the relationship between Italian politicians and companies,” said Carlo Calenda, a senator and former economic development minister, who helped negotiate ArcelorMittal’s entry. “They just don’t know how to approach the industry.”

Calenda was pessimistic about the factory’s prospects following the breakdown of relations with ArcelorMittal.

“My perspective on Ilva is very bleak. “It will be very difficult for the State to manage a factory in a very competitive market.”

Additional reporting by Sylvia Pfeifer in London

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