Explaining Partial Privatization of Public Service Provision:
The Emergence of Mixed Ownership Water Firms in Italy (1994-2009)
Dr Alberto Asquer
Draft
Abstract
Within the area of study of privatization, some attention has been placed on the emergence of mixed
public-private ownership firms for the provision of public services. Mixed ownership firms pose an
important theoretical issue, i.e., why do governments open up part of their ownership of public
service providers to private operators and investors rather than giving up full ownership of public
service providers or establishing a contractual relationship with the private partner? This paper aims
to address this issue by analyzing the case of the emergence of mixed ownership firms for the
provision of water services in Italy. The analysis of the case shows that partial privatization of
public service providers is especially related to characteristics of the historical and institutional
context as well as to features of the privatization policy process.
Key words: Privatization, mixed ownership, water sector.
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Explaining the Partial Privatization of Public Service Provision:
The Emergence of Mixed Ownership Water Firms in Italy (1994-2009)
INTRODUCTION
A growing amount of scholarly attention has been recently devoted to the emergence of
mixed public-private ownership firms for the provision of public services (Albalate et al., 2012a,
2012b; Bel and Fageda, 2010; Boardman and Vining, 1998; Bognetti, and Robotti, 2007; Brandsen
and Karré, 2011; Cruz and Marquez. 2012; Marra, 2006, 2007). In a type of scenario, mixed
ownership firms arise as a temporary arrangement within the privatization of government-owned
companies, when the government sells non-controlling stakes of the company first and the rest of
the shares later on (Gupta, 2005). Such mixed ownership firms exists provisionally during an
intermediate stage between full public ownership and final full privatization. In another type of
scenario, instead, mixed ownership firms are established as an enduring form of public-private
partnership. Such mixed ownership firms or 'institutionalized public-private partnerships' (iPPPs;
Cruz and Marques, 2012; Marques and Berg, 2011) originate from a deliberate design for
organizing the provision of public services through firms that are jointly owned by public
authorities and private operators or investors.
Why do governments open up part of their ownership of public service providers to
private operators and investors rather than giving up full ownership of public service providers or
establishing a contractual relationship with the private partner? This paper aims to address this issue
by analyzing the implementation phase of the policy cycle to privatize Italy's (drinking and waste)
water sector in the period 1994-2009. Moving from status quo conditions that included diffuse
public ownership of water firms and high fragmentation of the water industry, the implementation
of the privatization of the water sector in Italy led to a massive consolidation of water service
providers and to some partial privatization of local government-owned water firms. At the end of
the implementation episode, about two thirds of Italy's water sector was retained under full public
ownership, but about one fourth of the country's water service providers were partially opened to
private operators (including major French water multinationals) and investors. In a very few cases
only were water franchises awarded to fully privately owned companies. The analytical issue at
stake, then, is why were water services privatized to mixed ownership firms in a minor part of the
country's water industry.
The analysis of the case will contrast and compare the trajectory that led to the formation
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of mixed ownership firms in some parts of the country with the one that resulted in the maintenance
of full public ownership water service provision in the rest of Italy. The comparative analysis of
reform implementation trajectories is conducted in a processual approach, a method of analysis that
is especially attentive to the role of time, path dependency, and changing context conditions in
affecting the path and outcome of public policy (Kingdon, 1984) and organizational (Pettigrew,
1997) processes. The case study will show that the emergence of mixed ownership water firms in
Italy can be explained by the joint combination of initial conditions of the water industry, changed
features of the water reform content, and characteristics of the policy process (especially, the
diffusion of ideas about partial privatization drawn from early experiences of the water reform
implementation).
The rest of the paper is organized as follows. Next section will review the scholarly
literature on privatization, with particular attention to research works that especially have been
concerned with the political economy of the policy-making stage of privatizing public service
providers. Section three will present the research design of this study. The fourth section will
narrate the implementation of the privatization of the water sector in Italy in the period 1994-2009.
Section five will analyze and discuss the case and the research findings. Finally, the last section will
draw the conclusions of this study.
THE POLITICAL ECONOMY OF (PARTIAL) PRIVATIZATION
There is a vast literature on privatization, broadly defined as the deliberate sale by a
government of corporate entities (state-owned enterprises or SOEs) or public assets (Bös, 1991;
Megginson and Netter, 2001; Vickers and Yarrow, 1988). Most theoretical and empirical works
have focused on the rationales, forms, and performance effects of privatization in general (Clifton et
al., 2006; Donahue, 1989; Feigenbaum et al., 1998; Kolderie, 1986; Lundqvist, 1988; Sappington
and Stiglitz, 1987; Starr, 1988; Vickers and Yarrow, 1988, 1991; Yarrow et al., 1986). Relatively
less attention has been placed, instead, on the particular type of (partial) privatization that takes
place when the government deliberately retains a share of ownership of the firms or assets that have
been put on sale. Yet, mixed ownership firms pose several issues, especially related to the
governance and to the performance effects of such form of enterprise, that call for attentive
scholarly work.
From an economic perspective, partial privatization can be conceived as a solution to the
problem of designing efficient organizations. Works done within the scholarly literature on
transaction cost economics (Williamson, 1991, 1985, 1975), in particular, highlighted that
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organizational and governance forms are selected in order to minimize the cost of ‘frictions’ in
contractual relationships that especially arise from information asymmetries, asset-specificity,
bounded rationality, and moral hazard. Mixed ownership firms constitute a ‘hybrid’ institutional
arrangement that provides a framework for organizing transactions while minimizing shirking
(minimizing efforts unless properly supervised) and cheating (inflating prices and/or reducing
quality) costs (Hennart, 1993). For example, Bel and Fageda (2010, 2008) showed that mixed
ownership firms are established in response to pragmatic concerns when public authorities deal with
contradictory pressures related to transaction cost considerations, financial constraints, and private
interests. Warner and Bel (2008) related the presence of ‘hybrid public/private firms’ in Spanish
municipalities to the benefits that such firms receive from both market engagement and economies
of scale available under monopoly production. Marra (2007) showed that the establishment of
mixed ownership firms allows the public owner to gather more information about the management
of the partially privatized firm than under full privatization and contractual or regulatory
arrangements. Brown and Potoski (2003) offered a transaction cost economics explanation of the
choice of governments on how to deliver services to citizens.
Other works especially focused on the role of political factors in the making of mixed
ownership firms. From a political perspective, partial privatization can be understood as a type of
process related to so-called ‘pro-market’ regulatory reforms, that is, public policies that aim to
enhance general welfare by exposing operators to competitive pressures (Bienen and Waterbury,
1989; Clarke, 1995; Landy et al., 2007; Suleiman and Waterbury, 1990). Of course, the
privatization of public service providers, by itself, does not necessarily imply any increase of
competitive pressures, if the effect of privatization on the industrial structure of the reformed sector
is merely the one to replace a public monopoly with a private or mixed ownership one. ‘Pro-market’
regulatory reforms should typically contain policy measures that liberalize access to the market and
provide measures against collusive agreements and the abuse of dominant positions. ‘Pro-market’
policies, however, may also take the form of institutional and regulatory arrangements that include
some form of market-based discipline on the conduct of public service providers. Mixed ownership
firm can provide such sort of market-based pressure, because the private partner should expect that
the firm attains a level of profitability that is higher than alternative forms of investments with
commensurate risk, else private capital could be more profitably employed. Several works
highlighted the role of political factors in the making of mixed ownership firms. Early studies by
Brooks (1987) and Heald (1988), for example, highlighted that the creation of mixed ownership
firms is driven by political considerations that especially relate to the pursue of public policy
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objectives. Wollmann (2012, 2010, 2004, 2000) highlighted similarities and differences in
privatization trends – including the creation of mixed ownership firms – across countries that
especially included the role of political and ideological inclinations.
RESEARCH METHOD
This paper aims to address the question of what accounts for the creation of mixed
ownership firms for the provision of public services. This question is tackled through the case study
(Ragin and Becker, 1992; Stake, 1995; Yin, 2003) of the implementation episode of the policy cycle
to privatize Italy's (drinking and waste) water sector in the period between 1994, when a policy
reform provided the re-regulation, liberalization, and privatization of water services in the country,
and 2009, when the water reform was substantively reversed. In 2009, a public protest mounted
against legislation that mandated to privatize public sector water firms that did not attain financial
self-sufficiency. The protest resulted in a plebiscite (held in 2011) that repealed the rules that
allowed the management of local public services to be entrusted to the private sector and the
regulation that determined the tariff for water supply (that included a return on capital invested).
Other legislation passed in 2009 abolished the local water regulatory authorities.
The selection of the case is justified by the distinguishing features of the case path and
outcome – in particular, the presence of within-case variation between paths and outcomes of the
reform implementation process across the country. The emergence of mixed ownership water firms
took place during the period 2001-2003, while in the periods 1994-2001 and 2003-2009 local
governments generally retained full ownership of water firms. In addition, the episode contains a
‘sub-case’ of trajectory of partial privatization of water services in the area of Alto Valdarno
(Tuscany region), where local governments partially privatized their water firms in the period 19941999, i.e., at much faster pace than elsewhere in the country. The analysis will take advantage of
these features of the episode for comparing the trajectories of the privatization process across time
(i.e., the partial privatization in the period 2001-2003 with respect to the preservation of full public
ownership in 1994-2001 and 2003-2009) and space (i.e., the partial privatization in Alto Valdarno
in 1994-1999 with respect to the rest of the country in the same period).
Data were collected from primary, secondary, and tertiary sources. Primary sources included
parliamentary minutes, official reports and other documents issued by the national water regulatory
agency (Comitato di Vigilanza per l'Uso delle Risorse Idriche or Supervising Committee on the Use
of Water Resources), and 20 interviews with informants based in the Supervising Committee on the
Use of Water Resources (4), in the local regulatory authorities (11), in water firms (3), in the
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association of water firms Federgasacqua (1), and in the research centre Istituto Ricerche Sociali
(1). Secondary sources included reports issued by the water research centers Proaqua, Astrid, and
Utilitatis, proceedings of the yearly conferences ‘H2Obiettivo 2000’ organized by the water firms'
association Federgasacqua (renamed Federutility from 2005), and articles from the business press Il
Sole 24 Ore (546 total). Tertiary sources included various scholarly works done on the reform of
water services in Italy (Anwandter and Rubino, 2006a, 2006b; Bognetti and Robotti, 2007; Citroni
and Lippi, 2006; Citroni et al., 2007; Gilardoni and Marangoni, 2004; Guffanti and Merelli, 1997;
Lippi et al., 2008 ; Marra, 2006, 2007; Massarutto, 2005, 1993). The Appendix provides more
detailed information about documentary and interview sources.
The analysis of data followed a processual approach for explaining the path and outcome of
the privatization process (George, 1979; Bennett and George, 1997; George and Bennett, 2005;
Kingdon, 1984; Pettigrew, 1997). A processual analytic method enables us to develop explanatory
arguments that are especially attentive to time, path dependency, and changing context conditions
(Mahoney, 2000; Pierson, 2000, 2004; Barzelay and Gallego, 2006). A distinguishing feature of this
approach is the use of social mechanisms (Hedström and Swedberg, 1998; McAdam et al., 2001) as
theoretical resources for explaining empirical instances of the process under consideration.
Variously conceived as interpretations (Schelling, 1998) or hypothetical causal models (Gambetta,
1998) or plausible hypotheses that could be the explanation of some social phenomenon (Hedström
and Swedberg, 1998) or frequently occurring and easily recognizable causal patterns (Elster, 1998)
about the behavior of entities at different levels (e.g. individuals) rather than the main entities being
theorized about (e.g. a group or a social process), social mechanisms provide (either in isolation or
in concatenations; Gambetta, 1998) hypothesized social interactions which are believed to cause the
observable effects that are cast in the role of explananda. Within the present case study, social
mechanisms have been employed to help developing, in analytical inductive approach, a historically
grounded theoretical account of the partial privatization process. The present work, therefore, falls
into the category of ‘heurisitc’ case study within the classification proposed by Thomas (2011) (that
also included atheoretical, disciplined-configurative, theory testing, plausibility probe, and crucial
case studies).
THE PRIVATIZATION OF THE WATER SECTOR IN ITALY (1994-2009)
Initiating the privatization process (1994-2001)
In late 1993, the Parliament of Italy passed a legislation containing the reform of the
country's water sector (Act 36/1994). The reform mainly intended to improve water sector
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performance (in such terms as cost efficiency and service quality) by consolidating a very
fragmented industry (that counted about 23,500 operators in the country), eliciting competitive
pressures for the award of water franchises, and attracting private operators and investors. The
water reform provided that the regions passed legislations that defined the boundaries of new water
administrative jurisdictions (called Ambiti Territoriali Ottimali or Optimal Territorial Areas,
henceforth OTAs) and the specification of various details of the new regulatory system.
Additionally, local governments were required to establish local regulatory authorities (Autorità
d'Ambito or OTA Authorities) that would award water franchises to either mixed ownership firms
or to business companies selected through tender offer competitions.
After the water reform came into force, sub-national governments spent several years to set
up the new regulatory system, with the effect that the privatization of water service provision was
considerably delayed. In part, the delay to implement the water reform originated from a sense of
discontent towards the ‘marketization’ of water that was diffused among part of the population and
championed by leftist parties. In part, obstacles to water reform implementation also related to the
resistance of local politicians to privatize the water firms, because control of water service
provisions often enabled them to exert influence on water-related jobs and public contracts and,
therefore, to cultivate the electoral support of local constituencies. This view was illustrated by
Francesco Bosco, manager of ACEA, in this way:
“The water reform affected the vicious circle between politicians, water firms' managers, and the
voters. The mayor loses power if water is managed by someone else outside the local government,
because water has always been important for electoral purposes. We can recall a movie, 'The
Postman' [1994], where a local politician gains the votes for his election by promising to bring
water supply to the town. [Local government-owned] water firms were afraid to lose their role and
not to be protected, while local politicians perceived that the water reform could spoil them of their
power” (interview, September 2001).
Part of the water sector, however, was favorably inclined towards the implementation of the
water reform. Since early 1990’s, several local government-owned public service firms had been
reincorporated as municipal companies after the central governments passed legislation that
prohibited public funding of their deficits. Within these municipal companies, executives and water
professionals developed a shared view that water services could be efficiently managed with an
‘entrepreneurial’ spirit. This attitude circulated and consolidated through the network of water
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policy experts that had formed around the national association of water and gas utility firms,
Federgasacqua, especially on the occasions of the yearly conferences ‘H2Obiettivo 2000’. Some
local politicians openly supported the reorganization of water service providers, such as, for
instance, Lido Scarpetti, mayor of Pistoia, who argued:
“We aim to pool together the resources and managerial capabilities [of local government-owned
water firms] that we accumulated in the past, in order to enter the market in a strong position, and to
be ready for the opportunities that arise from the institutional changes [in the water sector].
Nowadays there is a trend towards overcoming particularism and achieving economies of scale in
order to optimise costs and services” (Il Sole 24 Ore, 24th April 1997).
Establishing a mixed ownership water firm in Alto Valdarno
During the period 1994-1999, one mixed ownership water firm only was established by
local governments located in the area called Alto Valdarno in Tuscany. The partial privatization of
water services in Alto Valdarno originated from negotiations that had been conducted in 1990 by
the gas firm Coingas, owned by the municipality of Arezzo, and various local governments of the
same area for merging with other municipal companies that operated in the gas and water industries
(Caselli and Peruzzi, 1996; Lobina, 2005). Having gained the support of the center-left parties
which backed the city executive, in October 1992 Coingas submitted a plan which provided that the
firm would be reincorporated as a business company and would be assigned the water franchise of
Arezzo (that directly managed water services at that time) and of 24 other neighboring local
governments. Support for the Coingas plan dissolved in 1995 after the formation of a new centerleft coalition executive in Arezzo, chaired by the mayor Paolo Ricci. Following the political
orientation of the regional branch of the leftist Democratici di Sinistra party (DS) at that time, Ricci
rather favored the formation of mixed ownership firms for the management of local public services.
After the Coingas plan was overruled on the basis of the lack of transparency related to crosssubsidization between gas and water activities and the firm's modest experience in managing water
services, in February 1996 the city council of Arezzo approved Ricci's proposal to establish a local
government majority-owned water firm, called Nuove Acque. In July 1997, Nuove Acque was
awarded the water franchise by the OTA Authority of Alto Valdarno and local governments of the
area decided to tender out a minority share (46%) of this company to private operators. On 21 st
March 1999, finally, the minority share of Nuove Acque was assigned to a consortium of
companies led by Suez-Lyonnaise des Eaux.
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The award of water franchises to mixed ownership firms (2001-2003)
In December 2001 the Parliament passed a reform (Act 448/2001) that provided the general
rule that local public services should be contracted out to private operators through tender offer
competitions. Special provisions, however, allowed to postpone tender offer competitions in the
water sector up to 10 years, if particular conditions (such as merging water firms into larger
operators and opening up ownership to private operators or investors) were met (Petretto, 2001).
After the Parliament passed the 2001 reform, some local governments (especially, those
neighboring Alto Valdarno and that had been preparing to implement a partial privatization scheme
similar to the one of Nuove Acque), rushed to make the OTA authorities award the water franchises
to their water firms within the few weeks’ time before the 2001 reform came into force. In this way,
local governments could bypass the requirement to award water franchises through tender offer
competition imposed by the 2001 legislation.
After the 2001 local public services reform came into force, local governments started to
restructure local water service arrangements with the intention of postponing tender offer
competitions whenever possible. First, local governments made their water firms merge and
reincorporate in order to match the size and other requirements set by the legislation, then they
made the OTA authorities award water franchises to the local government-owned merged firms, and
finally they made the water firms partially open up their ownership to private operators or investors.
When following this partial privatization scheme, local governments also realized that, far from
completely giving up their influence on the water industry, they could retain considerable sway by
appointing the company management and maintaining a strong voice on key organizational
processes. This view was succinctly expressed, for example, by Alessandro Antichi, mayor of
Grosseto, in this way;
“We mayors know well that a tight control on third entities, such as the companies which provide
local public services, is actually more effective than the one we have on our own managers, that we
find in a local authority because they won a public selection, they chair a division which is only
respondent to them, and, as a matter of fact, for us it is much easier to manage through the
companies than through the managers [of the local governments]” (Federgasacqua conference,
Trieste, 24-26 September 2003).
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Awarding water franchises to full public ownership firms (2003-2009)
In September 2003, the central government passed another reform (Legislative Decree no.
269, later partially amended by Act 350/2003) that restated that local public services should be
contracted out to private operators through tender offer competitions. The reform also allowed,
however, that franchises of local public services could be legitimately awarded either to mixed
ownership firms, where the private partner had been selected through tender offer competitions, or
to firms fully owned by local governments, provided that these firms deliver most of their services
to the same local governments, and that local governments exercise on these firms a control as tight
as the one exerted on their own divisions (so-called ‘in house’ arrangement). After the 2003 reform
came into force, several OTA authorities started awarding water franchises to ‘in house’ firms, that,
albeit established as business companies, secured local governments' close control on local water
industries. Such ‘formal privatization’ scheme was exploited by local governments as a way to
bypass the tender offer competition rule or the requirement to partially open the ownership of the
water firms to private operators or investors.
The implementation of the water reform led, by late 2000's, to some degree of industrial
reorganization and privatization of the water sector. A survey of the water sector in 2009 showed
(Table 1) that water franchises had been awarded in about two thirds of the OTAs (67 out of 92),
and that most of them had been granted to ‘in house’ firms (i.e., without opening up ownership to
private operators or investors and without any tender offer competition). About one fourth of water
franchises, however, had been awarded to water firms whose ownership had been partially opened
up to private operators (in the form of minority share of mixed ownership firms) or investors (in the
form of share ownership of companies floated in the stock exchange) during the period 2001-2003.
< insert Table 1 about here >
EXPLAINING THE EMERGENCE OF MIXED OWNERSHIP FIRMS IN THE WATER
SECTOR IN ITALY
Before analyzing the trajectory of the water reform implementation, we briefly discuss how
the decision to privatize water service provision was made. An important factor, in this respect, is
the regulatory governance system of the OTA authorities. Local governments established the OTA
authorities as organizations that they owned and controlled, rather than as independent agencies. By
designing the local water regulatory authorities in such a way, local governments anticipated that
they could retain influence on the decisions made by the OTA authorities, including those related to
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how water services would be privatized. Neither the water reform statute nor general legislation on
the provision of local public services mandated that the OTA authorities should be established as
independent agencies – a design option that could have made the OTA authorities less exposed to
local governments' influence, but that never gained any serious consideration within local
governments' political circles.
Why, then, did local governments not make the OTA authorities award the water franchises
in the first period of the episode? In order to answer this question, we take into consideration the
role played by initial conditions of the water policy subsystem (diffused local government
ownership of water service providers and local governments' ownership and control of the OTA
authorities), features of the policy content (especially the provisions that each OTA authority would
award water franchises to one water company only), and features of the policy process (the
provisions that local governments were required to agree on the establishment of the OTAs before
the regions could pass the legislations for enforcing the water reform at the regional level). In
explaining how these conditions resulted in the stability of the water ownership structure after the
enactment of the reform, an important role could be played by the mechanism of sequential
attention to goals. Sequential attention to goals (Cyert and March, 1963) holds that, because of
cognitive limitations and conflicting interests, problem-solving in organizational contexts is mainly
driven by ‘satisfying’ rather than ‘optimizing’ criteria, including a stepwise approach to complex
issues. Indeed, features of the policy content and the policy process made local governments face
the complex issue of attaining multiple goals (i.e., consolidating water services, centralizing
regulatory functions, and privatizing the water industry) under conditions that included deep interdependences between each component part of the water reform and the several actors involved.
Cognitive and organizational factors, therefore, may help explaining local governments' delay to
execute the policy reform mandate in the years immediately after its coming into force.
While the implementation of the water reform generally faltered in the country, the OTA
authority of Alto Valdarno carried out the partial privatization of water services in relatively short
time. In this sense, part of Tuscany deviates from the general ‘inertia’ pattern in the country during
this period. In exploring why this within-case variation took place, we especially take into
considerations initial conditions of the water policy subsystem in Alto Valdarno, that included
previous events that had led to the formation of an agreement between local governments located in
this part of Tuscany over the consolidation of water and gas services in one firm only and over the
partial privatization of the local municipal company. This event resulted in conditions that
contributed favoring the partial privatization of water services in this part of Tuscany. Initial
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conditions also included particular features of the local water industry, in the form of the presence
of municipal companies for the delivery of local public services. As an organizational form,
municipal companies possess particular institutional features (such as statutory autonomy with
respect to the municipal owner) the make them enjoy relatively more ‘freedom to act’ with respect
to alternative entities, such as municipal departments and local government consortia. In other
words, municipal departments and consortia encounter more sources of ‘institutional inertia’, in
such forms as statutory or legislative constraints, that could have played against the feasibility of
privatizing water services.
For explaining why these conditions were conducive to the privatization of water services in
Alto Valdarno, we can call into play the role of the mechanisms of organizational appropriation,
understood as the exploitation of existing entities for mobilization of action (McAdam et al., 2001),
and committed interpretation, conceived as the development of an open justification for one's
behavior based on past public actions (Weick, 2001). The past agreement to centralize gas and
water services into a municipal company provided an organizational ‘vehicle’ that local actors
could appropriate for implementing the partial privatization of water services. Indeed, most of the
design work for reconfiguring the provision of water services in Alto Valdarno had already been
negotiated when the water reform came into force. In addition, past commitment to privatize gas
and water services constituted an open policy orientation that local governments could hardly
disowned or postpone. These mechanisms, then, may account for how, differently from the rest of
the country, particular initial and context conditions in Alto Valdarno were especially propitious for
the privatization of water services in the form of establishing a mixed ownership firm.
Next issue is why the partial privatization of the water services progressed in the period
2001-2003. The explanation for this part of the water reform implementation trajectory calls into
play the role of changed context conditions (especially, features of the 2001 legislation) and initial
conditions (especially, the presence of municipal companies for the provision of water services). In
order to explain this part of the trajectory, we consider the role played by the mechanisms of
attribution of opportunities and threats and of network diffusion. The 2001 legislation provided
local governments with the opportunity (McAdam et al., 2001), in the form of special provisions for
the water sector, to retain influence on the local water industries. This opportunity, however, could
be hardly exploited without the propelling role of the diffusion of ideas about the beneficial effects
of the partial privatization scheme. Sources of resistance against the privatization of water services
were partially overcome because of changed beliefs towards the expected consequences of
privatizing water services, which were triggered by the diffusion of ideas within the national
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network of water policy professionals. In general, the mechanism of network diffusion (Hedström
and Swedberg, 1998) refers to how actors' beliefs are affected by perception of the behavior of
others. In situations where consequences of actions are uncertain, evidence of what other actors do
signals to others the value or necessity of such actions, so that others are induced to behave
accordingly. Water policy professionals may have helped overcoming cognitive and organizational
barriers to accept the partial privatization scheme, especially by spreading evidence of early partial
privatization on the occasion of the yearly conferences of the national water firms' association
Federgasacqua.
Finally, the last issue is why, from 2003 onwards, water services were generally awarded to
‘in house’ firms rather than privatized (an outcome that amounts to ‘formal’ rather than
‘substantive’ privatization). In order to explain this final ‘twist’ in the trajectory of the privatization
episode, we again need to take into account the role played by changed context conditions
(especially, features of the 2003 legislation) and initial conditions (diffused local government
ownership of water firms and local governments' stakes in the water industry). The mechanisms of
attribution of opportunities and threats and of certification, that consists of the validation of actors,
performances, or claims from external authorities (McAdam et al., 2001), help shedding some light
on how preservation of the position of incumbent water firms was attained. The 2003 legislation
changed features of the policy content that local governments framed as an opportunity to retain full
ownership of water firms if they were merged together in order to gain an scale adequate for
proving water service in the whole OTAs). In addition, the 2003 legislation provided a source of
validation of full public ownership of water service providers, that local governments conveniently
invoked for blocking the privatization process.
CONCLUSIONS
The present case study suggests that multiple factors need to be taken into account for
explaining the trajectory of the water privatization process, especially the emergence of mixed
ownership firms (Table 2). The explanation for the halting part of the trajectory of the water reform
implementation in the period 1994-2001 focuses on the causal role played by diffused local
government ownership of water service providers, local governments' ownership and control of the
OTA authorities, and reform provisions that included that each OTA authority would award water
franchises to one water company only and that local governments were required to agree on the
establishment of the OTAs before the regions could pass the legislations for enforcing the water
reform at the regional level. The partial privatization in the period 2001-2003 is explained by the
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joint combination of features of the water industry, changed features of the policy content brought
about by the 2001 legislation, and policy feedback effects. The award of water franchises to ‘in
house’ firms after 2003 is explained by taking into account the causal role played by the diffused
local government ownership of water service providers, the stakes of local government in the water
industry, and changed features of the policy content brought about by the 2003 legislation. Within
this case study, therefore, multiple factors contribute articulating an explanation for the partial
privatization of water service provision within the process of implementing the 1994 water reform.
< insert Table 2 about here >
With respect to existing theoretical arguments about the political economy of privatization,
this study especially places importance to the combination of features of the historical and
institutional context. Rather than explaining the obstacles encountered in opening up water firms to
private operators or investors just on the basis of local government's interest to protect their stakes
in the water industry, this case study suggests that we should pay attention to the causal role played
by initial conditions, reform content features, and reform process features – including how these
conditions may change over time in relation to contemporaneous events. While this case study does
not deny the importance of actors' stakes and their inclination to make decisions according to
canons of instrumental rationality, it also highlights that stakes and interests are not sufficient
explanatory factors for the trajectory of the privatization process. If we take into account the
features of the historical and institutional context, instead, we gain a better understanding of why,
depending on context conditions, privatization does not take place, or it takes the form of mixed
ownership firms, or it is merely conducted in the form of ‘formal’ reincorporation under companies
laws while public authorities retain full ownership of the public service providers.
The emergence of mixed ownership firms for the provision of public services is not limited
to the water sector in Italy, of course. Instances of mixed ownership firms abound across other
sectors (e.g., gas, urban waste, public transport) and countries, especially in the EU (Cruz and
Marquez, 2012; Marra, 2006; Warner and Bel, 2008). In some countries, mixed ownership firms
have long seized an important place within the industrial landscape of public service provision, such
as the French Sociétés d’économie mixte. Other countries, instead, hold a long tradition of full local
government ownership of local utilities, such as the German Stadtwerke, that seems to persist
despite an apparent upsurge of mixed ownership firms (Wollmann, 2012). The issue as to whether
the design of ownership structure relates to the performance effects of mixed ownership firms with
14
respect to full public ownership remains, in this respect, elusive. The findings of this study suggest,
however, that historical and institutional conditions are important to account for the persistence of
existing forms of ownership of public sector providers, and that deviations from established
ownership patterns may be explained by particular and contingent circumstances.
15
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19
Appendix
Interviews:
Marisa Abbondanzieri, General Manager OTA “Marche Centro – Ancona” Authority, April 2009.
Enrico Asquer, manager ESAF, December 2001.
Luciano Baggiani, Chairman Associazione Nazionale Autorità ed Enti d'Ambito, October 2008.
Claudio Boldori, General Manager OTA “Cremona” Authority, April 2009.
Francesco Bosco, manager ACEA, September 2001.
Carlo Casadei, General Manager OTA “Rimini” Authority, April 2009.
Stefano Cima, researcher, Istituto Ricerca Sociale, October 2002.
Renato Cocchi, member of the Supervising Committee on the Use of Water Resources, October
2002.
Diomira Cretti, General Manager OTA “Lodi” Authority, April 2009.
Giancarlo Galli, former Christian Democrat MP, former member of the Supervising Committee on
the Use of Water Resources, October 2002.
Giovanni Gravante, General Manager OTA “Savonese” Authority, April 2009.
Renato Drusiani, Chairman Federgasacqua, June 2002.
Marco Moselli, General Manager OTA “Bologna” Authority, April 2009.
Prof. Gilberto Muraro, Chairman Supervising Committee on the Use of Water Resources, July
2002.
Prof. Angelo Nardozza, Chairman OTA “Basilicata” Authority, April 2009.
Valter Pallano, manager AMGA, October 2001.
Francesco Peri, Manager OTA “Mantova” Authority, April 2009.
Paolo Peruzzi, member of the Supervising Committee on the Use of Water Resources, October
2002.
Alessandro Piotti, Manager OTA “Lazio 2” Authority, April 2009.
Carlo Robutti, General Manager OTA “Piemonte 2” Authority, April 2009.
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20
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21
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22
Tables
Firms traded in
stock exchange or Safeguarded public
owned by financial
sector firms
institution
Regions
No. OTAs which have
awarded concessions
(No. OTAs established)
“in house”
firms
Mixed publicprivate ownership
firms
Piemonte
6 (6)
17
3
Valle d'Aosta
0 (1)
Lombardy
6 (12)
8
1
Veneto
7 (8)
12
Friuli Venezia Giulia
1 (4)
1
Liguria
2 (4)
4
22 (35)
42 (78%)
Emilia Romagna
9 (9)
1
Tuscany
6 (6)
1
5
6
Umbria
3 (3)
1
2
3
Marche
4 (5)
3
Lazio
4 (5)
1
Abruzzo
6 (6)
4
Molise
0 (1)
Total northern regions
Total central regions
4 (7%)
2
11
13
5
6 (11%)
2 (4%)
6
3
0 (0%)
0 (0%)
1
1
54
10
3
6
1
4
2
6
0
Campania
2 (4)
1
1
Puglia
1 (1)
Basilicata
1 (1)
1
Calabria
3 (5)
2
Sicily
5 (9)
Total
24
1
8 (22%)
Interregional OTAs
4
Total
1
12 (33%)
Total southern regions
Private firms in
negotiated transitory
regime
1
32 (35)
Sardinia
Private firms selected
through tender offer
competition
7 (19%)
8 (22%)
1 (3%)
0 (0%)
36
2
1
1
1
1
1
4
3
5
1 (1)
1
13 (21)
5 (38%)
2 (15%)
0
1 (8%)
4 (31%)
1 (8%)
13
1
58
14
13
11
5
1
102
0 (1)
67 (92)
Table 1. Distribution of the types of firms which were awarded water concessions, per region, 2009 (Source: Supervising Authority on Water Resources and Urban Waste, 2008; web
sites of the OTAs, last access in December 2009).
23
Component parts of the water privatization process
Initial conditions
Inertia part
(1994-2001)
Alto Valdarno part
(1994-1999)
Features of the water regulatory governance
system (OTA authorities owned and controlled
by local governments)
Negotiated agreement on reforming water
service provision (consolidating water services
and opening up access to private operators and
investors)
Features of the water industry (diffused local
government ownership of water service
providers)
Mixed public-private ownership
privatization part
(2001-2003)
“Formal”
privatization part
(2003-2006)
Features of the water industry (municipal firms) Features of the water industry (diffused local
government ownership of water service
providers)
Stakes of local governments in the water
industry
Features of the water industry (municipal firms)
Stakes of local governments in the water
industry
Policy content features
Policy mandate (consolidating water services,
centralizing regulatory functions, opening up
access to private operators and investors)
Policy mandate (consolidating water services,
centralizing regulatory functions, opening up
access to private operators and investors)
Policy process features
Policy statutory procedure (required agreement
between local governments)
Trajectory of the policy
reform
Persistence of full public ownership
Hypothesized social
mechanisms
Sequential attention to goals (Cyert and March, Organizational and/or social appropriation
1963)
(McAdam et al., 2001)
Changed features of the policy content
(compulsory tender offer competitions,
provisions for mixed ownership firms)
Changed features of the policy content
(compulsory tender offer competitions,
provisions for ‘in house’ firms)
Policy feedback (diffusion of ideas)
Partial privatization of water services
Committed interpretation (Weick, 2001)
Table 2. Components of the explanatory argument.
24
Partial privatization of water services
‘Formal’ rather than ‘substantive’ privatization
Attribution of opportunities and threats
(McAdam et al., 2001)
Attribution of opportunities and threats
(McAdam et al., 2001)
Network diffusion (Hedström and Swedberg,
1998)
Actor certification (McAdam et al., 2001)