ArcelorMittal's Italian deal runs into political storm

2017-12-11

For Italy’s government ministers, the deal seemed perfect. Ilva, the Italian owner of the country’s largest steelworks in the southern town of Taranto, was to be rescued from insolvency by ArcelorMittal in a deal worth €1.8bn, raising hopes of a resolution to one of the country’s thorniest industrial and environmental crises.  

But what may have looked like a good deal in Rome seemed very different to politicians in Taranto and the wider Puglia region, who have mounted a legal challenge to the plan on the grounds that it does not curb pollution from the plant quickly enough.  

With Carlo Calenda, Italy’s economic development minister, forced to dash to Taranto days ago to try to salvage the deal agreed in June, the battle over the future of Ilva has emerged as a barometer for the foreign investment climate in Italy and underlined how local authorities can place regulatory and judiciary roadblocks in the way of deals they do not like.  

Italy’s government and main trade unions fear the opposition could make ArcelorMittal backtrack on the agreement and trigger the closure of the plant.  

“This has put the entire sale operation at risk,” a frustrated Mr Calenda warned. “This must be the first case in the world in which an industrial revival of this size is ostracised by the representatives of the territory that will most benefit from it.”  

Gianfranco Viesti, a professor at Bari university, said the plant has become a test “for how a great country is governed”.  

“It’s not that [local officials in Puglia] shouldn’t speak or that what they are saying is stupid, but they should have complained before the sale, not afterwards by bringing in the administrative judiciary,” said Mr Viesti.  

It could also have political ramifications. Italy faces an uncertain general election within months. The government of prime minister Paolo Gentiloni, backed by the centre-left Democratic party, can ill-afford to enter the campaign with the fate of about 20,000 workers, including the Taranto plant and the supply chain tied to it, on the line.   

The agreement could yet survive, and the mood improved last week after Mr Calenda met Taranto mayor Rinaldo Melucci. Mr Melucci and Michele Emiliano, the regional governor of Puglia, agreed to direct talks with the government over the terms of the deal, due to begin this month.  

“It’s a starting point, not the end,” said Mr Melucci. “We’ve tried to reopen a channel that can place the community’s interests in first place.”  

The environmental challenges are considerable. Environmental groups and some local politicians have accused Ilva’s Taranto plant of producing toxic emissions linked to high cancer and respiratory disease rates in the area, including open-air mineral deposits that continue to spew pollution into the air.  

Every now and then, Taranto declares a so-called “wind day”, in which schools near the Ilva plant are forced to close to avoid exposure to the dust.   

A protest against the Ilva steel plant in 2012 © AFP When approached for comment, Ilva referred the Financial Times to its website for details on the steps the company as taken to reduce emissions and curb pollution, as required by law. The Italian government has also authorised work to seal the deposits — and ArcelorMittal has pledged to continue the effort — although environmental groups say this is not happening fast enough.  

“There’s no economic justification for jeopardising the future of Taranto’s children, women, and men,” said Mr Emiliano, who was one of those who mounted the legal challenge.  

But government officials warned that if the deal collapses, so would ArcelorMittal’s pledge of massive investment in the clean-up.  

The difficulties with local politicians come on top of an in-depth European Commission competition investigation. Ownership of Ilva would hand ArcelorMittal, the world’s largest producer of steel by output, control over more than half the market in premium galvanised steel, according to analysts.  

Concessions offered to assuage concerns around competition were rejected by Brussels as insufficient. Although neither side has revealed what those were, local reports have suggested that competition authorities have requested the sale of one of Ilva’s smaller plants and the departure of Marcegaglia from the consortium.  

If the agreement is thwarted for competition reasons, or if ArcelorMittal tires of the local political conflict and throws in the towel, it is in Taranto, and not Rome, that the impact would be felt most acutely. “It’s a company town,” said Mr Viesti. “If it closes, the city won’t stand on its feet any more.”