A research project supported by the European Commission fp5: Energy, Environment and Sustainable Development

6.2Sustainability

This section assesses how the decision making process in each episode addressed sustainability objectives, in terms of water supply and sanitation provision. Decisions are first taken into account in view of how their objectives directly relate to sustainability and of the motives informing their adoption. For example, not all objectives pursued by decision makers are necessarily conducive to water sustainability as a number of personal, institutional and stakeholders’ interests might prevail in the course of the decision making process. Subsequently, decisions are assessed in the light of the extent to which implementation of the adopted decisions succeeded in achieving set targets.

6.2.1Sustainability of Final Outcome for Episode 1

6.2.1.1Political and institutional sustainability

The political sustainability of the decision to award BOT contracts for the wastewater treatment plants proved low. Despite the decision generated a high level of controversy in terms of popular protests and EU sanctions due to the protracted delays in implementation, a formidably high degree of judicial activity at criminal, administrative and arbitrational levels, concerns about the legality of private companies interested in business related to the wastewater treatment plants and restricted competition, the BOT schemes have shown considerable durability. This can be explained in the light of the path dependence of the decision to award the first BOT contract in November 1984 and the ensuing liability of the municipality and the private companies’ persistence in pursuing their commercial objectives. As a matter of fact, political durability might have undermined the sustainability of wastewater services provisions from the economic and environmental points of view. Also, it remains to be seen whether the award of the BOT contracts to private consortia characterised by the constant involvement of major water multinationals will produce other effects in terms of path dependency when, pursuant to the Galli Law, water supply and wastewater operations will have to be managed by a unique undertaking for the whole city of Milan.

6.2.1.2Economic sustainability

The economic sustainability of the decision to award BOT contracts for the wastewater treatment plants proved low. Lack of transparency surrounding subcontracting of works, restricted competition in the award of the BOT contracts, doubts on the assessment of costs of building and managing the two major wastewater treatment plants, together with the judicial annulment of an economically more advantageous offer for the second largest plant, raise legitimate doubts on whether the municipal administration obtained good value for money from the BOT contracts.

6.2.1.3Social sustainability

The social sustainability of the decision to award BOT contracts for the wastewater treatment plants proved modest. Despite all the controversy generated (see section 6.2.1.1 above), the general public has failed to mobilise on the issue (with the obvious exception of the location of the plants and protests organised by environmental associations), with little demand for public participation meeting an even lower offer from local authorities. However, limited public participation might have contributed to feeble transparency and accountability.

6.2.1.4Technical sustainability

The technical sustainability of the decision to award BOT contracts for the wastewater treatment plants proved modest. In fact, in the case of the Milan South plant, the technical merits of Pridesa’s bid were foregone with the annulment of the first award in favour of Degremont.

6.2.1.5Environmental sustainability

The environmental sustainability of the decision to award BOT contracts for the wastewater treatment plants proved low, in the light of the exceedingly delayed implementation. Also, doubts surrounding the ability of the municipal administration to obtain good value for money from the award of the contracts for the three wastewater treatment plants, means that the environment might have lost out in relative terms as more expensive investments and operations results in less available resources to devote to enhancing the quality of water bodies.
Sustainability of Final Outcome for Episode 1

City: Milan
Episode 1	Political	Economic	Social	Technical	Environmental
PESTE factors 
Sustainability
High
Medium			X	X
Low	X	X			X

6.2.2Sustainability of Final Outcome for Episode 2

6.2.2.1Political and institutional sustainability

The political sustainability of the decision to award a short term concession to a municipally-owned PLC proved low, in the light of lack of focus on sustainability objectives, political inaction in anticipation of national and regional legislation to be adopted, conflicts among or lack of coordination between the municipal administration and an array of institutions at national, regional and provincial levels, as well as recent attempts of the municipal administration to restrict democratic accountability on relevant decisions. The decision to award a concession to a municipal “azienda speciale” could not be implemented due to delayed adoption in the absence of regional legislation, although this did not represent an impediment to in-house restructuring. As the operations of an “azienda speciale” could have been eventually extended to other communes, depending on the scope of the relevant ATO, there was little reason to put much needed reform on hold. The reversal of the decision to set up an “azienda speciale” by Mr. Albertini has resulted in further unnecessary delays. This because failure to implement an already adopted decision required to restart the whole decision making process, whereas the “azienda speciale” setup provided all the flexibility for its subsequent transformation of its legal status, if that had proved a desirable outcome. Indeed, Mr. Raimondi stressed in his interview that the intentions of the Formentini administration were to first set up an “azienda speciale” and possibly transform it later into a PLC. Delayed restructuring of municipal water and sewerage operations has in turn resulted in hasted implementation of the Galli Law in terms of planning and in the award of a temporary, short term water supply and sanitation concession. In November 2003, national watchdog Supervising Committee (see Lobina, 2005: p. 8) resorted to the Head of State to annul the concession awarded to MM on grounds of breach of the prescribed procedure in terms of planning and selection of the operator. Despite current legislation allows the municipal administration to directly award a long-term concession to a wholly municipally-owned PLC such as MM, which would provide stability after protracted uncertainty, the municipal government has preferred to retain a temporary solution while it ponders on the future ownership structure of MM. In that sense, it should be noted that either the listing of MM on the stock exchange or its part-privatisation through the sale of 40% of its capital to a private partner appear to address commercial and fiscal considerations, such as the valorisation of MM and enhancing the municipal administration’s revenues, rather than water sustainability objectives. Furthermore, in June 2003, the municipal government changed the municipal statute providing for its exclusive powers on matters related to the sale of municipally-owned companies, thus excluding the city council from such decisions. Finally, although Lombardy’s Regional Administrative Tribunal has annulled the amended municipal statute, concerns remain over attempts to restrict democratic accountability and transparency in order to ensure smooth decision making.

6.2.2.2Economic sustainability

The economic sustainability of the decision to award a short term concession to a municipally-owned PLC proved moderate, due to the protracted delay with which much needed reform has been implemented. This has preserved a situation in which tariffs did not cover 100% of operating and capital costs and substantial revenues were diverted from the water supply and sewerage system to relieve the municipal budget. Although tariffs in Milan appear to be low in relation to other major Italian cities, neglect might result in upwards pressure on pricing. The continuous diversion of economic resources from water and sewerage operations to other municipal priorities has meant that the infrastructure system and the operator’s human resources have been put under considerable stress. The engineering division of the municipal water departments were particularly understaffed as employment of highly skilled technicians was blocked to maximise the municipality’s fiscal position. As regards UFW, if current levels appear to be satisfactory, at 10.13%, it remains to be seen on what grounds the municipal water departments had declared to provincial authorities that in 2000 this had reached 20%⁷⁴. As such data were submitted to inform planning and costing of urgent investments in sewerage and sanitation, the answer to the above question might contribute to a more accurate assessment of sustainability in the context of Episode 2.

6.2.2.3Social sustainability

The social sustainability of the decision to award a short term concession to a municipally-owned PLC proved modest, in the light of limited public participation. This is due to the absence of any specific legal obligations to introduce participatory decision making (the 2003 regional law providing for public participation appears to apply to the phase prior to the selection of the water operator and might thus not apply in the case of Milan), to the lack of political will, and the absence of citizens’ awareness as good quality water is supplied for a low tariff.

6.2.2.4Technical sustainability

The technical sustainability of the decision to award a short term concession to a municipally-owned PLC proved low, due to the protracted delay with which much needed reform has been implemented. The new municipally-owned current operator appears to have all the skills and resources necessary to address past underinvestment and inherited difficulties. However, the limited duration of the concession underlying operations creates uncertainty on the future and contributes to a situation in which the current operator is focusing more on the solution of short-term problems rather than on the long-term development of the system. Furthermore, as current hypotheses on the listing of MM on the stock exchange or its part-privatisation revolve around the securitisation of the water supply and sewerage network, it remains to be seen whether change in MM’s ownership will result in further diversion of resources from the infrastructure system.

6.2.2.5Environmental sustainability

The environmental sustainability of the decision to award a short term concession to a municipally-owned PLC proved modest. Although on the increase, UFW has so far remained at relatively acceptable levels. On the other hand, the integrity of the sewerage network might cause more concerns, but the major part of the present three-year investment programme is devoted to address such matters.
Sustainability of Final Outcome for Episode 1

City: Milan
Episode 2	Political	Economic	Social	Technical	Environment
PESTE factors 
Sustainability
High
Medium			X		X
Low	X	X		X