Italy's Agip is to be 100% privatized in the near term.
In a dramatic policy reassessment, Italy's government last month said it intends to fully privatize seven state owned companies, Agip among them. The step marks the first such full privatization of any Italian state owned enterprise. Other companies marked for privatization include those in banking, insurance, manufacturing, and telecommunications.
It is the latest indication that the massive restructuring and privatization of Italy's state owned energy holding company and Agip parent Ente Nazionale Idrocarburi (ENI) is back on track after weathering corruption scandals that have ripped through the nation's major political and business circles in recent months.
Those scandals resulted in the arrest of hundreds of top Italian business and government officials, including some key ENI executives.
Former ENI Chairman Gabriele Cagliari, arrested in March on charges of falsifying company statements and embezzlement in kickback schemes involving the Socialist party, was found dead in a Milan jail July 21 after magistrates refused him bail for the fifth time. Milan's attorney general said letters left by Cagliari indicated his intent to commit suicide.
Replacing Cagliari as ENI chairman is former Snam Chairman Luigi Meanti.
Meantime, ENI continues to struggle to recover from the scandals, with a new slate of managers overseeing a massive restructuring and privatization program expected to take several years to complete (OGJ, Jan. 4, p. 19).
AGIP OFFERING
Industry analysts expect a maximum 15% of Agip stock will be offered initially, with a committee of government specialists headed by Treasury General Director Mario Draghi spearheading the process. The committee has 1 month to set a timetable and procedures for the privatization, with an emphasis on speed.
Earlier indications were that only 15-20% of Agip would be available in a public offering. The reassessment may have been prompted in part by the corruption scandals as well as Italy's lagging economy.
Plans call for further streamlining and consolidating Agip affiliates to make it a more attractive package for the market.
A few days before the policy reassessment was announced, new ENI General Manager Franco Bernabe said the Agip offering would come in first quarter 1994, after the company is stripped of its chemical operations.
Financial analysts peg the initial offering at about 2 trillion lire ($1.278 billion).
Bernabe also confirmed the privatized Agip will include upstream unit Agip SpA and downstream unit Agip Petroli SpA. The latter is being streamlined, with plans calling for shutdown or sale of part of the A p Petroli retail 91 marketing network.
The new company, tentatively called SuperAgip, will be stripped of nonpetroleum assets and be vertically integrated.
In 1992 Agip SpA produced 516,000 b/d of crude oil and 1.9 bcfd of natural gas and increased total hydrocarbon reserves to about 5.7 billion bbl of oil equivalent (BOE) from 3.6 billion BOE in 1991. Net debt is estimated at 3.5 trillion lire. Banking analysts estimate the company's total net worth at 19 trillion lire. Agip SpA posted net profits of 126 billion lire in 1992, a drop of 89.3% from 1991's level, which the company blamed mainly on its increasingly heavy share of the parent's debt load through an Enichem affiliate.
Agip SpA holds a 49.5% interest in SCI, a chemical financing company that in turns owns almost 60% of Enichem, which currently, has debt of about 1 trillion lire. However, Agip SpA serves as a silent partner in Enichem with no operating control.
Italian financial analysts contend that if Agip stock is offered with the company's chemical interests intact, the prospect of the continuing debt hemorrhage that would result could be balanced by including interests in foreign subsidiaries. Agip International, based in the Netherlands, and Agip Petroli International control almost all foreign subsidiaries of the Agip companies.
Agip Petroli almost doubled profits in 1992 from the 1991 level, 140 billion lire vs. 78 billion lire. The company sold part of its chain of motels to a U.K. company and plans to sell more noncore assets that are expected to fetch another 500 billion lire. Also up for sale is Liquipibigas, which has liquid petroleum gas operations in Italy, Brazil, and Argentina.
ENI'S STRUGGLE
ENI's new managers face the task of closing down half the 210 subsidiaries of the holding company while screening officials in those units for any involvement in the kickback scandals or excessively close ties to political parties.
ENI unit chiefs under "advisory warrant" in connection with the alleged kickback scandals are Agip SpA's Raffaele Santoro, Snam's Pio Pigorini and Goffredo Giuliani, Snamprogretti's Mario Merlo and Francesco Chiarello, Nuove Pignone's Franco Ciatti, Saipem's Carlo Fiore and Gianni Dell'Orto, and Saipem AG's Nicola Grillo.
New chief executives at ENI units are Guglielmo Moscato at Agip SpA, Angelo Ferrari at Agip Petroli, Vittorio Meazzini at Snam, Luciano Sgubini at Saipem, Luciano Lussu at Nuovo Pignone, Roberto Piattoli at Snamprogetti, Marcello Colitti at Enichem, Pasquale Milillo at Eniricerche, and Graziano Amidei at Enirisorse.
The number of directors at the various ENI subsidiary boards was reduced to 89 from 174.
The holding company posted a consolidated loss of 815 billion lire ($552 million) in 1992, compared with a profit of 1.1 trillion lire in 1991, due largely to a 1.8 trillion lire loss in the debt ridden Enichem subsidiary. The holding company now allocates about 26% of its gross operating margin to fund bank debt--much of it Enichem's--estimated at 18.5 trillion lire ($12.54 billion). Prospects are that Enichem's debt could rise another 50% by yearend.
Bernabe is overseeing a number of changes in ENI's operating structure that reflects a new company philosophy intended to distance itself from a scandal tainted past.
All new subsidiary chiefs are to be chosen from within the company and only for their professional qualifications, reporting directly to ENI's chairman and board rather than to political sponsors. They must adhere to a strict new code of ethics that seeks to eliminate political slush funds and subcontracting to companies owned by ENI personnel or their relatives. Price Waterhouse is implementing new audit procedures to ferret out embezzlement, with a special eye to shipping costs and procurement of crude oil and refined products.
NEW BUSINESS PLAN
ENI's new business plan calls for the conglomerate to withdraw from all nonoil and gas activities during 1993-97.
After internal restructuring and the Agip stock offering, some stock in the 50 trillion lire ENI group will be offered within the next 3 years.
Overall, ENI plans to sell 50-60 subsidiaries the next 18 months, a move expected to garner 4.5 trillion lire. Of these, privatization efforts are under way at 25 companies, with offerings to be conducted through international commercial banks.
During the past 6 months, internal restructuring or shutdowns occurred in 29 subsidiaries of Enichem, Enirisorse, and Terfin. ENI expects to sell 2.7 trillion lire worth of Enichem assets during 1993-96.
First to be divested are its Savio textile unit, nonferrous metallurgical operations of Enirisorse, Agip Coal, and Agip Petroli's 50% interest in U.S. petroleum marketing company Steuart Petroleum Co. ENI's Larderello chemicals unit recently was acquired by the Anaconda Group.
The most attractive divestment ENI expects this year is that of Nuovo Pignone, the big gas and steam power turbine manufacturer that five international compares are considering for purchase.
ENI cut more than 10,000 employees from its work force of 100,000 in 1992, and Bernabe said cuts will continue at a rate of 1,000/month. The target work force level was not disclosed.
After restructuring is complete, only half of ENI's 210 subsidiaries will remain. Among the targets are procurement arm Serchem and the international financial holding company ENI International Holding (EIH), which controls 51% of ENI's international units. ENI has shut down more than 30 EIH foreign subsidiaries in recent months, notably targeting companies such as Snamprogetti SA, Geneva, and Saipem AG, Zurich, that were linked to Swiss bank account slush funds implicated in the kickback scandals.
FOREIGN INTERESTS
With the March arrests of Snam's Pigorini and Agip SpA's Santoro, there was concern that foreign joint ventures of ENI's two main upstream units might be jeopardized. Shortly after the arrests, Bernabe said ENI would adhere to all of its foreign obligations despite the company's crisis.
Agip SPA operates in 27 countries. Its most recent ventures of note involve Offshore Nigeria, Angola, and Kazakhstan.
ENI was buoyed by recent foreign agreements signed by subsidiaries that have helped bolster the company's international standing.
Agip unit International Egyptian Oil Co. (IEOC) will remain the top foreign company in Egypt, Meanti said, as a result of a renewal in late April of its concessions there for another 20 years, with an option to extend another 10 years.
The agreement assures ENI of one sixth of its 540,000 b/d crude requirements by giving IEOC 32% of production, or 70,000 b/d, from concessions operated by Petrobel, one of two IEOC operating companies, onshore and in the Gulf of Suez off Sinai. State owned Egyptian General Petroleum Corp. (EGPC) will get the remaining 200,000 b/d.
Production of oil and gas from EGPC/IEOC operations is more than 400,000 BOE/day, or about 40% of total Egyptian output. Agip's Moscato noted the per barrel gross margin in Egypt is the best ENI has obtained in a foreign operation.
Meantime, Agip is part of a group that signed on June 9 an exploration agreement covering acreage in the Caspian Sea off Kazakhstan (OGJ, June 14, p. 18).
And ARCO China Inc. and partners let a $160 million contract this spring to a joint venture including Saipem SpA to lay a $1.2 billion pipeline in the South China Sea linking Yacheng 13-1 gas field off Hainan Island with Hong Kong (OGJ, May 3, p. 42).
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