Italy Turns to Big Italian Energy and Utility Groups to Unlock EU Funds

Italy is facing several challenges in implementing its EUR191.5 billion National Recovery and Resilience Plan (PNRR or the plan). Some of these challenges include bureaucratic hurdles, price inflation, excessive fragmentation of projects and a shortage of qualified workers in the public administration and private sectors. All these issues are hindering the use of the Next Generation EU (NGEU) funds before the 2026 deadline. This puts Italy at risk of falling short of the initial projections that the plan would boost Italy's GDP by 3.6 percentage points by 2026, compared to a baseline without the plan.

The Italian government is therefore negotiating with the European Commission (EC) to redesign the original plan, relaxing some targets and milestones needed to receive further funds, while aiming to transfer part of the PNRR's resources to the new REPowerEU (REP) fund, which is focused on energy investments. We believe this transfer along with a further extension to the deadline, if successful, would lead to more investments flowing through to Italian companies where government has a significant stake, such as ENI, Enel, Snam, and Terna, and allow for a more rapid and efficient investment cycle. This redesign would also mitigate the risk of a weaker than expected impact of the PNRR on Italy's economic performance.

Key Highlights:

-- Italy is facing several challenges in implementing its National Recovery and Resilience Plan
-- A slowdown in implementing the plan risks delaying the beneficial GDP impact
-- A greater involvement of the big Italian Energy and Utility groups in the plan could be beneficial for the Italian economy and for the companies' growth prospects

“EU funds allocated to the large Italian Energy and Utility companies that have the required expertise to efficiently invest these funds could lead to an increase in these companies' revenue and EBITDA, with consequent positive credit implications,” said Edoardo Danieli, Assistant Vice President, European Corporate Credits at DBRS Morningstar.

“Should the plan gain traction, we do not rule out Italy maintaining a higher GDP growth rate compared with the historical trend in the upcoming years,” said Carlo Capuano, Senior Vice President, Global Sovereign Ratings at DBRS Morningstar.