Privatisation: Milan plans to take itself to market: A colossal programme is seen as the only way to restore the fortunes of Italy's prime commercial city

FOR someone who describes himself as sitting on a time- bomb, Marco Vitale is cheerful. The broad smile reflects his impatience for it to explode, releasing what he describes as 'unprecedented energy and opportunities for innovation'. Ticking away is a privatisation programme of radical ambitions, not just for Italy but for Europe. Its target is Milan, battered to exhaustion, like so many of the country's cities, by years of corruption and mismanagement.

Mr Vitale is, at 58, Italy's foremost management guru and, since the summer, the man charged with revolutionising the city's finances. 'We have no time to lose,' he says. 'The privatisation plan is audacious but it has to succeed. In two years, we intend to raise over L2,000bn ( pounds 830m), none of which will go into running budgets. It will all be used for investment, for returning Milan to its position as one of the most civilised European cities.'

Little is to be spared Mr Vitale's reforming zeal, which was inspired by the lean-government movement in the US. He sees Milan as an enormous enterprise, with a turnover of around L3,000bn, which has accumulated over past decades a ramshackle industrial portfolio. This includes its own dairy factory and one of the biggest property holdings in the country, among which are 83 municipal chemist shops. 'Probably the only ones in the world losing money,' he says.

With a range of different solutions, Mr Vitale is looking above all to get big foreign partners involved, giving firms that have so far been restricted to the municipal environment the financial backing and experience needed to expand into world markets. The ace in the sell-off pack is the municipal energy company, AEM, with a turnover of L1,200bn. According to Mr Vitale, it is 'a profitable operation with few debts'. Milan has decided to turn it into a fully public company, beginning by selling off half of it next spring. 'There is great interest from British and German banks,' Mr Vitale says, 'because they see the potential in expanding the company's activities.'

Already generating and distributing electricity and distributing gas, AEM is to be made even more attractive by involvement in water distribution. 'The chance to expand into the surrounding areas outside Milan is enormous, because most local communes are in a mess and desperate for efficient services,' he says.

A strong foreign partner is also regarded as essential for the Milan airport authority, the SEA, which is 84 per cent owned by the city. It is not considered a candidate for sale to the public, however, mainly because it is burdened by a huge investment programme.

Instead Mr Vitale is looking to form a group of core shareholders, at the centre of which will be a company that is 'very avant-garde' in airport management. 'By definition this rules out an Italian firm, since the only one running an airport is Alitalia in Rome, and it is wrong to have an airline in charge of an airport. So we are talking to some European companies. It is a radical solution, but the SEA management is fully behind the plan.'

For the municipal railway construction company, MM, a majority foreign stake is regarded as vital to its survival. MM enjoys a reputation for building the most expensive metro in the world. 'Hardly the best publicity,' Mr Vitale says. A management shake-up and restructuring has gone some way to getting costs down, but the firm remains the captive client of a city with no big plans for expansion of the underground system.

'Our strategy is two-fold: broadening the firm's activities into other areas of engineering and construction; and getting it into international partnerships,' Mr Vitale says. It is currently building 10 barracks for the city and has signed a co-operation agreement with the French national railway company, SNCF. 'The eventual partner needs to be a big, strong industrial company which can help MM develop internationally. We would like it to take a majority holding, although the city will remain involved as we shall continue to be a good client,' he adds.

Further down the line are plans for privatising waste treatment, again with dominant foreign participation and, of course, disposing of the dairy factory, the chemist shops and many other properties.

The chances of much of this privatisation programme being realised at a time when the national government in Rome is struggling to extract its own plans from the political morass, are regarded as good. Milan this summer became the first Italian city to elect a mayor from the Northern League, the powerful protest movement that with the backing of small businesses has campaigned to stamp out corruption and revitalise public management.

'Of course there is resistance in some quarters from those seeking to keep control in council hands. But the pressure for change is powerful and this is an unprecedented opportunity for new thinking,' says Aldo Fumagalli, who is vice-president of the Confederation of Italian Industry and lives in Milan.

Mr Vitale is dismissive of the critics' main objection - that privatisation will mean big job losses: 'Nonsense; any losses will be marginal, an amount that will be easy to reabsorb. The reality is that by making these firms more efficient, we are creating the prospects for growth and jobs.'

Just in case, Mr Vitale is building protection against a sudden attack of faint- heartedness at city hall into his plan. He is negotiating L1,000bn of stand-by credit for Milan with a consortium of banks. 'We want to begin the investments now - in buildings, transport etc. We cannot wait for the privatisation receipts. But of course,' he adds, 'this means it will be hard to do without these receipts.'

(Photograph omitted)