Railway in ruins: Italy waits for the gravy train to be derailed

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Italy's railways are on the verge of total economic collapse. The system is to be split up and opened to competition, but our correspondent explains that it faces a crisis `of Biblical proportions'.

It probably wasn't the most auspicious name to give Italy's latest high-speed train lines. The Eurostar, which began operating at the beginning of the summer on a handful of main line, north-south routes, has been plagued with even more problems than its namesake beneath the Channel.

If the overhead electricity cable does not fail, the connection between the rolling stock and the track usually does, with the result that every few days passengers are subjected to long delays, cancellations, train- switching and, every now and again, a bizarre form of imprisonment while technical experts try to get the doors open.

Italy's Eurostar is a small illustration of what ails the country's railways. It looks slick and modern, but it has to contend with an ancient electricity system, creaky track, and the inefficient, overloaded, railway bureaucracy. Above all, it is hopelessly unprofitable to run, even when the technical gremlins don't come out to play.

Just before Christmas the transport minister, Claudio Burlando, announced that the railways were on the verge of collapse, because of losses running at some 4 trillion lire a year, about pounds 1.5bn. In fact, the figure is subject to some controversy because of the financial complexity of the railways.

According to independent experts, the true losses could be as much as 20 trillion lire a year (pounds 7.5bn), the sort of money that could single- handedly provide the cuts necessary for Italy to qualify for the European single currency. Not only does the state have to cover these losses, it also has to pay interest on cumulative debts that have reached a staggering 84 trillion lire.

"The Italian railways are, at this moment, the largest loss-generating enterprise in Europe and, perhaps, the entire planet," the economic columnist Giuseppe Turani wrote recently. "This is not a company, it is a curse of Biblical proportions."

What went wrong? For years, it was the usual Italian story of political patronage, over-enthusiastic job creation and the odd tinge of corruption. The state railway was one of the tools the post-war Christian Democrat order used to buy social peace. Tickets were cheapand the network provided jobs, if not that much work, for hundreds of thousands of people. It was a drain on the national budget, but was deemed to be in a good cause.

But in the venal Eighties, spending began to run out of control. There were such episodes as the "Golden Sheets" scandal, in which couchette bedding seemingly made out of wood shavings and recycled nappies was purchased from a consortium of politically connected companies for prices that would have seemed extravagant even for sheets of pure silk. The then head of the railways, Ludovico Ligato, wound up with a Mafia bullet in his brain.

A more subtle brand of bad management followed in the early Nineties, overtly modernising the system (with some success) but also creating a network of clientelism by setting up no fewer than 150 private consultancy and technical firms with capital from the railways. There are now some 900 top-grade managers on stratospheric salaries, paid out of state coffers. The man who set up this extravagant system of financial smoke and mirrors, Lorenzo Necci, was arrested a year ago on charges of gross corruption.

If the rot has not been stopped a lot sooner, it is partly because of the power of the railway unions, which have been arguing for years, successfully, to maintain and improve conditions for the vast army of railwaymen. But the crunch has come, and Mr Burlando's ministerial outburst in parliament was, in large part, a calculated shock tactic intended to prepare the unions for a tough year.

The company is due to be split, like British Rail, into two components handling track and rolling stock. The tracks will then, in theory, be made available to open competition.

Giancarlo Cimoli, the present railways chairman, has also promised to slash the resources being eaten up by senior management and to talk tough to the unions about job cuts, early retirement and improved productivity. Prices, still heavily subsidised, are expected to rise by around 20 per cent over the next four years.

This is not a problem that will go away quickly, however, and the state has committed itself to spending 7 trillion lire a year for the next 10 years to bail the company out. But 1998 is expected to be the make or break year. "Either the railways become a normal company, and quickly, or else we will find French, German and English trains carrying our goods and passengers where we can no longer even put up a token presence," Mr Burlando warned. "Either the railways change, or they will have to close down."