Italian companies look beyond border for cheaper energy

MILAN, July 12 (Reuters) - Relocating abroad used to be all about cheap labour costs. But now Italy is beginning to see the first signs of hard-pressed local manufacturers looking across the border for better deals on energy costs and infrastructure.

Acciaierie Bertoli Safau (ABS), the steel-making division of Danieli, is threatening to pull down its shutters in northern Italy's Friuli border region and move abroad unless the out-of-date power line that powers its plant is upgraded and energy costs brought down.

"We've been talking for six years about upgrading the power line that feeds us electricity. It's not big enough and it's old," ABS Chief Executive Alessandro Trivillin told Reuters.

"It's all about our survival as a company. Energy prices here are 35 percent more than in Europe. Unless we get an answer in the next two months we'll have to move, possibly to Croatia where we already have assets."

The northeastern Italian region of Friuli borders with Austria and Slovenia, and is a stone's throw from Croatia - all countries where power is significantly cheaper.

Italians pay some of the heftiest energy bills in Europe due to the country's 90 percent reliance on imported natural gas, much of it brought in under expensive take-or-pay contracts.

A lack of competition doesn't help. State-controlled energy major Eni, Europe's biggest gas seller, has a stranglehold on the domestic gas market.

Rome tried to address the issue by earlier this year forcing Eni to exit its gas transport subsidiary Snam.

"If these issues of gas and energy are not tackled future investments in Italy are at risk," said Giovanni Fantoni, CEO at Friuli-based office furniture group Fantoni, which is trying to build a merchant power line to Austria.

In May Italy's average power price stood at almost 70 euros per megawatt hour compared to levels of around 39 euros/MWh in France, Germany, Switzerland and Austria. Eurostat says that in the second half of 2011 Italy had the highest power prices alongside Cyprus and Malta.

Italy uses gas to fuel more than 60 percent of its power plant portfolio and with nuclear power outlawed and coal still an unpopular choice that's unlikely to change any time soon.

Power generated from renewable sources is another bone of contention. With priority of dispatchment into the grid, renewables not only keep traditional cheaper plants offstream but force up prices since incentives are paid through energy bills.

WRITING ON THE WALL

Manufacturers have been complaining of punitive energy bills for some time. But with the debt crisis squeezing margins ever tighter, some are now looking to channel investments abroad to take advantage of benefits such as cheaper energy.

U.S. aluminium producer Alcoa is planning to close its Portovesme smelter on the island of Sardinia because of high electricity costs which have contributed to make it one of the most expensive plants in the group.

"Moving shop for energy purposes may not be a major issue today but we're finding businesses are paying increasingly more attention to it," said Adriano Luci, president of employers association Confindustria in Udine.

Udine, in Italy's rich north east, is an area that faces fierce competition from countries like Austria, Slovenia and Croatia which are lobbying hard for Italian firms to set up shop on their patch by offering lower taxes, faster permitting times, and cheaper energy.

Heavy-energy users in sectors like paper, ceramics and steel are not easily able to shift existing plants but some are factoring in energy prices for new investments.

The head of Italian steel group Feralpi Holding industrial Giuseppe Pasini said earlier this month he toyed with the idea of starting production in Algeria.

"On the one hand, energy is cheap in Algeria, on the other, clients don't have a credit crunch problem there unlike clients here in Italy where it has become a huge problem," he said.

Confindustria's Luci believes that new technology and infrastructure, such as renewable energy or liquefied natural gas (LNG) terminals, can help reduce Italy's power bills. But he is highly critical of the red tape that has stood in the way of many such projects.

Mario Monti's government has pledged to hack through a dense jungle of red tape to improve its poor record on attracting foreign investment and help streamline infrastructure.

The experience of UK gas producer BG Group is emblematic. Earlier this year it set aside plans to build a plant in the southern region of Puglia after failing for 11 years to obtain all the necessary permits.

Fantoni is in a similar boat. It has been working on a project, alongside paper group Burgo and steel-producer Pittini, to build a 40 kilometre merchant power line to source cheaper power from Austria.

"We've been waiting for permits for almost 10 years, it's a real pain," Fantoni said.