UPDATE 1-Italy eyes incentives for local utility mergers-sources
* Italy mulls incentives to encourage stake sales - source
* Incentives could be fiscal - source
* Italy keen to create critical mass in utility sector (Recasts lead, adds comments, background)
By Giancarlo Navach and Stephen Jewkes
MILAN, Oct 10 (Reuters) - Italy may offer local authorities incentives to promote mergers among the hundreds of small utilities they control in a bid to make the sector more competitive, two sources close to the situation said on Thursday.
The idea was discussed at a meeting on Thursday morning between industry minister Flavio Zanonato, the president of Italy's municipal authority federation and managers from Italy's top four multi-utilities, one of the sources said.
"There was a calm discussion on whether it was a good idea to provide incentives to local authorities to favour the sale of the smaller utilities on the market," the source said.
The government is keen to see the fragmented utilities sector consolidate as many cash-strapped local authorities no longer have the means to fund investments.
Managers from Italy's four biggest multi-utilities A2A , Hera, Iren and Acea were present at the meeting in Rome, the source said.
"The government could give budgetary incentives" to local authorities, a second source said.
The ministry declined to comment.
A source has previously told Reuters that Italy is keen for the country's smaller utilities to merge with bigger players.
Several of Italy's regional utilities are looking to expand to compete better with larger energy players and cope with the effects of Europe's debt crisis.
Bologna-based Hera has made a series of acquisitions in recent years in the more affluent north-east Of the country. Italy's biggest regional utility A2A has interests outside Italy, including 43.7 percent of Montenegrin power utility EPCG . (Reporting by Giancarlo Navach and Stephen Jewkes; Editing by Mark Potter)
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