12 ★ FINANCIAL TIMES Thursday22 August 2019COMPANIES
I
talian newspapers routinely mark the end of the
August summer holidays with headlines warning
about a “torrid autumn” of political, social and eco-
nomic strife as the debt mired country tries to put its
budget in order to submit to Brussels.
This year, the collapse of Italy’s government andthe
prospect of October elections, a near unprecedented situa-
tion in budget season, has already turned up the heat.
For corporate Italy, especially the banks, which are big
owners of Italian sovereign debt and have loan books
exposed to the stagnating real economy, thepolitical tem-
perature risks rising too high for comfort.
The latest political crisis erupted in dramatic form even
for a country that has had more than 60 governments
sincethe second world war. Italy’s populist coalition —
made up of the anti-establishment Five Star and the far-
right Eurosceptic League — collapsed on Tuesday after 14
months ofpower sharing, when prime minister Giuseppe
Conte quit followingLeague leader Matteo Salvini’s with-
drawal of support for the government three weeks ago.
Mr Conte accused Mr Salvini, Italy’s aspiring strongman,
of torpedoing the coalition for personal gains. With the
League polling at about 38 per cent, up from 17 per cent
won in last year’s vote and a traditional ceiling for Italian
political parties, Mr Salvini has made clear that what he
wants is “full power”, most likely by going to an election.
Italy’s president Sergio Mattarella must decide in the
next days whether Mr Salvini will have his chance. Noth-
ing is certain. The options include the formation of
another government, such as a coalition of the Five Star
and the centre left without going to a vote, or a caretaker
government that could perhaps write the budget. Or Italy
may go again to elections with the most hard right, Euro-
sceptic party in Europe today likely to win.
For Italian banks and business that have borne
14 months of the noxious doubleblow of anti-establish-
ment, anti rule-of-law government from Five Star and
League politicians waging open war with the EU, the col-
lapse of the dysfunctional coalition has nonetheless ini-
tially come as something of a relief.
Italian bank stocks ralliedyesterday after steep falls this
year. Shares in UniCreditand
Intesa Sanpaolowere up
about 1 per cent, having lost
respectivelyalmost 40 per
cent and 30 per cent of their
value in the past 12 months.
But the latest polls, and
Italy’s stagnating economy
which is expected to grow a
negligible 0.1 per cent this
year, suggest Italian politics are movingtowards a reality
where populist parties will dominate on the right and the
left over the traditional, establishment party groupings.
That poses a long-term risk for even Italy’s crisis-hard-
ened business leaders and the question inevitably arises:
who is at risk if Italy contagion spreads once again?
Data from the Bank of Italy on holdings of Italian govern-
ment debt, usually the prime conduit of contagion, sug-
gests any Italian crisis now will be more contained than in
the 2011-12 European debt and banking crisis, argue ana-
lysts at Citi. The narrowed 200 basis points spread
between Italian benchmark 10-year BTP debt and the Ger-
man 10-year Bund — on expectations of renewed central
bank easing — is also taking the pressure off.
But Citi warns this would change in case of sovereign
downgrades. Italy is now closer to the subinvestment
grade rating threshold comparedwith 2011, according to
all three main rating agencies.
And the most vulnerable are Italian banks, which hold
about €400bn of Italian government debt, a level roughly
stable since 2013 according to the Bank of Italy. Italian resi-
dents, households and non-financial corporations directly
hold less than €100bn. Financial institutions outside Italy
but mostly in Europe that hold about €460bn of Italian
sovereign debt would not be immune either.
There aresigns banks are bracing for an impact. Local
business owners have been warningthis year about a
squeeze on loans, as banks jittery about the slowing econ-
omy and volatile coalition government tightened up
credit. Some bankers say a new political crisis could push
Italy’s midsized lenders, such as Banco BPMand UBI, into
another long looked for round of consolidation.
But tie-ups are hard even at the best of times. For Italy’s
largest banks, UniCreditand Intesa Sanpaolo, their large
holdings of sovereign debt are seen as a poison pill for any
foreign, cross-border takeover. Job cuts are more likely to
be on the cards. Bloomberg reported in July that UniCredit
was weighing as many as 10,000 job losses.
For those returning from their August holidays this year
the message for the new season is: it’s time to buckle up.[email protected]INSIDE BUSINESS
EUROPE
Rachel
Sanderson
Rome political climate
is uncomfortable even
for seasoned Italy Inc
The banks,
holding €400bn
of government
debt, are themost vulnerable
HENRY FOY— MOSCOWRussia’s top oil producerRosnefthas
reported a fall in second-quarter net
profit as a shutdown of the country’s
most important export pipeline to
Europe hit earnings.The 15 per cent fall in profit is the big-
gest corporate damage inflicted by the
two-month closure of the Druzhba pipe-
line that carries Russian crude to Pol-
and, Germany and other EU customers
after it becamecontaminated with cor-
rosive chemicals, sparking chaos across
European oil markets and forcing pro-
ducers to pare back output.
Rosneft, one of the Kremlin’s mostvaluable corporate assets, said profit
had fallen to Rbs194bn ($2.9bn) from
Rbs228bn in the same period last year
because of the problem and a slight fall
in average oil prices.
“It is impossible not to note the influ-
ence of one-time external factors that
limited the ability to increase produc-
tion in the second quarter of 2019,” chief
executiveIgor Sechinsaid.“These fac-
tors include the restriction of intake into
the Transneft trunk pipeline system
due to its pollution caused by circum-
stances beyond the company’s control.”
The 1.5m barrels-a-day pipeline was
suspended in late April after refiners in
Poland and Belarus detected excesschlorine in the crude, and flows were
only fully restored early last month.
Vast quantities of contaminated oil are
still being processed in Russia and pipe-
line operator Transneft, which has
blamed the contamination on criminal
activity, is yet to agree on compensation
to affected customers.
Rosneft pumped 4.62m bpd of oil in
the quarter, equivalent to more than 40
per cent of Russia’s total crude produc-
tion. The company has also had its flows
restricted by the Opec+ agreement
between Russia and the oil cartel to
reduce global production and help prop
up prices, which have been hit in recent
months by US-China trade war fears.Oil & gas
Pipeline woe dents Rosneft quarterly profits
DON WEINLAND— BEIJINGGoldman Sachshas applied to take
majority control of a securities
joint venture in China in a move that
will bring the US investment bank
closer to its goal of sole ownership of
the company.China has in the past year expedited the
opening of its financial sector to foreign
companies, following criticism that the
process had dragged on for far too long
without allowing true market access.
A number of banks have since
applied. In December UBS became the
first to receive the green light, with the
China Securities Regulatory Commis-sion approving its request to raise its
stake in Beijing-basedUBS Securities
from 24.99 per cent to 51 per cent.
Goldman holds 33 per cent of its joint
venture in China, Goldman Sachs Gao
Hua Securities, which was launched in
2004 and is connected to powerful Chi-
nese institutions and investors. The
CSRC said it had received Goldman’s
application to raise its stake on Monday.
Goldman plans to take full ownership
of the company as soon as regulations
allow, which would bring its China busi-
ness in line with its operations in other
parts of the world.
Several other banks have moved to
increase their holdings in their securi-ties JVs to 51 per cent, withCredit Suisse,
JPMorganandNomuraall submitting
applications.
Credit Suisse said in April it had
reached anagreement with sharehold-
ersbut was waiting on government per-
mission to launch.
Goldman’s joint venture was the first
of its kind when it was launched nearly
15 years ago. The deal was hashed out
betweenHenry Paulson, then chairman
and chief executive of the bank, and
Fang Fenglei, one of China’s top private
equity investors.The JV is also partially
owned byLegend Holdings, a group
founded under the Chinese Academy of
Sciences in 1984.Banks
Goldman seeks majority control of China venture
PATRICK MCGEE— SAN FRANCISCOIn a bid to shorten the lengthy process of
teaching cars to drive themselves,
Waymosaid yesterday it would make
“the largest fully self-driving data set
ever” freely available to the research
community “in the hope of accelerating
the development of machine perception
and self-driving technology”.
TheAlphabetunit, which began life a
decade ago as Google’s self-driving car
project, said it hoped the release would
fuel research into self-driving technolo-
gies by adding to the body of data that
could be drawn upon.
Its data, collected using cameras andsensors on Waymo vehicles in a variety
of road conditions, include 1,000 high-
resolution driving scenes that have been
“painstakingly labelled” to indicate the
presence of 12m objects such as pedes-
trians, cyclists and signage.
Labelled dataare vital toself-driving
algorithms, which must be “taught” to
interpret the world around them by
being fed millions of examples.
As Waymo is widely considered to be
the most advanced company in the self-
driving technology space, the move is
likely to be seen as a concession that its
go-it-alone approach is falling short of
sky-high expectations.
Banks such as Morgan Stanley and Jef-
feries have valued the unit at $175bn
and $250bn, respectively — multiples of
the world’s largest carmakers — on the
belief that it could soon disrupt the
notion of car ownership and offer a driv-erless Uber-like service in the world’s
big cities.
In a briefing to journalists on Tuesday,
Drago Anguelov, Waymo’s head of
research, pushed back on the idea that
the release was a concession. “It’s not an
admission, in any way, that we have
problems solving these issues,” he said.
“We felt, and it was not just us... that
the field was currently hampered by a
lack of suitable data sets.”
Vijaysai Patnaik, product lead at
Waymo, said: “The fact that Waymo and
other folks are releasing the data set is
not so much about, ‘Hey, the problem is
so hard, let’s just pool our data’; it’s
about how we empower the research
community for whom it’s really hard to
get access to data sets like this.”
The call for academic help comes as
many self-driving experts rein in expec-
tations of when robotaxis will become areality.Cruise, the self-driving group
owned byGeneral Motors, last month
postponed a rollout of the ride-hailing
service it had expected to begin this
year, saying more testing was required.
The Waymo release marks a turning
point for a company that is more verti-
cally integrated than most in the field.
Waymo’s rivals have all announced
partnerships with carmakers in recent
years. Amazon-backed Aurora,
founded by former Waymo technical
lead Chris Urmson, is working with
HyundaiandKia, while Argo AI has
partnered withFordandVolkswagen.
But while Waymo orders vehicles
fromFiatandJaguar Land Roverand
has announced international service
dealswithNissanandRenault, it is “the
only company that develops its entire
hardware and software stack in house”,
said Mr Anguelov.Technology
Waymo to share self-driving data set
Alphabet unit hopes to
step up development
of machine perceptionNASTASSIA ASTRASHEUSKAYA
MURMANSKTomorrow three tugs will tow the
Akademik Lomonosov barge out of
Murmansk to begin a 5,000km voyage
to a remote port on the other side of Rus-
sia’s Arctic coast, and in the process
send waves through the nuclear energy
sector.
The vessel is a floating nuclear reac-
tor, a portable power plant designed to
supply electricity to areas disconnected
from the grid, and envisaged by Russia’s
state nuclear corporationRosatomas
the future of small-scale nuclear power
with an eye on export opportunities in
developing countries.
But the two-reactor Lomonosov,
which took a decade to design and build,
has sparked safety fears and concerns
over the environmental impact of any
mishap, amid concern over a botched
nuclear missile test this month at a mili-
tary site close to Murmansk that
released a radiation spike in a nearby
city.
Rosatom insists the unit is safe, and“virtually unsinkable” in the event ofa
natural disaster. The plant will also be
guarded by the Russian guard, Mos-
cow’s internal military force.
“Our unit has other tasks, other
requirements in terms of security. It has
to correspond with double standards —
for a nuclear plant and a vessel,” said
Dmitry Alexeenko, deputy head of the
Rosatom department overseeing its
construction.
The unit is the first in a program
designed to provide power to remote
communities where building a conven-
tional nuclear power plant would be
excessive. The Akademik Lomonosov
will sail to the Chukotka region, deep in
Russia’s far east, where miners are seek-
ing to exploit gold and copper reserves.
“It is needed for the economy,
because the infrastructure and the
power cannot be linked quickly through
mountains, mud volcanoes or tundra,”
said Mr Alexeenko.
However, environmental groups have
raised concerns over the possible repeat
of the 1986 Soviet nuclear power plant
explosion at Chernobyl, in modern-day
Ukraine. In 2017, Greenpeace led a pro-
test at St Petersburg’s Baltic shipyard,
where the unit was being tested,
demanding “No to floating Chernobyl”.
The reactor tests were then moved to
Murmansk.“A floating nuclear power plant is far
more vulnerable to outside threats, such
as those from pirates, should they be
sold to equatorial countries, and natural
disasters, which Fukushima proved
even onshore plants are prone to,” said
Konstantin Fomin of Greenpeace Rus-
sia, referring to the 2011 Japan disaster.
The launch comes as energy compa-
nies around the world, including in the
US and South Korea, have been explor-
ing building smaller scale reactors.
Rosatom says it has been in talks with
potential buyers from Latin America,
Africa and Asia. It has also held discus-
sions with Sudan to use the plant for
power generation and Argentina for
water desalination. But the project’s
total cost, and confirmation of any for-
eign contracts, will only be made after
the technology is fully tested, the com-
pany adds.
Nuclear energy experts say that given
the construction timeframe, it is
unlikely to be cheap.
Anton Khlopkov, head of Russia’s
independent Center for Energy and
Security Studies, expects the unit to be
significantly cheaper than a conven-
tional land-based nuclear power plant.
But the cost per megawatt would be
higher, he said.
“The project economics remain an
open question, even taking into accountthat it is aimed at distant locations
where the power costs can be higher for
obvious reasons. Even then the project
has to prove economic viability,” he
said.
Rosatom, however, sees the reactor as
a strategic project where economic costs
are secondary. “Such a unit is to be
installed in regions where nothing can
be built, or where it isn’t economically
viable,” Mr Alexeenko said.
Named after a prominent Russian sci-
entist, the Akademik Lomonosov will
become the first floating nuclear power
plant since the MH-1A Sturgis — a US
military reactor that supplied the Pan-
ama Canal with power from 1968 to- Equipped with two KLT-
nuclear reactors delivering capacity of
70 megawatts/hour, the vessel is 140m
long and 30m tall. It also boasts a gym,
swimming pool and bar to accommo-
date its 342 staff.
Even if it proves successful, however,
the judicial status of a floating nuclear
power plant and its management
abroad could also become an issue.
Rosatom is not ready to say who would
control and manage any plants shipped
overseas.
Mr Fomin of Greenpeace said: “Too
many legal questions remain that can
affect security,”
Additional reporting by Henry Foy
Utilities.Nuclear
Russia state enterprise launches floating reactor
Rosatom has export hopes for
‘virtually unsinkable’ vessel
but safety concerns persist
Powered up:
Rosatom’s
floating
Lomonosov
nuclear plant,
which has taken
a decade to
design and
build, will bring
electricity to the
remote mining
region of
Chukotka in
Russia’s far east
Alexey AntonovNuclear plants
Reactors in operation and under
constructionSource: IAEANorth
America
East Asia
Western
Europe
Russia
Central and
eastern Europe
South Asia and
Middle East
South
America
Africa In operation
Under construction
Russia’s nuclear sector
Share of country’s total electricity
generation ( ) ‘It’s not an
admission,in any way,
that wehave
problemssolving
these issues’
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