Tackling organised crime in a bid to secure investor confidence in wind

The DIA's aggressiveness in clamping down on organised crime is widely lauded but investor confidence is far from being restored. An industry insider who has observed investment funds shying away from Italy believes the country risk is just too high when the political instability and the reduced incentive schemes announced in 2012 are added in. ...The mafia allegations and potential for random asset seizures hasn't helped - companies wanting to sell their wind farms in Sicily aren't finding buyers.

The web of corruption in the Sicilian wind sector even netted legitimate renewable energy players, some of which had no idea until it was too late.

In the old days armed gangsters threatened you with violence or worse if you didn't do their bidding. But in the modern world mobsters brandish environmental impact assessments or power point presentations with balance sheets and projected revenues and things become far less straightforward, finds Rachana Raizada .

This April, the Direzione Investigativa Antimafia (DIA) of Palermo announced it had completed the confiscation of assets (a record €1.3 billion) belonging to Vito Nicastri, an entrepreneurial plenipotentiary based in the western province of Trapani, and known in Sicily as ‘King of the Wind'. His wind farm development empire sold plants on a turnkey basis at a going rate of around €2 million/MW capacity. Crime and corruption crept in at several levels: applications for public grant funding through different legal entities so as to get multiple grants; acquiring land concessions; acquiring operating permits and authorisations from various government bureaucracies; contracts for public tenders; and procuring infrastructure construction services from mafia-certified suppliers.

Anticipation of generous government incentives once the projects were in operation fuelled demand for Nicastri's services. A web spun so widely and finely that it even netted legitimate renewable energy players which had no idea until it was too late.

In September 2010, Denmark's Greentech Energy Systems received a shock when 15% of its share capital in a project company, Minerva Messina (a 48.3 MW wind project in Sicily), was seized by the Italian authorities although it hadn't received state grants and had been financed with Greentech equity and project financing. Nicastri had developed the project, 85% of which came into Greentech's possession in 2007 with its purchase of a Danish company Vind Energi Invest. A Nicastri-controlled company held 15% until Greentech bought the minority share in May 2010. Another Nicastri company, Eolo Costruzioni, was a subcontractor to Siemens during construction.

But for local Sicilian companies attempting their own development, the situation was more obvious. Over five years ago, Salvatore Moncada, the CEO of Moncada Energy Group visited diverse public entities to understand why his applications for wind farm permits were stalled. ‘I understood I should do something incorrect,' says Moncada, who subsequently went to a meeting in a bar in Castelvetrano, Trapani where an associate of Nicastri's suggested that €70,000 could get seven applications approved. ‘I felt the obligation to denounce it to the authorities,' remembers Moncada, adding that he also denounced a director in the Sicilian government who tried to sell him a wind project. Moncada's complaints contributed to a series of investigations on Nicastri by the DIA specific to wind energy:

• Eolo (2009): this operation established the presence of mafia involvement in wind energy. Nicastri was subjected to preventive measures when one of his wind farm development companies was found to be linked to a mafia family.

• Via col vento (10/11/2009): Nicastri and three others were found to have benefited from public funds for wind farm development using false land claims and statements of credit availability.

• Vento del sud (14/09/2010): suspected of intercepting public funds for energy development, Nicastri's assets (€1.5 billion) were sequestered;

• Broken Wings (July 2012): Nicastri was arrested in this operation.

Ironically the Moncada family construction business, founded in 1991, had decided after twenty years to turn to something greener and cleaner as the Italian electricity market was liberalised. ‘It was one of the most polluted sectors,' says Moncada with reference to construction (not in the environmental sense). ‘We decided to abandon it and enter renewable energy, which at that time had received little attention either from the mafia or the Sicilian government.'

Having as little contact as possible with the government was a major attraction for Moncada, who estimates that over half of all business activities in Sicily require something from the government. ‘The laws are transparent but the processes through which they are applied are not. You need to know someone who will move your application forward or it will remain blocked,' he says.

Initially it was smooth sailing with the first wind farm entering production in 2005. A prototype of a 750 kW turbine with direct drive technology designed and constructed by a Moncada group company was tested at the plant in anticipation of a future turbine manufacturing facility. Four more wind farms entered operation in 2007, all in the southern province of Agrigento. ‘The regional government of Sicily hadn't yet understood the value of these projects. They saw me as a dreamer. But when they saw wind was a profitable business, they began to put up walls. There was no need for a limit but by blocking permits, they could increase the value of the projects,' explains Moncada.

Moncada's main concern with taking his complaint to the police was his family's safety. ‘As an entrepreneur you expect to take risks, but normally those risks don't involve living under police protection,' he notes. Moncada had already experienced this between 2005 and 2007 for a previous denouncement made to the police related to his construction business. After a quiet period of living mostly at home he became one the few to voluntarily eschew it after only a year and a half and request its removal. ‘Some see a police escort as a status symbol and even go to the cinema, but it's a huge cost to the state.'

Nicastri's role as a wind plant developer was a lateral career move following a stint in photovoltaics in the early 1990s. In 1994, Nicastri testified to collecting three billion lire in bribes for delivery to a councillor in the Sicilian government to finance election activities. The proceedings revealed a corrupt system underlying public grant funding for PV installations. Nicastri received a lenient, suspended sentence but the cost to the treasury was estimated at 30 billion lire.

Structural Funds programmes under the EU's Cohesion Policy contribute to the confluence of factors that have made renewable energy in southern Italy a magnet for criminal attention: impoverished regions with a historical presence of organised crime and a large pot of public funds for development of the south's abundant wind and solar resources. Italy is second only to Poland and Spain as a beneficiary of EU Cohesion Policies which aim to reduce regional imbalances within member states. It received €28.8 billion in EU funds for 2007-2013; an additional €95 billion was contributed by the Italian government.

A specific share is for energy investments: the ‘Renewable Energy and Energy Efficiency' Operational Programme for Apulia, Campania, Calabria and Sicily has a total budget of around €1.6 billion. A 2011 report on organised crime by the EU Directorate General for Internal Policies acknowledges the misuse of EU structural funds in Italy's wind sector. The disbursement process for funds under the old law n.488/92 was regarded as fundamentally flawed in that it dispersed authority among regional authorities and private financial institutions. The DIA in its 2nd Semester Report for 2010 identifies this law as a major factor in allowing criminal infiltration.

The DIA's recent asset confiscation, authorised after courtroom hearings in the Tribunal of Trapani followed the DIA's 2010 seizure of these assets as a preventive measure (i.e., before a trial) under Italy's revamped anti-mafia laws. The assets included 43 companies (or partial holdings), 98 real estate properties, vehicles, a luxury catamaran, and 66 financial accounts (banks deposits, insurance policies etc.). By reconstructing Nicastri's asset holdings over thirty years, a significant gap emerged between assets owned and income declared. ‘These operations (investigations, inspections, monitoring, analysis, technical and other activities) require many months of work,' states Colonel Giuseppe D'agata, Head of the DIA's Palermo Centre. ‘The difficulties are in reconstructing the assets of those involved and their relationships, whether personal or financial, especially since the economic relationships, in the case of Nicastri, extended outside Italian borders (Spain, Belgium, Luxembourg, Denmark, Malta).'

DIA investigations unrelated to renewable energy (‘Abele' and ‘Cadice') had established that Nicastri was under Mafia protection and documented financial relations between Nicastri and mafia. His importance in mafia circles was confirmed by the ‘pizzini' (notes used for mafia communication) found at the arrest of two noted bosses. An effective networker, Nicastri's relationships apparently extended across the island to criminal cliques in Eastern Sicily - and across the Strait of Messina to the Calabrese ‘Ndrangheta'.

The DIA's 2009 Eolo operation concluded that the mafia subsidiary known as ‘Cosa Nostra' intervened with its representatives to promote agreement among wind power ‘entrepreneurs' in Trapani so as to avoid internal competition and secure control of manufacturing related to wind plant construction. Nicastri wasn't charged but was allegedly implicated in the network of interests revolving around wind energy. This is described as a systematic dynamic among public administration (elected officials and government functionaries), the mafia and entrepreneurs. This paradigm was apparently replicated across Sicily. Nicastri's case received the most international publicity but is only one amongst several high profile cases involving organised crime in the sector.

A 500 page document issued by the Tribunal of Palermo provides transcripts of intercepted conversations relating to transactions among entrepreneurs and government functionaries in the windy municipality of Mazaro del Vallo, Trapani. The document summarises the complexity of processes for wind farm authorisation. The application process which should in theory be unified may require as many as 13 different permits ranging from environmental impact assessments to seismic clearances, and clearances from the armed forces for airspace security. In this backdrop to Eolo, Nicastri enters the scene in 2006 when his company, Eolica del Vallo, synergistically consolidated its position in Trapani by acquiring control of projects of Sud Wind and ENERPRO: the former had acquired land rights, while the latter had acquired the necessary permits.

The DIA's aggressiveness in clamping down on organised crime is widely lauded but investor confidence is far from being restored. An industry insider who has observed investment funds shying away from Italy believes the country risk is just too high when the political instability and the reduced incentive schemes announced in 2012 are added in. Both Moncada and Greentech appear to share this view, given that neither company's expansion plans prioritise Italy, despite a large untapped potential. While Sicily does lead Italy in wind energy production (2.4 TWh in 2011), solar electricity production data might lead one to believe that 3rd placed Lombardy (almost 1 TWh) with its dense, smoggy, grey skies is a sunnier place than 7th placed Sicily. The mafia allegations and potential for random asset seizures hasn't helped - companies wanting to sell their wind farms in Sicily aren't finding buyers.

Greentech successfully recovered its seized Minerva assets in 2011 without any economic impact on the company. Following the seizure, Sigieri Diaz della Vittoria Pallavicini stepped in as Greentech's new CEO and successfully effected a cleanup operation not just on Minerva Messina but also a Sardinian project that faced unexpected setbacks in 2011. Construction of Greentech's Cagliari II wind farm was halted by authorities for pre-emptive reasons due to alleged irregularities committed during project development between 2003 and 2008. The assets were released in 2012.

‘We have solved 100% of the old problems with Greentech,' says Diaz Pallavicini. Having already founded a wealth management firm, he expanded into renewable energy in 2009 with the establishment of GWM Renewable Energy. Its shareholders now include Rottapharm Madaus, the Pirelli Group and Intesa Sanpaolo. GWM (RE) took a major stake in Greentech in September 2010 and merged with it a year later.

Reflecting on the Minerva Messina project, Pallavicini says that 90% of its problems were administrative or technical (getting disconnected from the grid). Before he came on board, the subcontractor had inflated the price for the Messina project from €9 million to €23 million. ‘These poor guys were going bankrupt and just wanted to finish the project - 21 towers of 2.3 MW each, spread out over 40 km and three communities in the middle of nowhere in the Messina mountains. We had to make a payment out of the project financing. The assets were seized on the grounds that the prosecution thought it was an agreement to pay, but Greentech was being blackmailed. We opened our books for the DIA and the ex-CEO went to Trapani to testify in front of the court. This was very effective and enabled the prosecution to bring another charge against Nicastri.'

Now Greentech's sights are set high with 1 GW of renewable energy capacity planned for 2014. ‘Today we are cash rich and have strong shareholders. We aim to be a leading player in the IPP space,' affirms Diaz Pallavicini. ‘But zero % of this new capacity will be in Italy, not because we're scared of Italy, but because we want to diversify,' he adds. Pallavicini isn't surprised by the reduction in incentives, ‘they were too high and there has been a correction. A real energy policy has been missing for 20 years. We were one of the last to introduce incentives.' Greentech is currently focusing on Poland and the US but is also considering Mexico, Turkey and Romani.


So are winds of change finally blowing? Last October, Beppe Grillo's 5 Star Movement's ‘clean' slate won the most votes of any single party in Sicily's regional elections, but parallel to the current national situation, does not form part of the regional cabinet. Nationally, Berlusconi's return from the political grave despite impending charges and the subsequent award of the Ministry of Interior to his party is a move seen by critics as a gross conflict of interest.

‘Absolutely nothing has changed,' says Moncada. ‘I've asked for a reimbursement of the almost €1 million paid in application fees for the approval of 600 MW. The wind projects were presented in 2006 and are still not approved. If the administration releases most of the permits to one person and very few to others, the problem is elsewhere, it isn't Nicastri. Italian journalists want to interview you if you denounce the mafia but if you denounce the regional administration, it's a different story. The change in government hasn't done much - the same old bureaucrats remain. Really, there are two types of mafia, the old mafia and the new white-collar mafia who wouldn't exist without the collaboration of the public administration.'

He concludes: ‘Uncertainty leaves space for the delinquents'.

Source: http://digital.renewableene...

JUN 6 2013
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