MILAN Royal Dutch Shell (RDSa.L) has decided to withdraw from a project to build a liquefied natural gas (LNG) plant in Sicily at a time when the Italian government is trying to cut red tape to attract investors to its shores.
"I confirm Shell's exit from the Ionio Gas joint venture in Sicily," a spokesperson for Shell told Reuters on Friday.
Concern had been growing that Shell might pull out of the project after having spent seven years wading through paperwork.
If corruption and organised crime have kept investors at bay, so has chronic red tape, which, according to World Bank data, put Italy behind Zambia or Mongolia in attracting new investments.
In its 2012-2013 Global Competitiveness Report, the World Economic Forum said inefficient government bureaucracy was the second most problematic factor for doing business in Italy, behind high taxes.
Earlier this year UK gas producer BG Group (BG.L) threatened to shelve plans to build an LNG plant in the southern region of Puglia after failing for 11 years to obtain all the necessary permits.
Shell did not give a reason for its decision to pull out of the project but the Region of Sicily had opposed the project.
Sicily held regional elections earlier this week.
The technocrat government of Mario Monti has approved legislation to cut back the tangle of local veto powers that have got some project developers tearing out their hair.
Swedish furniture maker Ikea recently said its plans to open a third store in Rome have been wrapped up in red tape for seven years.
Rome's reform plans to cut red tape involve changing the constitution to remove layers of veto powers held by local authorities, and that will require a lengthy parliamentary process. General elections are due in Italy in the spring.
Italy needs to attract investors to help upgrade the country's infrastructure to put it on a firmer competitive footing and create employment.
Italian energy company Erg (ERG.MI) pulled out of the Ionio Gas joint venture with Shell earlier this year.
In 2005, investments on the plant which was meant to have a capacity of 8 billion cubic metres, were seen at 400 million euros (325 million pounds).
Due to the economic crisis, falling demand for energy from businesses and consumers has generated a situation of oversupply of gas.
(Reporting By Stephen Jewkes; Editing by Bernard Orr)