Interest rate risk
Fluctuations in interest rates affect the market value of the Company’s financial assets and liabilities and its net financial expense. Snam aims to optimise interest rate risk while pursuing financial structure objectives. As a result of the centralised finance model, Snam’s structures encompass the needs of the Group and manage the positions thereof, in line with the objectives set out in the Financial Plan, ensuring that the risk profile remains within the defined limits.
During 2012, pursuant to the general framework set by the Prime Ministerial Decree which defined the terms and conditions of the ownership unbundling of Snam from eni, Snam completed its significant debt refinancing programme which was aimed at ensuring its financial independence42. Due to this refinancing, which resulted in the closing of all existing financial contracts with eni, including IRS contracts which covered the interest rate risk and the subsequent access to capital markets for the issue of fixed-rate bonds, as at 31 December 2012, 51% of the financial debt was carried at a floating rate (23% at the end of 2011) while the remaining 49% was carried at a fixed rate (77% at the end of 2011).
At 31 December 2012, the Snam Group used external financial resources in the form of bilateral and syndicated loans with banks and other financial institutions, in the form of medium-to-long-term loans and bank credit lines at interest rates indexed to the reference market rates, in particular the Europe Interbank Offered Rate (Euribor), and fixed-rate bonds placed with institutional investors operating in Europe.
Natural gas price risk
Up to the end of the second regulatory period on 31 December 2009, the transportation costs incurred for the acquisition of gas needed to operate the compression stations were included in overall operating costs and therefore updated using the price-cap mechanism43. As at the start of the third regulatory period on 1 January 2010, the Electricity and Gas Authority, enacting the new tariff criteria laid down by Resolution ARG/gas 184/09, defined methods for payment in kind, by service users to transporters, of gas volumes to cover fuel gas, network losses and Unaccounted-For Gas (UFG), owed as a percentage of the volumes respectively injected into and withdrawn from the transportation network. As a result of these measures, and taking into account the mechanism for allocating gas to service users, change in the price of natural gas for hedging fuel gas and network losses no longer represents a risk factor for Snam. Price risk still exists from excess quantities of UFG and network losses withdrawn vis-à-vis the quantities paid for in kind by service users.
43 Under this mechanism, core revenue components relating to operating costs are updated with financial statement figures at the start of a regulatory period, whereas they are updated with inflation and reduced by a productivity coefficient in subsequent years.