Operational risk

Snam is required to comply with rules and regulations at EU, national, regional and local level.

The expenses associated with the actions required to fulfil its obligations constitute a significant cost item now and for the years ahead.

Complying with rules and regulations, and minimising operational risk, is crucial for obtaining authorisations and/or licences that require compliance with applicable laws on health, safety and the environment. Violation of current regulations may result in individual criminal and/or civil sanctions and, in specific cases where safety and environmental rules are violated, companies may be liable on the basis of a European objective liability model adopted in Italy through Legislative Decree no. 231/01. Snam may incur significant costs or liability.

Current regulations highlight the value of organisational models aimed at preventing offences in the event of violation of environmental and workplace health and safety laws, specifying corporate liability.

Snam uses organisational instruments and internal regulations to establish the responsibilities and procedures to be adopted when designing, constructing, operating and disposing of all company assets, thereby ensuring compliance with laws and internal regulations on health, safety and the environment.

Snam has implemented environmental and workplace health and safety management systems based on the principles of its own Health, Safety, Environment and Quality Policy, which has been developed at the company for several years.

The documentation and application of Snam’s management systems are certified in accordance with international standards. More specifically, the company has received ISO 14001 certification for the management process relating to its pipeline network and compression stations, as well as ISO 9001 certification for the processes it uses to meter, dispatch and define transportation capacity for natural gas. The Workplace Health and Safety Management System is certified in accordance with the BS OHSAS 18001 standard. In 2011, work began on extending this system to Snam subsidiaries Stogit and GNL Italia, for which certification is expected before the end of 2012.

By adopting management systems and procedures that take into account the specific characteristics of its business, and by continually improving and modernising its facilities, Snam ensures that it can identify, assess and mitigate risks as part of a cycle of continual improvement.

Snam pays the utmost attention to all its operational processes: from designing and constructing plants to operating and maintaining them. For the purposes of business management and operational control, the company uses specific techniques that are continually being updated and are developed in compliance with international best practice.

Snam develops and maintains technical regulations and management systems for the environment and workplace health and safety based on an annual cycle of planning, implementation, control, reviewing results and setting new objectives.

Management system control is conducted through monitoring health, safety and environment indicators, periodic reporting and inspections of operating sites and the registered office, which involve:

  • a technical audit, designed to ensure that the management systems are applied correctly in compliance with the Code of Ethics and Organisational Model 231;
  • management system checks on certification, maintenance and renovation (conducted annually by an external certifying body);
  • health, safety and environment checks on outsourced activities.

The findings are examined together with the results of the operating checks, providing basic information for planning future activities and setting new targets, in accordance with Snam principles.

Snam has adopted organisational and regulatory measures for preventing (availability, goods and services contracts, training, etc.) and managing operational crises that may impact assets, people and the environment, identifying the actions required to limit damage.

Snam participates in international working groups that conduct benchmarking activities, draw up guidelines and carry out studies aimed at identifying ways in which gas transportation processes can be improved.

In addition to the risk response, monitoring and management system, as well as to the HSE measures adopted across the group, Snam has taken out insurance to limit the possible negative effects on its assets from damage caused to third parties and to industrial property, whether onshore or offshore (Messina strait). This damage may occur during operations and/or investment works. The amount insured varies according to the type of event and is determined by current market best practice in risk assessment.

Risks connected with failing to meet infrastructure development objectives

Snam’s effective ability to develop its infrastructure is subject to many unforeseeable events linked to operating, economic, regulatory, authorisation and competition factors which are outside its control. Snam is therefore unable to guarantee that the projects to upgrade and extend its network will be started, be completed or lead to the expected benefits in terms of tariffs. Additionally, the development projects may require greater investments or longer timeframes than those originally planned, affecting the company’s financial position and results.

Risks deriving from malfunctioning of plants

Managing regulated gas activities involves a number of risks of malfunctioning and unforeseeable service disruptions due to factors which are outside Snam’s control, such as accidents, breakdowns or malfunctioning of equipment or control systems, the underperformance of plants and extraordinary events such as explosions, fires, earthquakes, landslides or other similar events beyond Snam’s control. These events could also cause significant damage to persons, property or the environment.

Any service interruptions and subsequent compensation obligations could lead to a decrease in revenue and/or an increase in costs. Although Snam has taken out specific insurance policies to cover some of these risks, the related insurance cover could be insufficient to meet all the losses incurred, compensation obligations or cost increases.

Risks deriving from the need to manage a significant flow of information to operate regulated services

The regulatory framework in which Snam operates involves continually collecting and processing a significant flow of information from its service clients. The information received by Snam includes, inter alia, capacity bookings, details of where gas is coming from and going to each day, physical and commercial balancing mechanisms and forecasts on demand and transportation capacity usage. This flow of information, managed by extensive use of IT systems, is large and complex. Therefore, Snam cannot guarantee that its management will not lead to operating and planning difficulties which could affect its business.

Risks deriving from the seasonal nature of the business

Snam’s overall business is not affected by seasonal or cyclical factors which could have a significant impact on its annual or interim financial position and results. Indeed, on the basis of current tariffs, only a minimal part of Snam’s revenues is exposed to changes in gas demand (around 15% of natural gas transportation revenue and around 10% of LNG regasification revenue).

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