31 Financial expenses (income)

Financial expenses (income) amount to €313 million, broken down as follows:

The net value of financial income and expense (€244 million) breaks down as follows:

Expenses associated with net financial debt (€262 million) relate to interest on loans received from the ultimate parent, Eni S.p.A.³⁷.

Other financial expense (income) of €19 million relates mainly to the accretion discount(€12 million) and to interest income and expense accrued on prepayments and accruals from regulated activities.

Financial expenses capitalised (€37 million) relate to the part of financial expense absorbed by investment activities. The interest rate used for the capitalisation of financial expenses is between 2.1% and 3.3% (between 2.6% and 3.1% in 2010).

Derivatives

Derivatives expenses (income) amount to €69 million and break down as follows:

All derivative contracts existing at 31 December 2011 were entered into with the ultimate parent, Eni S.p.A., and relate to interest rate swaps. Information about the characteristics of these contracts is provided in Note 21 “Other current liabilities”.

The average cost of borrowing, including the effects produced by derivative contracts, stands at 3.1% (2.9% in 2010).