36 Related party transactions

Snam Rete Gas S.p.A. is a subsidiary of Eni S.p.A., which holds 52.53% of its shares.

The related party transactions conducted by Snam and by the companies included in the scope of consolidation mainly involve the provision of services, the exchange of goods, the provision and utilisation of financial resources and the hedging of interest rate risk with the ultimate parent Eni S.p.A. and its subsidiaries and associates, as well as with associates and entities under common control, and with Enel S.p.A., a state-controlled company, and its subsidiaries.

All transactions are part of ordinary business activities and are generally settled on the basis of market conditions, i.e. under conditions that would be applied for two independent parties, and are performed in the interests of Snam companies.

In accordance with the disclosure requirements introduced by Consob Regulation 17221 of 12 March 2010, the following related party transactions were conducted in 2011:

• on 13 April 2011, a “Forward Start” interest rate swap (IRS) derivative contract for Snam was arranged between Snam and its ultimate parent, Eni S.p.A., with a notional value of €300 million and a reference period of 19 October 2011 – 19 October 2016. The contractual fixed base rate is 3.356% per annum;
• on 19 April 2011, a “Forward Start” interest rate swap (IRS) derivative contract for Snam was arranged between Snam and its ultimate parent, Eni S.p.A., with a notional value of €500 million and a reference period of 30 September 2011 – 28 September 2018. The contractual fixed base rate is 3.458% per annum;
• on 27 April 2011, a “Forward Start” interest rate swap (IRS) derivative contract for the subsidiary Stogit S.p.A. was arranged between Stogit S.p.A. and its ultimate parent, Eni S.p.A., with a notional value of €200 million and a reference period of 16 September 2011 – 16 September 2018. The contractual fixed base rate is 3.367% per annum;
• on 11 July 2011, an agreement was signed between Snam and its ultimate parent, Eni S.p.A., concerning a loan from Eni for €300 million to be disbursed on 12 July 2011 and maturing on 12 July 2017. The interest rate, fixed for the entire term of the agreement, is 4.05% per annum;
• on 16 September 2011, a contract was signed between the subsidiary Stogit S.p.A. and its ultimate parent, Eni S.p.A., concerning a loan from Eni for €200 million to be disbursed on 16 September 2011 and maturing on 16 September 2018. For the calculation of the interest rate, reference is made to the 3-month Euribor (ACT/360) recorded by the Euribor Panel Steering Committee on the interbank deposit market and denominated in Euros at 11:00 (Central European Time) for a value date of the first day of each interest period and published by Reuters on its “EURIBOR01” page, plus a spread of 2.8% per annum;
• on 23 September 2011, natural gas transport capacity commitments were agreed between Snam and the related party Enel Trade S.p.A. on Snam’s natural gas pipeline network in favour of Enel Trade S.p.A. for the 2011-2012 thermal year (1 October 2011 to 30 September 2012). These commitments are assumed in accordance with the procedures defined in the Snam Network Code approved by the Electricity and Gas Authority with its Resolution ARG/gas 75/2003, as subsequently amended. According to the contractual agreements, the finalisation of these commitments entails the calculation of a fee for services rendered by applying, for each thermal year, the natural gas transportation and dispatching tariffs approved by the Electricity and Gas Authority Resolution. The fee for the 2011-2012 thermal year is estimated at around €186 million;
• on 23 September 2011, natural gas transport capacity commitments were agreed between Snam and the ultimate parent Eni S.p.A. on Snam’s natural gas pipeline network in favour of Eni S.p.A. for the 2011-2012 thermal year (1 October 2011 to 30 September 2012). These commitments are assumed in accordance with the procedures defined in the Snam Network Code approved by the Electricity and Gas Authority with its Resolution ARG/gas 75/2003, as subsequently amended. According to the contractual agreements, the finalisation of these commitments entails the calculation of a fee for services rendered by applying, for each thermal year, the natural gas transportation and dispatching tariffs approved by the Electricity and Gas Authority Resolution. The fee for the 2011-2012 thermal year is estimated at around €690 million;
• on 28 September 2011, an agreement was signed between Snam and its ultimate parent, Eni S.p.A., concerning a loan from Eni for €500 million to be disbursed on 30 September 2011 and maturing on 30 December 2011. The loan is renewable for a further three months subject to conditions to be agreed based on the market conditions in force at the time of the renewal. For the calculation of the interest rate, reference is made to the 3-month Euribor (ACT/360), recorded by the Euribor Panel Steering Committee on the interbank deposit market and denominated in Euros at 11:00 (Central European Time) for a value date of the first day of each interest period and published by Reuters on its “EURIBOR01” page, plus a spread of 130 basis pointsfor the first three months;
• on 19 October 2011, an agreement was signed between Snam and its ultimate parent, Eni S.p.A., concerning a loan from Eni for €300 million to be disbursed on 19 October 2011 and maturing on 19 October 2017. For the calculation of the interest rate, reference is made to the 3-month Euribor (ACT/360), recorded by the Euribor Panel Steering Committee on the interbank deposit market and denominated in Euros at 11:00 (Central European Time) for a value date of the first day of each interest period and published by Reuters on its “EURIBOR01” page, plus a spread of 3.04% per annum calculated taking into account the spread and financial costs of the Eni debenture loan entitled “Eni TV 2011/2017”.

Under Article 13 of the aforementioned Consob Regulation, these agreements are classed as ordinary transactions concluded under market-equivalent or standard conditions since, pursuant to Article 3 of the Procedure: (i) they fall within the scope of normal business operations and the associated financial activities; (ii) the terms are similar to those usually practised with non-related parties for transactions of an equivalent nature, size and risk.

The amounts of related party transactions of a commercial and financial nature for the 2010 and 2011 financial years are reported below. The nature of the most significant transactions is also stated.

COMMERCIAL AND OTHER TRANSACTIONS

Ultimate parent

Commercial transactions

The most important active commercial transactions with the ultimate parent, Eni S.p.A., concern the provision of regulated gas services relating to transportation, regasification, distribution and storage, on the basis of tariffs established by the Electricity and Gas Authority.

The principal passive commercial transactions mainly concern the supply of electricity used for business activities and natural gas used for storage infrastructure. These transactionss are governed by contracts entered into under normal market conditions.

Snam also has transactions in place in connection with contracts for the provision of consultancy and technical/operational support services relating to storage fields. These transactions are governed by service agreements on the basis of the costs incurred.

A contract was in force at 31 December 2011 between Eni S.p.A. and Snam which governed the use and management of a series of services rendered by Eni S.p.A. central divisions to Snam and its subsidiaries. In particular, the services provided related to the following areas: (i) human resources; (ii) corporate affairs and governance; (iii) health, safety and environment; (iv) ICT³⁹ ; (v) institutional relations and communication. These transactions were governed on the basis of the costs actually incurred for the provision of the related services.

Note that, following the transposition of Legislative Decree No. 93 of 1 June 2011 (the “Third Energy Package”), activities are under way to cease the service agreements in place with Eni or its subsidiaries.

Other transactions

As established by the contract for the purchase of Italgas and Stogit from Eni, signed on 30 June 2009, the price determined for the acquisition of the two companies is subject to adjustment mechanisms, to be applied if necessary after the date of execution of the contract, based on commitments assumed when the acquisition was finalised⁴⁰. As a result of such commitments, in 2011 asset adjustments in favour of Snam (owed by Eni) were recognised in the amount of €12 million in relation to the measurement of liabilities on events already in existence on the contract completion date.

Furthermore, in 2011, Snam also paid the ultimate parent, Eni S.p.A., the amount of €89 million, as partial settlement of the asset adjustments in its favour.

Finally, transactions exist with Eni within the context of the national tax consolidation scheme, which is subscribed to by all companies within the scope of consolidation of the Snam group, and the VAT consolidation scheme. These transactions are governed by the appropriate legally binding contracts.

Subsidiaries of Eni

The key transactions with Eni’s subsidiaries relate to:

• SaipemS.p.A., for design and project supervision services in relation to the construction of natural gas transportation infrastructure, governed by contracts entered into under normal market conditions;
• Serfactoring S.p.A. for factoring transactions performed by Snam Rete Gas suppliers.

Snam also has commercial transactions with special-purpose entities which provide services to Eni group companies, including: (i) EniServizi S.p.A., which provides real estate management services such as maintenance of buildings, fixtures and associated plants, transportation services, sanitation services, catering, caretaking, supply of non-strategic assets and centralised management of the company’s archives; and (ii) Eni Adfin S.p.A. (formerly Sofid S.p.A.), which provides administrative services⁴¹. These transactions are governed on the basis of the costs incurred for the provision of the related services.

Entities under common control and associates

Transactions with entities under common control and associates relate to the provision of IT services governed by contracts entered into under normal market conditions.

State-owned or -controlled companies

Transactions with state-owned or -controlled companies relate mainly to the Enel Group and concern natural gas transportation, regasification, distribution and storage services. These transactions are governed on the basis of tariffs established by the Electricity and Gas Authority.

FINANCIAL TRANSACTIONS

Ultimate parent

Transactions with the ultimate parent, EniS.p.A., relate to the coverage of financial requirements, utilisation of liquidity and interest rate risk hedging, through the use of derivative contracts, classified pursuant to IAS 39 as cash flow hedge derivatives. These transactions are governed by contracts entered into under normal market conditions.

For transactions with directors, auditors and key managers, please refer to the information contained in the paragraph on remuneration in Note 30 “Operating costs”.

Impact of related party transactions or positions on the balance sheet, income statement and statement of cash flows

The impact of related party transactions or positions on the balance sheet is summarised in the following table:

The impact of related party transactions or positions on the income statement is summarised in the following table:

Transactions with related parties are generally governed on the basis of market conditions, i.e. the conditions which would be applied between two independent parties.

The principal cash flows with related parties are shown in the following table:

The effect of cash flows with related parties is shown in the following table: