3.3 Control and Risk Committee

Duties

The Committee provides recommendations and advice to the Board by making suitable enquiries to support assessments and decisions concerning the internal control and risk management system, as well as those relating to the approval of financial reports.

Specifically, the Control and Risk Committee performs the following functions:

1. it evaluates, together with the Executive Responsible for preparing corporate accounting document and having consulted the External Auditors and the Board of Statutory Auditors, the proper use of accounting standards and their consistency for the purposes of preparing the consolidated financial statements;
2. it issues opinions on specific aspects relating to the identification of the main risks faced by the Company;
3. it performs the additional duties assigned to it by the Board of Directors in relation to transactions in which directors or statutory auditors have an interest and related-party transactions, in accordance with the terms and methods set out in the procedure annexed to the Committee Regulations³²;
4. it examines the periodic reports relating to the evaluation of the internal control and risk management system, as well as those of particular importance prepared by the Internal Auditor;
5. it monitors the independence, suitability, effectiveness and efficiency of the Internal Audit function;
6. it may ask the Internal Auditor to carry out inspections of specific operational areas, giving notice of this to the Chairman of the Board of Statutory Auditors, the Chairman of the Board of Directors and the director in charge of the internal control and risk management system;
7. it reports to the Board, at least every six months, upon approval of the annual and half-year financial report, on the activity it carries out and the adequacy of the internal control and risk management system;
8. it expresses its opinion on proposals to the Board of Directors submitted by the director in charge of the internal control and risk management system, in agreement with the Chairman: (i) concerning the appointment, dismissal and remuneration of the Internal Auditor, in line with the Company’s pay policy; and (ii) designed to ensure that he/she is given the appropriate resources to fulfil his/her responsibilities.

The Committee expresses its opinion to the Board of Directors in order to:

1. define the guidelines for the internal control and risk management system, so that the main risks facing the Company and its Subsidiaries can be correctly identified and adequately measured, managed and monitored, as well as determining to what extent these risks can be managed using a policy that is consistent with the strategic objectives identified;
2. periodically evaluate, at least annually, the adequacy and effectiveness of the internal control and risk management system with respect to the characteristics of the Company and the risk profile it has adopted;
3. periodically approve, at least once a year, the audit schedule prepared by the Internal Auditor;
4. describe, in the Report on Corporate Governance and Ownership Structure, the main features of the internal control and risk management system, as well as evaluate the adequacy of the system;
5. evaluate the conclusions presented by the External Auditors in any suggestion letters and in the report on key matters arising from the external audit.

Pursuant to the Committee Regulations, Committee meetings held to carry out the duties assigned to the Committee by the Board of Directors pursuant to the procedure “Transactions in which directors or statutory auditors have an interest and related-party transactions” consist exclusively of independent directors. For more information on this procedure, see Paragraph 7.4 of the Report.

Composition

The Control and Risk Committee has four members, in order to ensure that it reflects the diversity of expertise represented on the Board of Directors³³. The composition of the Committee is as follows:

Snam’s Board of Directors decided that more than one member of the Committee has adequate accounting, financial and risk management experience.

The Chairman of the Company, the director in charge of the internal control and risk management system and the statutory auditors are usually invited to attend Committee meetings. Other non-Committee members may also attend, upon invitation by the Committee Chairman, in order to provide information and express an opinion on individual agenda items.

The Committee meetings are deemed valid with the presence of the majority of the members in office; the Committee resolves by an absolute majority of the attendees. In the event of a tied vote, the Committee Chairman shall represent the position adopted by the majority of the independent directors to the Board of Directors, whilst also informing the Board of the position of the other Committee members.

Activities

In 2014 the Committee met 15 times, with 94.5% of members present on average. The average duration of Committee meetings was 190 minutes.

Below is a brief description of the main issues discussed during the 2014 financial year:

• matters pertaining to the internal control and risk management system connected with the Decree of the Court of Palermo, Preventive Measures Section, issued to Italgas on 11 July 2014, pursuant to Article 34, paragraph 2 of Legislative Decree 159/2011, and, in particular:
  - examination of the merits of the content of the Decree and the effectiveness of the internal \ control system in relation to contract management and supply activities with the support of the management and the consultant hired by the Company, and examination of the audit activities carried out recently and currently under way concerning processes covered by the Decree;
  - analysis of matters related to the Decree, to the extent that such matters fall within their respective areas of responsibility, with the Board of Statutory Auditors, the External Auditors, the Watch Structure, the Executive Responsible for preparing corporate accounting document, the Head of ERM and the Internal Auditor;
  - examination of the various initiatives adopted by Snam, including through assigning mandates to consultancy firms and experts, on specific matters identified, in consideration of the content of the Italgas Judicial Administrators’ Report.

The Committee also received information on an ongoing basis on the matter’s development and its implications during meetings of the Control and Risk Committee and of the Board of Directors, as well as during specific conference calls;

• the ERM system, and, in particular:
  - examination of the quarterly reports pertaining to the identification and updating of the main corporate risks as part of the ERM implemented and gradually developed by the Company to organically support management in identifying, measuring, managing and monitoring the main risks that may affect the achievement of the Company’s strategic objectives, with special attention paid to critical and strategic risks;
  - benchmark comparison with a global survey conducted in 2013 on the topic of “Risk intelligence in the energy industry”;
• oversight of the Internal Audit department, and, in particular:
  - analysis of the results of the assessment conducted by a leading specialist company of the organisational structure of the Internal Audit department and the adequacy of the workforce in relation to the duties assigned by the Board guidelines on internal audit activities and work schedules set out for the 2014-2015 period;
  - examination of the periodic reports on the activities carried out in implementation of the audit schedule approved by the Board of Directors for 2014, the main results of the audit activities performed during the period, the follow-up to the corrective measures agreed with management i relation to the results of the checks, and the quarterly reports on the information received;
  - analysis of the proposed 2015 audit schedule based on the chart of the main corporate risks drawn up by the ERM unit and presented to the supervisory and control bodies of the Direct Subsidiaries, in order to acquire any instructions or assessments from them;
• issues relating to regulatory provisions pursuant to Law 262/2005, and, in particular:
  - examination, with the Executive Responsible for preparing corporate accounting document, of the report on the adequacy of the Corporate Reporting Control System and on the compliance of the administrative and accounting procedures and the annual report on the organisational, administrative and accounting structure of Snam and of its Subsidiaries of strategic importance;
  - analysis of the activities carried out during 2014 as part of the project aimed at revising and updating the Snam Group’s Corporate Reporting Control System through the definition and implementation of measures aimed at optimising its effectiveness and efficiency and maintaining and guaranteeing its reliability and adequacy;
• the activities of the firm appointed to audit the accounts, and, in particular:
  - analysis of issues relating to the half-year and annual financial reports with the External Auditors, together with the Head of Planning, Administration and Control, with regard both to auditing and to the checks carried out in relation to the effectiveness of the Corporate Reporting Control System pursuant to Law 262/2005;
• issues relating to regulatory provisions pursuant to Legislative Decree No. 231 of 2001, the Code of Ethics and the Anti-Corruption Procedure, particularly:
  - meetings with the Watch Structure and examination of the activities performed in implementation of the role assigned to it by Model 231, with reference in particular to issues related to the Italgas procedure that examined the significance of the elements contained in the Decree for the purposes of the applicability of the administrative responsibility of entities, noting that said elements do not currently seem to constitute an advantage or interest for the Company and therefore the applicability of the regulations pursuant to Legislative Decree No. 231 of 2001;
• activities carried out concerning related-party transactions, particularly:
  - fulfilment of the relevant requirements related to the acquisition from CDP GAS S.r.l. of its equity investment in Trans Austria Gasleitung Gmbh (TAG). Since this was a large transaction insofar it was worth more than €140 million, the Committee monitored the performance of the planning and negotiation activities starting from the initial phases, as provided for by the Regulations on Related-Parties Transactions and by Snam’s procedure “Transactions in which directors or statutory auditors have an interest and related-party transactions”. In order to benefit from the specialist support required for the relevant matters, the Committee, as provided for by the Regulations, assigned specific tasks to advisors meeting the necessary independence requirements, in relation to both Snam and its counterparty, so as to be able to express an opinion at a meeting of the Board of Directors. The Committee performed an ongoing examination of the project activities by acquiring the information and documentation needed to perform, with the support of its advisors, the necessary assessments and, in the end, expressed a favourable opinion on the Company’s interest in performing the transaction, as well as on the suitability and substantial correctness of the relevant terms and conditions, which was submitted to the Board of Directors on 12 September;
  - examination of the procedure “Transactions in which directors or statutory auditors have an interest and related-party transactions” (approved most recently by the Board of Directors on 17 December 2014);
  - assessment of the choices made by the Company, based on the relevant criteria set out by Consob, for defining the threshold to be used to distinguish between small and large transactions, and confirming the adequacy of these choices;
  - analysis of the report drawn up by the Administration department on the related-party transactions carried out in the first half of 2014.

The Regulations governing the Control and Risk Committee were approved most recently by the Board of Directors on 12 December 2013. The Regulations are available on the Company’s website (http://www.snam.it (PDF)).

The Committee reported to the Board of Directors, at the Board meetings of 29 July 2014 and 11 March 2015, on the activities it carried out in the first and second halves of 2014 respectively.

The Committee has scheduled nine meetings for 2015. As at the approval date of the Report, five meetings had been held.

During 2014, several non-Committee members attended meetings of the Control and Risk Committee upon invitation by the Committee, in order to provide information and explanations. The Chairman of the Board of Statutory Auditors and/or other statutory auditors also usually attended.

The Committee Regulations state that the Committee may access any information necessary for the purposes of performing its duties and may make use of the relevant company departments and external consultants, within the terms set by the Board of Directors. The Committee has the financial resources necessary to pay independent consultants or other experts, and to fulfil its duties.

The table in Annex 1 of Section IV lists information about the attendance of each participant in Control and Risk Committee meetings.

Relations with other bodies and departments

The Board of Statutory Auditors and the Control and Risk Committee promptly exchange information that may be useful in carrying out their respective functions, receive and collate significant information, at least once every six months, from the control functions (the Internal Audit, Risk Management and Compliance departments) and the External Auditors on the controls performed and on any weaknesses, problems or anomalies identified, and meet at least once every six months to assess the results. The Committee also meets with the Watch Structure/Code of Ethics Supervisor and the Board of Statutory Auditors when the Watch Structure reviews the half-year report.

These activities were carried out regularly in 2014.