22 Guarantees, commitments and risks

Guarantees, commitments and risks of €4,737 million (€4,842 million at 31 December 2013) comprise:

Other personal guarantees issued in the interest of subsidiaries (€128 million) refer mainly to hold-harmless letters issued in favour of third parties for participation in tenders and concessions relating to the natural gas distribution service (€69 million) and performance bonds (€55 million).

Other personal guarantees issued in the interest of associates and companies under joint control (€99 million) mainly refer to hold-harmless letter issued to guarantee a bank loan obtained by AES Torino S.p.A.. In July 2014, the loan has been repaid and the guarantee extinguished.

Commitments

At 30 June 2014, commitments with suppliers to purchase property, plant and equipment and provide services relating to investments in property, plant and equipment and intangible assets under construction totalled €1,790 million (€1,675 million at 31 December 2013).

Italgas also had a commitment to sell to EniServizi a property complex in the municipality of Rome, resulting from the agreements concluded between Snam and Eni upon the sale by Eni to Snam of the entire share capital of Italgas. Under the scope of these agreements, a preliminary contract was signed on 8 April 2014 concerning the sale of the aforementioned property complex by Italgas S.p.A. to EniServizi S.p.A. for the amount of €22 million. As provided for by price adjustment mechanisms relating to the Italgas purchase price, pursuant to these agreements, Snam must pass on to Eni part of the profits resulting from the sale of the property which is the subject of the contract of sale.

Risks

Risks related to third-party assets on deposit, equal to €2,410 million (€2,640 million at 31 December 2013) relate to about 7.5 billion cubic metres of natural gas deposited in the storage plants by customers of the service (7.6 billion cubic metres at 31 December 2013). This amount was determined by applying the estimated unit repurchase cost of approximately €0.32 per standard cubic metre (€0.35 at 31 December 2013) to the quantities of gas deposited.

Risks concerning compensation and litigation (€306 million) relate to possible (but not probable) claims for compensation arising from ongoing litigation, with a low probability that the pertinent economic risk will arise.

Financial risk management

The management and monitoring policies for key risk factors are described in the “Elements of risk and uncertainty” section of the interim directors’ report.

Market value of financial instruments

Information on the market value of financial instruments is provided in the notes to the individual items.

Below is the classification of financial assets and liabilities measured at fair value on the statement of financial position in accordance with the fair value hierarchy defined on the basis of the significance of the inputs used in the measurement process. More specifically, in accordance with the characteristics of the inputs used for measurement, the fair value hierarchy comprises the following levels:

a) level 1: prices quoted (and not amended) on active markets for the same financial assets or liabilities;

b) level 2: measurements made on the basis of inputs differing from the quoted prices referred to in the previous point, which, for the assets/liabilities submitted for measurement, are directly (prices) or indirectly (price derivatives) observable;

c) level 3: inputs not based on observable market data.

With regard to the above, the classification of the financial assets and liabilities measured at fair value on the statement of financial position according to the fair value hierarchy concerned derivative financial instruments at 30 June 2014 classified at level 2 and recognised under “Other non-current liabilities” (€5 million; €6 million at 31 December 2013).

Litigation

Snam is involved in civil, administrative and criminal cases and legal actions related to its normal business activities. Below is a description of the most significant proceedings for which there have been significant developments since the 2013 annual report was written, including new proceedings. Unless otherwise stated, no provision has been set aside, either because the Company believes that an unfavourable outcome for the proceedings is unlikely, or because the amount of the provision cannot be objectively determined.

Criminal cases

Snam Rete Gas – Genoa event

The public prosecutor at the Genoa district court has initiated criminal proceedings against unknown persons in relation to an incident that occurred on 20 March 2014 in the municipality of Serra Riccò (GE). Specifically, the matter concerns a gas leak from a section of the “Derivazione per Recco” natural gas pipeline. The pipeline section concerned has been seized.

The Company is actively cooperating with the relevant authorities.

Competition Authority

Isontina Reti Gas S.p.A. and framework agreement with Acegas-Aps S.p.A.

On 17 April 2013, the Competition Authority blocked the acquisition of 50% of the equity of Isontina Reti Gas S.p.A. by Italgas and the subsequent transfer to said company of some business units of Italgas and Acegas-Aps, on the grounds that it would give Isontina Reti Gas a dominant position that would eliminate or considerably reduce in the long term competition on the market for future tenders for the natural gas distribution concessions in the regions of Gorizia, Trieste, Pordenone and Padua 1.

On 13 June 2013, Italgas filed an appeal against this ruling at the Regional Administrative Court of Lazio. On 20 March 2014, the Regional Administrative Court of Lazio handed down a ruling that accepted the appeal presented by Italgas, thereby annulling the contested measure. Specifically, the ruling raised the legitimacy of the strategy of rationalising concessions, pointing out that the operation did not alter existing competitive dynamics.

The Competition Authority filed an appeal with the Council of State (notified on 16 June 2014) against the judgment of first instance.

Electricity and Gas Authority

Snam Rete Gas S.p.A. – Resolution 9/2014/S/gas – Launch of punitive proceedings against Snam Rete Gas S.p.A. for non-compliance with Resolution 292/2013/R/gas

With Resolution 9/2014/S/gas, published on 27 January 2014, the Electricity and Gas Authority provided for the launch of punitive proceedings against Snam Rete Gas S.p.A. for non-compliance with Resolution 292/2013/R/gas. The proceedings aim to ascertain whether or not delays exist in provisions relating to the enactment of amendments to the Network Code established with Resolution 292/2013/R/gas. Snam Rete Gas will cooperative fully and provide all the elements required to demonstrate the legitimacy of its operations.

Post-balance sheet proceedings

On 11 July 2014 the Court of Palermo served the measure for asset protection on the subsidiary Italgas by court-appointed administration, pursuant to Article 34(2) of Legislative Decree 159/2011 (Code of Anti-Mafia Laws and Prevention Measures, as well as New Provisions Concerning Anti-Mafia Documentation, in accordance with Articles 1 and 2 of Law no. 136 of 13 August 2010).

For more information, please see “Highlights – Preliminary remarks” of the Interim Director’s Report.