Disputes and other measures
Snam is involved in civil, administrative and criminal cases and legal actions related to its normal business activities. According to the information currently available and considering the existing risks, Snam believes that these proceedings and actions will not have material adverse effects on its consolidated financial statements.
The following is a summary of the most significant proceedings; unless indicated otherwise, no allocation has been made for the litigation described below because the Company believes it improbable that these proceedings will have an unfavourable outcome or because the amount of the allocation cannot be reliably estimated.
Snam Rete Gas S.p.A. – Judiciary investigations into gas metering
In 2006, the public prosecutor at the Court of Milan opened a criminal case on the issue of gas metering and the legitimacy and reliability of “Venturi meters”. This case involved several companies in the gas sector, including Snam Rete Gas. The Company was investigated in accordance with Articles 24 and 25-ter of Legislative Decree 231/2001. In November 2009, notice of the conclusion of preliminary investigations was received. Some managers and department heads (including some no longer employed by the company) were under investigation with regard to various matters.
The period under investigation is a time span that, in total, covers the years from 2003 to 2007, relating primarily to annual natural gas consumption reports and to assessment and/or payment of excise duties on natural gas, as well as to possible obstruction of supervisory duties. With the help of independent external experts, the administrative, tax and European legislation aspects have been examined more closely. Snam Rete Gas is reassured by the opinions of the experts and maintains that the allegations made are unfounded. The company therefore considers itself unlikely to suffer a subsequent negative economic impact.
On 24 January 2012, the preliminary hearing judge ruled that there was insufficient evidence to proceed to a trial of any of those under investigation and simultaneously ordered the release from seizure of the meters. The assistant public prosecutor has filed for an appeal before the Court of Cassation at the Court of Milan. The Court of Cassation partially annulled the contested ruling, rejecting the rest of the public prosecutor’s appeal, in particular for the effect of the indictments referred to in Articles 472, paragraphs 1 and 2 of the Criminal Code and Article 2638, paragraph 1 of the Italian Civil Code, and the charge pursuant to Legislative Decree 231/2001.
Following the remand implemented by the Court of Cassation, the new preliminary hearing opened on 12 December 2013, at the outcome of which the preliminary hearing judge ordered committal to trial only for 2006 and 2007. The trial opened on 18 April 2014. At the hearing of 27 March 2015, the Court of Milan absolved the charges against the defendants due to lack of evidence and because it did not constitute an offence. The public prosecutor has appealed.
Snam Rete Gas S.p.A. – Tresana incident
On 18 January 2012, an explosion took place on the La Spezia-Cortemaggiore (Tresana) pipeline during maintenance work being conducted on the line (performed by a subcontractor). Snam Rete Gas took immediate action to provide all the necessary assistance and to ascertain responsibility and the causes of the incident.
On 28 January 2012 the gas flow was re-established on the line. After the conclusion of the preliminary investigation, several charges were brought against several managers and directors and as a result of the committal to trial declared by the preliminary hearing judge on 23 June 2015, the proceedings began.
Snam Rete Gas S.p.A. – Pineto incident
The public prosecutor at the Court of Teramo opened an investigation against certain directors, executives and managers (including some no longer employed by the company), in relation to the incident that took place on 6 March 2015 near the town of Pineto (Teramo) involving a gas leak on a section of piping. The causes of the gas leak and fire are currently being investigated. The infrastructure was quickly made safe, stopping the gas leak and facilitating the fire fighting operations.
Snam Rete Gas is actively cooperating with the relevant authorities.
Snam Rete Gas S.p.A. – Genoa incident
The public prosecutor at the Court of Genoa 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.
On the request of the public prosecutor, the preliminary investigations judge ordered the dismissal of charges on 24 November 2015.
Snam Rete Gas – Ravenna incident
The public prosecutor at the Court of Ravenna opened a criminal investigation against certain executives and managers of Snam Rete Gas in relation to the event that took place on 10 December 2014 at the “Nodo di Ravenna” plant of Snam Rete Gas, in which a fire broke out involving one of the gas preheating plants.
After the fire department became involved, according to the provisions of company policy, Snam Rete Gas intervened to prevent environmental risks and to ascertain the causes of the fire.
The public prosecutor made a request to the preliminary investigations judge to dismiss the case.
Snam Rete Gas – Sestino (AR) incident
The public prosecutor at the Court of Arezzo brought a criminal case against several Snam Rete Gas directors and executives (including some no longer employed by the company), in relation to an event that took place on 19 November 2015 in the municipality of Sestino (AR).
On that date there was a break in the pipeline that caused an uncontrolled gas leak. The reasons for the gas leak and fire are currently being ascertained.
Snam Rete Gas is actively cooperating with the relevant authorities.
Italgas S.p.A. – Barletta incident
On 25 April 2015, an explosion occurred due to a gas leak, killing one Italgas worker and injuring others, during an operation following a report of damage to the gas network by a third party resulting in leakage of gas. The competent public prosecutor has launched an investigation, with which the company is actively cooperating.
Italgas S.p.A. – Rome/Via Parlatore incident
The public prosecutor at the Court of Rome opened an investigation against several Italgas managers in relation to the incident that took place on 7 September 2015 regarding an ordinary intervention in the gas distribution network in the municipality of Rome.
The incident, which took place due to causes that are still being investigated, caused a fire that involved three people. Two of them, workers for an Italgas contractor, suffered mild injuries. The third person – an Italgas colleague – died after a few weeks despite medical treatment.
Italgas is actively cooperating with the relevant authorities.
Italgas S.p.A. – Cerro Maggiore/Via Risorgimento incident
The public prosecutor at the Court of Busto Arsizio opened criminal proceedings against Italgas executives, technicians and manual workers in relation to an incident that took place on 11 November 2015 during an emergency intervention. The incident was caused by a gas leak due to remote controlled horizontal drilling work for the placement of fibre-optic cables performed by a third party.
The explosion occurred while interception activities were being completed on the section involved in the damage, causing the collapse of a house and the death of the woman who lives there, a serious injury to an Italgas worker and to two other people who suffered mild injuries. The area was closed off. On 15 November 2015 the Busto Arsizio public prosecutor served a one-time notice of technical investigation, and the public prosecutor appointed its own technical consultants. Italgas also appointed its own technical consultants.
The Company is actively cooperating with the relevant authorities.
Electricity, Gas and Water Authority (the Authority)
Snam Rete Gas S.p.A. – Investigation into violations on the subject of natural gas metering with regard to Snam Rete Gas S.p.A and request for information
Through Resolution VIS 97/11, notified on 15 November 2011, the Electricity, Gas and Water Authority (the Authority) started proceedings to look into whether there were any violations with regard to natural gas metering, relating to alleged irregularities in gas metering with reference to 45 plants.
Through its subsequent Resolution 431/2012/S/gas of 25 October 2012, the Authority opened further proceedings to determine whether there had been violations with regard to natural gas metering, simultaneously joining with the aforementioned investigative proceedings.
Snam Rete Gas S.p.A. has submitted proposals in relation to the alleged conduct, as well as an update on the situation at the regulating and metering facilities in question. By means of Resolution 332/2015/S/gas of 9 July 2015, the Authority declared the proposals to be inadmissible, on the grounds that they would not be adequate to restore the alignment of interests existing before the alleged violations or to eliminate any immediate and direct consequences of these violations.
Snam Rete Gas S.p.A. – Investigation into violation of the regulation on availability of natural gas higher heating value measurements
As a result of the formal investigation opened by Resolution VIS 85/09, the Authority, by way of Resolution VIS 12/11, issued a fine of €580,000 against Snam Rete Gas for violating the rules imposed on gas transportation companies with respect to the proper measurement and use of natural gas higher heating values (hereinafter “HHV”). This parameter is needed to determine the actual energy provided to operators on the market or individual sellers.
The Authority saw fit to penalise temporary interruption, in limited cases, of the mechanical and chemical reading of the HHV. The Authority also found that the violation did not involve any billing infraction and, when determining the amount of the fine, it took into consideration the corrective actions taken by Snam Rete Gas to improve the measurement service and to avoid similar negative reflections on its operations in the future.
As well as paying the fine, Snam Rete Gas has appealed to the courts to have the order reviewed.
By means of a ruling of 2 July 2015, the Lombardy Regional Administrative Court rejected the appeal, on the grounds that the offence was one of conduct only and that the fine imposed was commensurate with the Authority’s categorisation of the offence as “non-serious”.
Snam Rete Gas S.p.A. – Resolution 145/2013/R/gas – Proceedings to determine the share of costs arising from outstanding receivables owing to the gas balancing supervisor
By way of Resolution 145/2013/R/gas of 5 April 2013, the Authority began “proceedings to determine the share of costs arising from outstanding receivables owing to the gas Balancing Supervisor for the period 1 December 2011 – 23 October 2012”.
The proceedings in question arose from the findings of the exploratory investigation, opened by way of Resolution 282/2012/R/gas, into the methods for regulating the economic aspects of balancing and the steps taken to protect the system relating to the period 1 December 2011 – 31 May 2012. This investigation was concluded by way of Resolution 144/2013/E/gas, and the Authority used Resolution 145/2013/R/gas to rule that dedicated proceedings should be opened to determine the share of the costs owing to Snam Rete Gas S.p.A. with regard to “fully outstanding receivables” and to monitor the situation going forward.
The results of the investigation were notified on 6 August 2014, with the finding that there were no grounds for recognition of the disputed charges. On 20 April 2015, the final hearing took place before the body overseeing the proceedings. By means of Resolution 608/2015/R/gas of 11 December 2015, the Authority closed the procedure in question, deciding not to pay the share of the outstanding receivables in relation to the specific case which was the object of the investigation, for the total sum of approximately €130 million including VAT, but preserving the right of Snam Rete Gas to withhold the receivables relating to the economic items for the balancing already recovered as a result of the legal action undertaken against the shippers charged with non-fulfilment of the sums not received. Finally, the Authority paid Snam Rete Gas the remaining part of the outstanding receivables for the period 1 December 2011 – 23 October 2012. The company, believing that the payment of the share of expenses arising from the outstanding receivables and the subject of these proceedings is not required, challenged Resolution 208/2015/R/gas before the relevant judicial authority.
The Company made an allocation to the provision for impairment losses on receivables.
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
By means of Resolution 9/2014/S/gas, published on 27 January 2014, the 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 by Resolution 292/2013/R/gas, with regard to settlement or determination of the relative physical and financial items of the balancing of the gas system. Snam Rete Gas will cooperative fully and provide all the elements required to demonstrate the legitimacy of its operations.
Italgas S.p.A. – Investigation into gas distribution service quality violations
On 18 September 2009, by way of Resolution VIS 92/09, the Authority opened a formal investigation into alleged breaches regarding gas distribution service quality. Specifically, the alleged breach, on the part of the distributors operating networks with cast-iron pipes featuring hemp- and lead-sealed joints (not yet reconditioned), consisted in the failure to replace, renew or decommission a minimum of 30% of said networks by 31 December 2008.
On completion of the investigation, the Authority’s Resolution VIS 41/11, published on 24 March 2011: (i) confirmed that Italgas had complied with its replacement obligation across Italy; and (ii) found that the Company was liable for failing to comply with said obligation in relation only to the distribution network in Venice, and imposed a fine of €51,000.
Italgas believes it was justified in not complying with the obligation in relation to the Venice network. It has made provision for payment of the fine subject to an appeal, which was submitted to the Lombardy Regional Administrative Court in Milan. By means of the ruling of 13 July 2015, the Regional Administrative Court rejected the appeal, on the grounds that difficulties associated with the specific features of the sites were enough to reduce but not completely exclude the liability of the appellant, and that the authorities would have taken these features into account in assessing the Venice situation and determining the amount of the fine.
Italgas S.p.A. – Gas distribution service quality violations
By means of Resolution 33/2012/S/gas of 9 February 2012, the Authority ordered the “Launch of four punitive proceedings for the imposition of pecuniary administrative sanctions, in relation to gas distribution service quality” to determine whether there had been any violation of Article 2, paragraph 1 and Article 12, paragraph 7, letter b) of Resolution ARG/gas 120/08 by four natural gas distribution companies, including Italgas S.p.A.
In particular, the Authority claims that, with regard to its Venice plant, the company failed to comply with the obligation to recondition or replace, by 31 December 2010, at least 50% of the cast-iron pipes with hemp- and lead-sealed joints in operation as at 31 December 2003, set out in the aforementioned Article 12, paragraph 7, letter b).
A communication from the Authority on the results of the investigation is pending.
Italgas S.p.A. – Gas distribution service violations relating to the billing of the “municipal fees” tariff component
By means of Resolution 104/2015/S/gas of 12 March 2015, the Authority began enforcement proceedings for violations relating to the billing of the “COLci” component.
The Authority specifically alleges that the billing procedures for this component stipulated under current regulations have not been complied with.
The duration of the investigation has been set at 180 days, while the deadline for the adoption of the provision is 90 days from the closing date of the investigation.
On 23 April 2015, the Authority requested the transmission of billing data for the COLci tariff component for the years 2009-2013, which the company provided on 7 May 2015. To date, the preliminary investigation has not been concluded.
Stoccaggi gas Italia S.p.A. – Registration
On 30 November 2012, the Milan branch of Italy’s Revenue Agency served the Company with notice of a tax assessment for the value adjustment of the transfer by Saipem Energy Services S.p.A. to Stogit of its plant operating maintenance business unit. The assessed transfer value was greater than the declared value owing to a higher goodwill calculation, resulting in an additional figure of approximately €88,000 in registration tax, plus fines and interest.
Pursuant to Article 12 of Legislative Decree 218/1997, the Company responded to this order by submitting a tax settlement proposal with a view to establishing whether the grounds exist to definitively resolve the matter. This proposal was not accepted.
The Company has submitted a joint appeal with Saipem S.p.A. to the Milan provincial tax commission, opposing the Milan branch of the Revenue Agency.
On 18 September 2014, the appeal was processed by the Milan provincial tax commission, which issued a ruling upholding the appeal on 2 October 2014.
On 19 March 2015, the Revenue Agency (Provincial Office II – Milan) brought an appeal before the regional tax commission and the Company, in consortium with Saipem S.p.A., appeared before the court.
The allocation made by the Company to the provision for risks and charges in 2012 remains unchanged.
Stoccaggi gas Italia S.p.A. – Payment notice for registration tax
On 4 March 2015, the Revenue Agency issued Stogit S.p.A. with a payment notice requesting payment of the total sum of approximately €2.7 million in tax, relating mainly to registration tax for legal deeds.
The Company brought an appeal before the provincial tax commission of Milan, requesting that the tax be redetermined. By means of the internal review provision No 55/2015, the Revenue Agency, in accepting the request, corrected the contested notice from €2.7 million to €0.4 million, in addition to service fees, which the company paid on 4 May 2015.
Italgas S.p.A. – Direct and indirect taxes
The 2009 general tax audit performed by officials of the Revenue Agency (Piedmont branch, Audit and Collection Sector, Large Taxpayer Office), which ended on 7 December 2012 with the release of the official audit report, resulted in around €1 million of additional IRES, IRAP and VAT, plus penalties and interest.
In December 2014, tax assessments concerning IRES, IRAP and VAT were issued, and the Company responded by submitting a tax settlement proposal.
The proceedings closed with a negative result, and on 4 May 2015 the Company, in consortium with Eni S.p.A. for the notice concerning IRES, brought an appeal before the provincial tax commission of Turin, thus contesting only the findings relating to the undue payment of taxes on foreign regularisations and other unrelated taxes. The related hearing was set for 17 March 2016. At the same time, payments were made for around €777,000 in total, using for this the previously allocated provision for risks.
Judicial administration of subsidiary Italgas – Court of Palermo
On 11 July 2014, the Court of Palermo notified the subsidiary Italgas of a preventative measure of judicial administration, pursuant to Article 34, paragraph 2 of Legislative Decree 159/2011 (“Anti-mafia code and prevention measures, as well as new measures relating to anti-mafia documentation in accordance with Articles 1 and 2 of Law 136 of 13 August 2010”). Pursuant to the law, this measure protects the capital structure of Italgas from infiltration and/or collusion.
This is a temporary measure with a fixed maximum duration, which in this case is six months and may be extended by no more than six months pursuant to Legislative Decree 159/2011. As a result, the powers of administration for the economic and business activities and assets of Italgas have been assigned to a collective administrative body comprising four court-appointed members. The Italgas Board of Directors is suspended for the duration of the measure. Snam retains full ownership of the entire share capital of Italgas and all related rights.
For the purposes of the accounting principles adopted when drawing up the 2014 half-year report, it should be pointed out that Italgas had been notified of the measure on 11 July 2014, after the end of the first half-year and prior to the approval of the report. Furthermore, for the purposes of the Group’s consolidated financial statements, the collective administrative body had authorised the transmission to Snam of the Italgas Half-Year Report at 30 June 2014, together with the relevant management certifications involved in the Group procedures in place and subject to prior examination by the Italgas Board of Statutory Auditors. Therefore, in light of the control it exercised over Italgas for the entire first half of 2014 and the full availability of the Company’s information flows as at 30 June 2014, in accordance with the provisions of IFRS 10 – “Consolidated Financial Statements”, Snam had retained the procedures used for consolidating the subsidiary within the Group.
At the same time, Consob had informed the company that it was investigating the possible effects of the Italgas matter on the accounting methods used in relation to the subsidiary in the reports pertaining to the period of the preventative measure.
Subsequently, with an order issued on 2 October 2014, the presiding judge gave a clearer definition of the scope of the judicial administration and the activities of the administrative body (hereinafter the “Order”). The Order specifies that the objectives of the judicial administration measure of which Italgas was notified are primarily related to inspection and focus on activities that may reveal whether there are indications of potential infiltration, with a view to taking the necessary steps. Based on this purpose and taking into account, in the case in question, that no action is being taken on the block of shares of the subsidiary and the fact that the preventive measure is a short-term, temporary measure, the Order states that there are no legal, operational or procedural grounds to call into question the parent company’s powers, compliance with the Group’s objectives and strategies, or observance of corporate procedures.
Confirming this, with regard to the activities of the administrative body, the Order also states that, without prejudice to compliance with the provisions of law, this more clearly defined scope and the specific instructions given to the judicial administrators are based on the following principles and activities:
- The continuation by Italgas along the strategic lines defined in its previously adopted Business Plan and Budget, which, in line with the Snam Group’s sustainability, confirm Italgas’s position as a leading operator in the Italian natural gas distribution business ;
- The maintenance of the cash pooling services performed by Snam to cover Italgas’s financial requirements by accessing the financial markets, in line with the objectives approved in the Business Plan;
- The maintenance of the services provided centrally by the Snam Group for Italgas, in line with and without prejudice to the contracts in place and the powers granted (with the sole exception of limitations to some powers of attorney that have already been provided for);
- The maintenance of Italgas within the scope of consolidation of the Snam Group for the purposes of the national tax consolidation scheme, since the conditions provided for by the relevant regulations have been fulfilled;
- The availability to Snam of Italgas information flows for the purposes of drawing up periodic Group consolidated financial reporting, including a statement from the Italgas management to Snam and to the independent auditors, in continuation of current procedures (in order to avoid comments from the independent auditors);
- The sharing and continuation by Italgas of obligations relating to Snam’s reporting control system pursuant to Law 262/2005 (in line with the steps already taken to maintain the Corporate Reporting Internal Control System);
- Continuity in relations between the control bodies of Snam and Italgas: continuity in carrying out the duties and meetings of the control and supervisory bodies of Italgas, without prejudice to any appropriate and necessary involvement with the judicial administration body in relation to the requirements of the preventative measure;
- Continuity in executing the Group’s Annual Audit Schedule, which consists of the steps taken by the Group Internal Audit department in relation to Italgas’s activities (as already carried out pursuant to the strategy of not introducing any amendments or delays to the annual schedule);
- Continuity in relation to the body of Group procedures adopted by Italgas and the related interaction with Snam departments and management (including the “Extraordinary Transactions” procedure).
In the light of the above, and in view of the scope of the judicial administration, the Order concluded that there were no obstacles to the consolidation of the Italgas S.p.A. financial statements within the Snam Group, without prejudice to the subsidiary retaining full independence and responsibility with regard to the adoption of decisions under its sole competency.
Snam has continued to work closely with the judicial authorities and the administrative body. Within this context, and partly in the interests of Italgas, Snam has appointed a leading specialised international company to conduct a thorough independent investigation aimed at:
- reconstructing the circumstantial framework outlined in the Decree, particularly with regard to Italgas’s relations with the counterparties mentioned in the Decree and to the control system in force at the time;
- assessing the overall stability of the current risk management and internal control system, particularly with regard to the risk of infiltration and facilitation of organised crime in tenders.
Following its technical work pertaining to accounts and records and to the internal control system, the appointed company drew the following conclusions, in summary: (i) the supply relations with the counterparties mentioned in the Decree accounted for less than 1% of Italgas’s total cumulative expenditure (and 0.16% of the Snam Group’s total expenditure) between 2009 and 2014; (ii) the current risk management and internal control system appears to be effective and suitable for the purpose of identifying, preventing or minimising the corporate operational risk of infiltration/facilitation of organised crime in business and economic activities. The findings of the thorough independent investigation have been submitted to the judicial authorities.
For the purposes of the interim directors’ report at 30 September 2014, and taking into account the considerations set out in the Order, Italgas S.p.A. remained within the Group’s scope of consolidation.
At the end of the six-month period, the Court extended the preventative measure for an additional six months, as provided for by Legislative Decree 159/2011. At the same time, the Court ordered the administrative body to draw up a programme of measures aimed at concluding the activities, including in relation to the findings of said body. On 8 January 2015, the presiding judge issued an order confirming authorisation for Italgas to be included in the Group’s consolidated financial statements, and ruled that the programme of measures should be drawn up taking into account Snam’s proposals and the staging of a technical round table.
With regard to the identification of the scope of consolidation for the purpose of the 2014 annual report, Snam obtained two opinions from leading independent experts, which confirmed that Italgas should be included in the Group’s scope of consolidation.
Based on the above considerations, and taking into account the opinions obtained, the fact that the events of recent months confirm the continuity of Snam’s single management structure and the full availability of Italgas’s information flow regarding the 2014 financial statements, which were approved by the judicial authorities, supported by accompanying statements and subject to prior assessment by the Italgas Board of Statutory Auditors, Snam opted to keep Italgas and its subsidiaries within the Group’s scope of consolidation, in line with the accounting principles adopted for the financial documents published in 2014.
The activities relating to the revocation of the judicial administration order imposed on Italgas by the Court of Palermo were completed on 9 July 2015. In view of the outcome of the checks performed and the active cooperation of the Snam Group, the Court ordered the handover of the company on 29 June 2015.
Having acknowledged the revocation, on 9 July 2015 the Italgas Shareholders’ Meeting reappointed all members of the Company’s Board of Directors, the term of which expires at the Shareholders’ Meeting called to approve the financial statements for the year ended 31 December 2015.
As a result of the revocation of the judicial administration order by the Court of Palermo and the confirmation of the Board of Directors by the Shareholders’ Meeting, Italgas is putting in place measures to implement the organisational and procedural plan as well as the monitoring and control of Company activities. Italgas will comply with the obligation to provide the competent authorities with the information required pursuant to Article 34, paragraph 8 of Legislative Decree 159/2011 (judicial control), in relation to the relevant transactions, but it has appealed before the Palermo Court of Appeal against the provision of such information. Italgas will also provide the competent authorities with the results of the periodic reports by the Supervisory Body.
Recovering receivables from certain users of the transportation and balancing system
The balancing service ensures that the network is safe and that costs are correctly allocated between the market operators. Balancing has both a physical and a commercial purpose. The physical balancing of the system consists of the set of operations through which the Dispatching department of Snam Rete Gas controls flow parameters (capacity and pressure) in real time in order to ensure that gas can move safely and efficiently from injection points to withdrawal points at all times. Commercial balancing consists of the activities required to correctly schedule, account for and allocate the transported gas, as well as the fee system that encourages users to maintain a balance between the volumes they inject into and withdraw from the network.
Pursuant to the current balancing regime, which was introduced by Resolution ARG/gas 45/11 and came into effect on 1 December 2011, in its role as Balancing Supervisor, Snam Rete Gas must ensure that it procures the quantities of gas required to balance the system and offered on the market by users through a dedicated platform of the Energy Market Operator, and, accordingly, it must financially settle the imbalances of individual users by buying and selling gas on the basis of a benchmark unit price (the “principle of economic merit”). The Company must also ensure that it recovers sums owed for the settlement of imbalances from any defaulting users.
a) Unpaid receivables relating to the period from 1 December 2011 to 23 October 2012
The initial regulation laid down by the Authority with Resolution ARG/gas 155/11 stated that users had to provide specific guarantees to cover their exposure and, where Snam Rete Gas had performed its duties diligently and had not been able to recover the costs related to provision of the service, these costs would have been recovered through a special fee determined by the Authority. This Resolution, with reference to the income statement items pertaining to the balancing system, stipulated that the Balancing Supervisor would receive from the Electricity Equalisation Fund (as of 1 January 2016, the Energy and Environmental Services Fund, CSEA) the value of receivables unpaid by the end of the month following the month in which notification was given41.
Through its subsequent Resolution 351/2012/R/gas42, the Authority ordered, with effect from 1 October 2012, the application of the variable unit fee CVBL to cover uncollected receivables, and the payment of the expenses to be recovered in monthly instalments of up to €6 million over a minimum of 36 months.
Through Resolution 282/2012/R/gas, as subsequently amended by Resolution 444/2012/R/gas, the Authority opened an exploratory investigation into balancing service provision methods for the period 1 December 2011 – 23 October 201243. The investigation was closed by Resolution 144/2013/E/gas of 5 April 2013, when the Authority: (i) adopted Resolution 145/2013/R/gas, through which it opened proceedings to determine the share of costs arising from uncollected receivables owing to the gas balancing supervisor for the period 1 December 2011 – 23 October 2012; and (ii) opened six proceedings aimed at establishing whether there have been violations regarding the natural gas balancing service44.
With regard to the preliminary investigation discussed in point (i) above, the proceedings were closed by means of Resolution 608/2015/R/gas, with which the Authority decided not to pay a share of the uncollected receivables in relation to specific cases analysed in the preliminary investigation, in any case subject to Snam Rete Gas’s right to withhold the receivables relating to the income statement entries on balancing, possibly already recuperated. The Company challenged Resolution 608/2015/R/gas, before the competent judicial Authority.
During the above-mentioned investigation period, Snam Rete Gas, having terminated the transportation contracts of the six users involved in the aforementioned proceedings since they either defaulted on payments or failed to comply with the balancing obligations set forth in the industry regulations and the Network Code, initiated steps to recover the receivables relating to income statement items arising from commercial balancing operations entrusted to Snam Rete Gas in its capacity as Balancing Supervisor, and also relating to the transportation service.
Specifically, the competent judicial authorities issued 11 provisional executive orders, of which six related to receivables arising from the balancing service and five to receivables arising from the transportation service.45 Having received these orders, Snam Rete Gas initiated the necessary executive proceedings, which resulted in the recovery of negligible amounts of the overall debt of the users, partly because of the bankruptcy procedures under way at all of these users.
In particular, at present:
- three users were declared bankrupt and Snam Rete Gas obtained measures for admission to the list of creditors for the receivable owed, plus interest;
- three users applied for composition procedures. For one of the three users, the judicial authority issued a provision of composition with creditors46. A second user applied for composition procedures in the scope of which the plan presented was submitted to the vote of the creditors47. Finally, we are awaiting the presentation of the bankruptcy plan for the third user48.
b) Unpaid receivables after 23 October 2012
Two additional transportation contracts were terminated in 2013. In relation to one user, the Court of Milan issued a provisional executive injunction ordering the user to pay Snam Rete Gas a total of around €14 million, plus interest and expenses, in relation to the balancing service. The executive procedures initiated resulted in the recovery of around €500 thousand. The user appealed against the injunction, submitting a counterclaim requesting compensation for alleged damage suffered.
Two provisional executive injunctions were issued in relation to a second user. The first concerned the balancing service, for a sum of around €700 thousand, while the other related to the transportation service, for approximately €4.5 million. As a result, proceedings were launched to implement the injunctions, in response to which the user appealed but did not bring a counterclaim. For this reason, the user was recently declared bankrupt49.
In 2014, another transportation contract was terminated in relation to a user that had failed to pay outstanding balancing service invoices in the amount of around €75 thousand and transportation service invoices worth approximately €180 thousand. As a result, Snam Rete Gas initiated debt recovery measures, having recently obtained two provisional executive injunctions. For this reason, the user was recently declared bankruptcy50.
Snam Rete Gas, as stated in the provisional executive injunctions issued by the Court, has engaged in proper conduct and complied with the provisions of the transportation contract, the Network Code and, more generally, the applicable legislation.
Finally, it should be noted that, in terms of the preliminary investigation, on 12 February 2016 the public prosecutor at the Court of Milan ordered the urgent preventive seizure of the moveable and fixed assets belonging to companies and attributable in various guises to the above-mentioned five users. This criminal proceeding resulted in the formal complaint report (and subsequent supplementary reports) filed by Snam Rete Gas, as offended party, in October 2012 for the crimes of falsehood and aggravated fraud. At present, the Company is still the offended party of the crime.
Recovering receivables from users of the storage system
Withdrawals made from strategic storage by three users, invoiced by Stogit and not replenished by the user under the terms specified by the Storage Code, ascribable to November and December 2010.
On 15 June 2011, Stogit appealed to the Court of Milan for an injunction against one user, with provisional enforceability. The Court of Milan applied provisional enforceability to the injunction, issuing an order on 28 August 2012 to reject the user’s appeal against this measure.
Using the order that applied provisional enforceability to the injunction, Stogit initiated executive proceedings.
In view of the withdrawals and non-replenishment of strategic gas in January, February and March 2011, Stogit filed a request with the Court of Milan on 30 September 2011 for a second injunction, which was also opposed by the debtor. By way of an order issued on 11 February 2013, the Court of Milan also applied provisional enforceability to this second injunction.
Following a request for summary proceedings for the replenishment of all gas withdrawn, which resulted in the conviction of the debtor, an order of 30 May 2012 rejected the user’s appeal against this conviction. The three suits were subsequently combined
In September 2012, the Court of Asti admitted three users to proceedings for an arrangement with creditors, including the user involved in the aforementioned combined proceedings.
At the request in March 2013 of the three Stogit debtors and other companies in the same group, on 29 March 2013, the Court of Asti revoked the aforementioned arrangement with creditors and ordered a new one for all the appellant companies.
Under the terms and conditions established by the court-appointed receiver, Stogit formally transmitted and documented the amounts of its receivables with these users, including the respective accrued contractual interest owed.
Owing to the declaration of bankruptcy brought about by the ruling of 18 November 2013 of the Court of Asti, Stogit therefore initiated proceedings to prove the receivable was owed to it. On 18 March 2014, an executive order was issued including Stogit on the list of creditors and acknowledging its declared receivable in full.
The second of the three users that owed money to Stogit was declared bankrupt by the Court of Asti with a ruling of 22 November 2013. Following an examination of the list of creditors, the receivable was admitted in full.
However, the procedure for an arrangement with creditors is continuing with regard to the third user, which was approved by way of an order issued by the Court of Asti on 2 July 2014. In reference to the approval decree, against which an appeal was brought by one of the creditors, the Court of Appeal of Turin issued a ruling, confirming the approval of the arrangement with creditors. An appeal brought by the aforementioned creditor is currently pending before the Court of Cassation.
Withdrawals made from strategic storage by a user, invoiced by Stogit and not replenished by the user under the terms specified by the Storage Code, ascribable to the 2010-2011 and 2011-2012 thermal years
Stogit filed with the Civil Court of Milan for a payment injunction provisionally enforceable against one user pursuant to Article 186-ter.
At present, following the partial restitution of gas in the wake of legal action brought, Stogit is still owed approximately 23.6 million SCM.
Having obtained a provisional executive payment injunction pursuant to Article 186-ter, in September 2014, having identified the two main credit institutions of reference for the debtor, Stogit brought asset seizure proceedings.
With a ruling issued on 4 March 2015, the Court of Rome declared the user bankrupt and also set a hearing for 16 July 2015 for the meeting of creditors to examine the list of creditors, giving the parties until 16 June 2015 for the claim to be included in the insolvency proceedings. Stogit therefore initiated proceedings to prove the receivable was owed to it, in compliance with the timeline indicated. The receivable was declared unsecured by the presiding judge.
Withdrawals made from strategic storage by a user, invoiced by Stogit and not replenished by the user under the terms specified by the Storage Code, ascribable to October and November 2011
Stogit filed with the Civil Court of Milan for a payment injunction provisionally enforceable pursuant to Article 186-ter.
Pending the proceedings, the Court of Rome declared the user bankrupt on 30 October 2014. As a result, the Civil Court of Milan declared a suspension of the legal action originally brought. On 6 February 2015, the Company filed a request for proof of bankruptcy. The receivable was declared unsecured by the presiding judge.
At present, following the partial restitution of gas in the wake of legal action brought because of improper withdrawals, Stogit is still owed approximately 56.0 million SCM.
With respect to environmental risk, while Snam believes that it operates in substantial compliance with the laws and regulations and considering the adjustments to environmental regulations and actions already taken, it cannot be ruled out that Snam may incur costs or liabilities, which could be significant.
It is difficult to foresee the repercussions of any environmental damage, partially due to new laws or regulations that may be introduced for environmental protection, the impact of any new technologies for environmental clean-ups, possible litigation and the difficulty in determining the possible consequences, also with respect to other parties’ liability and any possible insurance compensation.
1 January 2013 was the start of the third regulatory period (2013-2020) of the Emission Trading System (ETS), the greenhouse gas emission allowance system governed by Legislative Decree 30 of 13 March 2013, as amended, and transposing Directive 2009/29/EC. This system is one of the instruments used to achieve the objectives established by the European Union’s “20-20-20”: 20% increase in energy efficiency, 20% reduction of CO2 emissions and 20% renewables by 2020.
In 2015 the Snam Group plants covered by the ETS moved from 19 to 20, through the issue of the greenhouse gas emissions permit for the Bordolano concession of Stogit. In 2015 the free allocation for the Snam Group was equal to around 238,000 shares, with a 28% decrease compared with 2014.
The reduction was due in part to the progressively decreasing allocation of the free shares on the part of the competent national authority, established for the third regulatory period by Article 10-bis of Directive 2009/29/EC, and in part by lower consumption recorded over the course of 2014.
In 2015, carbon dioxide emissions of the Snam Group facilities covered by the ETS were overall greater than the emission permits allocated. In view of 0.44 million tonnes of carbon dioxide emitted into the atmosphere, around 0.24 million tonnes were allocated, resulting in a 0.20 million-tonne deficit. This deficit is offset by the allowances already present in the registers for Snam Group plants, accumulated thanks to the surplus from previous years.
41 To be presented to the CSEA four months after the due date of unpaid invoices
42 The aforementioned resolution was annulled by Ruling No 1587/2014 of the Regional Administrative Court of Milan, in relation to the obligation for users to pay the CVBL fee in the amount of €0.001/SCM with effect from 1 October 2012. Moreover, with the subsequent Resolution 372/2014/R/gas, the coefficient was adjusted in the same amount of €0.001/SCM.
43 The period covered by the preliminary investigation was initially limited to the period 1 December 2011 – 31 May 2012, but it was subsequently extended until 23 October 2012 by Resolution 444/2012/R/gas.
44 As at 31 December 2014, four of the aforementioned proceedings had been concluded through the approval of Resolutions 151/2014/S/gas, 188/2014/S/gas, 241/2014/S/gas and 471/2014/S/gas, with which the Authority imposed significant financial penalties on the four users in question.
45 The users in question have appealed against some of these injunctions. Specifically, as well as requesting the suspension of the provisional enforceability and the revocation and/or declaration as null and void of the injunctions themselves, three users have submitted counterclaims requesting that Snam Rete Gas be ordered to compensate them for alleged damage suffered. In relation to the two users, the oppositions were declared null and void, with the resulting lapse of the demand and the passage into judgment of the injunction decrees.
46 In respect of the approval provision, a claim was brought before the Court of Appeal of Turin, and – in respect to the confirmation procedure adopted by the same Court – the appeal was brought before the Court of Cassation.
47 With this user, Snam Rete Gas formalised a repayment plan for the full repayment of the receivables owed. In addition, following the presentation of a request for an arrangement with creditors, the party interrupted payment. Furthermore, it should be noted that a preliminary procedure presented by the same user was filed due to the lack of approval on the part of the creditors, with the resulting presentation of a new demand for settlement.
48 With this user, Snam Rete Gas formalised a repayment plan for the full repayment of the receivables owed. In addition, following the presentation of a request for an arrangement with creditors, the party interrupted payment..
49 Procedures for the claim to be included in the list of creditors are under way.
50 Snam Rete Gas was admitted to the current list of creditors for the entire debt due, plus interest.