32. Related-party transactions

Considering the de facto control of CDP S.p.A. over Snam S.p.A., pursuant to the international accounting standard IFRS 10 – Consolidated Financial Statements, based on the current Group ownership structure the related parties of Snam are represented by Snam’s associates and joint ventures as well as by the parent company CDP S.p.A. and its subsidiaries and associates, and direct or indirect subsidiaries, associates and joint ventures of the Ministry of Economy and Finance. Members of the Board of Directors, Statutory Auditors and Snam Group and CDP managers with strategic responsibilities, and their families, are also regarded as related parties.

As explained in detail below, related-party transactions mainly concern the exchange of goods and the provision of regulated services in the gas sector. Transactions between Snam and related parties are part of ordinary business operations and are generally settled under market conditions, i.e. the conditions that would be applied between two independent parties. All the transactions carried out were in the interest of the companies of the Snam Group.

Pursuant to the provisions of the applicable legislation, the Company has adopted internal procedures to ensure that transactions carried out by Snam or its subsidiaries with related parties are transparent and correct in their substance and procedure.

Directors and statutory auditors declare potential interests that they have in relation to the Company and the Group every six months, and/or when changes in said interests occur; they also inform the Chief Executive Officer (or the Chairman, in the case of the Chief Executive Officer’s interests), who in turns informs the other directors and the Board of Statutory Auditors, of individual transactions that the Company intends to carry out and in which they have an interest.

Snam is not subject to management and coordination. Snam manages and coordinates its subsidiaries, pursuant to Article 2497 et seq. of the Italian Civil Code.

In terms of related-party transactions, pursuant to the disclosure obligations set forth under Consob Regulation No. 17221 of 12 March 2010, should be pointed out: the agreement between Snam Rete Gas S.p.A. and Eni S.p.A., of natural gas transportation capacity for the 2016 – 2017 thermal year. On 3 March 2017, the transport contract value exceeded the materiality threshold of 140 million identified in the Procedure “Transactions involving the interests of the Directors and Statutory Auditors and transactions with related parties” of Snam.

The contract is defined in accordance with the procedures defined in the Snam Rete Gas S.p.A. Network Code, which was approved by the Electricity, Gas and Water Authority with Resolution No. 75/2003, as subsequently amended.

As in the case of contractual agreements, the finalisation of these commitments entails the calculation of a fee for services rendered by applying the natural gas transportation and dispatching tariffs approved by the Authority Resolution.

The contract is classed as ordinary transaction concluded under market-equivalent or standard conditions, pursuant to art. 3 of the Procedure (published on www.snam.it site), since: (i) they fall within the scope of normal business operations and the associated financial activities; and (ii) the terms applied are based on regulated tariffs.

With reference to the operation of separating Italgas Reti S.p.A. (formerly Italgas S.p.A.) from Snam S.p.A., implemented through three transactions (transfer, sale and demerger) which took place jointly and at the same time with effect from 7 November 2016, note that: (i) the demerger transaction with the proportional granting of shares to shareholders does not constitute a “Related-party transaction” pursuant to the reporting obligations of CONSOB Regulation 17221 of 12 March 2010 and CONSOB Communication DEM/10078683 of 24 September 2010); (ii) the transfer and sale transactions, despite qualifying as related-party transactions, fall under the exemption set forth in Article 14, paragraph 2 of the Regulations on Related-Party Transactions and in Article X, Paragraph 8 of the Procedure on Related-Party Transactions of Snam, which stipulates that the procedures to be applied in the event of Related-Party Transactions are not applicable in the event of transactions carried out with subsidiaries (Italgas S.p.A., formerly ITG Holding S.p.A.). In light of CDP’s involvement as a Related Party of Snam, Snam has not made use of the aforementioned exemption and has subjected the entire Transaction to the procedure for “Significant Transactions” provided for by Article 8 of the Regulations on Related-Party Transactions and by Article VI of the Procedure on Related-Party Transactions⁵⁸.

Under the scope of related-party transactions, there are no further transactions to report for 2016 pursuant to the disclosure requirements of Consob Regulation 17221 of 12 March 2010.

The amounts involved in commercial, financial and other transactions with the above-mentioned related parties are shown below for the 2015 and 2016 financial years. The nature of the most significant transactions is also stated.

Commercial and other transactions

Commercial and other transactions can be broken down as follows:

Companies under joint control and associates

The most significant commercial relations with companies under joint control and associates include:

• the sale and the purchase of gas from TAG, governed by the Service Balance Agreement, an agreement aimed at ensuring the daily balance between the quantities metered and the quantities expected at the Tarvisio entry point;
• the provision to TAG of services for the realisation of the transport infrastructures governed by the Engineering, Procurement and Construction Management (EPCM) Agreement.

Subsidiaries of the parent company Cassa Depositi e Prestiti

The most significant commercial relations with subsidiaries of Cassa Depositi e Prestiti include:

• guarantees issued in the interest of Italgas Group 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 and performance bonds.
• the provision to the Italgas Group of services by Snam S.p.A. in the period 7 November – 31 December 2016, mainly relating to the administration of personnel and legal affairs, corporate and compliance and ICT services. The services provided, regulated on tariffs defined on the basis of costs incurred through a full cost logic, refer to phase-out agreements for a transition period, aimed at ensuring the continuity of the activities previously guaranteed by Snam.

Companies under the joint control of the parent company Cassa Depositi e Prestiti

The most significant commercial relations with companies under the joint control of Cassa Depositi e Prestiti include the purchase by Saipem of design and works supervision services for the realisation of natural gas transportation and storage infrastructures, regulated by agreements signed at normal market conditions.

Companies owned or controlled by the State

The most significant commercial relations with companies controlled or owned by the State involve:

• the provision to the Eni Group and the Enel Group of natural gas transportation, regasification and storage services, regulated by tariffs established by the Authority;
• the purchase by the Eni Group of electricity used for carrying out activities.

Additionally, as at 31 December 2016 there were assets posted in reference to transactions arising from the national tax consolidation scheme in force until 31 July 2012.

Financial transactions

Financial transactions can be broken down as follows:

Companies under joint control and associates

Financial relations with companies under joint control and associates include:

• loans received by GasBridge1 B.V. and GasBridge2 B.V. repayable on demand;
• financial receivables relating to the Shareholders’ Loan granted to the associate Trans Adriatic Pipeline AG (TAP) and related financial income.

Subsidiaries of the parent company Cassa Depositi e Prestiti

Financial relations with subsidiaries of the parent company Cassa Depositi e Prestiti refer, in the main, to financial income relating to the adjustment to the market value of financial receivables from the Italgas Group at 6 November 2016 (€119 million), the effective date of the transaction separating the natural gas distribution business from Snam.

Transactions with directors, statutory auditors and key managers, with reference in particular to their remuneration, are described in Note 25 “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 on the income statement is summarised in the following table:

Related-party transactions are generally governed on the basis of market conditions, i.e. the conditions that 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: