18 Guarantees, commitments and risks

Guarantees, commitments and risks, with an amount up to €3,778 million (€4,334 million at 31 December 2015), break down as follows:

Guarantees

Other personal guarantees issued in the interest of subsidiaries (€123 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 (€68 million) and performance bonds (€54 million).

Commitments

At 30 June 2016, 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 €2,374 million (€1,898 million at 31 December 2015).

Other commitments referring to minimum future payments related to non-cancellable operating lease transactions (€6 million, including €5 million expiring in the following year and €1 million from one to five years).

Also note that, in relation to TAP, the contractual agreements stipulate that shareholders are responsible for financing the project for gas exports in western Europe, whether according to the level of their respective shareholdings, whether through the Shareholders’ Loan or through the subscription of capital increases, until the pipeline enters into service, and if its capacity is expanded.

Risks

Risks related to third-party assets on deposit, with an amount up to €1,182 million (€2,210 million at 31 December 2015) related to approximately 6.5 billion cubic metres of natural gas deposited in the storage plants by customers of the service. This amount was determined by valuing the deposited gas quantities at the average stock cost of approximately €0.18 per standard cubic metre (€0.26 at 31 December 2015).

Risks related to compensation and litigation, in the amount of €93 million (unchanged from 31 December 2015), related to possible (but not probable) claims for compensation arising from ongoing litigation, with a low probability of pertinent economic risk.

FINANCIAL RISK MANAGEMENT

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

Market value of financial instruments

Below is the classification of financial assets and liabilities measured at fair value in 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:

• level 1: prices quoted (and not amended) on active markets for the same financial assets or liabilities;
• 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;
• level 3: inputs not based on observable market data.

Regarding the above described facts, the classification of the financial assets and liabilities measured at fair value in the statement of financial position according to the fair value hierarchy concerned derivative financial instruments at 30 June 2015 classified at level 2 and entered under Note 8 “Other current and non-current assets” (€35 million).

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 important proceedings for which significant changes to the situation reported in the 2015 Annual Report have occurred, including new proceedings and closed proceedings.

Criminal cases

Snam Rete Gas S.p.A. - Criminal case Badia Tebalda (AR)

The public prosecutor at the Court of Arezzo opened a criminal case against Snam Rete Gas for an alleged violation of the environmental landscape bound, in relation to the network reopening works on the pipeline of the Municipality of Badia Tedalda (AR), carried out without the necessary authorisations. The Company assures that it will collaborate with the Authorities.

Authorities for Electricity, Gas and Water (AEEGSI)

Snam Rete Gas S.p.A. – Resolution 9/2014/S/gas – Launch of sanctionary 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 of 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 there are any delays on the provisions related to the enactment of amendments to the Network Code established by Resolution 292/2013/R/gas, regarding the settlement or determination of the relative physical and financial items of the balancing of the gas system. On 11 July 2016, the Authority issued its Statement of Objection (C.R.I.). The Company requested the setting of deadlines for preparing the defence brief and for the next hearing.

Stoccaggi gas Italia S.p.A. - Gas Tera Group and Gas Tera PMI Group/AEEGSI/Stogit S.p.A.

By application notified on 15 June 2016 the Gas Tera and Gas Tera PMI Groups have appealed against Resolution no. 180/2016/R/gas, published on 15 April 2016, concerning “Determinations following the ruling of the Lombardy TAR no. 1124/2015”, with which the Authority requested Stogit, following the filing of the aforementioned hearing (against which are pending three separate appeals to the State Council, in which Stogit is duly constituted), to communicate to the subject investors pursuant to Legislative Decree. no. 130/2010 the recognised amounts (difference between Cfix and Cfixmkt) by the Authority to the subjects to which such investors have assigned storage capacity for A.T. 2013/2014, as established by Resolution 144/2014/R/gas. The amounts were paid by the then Electricity Equalisation Fund (CCSE) to Stogit in December 2014 and repaid these promptly to the persons entitled under the before mentioned Resolution. According to the applicants, Stogit would have paid to an apparent creditor, given the pendent judgement against the above mentioned Resolution no. 144/2014/R/gas, which ended with the ruling no. 1124/2015 which established that it was the transferor and not the transferee of the capacity which has title to collect these amounts. The applicants requested as an interlocutory measure a declaration of invalidity or, as an alternative, the annulment of the contested Resolution, requesting to know if it is their responsibility to recover the undue credit against third parties to which the amount owed to the applicants was wrongly paid. At the hearing chamber on 8 July 2016, the applicant Groups withdrew their interlocutory application; the hearing on the merits will be heard at the end of January, 2017.

Tax cases

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 of 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, the tax assessments concerning IRES, IRAP and VAT were issued, and the Company responded by submitting a tax settlement proposal.

The proceeding was closed with a negative result, and on 28 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 related to the undue payment of taxes on foreign regularisations and other unrelated taxes. At the same time, payments were made for around €777 thousand in total, using for this the previously allocated risk provision. On 23 of June, 2016, the Turin Provincial Commission accepted the appeals brought in the month of May, 2015.

GNL Italia S.p.A. - Local taxes

On 20 May 2016, the Municipality of Portovenere sent an assessment notice to GNL Italy S.p.A. in relation to TARI 2015, for a total of approximately 63 thousand euros. This assessment has been challenged in the Tax Commission and a provision has been made for risks and tax litigation charges. It should also be noted that a similar notice issued by the same Municipality of Portovenere for TARSU 2014 was cancelled by the Provincial Tax Commission of La Spezia in a hearing in 5 of May, 2016.

Other commitments and risks

The other unevaluated commitments and risks are:

Commitments arising from the contract for the acquisition of Italgas and Stogit from Eni

The price determined for the acquisition of Italgas and Stogit is subject to adjustment mechanisms based on commitments made when the transaction was completed, which were also intended to apply after the date of execution.

Acquisition of Italgas

As at 30 June 2016, the remaining commitments from the aforementioned agreements concerned adjusting the Italgas purchase price to take into account part of the costs/benefits arising from the sale of property owned by Italgas that is no longer part of its operations. To that end it is noted that, along with the separation operation from Italgas and Snam, and subject to the effectiveness of the same, the rights and obligations of Snam related to the Rome Ostiense real estate complex, deriving from the specific purchase agreements in the context of the acquisition of the entire share capital of Italgas from Eni that took place in 2009, will be transferred to Società Beneficiaria ITG Holding.

For more information, see the Information Document relating to the demerger of Snam in favour of ITG Holding, prepared pursuant to Article 70 of the Consob Regulations, available on the company’s website (www.snam.it, in “Ethics and Governance Meetings of Shareholders”).

Acquisition of Stogit

On 30 June 2016, the outstanding commitments resulting from the above agreements, related to hedging mechanisms set up to keep the possible risks and/or benefits placed on Eni: (i) from the possible increase in value of the gas owned by Stogit at the time of the share transfer other than that recognised by the Electricity, Gas and Water Authority (the Authority) in case of even a partial transfer of the same, if specific quantities were to become no longer necessary for the regulated concessions and therefore available to be transferred; (ii) from the possible transfer of storage capacity which may become available for transfer on a freely negotiated basis and is no longer regulated, or from the transfer of concessions, including those held by Stogit at the time of the transfer of shares that could possibly be devoted mainly to storage activities, and which are no longer subject to regulation.

With reference to the adjustment of the purchase price of Stogit in order to take into account the different value, compared to the date of the share transfer, recognised by the Authority of Stogit’s natural gas quantities included among the assets that make up the RAB ( Regulatory Asset Base), it should be noted that following the definitive approval by the Authority of the storage tariffs for the year 2015, a balancing was done in favour of Eni, by way of price adjustment, in an amount of €6 million.