Risk management

By its very nature, entrepreneurial activity is deeply associated with risk factors. Prudent management of these risks forms part of a company’s solidity and reputation. For Snam Rete Gas the principal risks identified and monitored are those specified below. The reader will, in any case, find a more extensive and careful examination in the Financial Statements and on the Snam Rete Gas website, as for the specific risks of the sectors of activity in which the Group operates.

Market risk

Interest rate fluctuation risk

The Group aims to minimise interest rate risks while pursuing financial structure objectives laid down in its business plans. In order to limit the risk associated with the volatility of interest rates, Snam Rete Gas uses derivative instruments, and in particular Interest Rate Swaps (IRS), to manage the balance between fixed-rate and floating-rate debt. The fair value of such interest-rate derivatives is calculated systematically on the basis of market prices provided by the major info providers. Snam Rete Gas does not have derivative contracts held for trading or speculative purposes.

Natural gas purchase price fluctuation risk

From 1 January 2010 onwards, with the beginning of the third regulation period, the Italian Electricity and Gas Authority has defined methods for payment in kind, by shippers to transporters, of gas volumes to cover fuel gas, network losses and unaccounted-for gas, owed as a percentage of the volumes respectively injected into and withdrawn from the transportation network. As a result of these measures and taking into account the mechanism for allocating gas to shippers, changes to the purchase price of natural gas are no longer a risk for the group.

Credit risk

The Group provides business services to a limited number of gas sector operators, the largest of which by revenue is Eni S.p.A. With the parent company Eni S.p.A. representing 50% of trade receivables, credit risks are not expected in view of their reliability. The rules for customer access to the services offered are established by the Italian Authority for Electricity and Gas, and set out in the Network Codes, and have contractual conditions that reduce the risks of the customers’ not fulfilling their obligations. The company did not experience any significant cases of counterparty non-compliance.

Liquidity risk

Liquidity risk is the risk that the company is unable to meet its payment commitments due to an inability to raise new funds or to liquidate assets on the market. The aim of the Group is to have a financial structure which ensures an adequate level of liquidity for the Group, minimising the related cost and maintaining a balance between the term and composition of its debt. Today Snam Rete Gas raises funds solely through its ultimate parent, Eni S.p.A. Under the existing agreements, Eni S.p.A. can request the early repayment of loans should it lose its controlling stake in Snam Rete Gas. At present, the company believes that cash flows from operations and its current financial and capital structure can reasonably allow access to a wide range of financing from the capital market and credit institutions at normal market conditions.

Operational risk

Our activities are subject to the observance of many rules and regulations protecting the environment, health and safety at national, regional, local and EU levels. Failure to observe the current regulations may result in individual criminal and/or civil sanctions and, in some cases where safety rules are violated, companies may be liable on the basis of a European liability model adopted in Italy through Legislative Decree no. 231/2001. The possibility of Snam Rete Gas’s incurring costs or liabilities, possibly significant, cannot be definitively ruled out. Snam Rete Gas has adopted a Health, Safety and Environment policy. The HSE management system is based on organisational regulations which establish the responsibilities and the procedures to be adopted in the planning, implementation, operation and decommissioning stages pertaining to all company activities, the aim being to ensure compliance with the regulations. In the Snam Rete Gas organisational structure, unit managers are required to take responsibility for the health, safety and environmental issues for their respective activities.

Risks connected with failing to meet infrastructure development objectives

The actual possibility of Snam Rete Gas’s achieving the development projects on its infrastructure is subject to many unforeseeable events linked to operating, economic, regulatory, authoritative and competition factors, independently of the company’s will. Therefore Snam Rete Gas is unable to guarantee that the planned projects to extend and upgrade are actually undertaken, nor, if undertaken, that the projects are successfully concluded or that they enable the achievement of the benefits specified by the tariff system. In addition, the development projects may require greater investments or longer timeframes than those initially estimated, so influencing the financial position and economic results of Snam Rete Gas.

Risks deriving from possible malfunctioning of plants

Managing regulated gas activities implies a series of risks of malfunctioning and unforeseeable service disruptions due to factors which are outside the group’s control such as accidents, breakdowns or malfunctioning of equipment or control systems, the underperfomance of plants and extraordinary events such as explosions, fires, earthquakes, landslides or other similar events beyond Snam Rete Gas’ control. Such events could also cause significant damage to persons, property or the environment.

Any interruptions to service and subsequent compensation obligations could lead to a decrease in revenue and/or cost increases. Although Snam Rete Gas has stipulated specific insurance contracts to cover some of these risks, the related insurance cover could be insufficient to meet all of the losses experienced, compensation obligations or cost increases.

Risks deriving from the need to manage a significant flow of information to operate regulated services

The regulatory framework in which the company operates requires Snam Rete Gas to continually collect and prepare a significant flow of information from its customers. The information sent to Snam Rete Gas includes, among other things, capacity bookings, daily indications of gas provenance and destination, balancing mechanisms both physical and commercial, and forecasts about and transmission capacity usage. This flow of information, which is also managed through the extended use of IT systems, is large and complex and, therefore, Snam Rete Gas cannot guarantee that its management does not lead to operating and planning difficulties with consequences for its activities.

Risks deriving from the seasonal nature of the business

The activity performed by the Group does not present seasonal phenomena that can significantly influence its annual or interim financial results.

Litigation

Several Companies of the Snam Rete Gas Group are involved in civil and administrative proceedings and legal actions related to their normal business activities. According to the information currently available and considering the existing provisions for risks, it is believed that these proceedings and actions will not have material adverse effects on the financial statements. More specifically, the proceedings involve investigations of the Italian judiciary, the Italian Guarantor Authority for Competition and the Market (Autorità Garante della Concorrenza e del Mercato – AGCM), the Electricity and Gas Authority and other regulatory authorities. The table indicates current litigation while, for further details, the reader can refers to the Annual Report.

In 2009, Snam Rete Gas Group was neither fined nor sanctioned for any violation of legislation on the environment.