Element of risk and uncertainty


The main corporate risks identified, monitored and, where specified below, managed by Snam Rete Gas are as follows:

  • (i) market risk deriving from exposure to fluctuations in interest rates and the price of natural gas;
  • (ii) credit risk deriving from the possibility of counterparty default;
  • (iii) liquidity risk deriving from a possible lack of financial resources required to meet short-term commitments;
  • (iv) operational risk;
  • (v) specific risks related to the business segments in which the group operates.


Interest rate fluctuation risk

Fluctuations in interest rates affect the market value of a company’s financial assets and liabilities as well as its net financial expense. The group aims to minimise interest rate risks while pursuing financial structure objectives laid down in its business plans.

The interest rates of some of the company’s loans are indexed to benchmark rates, namely the Euro Interbank Offered Rate (Euribor). In order to limit the risk connected with interest rate volatility, Snam Rete Gas uses derivative instruments – notably 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.

As described in the section “Liquidity risk”, Snam Rete Gas currently raises funds solely through its ultimate parent, Eni S.p.A. Should Eni S.p.A. sell its controlling stake in Snam Rete Gas, there is no guarantee that the latter would be able to obtain loans and financing from other sources under the same conditions as those currently in force.

Risk of change in the price of natural gas

Up to the end of the second regulatory period on 31 December 2009, the costs incurred for the acquisition of gas needed to operate the compression stations were included in overall operating costs and therefore updated using the price-cap mechanism27. As of the start of the third regulatory period on 1 January 2010, the Electricity and Gas Authority, enacting the new tariff criteria laid down by Resolution ARG/gas 184/09, 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fuel gas, network losses and unaccounted-for gas, owed as a percentage of the volumes respectively injected into and withdrawn from the transportation network.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 provisions and in consideration of the mechanism for allocating gas to shippers, fluctuations in the price of gas volumes to cover fuel gas and network losses no longer represent a risk factor for the Group. Price fluctuation risk remains from excess quantities of unaccounted-for gas withdrawn vis-a-vis the quantities paid for in kind by shippers.


Credit risk is the company’s exposure to potential losses arising from counterparties failing to fulfil their obligations. Default or delayed payment may have a negative impact on the financial balance and results of Snam Rete Gas.

The group provides business services to a small number of operators in the gas sector, the largest of which by revenue is Eni S.p.A. The rules for client access to the services offered are established by the Electricity and Gas Authority and set out in the Network Codes. For each type of service, these documents explain the rules regulating the rights and obligations of the parties involved in providing said services and have contractual conditions which minimise the risk of non-compliance by the clients. In particular, the Codes provide for guarantees to partly cover obligations where the client does not possess a credit rating issued by one of the leading international agencies.

Although nearly all of the company’s receivables are due from a limited number of customers, with ultimate parent Eni S.p.A representing 49% of trade receivables, there are no risks of credit concentration given their excellent reliability.


Liquidity risk is the risk that new financial resources may not be available (funding liquidity risk) or the company may be unable to convert assets into cash on the market (asset liquidity risk), meaning that it cannot meet its payment commitments. This may affect profit or loss should the company be obliged to incur extra costs to meet its commitments or, in extreme cases, lead to insolvency and threaten the company’s future as a going concern. The group’s objective is to have a financial structure (in terms of leverage ratio and ratios of medium-to-long-term debt and fixed-/floating-rate debt to total debt), 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 in line with business objectives.

Snam Rete Gas currently 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 group 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 banks at normal market conditions.


Snam Rete Gas is required to comply with many rules and regulations for protecting the environment, health and safety at national, regional, local and EU levels. The environmental protection laws generally pertain to verification of and compliance with limits for emitting pollutants into the air, water and the ground, and to correct waste management procedures. Failure to comply with 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. 231/01. Snam Rete Gas may incur significant costs or liability.

Recent regulations on health and safety in the workplace have introduced new obligations which will impact operations at Snam Rete Gas. In particular, the regulations highlight the value of organisational models aimed at preventing offences in the event of violation of workplace health and safety laws and, therefore, corporate liability. Snam Rete Gas has a policy for health, safety and the environment, which has been consolidated over the years. These issues are managed through organisational provisions and internal instructions establishing responsibilities and the procedures to be adopted when designing, constructing, operating and disposing of all company assets. These measures ensure compliance with the law and internal regulations governing health, safety and the environment. Under the group’s organisational structure, unit managers are also responsible for health, safety and environmental issues for their respective activities. Moreover, the systems managing the environment and the health and safety of employees have been developed in line with international best practices, based on an annual cycle of planning, implementation, control, analysis and target-setting. They are developed and maintained in order to focus on risk prevention, with a view to continuous improvement.

Risks connected with failing to meet infrastructure development objectives

The group’s effective ability to develop its infrastructure is subject to many unforeseeable events linked to operating, economic, regulatory, authoritative and competition factors which are outside its control. Therefore, Snam Rete Gas is unable to guarantee that the projects to upgrade and extend its network will be started, completed or lead to benefits in terms of tariffs. Additionally, the development projects may require greater investments or longer timeframes than those originally planned, affecting the group’s financial position and results.

Risks deriving from malfunctioning of plants

Managing regulated gas activities involves a number 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 underperformance of plants and extraordinary events such as explosions, fires, earthquakes, landslides or other similar events beyond the group’s control. These events could also cause significant damage to persons, property or the environment.

Any service interruptions and subsequent compensation obligations could lead to a decrease in revenue and/or an increase in costs. Although the group has taken out specific insurance policies to cover some of these risks, the related insurance cover could be insufficient to meet all the losses incurred, 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 stipulates that Snam Rete Gas continually gather and prepare a significant flow of information from its customers. The information received by Snam Rete Gas includes capacity bookings, details of where gas is coming from and going to each day, physical and commercial balancing mechanisms and forecasts about demand and transportation capacity usage. This flow of information, managed by extensive use of IT systems, is large and complex. Therefore, Snam Rete Gas cannot guarantee that its management will not lead to operating and planning difficulties which could affect its business.

Risks deriving from the seasonal nature of the business

The group’s business is not affected by seasonal factors which would have a significant impact on its annual or interim financial results.



Snam Rete Gas operates in the regulated gas sector. The relevant directives and legal provisions issued by the European Union and the Italian government, and the resolutions of the Electricity and Gas Authority, may have a significant impact on the group’s operations, results and financial stability. Future changes to European Union or Italian legislative policies may have unforeseeable effects on the relevant legislative framework and, therefore, on the group’s operations and results.

Risks connected with the expiry of gas distribution concessions/contracts held by Italgas and its subsidiaries/associates and with the early termination of concessions by concessionary bodies

Risks relating to tenders for new gas distribution concessions

At 31 December 2010, the Group had a portfolio of more than 1,450 natural gas distribution concessions spread throughout Italy. Upon legal expiry of the concessions and contracts held by Italgas and its subsidiaries/associates, or in the event that local authorities terminate the concession early, said authorities will have to issue, in combined form after the Decree on geographical areas comes into effect, calls for tenders for the new gas distribution concessions. As a result of the tender process, Italgas and its subsidiaries/associates may not secure one or more of the new concessions, or they may win the concessions but with less favourable terms than was previously the case. This may have a negative effect on the group’s operations and its balance sheet and income statement, despite the receipt of compensation if it fails to renew a concession.

Risks relating to the right of local authorities to acquire ownership of the gas distribution networks and to quantifying repayment to the outgoing operator

With reference to concessions where Italgas and its subsidiaries/associates also own the gas distribution networks, legal doctrine and jurisprudence concerning the interpretation of the gas distribution network regulations contained in the legislative decree have not yet clarified, pending the coming into force of the new sector rules, whether the company that owns the networks is effectively required to transfer such ownership to the local authorities upon expiry of the concessions and/or contracts. Concessionary bodies and operators also have different interpretations on how to apply the criteria for quantifying the compensation owing to the outgoing operator and owner of the network pursuant to Article 24, paragraph 4, a) and b) of Royal Decree no. 2578 of 15 October 1925 (which stipulates that only the “industrial value” of the system be taken into account, not the profit that the concessionaire stands to lose as a result of the non-awarding of the concession).

Upon expiry of the concessions and/or contracts, there may therefore be disputes over the amount of compensation owing to Italgas and its subsidiaries/associates; Italgas and its subsidiaries/associates may lose these cases, with subsequent negative effects on the group’s operations and its balance sheet and income statement.

Risks relating to gas storage concession ownership

Stogit owns 10 gas storage concessions. One expires on 14 June 2012, eight on 1 January 2017 and one on 6 November 2021. Each concession may be extended by the Ministry of Economic Development no more than twice for a duration of 10 years at a time, pursuant to Article 1, paragraph 61 of Law no. 239/2004. If Stogit is unable to retain ownership of one or more of its concessions or if, at the time of the renewal, the concessions are awarded under terms less favourable than the current ones, there may be negative effects on the Group’s operations and its balance sheet and income statement.

Risk relating to uncertainty about natural gas reserves

There are several uncertainties surrounding estimations of natural gas reserves in the storage fields where Stogit operates, and therefore their future use and necessary investments. The accuracy of these estimations depends on a certain number of factors, assumptions and variables, among which some of the most important are: (a) the quality of geological, technical and economic data and their interpretation and evaluation; (b) projections for future usage and timeframes for the relevant investment; (c) the stability or otherwise of sector laws and regulations; (d) the actual results of drilling and general production activity in the fields for which Stogit owns a concession which are subsequent to the estimation date and which may cause said estimations to be raised or lowered.

Factors other than those listed above which may influence reserve estimations are beyond Stogit’s control and may therefore vary over time. As a result there may be differences between estimated reserves and those actually available for use, which may have negative effects on the group’s operations and its balance sheet and income statement.

Risks connected with certain socio-political situations in natural gas production and transit countries

A large part of the natural gas which travels through the transportation network of Snam Rete Gas does, or may, come from or travel through countries which present risks deriving from certain socio-political situations. Importing and transiting natural gas from or through such countries may present risks such as: higher taxes and excise duties; production, export or transportation limits; enforced contract renegotiations; nationalisation or renationalisation of assets; changes to national political and governing systems; changes to commercial policies; monetary restrictions; loss or damage owing to the actions of rebel groups. If shippers are unable to access the natural gas available in these countries as a result of the aforementioned situations or they are damaged in any other way by said situations, they may be unable to fulfil their contractual obligations to Snam Rete Gas or there may be a reduction in volumes of gas transported. Such events may therefore have a negative effect on the group’s operations and its balance sheet and income statement.

Quantitative information about risks arising from financial instruments as required by IFRS 7 “Financial instruments: Notes to the financial statements” is provided in Note 22 to the consolidated financial statements, “Guarantees, commitments and risks”.

The elements of risk and uncertainty of Snam Rete Gas S.p.A. are reported in Note 22 to the separate financial statements, “Guarantees, commitments and risks.”

(27) On the basis of this mechanism, the relevant income components relating to operating costs and amortisation are updated with the balance sheet data at the start of the period of regulation, while for subsequent years they are updated with inflation and reduced by a productivity coefficient.

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