|(in millions of euros)||12.31.2010||12.31.2009||Change|
|Other commitments and risks||580||530||50|
|Total for the Group||3,349||3,448||(99)|
Guarantees provided totaled 1,379 million euros at December 31, 2010. This figure, which was determined based on the undiscounted amount of contingent commitments on the balance sheet, includes 150 million euros in guarantees provided to the Revenue Office on behalf of subsidiaries for offsetting VAT credits and those provided in connection with the intra-Group assignment of tax credits. Guarantees provided by the Group’s Parent Company to secure the performance of contractual obligations by its subsidiaries account for most of the balance.
As a result of the renegotiation of its financing facility by the invested company Elpedison Power Sa, guarantees totaling 136 million euros were cancelled and new guarantees amounting 40 million euros were provided.
Collateral provided, which amounted to 1,390 million euros reflects the carrying amounts of the assets or rights pledged as collateral on the balance sheet date. This account includes collateral provided for liabilities listed on the balance sheet, including the value of Edipower shares (1,078 million euros) pledged to a pool of banks to secure a financing facility.
Collateral provided includes additional collateral for liabilities listed on the balance sheet (312 million euros), which generally consist of mortgages and encumbrances granted on facilities of the Electric Power Operations to secure financing. In 2010 a collateral has been provided on a hydroelectric plant for a new financing facility.
Other commitments and risks, which totaled 580 million euros, reflect primarily commitments undertaken to complete investment projects under construction in Italy and abroad.
The main commitments are reviewed below:
- With regard to the procurement of CO2 certificates and Certified Emission Reductions (CERs)/Emission Reduction Units (ERUs), for the 2008-2012 period, Edison Spa, the Group’s Parent Company, signed the following contracts, for a commitment of up to 55 million euros:
- Emission Reductions Purchase Agreement (ERPA) to purchase CERs in China by 2013, a 22-million-euro commitment;
- Management Agreement with EDF Trading Ltd (EDF Carbon Fund) for the fixed-price purchase of CERs and ERUs by 2013, a 29-million-euro commitment;
- Purchasing and Management Agreement with Natsource Asset Management Europe (Nat-CAP) for the purchase of CERs and ERUs by 2013, a 4-million-euro commitment.
- The Group entered into long-term contracts for the importation of natural gas, which contain take-or-pay clauses that obligate the buyer to pay for any shortage between the stipulated minimum quantities and the quantity actually used (when the shortage is due to causes that are not specified in the contract). In the accounting records of Edison Spa, the Group’s Parent Company, the item “Other Assets” (note 21) includes advances to suppliers for an amount of 91 million euros and commitments include 140 million euros for accrued amounts owed to but not yet paid to counterparties. In any case, gas delivery profiles and the economic recoverability are periodically updated during the year.
- Edison Spa granted to:
- Cartiere Burgo Spa a call option to purchase a 51% interest in Gever Spa. This option is exercisable when the contract under which Gever supplies Cartiere Burgo with electric power and steam expires (in 2017) at a price equal to the corresponding pro rata interest in the company’s shareholders’ equity (14 million euros);
- Petrobras an option to buy its interest in Ibiritermo Sa, exercisable in 2022.
- For 16 million euros, a commitment undertaken by Edison Spa in connection with companies sold in previous years.
Unrecognized Commitments and Risks
Significant commitments and risks not included in the amounts listed above are reviewed below:
1) The Hydrocarbons Operations entered into long term contracts for the importation of natural gas from Russia, Libya, Norway, Algeria and Qatar (the supply contract with Qatar went into effect in 2009), for a total supply of 15.8 billion cubic meters of natural gas a year. The duration of these contracts ranges between 1 and 24 years.
The table below provides a breakdown of the timing for the supply of natural gas, based on minimum contractual deliveries:
||within 1 year||from 2 to 5 years||over 5 years||Total|
|Natural gas||Billions of m3||14.8||67.4||190.7||272.9|
Furthermore, contracts to import additional quantities of natural gas in future years include an agreement to import natural gas from Algeria (Protocolle d’accord), signed with Sonatrach in November 2006, that calls for the supply of 2 billion cubic meters of natural gas a year through a new pipeline that will be built by the associate Galsi Spa.
2) The contract concerning Terminale GNL Adriatico Srl, a regasification company in which Edison Spa holds a 10% interest that became operational in November 2009, includes the following conditions:
- for Edison, the obligation not to transfer its equity interest until July 1, 2011;
- for the other shareholders, the right to buy the 10% interest held by Edison, should Edison cancel the supply contract with RasGas, at a price equal to the sum of the capital contributions provided until the option is exercised;
- Edison will benefit from 80% of the terminal’s regasification capacity for 25 years and the annual regasification fee is estimated in about 100 million euros.
With regard to the regasification fee payable, Edison’s risk is limited to the following situations:
- Edison has the right to cancel the regasification contract for force majeure events affecting the LNG chain (upstream and midstream) by paying an amount that may not be greater than the regasification fee payable for three years;
- if a force majeure event affects Terminale GNL Adriatico, Edison will no longer be required to pay the regasification fee and may terminate the regasification contract after 36 months without being required to pay any amount;
- in the event of a breakdown of the terminal that does not constitute a force majeure event, Edison will not be required to pay any regasification fee.
In addition, Edison will be provided compensation for damages by RasGas, its supplier, which will include the regasification fee, based on circumstances set forth in the contract.
3) Insofar as the Electric Power Operations are concerned, pursuant to the terms stipulated with the counterparty in connection with the sale of 51% interest in Dolomiti Edison Energy Srl, Edison holds a call option exercisable only if no extension of the hydroelectric concession held by Dolomiti Edison Energy Srl is granted by March 31, 2018.
As part of the agreements among the shareholders of RCS Mediagroup Spa who are members of the Blocking and Consultation Syndicate, any Participant who, in response to a tender offer, wishes to exit the Syndicate will be required to sell the syndicated shares to the other Participants. The buyers will have the right, but not the obligation, to buy the shares that are being offered in proportion to the percentage of the shares they contributed to the Syndicate.
Status of the Main Legal and Tax Disputes Pending at December 31, 2010
A review, based on information currently available, of the main legal and tax disputes currently outstanding is provided below, listing separately actions involving Edison Spa and actions involving other Group companies. Legal disputes were subdivided further between those that could give rise to a probable liability, for which it was possible to develop a reliable estimate of the underlying obligation and recognize a corresponding provision for risks in the balance sheet, and those that could give rise to a contingent liability, which is dependent on the occurrence of events that are possible, but not probable, or are probable but their impact cannot be quantified reliably. With regard to contingent liabilities, only a disclosure is provided in the notes to the financial statements.
Legal disputes that could give rise to a probable liability for which a provision for risks was recognized in the balance sheet are reviewed below.
A) Edison Spa
European Commission - Antitrust Proceedings Against Ausimont
A oral argument hearing was held on September 2, 2010 in the appeal filed by Edison before the E.U. Court of First Instance against the temporarily enforceable decision by the European Commission in the proceedings regarding violations of Article 81 of the EC Treaty and Article 53 of the SEE Agreement concerning a cartel in the market for hydrogen peroxide and its derivatives, sodium perborate and sodium percarbonate, by which Edison was fined 58.1 million euros, 25.6 million euros of which are payable jointly with Solvay Solexis. The purpose of the appeal is to see the fine voided or, alternatively, reduced. In 2006, Edison paid on a provisional basis the amount of 45.4 million euros, which is equal to the sum of the entire fine levied on it and one-half of the fine levied jointly on Edison and Solvay Solexis.
The outcome of these proceedings is still uncertain. The Court is expected to hand down a decision by the end of 2011.
Stava Dam Disaster
There were no new developments concerning the ongoing negotiations to settle the remaining claim of a party injured by the collapse of the Prestavel Dams in 1985.
Actions for Damages Arising from the Operation of Chemical Facilities Conveyed to Enimont
Cesano Maderno Plant - Civil Lawsuits against the Other Parties to the Proceedings
There were no significant developments in the dispute pending before the Court of Milan between Bracco Imaging (formerly Dibra), Syndial (formerly EniChem) and Edison (formerly Montecatini) for damages stemming from the sale by Montecatini of a portion of the Cesano Maderno factory. Earlier, these proceedings had been put on hold pending a decision in another dispute, the resolution of which would affect the outcome of this lawsuit.
Porto Marghera Petrochemical Facility - Civil Lawsuits Following the Conclusion of the Criminal
Proceedings for Injuries Caused by Exposure to Monovinyl Chloride and for Damages to the Environment
The preliminary phases of the lawsuits filed against Edison before the Venice Tribunal and Court of Appeals by some of the parties who had joined the criminal proceedings for injuries caused by exposure to monovinyl chloride and for damages to the environment at the Porto Marghera petrochemical facility as plaintiffs seeking damages continued without noteworthy developments. These plaintiffs, who include the Municipality and Province of Venice, the Veneto Region and some associations, are seeking compensation for damages and the reimbursement of the legal costs incurred in connection with the abovementioned criminal proceedings.
Mantua Petrochemical Complex - Criminal Proceedings for Personal Injuries and Environmental Damages
In the criminal proceedings pending before the Court of Mantua against certain former Directors and executives of Montedison Spa (now Edison) for the alleged harm caused to the health of plant workers (former Montedison employees), who were exposed to benzene and asbestos at the local petrochemical complex through 1989, the preliminary hearing judge dismissed the charges against three defendants and issued indictment against the other defendants.
Claims for Damages Caused by Exposure to Asbestos
In recent years, there has been a significant increase in the number of claims for damages arising from the deaths or illnesses of workers that were allegedly caused by exposure to different forms of asbestos at factories formerly owned by Montedison Spa (now Edison) or from judicial cases taken over by Edison as a result of corporate transactions. Without rendering an opinion on the merits of these claims, considering the long latency of illnesses related to exposure to different types of asbestos and the industrial activities carried out in the past by Group companies that belonged to the chemical industry, the presence of these companies throughout Italy and the manufacturing technologies used (considering the dates when these activities were carried out and the state of technological advancement at the time), which complied fully with the laws in force at that time, the possibility that new legitimate claims for damages may emerge in addition to those that are already the subject of several civil and criminal proceedings cannot be excluded.
Savings Shareholders/UBS: Challenge of the Resolution Approving the Merger of Edison into Italenergia and Claim of Compensation for Damages
In the lawsuit filed by UBS AG and the Joint Representative of the savings shareholders against Edison, Italenergia Spa and others challenging the merger of Edison and Italenergia Spa, in which the Court of Milan handed down a decision on July 16, 2008 that led to a settlement with UBS AG in June 2009, the Company is considering the position of some savings shareholders who, even though they failed to take legal action or take any other action that may have legal consequences, are nevertheless claiming compensation.
Sesto Siderservizi - Environmental Remediation of Concordia South Properties
On April 8, 2010, consistent with the terms of a broader settlement agreement reached by Edison and Falck, the latter agreed, promising and guaranteeing performance by its subsidiary Sesto Siderservizi pursuant to Article 1381 of the Italian Civil Code, to desist from all activities and actions related to the lawsuit filed by Sesto Siderservizi against Edison (in its capacity as the company that absorbed Termica Narni Spa) before the Court of Milan seeking payment for part of the costs incurred for the environmental remediation of the properties called Concordia South, in the city of Sesto San Giovanni, in connection with which Edison filed claims asking Falck to stand surety. As a result of the settlement, Edison paid to Sesto Siderservizi 2.4 million euros in full settlement of any and all claims filed by all parties.
Industria Chimica Saronio Spa Factory - Municipal Administrations of Melegnano and Cerro al Lambro
The Company filed appeals before the Council of State against the decisions handed down on July 16, 2009, by which the Regional Administrative Court of Lombardy dismissed the appeals filed by Edison challenging two feasible and urgent orders issued by the municipal administrations of Cerro and Melegnano, ordering the Company to implement the activities needed to prevent the contamination deriving from a facility decommissioned in the 1960s, formerly owned by Industria Chimica Saronio Spa (of which Edison is the assign), from migrating from the upper aquifer to the deeper aquifer. Edison and the municipal administrations continue to be engaged in negotiations to implement the abovementioned emergency activities.
Farmoplant - 1988 Accident at the Massa Plant
On March 30, 2010, Edison reached a settlement with the Province of Massa-Carrara, the Municipalities of Massa and Carrara and the Ministry of the Environment and Civil Protection in connection with the civil action filed against Farmoplant (now Edison) seeking compensation for damages caused by an accident that occurred at Farmoplant’s Massa facility in 1988. Pursuant to the settlement agreement, Edison paid a total of about 3 million euros in full settlement of any and all claims filed against it in connection with the abovementioned accident. SAI Fondiaria, a company that at the time of the accident provided insurance for the plant, will provide Edison with a reimbursement amounting to 1.8 million euros.
Spinetta Marengo Industrial Site
Edison filed an application for voluntary remediation action, subsequently granted, in the environmental remediation proceedings that Ausimont Spa, a company sold in 2002 to Solvay Solexis Spa, a company of the Solvay Group, started pursuant to Ministry Decree No. 471/1999 in connection with the contaminated state of the Spinetta Marengo industrial site in order to better protect its rights. Edison’s application was filed after Solvay Solexis (current operator of the facility after its merger by absorption with Ausimont) petitioned the Regional Administrative Court of Piedmont asking that the administrative decisions requiring it to ensure the safety and environmental remediation of the abovementioned site be held in abeyance and voided, insofar as they fail to identify Edison as a liable (or jointly liable) party in the abovementioned proceedings. Further to understandings reached earlier, Edison participates in the Service Conferences, as they are convened from time to time.
Industrial Site in Bussi sul Tirino
Within the framework of the site remediation process that Ausimont Spa, a company sold in 2002 to Solvay Solexis Spa, a company of the Solvay Group, is implementing in accordance with Ministry Decree No. 471/1999 in connection with the contamination of the Bussi sul Tirino industrial property, Solvay Solexis and Solvay Chimica Bussi, the former in its capacity as the owner of the property, following Ausimont’s merger by absorption, and the latter in its capacity as the current operator of the property, served notice on Edison that they filed a series of administrative complaints with the Regional Administrative Court of Latium - Rome seeking, among other remedies, the suspension of the enforcement and the subsequent voiding of the administrative decisions pursuant to which they are responsible for implementing activities to ensure the safety and remediation of the abovementioned property, insofar as these decisions fail to list Edison as a liable (or jointly liable) party in the abovementioned proceedings. Edison filed defense briefs contesting in fact and law the complainant’s conclusions. On the other hand, in the criminal proceedings filed by the Public Prosecutor before the Court of Pescara in connection with the environmental conditions at the abovementioned industrial site and the consequences on the aquifer used also as a supply of drinking water, the preliminary hearing concerning the motion for indictment on the charges of water poisoning and disaster, for which several parties, including former directors and executives of Ausimont and Montedison Spa (now Edison), are being investigated, is continuing.
B) Other Group Companies
Pizzo Sella Real Estate Development and Seizure of Assets in Sicily
There were no significant new developments with regard to the negative assessment action filed by Finimeg (now Nuova Cisa), formerly the parent company of Poggio Mondello, asking the administrative law judge to rule that the seizure of the Pizzo Sella real estate development for unlawful property subdivision ordered by the Court of Palermo and upheld by the Court of Cassation in December 2001 be ruled unenforceable (the seizure also covers other real estate assets owned by Poggio Mondello) and the appeal concerning the same issues that was filed against the decision handed down by the Court of Palermo. With regard to the appeal, the lower court handed down a decision stating that it lacked jurisdiction (the criminal court being the proper court of venue) and denying the claims for damages filed by Finimeg (now Nuova Cisa) against the City of Palermo.
The lawsuits filed by certain buyers and prospective purchasers of the homes included in the real estate development affected by the order of seizure for criminal violations at the Pizzo Sella development, who sued Edison, Finimeg (now Nuova Cisa), Poggio Mondello and the Municipality of Palermo to recover damages incurred as a result of the seizure of these properties, proceeded through the various levels of the judicial system. In these proceedings, on June 14, 2010, the Palermo Court of Appeals, having ascertained that the buyers acted in good faith and with due diligence at the time of purchase, issued an order voiding the seizure of 14 of the homes sold by Poggio Mondello in connection with the abovementioned real estate development project.
Multiutility vs Edison Energia Spa
In the proceedings pending before the Court of Milan, in which Multiutility Spa is suing Edison Energia Spa alleging failures to comply with obligations arising from contracts executed by the two companies in 2004, 2005 and 2006 involving the wholesale supply of electric power the examining magistrate denied all of the discovery motions and exceptions filed by the plaintiff and postponed the hearing for closing arguments to October 2011.
Montedison Srl - Property in Bussi sul Tirino
Within the framework of the administrative proceedings launched with regard to the state of contamination of an industrial property owned by Montedison Srl adjacent to the industrial site in Bussi sul Tirino operated by Ausimont Spa, which was sold to Solvay Solexis Spa (a subsidiary of Solvay Sa) in 2002, discussions continued with the Delegated Commissioner, appointed by the Council of Ministers, with the aim of finding an understanding with regard to the implementation of certain initial emergency activities to ensure the safety of the property. In addition, there were no significant new developments in the two separate appeals filed with the Regional Administrative Court by Montedison Srl, which never operated any activity at the property in question.
The current status of the principal legal disputes that have arisen from past events which are dependent on the occurrence of events that are possible, but non probable, or are probable but their impact cannot be quantified reliably and that are likely to result in a cash outlay of an amount that cannot reasonably be estimated as a result of obligations that existed on the balance sheet date, based on available information, is reviewed below:
In recent years, we have witnessed an expansion and evolution of environmental laws (most recently with Legislative Decree No. 152 of April 3, 2006 “Environmental Regulations”, as amended), specifically with regard to liability for environmental damages, which is especially relevant to the purposes of these notes. In particular, the discussion and adoption in several legal systems of the principle of “internalization” of environmental costs (summarized in the expression “those who pollute must pay”) have resulted in the development of two new types of liabilities for the act of polluting: objective liability (which does not require the subjective element of guilt) and indirect liability (which stems from the actions of others), which can arise as a result of an earlier act that constitutes a violation of acceptable contamination levels under current laws. In Italy, this approach is becoming established practice at both the administrative level (the relevant provisions are being enforced very aggressively) and the judicial level (criminal laws and civil liability provisions concerning instances of environmental damage are being interpreted very restrictively).
In this area, several proceedings are pending before administrative judges, at different stages of development and judicial levels, against decisions issued by national and local governments ordering the Company to carry out environmental remediation projects both at facilities that the Company no longer owns and at industrial properties that it still owns (mainly thermoelectric power plants) that were contaminated by activities pursued in past years. More in general, without questioning the validity of these new legislative assumptions and the procedural accuracy of their implementation and interpretation, and taking into account the current and past scope of the Company and Group’s industrial operations, particularly in the chemical industry, their wide geographical distribution and their environmental impact based on the time when they were being carried out and the technology existing at the time, which was in compliance with the statutes then in force, it cannot be excluded that in light of current legislation, new charges may be levied against the Company in addition to those issued in the existing administrative and civil proceedings. It is also probable that current legislation will be applied with the strictness and severity mentioned above to all contamination events that occurred in the past.
At this point, based on the available information and the documents filed in the proceedings reviewed above, it is impossible to determine whether damages will in fact be assessed nor the amount of those damages.
A) Edison Spa
Verbania Factory/1 - Criminal Proceedings for Injuries Caused by Exposure to Asbestos Dust
In the trial for injuries caused by exposure to asbestos dust at a Verbania plant formerly owned by Montefibre Spa, the Court of Cassation upheld the complaint filed by the defendants, former Directors and executives of Montefibre Spa, some of whom were also Directors and executives of Montedison Spa (now Edison), setting aside a decision by the Court of Appeals of Turin that found all defendants guilty of involuntary manslaughter and returning the proceedings to the lower court.
Verbania Factory/2 - Criminal Proceedings for Injuries Caused by Exposure to Asbestos Dust
The preliminary hearing is continuing in the criminal proceedings that followed the filing of a motion by the Public Prosecutor of the Court of Verbania seeking an indictment against the same defendants as in the proceedings discussed in the preceding paragraph in connection with the death or illness of other employees allegedly caused by exposure to asbestos in different forms at the Verbania factory.
ACEA Unfair Competition
There were no significant developments requiring disclosure in the lawsuit filed by ACEA Spa before the Court of Rome against several parties, including AEM Spa (now A2A Spa), EdF Sa, Edipower Spa and Edison Spa, which is still in the discovery phase. ACEA alleges that the acquisition of joint control of Edison by EdF and AEM constitutes a violation of the 30% ceiling in the ownership of Edipower by a government-owned company, as set forth in the Prime Minister Decree dated November 8, 2000. Such ownership would constitute an instance of unfair competition, pursuant to Article 2598, Section 3, of the Italian Civil Code, and is injurious to ACEA, which is asking that AEM and EdF be ordered to pay damages and take the actions necessary to void the consequences of theiractions (such as the proportional divestment of equity interests held in excess of the abovementioned ceiling and the prohibition to receive energy produced by Edipower in excess of the corresponding allowable quantity).
Montedison (now Edison) - Finanziaria Agroindustriale Merger
The action filed before the Court of Appeals seeking to overturn the decision handed down by the Court of Genoa in December 2000 in the suit filed by Mittel Investimenti Finanziari and other shareholders of Finanziaria Agroindustriale against Edison ended with a decision that granted only in part the requests put forth by plaintiffs who refused to join the settlement reached by Edison and Mittel Investimenti Finanziari. In view of the inconsequential financial impact of the abovementioned decision, the Company chose not to further pursue the matter and paid the amounts owed to the eligible parties.
Sale of Tecnimont: Edison/Falck Arbitration
On April 8, 2010, Edison and Falck signed a settlement agreement that ended the arbitration proceedings started by Edison due to the failure to complete the sale of the entire share capital of Tecnimont Spa to Falck. This agreement also settled three other disputes pending between the parties and/or their subsidiaries concerning Termica Lucchese and Termica Narni (absorbed by Edison following its acquisition of the Falck Group) and a lawsuit pending before the Trieste Court of Appeals that was filed by Neviera Srl against Edison, with a call on Ecosesto Srl (a Falck Group company) as guarantor. Pursuant to the settlement agreement, Falck paid to Edison the sum of 22.5 million euros, including 15 million euros originally paid by Falck to Edison as an advance on the price of the Tecnimont shares, in full settlement of any and all claims filed by Edison in the abovementioned arbitration proceedings, as well as 2 million euros for claims filed by Edison against Falck in the dispute concerning Termica Lucchese. Concurrently, Edison paid to Sesto Siderservizi 2.4 million euros in full settlement of any and all claims filed by Sesto Siderservizi against Edison in the dispute concerning Termica Narni. Lastly, with regard to the lawsuit pending before the Trieste Court of Appeals, Ecosesto Spa agreed to hold Edison harmless for an amount of up to 500,000 euros in the event of an unfavorable decision for Edison, it being understood that, by accepting the abovementioned amount, Edison agreed to stand surety for Sesto Siderservizi in the event of third-party claims.
Pagnan vs Edison
By a decision handed down on February 4, 2010, the Court of Venice denied the claim filed against Edison, by means of a third-party summons, by Pagnan Spa, a defendant in an action filed by the Ministry of the Environment and for the Protection of the Land and the Sea and the Ministry of Infrastructures for alleged environmental damages caused in the area of the South Channel Dockyard in the Malcontenta section of the Porto Marghera Industrial Park.
Vega Offshore Hydrocarbon Field - Vega Oil Vessel
A preliminary hearing is currently under way in the proceedings filed by the Public Prosecutor of Modica against several parties, including some Edison Directors and executives, in connection with the alleged pollution caused by the Vega Oil vessel.
Meraklon/Edison - Edison Energia Spa Dispute
The lawsuit filed by Meraklon against Edison Energia Spa and Edison Spa in relation to a contract to supply electric power to Meraklon’s plant in Terni, following Meraklon’s challenge of an injunction issued by the Court of Milan in favor of Edison Energia Spa for the purpose of collecting receivables owed pursuant to the abovementioned contract, is continuing in the discovery phase. In the course of the abovementioned proceedings, Meraklon sued Edison Energia Spa and Edison Spa (the original counterpart in the abovementioned supply contract), putting forth a series of counterclaims against both companies in connection with disputes concerning the supply of electric power, heat and other utilities to the Terni factory.
Angelo Rizzoli/Edison et al.
The lawsuit filed by Angelo Rizzoli, on September 25, 2009, before the Court of Milan against Edison (as assign for Iniziativa Meta Spa), RCS Media Group, Mittel and Giovanni Arvedi in connection with the purchase in 1984 by the abovementioned parties of a controlling interest in Rizzoli Editore (owner of the Corriere della Sera newspaper) continued in the discovery phase. Intesa San Paolo is also being sued. The plaintiff, alleging that the prohibition against covenants of forfeiture had been violated with regard to a highly complex series of instruments spanning a considerable length of time, demands that the contracts that resulted in the abovementioned purchase be found to be and declared null and void and that the defendants be ordered to make restitution by paying the financial equivalent of the rights and equity interests subject of the abovementioned contracts, quantified in an amount between 650 and 724 million euros, or the amount that will be determined in the proceedings, based on expert appraisals, if required. In addition, the plaintiff is demanding compensation for damages or compensation for unjustified enrichment.
Torviscosa Power Plant - Cooperativa Fabbri Meccanici a r.l vs Edison
The arbitration proceedings activated by Cooperativa Fabbri Meccanici a r.l., in composition with creditors proceedings, against Edison are continuing. The complainant is asking that Edison be ordered to pay about 950,000 euros for alleged receivables arising from the performance of a contract for the construction of a building at the Torviscosa power plant. Edison countersued asking that the cooperative be ordered to pay it about 560,000 euros.
Cartel Damage Claims - Ausimont: Claim for Damages
In April 2010, Edison was served with notices setting forth four amended briefs filed by Akzo Nobel Nv, Kemira Oyi, Arkema Sa and FMC Foret Sa in proceedings before the Court of Dusseldorf in which Cartel Damage Claims Hydrogen Peroxide Sa, a Belgian company specialized in class action lawsuits, is claiming compensation for alleged damages to competition caused by the members of a cartel for the production and distribution of peroxides and perborates on which the European Commission levied a fine in 2006. Edison is being sued due to Ausimont’s involvement in the antitrust proceedings launched by the Commission. The lawsuit is currently in the preliminary phase.
B) Other Group Companies
Edison Energie Speciali Spa (Edens) - VSV Srl Arbitration
The arbitration proceedings activated by the sellers of an equity interest in VSV Srl, a company that owned wind farm projects in Calabria, which Edison Energie Speciali Spa (Edens) purchased in November 2008, in which the sellers were complaining that Edens failed to pay the second installment of the equity interest’s purchase price, amounting to 1.5 million euros, the payment of which, pursuant to the terms of the sales contract, was subject to the condition precedent of ascertaining that the VSV wind farm projects would not suffer any harmful consequences as a result of the implementation of Calabrian Regional Law No. 15/2008, by which the Regional Administration of Calabria established a moratorium on the construction of new wind farms, and Edens claimed that certain contractual guarantees have been violated, was settled out of court at the beginning of October 2010, with the Company incurring a charge of 750 thousand euros in exchange for the sellers waiving any all present and future claims in any way related to the sales contract.
Edison Trading Spa - Investigative Proceedings Concerning Prices in Sicily
On December 22, 2010, the Italian Antitrust Authority agreed to close without finding any violations the investigative proceedings it launched on February 2, 2010 targeting Edison Spa, Edison Trading Spa and Edipower Spa, as well as A2A Spa, A2A Trading Srl, Iride Mercato Spa, Alpiq Energia Italia Spa and Alpiq Holding Sa for an alleged agreement restricting competition executed by the abovementioned parties in their capacity as Tollers under a Tolling Contract with Edipower Spa and/or as shareholders of Edipower Spa. By the decision with which it closed the investigative proceedings, the Antitrust Authority accepted and made binding certain commitments offered by the Tollers and shareholders of Edipower Spa with the aim of eliminating the alleged anticompetitive conduct on which the investigative proceedings were based. These commitments include, on the one hand, devolving to Edipower Spa responsibility for fuel procurement and for scheduling and operating the generating units of the San Filippo del Mela thermoelectric power plant and, on the other hand, Edipower Spa agreeing to subject the abovementioned facilities to the current dispatching rules for “must run units,” as set forth in Resolution No. 111/06 by the Electric Power and Natural Gas Authority.
* * * * *
The developments that affected the status of the main tax disputes in 2010 are reviewed below:
Old Edison Spa - Income Tax Assessments for the 1994 -1999 Fiscal Years
The disputes concerning the corporate income tax (IRPEG) and local income tax (ILOR) assessments for the 1995, 1996 and 1997 fiscal years of the old Edison Spa, absorbed by the current Edison Spa, are still pending before the Court of Cassation following appeals filed by the Revenue Administration.
A special provision has been established to recognize the risks entailed by these disputes and its balance has been updated to reflect the accrued statutory interest.
Old Calcestruzzi Spa - Income Tax Assessments for the 1991 and 1992 Fiscal Years
Following a ruling handed down by the Court of Cassation in 2008 overturning the decisions handed down by the Regional Tax Commission of Emilia Romagna concerning the corporate income tax (IRPEG) and local income tax (ILOR) assessments for the 1991 and 1992 fiscal years of Calcestruzzi Spa, of which Edison Spa is the current assign, and returning the proceeding to the lower jurisdiction for review, the proceedings are currently pending before the abovementioned Regional Commission. No date has yet been set for a hearing.
The disputed items arise from transactions involving the beneficial ownership of shares executed with a foreign company by the existing Ferruzzi Group, which were challenged before the Court of Cassation on the grounds of “use of a statute to justify an unintended, illegitimate purpose.” The Company believes that its arguments will be fully upheld in the review proceedings, following a detailed and merit analysis of the specific transactions in question. However, taking also into account recent radical changes in the case law, the Company recognized a special provision for contingent risks related to these disputed items, the balance of which is updated annually to reflect the accrued statutory interest.
Edison Spa - Assessment for the 2002 Fiscal Year
The appeal filed by the Office of the Solicitor General, acting on behalf of Milan Revenue Agency No. 1, against the decision, substantially favorable to the Company, handed down in 2009 by the Regional Tax Commission in connection with a corporate income tax (IRPEG) and regional tax (IRAP) assessment for the 2002 fiscal year is still pending before the Court of Cassation. The incidental appeal filed by the Company against a (marginal) section of the decision, pursuant to which the assessment was not voided for the full amount (about 26,000 euros in taxable income), is also pending. No date has been set for a hearing in the appellate proceedings.
EDF Energia Italia Srl - Customs VAT Assessment for 2001, 2002 and 2003
By a decision handed down in November 2010, the Milan Regional Tax Commission denied the appeal filed by Edison Energia Spa, as the assign for EDF Energia Italia Srl, against an unfavorable decision handed down by the Milan Provincial Tax Commission in connection with an assessment for VAT owed for 2001, 2002 and 2003.
The Company intends to appeal this decision to the Court of Cassation, seeking a ruling upholding the lawfulness of the actions taken by EDF Energia Italia Srl, which it later absorbed. In any case, any charges that may be incurred as a result of the abovementioned assessment are covered by special contractual guarantees provided by EDF International Sa.
Edison Spa - Assessment of Registration Fees for 2008
In December 2010, the Milan Provincial Tax Commission hear the challenge filed by the Company in July 2010, against the payment notice for proportional registration, mortgage and cadastral fees totaling about 11 million euros issued due to the reclassification as a sale of “a business entity” of the conveyance, in February 2008, of certain business operations comprised of five thermoelectric power plants to Co Energy Power Srl and the subsequent sale of the beneficiary company, which is still in existence, to Cofathec Spa (now Cofely Italia Spa) - GdF Suez Group. A decision by the Tax Commission has not yet been filed.
The Company believes that this reclassification is totally illegitimate and devoid of merit and looks forward to a successful outcome of this dispute, with full acknowledgment of the legality of its actions. However, having been unable to obtain a stay of the payment obligation within the requisite deadline and in order to avoid serious negative consequences, it paid the requested amount while the proceedings are pending, subject to restitution once a decision in its favor is handed down.
Edison Spa and Edison Trading Spa - General Audit by the Revenue Police
On September 9, 2010, the Revenue Police (Milan Tax Police Unit - Fist Revenue Assurance Group - Fourth Complex Audits Section) launched a tax audit of Edison Spa concerning income taxes, regional taxes (IRAP) and VAT for the tax years from 2005 to 2010 (up to the starting date of the audit). No specific issues have been raised thus far and no notices of assessment have been notified.
On the same date, the Revenue Police (Milan Tax Police Unit - Fist Revenue Assurance Group – Fourth Complex Audits Section) launched a tax audit of Edison Trading Spa concerning income taxes, regional taxes (IRAP) and VAT for the tax years from 2006 to 2010 (up to the starting date of the audit). The audit is currently on hold, waiting for the audit of Edison Spa to be completed.
Edison Trading Spa - IRES, IRAP and VAT Assessments for the 2005 Tax Year
In December 2010, Edison Trading Spa was served with a notice of assessment and a payment notice concerning corporate income taxes (IRES), regional taxes (IRAP) and VAT for the 2005 tax year, issued following a general audit for the same year performed in 2008 by the Milan Revenue Agency. These notices, which the Company challenged in the appropriate venues, reproduce verbatim the finding of the audit report produced at the end of the audit.
In 2008, in light of the findings of the audit report, the Company deemed it prudent to recognize a provision of about 4.2 million euros, increased each year for the accrued statutory interest, for the contingent risk of increased taxes, penalties and interest related to some of the audit’s findings.
After reviewing the abovementioned notices, the Company does not believe that it should increase the existing provision or recognize an additional provision for the VAT audit findings concerning green certificates for electric power belonging to Edison Trading Spa that was produced pursuant to a Tolling Contract with Edipower Spa (the Tollee). The Revenue Agency’s position is that the delivery of green certificates to Edipower Spa for the purpose complying with its “green” obligations constitutes a sale of the certificates within the framework of a swap transaction and, consequently, it is demanding payment of additional VAT totaling 3.8 million euros, in addition to levying the applicable penalties.
Further to a more in-depth analysis of this issue, carried out together with the other Tollers, the Company believes that the Agency’s position is devoid of merit and is illegitimate. Consequently, it filed an appeal in February 2011, asking that the assessment for additional taxes and incidental expenses be voided. It is worth mentioning that, because Edison Trading Spa is included in the consolidated corporate income tax (IRES) return filed by Edison Spa, any payment of additional IRES owed for 2005 will affect the consolidating company, which will be required to make the corresponding payment and rebill this charge to the consolidated company.
Edipower Spa - Assessment for VAT Due on Green Certificates for 2004
In February 2010, Edipower filed an appeal challenging the notice of assessment for VAT penalties for 2004, asking the Tax Commission of venue to void in full the assessment. The Revenue Agency has joined these proceedings. No notice setting date for a hearing has been issued thus far.
Edipower Spa - Assessment for VAT Due on Green Certificates for 2005
In December 2010, the Revenue Agency served Edipower with a new assessment for VAT penalties for 2005 amounting to 4.5 million euros on the same grounds as for the penalties levied for 2004. Edipower challenged this assessment.
Edipower Spa - Assessment for VAT on Excise Taxes for 2004
In February 2010, Edipower filed an application asking that the assessment be automatically voided by virtue of its lack of merit and, subsequently, applied for a negotiation settlement. The Revenue Agency scheduled a meeting with Edipower for April 2, 2010 to begin the process of seeking a negotiated settlement and hear Edipower’s defense. Subsequently, the Revenue Agency reaffirmed its interpretation, refusing, for the time being, to void the assessment. In May 2010, Edipower filed an appeal challenging the assessment and asking the Tax Commission of venue to void it in full. The Revenue Agency has joined these proceedings. No notice setting date for a hearing has been issued thus far.
Edipower Spa - Assessment for VAT on Excise Taxes for 2005 and IRES-IRAP for 2005
In December 2010, the Revenue Agency served Edipower with a notice of assessment for VAT due on excise taxes for 2005 (an issue with regard to which a notice of assessment was already issued for 2004) and for the recovery of corporate income taxes (IRES) and regional taxes (IRAP) for 2005. The amount demanded for taxes and penalties totals 3.5 million euros. Edipower challenged this assessment.