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33 Provisions for risks and charges

 
  31-Dec-11 AllocationsUses and other movements Changes in scope
of consolidation
30-Jun-12
  AllocationsFinancial charges   
Provision for landfill closure and post-closure costs96,6381,4252,789(2,406) 98,446
Provision for restoration of third party assets94,651 3,7531,991 -     100,395
Provision for staff disputes and legal costs19,934 1,836 -   (1,569)   20,201
Other provisions for risks and charges15,8325,597 -   (4,610)   16,819
Total227,05512,6114,780(8,585)  235,861

The provision for landfill closure and post-closure costs, equal to EUR 98,446 thousand, represents the amount set aside to cover the costs which will have to be incurred for the management of the closure and post-closure period pertaining to the landfills currently in use. The future outlays, calculated for each landfill by means of a specific appraisal, have been discounted back in compliance with the provisions of IAS 37. The increases in the provision comprise the financial component inferred from the discounting back procedure, while the uses represent the effective outlays which came about during the year.
"Uses and other movements" decreased by EUR 2,406 thousand, as follows:

  • "uses" for EUR 4,482 thousand, of which EUR 1,468 thousand booked as a contra entry to "other revenues" (please refer to note 5 of the income statement),
  • "other movements", up by EUR 2,076 thousand for the provision, are attributable to estimates of closure and post-closure costs pertaining to newly built landfills, which involved an adjustment of equal amount to the value of Tangible assets (Note 15).

 

The provision for the restoration of third party assets, equal to EUR 100,395 thousand, includes the provisions made in relation to the legal and contractual restrictions encumbering Hera Spa and Group companies in their capacity as leaseholders of the distribution networks owned by the asset companies. The allocations are made on the basis of economic-technical amortisation rates held to be representative of the residual possibility of use of the assets in question in order to compensate the lessor companies for the wear and tear of the assets used for business activities. Pursuant to IAS 37, the provision reflects the current value of these outlays which will be determined in future periods (usually on expiry of the agreements entered into with the area agencies, as far as the water service is concerned, and on expiry of the transitory period anticipated by current legislation as far as gas distribution is concerned). The increases in the provision comprise the sum total of the provisions for the period, including those discounted back, and the financial charges which reflect the element deriving from the discounting back of the flows on an accruals basis.

The provision for staff disputes and legal costs amounting to EUR 20,201 thousand reflects the assessments of the outcome of lawsuits and disputes brought by employees. The provision includes EUR 8.5 million relating to ongoing litigation with the INPS over the payment of contributions on social security benefits (CIG, CIGS, Mobility) and on the reduction of contribution rates for family allowances (CUAF) and for the maternity contribution with regard to employees governed by the electricity sector collective labour agreement in the Modena area.

In relation to the contributions on CIG, CIGS and mobility, the Hera Group deems that said contribution is not due, not only based on legal rules but also on the fundamental consideration that these social shock absorbers are effectively unusable since the Hera Group runs essential services, which must be constantly insured. By contrast, INPS believes that the transformation into a joint-stock company and the transfer to private parties of even just a portion of the share capital, support the belief that the contributory obligation is enforceable.
With its message no. 18089 of 10 July 2007, INPS ordered that, according to the principles stated in circular no. 63/2005, the contribution obligation for CIG, CIGS and mobility was to go into effect on the very date the circular was issued, i.e. May 2005. This is in compliance with the Council of State opinion expressed (opinion no. 65 of 8 February 2006 referring to Enel Spa) regarding the non-retroactivity of the contribution obligations referred to in the circular. In fact, although in its literal sense the communication seems also to apply to companies owned by public bodies (former municipal companies), the INPS, referring to circular 63/2005, maintains that it applies only to Enel SpA, and is also arguing this in court. On 5 February 2008, the Employment Ministry intervened with a message addressed to the INPS General Management. It stated that the conclusions the Council of State reached regarding the non-retroactivity prior to May 2005 of the contribution obligation for CIG, CIGS and Mobility by necessity are general and unequivocal in order to protect the unavoidable principle of "par condicio" amongst market operators. Therefore, they also apply to the industrial companies of the public institutions (which the Hera Group also is part of).
Following a declaratory action brought in 2000 by Amir Spa, Hera Spa submitted an appeal to the Supreme Court. This appeal was concluded with ruling 14847/09 rejecting the CIG contributions. The Supreme Court could, however, review the opinion, also following appeals we filed against other negative second instance rulings. At the very least, it should confirm the waiver of contributions to the redundancy fund (CIG) for periods prior to May 2005, according to the specific opinion of the Council of State, also confirmed by some rulings awarded in the first instance at the Courts of Modena and Ferrara.
In addition, it should also be noted that the INPS shall not file any new claims regarding CIG, CIGS, or Mobility following the new classification in the Service sector, from 2010, of nearly all the Group companies (the contribution in question shall only apply to the Industrial sector).

Regarding the contribution for family allowances (Cuaf) and the maternity contribution, this type of litigation only concerns the INPDAP personnel regulated by the electricity sector collective labour agreement, and is based on the interpretation of Article 41 of Law no. 488/1999 (Finance Act 2000). In particular, this contribution relates to the area of Modena only, as it results from the former Meta Spa. Following a comparison made at the time with the Modena INPS Positions Management Office, the former Meta Spa applied reduced rates starting in 2001, at the same requesting reimbursement of the greater contributions it had paid in, but which were not due, for the financial year 2000 (reimbursement which was actually made between 2001 and 2002). As from November 2003, however, INPS served notices requesting payment of the contributions at the full rate, completely amending the interpretative position previously adopted, deeming that the reduction of the CUAF and maternity rates owed by the electricity sector was not applicable for the workers enrolled with INPDAP.

Meanwhile, this reduction was applied without objection in the case of the Enel Spa Group companies. The CUAF and maternity contribution differential that service companies have to pay for personnel registered with INPDAP until 31/12/2008 is equivalent to a total of 4.29% more than what has to be paid for INPS personnel; from 1/1/2009, with the equalisation of the maternity rate, the CUAF differential of 3.72% continues to exist, however.
This higher rate penalises the "former municipal enterprises" severely by comparison with other market operators. Confservizi has brought this failed contribution harmonisation consequent to Law no. 335/1995 to the attention of the Employment Ministry several times, which in turn has consulted the Council of State. The Council deemed a special legislative initiative necessary (circular no. 88 of 31 May 2004), which rules out the possibility of an administrative solution. In spite of Confservizi's efforts to push through this legislative initiative, as of today no result is yet to be seen.

Finally, a note on the evolution of the regulatory framework for unemployment and sickness contributions. Art. 20 of Decree Law no. 112/2008 has forfeited any past INPS claims relating to Unemployment and Sickness contribution. As regards Sickness, the aforementioned regulation no longer allows INPS to ask for the payment of contributions for the periods before 2005; starting from 2005, the Hera Group is paying the related contributions. As regards unemployment contributions, made compulsory for all sectors starting from 1 January 2009, the previous periods are still marginally subject to a dispute for only one territory.

In view of the information reported above, and particularly the uncertainty of the outcome of the CIG, CIGS and Mobility cases, an allocation of EUR 8.5 million was made for liabilities deriving from filings received up until the present day and still suspended, amounting to approximately EUR 17.4 million. This amount refers to the contributions contained in the filings by way of CIG, CIGS Mobility, CUAF and Maternity, excluding however the portion of contributions on Unemployment and Sickness for the above reasons. This provision is deemed to be appropriate, in view of both the likely development of the litigation and the opinions of the appointed legal advisors.

Item other provisions for risks and charges, amounting to EUR 16,819 thousand, comprises provisions made against sundry risks. The main items are summarised below:

  • EUR 2,990 thousand, related to possible non-contract charges for environmental issues for sites located in some municipalities. As regards environmental issues, it should be noted that order no. 252 of 20 May 2010 of the Supreme Court sanctioned the fiscal nature of said expenses. Therefore, having also consulted its legal advisors, the Group believes there are no longer any legal or substantive obligations to pay said amounts to the municipalities of Modena and Forlė. The allocation made therefore represents the best estimate of the amount the Group could be required to pay, only in the case where a dispute develops with counterparties and a settlement reached.
  • EUR 2,042 thousand in spending on restoration of goods reverting freely, relating to the water supply system of the river Rosola, held under concession and other provisions for risks of very modest amounts connected with environmental problems;
  • EUR 1,604 thousand, relating to the provision set up to cover losses actually recorded, taking account of the future prospects of Oikothen Scral;
  • EUR 1,218 thousand, charges for electrical service continuity;
  • EUR 1,106 thousand relates to the provision made in relation to the possible effects of Italian Authority for Electricity and Gas resolution no. 89/08 (ec79/07), which creates an obligation on the part of companies selling gas, of a financial payout to final customers under OTB (base tariff option) for the period referred to in the first half of 2006. The residual amount, as at 30 June 2012, corresponds to the most prudent scenario expected in relation to the amount that might be paid to end customers;
  • EUR 989 thousand, provision for the cost of disposal of waste stored at Group plants;
  • EUR 989 thousand in allocations for future expenses relating to the construction of a landfill of a subsidiary;
  • EUR 422 thousand relates to the provision known as "Valle Savio", established to address the works for the community adjacent to the Busca landfill, in the municipality of Cesena, as set out by the concession contract;
  • EUR 313 thousand related to possible charges for ICI tax, resulting from possible changes in debenture attributed to some environmental plants;
  • EUR 248 thousand relate to the estimate of potential charges for environmental issues to be paid for waste coming from locations outside the region and disposed of in the Landfill of Ostellato;
  • EUR 75 thousand relates to the provisions made in relation to customer compensation for water service leaks.
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