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32 Provisions for risks and charges

 
 31-Dec-2009ProvisionsUses and other movementsChanges in scope of consolidation31-Dec-2010
ProvisionsFinancial charges
Provision for the restoration of third-party assets69,9057,4234,495-491 81,332
Landfill closure and post-closure cost provision85,3577,6917,104-6,449                       1,325               95,028
Provision for staff disputes and legal costs16,4237,662 -3,374                20,711
Other provisions for risks and charges14,5157,910 -8,528                13,897
Total     186,20030,68611,599-18,8421,325210,968

The provision for the restoration of third party assets, equal to Euro 81,332 thousand, includes the provisions made in relation to the legal and contractual restrictions encumbering the 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 amortisation rates provided for 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 year, 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 landfill closure and post-closure costs provision, equal to Euro 95,028 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 Euro 6,449 thousand, as follows:

  • “uses” for Euro 13,036 thousand, of which Euro 6,502 thousand booked as a contra entry to “other revenues” (please refer to note 5 of the income statement),
  • “other movements”, relating to a Euro 7,623 thousand increase in the provision due to the change in the closure and post-closure costs estimated during the updating of the appraisals of certain plants;
  • “other movements”, of Euro 1,035 thousand relating to a decrease in the provision determined by the accurate allocation of the item “goodwill” to the value of the assets transferred in 2009 by the Comunit Montana Alto e Medio Metauro to Marche Multiservizi Spa, (composting plants and landfill).


The provision for staff disputes and legal costs amounting to Euro 20,711 thousand reflects the assessments of the outcome of lawsuits and disputes brought by employees. The provision includes Euro 8,071 thousand 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 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. Actually, despite the fact that the literal tone of the message seems to undoubtedly regard the industrial companies of the public institutions (former municipal enterprises) as well, INPS - in latching on to circular 63/2005 – maintained that the message takes on its area of application, thereby referring only to Enel Spa, and asserts 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).

The Group claim, that it was not obliged to pay CIG and CIGS contributions, was accepted in 2004 by order of the Court of Genoa, but was later overturned by the court of appeal in November 2005. In December 2006 the Ravenna Employment Tribunal upheld two petitions for Hera Ravenna Srl and Hera Spa and declared the contributions for involuntary unemployment, CIG, CIGS and Mobility to be not due, unlike what INPS claimed. This ruling was also overturned on appeal, but at the current state of play, the grounds are still not known. Hera will appeal the ruling before the Supreme Court.

Following a declaratory action brought in 2000 by Amir Spa, Hera Spa submitted an appeal to the Supreme Court, which was concluded with ruling 14847/09 rejecting the appeal for CIG contributions, and referring the case to the court of appeal for Mobility contribution. However, an additional proceeding is pending in the Supreme Court, unrelated to the Hera Group, from the Court of Appeal of Genoa. The Supreme Court may therefore review the position, with effects also on first instance proceedings. At the very least, it should confirm the waiver of contributions to the redundancy fund (CIG) prior to May 2005, according to the specific opinion of the State Council.

Despite this, in the last few months of 2010, some first instance rulings were handed down, rejecting the company’s claims in relation to CIG, CIGS and Mobility contributions. The rulings will be appealed. This situation led to the provision being supplemented with an additional Euro 3.7 million, taking into account the size of the CIG, CIGS and Mobility contributions with a judgment still pending.

In addition, it should also be noted that the INPS shall not file any new claims regarding CIG, CIGS and 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 488/1999 (2000 Finance Act). In particular, this contribution relates to the area of Modena only, as it results from the former Meta Spa. Following consultation at the time with the Modena INPS Positions Management Office, the former Meta Spa applied reduced rates starting in 2001, at the same time it requested reimbursement of the greater contributions it had paid in, but which were not due, regarding financial year 2000 (reimbursement that then 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. With regard to the contribution for family allowances (CUAF) and for the maternity contribution, the CUAF and maternity contribution differential that service companies have to pay for personnel registered with INPDAP until 31 December 2008 is equivalent to a total of 4.29% more than what has to be paid for INPS personnel; from 1 July 2009, with the levelling 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 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. Also for this type of contribution, it appropriate to point out that INPS shall not file any new claims regarding CIG, CIGS or Mobility, following the new classification of almost all Group companies in the Service sector from 2010.

Finally, a note on the evolution of the regulatory framework for unemployment and sickness contributions. Art. 20 of Law Decree 112/2008 has forfeited any past INPS claims relating to Unemployment and Sickness contribution. The portion of contributions contained in these filings for such purposes is no longer considered a risk. In addition, there may be no new INPS claims as all Hera Group companies have regularly paid the Sickness contribution since 2005 and the Unemployment contribution since 2009.

In view of the information reported above, an allocation of Euro 8 million was made to the aforementioned provision, which takes into account the filings already paid for and any liabilities deriving from the suspended filings currently received, amounting to approximately Euro 20.7 million. This amount refers to the contributions contained in the filings by way of CIG, CIGS Mobility, CUAF and Maternity, excluding however the portion by way of Unemployment and Sickness contributions for the above reasons. This fund is deemed to be appropriate, in view of both the likely development of the litigation and the opinions of the appointed legal advisors.


The provision for risks and charges, amounting to Euro 13,897 thousand, comprises provisions made against sundry risks. The main items are summarised below:

  • Euro 2,574 thousand for the “MIS quota, charges for electrical service continuity and equal distribution”;
  • Euro 2,158 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;
  • Euro 1,267 thousand relates to the provision made in relation to customer compensation for water service leaks;
  • Euro 376 thousand, relating to the "Valle Savio fund", established to address the works for the community adjacent to the Busca landfill, in the municipality of Cesena, as required by the concession contract;
  • Euro 1,044 thousand, provision for the cost of disposal of waste stored at Group plants;
  • Euro 1,392 thousand in allocations for future expenses relating to the landfill of a subsidiary;
  • Euro 2,212 thousand relates to the provision made in relation to the possible effects of Italian Authority for Electricity and Natural 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 31 December 2010, corresponds to the most prudential scenario in relation to the amount which may be paid to final customers.  


The provision for risks and charges, amounting to Euro 13,897 thousand, comprises provisions made against sundry risks. The main items are summarised below:

  • Euro 2,574 thousand for the “MIS quota, charges for electrical service continuity and equal distribution”;
  • Euro 2,158 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;
  • Euro 1,267 thousand relates to the provision made in relation to customer compensation for water service leaks;
  • Euro 376 thousand, relating to the "Valle Savio fund", established to address the works for the community adjacent to the Busca landfill, in the municipality of Cesena, as required by the concession contract;
  • Euro 1,044 thousand, provision for the cost of disposal of waste stored at Group plants;
  • Euro 1,392 thousand in allocations for future expenses relating to the landfill of a subsidiary;
  • Euro 2,212 thousand relates to the provision made in relation to the possible effects of Italian Authority for Electricity and Natural 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 31 December 2010, corresponds to the most prudential scenario in relation to the amount which may be paid to final customers.  
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