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32 Provisions for risks and charges

 
 31-Dec-08ProvisionsUses and other MovementsChanges in the scope of consolidation31-Dec-09
  ProvisionsFinancial charges   
Provision for the restoration of third-party assets80,47611,2867,514-29,371 69,905
Landfill closure and post-closure cost provision79,2664,6455,675-4229 85,357
Provision for staff disputes and legal costs14,8562,4430-876 16,423
Other provisions for risks and charges19,1916,7330-11,59018114,515
Total193,78925,10713,189-46,066181186,200

The provision for the restoration of third-party assets equal to Euro 69,905 thousand includes the provisions made in relation to the legal and contractual restrictions encumbering the parent company and the subsidiaries Marche Multiservizi Spa and Herambiente Srl, in their capacity as leaseholders of the distribution networks owned by the asset companies. These provisions have been made on the basis of the normal depreciation rates envisaged for the assets in question; rates established contractually for the purpose of compensating the lessor companies for the wear and tear of the assets used for the business activities, applied to the value of the assets received under lease.
In observance of the matters laid down by IAS 37, the provision reflects the current value of these outlays which will be determined in future periods (as a rule 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 significant decrease seen during the year is attributable to the termination, with effect from 1 July 2009, of existing leases with the asset companies Con.Ami and Areas Asset Spa. This termination was in preparation for the transfer of assets by the same companies as part of the share capital increase transaction mentioned in the introduction.

The landfill closure and post-closure cost provision, equal to Euro 85,357 thousand, represents the amount set aside by the Group 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 4,229 thousand, consisting of Euro 7,045 thousand related to the use of the provision for closed landfills, of which Euro 2,366 thousand was recorded with a balancing entry among "other revenues" (please refer to Note 5 of the income statement), in relation to internal costs primarily for labour and resources use. Finally, we note an increase of Euro 2,816 thousand in the provision, mainly due to a new landfill acquired by a subsidiary of the Group.

The provision for staff disputes and legal costs amounting to Euro 16,423 thousand reflects the assessments of the outcome of lawsuits and disputes brought by employees.
The provisions also include Euro 6,062 thousand relating to the dispute pending with INPS with regard to the demand for 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. Afterwards, 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 is exempt from the CIG and GIGS contribution payment was confirmed in 2004 by order of the Court of Genoa, but 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 not due, unlike what INPS claimed.
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.

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 488/1999 (Finance Act 2000). In particular, this litigation only applies to the territory of Modena, deriving 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 the notices by means of which it requested the payments 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 contribution differential for Cuaf and Maternity that service companies have to pay for personnel registered with INPDAP is equivalent to a total of 4.29% more than what has to be paid for INPS personnel.
This higher rate is a serious penalisation for the "former municipal enterprises" with respect to 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.

Finally, a note on the evolution of the regulatory framework for Unemployment and Sickness contributions. Law Decree 112/2008 - art. 20 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, a prudential allocation of Euro 6,062 thousand 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 20.90 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 14,515 thousand, comprises provisions made against sundry risks. The main items are summarised below:

  • Euro 1,697 thousand relates to the MIS quota, charges for electrical service continuity and equalization;
  • Euro 2,104 thousand relates to expenses of restoration of freely transferable assets of the Rosola river aqueduct system under concession;
  • Euro 2,546 thousand relates to the provision made in relation to customer compensation for water service leaks;
  • Euro 1,623 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 required by the concession contract;
  • Euro 1,719 thousand relates to the provision for the cost of disposal of waste stored at some Group plants;
  • 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 (previously 79/07), 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 same companies have been accorded a part of these expenses from merchants wholesalers, as well as re-negotiated with shippers about the existing conditions of raw material supply. The amount outstanding as at 31 December 2009 corresponds to the more prudent scenario in relation to that which may be granted to the end customers. The decrease over the previous period (Euro 2,600 thousand) is due to adjustments granted to existing customers.
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