Risk areas


Ente Acque Umbre Toscane (Imprepar)

On December 29, 2010, the Group was informed that part of the sill above the surface discharge of the Montedoglio Dam, in the Province of Arezzo, had been damaged. In January 2011, the Umbria-Tuscany Irrigation Authority (now Ente Acque Umbre Toscane) informed Imprepar that "investigations and tests are being carried out to ascertain the reasons and responsibilities for the damage". As the transferee of the "sundry activities" business unit, which includes the "Montedoglio dam" contract, Imprepar informed the body that the activities related to the damaged works were carried out by another company in 1979 and 1980, from which Impregilo (then COGEFAR) only took over the contract in 1984. In addition, the structure in question had been tested and inspected in the past with positive results. In its response to the Ente Acque Umbre Toscane, Imprepar specifically explained why it was not liable for any damages caused by the event and, comforted by the opinion of counsel, believes that, at this point, there are no reason to amend the relevant assessments.

During 2012, the management of the Ente Acque Umbre Toscane and the Project Manager signed a service order requesting the contractor to immediately prepare executive designs and commence the related work at its own expense and under its own responsibility. Imprepar challenged these actions in their entirety, even though the amounts involved were not material.

As part of a Prior Technical Assessment resulting from a third-party complaint claiming damages of a minor amount (around €80,000), the judge ordered a technical appraisal by a court-appointed expert to determine the causes of the subsidence of the dam.

Imprepar, with the aid of its legal advisors, is defending the correctness of its conduct in all the competent forums.

Strait of Messina bridge and roadway and railway connectors on the Calabria and Sicily sides

In March 2006, Impregilo, in its capacity as Lead Contractor and general partner (with a 45% interest) of the Temporary Business Association established for this specific purpose, executed with Stretto di Messina S.p.A. a contract to entrust to the general contractor the final and executive design for the construction of a bridge on the Strait of Messina, with the related roadway and railway connectors.

In addition, a pool of banks signed the financial documents required by the General Specifications, after the Association won the tender, for the supply of credit lines totaling €250 million earmarked for the services subject of the awarded project. In addition, as contractually stipulated, the client was also given performance bonds of €239 million. A reduction of the credit line to €20 million was approved in 2010.

In September 2009, Stretto di Messina S.p.A. and Eurolink S.c.p.A. executed a rider that took into account the suspension of project activities from the time when the contract was signed until that date. As provided for by the rider, the project’s final design was also delivered to the client. On July 29, 2011, the Board of Directors of Stretto di Messina S.p.A. approved the final design.

Decree Law 187 was issued on 2 November 2012 providing for "Urgent measures for the renegotiation of the contracts with Stretto di Messina S.p.A. (the client) and for local public transport". Further to the enactment of this decree and in light of the potential implications for the contractual position of the Eurolink General Contractor, of which Salini Impregilo is the leader, Eurolink decided to send to the client, pursuant to the contractual provisions in effect, a notice of its intention to withdraw from the contract also to protect the positions of all Italian and foreign partners in the Association. Nevertheless, given the preeminent interest in constructing the project, the General Contractor also communicated its willingness to review its position, should the client demonstrate a real commitment to pursuing the project. Despite the efforts made, the negotiations carried out by the parties were unsuccessful. Eurolink commenced various legal proceedings in Italy and at the EU level, on the one hand, arguing that the provisions of the above-mentioned decree are unconstitutional and contrary to EU laws and thus injurious to Eurolink’s legally acquired rights under the contract and, on the other hand, asking that Stretto di Messina be ordered to pay the amounts claimed, under various titles by the General Contractor due to the termination of the contract for reasons for which it was not responsible. With regard to the actions filed at the EU level, it is worth mentioning that, in November 2013, the European Commission communicated its decision to suspend the lawsuit, as no treaties were violated, and confirmed it on January 7, 2014, with a communication dismissing the lawsuit. As regards the civil action in Italy, Salini Impregilo S.p.A. and all the members of Eurolink have jointly and severally asked that Stretto di Messina be ordered to pay the amounts claimed, under various titles, due to the termination of the contract for reasons for which it was not responsible. Consistent with the developments described above, the order backlog of the Salini Impregilo Group at the end of 2012 was restated to reflect the elimination of the above-mentioned project. Considering the complex nature of the various legal proceedings and although the legal advisors assisting Salini Impregilo and the general contractor are reasonably confident about the outcome of the proceedings and the recoverability of the remaining assets recognized for this contract, it cannot be excluded that events not currently foreseeable may arise in the future which would require the current assessments to be revised.


Impregilo Lidco Libya General Contracting Company (Libya)

Salini Impregilo S.p.A. is present in Libya through a permanent establishment and a subsidiary, Impregilo Lidco Libya General Contracting Company (Impregilo Lidco), active in Libya since 2009 and owned 60% by Salini Impregilo and 40% by a local partner.

The permanent establishment’s contracts are described in the paragraphs, “Libya – Koufra Airport” and “Libya – Other Contracts” of the Directors’ Report. No significant risks are believed to exist in relation to these contracts as activities have yet to begin, except at Koufra Airport. Even so, for this contract the total exposure is not material, having received a contractual advance in July 2013. Lastly, the Group is part of the “Libyan Coastal Highway” project, which at the date of this Annual Report has not yet been started.

With reference to Impregilo Lidco, it is noted that the subsidiary won important contract for the construction of:

  • Infrastructural projects in Tripoli and Misuratah;
  • University campuses in Misuratah, Tarhunah and Zliten;
  • Tripoli’s new "Conference Hall".

With regard to the political upheaval in Libya from the end of February 2011 to the date of this Report, it is worth mentioning that the subsidiary was always able to operate in accordance with contractual terms and that the investments made up until the deterioration of the country’s political situation were fully covered by contractually stipulated advances.

In addition, the projects subject of the contracts executed by the Libyan subsidiary represent projects of national interest with regard to which, at the moment, it would not seem reasonable to presume that they would be abandoned by the client. It is also clear that the subsidiary will face significant challenges in developing the projects in accordance with the schedule planned before the crisis erupted. Accordingly, Salini Impregilo does not expect significant new growth in the production activities of its subsidiary Impregilo Lidco in the near future.

The procedures necessary to restart industrial activities started in 2012 were halted due to the resurgence of conflict in the latter part 2014. In 2012, more precise information became available once again about the balance sheet and income statement items that impact the consolidated financial statements of the Group. Consequently, in the consolidated statement of financial position, income statement and statement of cash flows of the Impregilo Group at December 31, 2012 the asset, liability and income statement items attributable to the Libyan subsidiary were restated in accordance with Group principles, based on the evidence developed during the period and the support of assessments provided by the independent counsel that is assisting the subsidiary. Compared with the situation reported in Impregilo’s 2011 consolidated financial statements, which reflected the latest available information at March 31, 2011, the value adjustments made to reflect the gradual impairment losses suffered by the subsidiary’s net assets as a result of the events described above were estimated as constituting charges totaling €47.9 million. These charges were included in contract work in progress, as the Group deems them recoverable, considering that relationships with the clients have been reinstated. Net cash and cash equivalents held in Libya decreased by roughly €15.2 million due to costs incurred locally in the period from March 31, 2011, to December 31, 2014.

In addition, early in 2013, a physical inventory was taken of plant, machinery and supplies at the main worksites, with a total carrying amount of €29.9 million, but not all inventory sites could be accessed for security reasons. Taking also into account the fact that costs that may arise following completion of the inventory taking procedures would be covered by clients, consistent with force-majeure contract terms, as determined by the counsel that is assisting the subsidiary, no significant risks are deemed to exist in this context with regard to the recovery of the net assets attributable to the subsidiary, thanks in part to actions and claims filed with the clients contractually or otherwise.

Currently, also in view of the recent unrest in various areas of the country during the period under review, the social and political situation in the country remains extremely complex and marked by critical conditions. In spite of this, an important agreement was reached with the client during the first months of 2014. Under this agreement, the parties expressed their willingness to resume industrial activities as soon as security measures could be implemented, while at the same time fully maintaining the claims for damages filed by the subsidiary as a result of force majeure, provided for under contract and based on which the activities were suspended.

Lastly, Salini Impregilo continues to monitor the country’s situation very closely and it cannot be ruled out that, after the reporting date of this Annual Report, events may occur that are unforeseeable at present and liable of resulting in changes to the assessments made to date.

Tax dispute – Iceland

In connection with the contract for the construction of a hydroelectric power plant in Karanjukar (Iceland), which the Group successfully completed in previous years, please keep in mind that, in 2004, a dispute arose with the local tax authorities with regard to the party required to act as the withholding agent for the compensation of foreign temporary workers employed at the worksite. Salini Impregilo (then Impregilo) was initially wrongly held liable for the payment of the withholdings on this remuneration, which it therefore paid. Subsequent to the final ruling in the proceedings activated in this dispute before the local lower court, the Company obtained full satisfaction of its claims. Nevertheless, the local authorities filed a new lawsuit with a similar scope and, based on a decision handed down by the Icelandic Supreme Court in February 2010, which blatantly contradicted the previous decision issued in 2006 on the same matter by the same judicial authority, rejected the claims filed by the Company, which expected to be reimbursed the unduly paid withholdings totaling €6.9 million (at the original exchange rate). Following the latest ruling, the Company pursued all available judicial avenues, both at the international level (appeal filed with the EFTA Surveillance Authority on June 22, 2010) and, as far as possible, again at local level (new reimbursement claim filed with the local tax authorities on June 23, 2010), in the belief, comforted by the opinion of counsel, that the decision previously handed down by the Icelandic Supreme Court was incorrect in respect of local legislation, the international agreements that govern trade relations between EFTA countries and international conventions that prohibit the adoption of discriminatory treatments for foreign entities (both individuals and companies) working in signatory countries. On February 8, 2012, the EFTA Surveillance Authority sent the Icelandic government a communication notifying an infraction regarding the free exchange of services and requesting the government to provide its response. In April 2013, at the conclusion of this process, the EFTA Surveillance Authority issued its reasoned opinion finding the provisions of the Icelandic legislation applied to the dispute in question to be inconsistent with the regulations governing trade relations between member countries and asking that Iceland take action consistent with this position; As a result the Company formally requested the re-opening of the case. In view of the above, Impregilo does not believe that objective reasons currently exist to change the valuations made about this dispute.

Panama Canal extension project

With regard to this project, certain critical issues have arisen during the first stage of full-scale production which, due to their specific characteristics and the materiality of the work to which they relate, have made it necessary to significantly revise downwards the estimates on which the early phases of the project had been based. The most critical issues relate, inter alia, to the geological characteristics of the excavation areas, specifically with respect to the raw materials necessary to produce the concrete and the processing of such raw materials during normal production activities. Additional problems arose due to the adoption by the client of operational and management procedures substantially different from those contractually stipulated, specifically with regard to the processes for the approval of technical and design solutions suggested by the contractor. These situations, which were the subject of specific disclosures in previous financial documents published by the Group, continued in 2013. Faced with the client’s persisting unwillingness to reasonably implement the appropriate tools available pursuant to the contract to manage such disputes, the contractor, and thus the original contractor partners, was forced to acknowledge the resulting impossibility to continue at the contractor’s full and exclusive risk the construction activities needed to complete the project, with assumption of the full financial burden required for this purpose without any guarantee of the resumption of objective negotiations with the counterparty. In this context, at the end of 2013, formal notice was sent to the client to inform him of the intention to immediately suspend work if the client refused once again to address this dispute in accordance with a contractual approach based on good faith and the willingness of all parties to reach a reasonable agreement.

Negotiations between the parties, supported by the respective consultants and legal/contract experts, were carried out through February 2014 and, on March 13, 2014, the minutes of an agreement were signed. The key elements of the agreement include, in exchange for the contractor’s commitment to resume work activities and complete them by December 31, 2015, a commitment on the part of the client and the contractor companies to provide the funding for the portions of the project not yet completed, for a maximum amount of about $1.4 billion. This commitment will be honored by the client through (i) a moratorium on the refunding of already disbursed contractual advances totaling about $800 million and (ii) the disbursement of additional advances amounting to $100 million, while the group of contractor companies will contribute (i) a direct contribution of their own financial resources in the amount of $100 million and (ii) a contribution of additional financial resources, through the conversion into cash of existing contractual guarantees totaling $400 million. The reimbursement of the amounts stipulated to finance the work to be performed was postponed, so as to make it compatible with the expected outcome of the arbitration proceedings, launched concurrently to determine the responsibilities of the parties for the extra-costs already incurred and to be incurred due to the situation described above. In this regard, already in previous years, the Group had applied a reasonably prudent valuation approach to the project, which was clearly supported by its legal advisors, on the basis of which significant end-of-project losses were recognized, mitigated in part by the corresponding recognition of the additional consideration claimed from the client and determined based on the expectation that recognition of such consideration could be deemed to be reasonably certain. Bearing in mind that at the end of the previous year, the generally problematic situation existing at that time, far from being resolved, was continuing, as described, while the agreements mentioned above were being finalized, an overall update was performed of the contract’s full-life economic projections. At the end of 2014, the Dispute Adjudication Board (DAB) established by the parties for the project awarded GUPC compensation in the amount of US$234 million, which was paid in the early months of 2015.

In this context, also with the support of the Group’s legal advisors in handling the complex litigation procedures initiated, no specific and new conditions arose that required changes be made to past valuations.

Under the new IFRS 10 and 11, in these financial statements the company that performs the activities relating to this project is measured at equity.


The Salini Impregilo Group has been active in Venezuela through a stable organization that, directly or in association with international partners, carried out several railway and hydroelectric projects, with a presence in the local territory consolidated in the Country over a span of more than 30 years.

In recent years, relationships with clients, all government entities, were generally characterized by delays in payments. This problem became more pronounced this past year

due to a change in the country’s government leadership, at the beginning of 2013, and the resulting heightened social tensions that accompanied this political transition.

In response to the virtual suspension of activity by clients in this context, the Group suffered a significant slowdown in production activities.

With regard to the railway works, particularly for the P.Cabello-La Encrucijada project, two agreements have been drawn up, one in March and the other in May 2013, (called "Puntos de Cuenta") both signed by the Chairman of IFE (the client) and ratified by the President of the Republic, which provided for the progressive payment of 85% of the receivable accumulated in Bolivares and 47% of the receivable in Euro, accumulated at September 2013. To date, 94% the proceeds due in local currency have been received and 34.6% for the Euro receivable (with reference to the percentages above).

In this context, an Addendum to the contract for the Puerto Cabello – La Enrcuijada line and related to electromechanical works was signed at the end of the first half of 2014.

As for hydroelectric projects, built through the OIV Tocoma consortium, in view of the expiration of the contractual deadline for completing the project, scheduled for mid-November 2013, at the customer’s request, a new schedule was developed for the work remaining to complete the project, with work scheduled to resume at the beginning of November 2014 and be completed by the end of 2017. This proposal was agreed by the Customer who, also in light of legitimate requests for payment of the certified debt and the identification of the future financial resources needed to ensure the normal performance of the remaining work, proceeded to the recovery of payments in favor of the consortium and the signing of a new addendum to the contract under which the work to be completed and the related outlays have been rescheduled.

An addendum is currently being negotiated with the Customer, which will set out the claim for the contractual extension of the works and form of payment for these works and for the work to be completed.

The projects that are being developed by the Salini Impregilo Group are priority infrastructures of the utmost importance, both in economic-industrial and social terms. With this in mind and based on a constant and careful monitoring of the situation in the country, carried out together with its partners and through meetings with clients and local government authorities with the aim of defending and protecting the positions of the Salini Impregilo Group, there appears to be no particular problems at this stage with regard to the realizable value of the Group’s net assets, except for the lengthening of collection time, which was duly taken into account in the measurements performed for financial statement purposes and for the issues relating to the new exchange rates adopted for the translation of the net financial assets expressed in local currency, as reflected in the full-life projections of projects under construction.

In view of the delicate and complex situation that developed at the political level, the possibility that events not foreseeable at the date of preparation of this Annual Report may arise in the future requiring an update of the existing measurements cannot be excluded.

Metro Santiago - Chile

The project for the construction of two sections of line 6 of the Santiago Metro was acquired in 2013 by the Salini Impregilo Group, through its subsidiary Empresa Constructora Metro

6 Limitada, worth (in local currency) 3.3 million Unidad de Fomento (equivalent to €122 million). During the implementation of the project, a series of events interfered with the work, such as unexpected geological conditions that were very different from those reported by the client, project engineering changes, archaeological finds and the prohibition of the client to work at night despite the fact that it would not exceed the maximum permitted noise levels.

These factors caused delays in the execution times which were partially recognized by the Operations Management Team, but never formalized by the Client. The client, on its own initiative and on the basis of a program different from the one agreed on, started imposing fines in November 2013. These fines were all challenged.

In addition to the above, relations with the client were characterized by complex situations that first led to five requests to extend the delivery date of the work and, in 2014, to the revision of its scope.

In view of this situation, Empresa Constructora Metro 6 Limitada, presented various claims to the client in July 2014, and requested an Extension of Time, with the request that they be assessed by the designated organization contemplated in the agreement.

In August 2014, the client refused the requests and submitted our claim directly to Arbitration at the Chamber of Commerce of Santiago, failing to respect the contractual agreements requiring prior consultation between the parties for the selection of the arbitrator.

The first hearing was scheduled for September 25, 2014, but the client asked to postpone it to October 6. In the meantime, on October 3, 2014, the client informed Empresa Constructora Metro 6 Limitada of the early termination of the contract based on grounds that are contested in full and are currently the subject of the aforementioned arbitration. It is noted that the client has the contractual right to terminate the contract with Empresa Constructora Metro 6 Limitada at any time, regardless of any breaches denied by it.

On the same date, the client presented a request to the Chilean banks, for the enforcement of the contract guarantees (local contract guarantees secured by European banks) for a total of 912,174 Unidad de Fomento (the equivalent of €28.9 million). These amounts also include the full enforcement of the guarantee for advance payment, despite the fact that 156,323 Unidad de Fomento (the equivalent of €5.1 million) had already been repaid to the client through the monthly certifications (a criminal suit to this effect has been brought in Chile).

The subsidiary responded to the client’s initiatives by requesting that the enforcement order regarding the guarantees be suspended and that the operational and contractual conditions be reinstated to those existing on October 2, 2014.

The Arbitrator did not find grounds for an urgent order to suspend enforcement of the guarantees and reserved final judgment, prolonging the suspension of the works.

Therefore, the amounts corresponding to the guarantees referred to above have been paid.

In view of the complexity of the existing situation, with regard to both the legal assessments and the relations with the client, the directors (supported by counsel) believe that the company’s operations were correct and that any further valuation of the risk other those already recognized in the valuations of the contract is not necessary. The Group cannot exclude that events may arise in the future which could require that changes be made to these assessments.

Ochre Solutions – United Kingdom

The associate Ochre Solutions – of which Impregilo International Infrastructures NV holds a 40% stake and owner of the concession contract for Oxford University Hospitals – received two warning notices this year, concerning the quality of services offered. Several parts of these notices are being disputed by the directors, despite the fact that the receipt of three notices within a six month period constitutes an event of default under the contractual agreements between the company and the grantor. An event of default would allow the grantor to terminate the concession contract, resulting in the transfer of all rights under the contract to the grantor against compensation as contractually determined.

Ochre Solutions maintains regular contact with the grantor and, together with its service providers, is taking all the necessary steps to restore the quality of the services to the agreed levels and to prevent the events that were cause for the above-mentioned notice from happening again. The grantor has been cooperative and the directors are confident that a solution to the problems during the period will be found, even if there is a degree of uncertainty regarding the corrective actions taken.

Additionally, the receipt of two notices is considered a potential event of default under the loan agreement for the concession, which could result in the lending bank taking action, which may include demanding payment of the amount due. Here too the directors are implementing the corrective measures required to prevent an event of default.

The directors of Ochre Solutions are engaged in ongoing dialog with the grantor and believe they will be able to reach an agreement to resolve the problems identified and improve business relations with the parties involved in managing the contract. As things currently stand, in view of the corrective measures recently taken, the directors believe that there are no other risks, besides those reported in relation to Ochre Solutions, that would jeopardize the restoration of the operating conditions required by the contract. Given the uncertainty of the results of the actions taken, it cannot be ruled out that events may occur in the future requiring changes to be made the existing assessments.