In addition to the areas outlined in the “Business risk management” section above, the following specific situations linked to major outstanding claims and country risk exposure at 30 June 2016, characterised by risk and/or uncertainty profiles, should be added to the universe of risk events that may potentially impact on operations.
Litigation
USW Campania projects
The Group became involved in the urban solid waste disposal projects in the Province of Naples and other provinces in Campania at the end of the 1990’s through its subsidiaries FIBE and FIBE Campania (the “companies”).
The main phases of the USW Campania projects were as follows:
(i) the “Contractual” phase, which started in the 2000-2001 period with the signing, by the two SPEs FIBE and FIBE Campania of the service contracts for the disposal of urban solid waste in the provinces of Campania and ended on 15 December 2005 with the “ope legis” termination of these contracts pursuant to Decree law no. 245/2005 (converted into Law no. 21 of 27 January 2006);
(ii) the “Transitional” phase which started upon conclusion of the Contractual phase and lasted until the enactment of Decree law no. 90 of 23 May 2008 and Decree law no. 107 of 17 June 2008, both converted into Law no. 123 of July 14, 2008. The latter measure officially marked, among other things, the Group’s exit from the waste disposal business, by transferring title to the RDF and storage facilities to the provincial administrations;
(iii) the “Current” phase launched at the end of the “Transition “phase, which is still underway.
The major issues that have characterised the Group’s activities in service contracts since 1999-2000, which have been discussed in detail and reviewed in all of the reports published by the Group starting from that time, have evolved and became more complex over the years, giving rise to a large range of disputes, some of which are major and in part still ongoing. Even given the positive developments, the general situation in terms of pending disputes is still very complex. A brief overview is provided below, especially in relation to existing risk positions.
Since FIBE Campania S.p.A. was merged into FIBE S.p.A. in 2009, unless otherwise stated, reference is made exclusively to FIBE in the rest of this section, even with regard to positions and events that affected the merged company.
Administrative litigation
Recovery of the amounts owed to FIBE by local administrations for waste disposal fees up to the contracts’ termination date
The special commissioner tasked by the Regional Administrative Court to collect receivables of former operators of the waste disposal service performed until 15 December 2005 submitted their report in November 2014, in which they stated that, despite an outstanding amount payable to FIBE as a fee for its service rendered until 15 December 2005, the administration had already collected directly €46,363,800, without forwarding it to FIBE, and that total outstanding receivables totalled €74,317,550.
The administration, apart from raising some objections, which were rejected by the Regional Administrative Court and related to calculation criteria and the offsetting of receivables (which, incidentally, were the subject of other rulings), lodged a motion, requesting that the appeal should be rejected on the grounds of expiry of the regulation - starting from 31 December 2009 - allowing performance of the activities that should have been carried out by the special commissioner. On 13 February 2015, the Regional Administrative Court and, subsequently, on 1 September 2015, the Council of State, rejected the appeal confirming that the Administration and, on its behalf, the commissioner appointed to replace it were still responsible for collecting receivables due to FIBE.
Following the resignation of the special commissioner and the subsequent appointment of the General Commander of the Italian Financial Police by the Regional Administrative Court as their replacement and as a result of the anticipated incompatibility raised by the latter, on 13 July 2015, the Regional Administrative Court appointed the Ministry of economy and finance’s (MEF) Chief of Staff, who, on 10 September 2015, appointed a manager of the aforementioned MEF as attorney. With notice of 16 November 2015, the new commissioner asked the Regional Administrative Court whether the duties assigned entailed, apart from collection, also the payment to FIBE of the amounts already collected by the Administration. The Regional Administrative Court held that the commissioner’s activities would satisfy FIBE’s requests only after their work was completed and, hence, excluding the possibility that amounts collected from the Administration could be paid to it. FIBE intends to challenge this ruling.
Request that FIBE take back ownership of certain areas and storage sites by the parties appointed by the government commissioner to handle technical and operating activities
Starting in 2008, FIBE had to deal with a number of repeated events where the parties appointed by the government commissioner to handle technical and operating activities demanded that FIBE take back ownership of certain areas and storage sites already handed over to the appointed parties in August 2008, since they were deemed not to be suitable for the management of the service. The Lazio Regional Administrative Court and the Council of State, following appeal of the relevant measures by FIBE, confirmed the suitability of the aforementioned sites for the integrated waste cycle. The civil proceedings before the Naples Court initiated by S.A.P.NA. S.p.A., a local company set up by the Naples provincial authorities, are part of this situation. S.A.P.NA. S.p.A. challenged its takeover of title to certain temporary and definitive areas and storage sites in roughly 40 proceedings. It also requested to be indemnified and held harmless by FIBE S.p.A. and/or the government commissioner from the operating costs incurred in the meantime and yet to be incurred, including for possible site reclamation. Following the rulings of the Ordinary Court of Naples, which found that jurisdiction rested with the Administrative Court, the majority of the afore-mentioned dispute was resumed by S.A.P. NA. S.p.A. before the Campania Regional Administrative Court. With the rulings filed for the first appeals discussed, the Campania Regional Administrative Court fully rejected all claims brought by S.A.P.NA. S.p.A..
Administrative procedures for the recording and recognition of the costs for activities carried out and the work ordered by the Administration during the transitional management period
As early as 2009, FIBE filed a claim with the Lazio Regional Administrative Court the administrative procedures for the reporting and recognition of the costs incurred by the former service contractors for activities carried out pursuant to law and the work ordered by the Administration and performed by the companies during the transitional management period.
As part of the aforementioned ruling, the Regional Administrative Court appointed an inspector who, on 31 March 2014, submitted a final report that compared the amounts stated by FIBE in its appeal and the supporting documentation, finding the figures to be substantially consistent. Allowing the inspection request submitted by FIBE, the Regional Administrative Court ordered an extension to the inspection performed, asking for the identification of the existence and extent of the amounts requested and documented by the applicants upon reporting, whose investigation was omitted or not fulfilled by the Administration. To this end, it set 28 October 2016 as the deadline for filing the report and 11 January 2017 as the date of the hearing for the discussions.
Delivery of waste to the Acerra waste-to-energy plant
With their appeal notified on 18 May 2009 (RG no. 4189/09), the companies challenged the Prime Minister’s Order no. 3748/09 before the Lazio Regional Administrative Court whereby it illegaly stated that only waste produced and stored after the date of termination of the service contracts with the companies (15 December 2005) was to be transferred to the Acerra waste-to-energy plant. The related merits hearing was held on 18 May 2016 and the ruling has still to be handed down
Payment of the RDF plants
With ruling no. 3886 of 5 May 2011, the Lazio Regional Administrative Court upheld FIBE’s claim and ordered the Administration to pay the undepreciated costs at the termination date for the RDF plants to FIBE, for a total amount of €205 million, plus legal and default interest from 15 December 2005 until settlement.
Following the enforcement procedure filed by FIBE and opposed by the Office of the Prime Minister, FIBE obtained the allocation of €241 million as a final payment for the receivables for principal and legal interest and suspended the enforcement procedure for the further amount of default interest claimed. Both parties initiated proceedings about the merits of the case. Following the adjournment of proceedings with the order of 17 July 2015, the dispute was discussed during the hearing of 21 October 2015. The judge rejected the petition for default interest submitted by FIBE in the ruling of 12 February 2016, which FIBE intends to challenge.
Again with respect to the costs not depreciated at 15 December 2005 for the Campania RDF plants, measures are being taken to recover the VAT paid on the principal amount collected of €205 million ordered to be paid by the judge. A separate legal action was therefore commenced for the recovery of the VAT which, on 28 January 2015, led to obtaining a payment order against the Office of the Prime Minister, which it opposed on 13 March 2015. At the hearing of 29 October 2015, the proceedings were adjourned for conclusions to 12 January 2016 when the relevant decision was taken.
Environmental disputes
During the various stages of the USW Campania projects, the Group had to deal with a large number of administrative measures regarding reclamation and the implementation of safety measures at some of the landfills, storage areas and RDF plants. The unsuccessfully resolved proceedings are on hold pending the merit hearings. For the proceedings regarding the characterisation and emergency safety measures at the Pontericcio site, the RDF plants in Giugliano, the temporary storage area at Cava Giuliani, the Lazio Regional Administrative Court rejected the appeals filed by FIBE with ruling no. 6033 of 2012. An appeal against this ruling, based also on contamination found at a site different to those subject of the proceedings, was filed with the Council of State. It denied FIBE’s precautionary motion to stay the enforcement of the decision. A date for the merits hearing has not been set yet. With respect to the Cava Giuliani landfill, the Lazio Regional Administrative Court, with ruling no. 5831/2012, found that it lacked jurisdiction in favour of the Superior Court of Public Waters, before which the appeal was summed up. Meanwhile, FIBE is continuing with the characterisation operations for the above sites, but this does not constitute any admission of liability whatsoever.
The civil litigation
In May 2005, the government commissioner filed a motion requesting compensation from FIBE, FIBE Campania and FISIA Italimpianti for alleged damage of about €43 million. During the hearing, the commissioner increased its claims to over €700 million, further to the additional claim for damage to its reputation, calculated to be €1 billion.
The companies appeared before the court and, in addition to disputing the claims made by the government commissioner, filed a counterclaim requesting compensation for damage and sundry expenses for over €650 million, plus a further claim for reputation damage quantified at €1.5 billion. In the same proceeding, the banks that issued FIBE and FIBE Campania’s performance bonds to the government commissioner also requested the commissioner’s claim be dismissed and, in any case, to be held harmless by Salini Impregilo (at the time, Impregilo), which appeared before the court and disputed the bank’s requests.
The public prosecutor appealed against the ruling of 11 April 2011, which found that jurisdiction rested with the administrative court and not with the ordinary court, setting the hearing date for the file’s reconstruction to 2 February 2017.
On 1 August 2012, the Ministry of Justice and the Cassa delle Ammende summarised the ruling for enforcement of the sureties for €13 million before the Milan Court. These sureties had been given by major banks to guarantee execution of the measures imposed by the Naples public prosecutor as part of the seizure of the RDF plants.
With decision no. 6907/14, the Milan Court denied the requests made by Cassa delle Ammende and by the Ministry of Justice against the banks, UniCredit and ABC International Bank PLC, accordingly declaring the claims for recourse filed by the banks against Impregilo and FIBE and the latter against the Office of the Prime Minister absorbed.
The Ministry of Justice and the Cassa delle Ammende appealed against this decision before the Milan Appeal Court and the related proceedings were postponed to 13 December 2016 for clarification of the conclusions.
On 30 November 2015, the Office of the Prime Minister received a new claim form served by FIBE and other group companies involved in various ways in the activities performed in Campania for the waste disposal service, containing claims for the damage suffered as a result of termination of the agreements in 2005.
The total amount claimed is €1,741 million, plus corporate damages, yet to be quantified, caused to the Group for loss of the reference market. Considering that some requests are already included in other proceedings, the net amount is €1,570 million for quantified items. The Office of the Prime Minister filed a counterclaim for €845 million for reasons already included in other proceedings.
Finally, the public administration has recently commenced proceedings challenging FIBE’s operations with respect to the complex situation of receivables and payables arising from the “contractual phase”. Although these are separate from the other proceedings described above, they refer to the same claims filed by FIBE in the administrative courts that the special commissioner is still working on. Accordingly and comforted by the advice of the legal advisors which support it in this complicated situation, the Group believes that FIBE’s fully compliant conduct during the “contractual” period can reasonably be confirmed and that the risk of a negative outcome of these proceedings is a mere possibility. Specifically, the Group’s legal advisors believe that the public administration’s claims can reasonably be countered considering the counterclaims and, moreover, the admissibility in these proceedings of a court-ordered offsetting process.
Lastly, pending proceedings include a lawsuit in opposition to a payment order obtained by FS Logistica (formerly Ecolog) against the Office of the Prime Minister for the payment of consideration owed for assignments it received from 2001 to 2008 by the then government commissioner for shipment of waste outside Italy. The claim made through a summary procedure was brought against the Office of the Prime Minister, which, in turn, summoned FIBE as a guarantee, who, in turn, filed a counterclaim for the payment of a greater expense incurred during the concession. The judge allowed a court-ordered technical expert’s report only with regard to the claims of FS Logistica toward the Office of the Prime Minister and subject of the order, adjourning the hearing to 31 March 2016. The parties then filed a settlement agreement and requested an extension to complete the procedure. The hearing was deferred to 22 September 2016 to acknowledge the settlement agreement and define the relationship between FS Logistica and the Office of the Prime Minister, while actions to hear the claims of FIBE and the Office of the Prime Minister will be continued.
Tax litigation
The outstanding claim on local property tax (ICI) on Acerra’s waste-to-energy plant should be mentioned in this respect.
In January 2013, the company received tax assessment notices from the Acerra municipality with respect to the waste-to-energy plant, which requested payment of local property tax and relevant penalties for approximately €14.3 million for the years 2009-2011. The amount requested by the Municipality and challenged by the company was confirmed as far as its applicability but reduced in terms of its amount and penalties by Naples’ Regional Tax Committee, so that the original tax bills issued were cancelled.
Even if it believes that it will be able to reverse the ruling through an appeal to the Supreme Court, in 2015, the company - comforted by its legal advisors - set aside a provision for an amount equal to just the tax plus any accrued interest as a precautionary measure.
Criminal litigation
In September 2006, the public prosecutor at the Naples Court served Impregilo S.p.A. (now Salini Impregilo), Impregilo International Infrastructures N.V., FIBE S.p.A., FIBE Campania S.p.A., FISIA Italimpiant S.p.A. (now Fisia Ambiente S.p.A.) and Gestione Napoli in liquidation with a “Notice of the conclusion of the preliminary investigations about the administrative liability of companies” related to the alleged administrative offence pursuant to article 24 of Legislative decree no. 231/2001, as part of criminal proceedings against some former directors and employees of the above-mentioned companies, who were being investigated for the crimes covered by article 640.1/2.1, of the Italian Criminal Code in connection with the contracts for management of the urban solid waste disposal cycle in Campania. Following the preliminary hearing of 29 February 2008, the Preliminary Investigation Judge at the Naples Court allowed the motions for indictment presented by the public prosecutor, rejecting all the civil parties’ claims against the companies finding them to be unacceptable.
As part of these proceedings, in its ruling of 26 June 2007, the Preliminary Investigation Judge ordered the precautionary seizure of the profit from the alleged crime, estimated to approximate €750 million.
The precautionary proceedings continued for nearly five years and finally ended in May 2012, without any action taken against the Group. On 4 November 2013, the Naples Court handed down a decision finding all defendants not guilty on all charges. In March 2014, the public prosecutor office of Naples challenged the decision and the first hearing was set for 29 June and then 28 September 2016 while the members of the jury are being elected.
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In 2008, as part of a new investigation into waste disposal in the Campania region carried out after the ope legis termination of the contracts (on 15 December 2005), the Preliminary Investigations Judge, upon a request by the public prosecutor, issued personal precautionary seizure measures against some managers and employees of FIBE, FIBE Campania and FISIA Ambiente and managers of the commissioner’s office. As part of this investigation, which in the record is described both as a continuation of an earlier investigation and as separate proceedings based on new charges, the former service providers and FISIA Ambiente are again charged with the administrative liability attributable to companies pursuant to Legislative decree no. 231/01.
In the hearing of 21 March 2013, the Preliminary Hearing Judge ordered that all the defendants and legal entities involved pursuant to Legislative decree no. 231/2001 be committed for trial for all charges, transferring the proceedings to the Rome Court as a result of an acting judge being listed by the Naples public prosecutor as being under investigation.
At the hearing of 1 April 2014, the Rome Court acquired the ruling delivered by the Fifth Criminal Chamber of the Naples Court in the aforementioned “parent” proceedings (RGNR 15940/03). On 16 June 2016, the Court accepted the public prosecutor’s request and found all the individuals involved in the proceedings not guilty. The hearing will continue for the companies involved pursuant to Legislative decree no. 231/2001.The next hearing is set for 29 November 2016.
On 23 December 2011, as the party involved pursuant to Legislative decree no. 231/01, FIBE was notified of the completion of the preliminary investigations related to another investigation by the Naples public prosecutor. The allegation relates to the charging of article 24 of Legislative decree no. 231/01 relating to the committing of the crime covered and punished by article 81 and articles 110 and 640.I/II of the Italian Criminal Code committed jointly and with the prior agreement of the defendants (individuals) and other parties to be identified with respect to management of the urban waste water purification service using purification systems.
FIBE is accused as it has allegedly presented documents reporting among the other items related to the elimination of USW the cost of transferring leachate, while not mentioning why the leachate had been transferred to plants that did not have the necessary legal authorisation, technical qualifications and residual purification capacity.
The public prosecutor filed a motion requesting that the Preliminary Investigations Judge of the Naples Court hear the case filed and the latter, upholding the objection presented by the defence of the public bodies, ruled that it lacked jurisdiction and ordered that the record of the proceedings be forwarded to the Rome public prosecutor.
On 13 April 2015, the Rome public prosecutor requested the closure of proceedings for all defendants (both individuals and companies) and all claims. The decision of the Preliminary Investigations Judge is pending.
As it relates to events challenged in the period after the contracts were terminated, when the companies’ activities were not solely specifically covered by Law no. 21/2006 but also carried out on behalf of the commissioner, the group companies involved are fully convinced that they acted in accordance with the law.
The directors’ considerations about the USW Campania projects at 30 June 2016
The general situation of the Salini Impregilo Group with respect to the USW Campania projects at 30 June 2016 still continues to be extremely complex and uncertain (as can be seen from the complexity of the above information).
The decisions of the administrative courts regarding the claims made for the costs of the RDF plants that had not been depreciated when the service contracts were terminated (15 December 2005) and the decisions recently handed down for proceedings initiated by S.A.P. NA. S.p.A., as discussed earlier in this report, are positive and extremely important factors because they support the Group’s arguments regarding the correctness of its conduct and the resulting assessments made to date.
Taking also into account the decisions handed down by the administrative judges regarding the aforementioned environmental issues (which are still pending with regard to the merit) and for which the directors, with the support of the legal advisors assisting FIBE in the various disputes, deem the risk of an unfavourable outcome to be in the realm of mere possibility, at this time, an accurate timeframe for the end of the various pending proceedings cannot be reasonably determined.
Given the complexity and range of the different disputes disclosed in the previous sections, the Group cannot exclude that events may arise in the future that cannot currently be foreseen which might require changes to these assessments.
Panama Canal extension project
With regard to this project, certain critical issues arose during the first stage of full-scale production which, due to their specific characteristics and the materiality of the work to which they relate, made it necessary to significantly revise downwards the estimates on which the early phases of the project had been based. The most critical issues related, inter alia, to the geological characteristics of the excavation areas, specifically with respect to the raw materials required to produce concrete and the processing of such raw materials during normal production activities. Additional problems arose due to the adoption by the customer of operational and management procedures substantially different from those contractually agreed, specifically with regard to the processes for the approval of technical and design solutions suggested by the contractor. These facts, which were the subject of specific disclosures in previous reports published by the Group, continued in 2013 and 2014. Faced with the customer’s persistent unwillingness to reasonably implement appropriate, contractually provided for measures to manage such disputes, the contractor - and thus the original contractor partners - was forced to acknowledge the resulting impossibility to continue the construction activities needed to complete the project at its full and exclusive risk by undertaking the relevant full financial burden without any guarantee of the commencement of objective negotiations with the counterparty. In this context, at the end of 2013, formal notice was sent to the customer to inform it of the intention to immediately suspend work if the customer 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 13 March 2014, an agreement was signed. The essential elements of the agreement provided that the contractor would resume works and functionally complete them by 31 December 2015, while the customer and contracting companies agreed to provide financial support for the works to be finished up to a maximum of about USD1.4 billion. The customer met its obligation by granting a moratorium on the refunding of already disbursed contractual advances totalling about USD800 million and disbursing additional advances amounting to USD100 million. The group of contractor companies met their obligation by directly disbursing USD100 million and additional financial resources, through the conversion into cash of existing contractual guarantees totalling USD400 million. The reimbursement of the amounts granted to finance the work to be performed was postponed, so as to make it compatible with the expected outcome of the arbitration proceedings, already commenced to establish the responsibilities of the parties for the extra costs already incurred and to be incurred due to the aforementioned situation.
At the end of 2014, the DAB (Dispute Adjudication Board), established by the parties pursuant to the contract, granted Grupo Unidos por el Canal (GUPC, the winning consortium) an extension of time of 176 days and an amount of USD244 million, of which USD233 million paid in early 2015 and a further USD10 million in the last quarter of the year. In December 2015 and January 2016, the DAB accepted the claims made by GUPC on three separate occasions of USD6.2 million, USD24.7 million and USD11.2 million. In addition, on 20 June 2016, the DAB approved another USD2.7 million. Additional compensation is expected to be awarded for other claims currently being prepared by the DAB. These awards should be published by the end of the year.
Two separate arbitration hearings are ongoing before the International Chamber of Commerce between GUPC (with its European partners Sacyr, Salini Impregilo and Jan De Nul) and the Panama Canal Authority.
The first relates to the Cofferdam dispute and is at an advanced stage: the merit hearings were held in Miami in July 2016 to be followed by the concluding briefs and the award, expected to be issued in the first quarter of 2017.
The second hearing covers DAB’s decisions about the claims about the inadequate quality of the basalt compared to the quality guaranteed by ACP and the lengthy delays caused by ACP to approve the design formula for the concrete mix. This proceeding is still at an initial stage.
Already in previous years, the Group applied a valuation approach to the project on the basis of which significant losses to complete the contract were recognised, offset in part by the corresponding recognition of the additional consideration claimed from the customer and determined based on the expectation that recognition of such consideration could be deemed to be reasonably certain based on the opinions expressed by its legal advisors and in light of the damages awarded by the DAB.
In 2016, the estimate for the additional costs to complete the project was updated, as well as the additional consideration claimed from the customer (again with the support of the company’s technical and legal experts).
The Group cannot exclude that currently unforeseeable events may arise in the future which could require changes to the assessments made to date.
The work to extend the Panama Canal has been substantially completed to the customer’s satisfaction and the Canal’s re-opening took place in June 2016.
CAVTOMI Consortium (Turin-Milan high speed/capacity line)
With respect to the contract for the Turin-Milan high speed/capacity railway line - Novara - Milan sub-section, the general contractor Fiat (now FCA N.V.) is required to follow the contractual claims recorded by the general contractor CAVTOMI Consortium (the “consortium”), in which Salini Impregilo has a share of 74.69%, against the customer Rete Ferroviaria Italiana (“RFI”). The consortium carried out all design and execution activities for the project.
Accordingly, on 18 April 2008, Fiat initiated contractual arbitration proceedings against RFI for the award, in particular, of damages incurred for delays in the works ascribable to the customer, non-achievement of early completion bonus also due to the customer and higher consideration. On 9 July 2013, the arbitration court handed down an award in favour of Fiat, ordering RFI to pay approximately €187 million (of which about €185 million pertaining to the consortium).
RFI appealed against the award before the Rome Appeal Court on 30 September 2013 and paid the amount due to Fiat in October 2013, which, in turn, forwarded the relevant share to the consortium in December 2013.
The ruling of 23 September 2015 of the Rome Appeal Court cancelled a large part of the aforementioned arbitration award. FCA appealed to the Supreme Court and issued a claims form for the revision of the Appeal Court’s ruling.
Since the Appeal Court’s ruling is enforceable and following the notification by RFI to FCA of a writ of enforcement of approximately €175 million, FCA and RFI reached an agreement whereby FCA provided RFI with the following guarantees in order to prevent enforcement of the aforementioned ruling, without prejudice to the parties’ substantive rights, which are subject to final judgement: (i) payment of an amount of approximately €66 million (€49 million for Salini Impregilo); and (ii) issue to RFI of a bank surety of €100 million (€75 million for Salini Impregilo).
The legal advisors representing FCA in this dispute deem that the appeal of the Appeal Court’s ruling has good and substantial chances of success; therefore, the consortium is confident that its arguments will be accepted at the end of the dispute and that it will recover the amounts recognised as loans and receivables at the reporting date.
The Group cannot exclude that currently unforeseeable events may arise in the future which could require changes to the assessments made to date.
COCIV
With the claim form notified to the COCIV Consortium on 18 September 2014, the customer RFI S.p.A. challenged the validity of the inter partes arbitration award of 20-21 June 2013 and also requested the return of about €108 million (approximately €74 million for Salini Impregilo) collected by COCIV as a result of the award.
The COCIV Consortium appeared in court and the case was adjourned to 17 March 2017 for clarification of the conclusions. The consortium, represented by its legal advisors, is confident that the arbitration award will be confirmed by the ruling.
The Group cannot exclude that currently unforeseeable events may arise in the future which could require changes to the assessments made to date.
Santiago Metro - Chile
The project for the construction of two sections of line 6 of the Santiago Metro was won in 2013 by Salini Impregilo Group, through its subsidiary Empresa Constructora Metro 6 Limitada and is worth CLP3.3 million (Unidad de Fomento - equivalent to €122 million). A series of events interfered with the work, such as unexpected geological conditions that were very different from those reported by the customer, project engineering changes, archaeological finds and the customer’s prohibition to working at night despite the fact that it would not exceed the maximum permitted noise levels.
These factors led to delays that were partially recognised by the works management, but never formalised by the customer. The customer, at its own initiative and on the basis of a schedule different from that agreed, started imposing fines in November 2013. These fines were all challenged.
In addition to the above, relations with the customer were characterised by complex situations, resulting in five requests to extend the delivery date of the work and, in 2014, to the revision of its scope.
With respect to this situation, Empresa Constructora Metro 6 Limitada submitted various claims to the customer in July 2014, and requested an Extension of Time, asking that they be assessed by the relevant contractually-provided for body.
In August 2014, the customer rejected the requests and submitted Salini Impregilo’s claim directly for arbitration before the Santiago Chamber of Commerce, failing to respect the contractual provisions requiring prior consultation between the parties for the selection of the single arbitrator.
The first hearing was scheduled for 25 September 2014, but the customer asked it be postponed to 6 October 2014. In the meantime, on 3 October 2014, the customer informed Empresa Constructora Metro 6 Limitada of the early termination of the contract based on grounds that have been challenged in full and are currently the subject of the aforementioned arbitration. The customer 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 customer presented a request to the Chilean banks for the enforcement of the contract sureties (local contract guarantees secured by European banks) for a total of CLP912,174 (the equivalent of €29.9 million). These amounts also include the full enforcement of the guarantee for advance payment, even though CLP156,323 (the equivalent of €5.1 million) had already been repaid to the customer through the monthly certifications (a criminal report was filed in Chile).
The subsidiary responded to the customer’s initiatives by requesting that the surety enforcement order be suspended and that the operational and contractual conditions be reinstated to those existing on 2 October 2014.
The arbitrator did not find grounds for an urgent order to suspend enforcement of the sureties and reserved final judgment, prolonging the suspension of the works.
Therefore, the amounts corresponding to the guarantees referred to above were paid.
Negotiations with the customer are in place to settle the dispute.
The directors (supported by the legal advisors) believe that the Group has acted correctly and the amounts recognised as loans and receivables and work in progress at 30 June 2016 can be recovered.
Considering the complexity of the existing situation and the uncertainties linked to the arbitration procedure underway with respect to both the legal assessment and the relationship with the customer, however, it cannot be ruled out that events may occur in the future which could require changes to the assessments made to date.
Strait of Messina bridge - Eurolink
In March 2006, as lead contractor of the joint venture created for this project (interest of 45%) (subsequently merged into Eurolink Consortium), Impregilo S.p.A. (now Salini Impregilo S.p.A.) signed a contract with Stretto di Messina S.p.A. for its engagement as general contractor for the final and executive designs and construction of the Messina Strait Bridge and related roadway and railway connectors.
A bank syndicate also signed the financial documentation required in the General Specifications after the joint venture won the tender, for the concession of credit lines of €250 million earmarked for this project. The customer was also given performance bonds of €239 million, as provided for in the contract. Reduction of the credit line to €20 million was approved in 2010.
Stretto di Messina S.p.A. and the general contractor Eurolink S.c.p.A. signed a rider in September 2009 which covered, inter alia, suspension of the project works carried out since the contract was signed and until that date. As provided for by the rider, the final designs were delivered to the customer and its board of directors approved them on 29 July 2011.
Decree law no. 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 customer) and for local public transport”. Following enactment of this decree and given the potential implications for its position as general contractor, Eurolink, led by Salini Impregilo, notified the customer of its intention to withdraw from the contract under the contractual terms, also to protect the positions of all the Italian and foreign co-venturers. However, given the immense interest in constructing the works, the general contractor also communicated its willingness to review its position should the customer demonstrate its real intention to carry out the project. To date, the ongoing negotiations have not been successful despite the efforts made. Eurolink has commenced various legal proceedings in Italy and the EU, arguing that the provisions of the above decree are contrary to the Constitution and EU laws and that they damage Eurolink’s legally acquired rights under the contract. It has also requested that Stretto di Messina be ordered to pay the amounts requested by the general contractor due to the termination of the contract for reasons not attributable to it. With regard to the actions filed at EU level, in November 2013, the European Commission communicated its decision not to follow up the proceedings, as no treaties were violated, and confirmed this on 7 January 2014, with a communication dismissing the case. 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, for various reasons, due to the termination of the contract for reasons not attributable to them.
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 recognised 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.
Romania - Orastie-Sibiu highway
Salini Impregilo has been operating in Romania since July 2011 following the start of the works for the Orastie-Sibiu highway section contract (Lot 3).
In July 2013, it was awarded a second tender for the development of Lot 2 of another highway section between the cities of Lugoj and Deva.
The two contracts are part of a wider road project called Pan-European Corridor IV, which cuts through Romania from Nãdlac (on the border with Hungary) via Pitesti and reaches Costanza, on the Black Sea. Both contracts were entered into with the Romanian National Road & Highways Company (CNADNR) and 85% financed with EU structural funds and 15% by the Romanian government.
The Orastie-Sibiu contract provided for the construction of 22.1 km of two-lane highway (plus the relevant emergency lanes). In September 2015, Salini Impregilo presented an application for arbitration to the customer for claims about the extension of the original contractual delivery times and payment of an additional consideration due to unforeseeable events and the customer’s negligent conduct. On 13 January 2016, with works completion at 99.9%, following a number of disputes between the parties, the customer terminated the contract and enforced the contractual guarantees of approximately €13 million, motivating such unilateral decision as being due to the alleged non-resolution of non-compliances notified by works management. The aforementioned contract termination, which the parent deemed fully unfounded, was formally contested as a result. The dispute between the parties will be submitted to arbitration procedures.
The directors (also based on the advice of their legal and technical experts), believe that the parent’s operations were correct and that the amounts recognised as contract work in progress at 30 June 2016, inclusive of requests for additional consideration also part of the claim, can be collected.
Considering the uncertainties linked to the dispute’s stage, the Group cannot exclude that currently unforeseeable events may arise in the future which could require changes to the assessments made to date.
Rome Metro
As part of the contract for the design and construction of the works for the B1 line of the Rome Metro, Salini Impregilo commenced legal proceedings in its name and as lead contractor of the joint venture, against Roma Metropolitane S.r.l. and Roma Capitale requesting they be ordered to pay the disputed claims recorded during works execution, for which a technical appraisal by a court-appointed expert was provided.
The directors (also supported by their legal and technical experts) deem that the amounts recognised in contract work in progress at 30 June 2016, inclusive of the additional consideration claimed from the customer and calculated based on the expectation that recognition of such consideration could be deemed to be reasonably certain also on the basis of the aforementioned expert opinions, are collectible.
Considering the uncertainties linked to the dispute stage, the Group cannot exclude that currently unforeseeable events may arise in the future which could require changes to the assessments made to date.
Naples - construction of a railway section for an urban railway system, Piscinola-Secondigliano segment
Construction of the civil engineering structures for the Piscinola-Secondigliano railway section, part of a project to modernise and upgrade the Naples - Alifana railway, was suspended in the second half of 2011 due to the failure of the customer Metrocampania Nordest S.r.l. (now Ente Autonomo Volturno) to pay the consideration owed for the work. As a result, the only activities carried out concerned ensuring the safety of the construction sites.
While aware of the strategic significance of the project for the purpose of completing the Naples ring railway system, the customer was unable to honour its commitments due to the financial difficulties that characterised the budget of the Campania region, which, ultimately, created a shortage of financial resources at its subsidiary Metrocampania Nordest S.r.l., making disbursement of the consideration owed extremely difficult.
In light of this situation, the Ministry of Infrastructures and Transportation, in accordance with the provisions of Decree law no. 83 of 22 June 2012 (converted into Law no. 134 of 7 August 2012), appointed a special commissioner tasked with determining the amounts of the payables and receivables of the companies that operate the regional railway services, with the aim of developing a plan to cover the assessed deficit.
At this point, the appointed commissioner has apparently completed their task regarding the investigative and planning phase and are now expected to announce their subsequent decisions.
Considering that, in order to allow the commissioner to carry out their activities, the above-mentioned Decree law specified that no payment enforcement actions may be activated or pursued against the companies owned by the regional administration that operate railway transportation services for 12 months from the effective date of the above-mentioned Decree law no. 83 (a deadline that has been extended several times and recently confirmed until 31 December 2016 by article 41.5 of Decree law no. 133/2014), Todini Costruzioni Generali S.p.A., subsequently replaced by HCE Costruzioni S.p.A., has nevertheless taken all actions that it deemed necessary to obtain satisfaction of its rights, while maintaining a non-confrontational relationship with its customer, which still considers completion of the railway segment in question a priority for the effective operation of the metro railway loop.
Finally, with its document of 30 June 2014 notified to the customer, Todini Costruzioni Generali S.p.A. transferred all the receivables arising from the unpaid invoices issued to Ente Autonomo Volturno to Salini Impregilo S.p.A..
During 2014, and before formalisation of the transfer deed, the customer paid approximately €8.5 million to Todini Costruzioni Generali S.p.A.. Negotiations are in place with the customer, which has also requested the dispute concerning implementation of the lot adjacent to the Naples-Alifana railway (Secondigliano-Di Vittorio), contracted to a joint venture of which Todini Costruzioni Generali S.p.A. is the lead contractor, be included in the settlement.
In relation to the Secondigliano - Di Vittorio section (whose works were never started), the joint venture commenced legal proceedings to have the contract declared terminated, claiming compensation for all damages.
The directors (also supported by their legal and technical experts) deem that the Group acted correctly and that the amounts recognised in contract work in progress at 30 June 2016 are recoverable, inclusive of the additional consideration claimed as part of the dispute, determined based on the expectation that recognition of such consideration could be deemed to be reasonably certain, also on the basis of the aforementioned expert opinions.
Considering the uncertainties linked to the dispute’s stage, the Group cannot exclude that currently unforeseeable events may arise in the future which could require changes to the assessments made to date.
A1 Milan-Naples motorway, work to upgrade the Apennine Mountains section between Sasso Marconi and Barberino di Mugello, La Quercia-Aglio segment
The works were substantially finished and the segment was opened to traffic in December 2015.
In June 2011, the Florence public prosecutor, at the end of an investigation launched in 2005, charged some employees/senior managers of Todini Costruzioni Generali S.p.A. with environmental crimes allegedly related to the construction of the new route across the Apennines.
On 5 November 2012, the Preliminary Hearing Judge ruled for all the accused parties that the statute of limitations had run out on the alleged crimes regarding water control and effluent management and committed for trial the above-mentioned defendants for the alleged crimes concerning the management of excavated soil and rocks and environmental damage.
In the hearing of 26 March 2013, before the Florence Court, the Ministry of the Environment joined the proceeding seeking damages from the parties liable under civil law, that is Todini Costruzioni Generali, Autostrade per l’Italia S.p.A., and the other contractors involved (in addition to said defendants) by claiming damages “for equivalent assets” of not less than €810 million or such amount as the Court considers just and appropriate.
In support of its claim, the Ministry of the Environment filed a report by the I.S.P.R.A. (an institute established within the Ministry), which was struck from the record of the proceedings at a hearing on 9 December 2013, as the judge ruled that the introduction of this document could not be allowed because it had not been developed in the presence of both parties and lacked the name of the party who wrote it.
Since the civil claimant failed to produce documents or consultants, at this point, the damage claim is not supported by any evidence as to its amount.
The investigation phase began in January 2014 and is still ongoing. At the hearing of 9 May 2016, HCE Costruzioni S.p.A. appeared in court as the transferee of Todini Costruzioni Generali S.p.A.’s Italia business unit, which includes the contested contract and related proceedings.
The Group denies having any responsibility for the disputed issues, emphasising that its conduct was completely lawful and that the charges levied against it are groundless. It also objects to the outrageous amount of the damage claim filed by the Ministry of the Environment, which, in addition to being presented without first requesting the adoption of any environmental remediation measures that might have been necessary, does not appear to be compliant with Italian law and European Directive no. 2004/35/EC. In this respect, the European Commission activated an infringement procedure against Italy in 2007 (no. 2007/4679), confirmed on 27 January 2012 with a complementary reasoned opinion, which recently resulted in the adoption, with Italian Law no. 97 of 6 August 2013, of amendments to the Single Environmental Code enacted with Legislative decree no. 152 of 3 April 2006, which include the elimination from the text of article 311 of the above-mentioned Legislative decree no. 152/2006 of the reference to the damage claim “for equivalent assets”, due to the fact that compensation for environmental damages can firstly be achieved with specific remediation measures.
Comforted by the opinion of its legal advisors, the Group believes that the above-mentioned damage claim is groundless and, consequently, that the risk of the claim being granted is remote. Consequently, the directors did not find it necessary to recognise a provision in the condensed interim consolidated financial statements.
Considering the uncertainties linked to the dispute’s stage, the Group cannot exclude that currently unforeseeable events may arise in the future which could require changes to the assessments made to date.
Sesto San Giovanni building
The parent became involved in a dispute with the lessor of its previously leased registered office in 2009 following the relocation of its registered office from Sesto San Giovanni (Milan) to its current premises in Milan. The dispute was settled with the arbitration award of December 2012, which accepted the claim made by the lessor and ordered the parent to pay the outstanding lease payments for the remaining term of the lease which expired in July 2012. The parent promptly challenged the award with the relevant Milan Appeal Court which has yet to hand down its ruling. Moreover, the parent had already provided for the outcome of the arbitration in its 2012 financial statements pending the terms for challenging it. While awaiting the Appeal Court ruling, the parent has been obliged to pay the amount awarded to the lessor, although it reserves the right to recover it.
Pursuant to the contract signed with Immobiliare Lombarda S.p.A., which is the original lessor of the current registered office, Salini Impregilo has the right to be held harmless from claims made by its previous lessor that exceed €8 million. It exercised this right by requesting a court order, which was issued by the Milan Court and challenged by Immobiliare Lombarda. While awaiting the merit ruling, the counterparty paid the full amount of the claim, as the court refused to stay the enforcement of the payment order.
Ente Acque Umbre Toscane (Imprepar)
The Group was informed that part of the sill above the surface discharge of the Montedoglio dam in the Arezzo province had been damaged on 29 December 2010. The Irrigation Body, Ente Irriguo Umbro-Toscano (now Ente Acque Umbre Toscane) notified Imprepar in January 2011 that “investigations and checks 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. The works had been tested and inspected with positive results. Imprepar specifically explained its non-liability for any damage caused by the event in its communication to Ente Acque Umbre Toscane and does not believe that there are reasons to modify its related assessments, supported by the opinion of its legal advisors.
During 2012, the managers of Ente Acque Umbre Toscane and the works manager signed a service order requesting the contractor to immediately prepare executive designs and commence the related works at its own expense and under its own responsibility. Imprepar challenged these acts in full even though the amounts involved are not deemed significant.
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 dam’s subsidence. The court expert’s report filed in June 2015 ascribes the cause of subsidence to various concurrent factors with different negligence percentages, and, specifically: design deficiencies 20%, execution deficiencies 60%, control deficiencies 20%. Imprepar challenged this report.
Imprepar, with the aid of its legal advisors, is defending the correctness of its conduct in all the competent forums.
C.A.V.E.T. Consortium - Florence Court
With regard to the criminal proceedings commenced against the C.A.V.E.T. Consortium and certain individuals, including some former managers of the consortium, the appellate proceedings ended with a decision handed down on 27 June 2011, which reversed in full the lower court’s decision, thus reversing the convictions handed down by the lower court and finding both the consortium and the indicted individuals not guilty of any of the charges. The public prosecutor of the Florence Court appealed this decision before the Supreme Court, which, on 18 March 2013, set aside in part the decision of the Florence Appeal Court ordering that the case be returned to such Appeal Court. The reinstated proceedings before the Court got underway on 30 January 2014 and, on 21 March 2014, the Appeal Court handed down a decision by which it rejected most of the charges levied by the public prosecutor, but upheld them in some important cases. The decision of the Florence Appeal Court was appealed by all defendants and by C.A.V.E.T, in its capacity as a party liable under civil law, and the relevant appeals were filed before the Supreme Court in September 2014.
On 21 April 2016, the fourth criminal section of the Supreme Court handed down its ruling cancelling without remand the 21 March 2014 ruling of the Florence Appeal Court for all the criminal charges and most of the civil charges. It provided that only certain of the civil charges are to be heard by the competent civil law judge in an appeals hearing. The reasoning behind the Supreme Court’s ruling has yet to be filed.
Judicial investigations - Milan Court (proceedings commenced at the Monza Court)
Following the proceedings initiated by the public prosecutor before the Monza Court, in which the chairman of the board of directors and the chief executive officer of Impregilo in office at the time of the events in question are being investigated, Impregilo S.p.A. was the target of a preliminary investigation. The alleged charge against Impregilo is to have “prepared and implemented an organisational model unsuitable to prevent the crimes” allegedly attributed to the directors involved in the investigation, from which the company is alleged to have benefited.
After structured and complex procedural phases, described in previous reports, to which we refer, on 21 March 2012, the Milan Appeal Court (as part of the appeal proceedings initiated by the public prosecutor against the lower court’s decision that had found Impregilo not guilty of the charge of violating Legislative decree no. 231/01) rejected the public prosecutor’s arguments and fully confirmed the aforementioned decision which had found, inter alia, that the organisational model adopted by the company was adequate. The public prosecutor appealed this decision before the Supreme Court, which, on 18 December 2013, handed down decision no. 4677/14 cancelling the Milan Appeal Court’s decision, returning the proceedings to a different section of the same Court for a new merit review. The ruling was resumed before the Milan Appeal Court, which, in the hearing of 19 November 2014, acquitted the company and confirmed the rest of the acquittal of the Preliminary Investigation Judge of the Milan Court of 17 November 2009.