SUW 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 1990s through its subsidiaries FIBE and FIBE Campania.
The main phases of the SUW Campania projects were as follows:
(i) the “Contractual” phase which started in the 2000-2001 period with the signing, by the two project companies FIBE and FIBE Campania of the service contracts for the disposal of urban solid waste in the provinces of Campania and ended on December 15, 2005 with the cancellation “ope legis” of these contracts
pursuant to Decree Law no. 245/2005 (converted into Law no. 21 of January 27, 2006);
(ii) the “Transitional” phase which started upon conclusion of the Contractual phase and lasted until the enactment of Decree Law no. 90 of May 23, 2008 and Decree Law no. 107 of June 17, 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 the title to RDF and storagefacilities to the Provincial Administrations;
(iii) the “current” phase launched at the end of the “Transition “phase, is still underway.
The major issues that, since 1999-2000, have characterized the company’s activities in service contracts, which have been discussed in detail and reviewed in all of the financial 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 major and in part still ongoing. Even in presence of positive developments, the general situation in terms of pending claims 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 by incorporation into FIBE S.p.A. in 2009, in the rest of this section, unless otherwise stated, reference is made exclusively to FIBE S.p.A., even with regard to positions and events that affected the company dissolved through the merger.
Administrative litigation
Recovery of the amounts owed to FIBE by local administrations for waste disposal fees up to the date of termination of the contracts
The Special Commissioner tasked by Regional Administrative Court to collect receivables of former operators of the waste disposal service performed until December 15, 2005 submitted his Report in November 2014, in which he stated that, despite an outstanding amount payable to Fibe as fee for the service rendered until December 15, 2005, the Administration had already collected directly, without forwarding it to Fibe, the amount of €46,363,800 and that total outstanding receivables totaled €74,317,550.
The Administration, apart from raising some objections, which were rejected by the Regional Administrative Court and pertained calculation criteria and the counter-availability of receivable items (which, incidentally, were the subject of other rulings), lodged a complaint, requesting that the appeal should be rejected on the grounds of expiry of the regulation - starting from December 31, 2009 - allowing performance of the activities that should have been carried out by the Special Commissioner. On February 13, 2015 the Regional Administrative Court and, subsequently, on September 1, 2015, the Council of State, rejected the appeal confirming that the obligation of collecting receivables due to Fibe was still in place for the Administration and, on its behalf, for the Commissioner appointed to replace it.
Following the resignation of the Special Commissioner and the subsequent appointment by the Regional Administrative Court as his replacement of the General Commander of the Italian Financial Police and as a result of the anticipated incompatibility raised by the latter, on July 13, 2015, the Regional Administrative Court appointed the MEF’s Chief of Staff, who, on September 10, 2015, appointed a Director of the aforementioned MEF as attorney. With notice of November 16, 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. At the hearing of January 27, 2016, the Regional Administrative Court reserved the right todecide.
Request that FIBE take back ownership of certain areas and storage sites by the partie sappointed 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 provisions by FIBE, confirmed the suitability of the aforementioned sites for the integrated waste cycle. The civil proceedings before the Court of Naples 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 reimbursed 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 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 aforementioned dispute was reactivated by S.A.P. NA. S.p.A. before the Campania Regional Administrative Court. With the rulings filed over 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 complaint with the Regional Administrative Court of Lazio regarding the slowness by the Administration in completing the administrative procedures for the recording 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.
Within the framework of the aforementioned ruling, the Regional Administrative Court appointed an ispector who, on March 31, 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 in line. Granting the inspection request submitted by FIBE, the Regional Administrative Court ordered an extension to the audit performed, asking for the identification of the existence and extent of the amounts requested and documented by the appellant upon reporting, whose investigation was omitted or not fulfilled by the Administration. To this end, it set January 28, 2016 as the deadline for filing the report and April 20, 2016 as the date of the hearing for oral arguments. On January 27, 2016, stating pressing work engagements as a
reason, the verifier filed a motion with the Regional Administrative Court, in which he asked reconsidering the assignment of the engagement or, as an alternative, an extension of no less than 180 days of the deadline for filing the report.
Delivery of waste to the Acerra waste-to-energy plant
With their appeal notified on May 18, 2009 (RG no. 4189/09), the companies challenged Prime Minister’s Order No. 3748/09 before the Regional Administrative Court of Lazio whereby only waste produced and stored after the date of termination of the service contracts with the companies (December 15, 2005) was to be delivered to the Acerra waste-to-energy plant. The date for the relevant hearing was set to May 18, 2016.
Payment of the RDF plants
With judgement no. 3886 of May 5, 2011, the Lazio Regional Administrative Court upheld FIBE’s appeal and condemned the Administration to pay the outstanding costs at the termination date for CDR plants to FIBE, for a total amount of €205 million, exclusive of legal and penalty interests from December 15, 2005 until payment in full.
Following the enforcement order commenced 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 interests and suspended the enforcement order for the further amount of default interest claimed. Both Parties initiated proceedings. Following the adjournment of proceedings with the writ of July 17, 2015 the lawsuit was discussed during the hearing of October 21, 2015. With judgement of February 12, 2016, the judge rejected the request for default interest submitted by Fibe. The option of lodging an appeal is being assessed.
Still on the subject of payment of the costs not depreciated at December 15, 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. For the recovery of VAT a separate legal action was therefore initiated, which on January 28, 2015 led to obtaining an injunction to the Office of the Prime Minister, opposed by the Office of the Prime Minister on March 13, 2015. At the hearing of October 29, 2015, the lawsuit was adjourned for conclusions to January 12, 2016 and the relevant decision is pending.
Environmental disputes
During the various stages of the SUW 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 facilities. The unsuccessfully resolved proceedings are on hold pending the merit hearings. For the proceedings regarding the characterization and emergency safety measures at the Pontericcio site, the RDF facilities in Giugliano, the temporary and permanent storage area at Cava Giuliani, the Regional Administrative Court of Lazio 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. They 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 waste disposal site, the Lazio Regional Administrative Tribunal, with ruling no. 5831/2012, ruled that it lacked jurisdiction in favor of the Superior Court of Public Waters, before which the appeal was refiled. Meanwhile, Fibe is continuing with the characterization operations for the above sites, but this does not constitute any admission of liability whatsoever.
Civil litigation
In May 2005, the Government Commissioner filed a motion requesting compensation from FIBE, FIBE Campania and FISIA Italimpianti for alleged damages of about €43 million. In the course of the proceedings, the Government Commissioner increased its damage claims to over €700 million, plus a further to claim for damages to its reputation quantified at €1 billion.
The Companies joined the proceedings 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 one to claim for reputation damages 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 moved for the Commissioner’s claim to be denied and, in any case, asked to be held harmless by Salini Impregilo (at the time, Impregilo), which brought an action and rejected the claim of the guarantor banks.
The public prosecutor appealed against the ruling of April 11, 2011, which found that jurisdiction rested with the administrative court and not with the ordinary court, setting the hearing date for reconstituting the file to February 2, 2017.
On August 1, 2012, the Ministry of Justice and the Cassa Ammende summarized before the Court of Milan the ruling concerning the enforcement of guarantees, totaling €13 million, issued by a number of major banks to guarantee implementation of the requirements imposed by the Public Prosecutor of Naples, in the seizure procedure of the RDF plants.
With decision no. 6907/14, the Court of Milan denied the requests made by Cassa 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 Ammende appealed against this decision before the Court of Appeal of Milan and the related proceedings were postponed to December 13, 2016 for clarification of the conclusions.
On November 30, 2015, the Office of the Prime Minister received a new writ of summons served by both FIBE and other Group companies involved in various ways in the activities performed in Campania for the waste disposal service, containing claims for the damages 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 amount net of them is equal to €1,570 million for quantified items. The initial hearing for the parties was set to April 13, 2016.
Finally, the public authorities have 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 counsel that supports it in this complex 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 Company’s counsel believes that the public administration’s claims can reasonably be resisted 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 injunction granted to 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 injunction, adjourning the hearing to March 31, 2016.
Tax litigation
The outstanding claim on local property tax (ICI) on Acerra’s waste incineration plant should be mentioned in this respect.
In January 2013, the Company received tax assessment notices from the Municipality of Acerra with respect to the waste incineration plant, which requested payment of local property tax and relevant penalties for approx. €14.3 million for the years 2009-2011. The amount demanded 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 payment orders issued were canceled.
Even if it believes that it will be able to reverse the ruling through an appeal to the Court of Cassation, in 2015, the Company - comforted by its legal counsel - set aside a provision for an amount equal to the tax alone plus any accrued interest as a precautionary measure.
Criminal litigation
In September 2006, the Public Prosecutor of the Court of Naples served Impregilo S.p.A. (now Salini Impregilo), Impregilo International Infrastructures N.V., FIBE S.p.A., FIBE Campania S.p.A., FISIA Italimpianti S.p.A. (now Fisia Ambiente S.p.A.) and Gestione Napoli in liquidation with a “Notice of the completion of the preliminary investigation about the administrative liability of legal entities” related to the alleged administrative violation pursuant to Article 24 of Italian Legislative Decree no. 231/2001, within the framework 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, Sections 1 and 2, no. 1, of the Italian Criminal Code in connection with the contracts for management of the urban solid waste disposal cycle in the Campania region. Following the preliminary hearing of February 29, 2008, the Preliminary Investigation
Judge at the Court of Naples granted the motions for indictment presented by the Public Prosecutor, rejecting all proceedings as plaintiffs against the companies at the same time.
As part of these proceedings, the Judge for the Preliminary Investigation ordered, in his ruling on June 26, 2007, the precautionary seizure of the profit from the alleged crime, estimated to amount to about €750 million.
The precautionary proceedings continued for five years and finally ended in May 2012, without any action taken against the Group. On November 4, 2013, the Court of Naples 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 April 22, 2016 before the IV section of the Court of Appeal of Naples.
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In 2008, as part of a new investigation into waste disposal in the Campania region carried out after the termination of the contracts by force of law (on December 15, 2005), the Preliminary Investigations Judge, upon a request by the Public Prosecutor issued preventive measures against some managers and employees of FIBE, FIBE Campania and FISIA Ambiente and managers in 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 contractors and FISIA Ambiente are again charged with the administrative liability attributable to legal entities pursuant to Italian Legislative Decree No. 231/01.
In the hearing of March 21, 2013 the Preliminary Hearing indicted all defendants and legal entities involved pursuant to Italian Legislative Decree 231/2001 for all charges, transferring the proceedings to the Court of Rome as a result of an acting magistrate being listed by the Public Prosecutor of Naples as being under investigation.
At the hearing of April 1, 2014 the Court of Rome acquired the ruling delivered by the Fifth Criminal Chamber of the Court of Naples in the aforementioned “parent” proceedings (15940/03 R.G.n.r.), also in order to better assess the requests of evidence that would be presented by the parties. After fulfillment of these requests the proceedings, which were still in the oral argument phase, were finally adjourned to February 18, 2016 for the examination of the Public Prosecutors Office’s technical expert.
On December 23, 2011, FIBE S.p.A., in its capacity as the legal entity involved pursuant to Italian Legislative Decree No. 231/01, was served with a notice of completion of the preliminary investigations related to another investigation by the Naples Public Prosecutor. The charges are based on a violation of Article 24 of Italian Legislative Decree No. 231/01, as it applies to the occurrence of the crime subject of Article 81, Section Two, Article 110 and Article 640, Sections 1 and 2, of the Criminal Code, committed jointly and with the prior agreement of the defendants (individuals) and other parties to be identified, in connection with the management of an urban wastewater purification service based on treatment facilities.
FIBE S.p.A. is a defendant because it allegedly submitted expense reports that, among the other items related to the disposal of USW, included the cost of transporting leachate, while failing to mention the fact that the leachate was transported to facilities without the requisite proper permit and lacked the technical qualifications and residual treatment capacity. The Public Prosecutor filed a motion requesting that the Judge for Preliminary Investigations of the Court of Naples hear the case filed and the latter, upholding the objection presented by the defense of the “public party”, ruled that it lacked jurisdiction and ordered that the record of the proceedings be forwarded to the Rome Public Prosecutor.
On April 13, 2015, the Rome Public Prosecutor requested the closure of proceedings for all defendants (both natural and legal persons) 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 21/2006 but also carried out on behalf of the Commissioner, the Group Companies involved are fully convinced that they acted in accordance withthe law.
Assessment by the Board of Directors regarding the status of the SUW Campania Projects at December 31, 2015
The general situation of the Salini Impregilo Group with respect to the SUW Campania projects at December 31, 2015 still continues to be extremely complex and uncertain (as can be seen from the complexity of the above information).
The decisions by the administrative courts regarding the claims put forth for the costs of the RDF facilities that had not been amortized when the service contracts were canceled (December 15, 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 recent rulings handed down by the administrative judges regarding the aforementioned environmental issues (which are still pending with regard to merit) and for which the Directors, with the support of the counsel assisting FIBE in the various disputes, deem the risk of an unfavorable 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.
In view of the complexity and development of the different disputes described in detail in the preceding paragraphs, the possibility that future events, unforeseeable at this point, could occur requiring changes to the assessments made to date cannot be excluded.
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 required to produce 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 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 financial reports published by the Group, continued in 2013 and 2014. Faced with the client’s persistent unwillingness to reasonably implement appropriate, contractually agreed instruments 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 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 included that the contractor undertake to resume works and functionally complete them by December 31, 2015, while the Client and contracting companies undertake to provide financial support for the works to be finished up to a maximum value of about US$1.4 billion. This commitment was be honored by the client through (i) a moratorium on the refunding of already disbursed contractual advances totaling about US$800 million and (ii) the disbursement of additional advances amounting to US$100 million and the group of contractor companies through (i) a direct contribution of their own financial resources in the amount of US$100 million and (ii) a contribution of additional financial
resources, through the conversion into cash of existing contractual guarantees totaling $400 million. The reimbursement of the amounts stipulated to finance the work to be performed was postponed, so as to make it compatible with the expected outcome of the arbitration proceedings, already launched to determine the responsibilities of the parties for the extra costs already incurred and to be incurred due to the aforementioned situation.
At the end of 2014, the first level independent ruling of the DAB (Dispute Adjudication Board), established by the parties within the framework of the project, awarded GUPC damages for US$ 244 million, of which US$233 million paid out in the first months of 2015 and further US$10 million in the last quarter of the year. In December 2015 and January 2016, the DAB approved further damages for US$14 million and US$24.7 million respectively. In this regard, it should be noted that, already in previous years, the Group applied a valuation approach to the project on the basis of which significant end-of-project losses were recognized, offset 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 based on the opinions expressed by its legal counsels and in light of the damages awarded by the DAB.
In 2015, the estimate for the additional costs at the end of the project was updated, as well as the additional consideration claimed from the Client (always 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.
CAVTOMI Consortium (Turin-Milan High-speed/High Capacity Line)
With respect to the contract for the Turin-Milan High speed/High capacity railway line - sub-section Novara - Milan, the General Contractor Fiat (now FCA N.V.) has the obligation to bring registered claims of the General Contractor CAVTOMI Consortium (the “Consortium”), in which Salini Impregilo has a share of 74.69%, against the client Rete Ferroviaria Italiana (“RFI”). The Consortium, as a matter of fact, carried out all design and execution activities for the project.
In view of the above, on April 18, 2008 Fiat initiated contractual arbitration proceedings against RFI for the award, in particular, of damages suffered for delays in the works ascribable to the client, non-achievement of early completion bonus also due to the client and higher consideration. On July 9, 2013, the Court of
Arbitration handed down an award in favor of Fiat, condemning RFI to pay an amount of approximately €187 million (of which about €185 million to the Consortium).
RFI appealed against the award before the Rome Court of Appeal on September 30, 2013 and in October 2013 paid the amount due to Fiat, which in turn forwarded the relevant share to the Consortium in December 2013.
The ruling of September 23, 2015 of the Rome Court of Appeal canceled a large part of the aforementioned arbitration award. FCA made an appeal to the Court of Cassation and issued a writ of summons for the revision of the ruling of the Court of Appeal.
Since the ruling of the Court of Appeal is an executive one and following the notification by RFI to FCA of an enforcement order for approx. €175million, FCA and RFI reached an agreement based on which FCA provided RFI with the following guarantees in order to prevent execution 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), issue to RFI of a bank security of €100 million (€75 million for Salini Impregilo).
The lawyers representing FCA in the claim under review deem that the appeal of the ruling of the Court of Appeal has good and substantial chances of success; therefore, the Consortium is confident that its arguments will be accepted at the end of the dispute.
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 writ of summons notified to the COCIV Consortium on September 18, 2014, the client RFI S.p.A. contested the inter partes arbitral award of June 20-21, 2013 on grounds of invalidity, also asking the amount of about €108 million (approx. €74 million for Salini Impregilo) collected by COCIV as a result of it to be returned.
The COCIV Consortium joined the proceedings, which were deferred to March 17, 2017 for clarification of the conclusions. The Consortium, represented by its legal counsels, is confident that its arguments stated by the arbitral 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.
Metro Santiago - Cile
The project for the construction of two sections of line 6 of the Santiago Metro was won in 2013 by the Salini Impregilo Group, through its subsidiary Empresa Constructora Metro 6 Limitada and has a total value (in local currency) of 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 of working at night despite the fact that it would not exceed the maximum permitted noise levels.
These factors led to delays in the execution times that were partially recognized by the Operations Management Team, but never formalized by the Client. The client, at its own initiative and on the basis of a schedule different from the one agreed on, started imposing fines in November 2013. These fines were all challenged in full.
In addition to the above, relations with the client were characterized 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 client in July 2014, and requested an Extension of Time, with the request that they be assessed by the relevant body under the Agreement.
In August 2014, the client rejected the requests and submitted our claim directly to Arbitration at the Santiago Chamber of Commerce, 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, 2014. 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, even though 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.
The directors (supported by counsel) believe that the company’s operations were correct and the amounts recognized as financial receivables and work in progress at December 31, 2015 can be collected.
Considering the complexity of the existing situation and the uncertainties linked to the arbitration procedure under way with respect to both legal assessment and the relationship with the Client, 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, Impregilo S.p.A., in its capacity as Lead Contractor (with a 45% interest) of the Temporary Business Association established for this specific purpose (subsequently incorporated into the Eurolink Consortium), 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 over 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 facilities 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 the General Contractor Eurolink S.c.p.A. executed a rider that took into account the suspension of project activities from the time 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 no. 187 was issued on November 2, 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.
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.
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 project (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 IV pan-European corridor, which cuts through Romania from Nãdlac (at the border with Hungary) via Pitesti and reaches Costanta, on the Black Sea. Both contracts entered into with “Compania Nationala de Autostrazi si Drumuri Nationale din Romania” (CNADNR) and 85% financed with EU structural funds and by the Romanian Government for the remaining 15%.
The Orastie-Sibiu contract envisaged the construction of 22.1 km of two-lane highway (plus relevant emergency lanes). On January 13, 2016,with works completion at 99.9%, following a number of disputes between the Parties, the Client
terminated the contract motivating such unilateral decision with the alleged non-resolution of noncompliances notified by Operations Management. The aforementioned contract termination, which the Company deemed fully unfounded, was formally contested as a result. The dispute between the Parties shall be submitted to arbitral procedures envisaged by the Contract.
The Directors (also based on the advice of their legal and technical experts), believe that the company’s operations were correct and that the amounts recognized in works in progress at December 31, 2015, inclusive of requests for additional consideration also part of the claim, can be collected.
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.
Rome Metro
As part of the contract for the design and construction of the works for the B1 line of Rome Metro, Salini Impregilo promoted legal proceedings in its name and as agent of the Joint Venture works contractor, for Roma Metropolitane S.r.l. and Roma Capitale to be condemned to pay the claims subject to the reserves recognized 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) deemed that the amounts recognized in contract work in progress at December 31, 2015, inclusive 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 also on the basis of the aforementioned expert opinions, are collectible.
In view of 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 modernize and upgrade the Naples - Alifana railway, was suspended in the second half of 2011 due to the failure of the client 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.
The client, while aware of the strategic significance of the project for the purpose of completing the railway system ringing the City of Naples, was unable to honor its commitments due to the financial difficulties that characterized the budget of the Campania region, which, ultimately, created a shortage of financial resources at the Metrocampania Nordest S.r.l. subsidiary, making the disbursements 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 June 22, 2012 (converted into Law no. 134 of August 7, 2012), appointed an ad acta 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 ascertained deficit.
At this point, the appointed Commissioner has apparently completed his task regarding the investigative and planning phase and is now expected to announce his subsequent determinations.
Considering that, in order to allow the Commissioner to carry out his activities, the above-mentioned Italian 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 Italian Decree Law No. 83 (a deadline was extended several times and recently confirmed until December 31, 2015 by art. 41 paragraph 5 of Italian Decree Law 133/2014), Todini Costruzioni Generali S.p.A. nevertheless took all actions that it deemed necessary to obtain satisfaction of its rights, while maintaining a non-confrontational relationship with its client, who still considers completion of the railway segment in question a priority for the effective operation of the metro railway ring.
Finally, with a document of June 30, 2014 notified to the Client, Todini Costruzioni Generali S.p.A. transferred to Salini Impregilo S.p.A. all receivables covered by the outstanding invoices issued to Ente Autonomo Volturno.
During 2014, and before formalization of the sales deed, the Client made partial payments of approximately €8.5 million to Todini Costruzioni Generali S.p.A..
In the same negotiation, the Client requested the dispute concerning implementation of the lot adjacent to the Naples-Alifana railway (Secondigliano-Di Vittorio), contracted to a temporary consortium of which Todini Costruzioni Generali S.p.A. is the lead contractor to be included in the settlement.
Negotiations finally broke down in December 2015, given the impossibility of finding an agreement that was acceptable to the Parties.
In light of the above, the possibility of initiating ordinary proceedings against the Administration for termination of the works contract is being assessed.
In relation to the Secondigliano - Di Vittorio section - whose works were never initiated - the joint venture that awarded the same initiated legal proceedings to have the contract declared terminated, claiming compensation for all damages.
The Directors (also supported by their legal and technical experts) deemed that the company’s operations were correct and that the amounts recognized in contract work in progress at December 31, 2015 were collectible, 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.
In view of 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.
A1 Milan-Naples Highway, 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 section was open to traffic in December 2015.
Starting 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 Valico Bypass.
By a decision dated November 5, 2012, the Preliminary Hearing Judge ruled for all the accused that the statute of limitations had run out on the alleged crimes regarding water control and effluent management and indicted the above-mentioned defendants for the alleged crimes concerning the management of excavated soil and rocks and environmental damage.
In the hearing of March 26, 2013, before the Court of Florence, the Italian Ministry of the Environment joined the proceeding as plaintiff 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 no 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 December 9, 2013, as the Judge ruled that the introduction of thisdocument could not be allowed because it had not
been developed through an adversary process and lacked the name of the party who wrote it.
Since the civil plaintiff 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.
The Group denies having any responsibility for the disputed issues, emphasizing 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 put forth
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 that regard, the European Commission activated infraction proceedings against Italy in 2007 (No.2007/4679), confirmed on January 27, 2012 with a complementary reasoned opinion, which recently resulted in the adoption, with Italian Law No. 97 of August 6, 2013, of amendments to the Uniform Environmental Code enacted with Italian Legislative Decree No. 152 of April 3, 2006, which include the elimination from the text of Article 311 of the abovementioned Italian Legislative Decree No. 152/2006 of the reference to the damage claim “for equivalent asset value,” due to the fact that compensation for environmental damages can first of all be achieved with specific remediation measures.
Comforted by the opinion of counsel, the Group believes that the above-mentioned damage claim is devoid of merit and, consequently, that the risk of the claim being granted is remote. Consequently, management did not find it necessary to recognize a provision in the financial statements. In view of 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.
Sesto San Giovanni building
In 2009, as a result of the transfer of the Parent Company’s registered office from Sesto San Giovanni (Milano) to the current Milan office, a dispute arose with the lessor of the building where the old head office was located. The dispute was decided in December 2012 by an arbitration award that upheld the lessor’s claims, ordering the Parent Company to pay rent for the entire duration of the lease expiring in July 2012.
This award was promptly challenged before the relevant Milan Court of Appeals, before which the proceedings are currently pending. However, in 2012, before the expiration of the appeal deadline, the Parent Company had already recognized the impact of the arbitration award on its statement of financial position. Moreover, while the appellate proceedings were pending, the Parent Company was forced to pay the amount awarded to the lessor, reserving the right to a refund.
With regard to this dispute, Salini Impregilo S.p.A., by virtue of the provisions of the contract executed with Immobiliare Lombarda S.p.A., in its capacity as the original lessor of the premises where the head office is currently located, holds the right to be held harmless from claims made by the previous lessor in excess of €8 million, which it exercised by means of a payment injunction.
The payment injunction was issued by the Court of Milan and challenged by Immobiliare Lombarda. However, while the proceedings are in progress, the opposing party paid the full amount of the claim, as the court refused to stay the enforcement of the payment injunction.
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. Inits 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 dam’s subsidence. The court ordered technical 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, 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 activated against the C.A.V.E.T. Consortium and certain individuals, including some former managers of the Consortium, it is worth mentioning that the appellate proceedings ended with a decision handed down on June 27, 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 Court of Florence appealed this decision before the Court of Cassation, which, on March 18, 2013, set aside in part the decision of the Florence Court of Appeals ordering that the case be returned to the Court of Appeals. The reinstated proceedings before the Florence Court of Appeals got under way on January 30, 2014 and, on March 21, 2014, the Court of Appeals 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 Court of Appeals 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 Court of Cassation in September last year. The Consortium, in protecting its interests, is confident that it will be able to demonstrate, again, in the subsequent courts of instance, the correctness of its actions.
Investigation by the judiciary - Court of Milan (proceedings initiated before the Court of Monza)
Following the proceedings initiated by the Public Prosecutor of the Court of Monza, in which the Chairman of the Board of Directors and the Chief Executive Officer of Impregilo in office at 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 organizational model unsuitable to prevent the crimes” allegedly attributed to the officers involved in the investigation, from which the Company is alleged to have benefited.
After structured and complex procedural phases, described in the previous Financial Reports, to which we refer, on March 21, 2012 the Court of Appeal of Milan (as part of the appeal proceedings initiated bythe Public Prosecutor against the lower court’s decision that had found Impregilo not guilty of the charge of violating Italian Legislative Decree No. 231/01) rejected the Public Prosecutor’s arguments and fully confirmed the aforementioned decision lower court judge, who had found, inter alia, that the organizational model adopted by the Company was adequate. The Public Prosecutor appealed this decision to the Court of Cassation, which on December 18, 2013 handed down Decision No. 4677/14 canceling the decision of the Milan Court of Appeals, returning the proceedings to a differentsection of the same Court for a new merit review. The ruling was summarized before the Court of Appeal of Milan, which, in the hearing of November
19, 2014, acquitted the company and confirmed the rest of the acquittal of the preliminary investigation judge of the Court of Milan of November 17, 2009.