Contingent Commitments and Risks
Guarantees provided 2,655
Collateral provided 2,441
Other commitments and risks 656
Total 5,752
Guarantees Provided
Guarantees provided totaled 2,655 million euros. This figure is equal to the undiscounted amount of potential commitments on the balance sheet date. It includes the following:
  • 612 million euros for guarantees provided by Edison Spa to customers of Tecnimont Spa (590 million euros) and Protecma Srl (22 million euros) for the performance of supply contracts.
  • 772 million euros in guarantees provided by Edison Spa to the Milan tax office on behalf of subsidiaries for offsetting VAT credits and those provided to subsidiaries in connection with the intra-Group assignment of tax credits.
  • 146 million euros in sureties provided by Edison Spa to banks to secure project financing, facilities and credit lines provided to Group companies.
  • 25 million euros for a commitment to contribute capital and/or provide the subordinated financing needed by the Edipower Spa affiliate for its repowering program (Repowering Equity Contribution Agreement).
In addition, as part of the refinancing of Edipower Spa, Edison Spa has agreed to provide this affiliate with sufficient additional capital and/or subordinated financing to guarantee the successful implementation of Edipower's repowering program in terms of capital expenditure overruns, delays in implementation and power, efficiency and performance of the power plants upon completion of the repowering program (coverage of cost overruns, defects liability costs and underperformances) that Edipower Spa may incur in connection with its repowering program (100 million euros) - (Completion Equity Contribution Agreement).
Moreover, pursuant to the Tolling and Power Purchasing Agreements, Edison is responsible for the commercial obligations undertaken by its Edison Trading Spa subsidiary toward Edipower Spa, but only in the event of serious default or insolvency by Edison Trading (300 million euros).
Collateral Provided
Collateral provided, which came to 2,441 million euros, reflects the carrying amounts of the assets or rights pledged as collateral on the balance sheet date. This account includes collateral provided for liabilities listed on the balance sheet, including the value of Edipower shares (801 million euros) and Serene shares (111 million euros) pledged to a pool of banks to secure financing facilities. Following the refinancing of Serene's debt, the Group has requested the cancellation of the corresponding pledge.
Collateral provided also includes additional collateral for liabilities listed on the balance sheet (1,329 million euros), which generally consist of mortgages and encumbrances granted on thermoelectric facilities to secure financing. A total of 368 million euros refers to mortgages that are in the process of being cancelled.
Other Commitments and Risks
Other commitments and risks of 656 million euros reflect commitments undertaken to complete construction of the Candela, Altomonte, Simeri Crichi and Torviscosa power plants (for a total of 276 million euros) and commitments of Edipower toward suppliers for purchase and construction contracts (Edison's pro rata share was 330 million euros).
In addition, the Group is exposed to the following commitments and risks that were not included in the amounts discussed above:
  • The Group's hydrocarbons operations have entered into contracts for the importation of natural gas. As is usually the case, contracts of this magnitude and of these durations contain take-or-pay clauses that obligate the buyer to pay for any shortage between the stipulated maximum quan-
  • -tities and the quantity actually used (unless the shortage is due to causes not provided for in the contract), with the option for the buyer to make up, at certain conditions, the paid but unused volume over the life of the contract. When fully operational, the import contracts that are currently being implemented with Russia, Libya and Norway will provide total supplies of 7.4 billion cubic meters of natural gas a year. In addition, the Group signed an import contract with Qatar that call for deliveries to begin upon completion of an LNG terminal in the Northern Adriatic, which is currently being built and is expected to go on stream in 2007. When this agreement is fully operational, Qatar will supply a total of 6.6 billion cubic meters of natural gas a year. Payments required as a result of the take-or-pay clause are made on the basis of a price that reflects the contract price but is indexed to current market terms. These contracts have terms ranging between 10 and 25 years. When all of the contracts are fully operational, the annual supply of natural gas will amount to 14 billion cubic meters a year.
  • Insofar as the electric power operations are concerned, the agreements governing loans received by Parco Eolico San Giorgio and Parco Eolico Foiano, which are secured by a special lien on existing equipment and facilities, entail additional commitments. These commitments and risks include the assignment to the Agent, who acts as representative of the assignee banks, of existing or future receivables generated by supply contracts and a special lien for the benefit of the lending banks on assets of any kind that may be owned by the borrower companies in the future and on any receivables generated by the sale of such assets. Loans received by Termica Milazzo and Termica Celano are secured by a negative pledge of Edison Spa shares and, for Termica Celano, a pledge commitment toward the lender bank, should certain noncompliance conditions occur. Termica Celano Srl granted to its lender banks a special pledge on the equipment of its cogenerating power plant. Termica Milazzo Srl granted to its lender banks a mortgage and special pledge on all of the production facilities it owns.
  • As part of the agreements among the shareholders of RCS Mediagroup who are members of the Blocking and Consultation Syndicate, any Participant who, in response to a tender offer, wishes to exit the Syndicate will be required to sell the syndicated shares to the other Participants. The buyers will have the right, but not the obligation, to buy the shares that are being offered in proportion to the percentage of the shares they contributed to the Syndicate.
  • Pursuant to the contract for the purchase through subscription of Utilità Spa shares, Edison has options to either buy an additional 16% interest in the share capital of Utilità Spa or sell its entire interest in that company. These options may be exercised by and not later than July 31, 2007. The value of the buy option is equal to the subscription price of the shares plus an amount equal to the interest accrued between the date of subscription of the shares and the date the option is exercised. The value of the sell option is equal to the corresponding interest in the underlying shareholders' equity, less reserves, at September 28, 2005.
  • In addition, the agreement executed in connection with the sale of Edison LNG, now Terminale GNL Adriatico Srl, this past May includes the following conditions:
      - For all shareholders, the obligation not to transfer their equity interest until 36 months have passed from the startup of the terminal, but, in any case, not later than July 1, 2011 (lockup clause);
      - For Edison, the right to buy the 90% it does not own or sell its 10% upon the occurrence of certain events, for which the two majority shareholders are responsible, that would prevent the construction of the terminal (put-and-call clause);
      - For the two majority shareholders, the right to buy the 10% interest held by Edison if the supply contract with RasGas should be cancelled for reasons for which Edison is responsible (call clause);
      - A price for the sale of shares if the put or call options are exercised, which will be determined based on the value of the company's shareholders' equity at the time of sale;
      - A commitment by the shareholders, each for its pro rata share, to provide the company with sufficient financial resources to build the terminal;
    - Lastly, once the terminal that is being built in the Northern Adriatic has been completed, Edison, while owning just 10% of the infrastructure, will become its main user and will have access to about 80% of the terminal's gasification capacity for 25 years.