report of the board of statutory auditors
Dear Shareholders:
The Board of Statutory Auditors carried out its work in accordance with those provisions of the Uniform Code of Financial Intermediation, as set forth in Legislative Decree No. 58 of February 24, 1998, that govern the activities of Boards of Statutory Auditors. We also took into account the guidelines of the Code of Conduct for Boards of Statutory Auditors of Publicly Traded Companies published by the Italian Board of Certified Public Accountants and Bookkeepers.
This Board of Statutory Auditors attended the meetings of the Board of Directors. At least once every quarter, the Board of Statutory Auditors received from the Directors information on the work they had performed, with special emphasis on transactions that had a material impact on the Company's operations, financial performance and asset base, and those involving potential conflicts of interest. We ascertained that all actions that were approved and implemented complied with current law and the Company's Bylaws.
The draft statutory and consolidated financial statements at December 31, 2005, accompanied by the Report on Operations, were approved within the statutory deadline. The Board of Statutory Auditors ascertained that the provisions of the statutes governing the preparation and presentation of financial statements had been complied with and that the financial statements truthfully and fairly present the operating performance and financial position of the Company and the Group.
In performing its work, the Board of Statutory Auditors found no significant events that would require notification of the supervisory authorities or disclosure in this Report. The balance of this Report has been prepared in accordance with the recommendations provided by the Consob in Communications No. DAC/RM/97001574 of February 20, 1997, No. DEM/102565 of April 6, 2001 and No. DEM/3021582 of April 4, 2003.
The following noteworthy events occurred during the year:
  • On March 7, 2005, Edison Spa and Sonatrach (the Algerian state oil company) signed a letter of intent covering the supply of up to four billion cubic meters of Algerian natural gas a year.
  • On May 2, 2005, Edison, Qatar Petroleum and ExxonMobil signed definitive agreements to cause the associated company Terminale GNL Adriatico Srl (formerly Edison LNG) to build an offshore LNG receiving and regasification terminal. The terminal, scheduled for startup by the end of 2007, will have a regasification capacity of 8 billion cubic meters a year.
  • At a meeting in Athens on June 24, 2005, Edison and DEPA, Greece's national natural gas company, signed a Protocol of Intent to build a natural gas pipeline linking Italy and Greece. The signing of the Protocol was followed by the signing of an intra-government agreement by the relevant Italian and Greek Ministries. The pipeline, which will have a transmission capacity of 8 billion cubic meters of natural gas a year, is expected to go on stream in 2010. The facility will have no effect on the environment, since nothing will be released into the atmosphere or the sea, and it will have virtually no visual impact.
  • On October 24, 2005, Edison inaugurated a thermoelectric power plant in Candela, a town in the province of Foggia. This new 380-MW facility is the most efficient and environmentally compatible power plant in Italy and the first of the projects in the Edison industrial plan to be completed.
  • In 2005, as conditions in the Italian market changed and the government stepped up pressure to increase competition, ENI reactivated projects it had announced in 2002 but had shelved due to a potential capacity overhang in Italy. These projects involved increasing the capacity of the Tunisian section of the Mattei gas pipeline, which ENI uses to import natural gas from Algeria (TTPC), and of the TAG gas pipeline, which crosses Austrian territory to deliver Russian natural gas. ENI announced that the first phase would be completed by 2008 (adding about 3.2 billion cubic meters a year in new capacity to each pipeline). It also began the process of allocating transmission capacity as of May 2005 for the TTPC and as of November 2005 for the TAG. Anticipating the Group's growing need for natural gas supplies in the coming years and taking into account the close commercial relationships that the Group has developed since the 1990s with pipeline suppliers, Edison took advantage of the opportunity provided by the expansion of the ENI gas pipelines for the importation of Algerian and Russian natural gas by choosing to participate in the process of allocating the additional capacity that both pipelines will deliver. As a result of this process, Edison gained additional capacity totaling about 2 billion cubic meters a year of Algerian gas from the TTPC pipeline (starting in 2008) and about 20 million cubic meters a year of Russian gas from the TAG pipeline.
  • In 2005, as conditions in the Italian market changed and the government stepped up pressure to increase competition, ENI reactivated projects it had announced in 2002 but had shelved due to a potential capacity overhang in Italy. These projects involved increasing the capacity of the Tunisian section of the Mattei gas pipeline, which ENI uses to import natural gas from Algeria (TTPC), and of the TAG gas pipeline, which crosses Austrian territory to deliver Russian natural gas. ENI announced that the first phase would be completed by 2008 (adding about 3.2 billion cubic meters a year in new capacity to each pipeline). It also began the process of allocating transmission capacity as of May 2005 for the TTPC and as of November 2005 for the TAG. Anticipating the Group's growing need for natural gas supplies in the coming years and taking into account the close commercial relationships that the Group has developed since the 1990s with pipeline suppliers, Edison took advantage of the opportunity provided by the expansion of the ENI gas pipelines for the importation of Algerian and Russian natural gas by choosing to participate in the process of allocating the additional capacity that both pipelines will deliver. As a result of this process, Edison gained additional capacity totaling about 2 billion cubic meters a year of Algerian gas from the TTPC pipeline (starting in 2008) and about 20 million cubic meters a year of Russian gas from the TAG pipeline.
  • On July 29, 2005, Edison sold on the block market 91,807,000 AEM Spa shares. This block of shares, which was equal to 5.1% of AEM's share capital, was sold at a price of 1.7592 euros per share, generating total proceeds of 161.5 million euros. This transaction improved the Group's financial position by the same amount and generated a gain of about 20 million euros.
  • On October 25, 2005, Edison completed the sale of 100% of the share capital of Tecnimont Spa to Maire Tecnimont Spa, a company of the Maire Group. Concurrently with the sale, Edison subscribed a capital increase, paying 50 million euros for a 19.5% interest in Maire Tecnimont Spa. Edison's investment is assisted by a put-and-call option that can be exercised after three years. Edison chose to exercise its put option immediately. The sales price for Tecnimont was set at 180 million euros, generating a net gain of about 80 million euros in Edison's consolidated financial statements but will not have a material effect on the net consolidated financial position.
  • On November 30, 2005, Edison purchased a 20% interest in Finel Spa from EdF International Sa, which partially exercised its right to terminate its investment in Finel's share capital. Edison had granted EdF International this investment termination right upon the transfer to Edison of the investment in Ise, the electric power and steam production and distribution company that represented Finel's sole industrial asset. Consistent with prior agreements, Edison paid EdF International a price of about 152 million euros, equal to 20% of the book value of Finel's shareholders' equity at September 30, 2005, for a 20% interest in Finel's share capital. Finel's assets consist of cash investments. This transaction will have an impact of equal amount on Edison's financial position.
  • On May 19, 2005, based on analyses completed in February, the rating agency Moody's Investors Services boosted the credit of Edison Spa and the Selm Holding International Sa subsidiary from Baa3 to Baa2.
  • On June 1, 2005, Edison and Bunge signed an agreement that permanently and definitively settled any and all claims that may arise from the obligations undertaken by Edison pursuant to a contract (executed in 2002) to sell its interest in Cereol. Under the settlement, Edison paid Bunge US$85 million. This transaction did not have an impact on Edison's earnings, since the Company carries ample provision on its balance sheet.
  • On September 16, 2005, Transalpina di Energia Srl purchased 63.3% of the common shares of Edison Spa and 240,000 Edison warrants, which are convertible into Edison common shares, from Italenergia Bis Spa. The price paid was 1.55 euros per share and 0.59 euros per warrant. The entire share capital of Transalpina di Energia is owned in equal shares by WGRM Holding 4 Spa, a wholly-owned subsidiary of Electricité de France Sa (EdF), and Delmi, a subsidiary of AEM Spa.
This transaction was made possible by a framework agreement that WGRM, EdF, Delmi and AEM signed on May 12, 2005 in anticipation of their joint purchase of Edison Spa.
Following its acquisition of Edison Spa, Transalpina di Energia Srl launched a mandatory tender offer for the Edison common shares and a voluntary tender offer for the Edison 2007 Common Share Warrants. On September 26, 2005, Edison's Board of Directors, based on the opinion of its financial advisor, Credit Suisse First Boston, concluded that the price of 1.86 euros per share and 0.87 euros per warrant offered by Transalpina di Energia was fair. The tender offer was completed successfully on October 26, 2005 and 93.7% of the shares and 40.22% of the warrants were tendered.
In response to changes in Edison's shareholder base brought about by the purchase of a controlling interest by TdE, the Directors elected at an earlier Shareholders' Meeting held on April 19, 2005 resigned. On October 28, 2005, the Shareholders' Meeting of Edison Spa elected a new Board of Directors, determining the Board's composition and annual compensation. Subsequently, on December 13, 2005, the Shareholders' Meeting approved amendments to the Company Bylaws required by the new system of corporate governance instituted pursuant to the agreements reached by EdF and Delmi.
The transactions listed above, as well as other significant transactions, are reviewed in detail in the Report on Operations prepared by the Board of Directors.