Risk management

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The Risk Control And Management Model implemented at the company ensures coordination of a series of strategic, operational activities that enable the company to ensure that objectives will be met with a certain degree of certainty.

For the Enagás Group, risk management represents a competitive edge in business development. It has therefore carried out a project to review and redesign the risk function in order to turn the risk function into a business tool that creates value, and set up a risk information system that is extendible to and useful for decision-making.

Throughout 2015, the corporate governance framework in Spain was strengthened (Corporate Enterprise Act and Good Governance Code of Listed Companies), which had major implications for risk function. Specifically, the minimum content of the ‘Risk Control and Management Policy’ was established, as well as specific responsibilities in the corporate risk management unit for its ordinary and strategic activities.

Throughout 2015, there was a downwards trend in the company's risk profile, partly arising from the implementation of corporate risk control and management systems. This allowed certain risks to be eliminated from the company's inventory, without their having any negative impact. They included:

  • Regulatory developments that allowed certain issues pending regulatory reform to be finally concluded.
  • Increased demand for gas transmission, regasification and storage infrastructures, in line with provisions, with no negative effects on the corresponding remuneration.
  • In the ambit of international business: i) administrative authorisations were obtained, thereby avoiding cost-overruns due to project delays, ii) disciplinary files with penalties were favourably resolved and iii) construction projects were completed.
RESPONSIBILITIES IN RISK IDENTIFICATION AND MANAGEMENT
 
Risk identification and measurementReporting the company's risk level (Risk Map)Determination of risk appetite (risk limits)Risk management and control
Heads of each Division (owners of the risks)  Heads of each Division (owners of the risks)
Corporate risk managementCorporate risk managementCorporate risk managementCorporate risk management
 Risk CommitteeRisk CommitteeRisk Committee
 Management Committee  
 Audit and Compliance Committee Audit and Compliance Committee
   Board of Directors

Likewise, the level of certain inventory risks was reduced, including:

  • Favourable rulings in legal disputes arising from varying interpretations of port taxes.
  • Reduced own consumption by regasification plants through the implementation of energy efficiency measures that cut operating cost-overruns.

The update of the company's risk map includes the following impacts arising from both the socio-economic context and our own actions, as shown in the 2015 Enagás Group Risk Map.

MAIN RISKS FOR THE ENAGÁS GROUP

Main risks for the Enagás Group.

1. Changes to the remuneration model for transmission, regasification and underground storage in Spain.
2. Lower demand than expected, affecting remuneration in Spain.
3. Acknowledgement of remuneration for investments made over previous years with regulatory discrepancies.
4. Delays in obtaining administrative authorisations to develop new projects.
5. Long-term non-utilisation of dormant assets. Indefinite extension of non-utilisation of assets (Spain).
6. Loss of legal disputes in Spain.
7. Cost of repairs to transmission infrastructures.
8. Cost-overruns when purchasing emission rights deficit.
9. Performance in shrinkage that was greater than acknowledged.
10. Assets under construction in planned investment projects in Spain. 
11. Performance in efficiency factors regarding provision of information.
12. Commercial risk arising from variations in demand and negotiating industrial customers' tariffs (international).
13. Cost-overruns due to construction delays (international).
14. Cost-overruns due to delays in administrative processes (international).
15. Delays in project financing (international).
16. Incidents, unavailability and interruption in infrastructures.
17. Fraud or unauthorised activities and cybersecurity.
18. Reputational risks.
19. Credit and counterparty risks.
20. Financial (liquidity, interest rate and exchange rate) and tax risks.

 

THE ENAGÁS GROUP'S MAIN RISKS
RisksType of riskMitigating controls and actions defined
1. Changes to the remuneration model for transmission, regasification and underground storage in Spain.Strategic and
business 
  • Ongoing working relationship with domestic and European regulatory bodies and government bodies.
  • Regulatory development proposals made in relation to changes in the remuneration system.
  • Active participation in gas sector agent associations.
  • Internal procedures related to these events.
2. Lower demand than expected, affecting remuneration in Spain.Strategic and
business 
  • Participation in both national and European projects to promote natural gas as a fuel. 
  • Dialogue with other companies in the sector to promote the use of natural gas. 
  • Internal procedures encompassing the criteria and process for studying the evolution of demand, gas system capacity, sensitivity analysis, etc.
3. Acknowledgement of remuneration for investments made over previous years with regulatory discrepancies.Strategic and
business 
  • Ongoing working relationship with regulatory bodies and government bodies.
  • Regular monitoring of the status of ongoing judicial procedures.
  • Internal procedures related to these events.
4. Delays in obtaining administrative authorisations to develop new projects.Strategic and
business 
  • Ongoing working relationship with regulatory bodies and government bodies.
  • Regular monitoring of the status of the authorisation handling process.
  • Internal procedures for handling administrative authorisations.
5. Long-term non-utilisation of dormant assets. Indefinite extension of non-utilisation of assets (Spain).Strategic and
business
  • Negotiations with government bodies and regulatory bodies.
  • Seeking alternative uses.
  • Internal procedures for the accounting treatment of asset impairment.
6. Loss of legal disputes in Spain.Strategic and
business
  • Management and regular monitoring of the status of ongoing disputes.
  • Monitoring of existing situation with corresponding administrative authorities.
  • Negotiations with shippers to reach out-of-court settlements.
7. Cost of repairs to transmission infrastructures.Strategic and
business
  • Negotiations with counterparty to consider the incident as their responsibility.
  • Contracts limiting Enagás' extent of liability and harmonisation of insurance programmes.
8. Cost-overruns when purchasing emission rights deficit.Strategic and
business
  • Energy efficiency initiatives adopted at regasification plants. 
  • Strategy for covering deficit through the purchase of CERs and EUAs, based on expectations of price developments.
9. Performance in shrinkage that was greater than acknowledged.Strategic and
business
  • Actions on measuring equipment for calibration thereof. 
  • Regulatory treatment of standard acknowledged shrinkage.
10. Assets under construction in planned investment projects in Spain.Strategic and
business
  • Periodic review of the status of material in storage and projects in order to post potential losses.
  • Allocation of material to other projects.
  • Specific regulatory treatment for delayed projects (annual extensions or communications for specific projects).
11. Performance in efficiency factors regarding provision of information. Strategic and
business
  • Implementation of adjustments that will be required in the SLM system.
  • Analysis of possible effects and consequent actions.
12. Commercial risk arising from variations in demand and negotiating industrial customers' tariffs (international).Strategic and
business
  • Negotiation of more flexible tariffs to meet customers' needs.
  • Development of a business plan with a customer overview within a regulatory framework.
  • Development of new projects to increase the demand for gas.
13. Cost-overruns due to construction delays (international).Strategic and
business
  • Setting up of a local working group in order to resolve disputes between stakeholders, as well as improving those related to administration.
  • Adjustment of construction plans to reflect potential delays.
14. Cost-overruns due to delays in administrative processes (international).Strategic and
business
  • Holding top-level meetings to address the issue.
  • Ensure legal and technical resources tasked with preparation of the defence.
  • Legal interventions to defend the validation of administrative processes.
  • Promotion plan with local authorities.
  • Defence plan with key international players.
15. Delays in project financing (international).Strategic and
business
  • Incorporation of a new strategic partner.
  • Ongoing relationship and negotiations with financial institutions.
16. Incidents, unavailability and interruption in infrastructures.Operational and technological
  • Staff training and qualifications.
  • Application of policies and procedures.
  • Implementation of maintenance plans and constant improvement thereof, and definition and monitoring of quality indicators.
  • Control systems and alarms to guarantee continuity and quality of service.
  • Control of physical access to facilities, buildings and plants.
  • Quality, prevention and environmental certifications (ISO 9001, OHSAS 18001, ISO 14001 and ISO 9001:2008).
  • Analysis of the desirability of making gas measuring and quality equipment redundant.
  • Verification of the design, selection and execution of works or facilities and technical specifications for services, equipment and systems.
  • Existence of emergency plans.
17. Fraud or unauthorised activities and 'cybersecurity'.Operational and technological
  • Code of Ethics, Ethics Channel and reporting to the Ethical Compliance Committee.
  • Enagás Group's Crime Prevention Model.
  • System for Internal Control over Financial Reporting and Monitoring of Compliance with Laws and Regulations (Personal Data Protection Act).
  • Centralisation of the Security Function of Information Systems.
  • Conducting of internal audits (AI, ICFR, Forensic, Personal Data Protection Act, etc.).
  • Control of access to systems and data (user access and profiles).
  • Establishment of limits and authorisations.
18. Reputational risks.Reputational
  • General Regulations for Communication in Crisis Situations (GRCCS), defining the communication flows and those responsible for them. Delivery of training in the application of the GRCCS. Likewise, publication of the GRCCS on the Enagás Intranet.
  • Monthly tracking of information that is damaging and/or potentially damaging to the company (press clipping and online reputation on social media, blogs, etc.).
  • Cross-referencing of negative news items and reputational risks that are most critical to the company as a whole.
  • Issuing of press releases.
  • Fluent, direct communication with stakeholders.
19. Credit and counterparty risks.Credit and counterparty
  • Diversification policy among high rating entities, maintaining a balance between credit and debt positions.
  • The company is in the process of agreeing a reciprocal netting clause with most of its banks to reinforce its position in the event of breaches by these institutions.
20. Financial (liquidity, interest rate and exchange rate) and tax risks.Financial and tax-related
  • Liquidity policy reviewed regularly by the Board of Directors.
  • Periodic sensitivity and what-if analysis of interest rate movements on the company's financing costs and their impact on the interest cover ratios.
  • Analysis of the company's optimum financing structure and arrangement of appropriate hedges.
  • Engagement of tax advisors.
  • Internal financial and tax procedures.