The following reports the main contingent assets and liabilities at December 31, 2019, which are not recognized in the financial statements as they do not meet the requirements provided for in IAS 37.
Brindisi Sud thermal generation plant - Criminal proceedings against Enel employees
A criminal proceeding was held before the Court of Brindisi concerning the Brindisi Sud thermal plant. A number of employees of Enel Produzione – cited as a liable party in civil litigation – have been accused of causing criminal damage and dumping of hazardous substances with regard to the alleged contamination of land adjacent to the plant with coal dust as a result of actions between 1999 and 2011. At the end of 2013, the accusations were extended to cover 2012 and 2013. As part of the proceeding, injured parties, including the Province and City of Brindisi, have submitted claims for total damages of about €1.4 billion. In its decision of October 26, 2016, the Court of Brindisi:
(i) acquitted nine of the thirteen defendants (employees/managers of Enel Produzione) for not having committed the offense;
(ii) ruled that it did not have to proceed as the offense was time-barred for two of the defendants;
(and iii) convicted the remaining two defendants, sentencing them with all the allowances provided for by law to nine months’ imprisonment.
With regard to payment of damages, the Court’s ruling also:
(i) denied all claims of public parties and associations acting in the criminal proceeding to recover damages; and
(ii) granted most of the claims filed by the private parties acting to recover damages, referring the latter to the civil courts for quantification without granting a provisional award.
The convicted employees and the civil defendant, Enel Produzione, as well as by the employee for whom the expiry of period of limitations had been declared, appealed the conviction. On February 8, 2019, the Lecce Court of Appeal:
(i) confirmed the trial court ruling regarding the criminal convictions of two Enel Produzione executives;
(ii) denied the claims for damages of some private appellants;
(iii) granted some claims for damages, which had been denied in the trial court, referring the parties, like the others – whose claims had been granted by the trial court – to the civil courts for quantification, without granting a provisional award;
(iv) confirmed for the rest the ruling of the Court of Brindisi except for extending litigation costs to the Province of Brindisi, which had not been awarded damages at either the trial court or on appeal.
With a subsequent ruling, the Court of Appeal of Lecce granted the appeal lodged by the Province of Brindisi against the ruling, acknowledging that a material error had been made This document has been edited with the instant web content composer which can be found at htmleditor.tools - give it a try. and therefore recognizing the generic entitlement of the Province to damages. The defendants filed an appeal against ruling with the Court of Cassation on June 22, 2019. Criminal proceedings are also under way before the Courts of Reggio Calabria and Vibo Valentia against a number of employees of Enel Produzione for the offense of illegal waste disposal in connection with alleged violations concerning the disposal of waste from the Brindisi plant.
Enel Produzione has not been cited as a liable party for civil damages. The criminal proceedings before the Court of Reggio Calabria ended with the hearing of June 23, 2016. The court acquitted nearly all of the Enel defendants of the main charges because no crime was committed. Just one case was dismissed under the statute of limitations.
Similarly, all of the remaining charges involving minor offenses were dismissed under the statute of limitations. The proceedings before the Court of Vibo Valentia are still pending and are currently in the testimony phase, as the court ruled that the offenses could not be dismissed under the statute of limitations.
At a hearing on February 24, 2020, the Prosecution’s expert witness testified and the proceedings will continue on April 27, 2020.
Enel Energia and Servizio Elettrico Nazionale antitrust proceeding
On May 11, 2017, the Competition Authority announced the beginning proceedings for alleged abuse of a dominant position under Article 102 of the Treaty on the Functioning of the European Union (TFEU) against Enel SpA (Enel), Enel Energia SpA (EE) and Servizio Elettrico Nazionale SpA (SEN), alleging, inter alia, that they had engaged in an exclusionary strategy, using a series of non-replicable commercial stratagems capable of hindering their non-integrated competitors to the benefit of the Group’s company operating on the free market (EE).
On December 20, 2018 the Competition Authority adopted its final ruling, subsequently notified to the parties on January 8, 2019, with which it levied a fine on Enel SpA, SEN and EE of €93,084,790.50, for abuse of a dominant position in violation of Article 102 of the TFEU. The disputed conduct consisted in the adoption of an exclusionary strategy through the illegitimate use of the data on regulated market customers acquired as part of the privacy consent mechanism for commercial purposes.
With regard to other allegations made with the measure to initiate the proceeding, concerning the organization and performance of sales activities at physical locations (Enel Points and Enel Point Partner Shops) and winback policies, the Competition Authority reached the conclusion that the preliminary findings did not provide sufficient evidence of any abusive conduct on the part of Enel Group companies. SEN, EE and Enel appealed the ruling before the Lazio Regional Administrative Court. With judgments issued on October 17, 2019, the Lazio Regional Administrative Court:
(i) partially granted the appeals of EE and SEN concerning the illegitimacy of the determination of the penalty, which it has, as a result, voided, ordering the Competition Authority to recalculate of the sanction on the basis of specific parameters which were defined by the Lazio Regional Administrative Court in the final rulings, with particular regard to the substantial reduction in the period over which the alleged offense was said to have occurred;
(ii) denied Enel’s appeal relating only to the parental liability attributed to it as the parent company.
The three companies filed an appeal before the Council of State, with EE and SEN, in particular, arguing that the reduction in the period of the alleged abuse referred to in the judgments of the Lazio Regional Administrative Court partially granting the appeals was not appropriate, while Enel argued that its petition should be granted in full. The Competition Authority also filed a cross appeal against the rulings of the Lazio Regional Administrative Court, asking for restoration of the original situation. Pending the preparation and notification of the appeals, on December 6, 2019, the Competition Authority, with its own measure notified on December 13, 2019, recalculated the penalty, reducing it to €27,529,786.46. SEN, EE and Enel therefore notified the Competition Authority and filed with the Council of State a petition to suspend enforcement of the penalty, even in its restated amount, requesting the suspension of the related payment until the appeal was decided.
At the pre-trial hearing, held on February 20, 2020, this petition was not discussed in consideration of the supervening action of the Council of State to set a date for the hearing of the arguments in the dispute and the consequent final decision for May 21, 2020.
Following an arbitration proceeding initiated by BEG SpA in Italy, Enelpower obtained a ruling in its favor in 2002, which was upheld by the Court of Cassation in 2010, which entirely rejected the complaint with regard to alleged breach by Enelpower of an agreement concerning the construction of a hydroelectric power station in Albania. Subsequently, BEG, acting through its subsidiary Albania BEG Ambient, filed suit against Enelpower and Enel SpA in Albania concerning the 320 Consolidated Annual Report 2019 matter, obtaining a ruling from the District Court of Tirana, upheld by the Albanian Court of Cassation, ordering Enelpower and Enel to pay tortious damages of about €25 million for 2004 as well as an unspecified amount of tortious damages for subsequent years. Following the ruling, Albania BEG Ambient demanded payment of more than €430 million from Enel.
With a ruling of June 16, 2015, the first level was completed in the additional suit lodged by Enelpower SpA and Enel SpA with the Court of Rome asking the Court to ascertain the liability of BEG SpA for having evaded compliance with the arbitration ruling issued in Italy in favor of Enelpower SpA through the legal action taken by Albania BEG Ambient Shpk. With this action, Enelpower SpA and Enel SpA asked the Court to find BEG liable and order it to pay damages in the amount that the other could be required to pay to Albania BEG Ambient Shpk in the event of the enforcement of the sentence issued by the Albanian courts. With the ruling, the Court of Rome found that BEG SpA did not have standing to be sued, or alternatively, that the request was not admissible for lack of an interest for Enel SpA and Enelpower SpA to sue, as the Albanian ruling had not yet been declared enforceable in any court. The Court ordered the setting off of court costs. Enel SpA and Enelpower SpA appealed the ruling before the Rome Court of Appeal, asking that it be overturned in full.
The next hearing, scheduled for November 13, 2019, was postponed until May 7, 2020. On November 5, 2016, Enel SpA and Enelpower SpA filed a petition with the Albanian Court of Cassation, asking for the ruling issued by the District Court of Tirana on March 24, 2009 to be voided.
The proceeding is still pending.
Proceedings undertaken by Albania BEG Ambient Shpk to obtain enforcement of the ruling of the District Court of Tirana of March 24, 2009
Albania BEG Ambient Shpk had initiated two proceedings requesting execution of the Albanian sentence before the courts of the State of New York and Ireland, which both ruled in favor of Enel SpA and Enelpower SpA, respectively, on February 23 and February 26, 2018. Accordingly, there are no lawsuits pending in Ireland or New York State.
In February 2012, Albania BEG Ambient filed suit against Enel SpA and Enelpower SpA with the Tribunal de Grande Instance in Paris in order to render the ruling of the Albanian court enforceable in France.
Enel SpA and Enelpower SpA challenged the suit. Following the beginning of the case before the Tribunal de Grande Instance, again at the initiative of BEG Ambient, between 2012 and 2013 Enel France was served with two “Saise Conservatoire de Créances” (orders for the precautionary attachment of receivables) to conserve any receivables of Enel SpA in respect of Enel France. On January 29, 2018, the Tribunal de Grande Instance issued a ruling in favor of Enel and Enelpower, denying Albania BEG Ambient Shpk the recognition and enforcement of the Tirana court’s ruling in France for lack of the requirements under French law for the purposes of granting exequatur. Among other issues, the Tribunal de Grande Instance ruled that:
(i) the Albanian ruling conflicted with an existing decision, in this case the arbitration ruling of 2002 and that
(ii) the fact that BEG sought to obtain in Albania what it was not able to obtain in the Italian arbitration proceeding, resubmitting the same claim through Albania BEG Ambient Shpk, represented fraud.
Albania BEG Ambient Shpk appealed the ruling. The hearing before the Paris Court of Appeal is scheduled for June 9, 2020 and briefs are being exchanged between the parties.
At the end of July 2014, Albania BEG Ambient Shpk filed suit with the Court of Amsterdam to render the ruling of the Albanian court enforceable in the Netherlands. On June 29, 2016, the court filed its judgment, which:
(i) ruled that the Albanian ruling meet the requirements for recognition and enforcement in the Netherlands;
(ii) ordered Enel and Enelpower to pay €433,091,870.00 to Albania BEG Ambient Shpk, in addition to costs and ancillary charges of €60,673.78; and
(iii) denied Albania BEG Ambient Shpk’s request to declare the ruling provisionally enforceable.
On June 29, 2016, Enel and Enelpower filed appeals against the ruling of the Court of Amsterdam issued on the same date. On September 27, 2016, Albania BEG Ambient also appealed the court’s ruling of June 29, 2016, to request the reversal of its partial loss on the merits. On April 11, 2017, the Amsterdam Court of Appeal granted the request of Enel and Enelpower to join to two pending appeals.
In a ruling of July 17, 2018, the Amsterdam Court of Appeal upheld the appeal advanced by Enel and Enelpower, ruling that the Albanian judgment cannot be recognized and enforced in the Netherlands. The Court of Appeal found that the Albanian decision was arbitrary and manifestly unreasonable and therefore contrary to Dutch public order. For these reasons, the court did not consider it necessary to analyze the additional arguments of Enel and Enelpower.
The proceeding before the Court of Appeal continued with regard to the subordinate question raised by Albania BEG Ambient Shpk in the appeal proceedings, with which it is asking the court to rule on the merits of the dispute in Albania and in particular the alleged non-contractual liability of Enel and Enelpower in the failure to build the plant in Albania. On December 3, 2019, the Amsterdam Court of Appeal issued a ruling in which it quashed the trial court judgment of June 29, 2016, rejecting any claim made by Albania BEG Ambient Shpk.
The Court came to this conclusion after affirming its jurisdiction over Albania BEG Ambient Shpk’s subordinate claim and re-analyzing the merits of the case under Albanian law. Enel and Enelpower are therefore not liable to pay any amount to Albania BEG Ambient Shpk, which was in fact ordered by the Court of Appeal to reimburse the appellant companies for the losses incurred in illegitimate conservative seizures, to be quantified as part of a specific procedure, and the costs of the trial and appeal proceedings.
On March 3, 2020, it was learned that Albania BEG Ambient Shpk had filed an appeal with the Supreme Court of the Netherlands.
In Luxembourg, again at the initiative of Albania BEG Ambient Shpk, J.P. Morgan Bank Luxembourg SA was also served with an order for the precautionary attachment of any receivables of Enel SpA. In parallel Albania BEG Ambient Shpk filed a claim to obtain enforcement of the ruling of the Court of Tirana in that country. The proceeding is still under way and briefs are being exchanged between the parties. No ruling has been issued.
Violations of Legislative Decree 231/2001
On August 10, 2018, a direct summons for judgment was notified to e-distribuzione to appear before the Court of Milan on May 23, 2019. In addition to e-distribuzione SpA, the proceeding involves one of its employees, as well as a number of third-party companies and their representatives, concerning alleged violations of Legislative Decree 231/2001 on the administrative liability of legal persons.
The proceeding was initiated for the alleged commission of the crime of unauthorized handling of waste (Article 256 of the Uniform Environmental Code) and for the violation of the provisions of the Code of Cultural Heritage (Legislative Decree 42/2004) in relation to works to remove a power line.
On January 16, 2020, the last hearing was held, in which the Milan prosecutor’s office argued for the acquittal of the employee of e-distribuzione SpA (and, consequently, of the company pursuant to Legislative Decree 231/2001), which was then confirmed by the acquittal ruling issued by the Court of Milan on January 23, 2020.
Environmental incentives - Spain
Following the Decision of the European Commission of November 27, 2017 on the issue of environmental incentives for thermal power plants, the European Commission’s Directorate- General for Competition opened an investigation pursuant to Article 108, paragraph 2, of the Treaty on the Functioning of the European Union (TFEU) in order to assess whether the environmental incentive for coal power plants provided for in Order ITC/3860/2007 represents State aid compatible with the internal market.
According to a literal interpretation of that Decision, the Commission reached the preliminary conclusion that the incentive in question would constitute State aid pursuant to Article 107, paragraph 1, of the TFEU, expressing doubts about the compatibility of the incentive with the internal market while recognizing that the incentives are in line with the European Union’s environmental policy. On April 13, 2018, Endesa Generación SA, acting as an interested third party, submitted comments contesting this interpretation, while on July 30, 2018, it was learned that Gas Natural had appealed the decision of the Commission.
Bono Social - Spain
With the rulings of October 24 and 25, 2016 and November 2, 2016, the Spanish Supreme Court declared Article 45.4 of the Electricity Industry Law no. 24 of December 26, 2013 void for incompatibility with Directive 2009/72/EC of the European Parliament and of the Council of July 13, 2009, granting the appeals filed by Endesa against the obligation to finance the “Bono Social” (Social Bonus) mechanism. The Supreme Court recognized Endesa’s right to receive all amounts that had been paid to users, in addition to legal interest (equal to about €214 million), under the “Bono Social” system, provided for in the law declared void by the Supreme Court.
The government challenged these rulings of the Supreme Court, requesting that they be overturned, but the related appeals were denied. Subsequently, the government initiated two proceedings before the Constitutional Court requesting the reopening of the Supreme Court proceedings so that the latter may ask for a preliminary ruling from the European Court of Justice. The Constitutional Court granted the appeals and a preliminary ruling on the petition before the European Court of Justice is pending. The government has not requested the
repayment of any sum so far.
Furnas-Tractebel litigation – Brazil
In 1998 the Brazilian company CIEN (now Enel CIEN) signed an agreement with Tractebel for the delivery of electricity from Argentina through its Argentina-Brazil interconnection line. As a result of Argentine regulatory changes introduced as a consequence of the economic crisis in 2002, CIEN was unable to make the electricity available to Tractebel. In October 2009, Tractebel sued CIEN, which submitted its defense. CIEN cited force majeure as a result of the Argentine crisis as the main argument in its defense.
Out of court, the Tractebel has indicated that it plans to acquire 30% of the interconnection line involved in the dispute. In March 2014, the court had granted CIEN’s motion to suspend the proceedings in view of the existence of other litigation pending between the parties. On February 14, 2019, CIEN received notice of an order reopening the proceeding, with the beginning of expert witness operations.
The amount involved in the dispute is estimated at about R$118 million (about €28 million), plus unspecified damages. For analogous reasons, in May 2010 Furnas had also filed suit against CIEN for failure to deliver electricity, requesting payment of about R$520 million (about €124 million), in addition to unspecified damages, seeking to acquire ownership (in this case 70%) of the interconnection line. The proceeding was decided in CIEN’s favor with a ruling of the Tribunal de Justiça with a definitive ruling of October 18, 2019, which denied all of the claims of Furnas.
Cibran litigation - Brazil
Companhia Brasileira de Antibióticos (Cibran) has filed six suits against Ampla Energia e Serviços SA (Ampla) to obtain damages for alleged losses incurred as a result of the interruption of electricity service by the Brazilian distribution company between 1987 and 2002, in addition to non-pecuniary damages. The Court ordered a unified technical appraisal for those cases, the findings of which were partly unfavorable to Ampla. The latter challenged the findings, asking for a new study, which led to the denial of part of Cibran’s petitions. Cibran subsequently appealed the decision and the ruling was in favor of Ampla.
The first suit, filed in 1999 and regarding the years from 1994 to 1999, was adjudicated in September 2014 when the court of first instance issued a ruling against Ampla, levying a fine of about R$200,000 (about €46,000) as well as other damages to be quantified at a later stage. Ampla appealed the ruling and the appeal was upheld by the Tribunal de Justiça. In response, on December 16, 2016, Cibran filed an appeal (recurso especial) before the Superior Tribunal de Justiça, and the proceeding is under way. With regard to the second case, filed in 2006 and regarding the years from 1987 to 2002, on June 1, 2015, the courts issued a ruling ordering Ampla to pay R$80,000 Brazilian (about €19,000) in non-pecuniary damages as well as R$96,465,103 (about €23 million) in pecuniary damages, plus interest.
On July 8, 2015 Ampla appealed the decision with the Tribunal de Justiça of Rio de Janeiro, which on November 6, 2019 issued a ruling granting Ampla’s petition and denying all of Cibran’s claims. On November 25, 2019, Cibran appealed the ruling of the Tribunal de Justiça of Rio de Janeiro and the proceeding is pending. Decisions at first instance are still pending with regard to the remaining four suits. The value of all the disputes is estimated at about R$524 million (about €116 million).
Coperva litigation - Brazil
As part of the project to expand the grid in rural areas of Brazil, in 1982 Companhia Energética do Ceará SA (Coelce), then owned by the Brazilian government and now an Enel Group company, had entered into contracts for the use of the grids of a number of cooperatives established specifically to pursue the expansion project. The contracts provided for the payment of a monthly fee by Coelce, which was also required to maintain the networks. Those contracts, between cooperatives established in special circumstances and the then public-sector company, do not specifically identify the grids governed by the agreements, which has prompted a number of the cooperatives to sue Coelce asking for, among other things, a revision of the fees agreed in the contracts. These actions include the suit filed by Cooperativa de Eletrificação Rural do V do Acarau Ltda (Coperva) with a value of about R$268 million (about €59 million). Coelce was granted rulings in its favor from the trial court and the court of appeal, but Coperva filed a further appeal (Embargo de Declaração), which was denied in a ruling of January 11, 2016. Coperva lodged an extraordinary appeal before the Superior Tribunal de Justiça on February 3, 2016, which was granted on November 5, 2018 for the ruling issued in the previous appeal (Embargo de Declaração). On December 3, 2018, Enel filed an appeal (Agravo Interno) against this ruling of the Superior Tribunal de Justiça. The proceedings are currently pending.
AGM litigation - Brazil
In 1993, Celg Distribuiçao SA - Celg-D (today Enel Distribuição Goiás), the Association of Municipalities of Goiás (AGM), the State of Goiás and the Banca de Goiás reached an agreement (convenio) for the payment of municipal debts to Celg-D through the transfer of the portion of ICMS - Imposto sobre Circulação de Mercadorias e Serviços (VAT) that the State would have transferred to those governments. In 2001 the parties to the agreement were sued by the individual municipal governments to obtain a ruling that the agreement was invalid, a position then upheld by the Supreme Federal Court on the grounds of the non-participation of the local governments themselves in the agreement process. In September 2004, Celg-D reached a settlement with 23 municipalities. Between 2007 and 2008, Celg-D was again sued on numerous occasions (there are currently 90 pending suits) seeking the restitution of amounts paid under the agreement. Despite the ruling that the agreement was void, Celg-D argues that the payment of the debts on the part of the local governments is legitimate, as electricity was supplied in accordance with the supply contracts and, accordingly, the claims for restitution of amounts paid should be denied. The proceedings pending before the Goiás State Court include: (i) a suit filed by the Municipio de Aparecida de Goiânia, which is pending at the preliminary stage at first instance, for an amount of approximately R$565 million (approximately €125 million); (ii) a suit filed by the Municipio de Quirinópolis, also pending at first instance for an amount of about R$303 million (about €67 million); (iii) a suit filed by the Municipio de Anápolis, submitted to the court of first instance after a failed attempt at conciliation between the parties, for an amount of approximately R$294 million (about €64 million). The total value of the suits is equal to about R$4 billion (about €894 million). It is important to emphasize that the contingent liability deriviing from this dispute is covered by the “Funac” provision established during the privatization of Celg-D.
ANEEL litigation - Brazil
In 2014, Eletropaulo (today Enel Distribuição São Paulo) initiated an action before the federal courts seeking to void the administrative measure of ANEEL (the National Electricity Agency), which in 2012 retroactively introduced a negative coefficient to be applied in determining rates for the following regulatory period (2011-2015). With this provision, the Authority ordered the restitution of the value of some components of the network previously included in rates because they were In 2014, Eletropaulo (today Enel Distribuição São Paulo) initiated an action before the federal courts seeking to void the administrative measure of ANEEL (the National Electricity Agency), which in 2012 retroactively introduced a negative coefficient to be applied in determining rates for the following regulatory period (2011-2015). With this provision, the Authority ordered the restitution of the value of some components of the network previously included in rates because they were considered non-existent and denied Eletropaulo’s request to include additional components in rates. On September 9, 2014, the administrative measure of ANEEL was suspended on a precautionary basis. The first-instance proceeding is in its preliminary stages and the value of the suit is R$888 million (about €196 million).
Neoenergia arbitration - Brazil
On June 18, 2018, Neoenergia brought an arbitration action against Electropaulo (today Enel Distribuição São Paulo) before the Câmara de Arbitragem do Mercado (CAM) concerning the investment agreement signed by the two companies on April 16, 2018. Neoenergia alleged unequal treatment of the participants in the procedure for the acquisition of Eletropaulo. On September 3, 2018, Neoenergia modified its claim, abandoning its request for specific execution of the obligation contained in the contract. The current claim is a request for damages for losses caused by alleged non-performance of the investment agreement. A ruling is pending. On February 27, an arbitration ruling was issued denying all of the claims of Neoenergia and ordering it to pay Electropaulo’s arbitration costs.
Fortaleza - Brazil
Petroleo Brasileiro SA - Petrobras, as gas supplier for the Fortaleza plant (Central Geradora Termelétrica Fortaleza - CGTF) in Brazil, announced its intention to terminate the contract between the parties on the grounds that the agreement was allegedly imbalanced financially in consideration of current market conditions. The contract was signed in 2003 as part of the “Priority Thermal Generation Program” established by the Brazilian government in order to increase thermoelectric generation and the security of supply in the country. The program established that the Brazilian government would act as the guarantor of the supply of gas at regulated prices defined by the Brazil’s Ministry of Finance, Mines and Energy.
In order to guarantee the security of electricity supply in Brazil, CGTF initiated legal action in the ordinary courts against Petrobras with a request for precautionary protection, obtaining, at the end of 2017, a court injunction suspending the termination of the contract, which was declared still in force. Subsequently, on February 27, 2018, the court decided to extinguish the action initiated by CGTF before the ordinary courts and, consequently, to revoke the precautionary measure that had permitted the supply of gas. CGTF filed appeals against these latest decisions on both a precautionary and ordinary basis, obtaining a second favorable ruling that enabled the plant to operate for some time but which was subsequently revoked.
CGTF has challenged this decision, confident that the courts will recognize Petrobras’ obligation to perform the contract. The proceeding is still pending. At the end of January 2018, CGTF received an arbitration request from Petrobras in relation to the disputes described above and no decision has yet been issued. Subsequently, a precautionary measure was obtained in favor of CGTF, ordering the suspension of the payment of certain amounts by CGTF to Enel Ceará (the purchaser of the electricity). On October 25, 2018, another precautionary measure was obtained in favor of CGTF, ordering the restoration of Petrobras’ obligation to supply gas. The latter filed an appeal against this decision, which was denied. Petrobras then challenged this decision with a further appeal (Embargo de Declaração), which was also denied on December 5, 2019. On January 27, 2020, Petrobras filed two different types of extraordinary appeal before the Supreme Court and the Federal Court of Brasilia, respectively, to contest this decision.
The proceedings are currently pending
El Quimbo - Colombia
A number of legal actions (“acciones de grupo” and “acciones populares”) brought by residents and fishermen in the affected area are pending with regard to the El Quimbo project for the construction of a 400 MW hydroelectric plant in the region of Huila (Colombia). More specifically, the first acción de grupo, currently in the preliminary stage, was brought by around 1,140 residents of the municipality of Garzón, who claim that the construction of the plant would reduce their business revenue by 30%.
A second action was brought, between August 2011 and December 2012, by residents and businesses/associations of five municipalities of Huila claiming damages related to the closing of a bridge (Paso El Colegio). With regard to acciones populares, or class action lawsuits, in 2008 a suit was filed by a number of residents of the area demanding, among other things, that the environmental permit be suspended. Another acción popular was brought by a number of fish farming companies over the alleged impact that filling the Quimbo basin would have on fishing in the Betania basin downstream from Quimbo. After a number of precautionary rulings, on February 22, 2016, the Huila court issued a ruling allowing generation to continue for six months. The court ordered Emgesa to prepare a technical design that would ensure compliance with oxygen level requirements and to provide collateral of about 20,000,000,000 Colombian pesos (about €5.5 million).
The Huila court sub subsequently extended the six-month time limit, and therefore, in the absence of contrary court rulings the Quimbo plant is continuing to generate electricity as the oxygenation system installed by Emgesa has so far demonstrated that it can maintain the oxygen levels required by the court. On March 22, 2018, ANLA and CAM jointly presented the final report on the monitoring of water quality downstream of the dam of the El Quimbo hydroelectric plant.
Both authorities confirmed the compliance of Emgesa with the oxygen level requirements. On June 15, 2018, Emgesa filed its final pleadings and is waiting for the court to issue its ruling.
Nivel de Tensión Uno proceedings - Colombia
This dispute involves an “acción de grupo” brought by Centro Médico de la Sabana hospital and other parties against Codensa seeking restitution of allegedly excess rates. The action is based upon the alleged failure of Codensa to apply a subsidized rate that they claim the users should have paid as Tensión Uno category users (voltage of less than 1 kV) and owners of infrastructure, as established in Resolution no. 82/2002, as amended by Resolution no. 97/2008. The suit is at a preliminary stage. The estimated value of the proceeding is about 337 billion Colombian pesos (about €96 million).
Arbitration proceedings in Colombia
On October 8, 2018 the Grupo Energía de Bogotá (GEB) (which holds about 51.5% of Emgesa and Codensa) announced that it had started arbitration proceedings before the Centro de Arbitraje y Conciliación de la Cámara de Comercio de Bogotá against Enel Américas SA for an alleged breach of contract in relation to the non-distribution of dividends in the 2016, 2017 and 2018 financial years for the companies Emgesa and Codensa and for the failure to comply with certain provisions of the shareholders’ agreement. The GEB is claiming damages of about €514 million plus interest.
The procedure is in the preliminary phase. In parallel, GEB also initiated, respectively, 17 arbitration proceedings against Codensa and 20 against Emgesa, for a total of 37 pending disputes (now joined into two separate proceedings for each company), in an attempt to void the decisions of the Junta Directiva and shareholders’ meetings of the defendant companies for alleged violation of mandatory rules, defect of absolute nullity for illegality of motive and subject matter and alleged violation of shareholders’ agreements. The value of the disputes is undetermined and the proceedings are both in the preliminary phase.
Gabčíkovo dispute - Slovakia
Slovenské elektrárne (“SE”) is involved in a number of cases before the national courts concerning the 720 MW Gabcˇíkovo hydroelectric plant, which is administered by Vodohospodárska Výsatavba Štátny Podnik (“VV”) and whose operation and maintenance, as part of the privatization of SE in 2006, had been entrusted to SE for a period of 30 years under a management agreement (the VEG Operating Agreement). Immediately after the closing of the privatization, the Public Procurement Office (PPO) filed suit with the Court of Bratislava seeking to void the VEG Operating Agreement on the basis of alleged violations of the regulations governing public tenders, qualifying the contract as a service contract and as such governed by those regulations. In November 2011 the trial court ruled in favor of SE, whereupon the PPO immediately appealed the decision. In parallel with the PPO action, VV also filed a number of suits, asking in particular for the voidance of the VEG Operating Agreement.
On December 12, 2014, VV withdrew unilaterally from the VEG Operating Agreement, notifying its termination on March 9, 2015, for breach of contract. On March 9, 2015, the decision of the appeals court overturned the ruling of the trial court and voided the contract as part of the action pursued by the PPO. SE lodged an extraordinary appeal against that decision before the Supreme Court. At a hearing of June 29, 2016, the Supreme Court denied the appeal. SE then appealed the ruling to the Constitutional Court, which denied the appeal on January 18, 2017. In addition, SE lodged a request for arbitration with the Vienna International Arbitral Centre (VIAC) under the VEG Indemnity Agreement. Under that accord, which had been signed as part of the privatization between the National Property Fund (now MH Manazment) of the Slovak Republic and SE, the latter is entitled to an indemnity in the event of the early termination of the VEG Operating Agreement for reasons not attributable to SE.
The arbitration court rejected the objection that it did not have jurisdiction and the arbitration proceeding continued to examine the merits of the case, with a ruling on the amount involved being deferred to any subsequent proceeding. On June 30, 2017, the arbitration court issued its ruling denying the request of SE. In parallel with the arbitration proceeding launched by SE, both VV and MH Manazment filed two suits in the Slovakian courts to void the VEG Indemnity Agreement owing to the alleged connection of the latter with the VEG Operating Agreement. These proceedings were joindered and, on September 27, 2017, a hearing was held before the Court of Bratislava in which the judge denied the request of the plaintiffs for procedural reasons. Both VV and MH Manazment appealed that decision. A decision is pending in the first proceeding initiated by VV, while the appeal filed by MH Manazment was denied by the Bratislava Court of Appeal on June 8, 2019, upholding the decision of the court of first instance in favor of SE. At the local level, SE was sued by VV for alleged unjustified enrichment (estimated at about €360 million plus interest) for the period from 2006 to 2015.
SE filed counter-claims for all of the proceedings under way and, in particular: (i) for 2006, 2007 and 2008, at the hearing of June 26, 2019, the Court of Bratislava denied the claims of both parties for procedural reasons. The ruling in first instance was appealed by both VV and SE and briefs are being exchanged; (ii) for the proceeding regarding 2011, a date for the hearing has yet to be set; (iii) with regard to the proceeding involving 2012, at the hearing of April 24, 2019, the Court denied the petition of VV, which filed an appeal on June 21, 2019 and the appeal is under way; (iv) for the proceedings concerning 2010 and 2013, the hearing of the court of first instance has been set for March 10, 2020. Finally, in another proceeding before the Court of Bratislava, VV asked for SE to return the fee for the transfer from SE to VV of the technology assets of the Gabcˇíkovo plant as part of the privatization, with a value of about €43 million plus interest. The parties exchanged briefs. At the hearing on November 19, 2019, the court issued a preliminary decision on the case in which it noted the lack of standing of VV.
The hearing was adjourned until March 12, 2020 and deadlines have been set for a further exchange of briefs by the parties.
Precautionary administrative proceeding and Chucas arbitration
PH Chucas SA (Chucas) is a special purpose entity established by Enel Green Power Costa Rica SA after it won a tender organized in 2007 by the Instituto Costarricense de Electricidad (ICE) for the construction of a 50 MW hydroelectric plant and the sale of the power generated by the plant to ICE under a build, operate and transfer contract (BOT).
On May 27, 2015, under the provisions of the BOT contract, Chucas initiated an arbitration proceeding before the Cám ara Costarricense-Norteamericana de Comercio (AMCHAM CICA) seeking reimbursement of the additional costs incurred to build the plant and as a result of the delays in completing the project as well as voidance of the fine levied by ICE for alleged delays in finalizing the works.
In a decision issued in December 2017, the arbitration board ruled in Chucas’ favor, granting recognition of the additional costs in the amount of about $113 million (about €91 million) and legal costs and ruling that the fines should not be paid.
ICE appealed the arbitration ruling in the local courts and on September 5, 2019 Chucas was notified of the ruling upholding the ICE’s appeal to void the arbitration ruling for a number of formal procedural reasons. On September 11, 2019, Chucas filed a “recurso de aclaración y adición” with the same court and is awaiting a decision.
GasAtacama Chile - Chile
On August 4, 2016, the Superintendencia de Electricidad y Combustibles (SEC) fined GasAtacama Chile $8.3 million (about 5.8 billion Chilean pesos) for information provided by the latter to the CDEC-SING (Centro de Despacho Económico de Carga) between January 1, 2011 and October 29, 2015, relating to the Minimum Technical and Minimum Operating Time variables at the Atacama plant. GasAtacama Chile appealed this measure with the SEC, which denied the appeal on November 2, 2016. GasAtacama Chile appealed this decision before the Santiago Court of Appeal, which on April 9, 2019, issued a ruling reducing the fine to about $432,000 (about 290 million Chilean pesos). Both GasAtacama Chile and the SEC have appealed this decision before the Supreme Court of Chile. On June 28, 2019, a hearing was held for both parties to submit arguments and on January 15, 2020 the Supreme Court upheld the ruling of the Santiago Court of Appeal, leaving unchanged the reduction in the fine established by that court. In parallel, GasAtacama Chile also filed an appeal before the Constitutional Court, claiming that the legal provisions under which the SEC imposed the fine had been repealed at the time the penalty was issued. On July 17, 2018, the Constitutional Court rejected GasAtacama Chile’s appeal. In relation to this issue, some operators of the Sistema Interconectado del Norte Grande (SING), including Aes Gener SA, Eléctrica Angamos SA and Engie Energía Chile SA, have initiated actions in order to obtain damages in an amount of about €58 million (the former) and about €141 million (the latter two). The disputes were joindered in part in a single proceeding and are currently in the preliminary phase.
Tax litigation in Brazil
Withholding tax - Ampla
In 1998, Ampla Energia e Serviços SA (Ampla) financed the acquisition of Coelce with the issue of bonds in the amount of $350 million (“Fixed Rate Notes” - FRN) subscribed by its Panamanian subsidiary, which had been established to raise funds abroad. Under the special rules then in force, subject to maintaining the bond until 2008, the interest paid by Ampla to its subsidiary was not subject to withholding tax in Brazil. However, the financial crisis of 1998 forced the Panamanian company to refinance itself with its Brazilian parent, which for that purpose obtained loans from local banks.
The tax authorities considered this financing to be the equivalent of the early extinguishment of the bond, with the consequent loss of entitlement to the exemption from withholding tax. In December 2005, Ampla carried out a spin-off that involved the transfer of the residual FRN debt and the associated rights and obligations to Ampla Investimentos e Serviços SA. On November 6, 2012, the Câmara Superior de Recursos Fiscais (the highest level of administrative courts) issued a ruling against Ampla, for which the company promptly asked that body for clarifications. On October 15, 2013, Ampla was notified of the denial of the request for clarification (Embargo de Declaração), thereby upholding the previous adverse decision.
The company provided security for the debt and on June 27, 2014 continued litigation before the ordinary courts (Tribunal de Justiça). In December 2017, the court appointed an expert to examine the issue in greater detail in support of the future ruling. In September 2018, the expert submitted a report, requesting additional documentation.
In December 2018, the company provided the additional documentation and is awaiting the court’s assessment of the arguments and documents presented. The amount involved in the dispute at December 31, 2019 was about €288 million.
PIS - Eletropaulo
In July 2000, Eletropaulo filed suit seeking a tax credit for PIS (Programa Integração Social) paid in application of regulations (Decree Laws 2.445/1988 and 2.449/1988) that were subsequently declared unconstitutional by the Supremo Tribunal Federal (STF). In May 2012, the Superior Tribunal de Justiça (STJ) issued a final ruling in favor of the company that recognized the right to the credit. In 2002, before the issue of that favorable final ruling, the Performance & Metrics Strategy & Risk Management Governance Enel Group Notes to the financial statements 327 Consolidated financial Outlook statements company had offset its credit against other federal taxes.
This behavior was contested by the federal tax authorities but the company, claiming it had acted correctly, challenged in court the assessments issued by the federal tax authorities. Following defeat at the initial level of adjudication, the company appealed.
The amount involved in the dispute at December 31, 2019 was about €145 million.
ICMS - Ampla, Coelce and Eletropaulo
The States of Rio de Janeiro, Ceará and São Paulo issued a number of tax assessments against Ampla Energia e Serviços SA (for the years 1996-1999 and 2007-2017), Companhia Energética do Ceará (2003, 2004 and 2006-2012) and Eletropaulo (2008-2018), challenging the deduction of ICMS (Imposto sobre Circulação de Mercadorias e Serviços) in relation to the purchase of certain non-current assets.
The companies challenged the assessments, arguing that they correctly deducted the tax and asserting that the assets, the purchase of which generated the ICMS, are intended for use in their electricity distribution activities. The companies are continuing to defend their actions at the various levels of adjudication.
The amount involved in the disputes totaled approximately €98 million at December 31, 2019.
Withholding tax - Endesa Brasil
On November 4, 2014, the Brazilian tax authorities issued an assessment against Endesa Brasil SA (now Enel Brasil SA) alleging the failure to apply withholding tax to payments of allegedly higher dividends to non-resident recipients. More specifically, in 2009, Endesa Brasil, as a result of the first-time application of the IFRS-IAS, had cancelled goodwill, recognizing the effects in equity, on the basis of the correct application of the accounting standards it had adopted.
The Brazilian tax authorities, however, asserted – during an audit – that the accounting treatment was incorrect and that the effects of the cancellation should have been recognized through profit or loss. As a result, the corresponding value (about €202 million) was reclassified as a payment of income to non-residents and, therefore, subject to withholding tax of 15%. It should be noted that the accounting treatment adopted by the company was agreed with the external auditor and also confirmed by a specific legal opinion issued by a local firm.
The first two levels of the administrative courts ruled for the tax authorities. At the third level of jurisdiction the company’s appeal was denied for formal reasons, a ruling that the company opposed and will continue its defend its actions in court and the appropriateness of the accounting treatment. The overall amount involved in the dispute at December 31, 2019 was about €71 million.
Tax litigation - PIS - Eletropaulo
In December 1995, the Brazilian government increased the rate of the federal PIS (Programa Integração Social) tax from 0.50% to 0.65% with the issue of a provisional measure (Executive Provisional Order). Subsequently, the provisional measure was re-issued five times before its definitive ratification into law in 1998. Under Brazilian legislation, an increase in the tax rate (or the establishment of a new tax) can only be ordered by law and take effect 90 days after its publication.
Eletropaulo therefore filed suit arguing that an increase in the tax rate would only have been effective 90 days after the last Provisional Order, claiming that the effects of the first four provisional measures should be considered void (since they were never ratified into law). This dispute ended in April 2008 with recognition of the validity of the increase in the PIS rate starting from the first provisional measure.
In May 2008, the Brazilian tax authorities filed a suit against Eletropaulo to request payment of taxes corresponding to the rate increase from March 1996 to December 1998. Eletropaulo has fought the request at the various levels of adjudication, arguing that the time limit for the issue of the notice of assessment had lapsed. In particular, since more than five years have passed since the taxable event (December 1995, the date of the first provisional measure) without issuing any formal instrument, the right of the tax authorities to request the payment of additional taxes and the authority to undertake legal action to obtain payment have been challenged. In 2017, following the unfavorable decisions issued in previous rulings, Eletropaulo filed an appeal in defense of its rights and its actions with the Superior Tribunal de Justiça (STJ) and the Supremo Tribunal Federal (STF).
The proceedings are still pending while the amounts subject to dispute have been covered by a bank guarantee. With regard to the request of the Office of the Attorney General of the Brazilian National Treasury Department to replace the bank guarantee with a deposit in court, the court of second instance granted the petition. The company therefore replaced the bank guarantee with a cash deposit and filed a clarification motion against the related decision, which is currently awaiting a decision.
The total value of the suit at December 31, 2019 was about €54 million.
ICMS - Coelce
The State of Ceará has filed various tax assessments against Companhia Energética do Ceará SA over the years (for tax periods from 2005 to 2014), contesting the determination of the deductible portion of the ICMS (Imposto sobre Circulação de Mercadorias e Serviços) and in particular the method of calculation of the pro-rata deduction with reference to the revenue deriving from the application of a special rate envisaged by the Brazilian government for the sale of electricity to low-income households (Baixa Renda). The company has appealed the individual assessments, arguing that the tax deduction was calculated correctly.
The company is defending its actions in the various levels of jurisdiction. The total value of the suits at December 31, 2019 was about €50 million.
FINSOCIAL - Eletropaulo
Following a final ruling issued by the Federal Regional Court on September 11, 2011, Eletropaulo was recognized the right to compensation for certain FINSOCIAL credits (social contributions) relating to sums paid from September 1989 to March 1992.
Despite the expiration of the relative statute of limitations, the Federal Tax Authority contested the determination of some credits and rejected the corresponding offsetting, issuing tax assessments that the company promptly challenged in the administrative courts, defending the legitimacy of its calculations and actions. After an unfavorable ruling at first instance, the company filed an appeal before the administrative court of second instance.
The total value of the suits at December 31, 2019 was about €49 million.
Tax litigation in Spain
Income tax - Enel Iberia, Endesa and subsidiaries
In 2018, the Spanish tax authorities completed a general audit involving the companies of the Group participating in the Spanish tax consolidation mechanism. This audit, which began in 2016, involved corporate income tax, value added tax and withholding taxes (mainly for the years 2012 to 2014). With reference to the main claims, the companies involved have challenged the related assessments at the first administrative level (Tribunal Económico-Administrativo Central - TEAC), defending the correctness of their actions. With regard to the disputes concerning corporate income tax, the issues for which an unfavorable outcome is considered possible amounted to about €149 million at December 31, 2019:
(i) Enel Iberia is defending the appropriateness of the criterion adopted for determining the deductibility of capital losses deriving from stock sales (around €103 million) and certain financial charges (around €17 million);
(ii) Endesa and its subsidiaries are mainly defending the appropriateness of the criteria adopted for the deductibility of certain financial charges (about €23 million) and costs for decommissioning nuclear power plants (about €6 million).
Income taxes - Enel Green Power España SL
On June 7, 2017, the Spanish tax authorities issued a notice of assessment to Enel Green Power España SL, contesting the treatment of the merger of Enel Unión Fenosa Renovables SA (“EUFER”) into Enel Green Power España SL in 2011 as a tax neutral transaction, asserting that the transaction had no valid economic reason.
On July 6, 2017, the company appealed the assessment at the first administrative level (Tribunal Económico-Administrativo Central - TEAC), defending the appropriateness of the tax treatment applied to the merger.
The company has provided the supporting documentation demonstrating the synergies achieved as a result of the merger in order to prove the existence of a valid economic reason for the transaction. On December 10, 2019, the TEAC denied the appeal and the company will continue to defend its actions in court (Audiencia Nacional), asking for the suspension of collection to be continued through the current bank guarantee.
The total value of the suit at December 31, 2019 was about €93 million.