Porto Tolle thermal plant - Air pollution - Criminal proceedings against Enel directors and employees
The Court of Adria, in a ruling issued March 31, 2006, convicted former directors and employees of Enel for a number of incidents of air pollution caused by emissions from the Porto Tolle thermoelectric plant. The decision held the defendants and Enel (as a civilly liable party) jointly liable for the payment of damages for harm to multiple parties, both natural persons and public authorities. Damages for a number of mainly private parties (individuals and environmental associations), were set at the amount of €367,000. The calculation of the amount of damages owed to certain public entities (Ministry for the Environment, a number of public entities of Veneto and Emilia Romagna, including the area’s park agencies) was postponed to a later civil trial, although a “provisional award” of about €2.5 million was immediately due.
An appeal was lodged against the ruling of the Court of Adria and, on March 12, 2009, the Court of Appeal of Venice partially reversed the lower court decision. It found that the former directors had not committed a crime and that there was no environmental damage and therefore ordered recovery of the provisional award already paid. The prosecutors and the civil claimants lodged an appeal against the ruling with the Court of Cassation. In a ruling on January 11, 2011, the Court of Cassation granted the appeal, overturning the decision of the Venice Court of Appeal, and referred the case to the civil section of the Venice Court of Appeal to rule as regards payment of damages and the division of such damages among the accused. As regards amounts paid to a number of public entities in Veneto, Enel has already made payment under a settlement agreement reached in 2008. With a suit lodged in 2011, the Ministry for the Environment, the public entities of Emilia Romagna and the private actors who had already participated as injured parties in the criminal case asked the Venice Court of Appeal to order Enel SpA and Enel Produzione to pay civil damages for harm caused by the emissions from the Porto Tolle power station. The amount of damages requested for economic and environmental losses is about €100 million, which Enel has contested.
During 2013, an agreement was reached – with no admission of liability by Enel/Enel Produzione – with the public entities of Emilia Romagna to express social solidarity in line with the general sustainability policies of the Group. The suits with the Ministry and private parties (individuals and environmental associations) remain open. At the hearing of January 8, 2014, the suit was taken for decision, with the establishment of the time limits for filing briefs.
In August 2011, the Public Prosecutor’s Office of Rovigo asked that a number of directors, former directors, officers, former officers and employees of Enel and Enel Produzione be remanded for trial on the charge of willful omission to take precautionary actions to prevent a disaster in respect of the alleged emissions from the Porto Tolle plant. Subsequently, the public prosecutor filed charges of willfully causing a disaster. During 2012, the pre-trial hearing judge of Rovigo, granting the request of the Public Prosecutor’s Office of Rovigo, ordered the committal for trial of all of the accused for both offences. The Ministry for the Environment, the Ministry of Health and other actors, mainly local authorities in Emilia Romagna and Veneto, as well as the park agencies of the area, joined the case as injured parties, seeking unspecified damages from the above individuals, without citing Enel or Enel Produzione as liable parties. Evidence was submitted during 2013. During the year, as part of the agreement mentioned earlier, most of the public entities withdrew their suits.
At the hearing of March 31, 2014, the Court sitting en banc issued its ruling of first instance, acquitting all of the accused of the charge of willful omission to take precautionary safety measures. The Court also acquitted all of the accused of the charge of willfully causing a disaster, with the exception of the two former Chief Executive Officers of Enel SpA (although the Court did not grant the request for recognition of aggravating circumstances as provided for when the disaster actually occurs). The former Chief Executive Officers were then ordered to pay unspecified damages in a separate civil action, with a total provisional ruling of €410,000 and payment of court costs for the remaining civil parties to the action.
Brindisi Sud thermal generation plant - Criminal proceedings against Enel employees
A criminal proceeding is under way 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 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 €1.3 billion. The argument phase has begun and hearings of witnesses are under way.
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 following mass litigation is currently pending.
Out-of-court disputes and litigation connected with the blackout of September 28, 2003
In the wake of the blackout that occurred on September 28, 2003, numerous claims were filed against Enel Distribuzione for automatic and other indemnities for losses. These claims gave rise to substantial litigation before justices of the peace, mainly in the regions of Calabria, Campania and Basilicata, with a total of some 120,000 proceedings. Charges in respect of such indemnities could be recovered in part under existing insurance policies. Most of the initial rulings by these judges found in favor of the plaintiffs, while appellate courts have nearly all found in favor of Enel Distribuzione The Court of Cassation has also consistently ruled in favor of Enel Distribuzione. At December 31, 2013 pending cases numbered about 28,000 as a result of additional appeals filed despite the abandonment of suits by the plaintiffs and/or joinder of proceedings. In addition, in view of the rulings in Enel’s favor by both the courts of appeal and the Court of Cassation, the flow of new claims has come to a halt. Beginning in 2012, a number of actions for recovery were initiated and settlements reached to obtain repayment of amounts paid by Enel in execution of the rulings in the courts of first instance.
In May 2008, Enel served its insurance company (Cattolica) a summons to ascertain its right to reimbursement of amounts paid in settlement of unfavorable rulings. The case also involved a number of reinsurance companies in the proceedings, which have challenged Enel’s claim. In a ruling of October 21, 2013, the Court of Rome granted Enel’s petition, finding the insurance coverage to be valid and ordering Cattolica, and consequently the reinsurance companies, to hold Enel harmless in respect of amounts paid or to be paid to users and their legal counsel as well as, within the limits established by the policies, to pay defense costs.
Litigation concerning free bill payment procedures
In its ruling 2507/2010 of May 3, 2010, the Council of State granted the appeal of the Authority for Electricity and Gas (the Authority) against ruling 321/2008 of February 13, 2008 with which the Lombardy Regional Court had voided Resolution 66/2007. With the latter, the Authority had fined Enel Distribuzione €11.7 million for violation of the provisions of Resolution 55/2000 concerning the transparency of invoices. Enel Distribuzione lodged an appeal with the Council of State asking for it to revoke the ruling but the appeal was denied on February 24, 2011.
The appeal lodged on October 29, 2010 with the European Court of Human Rights in Strasbourg is still pending. The appeal seeks a judgment against the Italian State and damages equal to the amount paid with the fine. In Enel’s view, with the ruling the Council of State adopted an interpretation of the legal concept of legality that differs from that usually adopted in the case law of the European court.
Since the end of 2006, Enel has been sued by numerous customers, especially in Campania and Calabria (with the support of a number of consumer associations), alleging violations of a number of Authority Resolutions (200/1999, 55/2000 and 66/2007) concerning the requirement to provide at least one free method for paying invoices and to publicize that method in invoices themselves. In the civil suits, the customers have requested restitution of amounts paid for postal expenses and, often, further damages.
At December 31, 2013, pending cases numbered about 47,900, but the number of new suits is declining, especially following the judgment of the Court of Cassation in 2011 that the rule set out in Authority Resolution 200/1999 did not have supplementary validity for existing supply contracts, thereby finding the action for non-performance of contract advanced by customers to be unfounded, because it was based on a non-existent clause.
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 Shpk, filed suit against Enelpower and Enel SpA in Albania concerning the matter, obtaining a ruling, upheld by the Albanian Supreme Court of Appeal, 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 Shpk demanded payment of more than €430 million.
As the Albanian Court of Cassation upheld the ruling of the court of first instance, Enelpower SpA and Enel SpA then filed an appeal with the European Court of Human Rights for violation of the right to a fair trial and the rule of law, asking the Court to order the Republic of Albania to pay damages for financial and non-financial losses incurred by Enel SpA and Enelpower SpA. That suit is pending.
In addition, in February 2012, Albania BEG Ambient Shpk filed suit against Enel and Enelpower with the Tribunal de Grande Instance in Paris in order to render the ruling of the Albanian court enforceable in France. Enel and Enelpower have challenged the suit. The proceeding is still under way. Subsequently, again at the initiative of Albania BEG Ambient Shpk, Enel France was served with two “Saise Conservatoire de Créances” (orders for the precautionary atattachment of receivables) to conserve any receivables of Enel SpA in respect of Enel France. JP Morgan Bank Luxembourg SA was also served with an analogous order in respect of any receivables of Enel SpA.
Albania BEG Ambient Shpk subsequently sued Enel SpA and Enelpower SpA in the state of New York seeking recognition of the Albanian sentence in the state of New York. Pending the first hearing, the judge enjoined the two companies from disposing of their assets up to the amount of $597,493,543.
Enel SpA and Enelpower SpA will contest all aspects of the foundation of the plaintiff’s case, taking all steps available to them to defend their interests. Furthermore, proceedings continue in the 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, through the legal action taken by Albania BEG Ambient Shpk in Albania. With this action, Enelpower and Enel are asking the Court to find BEG liable and order it to pay damages in the amount that one or 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. The next hearing is scheduled for March 12, 2015.
Violations of Legislative Decree 231/2001
The following four cases for alleged violation of Legislative Decree 231/2001 concerning the administrative liability of legal persons are pending. Three involve Enel Produzione and one involves Enel Distribuzione, for omission of accident prevention measures:
- for a fatal accident involving an employee of a subcontractor at the Enel Federico II plant at Brindisi in 2008, Enel Produzione has been charged with administrative liability for manslaughter;
- for an accident involving an employee of a subcontractor at the Enel Federico II plant at Brindisi in 2009, Enel Produzione has been charged with administrative liability for negligent personal injury;
- for a fatal accident involving an employee of a subcontractor at the Enel plant at Termini Imerese in 2008, Enel Produzione has been charged with administrative liability for manslaughter;
- for a fatal accident involving an employee of a subcontractor in Palermo in 2008, Enel Distribuzione has been charged with administrative liability for manslaughter.
The above proceedings are still in the argument phase.
Josel litigation - Spain
In March 2009, Josel SL sued Endesa Distribución Eléctrica SL to withdraw from the contract for the sale of several buildings due to changes in their zoning status, requesting the restitution of about €85 million plus interest. Endesa Distribución Eléctrica SL opposed the request for withdrawal. On May 9, 2011, the court granted the request to permit withdrawal from the contract and ordered Endesa to repay the amounts paid for the sale plus interest and costs. Endesa has appealed the ruling. On February 13, 2012, the Audiencia Provincial de Palma de Mallorca overturned the initial ruling. The latter judgment was appealed by Josel with the Tribunal Supremo on March 19, 2012. Endesa Distribución Eléctrica SL opposed the appeal in a brief of December 14, 2012.
Basilus litigation (formerly Meridional) - Brazil
The Brazilian construction company Basilus S/A Serviço, Emprendimiento y Participações (formerly Meridional) held a contract for civil works with the Brazilian company CELF (owned by the State of Rio de Janeiro), which withdrew from the contract. As part of its privatization, CELF transferred its assets to Ampla Energia e Serviços (Ampla). In 1998, Basilus filed suit against Ampla, arguing that the transfer had infringed its rights and that it had been defrauded.
In March 2009, the Brazilian court granted the complaint, and Ampla and the State of Rio de Janeiro filed appeals against the decision, which were granted in December 2009 by the Tribunal de Justiça Estadual. Following that decision, Basilus lodged a further appeal (Mandado de segurança) in June 2011. That request was denied. Subsequently Basilus lodged a new appeals with the Tribunal Superior de Justiça, some of which are still pending.
The amount involved in the dispute is about R$1,052 million (about €322 million).
CIEN litigation - Brazil
In 1998 the Brazilian company 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. As part of the dispute, Tractebel has expressed its intention to acquire 30% of the transmission line involved. The case is continuing. The amount involved in the dispute is estimated at about R$118 million (about €36 million), plus unspecified damages.
For analogous reasons in May 2010 the company Furnas also filed suit against CIEN for failure to deliver electricity, requesting payment of about R$520 million (about €160 million), in addition to unspecified damages.
In alleging non-performance by CIEN, Furnas is also seeking to acquire ownership (in this case 70%) of the interconnection line.
CIEN’s defense is similar to the earlier case. The evidentiary stage of the trial has been completed and the ruling at first instance is pending.
Bocamina II arbitration - Chile
Litigation is under way concerning the contract for the construction of the second unit of the Bocamina thermal plant (“Bocamina II”). The contract was agreed in 2007 by Endesa Chile with a consortium made up of Ingeniería y Construcción Tecnimont Chile Compañía Limitada, Tecnimont SpA, Tecnimont do Brasil Construção and Administração de Projetos Ltda (together, “Tecnimont”), Slovenske Energeticke Strojarne as and Ingeniería y Construcción SES Chile Limitada (together “SES”). On October 16, 2012, following substantial violations of contractual undertakings by the consortium (including the failure to complete the works on time), Endesa Chile sought execution of the guarantees securing its position. In any event, the guarantees of SES have not yet been collected pending resolution of a number of precautionary proceedings initiated by SES in Slovakia. On October 17, 2012 Endesa Chile submitted a request for arbitration before the International Chamber of Commerce in Paris, citing the non-performance of the consortium and claiming damages (subsequently quantified in the amount of about $373 million, or about €270 million).
During the arbitration proceedings, the consortium filed a counterclaim against Endesa Chile in the amount of about $1,300 million – about €940 million (most of which in the form of damages for the alleged harm to the image of Tecnimont following the execution of the bank guarantees by Endesa Chile). In April 2013, the parties agreed to join the proceedings with another arbitration proceeding brought by SES against Endesa Chile before the International Chamber of Commerce in Paris. The arbitration proceeding is under way and in December 2013 the parties filed their first briefs.
Bocamina power plant - Chile
A number of environmental issues have arisen with regard to the Bocamina power plant. In August 2013, the Superintendencia de Medio Ambiente (SMA) notified Endesa Chile that it had initiated proceedings against it for alleged violations of environmental rules. In December 2013, Endesa Chile submitted its defense and is awaiting a decision by the SMA. In addition, various opponents of the plant (e.g. fishermen) have submitted three “Recursos de Protección” against the operation of the plant. During the second of those appeals, in December 2013, the Supreme Court, in reversing the earlier decision of the Court of Appeal, granted the precautionary measures requested by the plaintiffs, ordering the shutdown of unit II of the Bocamina plant, which is therefore currently halted pending a decision on the appeal.
Electrica arbitration - Romania
June 11, 2007, Enel SpA entered into a Privatization Agreement with SC Electrica SA for the privatization of Electrica Muntenia Sud (EMS). The accord provided for the sale to Enel of 67.5% of the Romanian company. In accordance with the unbundling rules, in September 2008 the distribution and electricity sales operations were transferred to two new companies, Enel Distributie Muntenia (formerly EMS) and Enel Energie Muntenia (EEM). In December 2009, Enel transferred the entire capital of the two companies to Enel Investment Holding BV (EIH).
On July 5, 2013, Electrica notified Enel SpA, Enel Investment Holding, EMS and EEM (limited to a number of claims) of a request for arbitration before the International Chamber of Commerce in Paris, claiming damages for alleged violations of the Privatization Agreement.
More specifically, the plaintiff claimed payment of penalties of about €800 million, plus interest and additional unspecified damages. The proceeding is under way.
In October 2008, Enel Produzione (which Enel Green Power succeeded as a result of the spin-off of 2008) undertook arbitration action before the International Chamber of Commerce in Paris, against Comisión Ejecutiva Hidroeléctrica del Río Lempa (“CEL”), wholly owned by the Republic of El Salvador, and Inversiones Energéticas SA de Cv (“INE”), wholly owned by CEL, for breach of a number of provisions of the shareholders’ agreement between Enel Produzione and INE of June 4, 2002, regarding the management of La- Geo. More specifically, the shareholders’ agreement gave Enel Produzione the right to finance the investments of LaGeo to build geothermal plants in El Salvador, treating those payments as capital increases. The agreement also required LaGeo to distribute all its net income.
After complying with the agreement during the initial phase, LaGeo stopped complying with the shareholders’ agreement, no longer allowing Enel Produzione (and then Enel Green Power) to finance the investments approved and, consequently, to subscribe any further capital increases.
Enel Produzione therefore asked the arbitration board to order INE and CEL (i) to perform the specific obligations provided for under the shareholders’ agreement and to pay damages of $30 million plus interest, duties and legal costs or, alternatively, (ii) pay total damages of $264.2 million plus interest, duties and legal costs.
INE joined the proceedings, asking that CEL be excluded and requesting damages for alleged losses caused by the poor execution of the works by Enel Green Power.
The arbitration board then ruled on the dispute, issuing its decision in July 2011, granting all of Enel Green Power’s claims and denying those submitted by INE, recognizing:
- Enel Green Power’s right to participate in a capital increase of the company, subscribing about 9 million shares with a value of about $127 million;
- LaGeo’s duty to distribute profits earned in 2008 and 2009.
The Paris Court of Appeal (on January 8, 2013) upheld the arbitration ruling. The ruling on the appeal of INE before the Court of Cassation is still pending.
In July 2013, the Salvadoran parliament passed a law approving the withdrawal of El Salvador from the Washington Convention of 1965, which allowed foreign investors to bring claims against a state before the International Center for Settlement of Investment Disputes (ICSID). Before that law took effect, Enel Green Power had initiated a proceeding before the ICSID to preserve its rights against the interference of the Salvadoran government in Enel Green Power’s relations with CEL.
In November 2013, the attorney general of El Salvador filed the findings of an investigation into the events that led to the acquisition of LaGeo by the Enel Group in 2002. Once the enquiry was closed, the attorney general summoned Enel Green Power El Salvador as a liable party to a hearing of charges of corruption against numerous public officials, two former employees of Enel Green Power and the lawyer who handled the formation and the sale of interests in the LaGeo.
The reconstruction of the events advanced by the attorney general’s office is essentially the same as that presented by INE during arbitration, where it was ruled unfounded.
The judge in the first phase of the proceedings did not find any certain or grave violations and therefore rejected the attorney general’s request for precautionary measures.
Dispute between Energia XXI Energias Renováveis e Consultoria Limitada and Enel Green Power España
In 1999 Energia XXI filed for arbitration against MADE (now Enel Green Power España) for alleged losses incurred due to the early termination of an agency contract for the sale of wind generators and wind farms of Enel Green Power España in Portugal and Brazil. With its ruling of November 21, 2000, the arbitration board found that the termination of the contract by MADE was illegitimate and ordered it to pay: (i) legal costs; (ii) the fixed portion of the monthly fee for the period from July 21, 1999 (date of termination of contract) to October 9, 2000 (expiration date of the contract), equal to about €50,000; (iii) as well as lost profits to be determined in respect of contracts for at least 15 MW of capacity.
Following the arbitration ruling, two civil court cases began:
- the first appeal was lodged by MADE with the Tribunal Judicial de Primera Instancia asking for the arbitration ruling to be voided. The case is still pending with the court of first instance following referral by the Court of Appeal (subsequently confirmed by the Supreme Court of Appeal on September 26, 2013), which granted Enel Green Power España’s appeal of the admission of briefs;
- the second appeal was lodged by Energia XXI on May 9, 2006, with the Civil Court of Lisbon, with which Energia XXI asked for Enel Green Power España to be ordered to pay the amount determined in the 2000 arbitration ruling (the losses for which Energia XXI now puts at €546 million). Enel Green Power España considers the claim to be unfounded. Acting on a petition by Enel Green Power España, the court has so far suspended the case pending resolution of the first suit.
Tax litigation in Brazil
- In 1998, Ampla Energia e Serviços SA 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 Energía e Serviços SA carried out a spin-off in favor of Ampla Investimentos e Serviços SA that involved the transfer of the residual FRN debt and the associated rights and obligations. On November 6, 2012, the Camara Superior de Recursos Fiscales (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 Declaración”), thereby upholding the previous adverse decision. The company provided security for the debt and intends to continue litigation before the ordinary courts (“Tribunal Superior de Justiça”). The amount involved in the dispute at December 31, 2013 was about €260 million.
- In 2002, the State of Rio de Janeiro changed the deadlines for payment of the ICMS (Imposto sobre Circulação de Mercadorias e Serviços) by withholding agents (to the 10th, 20th and 30th of each month - Ley Benedicta). Owing to liquidity problems, between September 2002 and February 2005, Ampla Energia e Serviços SA continued to pay the lCMS in compliance with the previous system (the 5th day of the subsequent month). Despite an informal agreement, the Brazilian tax authorities issued an assessment for late payment of the ICMS (“multa de demora”). Ampla appealed the measure (the highest level of the administrative courts), arguing that the penalties imposed were not due owing to the application of a number of amnesties granted between 2004 and 2006. In the event of an adverse ruling, the company will continue litigation before the ordinary courts. While the outcome of the final administrative proceedings is not yet known, following the registration of the claim in the Public Registry of the state of Rio de Janeiro, Ampla was required to provide security. The amount involved in the dispute at December 31, 2013 was about €71 million.