Gasunie Transport Services B.V. Annual Report 2016

Transcription

1 Annual Report 2016

2 Gasunie Transport Services B.V. Annual Report 2016

3 Table of contents Management... 3 Management Report... 4 Foreword... 6 Financial results... 7 Gas transport results... 8 Safety performance... 9 Developing our customer organisation... 9 Developments in the market Risk management Financial statements of Gasunie Transport Services B.V Balance sheet as at 31 December (before profit appropriation) Profit and loss account of the financial year Accounting policies Notes to the balance sheet Other information Provisions of the Articles of Association governing profit appropriation Independent auditor s report Report on the financial statements

4 Management I.M. Oudejans, Interim Managing Director A.F. Elzinga, Manager Finance & Control B.J. Hoevers, Manager Network Development E.E. Lycklama à Nijeholt, Manager Information Management K. Niemeijer, Manager Commerce & Regulation R.W.J. Zanting, Manager Gas Transport D.L. Zelhorst, Manager Asset Management Until 1 October, Mr Hut acted as Manager Asset Management and Mr Zelhorst as Manager Commerce & Regulation As of 1 October, Mr Niemeijer was appointed Manager Commerce & Regulation As of 1 October, Mr Zelhorst was appointed Manager Asset Management As of 15 October, Mr Lycklama a Nijeholt was appointed Manager Information Management On 28 February 2017, Mr Oudejans was appointed Interim Managing Director and Ms A.J. Krist stepped down from the Board 3

5 Management Report General Gasunie Transport Services B.V. (GTS) owns and manages the national gas transport network in the Netherlands. GTS is responsible for selling gas transport services, executing gas transport and developing the Dutch gas transport network. In this annual report of GTS B.V., we present the consolidated figures of National Network Operator GTS in order to provide better insight into the results achieved by GTS. Whenever we speak about the national network operator Gasunie Transport Services (GTS) in this report, we refer to the consolidated National Network Operator, consisting of the legal entities GTS B.V. and GGS B.V. Whenever we speak about Gasunie Transport Services B.V. (GTS B.V.), then the legal entity GTS B.V. standalone is mentioned. The financial statements included in this annual report only concern GTS B.V. Mission GTS offers gas transport services in a customeroriented and transparent way. Safety, reliability, sustainability and cost effectiveness are central in everything we do. We serve the public interest and work professionally on value creation for our stakeholders. Vision GTS aims to be an organisation that best serves the market, flexibly adjusts to changes in the environment, enables new gas flows, facilitates the introduction of sustainable energy and thus plays a key role in the northwest European gas market. Tasks GTS offers gas transport services and related services, such as quality conversion and balancing. GTS s responsibilities include: the economic management, operation and development of the gas transport network; monitoring a safe, reliable and efficient transport system; sufficient transport capacity; the connection with other networks, both national and international; the execution of public tasks in the field of security of supply (including peak deliveries and emergency deliveries) and the small fields policy; managing gas quality; and balancing the network. Regulatory oversight ACM supervises the execution of the legal tasks assigned to GTS. The Gas Act stipulates certain requirements as to the way in which GTS should carry out its tasks. For example, GTS has a code of conduct that guarantees that all customers of GTS are treated equally. Business model of GTS GTS s core services focus on selling the available capacity in a reliable network, under regulated conditions. Gas can be fed into the network at entry points, and customers can retrieve gas from the network at exit points. Customers enter into contracts for capacity at certain entry or exit points in the network for a certain period (year, quarter, month or (within a) day). Customers can trade gas at a virtual market place called Title Transfer Facility (TTF). The GTS network competes with other networks with regard to transport of international gas flows. 4

6 Tariffs The tariffs that GTS charges its customers are regulated. They are determined once a year by the Dutch regulatory authority, ACM, which reviews the method of regulation every 3 to 5 years. As of 2014, a system of revenue regulation has become applicable: the tariffs are calculated by dividing the permitted revenues by the estimated capacity bookings. If the actual revenues deviate from this, the difference will be settled in later years. The permitted revenues are calculated on the basis of the costs incurred by GTS in a certain reference period. GTS is allowed to earn back its capital and operational costs plus depreciations, including a return. In 2013, ACM laid down the method by which GTS is to be regulated for a period of three years ( ). The main parameters defining this method of regulation are as follows: The tariffs are indexed annually on the basis of inflation (CPI). The allowed return (Weighted Average Cost of Capital or WACC). For the period , ACM has set the real pretax WACC at 3.6%. This is based on a 50/50 equity to debt ratio, a nominal cost base for loans of 3.85%, and a nominal return on equity of 5.6%. The productivity improvement to be realised during the regulatory period on the total operational and capital costs, excluding uncontrollable costs. For the years , this productivity improvement (or frontier shift) has been set at 1.1% per year. In practice, GTS can achieve a higher or lower return compared to the return on efficiently incurred costs determined by ACM. This depends on the level of the actual costs. On 24 February 2017, ACM established the regulatory method (laid down in a method decision) for the period As a result of the method decision, GTS s tariffs will decrease. At the end of this period, in 2021, our annual permitted revenues will have decreased by 200 million compared to Investments The design and use of the network determine the total available capacity. GTS invests efficiently in sufficient transport capacity in order to be able to satisfy the total market needs. To this end, the basic principle is that the gas supply for smallscale users in the Netherlands is guaranteed for a day with an average effective temperature of minus 17 C, as measured at the Royal Netherlands Meteorological Institute in De Bilt. New investments, in so far as they are deemed to be efficient by ACM, are added to the cost base of GTS, so that GTS can earn these back through the tariffs. 5

7 Foreword In 2016, we transported almost 5% more gas for our customers through our gas network than in 2015, almost without interruptions. To offset the reduced production of Groningen gas, we converted significantly more highcalorific gas to make it suitable for use by domestic households and companies in the Netherlands. The volume of converted gas rose to 23.4 billion m 3, a record volume since It is our aim to optimally serve the market, as efficiently as possible. I am therefore proud that customer satisfaction levels in 2016 were again higher than in the previous year. The Dutch gas trading platform TTF again showed substantial growth of 29%. In 2016, for the first time, more gas was traded on TTF than on the English National Balancing Point (NBP), as a result of which TTF is now the largest trading platform in Europe. Partially thanks to the size of TTF, there is more than sufficient gas available, at favourable rates. This year (2017) is the start of a new regulatory period. This was established by the regulatory authority ACM in the method decision. As a result of the method decision, GTS s tariffs will be lowered. At the end of this period, in 2021, our annual permitted revenues will have decreased by 200 million compared to The method decision has led to an impairment of the GTS network of 450 million in the financial statements of The method decision was established after a process in which we, together with ACM and various representative bodies of energy producers and large corporate energy consumers discussed our views and positions. This led to an agreement between all parties on the main elements of the method decision. As a result, for the coming five years, the agreement offers clarity for our customers with regard to the tariffs and for GTS with regard to our permitted revenues. Besides certainty, the agreement offers all parties concerned the necessary scope to focus on the challenges of tomorrow s energy supply. In this annual report, you can read more about developments at GTS in On behalf of GTS, I would like to thank our customers and other stakeholders for their trust and cooperation. I would also like to thank our employees and the employees of our service providers for their commitment to daily gas transport activities. René Oudejans Managing Director 6

8 Financial results The key figures below concern the consolidated figures of the National Network Operator GTS. Key figures In millions of euros Total revenues 1, ,177.7 Total expenses (1,127.9) (673.0) Operating result Finance income and costs (124.2) (158.0) Result before taxation (43.7) Taxes 11.0 (86.4) Result after taxation (32.7) Transport revenues The revenues we generated with the transport of gas and related services in the Netherlands amounted to 1,208,4 million. Despite the lower permitted revenues following from the xfactor decision, total revenues in 2016 increased. This was due to, among other things, recalculation effects with regard to fuel gas, electricity, nitrogen and flexibility in Total expenses In 2016, total expenses increased by 455 million compared to For 450 million, this was due to the impairment of the gas transport network. Financing We have a loan facility of 7 billion, which has been made available by Gasunie. This facility terminates on 31 December 2029 and can be extended. The parties have agreed that during the term, the facility can be drawn or redeemed. In 2015, the amount of the loan outstanding decreased slightly. The Ministry of Economic Affairs has issued rules with regard to proper financial management by a network operator (Besluit Financieel Beheer Netbeheerder). These rules consist of a number of financial ratios, including a minimum for equity. Every quarter, taking into account the rules of the Besluit Financieel Beheer Netbeheerder, the company assesses whether the facility should be drawn or redeemed. Through these ratios, adequate solvency and liquidity is warranted. At the end of 2016, solvency was 54.3% (2015:42.3%). Due to the impairment of our assets, GTS did not comply with all BFBN ratios in A recovery plan will be submitted to ACM. The impairment concerns a oneoff effect, as a result of which the ratios will again be achieved in Investments In 2016, we focused on our multiyear replacement programme. Total investments in 2016 amounted to million, compared to million in We have also been working on the replacement of our IT operating system for our gas transport network (JASON). 7

9 The JASON investment project, which has already started, involves the replacement of our current IT systems for gas transport by a new gas transport management system. JASON is scheduled for implementation in Q Gasunie intended to expand the nitrogen installation near Zuidbroek in Groningen, but due to changing market conditions, including a faster decline in the market demand for Lgas abroad, this expansion is no longer necessary from a capacity point of view. Before the Dutch government takes a final decision with regard to the expansion, it wishes to investigate whether, from a safety point of view, the additional deployment of quality conversion will be necessary given the intended extraction level of 24 billion m 3 per year. In September 2016, the government therefore postponed its final investment decision about the intended expansion. HR and operating costs GTS s employees are employed by Gasunie and have been seconded to GTS for an indefinite period of time. The effective workforce of GTS at yearend 2016 amounted to fulltime equivalents (at yearend 2015: 243). In 2016, GTS entered into service agreements with Gasunie that led to approximately 410 million in terms of operating costs (2015: approximately 400 million). These operating costs relate to the deployment of employees, materials, services and other costs, such as transportrelated energy costs. These services are delivered at cost. Codes of Conduct and compliance with laws and regulations GTS implements compliance with Codes of Conduct and laws and regulations in accordance with the way it is done by its shareholder, N.V. Nederlandse Gasunie. In this regard, reference is made to the extensive section on risk management in the annual report of N.V. Nederlandse Gasunie. Gas transport results Our gas transport and infrastructure activities are at the heart of our strategy. We carry out these activities as efficiently as possible. GTS takes care of the development of the gas transport network and ensures that it is functioning well. We do this by guaranteeing transport security and offering relevant services to our customers. Safety, reliability, sustainability and cost efficiency take priority here. Transport security The uninterrupted transport of gas is one of our main result areas. A disruption of the gas transport is a seldom occurrence in our network. By managing our network well and by properly managing and maintaining our infrastructure, we create optimum conditions for a high security of supply. The gas flows going through our network are destined not only for the domestic markets in the Netherlands, but also for the countries surrounding us, such as Germany, Belgium, France and the United Kingdom. In this way, we also contribute to the security of supply in northwest Europe. The reliability of gas transport has a high priority within our company. In 2016, we achieved almost 100% security of supply. At the transfer point where our network joins the regional network, there were two short interruptions. During these interruptions, no gas was supplied to the distribution network operators. We investigated the causes of these transport interruptions and identified points for improvement. 8

10 Increase in volume of transported gas In 2016, the total volume of natural gas transported in the Netherlands increased by 4.9%, while the average temperature was slightly lower. In 2016, we transported 971 billion kwh (99.4 billion m 3 ) of gas through our network for our customers for the benefit of end users in the Netherlands and abroad. In 2015, that was 926 billion kwh (94.8 billion m3). This increase was mainly due to an increase in the export of both Hgas and Ggas. More quality conversion To mitigate the consequences of the reduced gas production from the Groningen field, the use of our quality conversion capacity increased. Through quality conversion, highcalorific Hgas is mixed with nitrogen and converted into a quality that is similar to the lowcalorific Ggas. As a result, we could continue to meet the demand for Ggas. The volume of converted gas increased from 16.9 billion m 3 in 2015 to 23.4 billion m 3 in Energy costs of gas transport In 2016, with similar levels of gas transport, the energy costs of gas transport were lower than in This cost decrease was mainly due to lower gas and electricity prices. Peak delivery and emergency delivery Peak and emergency deliveries are two important public tasks of GTS. Peak deliveries are necessary if the average effective 24hour temperature is lower than 9.0 C. In 2015, we did not make any peak deliveries to households. Emergency deliveries are necessary if a licence holder cannot supply natural gas to lowvolume users. In 2015, emergency deliveries were not necessary. Safety performance An important enabling factor for carrying out our activities is the safety of our employees and the communities in which we work. A priority for us is therefore to create a safe and healthy workplace and to minimise risk to the natural environment. Our safety performance with regard to incidents resulting in absence worsened in 2016 compared to The number of injuries resulting in absence (concerning both our own employees and contractors employees) increased from 6 to 9. The number of reportables per one million hours worked went down slightly, from van 3.7 in 2015 to 3.5 in Developing our customer organisation We value the feedback we receive from our customers and other stakeholders. It helps us to align our services with their needs even better. We collect feedback at all our contact moments. In addition, we conduct an annual customer satisfaction survey. 9

11 Dialogue with customers Each year, we organise several meetings for our customers. These serve as information meetings and networking platforms. At these meetings, we discuss developments in the gas market, as well as GTS s products and services. In addition, customers can request an individual consultation to ask specific questions. In 2016, we organised meetings in June and December, which were attended by approximately 100 customers. The December meeting focused entirely on individual consultations. In 2016, we started a newsletter for both shippers and connected parties to inform them about current affairs and other relevant developments. In the event of questions or complaints, shippers can address the Customer Desk, and industrial customers can address the Industry Desk. Here they are helped by teams of specialists. In this way, GTS provides good accessibility and specialised contact points. Customer satisfaction survey In 2016, we carried out a customer satisfaction survey. For each survey completed, we gave a donation to the MakeAWish Foundation. We are proud that, in 2016, our customers again gave us a higher rating than last year. Shippers gave GTS a mark of 8.0 (2015: 7.8) and industrial customers gave GTS a mark of 7.7 (2015: 7.5). Customers indicated that they appreciate the professionalism, the speed of response, the nomination process and the customer focus of GTS. Nearly all shippers think that, when it comes to customer focus, transparency and accessibility, GTS is equally good or better than other Transmission System Operators (TSOs). An important point for improvement revealed by the survey still concerned the userfriendliness of Gasport, our web portal for transport information. GTS therefore implemented several improvement measures in 2016 to make accessing Gasport more userfriendly. Complaints procedure In our activities, we try to take our surrounding communities into account as much as possible. Complaints we receive are processed in consultation with the relevant department. We aim to do this as quickly as possible, and to the satisfaction of all parties involved. Customers of GTS can address their complaints to specialized customer desks. In 2016, we received and processed 3 complaints from shippers and 3 complaints from industrial connected parties. 10

12 Developments in the market TTF Over the past few years, the Dutch virtual gas trading platform TTF (Title Transfer Facility) has grown into one of the most prominent liquid gas hubs in Europe. Among other things, this is reflected in the Tradability Index of ICIS Heren, in which TTF was the only gas trading platform that, for the whole year of 2016, achieved the maximum score for shippers ease of buying or selling gas. The trading platform is still growing. As a result, in 2016, for the first time, more gas was traded on TTF than on the English National Balancing Point (NBP). As Europe s largest gas trading platform, TTF is attracting an increasing amount of trade, particularly for the purpose of hedging activities. In 2016, a total of 21,468 TWh of gas was traded via TTF, compared to 16,684 TWh in The physical volume that flows through GTS s network via TTF, the net TTF volume, was 516 TWh in 2016, compared to 450 TWh in This means that, just as in previous years, the physical TTF volume is larger than the domestic gas consumption in the Netherlands. The highest number of active TTF traders on a single day further increased in 2016 to 143 (138 in 2015). Compared to the other gas trading platforms in Europe, TTF was clearly the fastestgrowing in Bilateral OverTheCounter (OTC) trade increased by more than 20%, from 13,706 TWh (in 2015) to 16,607 TWh. This meant that TTF was able to further strengthen its No. 1 position in the European OTC trade, a position it first achieved in Approximately half of all European OTC trade currently takes place on TTF. The TTF segment traded via gas exchanges increased from 2,978 TWh to 4,861 TWh in 2016, an increase of more than 60% compared to 2015, and even a threefold increase compared to Energy transition The Netherlands is working on a future with clean energy. GTS aims to contribute to achieving this objective by flexibly anticipating changes in the environment and facilitating the growing integration of sustainably energy. We are convinced that, for the benefit of reliable, affordable and sustainable energy supply, the gas network will play a crucial role within the total energy system. In the future, less natural gas will flow through the Netherlands, but proportionally more renewable gas. The gas transport system will increasingly get a supporting function for the benefit of the increasing number of decentralised energy sources, which often depend on nature (such as wind and solar) and display a more unpredictable pattern. Maintaining the balance between supply and demand (balancing) is going to be a crucial factor, both for the electricity market and for the gas market. The role of the gas transport system is gradually shifting to one as a provider of flexibility services (storage, peak and backup capacity). By further integrating energy systems, local and central energy systems, existing and new networks, and different energy carriers (electricity, gas and heat) can work together optimally. This system integration is accelerating the energy transition, while ensuring that a sustainable energy supply also remains affordable and reliable. Hydrogen pipeline in Zeeland Dow Benelux, Yara and ICLIP, industrial companies in the Delta region in the province of Zeeland, are planning to exchange hydrogen for industrial application via the GTS network. This intention has been endorsed via a Green Deal signed by the Dutch Minister of Economic Affairs together with the parties involved. This Green Deal aims to enable the transport of hydrogen in this area within the framework of our statutory duty. Meanwhile we have mapped all necessary measures, and the project is being prepared. 11

13 Regulatory developments Method decision In 2013, ACM determined the regulatory method for GTS filed an appeal against this. The intermediate ruling by the Court of Appeal (CBb) on 5 March 2015 ruled in favour of GTS on two grounds of appeal (relating to productivity improvement). The judgement of the CBb with regard to the third ground of appeal (relating to the WACC) has ultimately not led to changes in the WACC. Future tariffs will be adjusted to take these judgements into account. The year 2017 is the start of a new regulatory period. On 24 February 2017, ACM established the new regulatory method (to be laid down in a method decision), which came into effect with retroactive force as of 1 January The method decision of 2017 contains, for the first time, a comparison of GTS s cost efficiency with that of other comparable European gas transport companies (cost benchmark). Besides the cost benchmark, the method decision also contains other parameters and rules that determine the revenue level of GTS, such as the WACC, productivity improvement and rules for the manner in which GTS is allowed to recoup its efficient costs. Tariff decision In May 2017, the tariff decision 2017 will be published. As the 2017 tariffs were not yet known as of 1 January 2017, the 2016 tariffs will be used in the first half of In the second half of 2017, the tariffs will be adjusted in such a way that the regulated revenues of 2017 as established will be achieved. European collaborations Energy users benefit from strong international gas connections and a liquid gas market. This has a positive effect on the availability and affordability of gas. In a world of energy that is becoming increasingly international, we want to ensure that our infrastructure is used as much as possible, and maintain or even increase its value. That is why it is important that our infrastructure is the preferred route for market players for their gas transport. We analyse their needs and develop services that meet these needs, where possible through European collaborations. In addition, we keep considering opportunities for more intensive collaboration with other gas infrastructure companies in order to further expand and strengthen our networks. Development of the European gas market To stimulate the development of a competitive, secure and increasingly sustainable European gas market, and to enhance market liquidity, TSOs are working together. One context in which this collaboration takes place, for example, is ENTSOG (European Network of Transmission System Operators for Gas). Within ENTSOG, TSOs work on matters such as drawing up and implementing European network codes, the tenyear network development plan, and the promotion of transparency. Thanks to the harmonisation of gas transport services, the threshold for international customers is as low as possible, stimulating crossborder gas trade. In 2016, together with Gasunie Deutschland among others, we continued to work on codeveloping new European network codes, particularly with regard to tariff structures and additional available (incremental) capacity. 12

14 PRISMA PRISMA is the main European booking platform for crossborder capacity, where a total of 37 TSOs from 16 different EU members states offer their crossborder capacity. Of these 37 TSOs, 24 are shareholders of PRISMA. The distribution of shares is based on the distribution of voting rights, as applied by ENTSOG (which is mainly based on the size of the country and the scale of the gas infrastructure). GTS currently holds 11.05% of the PRISMA shares. PRISMA was established to be able to comply with the EU Network Code (NC) relating to Capacity Allocation Mechanisms (CAM), which includes the obligation on the part of TSOs to jointly offer crossborder capacity via one or a limited number of webbased booking platforms. As prescribed in the NC CAM, the primary crossborder capacity of the various TSOs is offered on PRISMA by auctioning standard products: annual, quarterly, monthly, daily and withinday products. To make crossborder gas transport easier, these products are, if possible, offered as bundled capacity products (both sides of the border). In addition, PRISMA facilitates the trade in secondary capacity by allowing shippers to offer already booked capacity on the secondary market via the platform. Besides the auctioning of crossborder capacity, GTS also offers the majority of the entry and exit capacity within the Netherlands through PRISMA. Transparency obligations For all gas market participants it is important that the European and national gas markets function well and that this is transparently visible. We make an important contribution in this regard by continuously publishing data about transport contracts and the use thereof. European laws and regulations impose various requirements in this respect, as a result of which publication obligations are substantial. In a European connection (ENTSOG), we are working with other parties to further harmonise current and future publications. We continuously contribute to the further development of these publications in order to optimally facilitate the market. In 2016, we implemented and completed the second phase of the obligatory provision of data in the context of REMIT (European Regulation on Wholesale Energy Market Integrity and Transparency). GTS was one of the first transmission network operators to implement daily provision of data to ACER (Agency for the Cooperation of Energy Regulators), in conformity with the REMIT deadline (7 April 2016). In doing so, we contribute to the transparency of the European wholesale energy market, which enables the European and national regulators to analyse the European wholesale energy markets and track down potential abuse of power. 13

15 Risk management Every year, GTS s management performs a Strategic Risk Assessment, which is integrated in the business planning and control cycle. For this assessment, we use a time horizon of 5 10 years. The main risks that follow from the Strategic Risk Assessment are: Regulation, including the method decision of ACM. The gradual phasing out and conversion of Lgas, questioning benefits and necessity. Security of supply due to a quality conversion failure. For more details on how we manage our financial risks, see note 16 to the balance sheet in the financial statements. René Oudejans Groningen, 14 March

16 Financial statements of Gasunie Transport Services B.V. 15

17 Balance sheet as at 31 December (before profit appropriation) In millions of euros Notes Assets Fixed assets tangible fixed assets 3 5, ,917.5 financial fixed assets deferred tax assets Total fixed assets 5, ,349.6 Current assets receivables cash and cash equivalents 7 Total assets 5, ,494.0 Equity and liabilities Equity capital issued share premium account 9 1, revaluation reserve 10 1, ,942.2 other reserves (32.2) result financial year 12 (11.3) , ,169.8 Provisions Longterm liabilities 14 3, ,227.1 Shortterm liabilities Total liabilities 5, ,

18 Profit and loss account of the financial year In millions of euros Notes Net revenues 1, ,158.1 Other operating income Total operating income 1, ,177.7 Depreciation 3 (198.0) (230.8) Other operating expenses 18 (559.6) (442.2) Impairment 2 (371.8) Total operating expenses (1,129.4) (673.0) Operating result Finance income and expenses 19 (123.3) (158.0) Result before taxation (15.1) Taxes (86.4) Result after taxation (11.2)

19 Notes to the financial statements The financial statements in English are a translation of the official Dutch version adopted by GTS s management on 14 March In the event of differences and/or inconsistencies between the English version of the financial statements 2016 and the original Dutch financial statements 2016, the latter will take precedence. Preparation and adoption of the financial statements The financial statements 2016 were prepared by the Management on 14 March The financial statements as prepared were submitted for adoption to the General Meeting of Shareholders on 31 March Nature of business operations Gasunie Transport Services B.V. was established on 2 July Gasunie Transport Services B.V. is a 100% subsidiary of N.V. Nederlandse Gasunie. Gasunie Transport Services B.V. is the owner and network operator of the national gas transport network in the sense of the Gas Act. It is the task of Gasunie Transport Services B.V. to operate, maintain and develop N.V. Nederlandse Gasunie s national gas transport network in the Netherlands in accordance with economic conditions, in a way that warrants the safety, efficiency and reliability of the gas transport, and with due consideration to the environment. As of 1 January 2014, N.V. Nederlandse Gasunie transferred the ownership of the gas transport network in the Netherlands and the associated assets, liabilities and activities to Gasunie Transport Services B.V. The transfer of the ownership of the gas transport network in the Netherlands was part of Gasunie Transport Services B.V. s certification as an independent network operator of the national gas transport grid. On 1 January 2016, Gasunie Transport Services B.V. (GTS B.V.) split off the ownership of the RTL network, which it had operated until that moment, to a newly established entity: Gasunie Grid Services (GGS B.V.). As of 2016, GTS B.V. holds the shares with voting rights in GGS B.V., and N.V. Nederlandse Gasunie (Gasunie) holds the shares with profitsharing rights in GGS B.V. As a result, GTS B.V. was the indirect owner of the splitoff network in The gas transport grids of GTS B.V. and GGS B.V. together form the national gas transport grid (LNB) in the sense of the Gas Act. In 2016, GTS B.V. was designated as network operator of the national gas transport grid, and GTS B.V. is an independently operating subsidiary of N.V. Nederlandse Gasunie (Gasunie). In its capacity of national network operator, Gasunie Transport Services B.V. and Gasunie Grid Services B.V. buy services from N.V. Nederlandse Gasunie. Gasunie Transport Services B.V., N.V. Nederlandse Gasunie and Gasunie Grid Services B.V. have laid down the agreements with respect to this collaboration in such a way that security of supply, security of transport and the safety of gas transport are guaranteed. The activities and the results of Gasunie Transport Services B.V. are to a significant extent determined by the national and European regulation of the energy markets. The tasks of Gasunie Transport Services B.V., the access to the gas transport network, as well as the tariffs for the transport of gas through the gas transport network are determined by the Dutch regulatory authority (ACM). 18

20 The company has its registered office at Concourslaan 17, Groningen, the Netherlands, and is registered with the Chamber of Commerce under number All shares outstanding as at the balance sheet date are held by N.V. Nederlandse Gasunie. Besluit Financieel Beheer Netbeheerder The Minister has issued rules with regard to proper financial management by a network operator (Besluit Financieel Beheer Netbeheerder). These rules consist of a number of financial ratios, including a minimum for equity. Due to the impairment of our assets, the national network operator GTS did not comply with all BFBN ratios in A recovery plan will be submitted to ACM. The impairment concerns a oneoff effect, as a result of which it is expected that the ratios will again be achieved in Basis of preparation The financial statements have been prepared in accordance with the statutory provisions regarding financial statements of Part 9 of Book 2 of the Dutch Civil Code. Management judgements and estimates In preparing the financial statements, management makes estimates and assessments which affect the assets and liabilities presented as at the balance sheet date and the result for the financial year. The judgements and estimates particularly have a significant effect on the valuation of fixed assets, the provision for abandonment costs and redevelopment, and deferred taxation. If relevant, the nature of these estimates and assessments, including the associated assumptions, are included in the notes to the items of the financial statements in question. Fixed assets Fixed assets include the gas transport network. Tangible fixed assets are valued at cost less straightline depreciation based on the expected useful life, taking into account the residual value and impairments. To this end, assumptions were made about the useful life, the residual value and the future cash flows of the transport pipelines in particular. A significant part of the operating activities are regulated. The future cash flows and related recoverable amount of the regulated assets are partly based on judgements and estimates about the cash flows that can be earned within the regulatory framework. For more information, see note 1 to the balance sheet. Provision for abandonment costs and redevelopment A provision for abandonment costs and redevelopment is recognised in response to management decisions to decommission, remove or redevelop specific assets within the foreseeable future, for instance due to new legislation. Initially, the size of the provision was determined on the basis of general key figures, such as unit costs plus a generic project management surcharge. For more information, see note 13 to the balance sheet. A provision for longterm general abandonment costs is not recognised, because it is currently considered unlikely that the removal of transport pipelines and appurtenances will be needed. The income from alternative use (in the longer term) less the costs of conservation is anticipated to offset the costs of removal, social or otherwise. 19

21 Deferred tax assets A deferred tax asset is recognised for all deductible temporary differences and available carryforward losses, to the extent that it is likely that taxable profit will be available for setoff. To this end, assumptions have been made about future taxable profits. Gasunie Group The company is part of the Gasunie Group. The Group is headed by N.V. Nederlandse Gasunie, whose sole shareholder is the Dutch State. N.V. Nederlandse Gasunie has a 100% interest in the company. The financial data of Gasunie Transport Services B.V. have been consolidated in the financial statements of N.V. Nederlandse Gasunie. As of 2016, GTS B.V. holds the shares with voting rights in GGS BV, and N.V. Nederlandse Gasunie holds the shares with profitsharing rights in GGS B.V. Cash flow statement Based on Dutch Guideline for Annual Reporting Gasunie Transport Services B.V. did not prepare a cash flow statement as N.V. Nederlandse Gasunie, which is the sole shareholder of the company, included the figures of Gasunie Transport Services B.V. in its consolidated financial statements. The financial statements of N.V. Nederlandse Gasunie have been filed at the Dutch Chamber of Commerce. 20

22 Accounting policies General In so far as not stated otherwise, assets and liabilities are valued at the acquisition or manufacturing cost. Financial instruments Financial instruments include primary financial instruments such as receivables, securities and debts, as well as financial derivates. All purchases and sales in accordance with standard market conventions of financial assets are included as of the transaction date, i.e., the date on which the company enters into a binding agreement. For the accounting policies with regard to the primary financial instruments, see the explanation per balance sheet item. Setoff An asset and a loan capital item may only be set off in the annual accounts if and to the extent that: A sound legal instrument is available to settle the asset and the loan capital item simultaneously; and There is an emphatic intention to settle the balance as such or both items simultaneously. Foreign currency The euro is the functional and reporting currency of the company. The financial statements have been prepared in euros. Transactions in foreign currencies are recognised at the rate of exchange of the functional currency on the transaction date. Monetary assets and liabilities denominated in foreign currencies are converted at the exchange rate as at the balance sheet date. Any differences are recognised in the profit and loss account. Fixed assets Tangible fixed assets Tangible fixed assets are valued at cost less straightline depreciation based on their expected useful life, taking into account the residual value and impairments. The residual value of the asset, the useful life and the valuation methods are reviewed and adjusted if necessary at the end of the financial year. Thirdparty contributions to the cost of construction of the gas transport network are deducted from the investments. The costs of major repairs are recognised in the carrying amount of the asset. Tangible fixed assets not yet completed as at the balance sheet date are recognised as fixed assets under construction. On commissioning, the relevant assets are classified according to their nature in one of the main categories. The volumes of gas and nitrogen permanently present in the pipelines and caverns needed for gas transportation and related services are included under other fixed operating assets. Tangible fixed assets are classified in the following categories: Land and buildings 21

23 Compressor stations Installations Main transmission lines and related plant and equipment Regional transmission lines and related plant and equipment Other fixed operating assets Depreciation periods At the end of 2014, N.V. Nederlandse Gasunie reassessed the economic horizon, which determines the remaining depreciation period for investments in transmission pipelines. As a result, as of 1 January 2015, the economic horizon has shifted from 2062 to The carrying amount as at this date and the investments in transmission pipelines as of this date will be depreciated until As of 1 January 2004, the depreciation period for compressor stations and installations is 30 years (on average). The depreciation periods for the other components are: Buildings: 50 years Other fixed operating assets: 5 to 20 years Land, gas and nitrogen stocks are not depreciated. Impairments of tangible fixed assets The company investigates at regular intervals, and whenever there is reason to do so, whether there is any impairment of tangible fixed assets. This involves determining the recoverable amount of the assets. The recoverable amount is the higher of its fair value less costs of disposal and its value in use. If the recoverable amount is less than the current carrying amount, the difference is taken to the profit and loss account. Due to the nature of the assets, it is often not possible to determine the recoverable amount of each asset. In such cases, the recoverable amount of the cashgenerating unit to which the asset belongs is determined. If there is reason to do so, the company investigates whether the impairment of a tangible fixed asset recognised in previous periods no longer exists or has decreased. Any reversal is recognised in the profit and loss account. Revaluation reserve of tangible fixed assets As of 1 January 2014, Gasunie Transport Services B.V. took over the ownership of the gas transport network in the Netherlands and the associated assets, liabilities and activities from N.V. Nederlandse Gasunie at book value. The revaluation reserve of tangible fixed assets was part of this transfer. This revaluation reserve came into being because on the date of the transition to IFRS, N.V. Nederlandse Gasunie valued the tangible fixed assets at real value as assumed cost price. In this context, use was made of one of the optional exceptions in IFRS 1 Firsttime Adoption of International Financial Reporting Standards. The management of N.V. Nederlandse Gasunie determined the real value as at 1 January Subsequently, this value was recalculated for 1 January 2004, the date of transition to IFRS. This led to a revaluation reserve of tangible fixed assets and a provision for deferred tax liabilities. The part of the revaluation reserve realised annually due to depreciation is taken to equity under other reserves. 22

24 Financial fixed assets Participating interests in which the company exercises significant influence are valued in accordance with the equity method. This means the participating interests are recognised at the value of the company s share in the net asset value plus the share in the result and the share in the direct movements in equity from the moment of acquisition, less the share in dividend payments. If the voting power is at least 20%, significant influence is assumed. The first valuation is based on the fair value of the identifiable assets and liabilities at the moment of acquisition. The company s part in the results of participations in which the company exercises significant influence is recognised in the profit and loss account. If, according to the equity method, the value of a participating interest has become zero or negative, the equity method will no longer be applied. If and to the extent that the company warrants the debts of the participating interest in whole or in part, or if there is an actual obligation to enable the participating interest to pay its debts, a provision is made. Other capital interests are valued at the acquisition cost. The dividend received from participations in which the company exercises no significant influence is recognised in the profit and loss account. In the event of an impairment, assets are valued at the recoverable amount (see Impairments of tangible fixed assets ); depreciation is recognised in the profit and loss account. Current assets Receivables Receivables are stated at amortised cost less a provision for doubtful debts. A provision for doubtful debts is recognised if there is an objective reason to do so. Cash and cash equivalents Cash and cash equivalents include the available financial resources in cash and bank balances. Cash and cash equivalents are valued at nominal value Provisions The amount recognised as a provision is the best possible estimate as at the balance sheet date of the expenditure required to meet the existing commitment, taking into account the probability of the possible outcome of the event. If the time value of money is material, a provision is recognised based on the present value of the expenditure deemed necessary to settle the commitment. The discount rate is determined before taxation and takes into account the prevailing market assessments of the time value of money and the risks inherent in the commitment. Provision for abandonment costs and redevelopment This provision is recognised due to management decisions to decommission, remove or redevelop specific assets within the foreseeable future, for instance due to new legislation. Longterm liabilities These are liabilities with a remaining term to maturity of more than one year, as well as repayment obligations on longterm liabilities falling due within one year. 23

25 Interestbearing loans are initially recognised at the fair value of the proceeds less transaction costs. After initial recognition, interestbearing loans are subsequently carried at amortised cost based on the effective interest method. Current liabilities These are liabilities with a term of one year or less. Current liabilities are carried at amortised cost. Profits or losses are recognised in the profit and loss account as soon as the liabilities are no longer included in the balance sheet. Amortised cost Amortised cost is the amount for which a financial asset or financial liability is included in the balance sheet at initial recognition less principal repayments, and adjusted for any cumulative amortisation of the difference between the initial amount and the repayment amount calculated using the effective interest method, and less any reduction for impairments or uncollectible debts. Net income Net income is the revenues from gas transport and related services to third parties, net of discounts and taxes, such as VAT. If the result of a transaction involving the provision of a service can be estimated reliably, the income relating to the service is recognised in proportion to the services performed in the financial year. Services relating to the provision of transport capacity are separate from actual use. They are deemed to have been supplied if the capacity was at the customer s disposal for the duration of the agreed period. Other operating expenses These expenses are determined on a historical basis, taking into account the accounting policies set out above, and are allocated to the reporting period to which they relate. Losses are recognised in the reporting period in which they are foreseen. Finance income and costs Included in this item are income and expenses relating to financing. Interest income is recognised on a pro rata time basis in the profit and loss account, taking into account the effective interest rate for the asset concerned, provided the income can be measured and is likely to be received. Interest expenses are capitalised if they relate to the purchase, construction or production of qualifying assets, provided the assets need a substantial period before being ready for their intended use. Other interest expenses are recognised on a pro rata time basis in the profit and loss account, taking into account the effective interest rate for the liability concerned. 24

26 Corporate income tax N.V. Nederlandse Gasunie and Gasunie Transport Services B.V. form a fiscal unity. These two parties have agreed that corporate income tax will be assigned to Gasunie Transport Services B.V. on the basis of the fiscal result. The immediate tax position of Gasunie Transport Services B.V. is settled directly with N.V. Nederlandse Gasunie. A deferred tax liability is recognised for all taxable temporary differences. A deferred tax asset is recognised for all deductible temporary differences and available carryforward losses, to the extent that it is likely that taxable profit will be available for setoff. Deferred tax liabilities and assets are stated at the undiscounted value of the expected cash flows. The tax rates used for the valuation are those that are expected to apply in the period in which the deferred tax items will be realised based on the tax rates and tax legislation in force as at the balance sheet date. The movements arising from tax rate changes are taken to the profit and loss account, except for movements relating to the revaluation of the tangible fixed assets as at 1 January 2004, the tax treatment of the purchase price paid by the Dutch State, actuarial gains and losses and the cash flow hedge reserve. These movements are recognised directly in equity. Tax assets and liabilities (deferred or otherwise) are netted, provided the general conditions for setting off tax items have been met. 25

27 Notes to the balance sheet 1. Splitoff of ownership of the regional gas transport network in the Netherlands On 1 January 2016, Gasunie Transport Services B.V. (GTS B.V.) split off the ownership of the RTL network, which it had operated until that moment, to a newly established entity: Gasunie Grid Services (GGS B.V.). As of 2016, GTS B.V. holds the shares with voting rights in GGS B.V., and N.V. Nederlandse Gasunie (Gasunie) holds the shares with profitsharing rights in GGS B.V. As a result, GTS B.V. was the indirect owner of the splitoff network in The gas transport grids of GTS B.V. and GGS B.V. together form the national gas transport grid (LNB) in the sense of the Gas Act. In 2016, GTS B.V. was designated as network operator of the national gas transport grid, and GTS B.V. is an independently operating subsidiary of N.V. Nederlandse Gasunie (Gasunie). The table below gives an overview of the financial consequences for the company s balance sheet as of 1 January 2016: In millions of euros Balance Splitoff Financing Balance sheet before regional gas received sheet after splitoff transport splitoff network Assets Fixed assets tangible fixed assets 6, , ,776.1 financial fixed assets deferred tax assets Current assets Total assets 7, , ,191.9 Liabilities Equity 3, ,619.0 Provisions Longterm liabilities liabilities to group companies 4, ,532.5 Shortterm liabilities Total liabilities 7, , ,

28 2. Impairment tests General Whenever there is a triggering event, the company tests whether there is any impairment of tangible, intangible and financial fixed assets. When carrying out an impairment test, management makes assumptions, including regarding short and longterm developments in the relevant regulatory framework, makes estimates of aspects such as future cash flows, and determines the discount rate. These assumptions, estimates and judgements significantly affect the value in use. There is an impairment if the recoverable amount of an asset or group of assets is less than the carrying amount. The recoverable amount is the higher of its fair value less costs of disposal and its value in use. The value in use is calculated on the basis of future cash flows estimated by management. These cash flows are based on the business plan for the next three years adopted by the Executive Board as well as on a recent longrange forecast. The recoverable amount and the cash flows of Gasunie Transport Services B.V. and Gasunie Grid Services B.V. are closely related, which is why the recoverable amount of the two companies has been jointly determined in a single cashgenerating unit. The impairment of this cashgenerating unit has subsequently been allocated pro rata to both companies based on the carrying amount of the tangible fixed assets. In the course of 2015, it was decided to develop alternatives for the existing impairment test model. In 2016, the impairment test model for the regulated gas transport services was changed to make it more suitable for the regulated environment in which network operators operate and to gain additional insight into the consequences on the recoverable amount of investments, costs and regulatorily permitted revenues. The change involves the transition from a model with specific cash flows for a total planning period running up to the economic horizon in 2070, with no residual value, to a model with a shorter forecasting period of ten years, with a residual value based on the (corrected) RAB, i.e., the regulatory carrying amount of the assets as determined by the regulatory body. It is this carrying amount of the investments that the network operator, in conformity with European legislation, is allowed to recover through the tariffs, with a reasonable return on investment. There are no indications that the fair value less costs of disposal is higher than the value in use. In 2016, the Corporate WACC was reevaluated. The Corporate WACC is relevant for determining the expected capital cost allowance and discount rate of future regulatory periods. The reevaluation of the Corporate WACC has led to a reduction of this WACC from 4.5% nominal posttax at yearend 2015 to 4.0% nominal posttax at yearend The reduction is mainly due to developments in the capital market. 27

29 Impairment test of the gas transport network in the Netherlands Reason for the impairment test 31 December 2016 The Netherlands Authority for Consumers and Markets (ACM) is authorised to annually set the maximum rates that GTS is allowed to charge for transport, transportrelated activities, the connection, balancing and quality conversion. For this purpose, ACM has determined that the regulatory method applies for a period of at least three and at most five years. This method decision is the basis for determining the allowed turnover, the efficiency deduction and the rates during the regulatory period. The turnover allowed by the regulator consists of an allowance for the cost of capital invested (RAB), an allowance for the annual depreciation costs (calculated on the basis of depreciation terms determined by the regulator and the set RAB) and an allowance for the operating costs. In addition, the regulator may apply an efficiency discount to the rates. The previous regulatory period ended on 31 December ACM has decided to set the regulatory method for five years. The new regulatory period will therefore be from 2017 up to and including In determining the method decision, ACM applies the uniform public preparatory procedure. In this procedure, ACM publishes a draft decision to which stakeholders can respond. In the definitive decision, ACM must take these responses into account. On 24 February 2017, ACM published the definitive method decision for Prior to the publication, ACM has been able to agree with major market parties, including Gasunie, that these parties are in agreement on the most essential parts of the decision and will not appeal against these. The changes in the new method decision compared to the method decision for relate to the length of the regulatory period, the way in which the cost base is determined (particularly pension and energy costs), the adjustment of the allowed revenue at the start of the regulatory period, a static efficiency discount, the way in which the dynamic efficiency is determined, the height of the WACC, the regulation of existing connections, the inclusion of investments and the way in which rate adjustments are determined. Basis of the test The recoverable amount is determined on the basis of the regulatory framework as laid down in the definitive method decision for and in other regulations. Static efficiency benchmark This is the first time that ACM had two benchmark studies carried out to determine the efficiency of GTS. The objective was to align the allowed revenue of GTS with the supposed cost level of an efficient and structurally comparable network operator. For the regulatory period , the weighted average static efficiency of GTS has been set at 88.6%. ACM is expected to have another efficiency benchmark carried out for the next regulatory period as of To be prudent, we assume that a similar efficiency discount will apply for the regulatory period

30 In the coming years, we will strive to further prove our efficiency more verifiable compared to other national network companies by improving the benchmark techniques used in establishing our efficiency. For the regulatory periods from 2027 onwards, we assume an efficiency score of 100%. Capital cost allowance In determining the capital cost allowance for the regulatory period , reference is made to the WACC established in the method decision (3.0% real pretax); comparable to 3.4% nominal posttax. For the regulatory period from 2022 onwards, a WACC is assumed of 4.0% nominal posttax. The WACC as laid down in the method decision has not been included in the agreements mentioned above between ACM and market parties with regard to the definitive method decision for Discount rate The expected cash flows are discounted using a discount rate that is related to the expected capital cost allowance for the relevant period. For the years , the average discount rate is 3.6% nominal posttax. For the period from 2022 onwards, a discount rate of 4.0% nominal posttax has been applied. Other assumptions In this test, it was assumed that the current regulatory framework will remain unchanged. Uncertainties in the test In the table below, an indication is given of the effect of a change in an important assumption regarding the recoverable amount. The change is assumed to take place each time at the beginning of the next regulatory period under otherwise unchanged conditions. Change in the assumption Amounting to Change in the recoverable amount 1. the real allowance for the cost of capital (posttax) in the regulatory period / 0.25%point +/ 80 million 2. the discount rate, nominal posttax, in the regulatory period / 0.25%point /+ 130 million 3. static efficiency score compared to 88.6% in the regulatory period %point + 85 million Test results On the basis of the information currently available, management has concluded that on 31 December 2016, the impairment of the gas transport network in the Netherlands amounts to 450 million. Of this impairment, million relates to Gasunie Transport Services B.V. The other part ( 78.2 million) relates to Gasunie Grid Services B.V. 29

31 3. Tangible fixed assets In millions of euros Carrying Splitoff of Invest Dispos Depre Impair Carrying amount regional gas ments als ciation ments amount as at 1 transport as at 31 Jan network Dec Land and buildings (0.1) (5.2) (9.0) Compressor stations (16.4)* (1.1) (39.6) (46.4) Installations (306.0) 1.8 (1.7) (34.7) (30.7) Main transmission lines and related plant and equipment 4, (1.3) (87.3) (279.1) 3,893.8 Regional transmission lines and related plant and equipment (769.5) Other fixed operating assets (1.5) 30.0 (31.2) (6.6) Fixed assets under construction (64.4) Total for the financial year ,917.5 (1,141.4) (4.2) (198.0) (371.8) 5,324.3 *) This concerns a transfer to other asset groups. In millions of euros Carrying Invest Disposals Depre Carrying amount ments ciation amount as at as at 1 Jan Dec Land and buildings (0.3) (4.7) 91.2 Compressor stations (0.3) (37.8) Installations (2.4) (51.4) Main transmission lines and related plant and equipment 4, (1.0) (85.2) 4,247.5 Regional transmission lines and related plant and equipment (3.5) (18.4) Other fixed operating assets (0.2) (33.3) Fixed assets under construction Total for the financial year , (7.7) (230.8) 6,

32 In millions of euros Acquisition Cumulative Acquisition Cumulative cost as at 31 depreciation *) cost as at 31 depreciation as at Dec as at 31 Dec. Dec Dec Land and buildings Compressor stations 1, , Installations , Main transmission lines and related plant and equipment 5, , , ,042.5 Regional transmission lines and related plant and equipment Other fixed operating assets Fixed assets under construction Total 7, , , ,292.5 *) Including any impairments Impairments of the gas transport network For this topic, see note 2 to the balance sheet. 4. Financial fixed assets Other capital interests At yearend 2016, Gasunie Transport Services B.V. had an interest of 12.5% in Energie Data Services Nederland (EDSN) B.V., with registered offices in Arnhem, the Netherlands. EDSN B.V. is a platform for administrative connections in the Dutch energy sector. The interest in EDSN is carried at acquisition cost. At yearend 2016, Gasunie Transport Services B.V. had an interest of 11.05% in PRISMA European Capacity Platform GmbH, with registered offices in Leipzig, Germany. In 2016, a dividend payment of 9.3 thousand (2015: 8.2 thousand) was received from PRISMA European Capacity Platform GmbH. The movements in other capital interests are as follows: In thousands of euros Balance as at 1 January Reclassification of participation Balance as at 31 December

33 5. Deferred tax assets The temporary differences between the valuation in the financial statements and the fiscal annual accounts of Gasunie Transport Services B.V. give rise to the inclusion of deferred tax assets. They can be specified as follows: In millions of euros 31 Dec Dec Fiscal treatment of the purchase price paid by the Dutch State Tangible fixed assets 1,191.2 (831.9) 1,533.4 (1,101.4) Total deferred tax assets The amount to be settled more than 1 year after the balance sheet date amounts to million (2015: million). Fiscal treatment of the purchase price paid by the State When N.V. Nederlandse Gasunie was restructured, the Dutch State made a deemed capital contribution to the company for tax purposes. As a result, additional depreciation for tax purposes applied to N.V. Nederlandse Gasunie with effect from 2005 in the form of a revaluation of the network for tax purposes. On 1 January 2014, N.V. Nederlandse Gasunie transferred this deferred tax asset to Gasunie Transport Services B.V., as part of the transfer of the gas transport network in the Netherlands. The movements in the deferred tax assets are as follows: In millions of euros Balance as at 1 January Transfer of gas transport network (160.7) Movements recognised in the profit and loss account 88.0 (22.9) Balance as at 31 December The movements recognised in the profit and loss account and the transfer of the gas transport network in 2016 can be specified as follows: In millions of euros Profit and loss account Transfer of gas transport network Purchase price paid by the State (42.5) (299.7) Tangible fixed assets Total 88.0 (160.7) 32

34 The movements recognised in the profit and loss account in 2015 can be specified as follows: In millions of euros Profit and loss account Purchase price paid by the State (52.9) Tangible fixed assets 30.0 Total (22.9) 6. Receivables In millions of euros 31 Dec Dec Trade receivables Total receivables In the trade receivables, a provision has been included for uncollectible debts. The movements in the provision for uncollectible debts are as follows: In millions of euros Balance as at 1 January Additions Used 0.7 Balance as at 31 December The receivables are individually reviewed to determine the amount of the provision, primarily taking into account the age of the receivable and the creditworthiness of the debtor. The receivables have a term of less than one year. 7. Cash and cash equivalents The company has a bank account that is used, amongst other things, to enable payments by direct debit made by shippers for services arising from contracts that the company has entered into with shippers in the context of its legal tasks. The payments received are transferred to N.V. Nederlandse Gasunie on a daily basis. Payments to be made by Gasunie Transport Services B.V. are settled by N.V. Nederlandse Gasunie on a daily basis. 33

35 8. Issued share capital The authorised share capital amounts to 5.0 million, consisting of 5 million shares of each 1, of which 1 million shares have been issued and paid up in full. All shares issued are held by N.V. Nederlandse Gasunie. 9. Share premium The movements in the share premium are as follows: In millions of euros Balance as at 1 January Split of gas transport network, repayment of equity provided by shareholder Conversion of other reserves into share premium Deposits in the financial year (214.4) Balance as at 31 December 1, Revaluation reserve The movements in the revaluation reserve are as follows: In millions of euros Balance as at 1 January 1, ,004.2 Split of gas transport network, repayment of equity provided by shareholder Realised share of the unrealised revaluation (336.3) (162.9) (62.0) Balance as at 31 December 1, ,942.2 The revaluation reserve relates to the revaluation of the tangible fixed assets as of 1 January

36 11. Other reserves The movements in the other reserves are as follows: In millions of euros Balance as at 1 January (32.2) (167.8) Split of gas transport network, repayment of equity provided by shareholder Appropriation of the results of the previous financial year Conversion into share premium Realised share of the unrealised revaluation (228.1) (74.6) Less: interim dividend distributed (198.1) Balance as at 31 December (32.2) 12. Financial year result The movements in financial year result are as follows: In millions of euros Balance as at 1 January Dividend distributed Appropriation of the results of the previous financial year Financial year result (260.3) (11.3) (346.3) Balance as at 31 December (11.3) Dividend distributed and proposed The Management proposes that no dividend be distributed for The profit appropriation proposal has not been taken into account in the balance sheet as at 31 December 2016 or in the notes. The profit for 2015 amounted to million, of which million was distributed as interim dividend in

37 13. Provisions Provision for abandonment costs and redevelopment The movements in the provision are as follows: In millions of euros Balance as at 1 January Split of gas transport network Additions including accrued interest Used Release (56.1) 1.6 (0.3) 34.7 (20.0) (3.5) Balance as at 31 December The shortterm part of the provision for abandonment costs and redevelopment totalled 1.5 million at the end of The provision for abandonment costs and redevelopment was recognised in 2010 due to management decisions to decommission, remove or redevelop specific assets within the foreseeable future, for instance because of new legislation, such as the Decree on the External Safety of Pipelines, which came into force on 1 January This decree sets requirements (including new requirements) on the transportation of hazardous substances through pipelines. As a result, the company needs to take measures in order to limit the effects on people s health and the environment. The provision relates to the redevelopment of siterelated and grouprelated bottlenecks, obligations to disengage decommissioned branches from the grid and the decision to redevelop or replace certain pipeline sections. Pipelines that had already been disengaged were added to the redevelopment programme in 2011, and in 2012 pipelines were added that had been taken over from third parties in the past. A provision for longterm general abandonment costs is not recognised because it is currently considered unlikely that the removal of transport pipelines and appurtenances will be needed. The income from alternative use (in the longer term) less the costs of conservation is anticipated to offset the costs of removal, including societal costs. 14. Longterm liabilities Liabilities to group companies The liabilities to group companies concern a loan facility of 6 billion, which was made available by N.V. Nederlandse Gasunie on 1 January This facility terminates on 31 December 2029 and has an extension option. The agreed interest rate is the weighted average interest rate of the longterm loan portfolio of N.V. Nederlandse Gasunie with a surcharge of 12.5 basis points. The parties agreed that during the term, the facility can be drawn or redeemed. No amortisation schedule has been determined. 36

38 The Minister has issued rules with regard to proper financial management by a network operator (Besluit Financieel Beheer Netbeheerder). These rules consist of a number of financial ratios, including a minimum for equity. Taking into account the rules of the Besluit Financieel Beheer Netbeheerder, every quarter, the company makes an assessment of whether the facility should be drawn or redeemed. In this periodic assessment, the company not only takes into account the current financial position, but also the expectations for the coming years regarding the size and timing of the investment expenses, the expected dividend payments and the expected operating costs for the network. Due to the size and volatility of these variables, combined with the lack of empirical data, it is currently impossible to make a best estimate regarding the expected repayments. For these reasons, no indication has been included regarding the shortterm part of the longterm loan on the balance sheet date. No securities have been provided by the company with regard to the loan facility. The mutations of debts to group entities are as follows: In millions of euros Balance as at 1 January 4, ,286.1 Split of gas transport network, repayment of equity provided by shareholder (694.6) Repayments (324.8) (59.0) Balance as at 31 December 3, ,227.1 The weighted average effective interest rate for the longterm loan as at the balance sheet date was 3.0% (2015: 3.8%). 15. Current liabilities In millions of euros 31 Dec Dec Other debts Debts to group entities 29.9 Total current liabilities 29.9 The other debts at yearend 2015 mainly concern invoices for the purchase of gas still expected (on balance) or the balancing of the gas transport network. In the context of the regulatory regime that became effective on 1 January 2017, any invoices will be settled in the regulated transport tariffs, releasing the company from its obligations. The other debts are noninterestbearing. The debts included in this item have a term of less than one year. 37

39 16. Financial risks General The main financial risks to which Gasunie Transport Services B.V. is exposed are market risk (consisting of interest rate risk and currency risk), credit risk and liquidity risk. In consultation with N.V. Nederlandse Gasunie, Gasunie Transport Services B.V. uses financial risk management to limit these risks by operational and financial measures. Depending on the nature and size of the risks, specific instruments are used for this purpose, either by Gasunie Transport Services B.V. itself or by N.V. Nederlandse Gasunie. Financial instruments are only used to hedge risks and not for trading or any other purpose. Interest rate risk The risk to which the company is exposed resulting from fluctuations in market interest rates relates to the debts to the group entities. The loan facility made available by N.V. Nederlandse Gasunie has an interest rate based on the weighted average interest rate of the longterm loan portfolio of N.V. Nederlandse Gasunie with a surcharge of 12.5 basis points. Currency risk Currency risks are fully hedged to the extent that there is sufficient certainty about the amount and timing of the foreign currency cash flows. At yearend 2016 and 2015, there were no liabilities denominated in foreign currencies that were hedged by means of forward transactions. Credit risk Credit risk relates to the loss that would arise if counterparties were to default entirely as at the balance sheet date and fail to meet their contractual obligations. The company is not exposed to any material credit risk with regard to any individual customer or counterparty. Guarantees received Gasunie Transport Services B.V. has received the following guarantees from third parties: In millions of euros 31 Dec Dec Number Value Number Value Bank guarantees Deposits Sureties Parent Company guarantees Letters of awareness

40 The deposits and sureties received concern securities from gas transport agreements. The deposits are held in cash. The interest on deposits is credited to the issuer of the guarantee. The individual terms of the guarantees received are generally short (one to three years), with the terms of a few guarantees exceeding five years. The guarantees are not freely assignable. Liquidity risk The liquidity risk is the risk that the company has insufficient cash to meet its shortterm liabilities. Gasunie Transport Services B.V. has a loan facility of 6 billion, which has been made available by Gasunie. This facility terminates on 31 December 2029 and can be extended. The parties have agreed that during the term, the facility can be drawn or redeemed. Gasunie Transport Services B.V. aims at a debttoequity ratio that enables it to realise its strategy, while complying with the creditworthiness requirements as stipulated in the Besluit Financieel Beheer Netbeheerder. Fair value and carrying amount of financial instruments The following methods are applied by Gasunie Transport Services B.V. to determine the approximate fair values of financial instruments: For trade and other receivables, cash and cash equivalents, trade debts and other payables, the carrying amount approximates the fair value because of the short period to the due date for each of these instruments; and The longterm debts to group entities concern a loan facility. The fair value of the loan outstanding has been calculated by discounting the future cash flows against the current interest curve. The table below compares the carrying amount and fair value of those financial instruments whose carrying amount does not approximate the fair value: In millions of euros Carrying amount Fair value Carrying amount Fair value Longterm debts to group entities 3, , , ,620.9 Guarantees issued The company has issued a guarantee of 0.8 million for the benefit of Energie Data Services Nederland (EDSN) B.V. 17. Commitments not included in the balance sheet Investment commitments At yearend 2016, Gasunie Transport Services B.V. had commitments not included in the balance sheet of 20.4 million with regard to investment projects, compared to 81 million in Fiscal unity The company is part of a fiscal unity for the purposes of Dutch corporate income tax and value added tax. As a result, the company is jointly and severally liable for the debts relating to the fiscal unity s corporate income tax and value added tax. 39

41 Notes to the profit and loss account 18. Other operating expenses In millions of euros Costs of outsourced work and other external costs Costs of network management Other operating expenses (137.2) (400.3) (22.1) (260.5) (135.3) (46.4) Total other operating expenses (559.6) (442.2) On 1 January 2016, Gasunie Transport Services B.V. transferred the ownership of the regional transport network in the Netherlands and its associated assets, liabilities and activities at the carrying amount to Gasunie Grid Services B.V. As a result, the figures in the profit and loss account of Gasunie Transport Services B.V. for 2016 are not comparable with In 2016, the additions of 1.4 million (2015: 33.8 million) and the release of 0.0 million (2015: 3.5 million) regarding the provision for abandonment costs and redevelopment have been recognised under other operating expenses. 19. Finance income and costs In millions of euros Interest income Interest expenses Accrued interest provision for abandonment costs and redevelopment (123.1) (0.2) (157.1) (0.9) Total finance income and costs (123.3) (158.0) The interest income relates to receivables and income with regard to the current account balance with N.V. Nederlandse Gasunie. The interest expenses of the longterm loan amount to million (2015: million). Of the interest expenses, in total 1.6 million was capitalised in 2016 (2015: 1.1 million), taking into account a weighted average interest rate of 3.2% (2015: 3.6%). 40

42 20. Taxes The tax expense on the result in the profit and loss account comprises the following components: In millions of euros Corporate income tax payable for the financial year Corporate income tax payable for previous years Movements in deferred taxation (75.6) (8.4) 87.9 (63.9) 0.4 (22.9) Total tax expense 3.9 (86.4) The reconciliation between the effective tax rate and the applicable tax rate for the financial statements is as follows: In percentages Profit and loss account Applicable tax rate, the Netherlands Other differences (0.1) Effective rate Deferred taxation Applicable rate (for subsequent financial years) Effective rate (for subsequent financial years) The other differences relate to nontaxable amounts as a result of, among other things, fiscal subsidies. 21. External auditor s fees For the fees relating to the work carried out by the audit firm responsible for auditing these financial statements, we refer to the annual financial statements of the shareholder N.V. Nederlandse Gasunie, which includes details of these fees. 22. Remuneration of the Management Pursuant to Article 2:383, paragraph 1 of the Dutch Civil Code, the remuneration of the Management is not specified because this can be traced back to a single natural person. 23. Number of employees The employees who work for Gasunie Transport Services B.V. are employed by N.V. Nederlandse Gasunie and seconded for an indefinite period of time to Gasunie Transport Services B.V. The company itself does not employ any staff. 41

43 24. Related parties The company is part of a group that is headed by N.V. Nederlandse Gasunie, the shareholder of the company. All entities belonging to the group are considered to be related parties. Services provided by Gasunie Transport Services B.V. to the related parties are delivered at arm s length. In its capacity of national network operator, Gasunie Transport Services B.V. buys services from N.V. Nederlandse Gasunie. Gasunie Transport Services B.V. and N.V. Nederlandse Gasunie have laid down the agreements with respect to this collaboration in such a way that security of supply, security of transport and the safety of gas transport are assured. The agreements between Gasunie Transport Services B.V. and N.V. Nederlandse Gasunie have a term of one year and can be extended. In 2016, the volume of the services provided amounted to approximately 407 million (2015: approximately 640 million), of which approximately 121 million (2015: approximately 240 million) related to investments in the gas transport network, and approximately 286 million (2015: approximately 400 million) were operating costs. The operating costs relate to the deployment of employees, materials, services and other costs, such as transportrelated energy costs. These services are delivered at cost. In its capacity as national network operator, Gasunie Transport Services B.V. buys services from Gasunie Grid Services B.V. (GGS), a 100% subsidiary of N.V. Nederlandse Gasunie. These services relate to the network operating activities carried out by GGS for the regional transport network. The transport capacity of this network is marketed by GTS at tariffs determined by the Dutch regulatory authority ACM. GTS pays a compensation for this to GGS, based on the transport revenues generated by GTS at the network points owned by GGS. The volume of the services provided in 2016 amounted to approximately 257 million. Gasunie Transport Services B.V. offers services to Gasunie Grid Services B.V., a 100% subsidiary of N.V. Nederlandse Gasunie. These relate to jointly used assets, such as IT, offices and buildings. The usage fee charged by GTS to GGS is based on the compensation GTS would have integrated into its regulated tariffs had it been the sole user of the assets. The volume of the services provided in 2016 amounted to approximately 31 million. The other services provided by related parties are delivered at arm s length. In 2016, the volume of these services provided by EnergyStock B.V. and Gasunie Peakshaver B.V. amounted to approximately 62 million (2015: approximately 62 million). The gas transport services delivered by Gasunie Transport Services B.V. to the related parties are carried out in compliance with the Dutch Gas Act, which stipulates that N.V. Nederlandse Gasunie is obliged to act in a nondiscriminatory manner and to conduct business as requested. The tariffs charged have been established by the Dutch regulator ACM, an independent body with no involvement from the Dutch State. In addition, GasTerra B.V. is a related party, because the Dutch State has significant influence, both directly and indirectly. GasTerra B.V. qualifies as a major customer. 42

44 Events after the balance sheet date On 1 January 2017, Gasunie Transport Services B.V. merged with Gasunie Peakshaver B.V. in the sense of Title 2.7 of the Dutch Civil Code. As a result of this merger, Gasunie Transport Services B.V. acquired the entire equity of Gasunie Peakshaver B.V. by universal title, and Gasunie Peakshaver B.V. ceased to exist. Gasunie Transport Services B.V. will continue the activities of Gasunie Peakshaver B.V. in the same manner. This merger was instigated by the changing market for Ggas following the decline in the Groningen production. The Peakshaver installation is entirely at the service of GTS. Due to recent changes in the Ggas market, Peakshaver, because of its location and its transportsupporting function, has become invaluable to GTS. This led to the decision to make Peakshaver part of GTS, making the asset management and operational management of this crucial asset the direct responsibility of GTS. Profit appropriation proposal The Management proposes that the loss of 11.2 million for 2016 be added to Other reserves. The Management, René Oudejans Groningen, 14 March

45 Other information Provisions of the Articles of Association governing profit appropriation Article 33, paragraphs 2 and 3, of the company s Articles of Association read as follows: The profit is at the free disposal of the General Meeting of Shareholders. In the event of a tied vote regarding the distribution or reservation of profit, the profit to which the proposal relates shall be reserved. A decision to distribute the profit is subject to the approval of the management, in accordance with Article 2:216, paragraph 2, of the Dutch Civil Code. The management shall only refuse such approval if it knows or can be reasonably expected to foresee that, after distribution, the company will not be able to continue to pay its due and payable debts. The company may make distributions to shareholders and other persons entitled to receive part of the distributable profit only insofar as its equity exceeds the total issued share capital plus the reserves that must be maintained by law. 44

46 Independent auditor s report To: The General Meeting of Gasunie Transport Services B.V. Report on the financial statements 2016 Our opinion In our opinion the accompanying financial statements give a true and fair view of the financial position of Gasunie Transport Services B.V. as at 31 December 2016, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code. What we have audited We have audited the accompanying financial statements 2016 of Gasunie Transport Services B.V., Groningen ( the company ). The financial statements comprise: the balance sheet as at 31 December 2016; the profit and loss account for the year then ended; the notes, comprising a summary of the accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is Part 9 of Book 2 of the Dutch Civil Code. The basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the section Our responsibilities for the audit of the financial statements of our report. Independence We are independent of Gasunie Transport Services B.V. in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten (ViO) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the Verordening gedrags en beroepsregels accountants (VGBA). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Report on the other information included in the annual report In addition to the financial statements and our auditor s report thereon, the annual report contains other information that consists of: the management report; the other information pursuant to Part 9 of Book 2 of the Dutch Civil Code; Based on the procedures performed as set out below, we conclude that the other information: is consistent with the financial statements and does not contain material misstatements; contains all information that is required by Part 9 of Book 2 of the Dutch Civil Code. We have read the other information. Based on our knowledge and understanding obtained in our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. 45

47 By performing our procedures, we comply with the requirements of Part 9 Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of such procedures was substantially less than the scope of those performed in our audit of the financial statements. Management is responsible for the preparation of the other information, including the directors report and the other information pursuant to Part 9 Book 2 of the Dutch Civil Code. Responsibilities for the financial statements and the audit Responsibilities of management Management is responsible for: the preparation and fair presentation of the financial statements in accordance with Part 9 of Book 2 of the Dutch Civil Code; and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. As part of the preparation of the financial statements, management is responsible for assessing the company s ability to continue as a going concern. Based on the financial reporting framework mentioned, management should prepare the financial statements using the goingconcern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company s ability to continue as a going concern in the financial statements. Our responsibilities for the audit of the financial statements Our responsibility is to plan and perform an audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence to provide a basis for our opinion. Our audit opinion aims to provide reasonable assurance about whether the financial statements are free from material misstatement. Reasonable assurance is a high but not absolute level of assurance which makes it possible that we may not detect all misstatements. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion A more detailed description of our responsibilities is set out in the appendix to our report. Groningen, 14 March 2017 PricewaterhouseCoopers Accountants N.V. Original Dutch version signed by J. van Hoof RA (This auditor s report is a translation of the original auditor s report accompanying the original Annual Report 2016, both stated in Dutch. This original auditor s report can be found on the website of Gasunie Transport Services B.V.) 46

48 Appendix to our auditor s report on the financial statements 2016 of Gasunie Transport Services B.V. In addition to what is included in our auditor s report we have further set out in this appendix our responsibilities for the audit of the financial statements and explained what an audit involves. The auditor s responsibilities for the audit of the financial statements We have exercised professional judgement and have maintained professional scepticism throughout the audit in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Our audit consisted, among other things of the following: Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the intentional override of internal control. Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Concluding on the appropriateness of management s use of the going concern basis of accounting, and based on the audit evidence obtained, concluding whether a material uncertainty exists related to events and/or conditions that may cast significant doubt on the company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report and are made in the context of our opinion on the financial statements as a whole. However, future events or conditions may cause the company to cease to continue as a going concern. Evaluating the overall presentation, structure and content of the financial statements, including the disclosures, and evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 47

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