Eni Takes €1bn Hit over Gas Arbitration (UPDATE)
(Identifies Edison as the successful counterparty)
Eni has reported disappointingly low profits from its Gas & Power division and has blamed an adverse arbitration award by an International Chamber of Commerce (ICC) arbitration court.
US law firm Quinn Emanuel Urquhart & Sullivan said the ruling cut by more than €1bn, and with retroactive effect, the price paid by Edison on its import contract for 4bn m³/yr of Libyan gas from Eni. The gas is delivered through the subsea Green Stream pipeline to Italy.
Eni acknowledged in full year results on February 26 that, in Q4 2015, its Gas & Power segment “reported an adjusted operating profit of €18mn, down by €74 million or 80.4% year-on-year.”
It added: “The change reflected the one off economic benefits associated to certain contracts renegotiation recorded in the fourth quarter of 2014, as well as the negative outcome of a commercial arbitration in the fourth quarter of 2015," confirming to NGE later that Edison was the counterparty.
Eni finance chief Massimo Mondazzi however described the outcome “worse than expected” in a February 26 conference call to equity analysts.
Quinn Emanuel said that ICC hearings on the merits were conducted over six days in July 2014 and September 2015. Italian law applied to the merits and the seat of the arbitration was in Switzerland.
Edison had won a prior arbitration ruling against Eni over Libyan gas in October 2012. At that time, Edison said the positive impact of the 2012 ruling against Eni was “more than €250mn.” It won arbitration cases against other suppliers at the time, including Qatari LNG supplier RasGas.
In its statement this month, Quinn Emanuel said the latest ruling was “one of the largest gas price review arbitrations in Europe, involving the two main players of the Italian gas market (Edison is second and Eni is first). Further, the billion-dollar result obtained by Edison is amongst the largest amounts ever awarded in a price review arbitration.” Edison triggered its fresh price review on October 1 2012, the day it received the prior award. As the price paid to Eni by Edison is oil price-linked, Edison – as in the previous case – successfully argued that, in the period reviewed, it made a loss on the contract.
Eni has had some success since as a buyer in gas price arbitration cases, but in 2012 it lost a significant arbitration claim against Dutch gas supplier GasTerra. Mondazzi told analysts that the ruling in Eni’s second arbitration claim against GasTerra, which had been delayed, is “expected by the second quarter of this year.”