ENERGY INVESTMENT IN ITALY - DLA Piper

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ENERGY INVESTMENT IN ITALYTHE LEGAL PERSPECTIVE

02 | Energy Investment in Italy – The Legal Perspective

Cover image: ten thousand Lira banknote depicting Alessandro Volta an Italian physicist, chemist, and a pioneer of electricity and power, who is credited as the inventor of the electrical battery and the discoverer of methane. He invented the Voltaic pile in 1799.


INDEX OF CONTENTS

INTRODUCTION

03. THE RENEWABLE SOURCES

06. ENERGY STORAGE

09. TAXATION

01. THE ENERGY SECTOR – GENERAL FRAMEWORK

04. PPAS AND ENERGY EFFICIENCY

07. CORPORATE FORMS – FUNDS

10. EMPLOYMENT

12. REAL ESTATE

02. OIL & GAS

05. E-MOBILITY, BIO-METHANE AND ALTERNATIVE FUELS

08. FINANCING

11. COMPLIANCE – HEALTH AND SAFETY AND WHITE COLLARS CRIME

13. LITIGATION

04

24

66

06

37

49

80

94

16

42

55

88

101

46

INTRODUCTION

St. Peter’s Basilica (Vatican City)


During the last years, Italy has developed and implemented a long term energy strategy with the objectives of reducing energy costs, complying with its ambitious environmental targets and enhancing security of supply and competition.

Renewable energy sources have grown impressively to cover about 17.5% of the gross final consumption in the year 2016 and energy efficiency is increasing significantly. Such improvements have been promoted by tax and economic support measures at both local and regional levels.

However, Italy still remains heavily dependent on energy imports (about 76%, mainly because of oil and gas imports).

The Energy National Strategy (SEN 2017) is a 10 year governmental plan for the sector, setting out the core targets of the energy strategy:

■ reducing final energy consumption by a total of 10 Mtoe by 2030

■ reaching a 28% share of renewables in total energy consumption by 2030, and a 55% share of renewables in electricity consumption by 2030

■ strengthening supply security

■ narrowing the energy price gap

■ furthering sustainable public mobility and eco-friendly fuels

■ phasing out the use of coal in electricity generation by 2025.

The above targets will be pursued by supporting the energy efficiency investments, renewable energy plants and e-mobility, as well as the development of gas interconnectors and other infrastructures that will make of Italy a European gas hub.

This guide provides an overview of the Italian legal and tax system, describing the main support measures and opportunities, as well as the risks and relevant protections, for the investors in the energy sector.

INTRODUCTION

06 | Doing Business in Italy – Energy Investor Guide 2018

THE ENERGY SECTOR – GENERAL FRAMEWORK

Wind farm in the Sicilian countryside (Catania)


THE ENERGY SECTOR – GENERAL FRAMEWORK01

1.1 THE NATIONAL ENERGY STRATEGY

Climate change has become a central part of the world’s energy context. The Paris Agreement on Climate Change of December 2015 defines a plan of action to keep global warming below 2 ºC, marking a fundamental step towards decarbonisation.

In 2016, in a global context of economic recovery and low prices of raw materials, Italy proceeded on its path to strengthen its environmental sustainability, reduce its greenhouse gas emissions, and improve the efficiency and security of its energy system. Renewables covered 17.5% of gross final energy consumption, energy efficiency continued to grow: the GDP energy intensity dropped by 4.3% as compared to 2012, Italy’s dependence on foreign supply sources continued to fall: energy imports were down by 7 percentage points versus 2010, while there is still an energy cost gap between Italy and the EU, which puts Italy at a disadvantage.

More specifically, such policies have been implemented in the National Energy Strategy (Strategia Energetica Nazionale – SEN 2017) which is the most significant program that allows the government to identify – usually on a five years basis – all priorities and necessary measures in order to grant – inter alia – safe energy production, diversification of energy sources and geographical production areas, improvement of competitiveness of the energy national system, development of infrastructures in the perspective of the European internal market, growth of investments in the energy sector and participation to international agreements on technological cooperation and, last but not least, environmental sustainability in the production and use of energy for the reduction of gas emissions. Following a 2011 referendum, SEN no longer addresses nuclear energy, because the nuclear program has been discontinued.

Currently, SEN 2017 is in force in Italy having been approved with an Inter-ministerial Decree dated 10 November 2017. In particular, SEN 2017 lays down the targets to be achieved by 2030, in accordance with the long-term scenario drawn up in the EU Energy Roadmap 2050, which provides, inter alia, for a reduction of emissions by at least 80% from their 1990 levels and a growth of world energy consumptions by +18% by the year 2030:

I. Enhancing Italy’s competitiveness by way of actions to narrow cost and price gaps for customers and enterprises, in a global context of rising energy prices;


II. Achievement of all the environmental and decarbonisation targets by 2030 in sustainable ways, in line with the targets set by COP21. The main strategic actions are the following:

a. the promotion of low-emission renewables;

b. the promotion of energy-efficiency projects that maximise sustainability benefits while keeping system charges low;

c. the acceleration of the decommissioning of coal-fired thermal power plants by 2025, decarbonising the energy system; and

d. the 100% increase of investments in research and development of clean-energy technologies.

III. Improvement of security and adequacy of energy systems, as well as the flexibility of gas networks and power grids, by way of:

a. integrating a growing amount of renewable energy sources in electricity, by strengthening and fostering the evolution of networks, grids, and markets towards smart, flexible, and resilient configurations;

b. managing the variability of natural-gas flows and demand peaks, and diversifying supply sources, in the complex geopolitical context of the countries from which Italy imports gas and of increasing integration of European markets; and

c. improving the cost-effectiveness of the energy expenditure thanks to technological innovation.

Furthermore, SEN 2017 provides for different priorities to be considered in order to achieve the three abovementioned targets, which are:

1. Renewable energy sources: Italy has already achieved its renewable energy sources targets by 2020, with a penetration of 17.5% in total energy consumption in 2015 vs. a 17% target to be reached by 2020. The target of a 28% share of renewable energy sources in total energy consumption by 2030 is ambitious but feasible, to be broken down as follows:

a. 55% of renewables in electricity by 2030 (33.5% in 2015) by way of: (i) promoting long-term contracts for large-scale power generation; (ii) enhancing self-consumption for small-scale power generation; (iii) streamlining the permitting process for repowering wind and hydro plants; (iv) maintaining existing power generation from bioenergy sources; and (v) increasing hydro power generation with innovative projects in existing large-scale plants;

b. 30% of renewables in heating & cooling by 2030 (19.2% in 2015) by way of promoting heat pumps and mitigating biomass facilities emissions;


c. 21% of renewables in transport by 2030 (6.4% in 2015) by way of promoting the transition towards electricity and fuels having low lifecycle greenhouse gas emissions and low land use (advanced biofuels).

2. Energy efficiency: the target is to foster low energy-consumption initiatives so as to achieve 30% of energy savings by 2030 with respect to their trend in 2030, and give impetus to the Italian energy efficiency industry. Specific actions are identified for residential, transport, service and industrial sectors.

3. Decarbonisation: the aim is to speed up the decarbonisation of the energy system, starting from the use of coal in power generation, and to progressively introduce measures spanning the entire energy process. The envisaged phasing out of coal-fired thermal power plants by 2021 is feasible under security conditions exclusively on the basis of a plan for the revamping of current sites and for the managing of the growing share of renewables in electricity, to be supplemented with additional actions on infrastructures, plants and facilities.

4. Energy security in the power system: the target is to provide the power system with innovative instruments and infrastructures, in order to guarantee its adequacy and flexibility in a context of growing penetration of renewables. The actions identified are: (i) the launching of the capacity market in 2018 to guarantee system adequacy, maintaining the still necessary gas-fired capacity (with priority to flexible capacity), and integrating new resources into the market (cross-border renewable-energy power-generating units, storage systems, active demand side); (ii) the further strengthening of interconnections with neighbouring countries; (iii) the increasing of the capacity of storage systems; and (iv) the implementation of grid projects to integrate renewables, increasing the resilience of the system.

5. Energy security in the natural gas system: natural gas will continue to play a key role in the energy transition, representing a back-up resource for the power system. The strategy deems it vital to: (i) diversify supply sources, by optimising the use of the existing infrastructures, and develop new connection infrastructures; (ii) improve the flexibility of supply sources, by strengthening gas pipelines and the peak-demand security margin; and (iii) coordinate national contingency plans, including mutual support between EU countries. The actions identified are: (i) the promotion of the construction of new gas import pipelines by private parties, in accordance with market principles, in order to diversify supply sources and routes; (ii) the holding of auctions (instead of using tariffs) for LNG regasification services, in order to make the use of Italian gas terminals more attractive; and (iii) the conversion of local networks of LPG distribution and propane-air mixtures in Sardinia to natural gas from regasified LNG.


6. Electricity and gas markets: the target of narrowing the gap between Italian final electricity prices and European ones will be achieved through the reduction of the average cost of power generation from renewable energy sources, the convergence of the power generation mix across European countries, the natural gas cost alignment, the full liberalisation of final markets and the progressive reduction of system charges.

7. Oil market and logistics: the demand for oil products has shrunk progressively from 2005 to 2015, leading to the conversion of refineries into bio-refineries and storage systems. The target in this area is to decrease primary consumption of oil products by 13.5 Mtoe by 2030 as against its 2015 levels.

8. Research and innovation: Italy is among the promoters of Mission Innovation – a global initiative resulting from COP21 to launch leading-edge clean-technology projects – and committed to doubling the value of public resources allocated for investments in clean – energy research and development from Euro 222 million in 2013 to Euro 444 million in 2021.

9. Governance and Regulation: the Strategy provides for the setting-up of a special Steering Committee, composed of representatives of all the main entities involved in the processes. Additionally, to ensure transparency in monitoring the implementation of the Strategy, the Government will have to present a yearly report to the Parliament on the status of implementation of the Strategy, and on the actions taken to achieve its targets, as well as to undertake a participative process of revision of the Strategy every three years.

SEN 2017 is expected to have important outcomes by 2030 such as:

■ reduction from 76% to 64% of the energy dependence from other countries;

■ Euro 175 billion of new investments in all the energy fields by 2030;

■ elimination of coal from the energy mix;

■ 28% share on total consumptions of energy produced by renewables by 2030;

■ 55% share on electric consumptions of energy produced by renewables by 2030;

■ 10.2 MTep reduction on final energy consumption.

1.1.1 Other strategic documents

In addition to SEN, Italian government approved several other strategies to be applied to energy development and investments such as the following “sector plans”:

a. 10-year scenarios for the development of natural gas and electric energy markets (Scenari decennali relative allo sviluppo dei mercati del gas natural e dell’energia elettrica) under the regulation of the Ministry of Economic Development (Ministero dello Sviluppo Economico) adopted pursuant to article 1 of the Legislative Decree 93/2011;


b. Plan of the energy infrastructures (Piano degli impianti e infrastrutture energetiche) which are necessary to achieve the targets of the national energy policy, adopted pursuant to article 3 of the Legislative Decree 93/2011;

c. Preventive plan of action (Piano di azione preventivo) and the emergency and security monitoring of the gas supplying plan (Piano di emergenza e monitoraggio della sicurezza degli approvvigionamenti di gas naturale), adopted pursuant to the Regulation 2010/994/CE and article 8, paragraph 1 of the Legislative Decree 93/2011;

d. 10-year plan for the development of the gas transmission grid arranged by the gas transmission grid managers (Piano decennale per lo sviluppo della Rete gas Predisposto dai Gestori della Rete gas), adopted pursuant to article 16 of the Legislative Decree 93/2011;

e. National electric transmission grid development Plan (Piano di sviluppo della Rete elettrica nazionale di trasmissione), adopted pursuant to article 17, paragraph 3 of the Legislative Decree 28/2011;

f. Renewable energy national action Plan (Piano di azione nazionale per le energie rinnovabili), adopted pursuant to Directive 2009/28/CE and article 3, paragraph 1 of the Legislative Decree 93/2011; and

g. Energy Efficiency Action Plan (Piano di azione per l’Efficienza energetica), adopted pursuant to Directive 2006/32/CE and article 3, paragraph 1 of the Legislative Decree 93/2011.

Also, the following plans are in the process of being defined:

(a) National Plan Climate and Energy (Piano Nazionale Clima ed Energia), adopted pursuant to the European Strategy for an Union of the energy;

(b) National Sustainability Development Strategy (Strategia Nazionale di Sviluppo Sostenibile), provided for under Law 221/2015 (Collegato Ambientale);

(c) National low emissions development strategy for 2050 (Strategia nazionale di sviluppo a basse emissioni al 2050), which is a document to be produced pursuant to the Agreement of Paris (to be produced by all the G7 countries).

1.2 ENERGY GENERATION

The construction and operation of power plants is subject to the obtainment of a single authorisation issued by the competent authority, following a single procedure whereby all interested public entities are invited to participate and to issue their own opinion.

The issuance of the single authorisation is a free activity and it is not subject to the prior participation to public tender, as established by Legislative Decree no. 79 dated March 16, 1999 (“Bersani Decree”) implementing the EU directive on the creation of an internal energy market (Directive 96/92/EC repealed by Directive 2003/54/EC and by


Legislative Decree no. 387 dated 23 December 2000 implementing the EU directive for the promotion of electricity from renewable sources and the internal energy market (Directive 2001/77/EC).

Power plants with a capacity higher than 300 MW are of competence of the Ministry of Economic Development, whereas power plants with a lower capacity are of competence of the Regions or its delegated territorial entity (i.e., Province or Municipality).

Electricity can be used wholly or partly for sale to third parties or for the producer’s own use. Both types of plants may be privately or publicly owned.

1.3 ENERGY TRANSMISSION

The National Transmission Grid, is owned and managed by Terna S.p.A. and is composed of a total of over 72,000 kilometres of high Voltage electricity transmission lines (380 kV – 220 kV – 150 kV), transformation and delivery stations and interconnection lines for the exchange of electricity with foreign countries.

Terna S.p.A. has the duty to operate the National Transmission Grid and the electricity flows for Italy under security conditions through the dispatching activity: keeping the electricity supply and demand in balance, 365 days a year, 24 hours a day.

The local electricity distribution activity is carried out throughout medium and low voltage lines for the transportation and delivery of electricity to users.

As activity reserved to the State, the electricity distribution activity is subject to the issuance of a concession after the participation to a public tender.

1.3.1 National Electric Transmission Grid Development Plan

The National Electric Transmission Grid Development Plan is prepared by Terna S.p.A. within the 30 of January of every year with a validity of ten years, considering the (i) electricity National needs; (ii) the need to increase the capacity of the interconnection grid with foreign countries; (iii) the need to reduce the risks of intra-zonal congestions; and (iv) the requests of connection to the grid.

The National Electric Transmission Grid Development Plan is approved by the Ministry of Economic Development, upon prior issuance of the opinion of the interested Regions and taking into consideration the evaluation of the Energy Authority (ARERA).

The National Electric Transmission Grid Development Plan is subject to the prior Strategic Environmental Assessment pursuant to Legislative Decree no. 152 of 3 April 2006.

By means of Decree dated 25 June 2015, the Ministry of Economic Development has approved the National Electric Transmission Grid Development Plan of 2012.


1.3.2 Access (Autorizzazione Unica)

The construction and operation of electrical lines belonging to the National Transmission Grid and related infrastructures are subject to the issuance of a single authorisation (Autorizzazione Unica) granted by the Ministry of Economic Development together with the Ministry of Environment, upon prior agreement with the relevant Region, following a single procedure whereby all interested public entities are invited to participate and to issue their own opinion.

If the electrical infrastructures to be approved are part of the National Electric Transmission Grid Development Plan approved by the Ministry of Economic Development, a Strategic Environmental Assessment pursuant to Legislative Decree no. 152 of 3 April 2006 should have been already carried out as a pre-condition for the approval of the Plan.

If the electrical lines are equal to or longer than 15 km but shorter than 40 km, the authorisation procedure requires the prior obtainment of the Environmental Impact Assessment. If the electrical lines are equal to or longer than 3 km, the Environmental Screening at regional level is applicable.

1.3.3 Electricity Market

The electricity market, namely the place where transactions involving electricity are conducted, was set up in Italy as a result of the Bersani Decree and the Ministerial Decree 21 September 2016.

The electricity market is divided into:

■ Day-Ahead Market – MGP (energy market);

■ Intra-Day Market – MI (energy market);

■ Daily Products Market – MPEG (energy market);

■ Ancillary Services Market-MSD.

The Day-Ahead Market (MGP) hosts most of the electricity sale and purchase transactions.

In the MGP, hourly energy blocks are traded for the next day. Participants submit bids/asks where they specify the quantity and the minimum/maximum price at which they are willing to sell/purchase. The results of the MGP are announced within 12.55 p.m. of the day before the day of delivery. Bids/asks are accepted after the closure of the market sitting based on the economic merit-order criterion and taking into account transmission capacity limits between zones. Therefore, the MGP is an auction market and not a continuous-trading market.


All the supply offers and the demand bids pertaining both to pumping units and consuming units belonging to foreign virtual zones that are accepted in the MGP are valued at the marginal clearing price of the zone to which they belong. This price is determined, for each hour, by the intersection of the demand and supply curves and is differentiated from zone to zone when transmission capacity limits are saturated.

The accepted demand bids pertaining to consuming units belonging to Italian geographical zones are valued at the “Prezzo Unico Nazionale” (PUN – national single price); this price is equal to the average of the prices of geographical zones, weighted for the quantities purchased in these zones.

Gestore dei Mercati Energetici (“GME”) acts as a central counterparty. In the MSD, Terna procures the resources it needs to manage and control the system (solving intra-national congestions, creating energy reserves, real-time balancing).

The Intra-Day Market (MI) allows Market Participants to modify the schedules defined in the MGP by submitting additional supply offers or demand bids. The MI takes place in seven sessions. Supply offers and demand bids are selected under the same criterion as the one described for the MGP. GME acts as a central counterparty.

The Daily Products Market (MPEG) is the venue for the trading of daily products with the obligation of energy delivery.

The MPEG automatically admits all Participants in the electricity market. Trading in the MPEG takes place in continuous mode.


The MPEG allows trading daily products with:

■ “unit price differential”, for which the price indicated in the preparation of bids/asks and so the price determined on completion of the trading phase is the differential expression compared to the PUN, to which Participants are willing to trade such products;

■ “full unit price”, for which the price indicated in the preparation of bids/asks and so the price determined as a result of the trading phase is the expression of the unit value of electricity exchange subject of the traded contracts.

Participants of the Electricity Market that are also Participants of the PCE, enabled to transactions on the electricity accounts available, by way of buying and selling daily products in the MPEG.

GME acts as a general counterparty. The sessions of the MPEG take place on several weekdays.

The Ancillary Services Market (MSD) is the venue where Terna S.p.A. procures the resources that it requires for managing and monitoring the system relief of intra-zonal congestions, creation of energy reserve, real-time balancing. In the MSD, Terna acts as a central counterparty and accepted offers are remunerated at the offered price (pay-as-bid).

Photovoltaic park in a dismissed iron mine on Elba Island (Livorno)


OIL & GAS

Offshore oil platform in the Mediterranean sea off the south eastern coast of Sicily (Ragusa)


2.1 GENERAL STRUCTURE OF PETROLEUM OWNERSHIP AND REGULATION

In Italy, private ownership of land defines the property of the landlord over anything that is located above and below the surface, with two main exceptions, namely mines and heritage goods. Ministry of Economic Development primarily regulates petroleum activity. The Energy Authority (ARERA) has exclusive competence on natural gas matters.

The reservoirs of hydrocarbons belong to the Italian State, and are part of the public properties that include, amongst many other categories of assets, any type of mine.

The oil and gas belong to the concessionaire of a given reservoir from the time that they are extracted, provided that the concessionaire operates lawfully under a concession agreement which permits the activities of exploitation of that reservoir. Therefore, from a strict legal perspective, under a lawful concession agreement, giving permission for hydrocarbon production effectively transfers the raw products into the direct ownership of the concessionaire.

Since prospecting and/or research need to be conducted before production (coltivazione), the concession regime extends to these preliminary activities. Normally, the geographical scope of the concession agreements decreases from the prospection to the production phases, as described below.

In return for a concession being granted for the production of hydrocarbons, royalties are required to be paid to the Italian State. Originally it was in kind, but currently the amount of royalties to be paid is equal to the value of sales of the mined products achieved by the concessionaire.

OIL & GAS02

Construction of the Trans Adriatic Pipeline


Italy has a large number of domestic energy companies that are active in the oil and natural gas industries, but for many years there has not been any specific company that – can be considered alone a national oil or gas company. Historically, SNAM was a state-owned company conducting major activities, but it was never monopolistic at a national level in the natural gas sector; ENI had major midstream oil operations and AGIP major upstream and downstream oil operations, but it was always in competition with foreign competitors and smaller domestic private companies.

The Italian legal system for petroleum industries operates at three different levels:

1. The primary level of general provisions of law or of equivalent sources, such as law decrees, legislative decrees and certain presidential decrees;

2. The regulatory level of general provisions (more detailed than law and generally with a shorter duration), implemented with ministerial decrees, guidelines, resolutions; and

3. The individual level of permits, consent, recommendations and orders that are issued to single entities by competent administrative authorities, either alone or jointly.

2.2 PRIVATE INVESTMENT IN PETROLEUM – UPSTREAM

2.2.1 Allowed Private Investment in Upstream Interests

Oil reserves within the Italian territory are state-owned; their research and production (id est development and production activities) are considered to be of public interest.

The rights to search for, develop and exploit petroleum fields in Italy are granted to private investors by means of permits and concessions. The research and extraction of shale gas and shale oil is forbidden.

In particular, oil companies may apply to the relevant Ministry office – UNMIG (Ministero dello sviluppo economico – Direzione generale per la sicurezza anche ambientale delle attività minerarie ed energetiche) to obtain:

(a) prospection permits;

(b) research permits; and

(c) production concessions.

The permit-issuing process has recently been simplified in September 2014 and March 2015 by unifying the research permit and the concession for the exploitation of the field into a single concession.


UNMIG – through either its central or local structures – evaluates the technical and economic feasibility of the projects, issues the relevant permits, and monitors the exploration and development works, in addition to compliance with the health and safety laws. This central role of UNMIG continues during the course of the entire lifespan of the field, until its decommissioning, and while exploitation is in operation it is carried out through the UNMIG’s local offices.

During the authorisation processes, UNMIG acts in consultation with the CIRM, a body representing the competent central authorities and the regions involved in the procedure.

UNMIG co-ordinates its activities with the Ministry of the Environment, which is competent for the evaluation of the impact of the onshore and offshore oil activities on the land and sea environments.

2.2.2 Upstream Licences

The process to obtain a single concession starts with the filing of the request by the relevant applicant with UNMIG.

The application includes the proposed general program which is the central subject matter of the assessment, because only those programs which ensure the maximisation of the use of the reservoir will be accepted, in order not to waste national energy resources.

The program is divided into a first research phase, a second exploitation phase and a third decommissioning phase, including the works necessary to recondition the site area.

The sole concession, as well as single permits for the stages of prospection, research and production, is granted to the selected applicants on the basis of their technical, economic and organisational standing. In addition, the applicants are required to deliver adequate guarantees with respect to the implementation of their programs.

Applicants can ask UNMIG to run a preliminary assessment of their requirements, before filing the relevant application.

Financial guarantees, sufficient to cover possible damages that may be caused by the most severe incident considered possible under the risk analysis of the relevant project, are to be delivered before works can be started.

With particular regard to the decommissioning phase, the applicants are required to deliver bank or insurance guarantees to cover the estimated costs for the site’s environmental reconditioning.

Permits are also granted to non-EU investors, subject to the condition that their countries of residence ensure a reciprocal arrangement for Italian investors aiming to obtain upstream licences in their respective countries.


The proceedings are to have a maximum duration of 180 days, including the environmental screening. The environmental screening may lead to a full environmental impact assessment, which is often the most sensitive and lengthy phase of the permit-issuing process. Although a specific term is provided for, the absence of a response does not imply consent if that specific duration is not adhered to, since once it has expired without the issue of an explicitly stated permit, the only remedy for the applicant is to sue UNMIG to enforce their completion of the proceedings by a given date or risk the threat of substitution with a trustee of the court (commissario ad acta).

Those applicants who requested or obtained a research permit or a concession for the exploitation of a reservoir before the enactment of the aforementioned simplified single process may opt for the application of the unified proceedings, by supplementing their applications and files with the missing documents.

The permit is granted by the Ministry of Economic Development upon consultation with the local structures of UNMIG and the CIRM. Furthermore, the relevant regions and autonomous provinces are part of the proceedings.

2.2.3 Development and Production Requirements

As a general rule, the right of investors to exploit (id est develop the fields and produce petroleum) is subject to the acknowledgement by the Ministry of Economic Development that the discovered hydrocarbons in the research area have technical and economical characteristics sufficient to justify their development. The Ministry of Economic Development determines the surface subject to the production rights of the investor.

In terms of process, the two-phased proceedings composed by a research permit and a concession for the exploitation of a field, after the commercial discovery, have very recently been unified into a single process. Thus, whilst the holder of a research permit will have to apply to the Ministry of Economic Development after a commercial discovery in order to obtain a new concession of exploitation, the owner of a single concession (including both the research and the production phases) will be able to file the entire general work program at the outset of the process.

2.3 PRIVATE INVESTMENT IN PETROLEUM – DOWNSTREAM

2.3.1 Allowed Private Investment

Italian gas and oil downstream markets are liberalised. Oil import and export and determination of trade prices are not subject to restrictions.

The construction of refineries and other oil-related infrastructures is subject to prior authorisation by the Ministry of Economic Development or competent regional authorities.


The opening of oil service stations in highways is subject to a sub-concession (granted by the concessionaire of the relevant highway) or to the authorisation by competent regional authorities (in the case of service stations located on other roads).

Natural gas transportation occurs through high and medium-pressure national and regional transportation networks, connected to low pressure distribution networks that deliver gas locally. More than 90% of the transportation pipelines are owned and operated by Snam Rete Gas, which was separated in 2012 from ENI, and its largest shareholder is the public entity called Cassa Depositi e Prestiti.

Italy has a natural gas storage system largely composed of depleted natural gas reservoirs. Natural gas storage spaces are operated under a governmental concession regime. Stogit, a subsidiary of Snam S.p.A., owns and operates more than 95% of Italian natural gas storage space.

The operators of natural gas distribution networks are awarded through public auctions with exclusive concession agreements lasting twelve years. The sale of natural gas to end users is subject to the authorisation of the Ministry of Economic Development.

2.3.2 Downstream licences

The construction of refineries and other petroleum-related infrastructures is subject to an authorisation regime. Law No 35/2012 and related implementing regulations have simplified the process for obtaining the relevant authorisation in respect of certain petroleum infrastructures (oil refineries and storage plants, coastal deposits of oil, deposits of aviation fuel located within airports, storage of petroleum products (other than LPG) with capacity

Gas refinery in the Molise countryside (Termoli)


not lower than 10,000 cm, storage of LPG with capacity not lower than 200 tons, certain oil pipelines and plants for refinement, and storage of vegetable oils for energy use). Such infrastructures are defined as strategic and are subject to authorisation by the Ministry of Economic Development together with the Ministry of Infrastructure and Transport for coastal infrastructure and in agreement with interested regional authorities. Storage of oil products and LPG with lower capacity are subject to authorisation by the competent regional authorities. Local regulations apply.

Permission for gasoline stations is subject to a different regime, depending on whether they are located on highways or on other roads. Service stations located on highways can be opened on the basis of a sub-concession to be awarded by the highway concessionaire, often through competitive auctions. The opening of service stations not located on highways requires an authorisation to be granted at a regional level upon compliance with certain requirements under town planning regulations, environmental laws and road safety and fire prevention.

In 2008, a reform eliminated regulatory constraints such as catchment areas, mandatory minimum distance between service stations and minimum areas designated for commercial activities with the aim of increasing competition and reducing prices for final consumers.

Natural gas storage activities can be carried out on the basis of a concession issued by the Ministry of Economic Development for a period of thirty years, which can be extended only once for a further period of ten years.

The supply of natural gas to end users is subject to an authorisation regime under the competence of the Ministry of Economic Development, pursuant to a ministerial decree dated 24 June 2002. The granting of such an authorisation is subject to certain requirements (including availability of adequate natural gas modulation services, evidence of sources of supply and of minimum technical and financial capabilities, in particular with regard to the ability to finance the purchase of natural gas to supply clients for a minimum of three months). Any undertaking which has its seat in another EU member state or which is controlled by any such undertaking may obtain authorisation provided that reciprocal retailing rights exist in the country of origin.

The import of LNG or natural gas in Italy under supply contracts lasting more than one year is subject to the authorisation of Ministry of Economic Development, which is granted based on objective and non-discriminatory criterions to applicants which meet certain technical and financial requirements. Import of LNG or gas under contracts which have a term of less than one year are to be notified to the ministry 30 days’ prior notice.


2.4 FOREIGN INVESTMENT

The prospection and research permits, the production concessions and the single concessions are granted not only to Italian and European investors but also to non-European investors, on condition that their home countries allow reciprocal treatment.

With respect to the above, if any Italian investor faces obstacles to access to prospection, research or exploitation activities in non-European countries, they should inform the Ministry of Economic Development, which in turn – subject to an agreement with the Ministry of Foreign Affairs – notifies the European community. The notification may lead to authorisation being granted to one or more member countries of the EU to deny upstream licences to any investors controlled by the relevant non-European country or its nationals.

Furthermore, the government reserves the right to refuse to grant a permit – for national security reasons – to investors which are actually controlled by non-European governments.

Foreign investors may benefit from all the protections granted to Italian investors according to national law. With reference to non-European investors, this principle applies on condition that their home countries allow reciprocal treatment.

In addition, foreign investors benefit from certain protections set forth under a number of bilateral international treaties (BIT) entered into by Italy with other countries in order to ensure protection of foreign investments, as well as under the Energy Charter Treaty (ECT), depending on the jurisdiction of origin of the investor.

In particular, under the ECT in a case of expropriation of their investment or similar measures, foreigners are entitled to receive compensation for damages and any investment dispute may be submitted by the investor to an international arbitration. However, in January 2015, Italy announced its intention to withdraw from the ECT with effect from January 2016. Nevertheless, the ECT’s provisions will continue to be applicable for 20 years for the investments dating back before the withdrawal.


THE RENEWABLE SOURCES

Paul VI Audience Hall roof covered with 2,400 photovoltaic panels (Vatican city/Rome).


THE RENEWABLE SOURCES03

3.1 MAIN INCENTIVES – DRAFT NEW FER DECREE

In March 2018 the Ministry for the Economic Development has approved a draft of the Ministerial Decree governing the public support scheme for the renewable energy sources, covering the 3-year period between 2018-2020. However, the draft is still subject to the further steps of the process, including the opinion of the Energy Authority (ARERA), the opinion of the Committee composed by representatives of the Italian State and the Italian Regions and the decision of the European Commission. For this reason, the draft could be subject to amendments and we have not included its provisional contents in this guide.

3.1.1 Photovoltaic – “Conto Energia”

Energy generated by photovoltaic plants connected to the grid benefits from public subsidies under the Feed-in scheme named “Conto Energia”.

The evaluation process aimed at assessing the eligibility of a certain photovoltaic plant to benefit from the public subsidies is carried out by Gestore dei Servizi Energetici – GSE S.p.A., which is a company owned by Ministry for Economics empowered with public functions.

In Italy the support scheme for the photovoltaic sector has been ruled time by time by the following Ministerial Decrees (“MD”):

■ MD dated July 28, 2005 and February 6, 2006 (First FIT system), replaced by

■ MD dated February 19, 2007 (Second FIT system), replaced by

■ MD dated August 6, 2010 (Third FIT system), replaced by

■ MD dated May 5, 2011 (Fourth FIT system), replaced by

■ MD dated July 5, 2012 (Fifth FIT system).

Each MD applies to plants with a minimum capacity of 1 kW which enter into operation within specific deadlines and grants the achievement of public subsidies, whose values depend on (i) the specific FIT system; (ii) the date on which each plant entered into operation; (iii) the capacity and type of plant and (iv) the electricity produced.

The tariff is granted over a period of 20 years, starting from the commissioning date.


For plants commissioned by 31 December 2012, the scheme (called feed-in premium) provides for a tariff in relation to the electricity produced. The electricity fed into the grid may be purchased by GSE (ritiro dedicato) or economically offset with the value of electricity withdrawn from the grid (net metering – scambio sul posto). As of 2013, the tariff is made up of both the incentives and the value of electricity.

As a general remark, the various Feed-in schemes (each including detailed rules and recommendations) provide that the feed-in tariff is granted in favor of photovoltaic plants which (i) have been duly authorized and connected to the grid in accordance with the regulation applicable at national and regional level; (ii) have been constructed in compliance with the building authorizations; (iii) have been built and connected to the grid within a certain deadline (depending on the different Ministerial Decree regulating the various Feed-in schemes). In addition, GSE evaluates the eligibility of a photovoltaic plant, also on the basis of the completeness and truthfulness of the documentation attached to the application for the achievement of the Feed-in tariff and has the power to carry out inspections on the plants and, if necessary, to impose sanctions or revoke the feed-in tariff.

As of 6 July 2013, photovoltaic plants are no longer allowed to achieve public subsidies, having the contingent cost established by the Italian Government for public subsidies been reached (equal to 6,7 Euro billion).

As a consequence, photovoltaic plants that currently benefit from public subsidies are those already built and in operation, which were admitted to the various Feed-in schemes, in accordance with the rules established by the relevant ministerial decrees.

In 2014, by way of Law Decree No. 91/2014 (the so called “Spalma Incentivi” decree) the Italian Government introduced several rules that both reduced the amount of feed-in tariffs already granted to photovoltaic plants and the methods of payments made by GSE. In particular, the holder of photovoltaic plants with nominal power above 200 kW were required to choose one of three options of tariff reduction applicable from 1 January 2015 among three options with two different outcomes: (a) a re-modulation of the feed-in tariff or (b) a reduction of the feed-in tariff with the possibility to reduce to zero the impact of the re-modulation by obtaining a loan or by selling the incentive to a “selected buyer”.

Some investors and operators within the photovoltaic sector challenged before the Regional Administrative Court of Rome the Spalma Incentivi decree and the implementation rules adopted by GSE, in order to obtain the annulment of it. At the same time, the claimants asked the Constitutional Court to declare such regulation in breach of the principles set forth under the Italian Constitution, alleging that the Spalma Incentivi triggered the investment in the photovoltaic sector, because it introduced less favorable conditions applicable with retroactive effects to photovoltaic plants which had already obtained the public subsidies.


On 24 January 2017, the Constitutional Court published the full decision declaring ungrounded the unconstitutionality plea of the Spalma Incentivi, stating inter alia that the challenged re-modulation of the public subsidies does not have a radical impact on the investments already made, as (only in theory without proof) it is challenged, but appears on the contrary ruled in a way to take into consideration its sustainability.

As of today, the claims are still pending before the Regional Administrative Court of Rome, which will have to schedule the hearings to discuss the merits of the claims. Considering the Constitutional Court’s decision, the outcome of these other hearings can be easily predicted.

3.1.2 Wind power

Pursuant to Legislative Decree no. 28 of 3 March 2011, the subsidies regime has been subdivided into two categories on the basis of the date in which the Wind farms started operating:

a) Wind farms whose operation started before 31.12.2012; and

Wind farms already built and in operation before 31.12.2012 have been granted public subsidies on the basis of the green certificates’ mechanism under Ministerial Decree 18 of December 2008. Wind farms should have previously obtained a qualification by GSE, as renewable-energy power plants (IAFR qualification). Green certificates were tradable instruments, the number of which, granted by GSE for 15 years, is proportional to the electricity generated by the plant and depending on the type of the project (new, reactivated, upgraded, renovated system/plant). Producers whose plants had a yearly average nominal capacity not exceeding 1 MW (0.2 MW for wind power plants/systems), excluding solar ones, could have exercised the right of option, instead of green certificates, to an all-inclusive feed-in tariff.

As of 1 January 2016 the green certificates mechanism has been replaced by a feed-in tariff mechanism.

Wind farms already built and in operation after 31.12.2012 have been granted subsidies on the basis of a feed-in tariff mechanism pursuant to Ministerial Decree 6 July 2012 (“2012 FER Decree”). The subsidies covered by such Decree apply to new, totally rebuilt, reactivated, repowered/upgraded or renovated plants which have been commissioned on or after 1 January 2013. Such decree also covers those plants already in operation and supported under the Ministerial Decree 18 December 2008 which passed from the green certificates scheme to the new support scheme.

The subsidies are granted through: (i) direct access mechanism for wind farms with nominal power up to 60 kW; (ii) a pre-admission mechanism consisting of the admittance to a public registers for wind farms with nominal power up to 5 MW and (iii) the participation to a


competitive auction for wind farms with nominal power above 5 MW. After the admittance to the GSE ranking, the producer shall submit to GSE the application for the achievement of the subsidies. Only in case of positive outcome of the GSE evaluation process (under certain conditions and recommendations to be complied with) the public subsidies will be achieved.

The subsidy is granted in relation to the net electricity generated by the plant and injected into the grid, therefore, self-consumed electricity is not eligible for subsidies. The net electricity generated and injected into the grid is the lower value between the net electricity generated and the electricity actually injected into the grid by the plant.

The 2012 FER Decree provides for two separate support schemes, based on plant capacity, renewable source used and type of plant:

■ all-inclusive feed-in tariff (To) for plants with a capacity of up to 1 MW; this capacity is given by the sum of a base feed-in tariff (whose value is defined for each source, type of plant and capacity class in Annex 1 to the Decree) and of premiums, if any (e.g. high-efficiency, emission reductions, etc.).

■ incentive (I) for plants with a capacity of more than 1 MW and for those with a capacity up to 1 MW not opting for the all-inclusive feed-in tariff; this incentive is given by the difference between the base feed-in tariff – increased by the premiums, if any, for which the plant is eligible – and the hourly zonal electricity price. The electricity generated by plants benefiting from the incentive (I) remains of property of the producer.

The value of the base feed-in tariff is the one applicable upon the date of commissioning of the plant. GSE will award the all-inclusive feed-in tariff or the incentive (I), calculated from the value of the base feed-in tariff, as of the date of entry into commercial operation of the plant (which is a conventional date established by the producer and communicated to GSE).

As to wind farms, the base feed-in tariff is indicated in the table below:

TYPE POWER (kW) BASE TARIFF

On-shore

1<P≤20 291

20<P≤200 268

200<P≤1000 149

1000<P≤5000 135

P>5000 127

Off-Shore1<P≤5000 176

P>5000 165


Wind farms that were already admitted to the GSE registers pursuant to the public tenders related to the years 2012 and 2013 and which have passed the positive GSE evaluation, will be granted the subsidies for a period equal to 20 years (conventional medium life of wind farms).

Wind farms that participated to the competitive auctions and were admitted to the GSE ranking related to the tender of the year 2014 (published by GSE on 8 August 2014), in order to be admitted to the public subsidies had to be in operation by 8 December 2016. If such plants have not yet started operating, a reduction of the incentive equal to 0.5% for each months of delay shall apply, until a maximum delay of 24 months. As a consequence, the wind farms that will not be operating by 8 December 2018, will no longer be able to achieve the public subsidies under the 2012 FER Decree.

Currently, the support scheme for wind farms authorized but not yet commissioned is regulated under Ministerial Decree 23 June 2016 (“2016 FER Decree”).

The subsidies covered by such Decree apply to new, totally rebuilt, reactivated, repowered/upgraded or renovated plants which will be commissioned on or after 1 January 2013 on the basis of a mechanism similar to the one provided under the 2012 FER Decree (i.e.: direct access for wind plants up to 60 kW; public registers for wind farms up to 5 MW and competitive auctions for wind farms above 5 MW).

The 2016 FER Decree provides for a threshold of Euro 5.8 billion for indicative cumulative costs for all types of incentives of renewable energy plants with the exception of photovoltaic plants. The 2016 FER Decree covers a very limited period, since the acceptance of the requests for the access to the new incentive mechanism ceased after 30 days from the first date between December 1, 2016 (December 1, 2017 for plants falling in the direct access regime) and the date of achievement of the above mentioned threshold of Euro 5.8 billion.

To safeguard investments on projects under completion, the 2016 FER Decree provided that the following plants may apply for support under the terms and conditions specified in the 2012 FER Decree: (i) renewable plants entered into operation between 31 May 2016 and 29 June 2016, subject to the direct access and that had filed the application within 30 days after the entry into operation date; (ii) renewable plants listed in the GSE register or admitted to the GSE auction pursuant to the 2012 FER Decree, provided that they start operating within the terms provided for under the same decree; (iii) renewable plants falling in the direct access regime or subject to the registries and listed in the GSE register pursuant to the 2016 FER Decree, provided that they will start operating by 29 June 2017. Please note that this provision does not apply to renewable plants falling in the auction system pursuant to the 2016 FER Decree.


As far as wind farms are concerned, for the time being the application for the achievement of the public subsidies is in concrete limited to the plants with nominal capacity power 60 kW which fall within the direct access mechanism. In fact, according to the GSE rules:

■ The possibility to be enrolled into the registers for plants with nominal power between 60 kW and 5 MW ceased on last 28 October 2016 and the relevant ranking was published on 24 November 2016;

■ The possibility to be pre-admitted to the public subsidies by way of the competitive auction system for plants with nominal capacity power exceeding 5 MW, ceased on last 27 November 2016 and the relevant ranking was published on 22 December 2016.

As a consequence:

■ Wind farms falling within the direct access regime: (i) will benefit from the higher incentive tariff provided for under the previous regime set forth under 2012 FER Decree equal to Euro 268 per MW/h in case they will start the operation by 29 June 2017 or (ii) will benefit from the new tariff equal to € 190 per MW/h, in case they will start operation as of 30 June 2017, provided that the annual budget threshold of 5,8 billion set out in the 2016 FER Decree is not reached and will start operating (in any case) by 1 December 2017.

■ Wind farms listed into the GSE register: (i) will benefit from the public subsidies pursuant to the 2012 FER Decree, in case they will enter into operation by 29 June 2017; (ii) will benefit from the public subsidies pursuant to the 2016 FER Decree, provided that they will enter into operation within 19 months from the publication of the ranking (i.e. by 24 June 2018). Failure to comply with such term will imply the application of a 0.5% reduction of the subsidy for each months of delay, until a maximum term of 6 months of delay. As a consequence, those wind farms that will not be connected by 24 December 2018, will no longer be able to achieve the public subsidies under the 2016 FER Decree.

■ Wind farms falling within the auctions regime and listed in the relevant ranking, shall be connected to the grid within 31 months from the publication of the ranking (i.e. by 22 July 2019). No reduction is provided in case of failure to comply with such deadline that, consequently, has to be considered mandatory.

The value of the base feed-in tariff is the one applicable on the date of entry into commercial operation of the plant and will be awarded by GSE for a period equal to the conventional useful life-time of the plant (e.g. 20 years for onshore wind farms).

The energy incentivized is the net production injected into the grid, calculated as the minor value between the net production and the energy actually injected into the grid.

The 2016 FER Decree provides for two incentive mechanism:


a) An all-inclusive feed-in tariff, whereby GSE withdraws all the energy injected into the grid, in relation to renewable plants with a nominal capacity power up to 500 kW. The relevant value is calculated summing the base feed-in tariff and any bonus and is different depending on the source, type of plant and capacity power. The all-inclusive feed-in tariff also includes the revenue of the energy withdrawn by the GSE.

As far as the wind plants with capacity between 20 kW and 60 kW are concerned, the all-inclusive feed-in tariff is equal to 190 Euro/MWh.

b) A feed-in tariff in relation to renewable plants with capacity power exceeding 500 kW calculated as the difference between the base tariff (including any bonus) and the hourly zonal price of the energy. In this case the energy produced is available for the producers (i.e.: is not withdrawn by the GSE), who sale it on the free market.

According to the 2016 FER Decree, the base feed-in tariff related to on shore wind farms is regulated as follows, in accordance with Annex 1:

TYPE POWER (kW)BASE TARIFF (Euro MWh)

On-shore

1<P≤20 250

20<P≤60 190

60<P≤200 160

200<P≤1000 140

1000<P≤5000 130

P>5000 110

3.1.3 Thermodynamic

The feed-in tariff support scheme for solar thermodynamic plants was previously regulated by the Ministerial Decree of 11 Apr. 2008, subsequently amended by the Ministerial Decree of 6 July 2012.

The support scheme for thermodynamic plants is currently regulated by Ministerial Decree 23 June 2016.

Under the previous support scheme, the electricity generated by solar thermodynamic plants was supported through feed-in tariffs over a period of 25 years. The tariffs remain constant throughout the support period. In case of hybrid plants, i.e. fed by both solar and other sources, feed-in tariffs only apply to electricity generated from the solar source.


In accordance with the data published by GSE, up to 2014 only two thermodynamic plants applied for the achievement of public subsidies under Ministerial decree 11 April 2008.

Under the new support scheme, thermodynamic plants with capacity power: (i) up to 100 kW benefit from direct access to the public subsidiaries; (ii) up to 20 MW, in order to be pre admitted to the public subsidies have to be enrolled into public registers; (iii) above 20 MW, in order to be pre admitted to the public subsidies have to participate to public auctions within the contingent capacity power equal to 100 MW.

The rankings related to the public registers and to the auction were published by GSE respectively on 25 November 2016 and 22 December 2016. According to the data published on the GSE website, 8 plants were pre-admitted to the register and no plants were admitted to the auctions.

Plants eligible for support are new solar thermodynamic plants (including hybrid ones) meeting the following requirements:

■ plants commissioned after 31 Dec. 2012, equipped with a thermal storage system having a nominal capacity equal to: (i) at least 1.5 kWhte/sm in case the capturing surface is more than 50,000 sm; (ii) at least 0.4 kWhte/sm in case the capturing surface is between 10,000 sm and 50,000 sm;

■ they do not use substances and preparations classified as very toxic, toxic and harmful under Directives 67/548/EEC and 1999/45/EC, as subsequently amended (plants located in industrial sites are not subject to this requirement); such recommendation does not apply in case the plant is located in an industrial area.

The base tariff provided for thermodynamic plants with capacity power above 5 MW is equal to Euro 291/MWh and the conventional average life is equal to 25 years.

The base tariff is increased by:

■ 20 Euro/MWh in relation to plants with fraction of electricity from non-solar sources (“non-solar fraction”)1 needed to integrate solar generation 0.15 and 0.50;

■ 45 Euro/MWh in relation to plants with non-solar fraction up to 0.15.

3.1.4 Biogas and biomass

1 The non-solar fraction (Fint) of a solar thermodynamic plant is defined as the share of net electricity generated from non-solar sources, expressed by the following relation: Fint = 1 – Ps/Pne, where Ps is the net electricity generated from the solar source and Pne is the net electricity generated by the plant.


Biomasses and biogas plants may benefit from public subsidies under Ministerial Decree 18 December 2008 (Green Certificates or all-inclusive feed-in tariff ), 2012 FER Decree and 2016 FER Decree.

In order to achieve public subsidies pursuant to the 2012 FER Decree, biomasses plants have to be in compliance with certain sustainability criterions.

On the basis of what is indicated in the authorization for the construction and operation of a certain plant fed by biomasses or biogas, GSE identifies the following categories of biomasses: (a) biological products; (b) biological byproducts; (c) waste; (d) waste not deriving from recycling and organic part of municipal waste. The value of the tariff is granted by GSE on the basis of each of the mentioned categories pertaining to the plant, based on the kind of biomasses used and on the content of the authorization. If the biomass fuel is not specified by the authorization for the construction of the plant, GSE grants the lower value related to the possible category of biomasses pertaining to the type of plant authorized.

The base feed-in tariff is established on the basis of the power of the plant and of the type of biomasses fuel authorized, in relation to the above mentioned classifications.

Similar criterions for the classification of biomasses and relevant subsidies are established by the 2016 FER Decree. In relation to biomasses and biogas plants entered into operation before 30 June 2017, for the purpose of the individuation of the category of biomasses, the rules set forth under the 2012 FER Decree will apply.

Pursuant to the 2016 FER Decree: (i) biomasses plants with power up to 200 kW authorized for the use of biomasses related to the above categories a) and b), and biogas plants with power up to 100 kW, fall within the direct access; (ii) biomasses and biogas plants with power up to 5 MW, authorized for the use of biomasses related to the above categories a), b) and d), have to be enrolled in the GSE registers; (iii) biomasses plants with power above 5 MW authorized for the use of biomasses related to the above categories c) and d), have to participate to the GSE competitive auctions.

3.1.5 Hydro

Hydro plants may benefit from public subsidies under Ministerial Decree 18 December 2008 (Green Certificates or all-inclusive feed-in tariff ), 2012 FER Decree and 2016 FER Decree.

Pursuant to the 2012 FER Decree hydro plants: (i) with nominal power up to 10 MW have to be enrolled in the GSE registers; (ii) with nominal power above 10 MW have to participate to the GSE competitive auctions. Hydro plants with power up to 1 MW may also opt for the all-inclusive feed in tariff.


Pursuant to the 2016 FER Decree, hydro plants (i) with nominal power up to 5 MW have to be enrolled in the GSE registers; (ii) with nominal power above 5 MW have to participate to the GSE competitive auctions. Hydro plants with power up to 500 kW may also opt for the all-inclusive feed in tariff.

The base feed-in tariff related to hydro plants are indicated in the table below for a period equal to the life of the plant, as of the date of entry into commercial operation:

TYPE POWER (kW)CONVENTIONAL LIFE

BASE TARIFF Euro/MWh

Run of river

1<P≤250 20 210

250<P≤500 20 195

500<P≤1000 20 150

1000<P≤5000 25 125

P>5000 30 90

Storage1000<P≤5000 25 101

P>5000 30 90

3.2 REGULATION AND PERMITS

The regulatory framework related to the authorization and construction of plants producing electricity from renewable sources is currently set forth under Ministerial Decree 10 September 2010 introducing the National Guidelines, which implemented the European Directive 2009/28/CE, with the aim of harmonizing the administrative proceedings implemented by the regions, with the regulation enforceable at a national level.

Currently, the authorization proceedings for the construction and operation of renewable plants are the following:

■ Single Authorization: in accordance with article 12 of Legislative Decree No. 387/2003 renewable plants with nominal capacity power above certain thresholds have to be authorized through a unified proceeding (the so called Conferenza di Servizi), which is joined by all the public entities whose authorities are involved in the project. The


unified procedure leads to the granting of a permit which includes and substitutes the building permit and the authorization for the electrical lines, covers all the aspects of the construction and includes any other necessary consent.

If the project has nominal power above 1 MW, it is subject to the environmental impact assessment (Valutazione di Impatto Ambientale) or to the pre-screening procedure (Procedura di verifica di assoggettabilità a VIA) (“EIA”). In this case, the single authorization cannot be issued until this procedure has been completed.

The Single Authorization also allows the construction and operation of plants producing electricity from renewable sources. Indeed, the construction permit contained in the Single Authorization expires with the completion of the works, while the operation permit contained in the Single Authorization continues to produce its effects also after the completion of the works. Normally these effects continue for the entire operational and technical life of the plant. In this regard, some Single Authorizations establish punctual time limits for the operation (in our experience, 20 – 25 – 30 years).

■ PAS: renewable plants with nominal power below certain thresholds (above which the Single Authorization is required) may be authorized by way of the so called PAS, which is a sworn declaration to be filed with the competent Municipality, provided with a technical report attesting the compliance of the project with the applicable zoning regulation. The works for the construction of the plant may be started 30 days after the filing of the declaration, if no bans are raised by the Municipality. The PAS does not include the authorization for the construction of the cable, connection equipment and further necessary consents (such as landscape or hydrogeological authorisations) which have to be collected separately by the applicant.

■ Communication of commencement of works: renewable plants complying with certain features and capacity thresholds may be constructed following a simple communication to be delivered to the Municipality. In accordance with such simplified procedure the works for the construction of the plant may be started after the filing of the communication.

In the table below we have summarized, for each renewable source, the thresholds above which the Single Authorization is required:

Renewable source/type of plant Power (kW)

Wind > 60 kW

Photovoltaic > 20 kW

Biomasses > 200 kW

Biogas > 250 kW

Hydro > 100 kW


Below the mentioned thresholds, renewable plants may be authorized through means of the PAS or communication of commencement of the works. Such authorization has to be based on the technology, the power and the dimensions of the plants.

In implementing the national provisions, the Regions may adapt their legislation to the provisions of the Legislative Decree 387/2003 (i.e. individuating the authority in charge of the authorization procedure/establishing the phases of the procedure/individuating the entities invited at the Conferenza di Servizi/establishing the areas in which the construction of renewable plants is forbidden etc.).

Various issues in connection with the authorization proceedings for the construction of renewable plants are related to variations to the project, implemented before or after the conclusion of the works. As a general remark, minor modifications (varianti non sostanziali) to the existing plants may be authorized by means of simplified permits (sworn declarations delivered to the Municipality), while major amendments (varianti sostanziali) that affect the volumes, the powers or the occupied area, need the obtainment of a new Single Authorization to be issued after a unified proceeding.

The authorization related to the variation also has to be duly disclosed to GSE for the purpose of benefiting from public subsidies.

Maintenance work shall go through further permitting proceedings, while all ordinary maintenance will be allowed under the Single Authorization, but still needs to be authorized even if under a simplified regime. In addition, the authorization related to maintenance works has to be disclosed to the GSE for the purpose of the public subsidies.


PPAS AND ENERGY EFFICIENCY

Trevi fountain energy-efficient LED lighting (Rome)


PPAS AND ENERGY EFFICIENCY04

St. Peter’s Square energy-efficient LED lighting (Vatican City)

4.1 PPAS

A power purchase agreement (PPA) is a typical long-term sale agreement between an independent power producer and an off taker through which the latter agrees to purchase over a certain period of time all the electricity generated by the producer’s plant at an agreed price.

Such agreement guarantees to the independent power producer a certain cash flow aimed at remunerating the investment borne for the construction of the power plant and covering the maintenance costs. In order to guarantee the payment of the agreed price, the off taker is usually required to deliver proper guarantees (e.g. parent company or bank guarantee).

Some of the typical terms in PPAs include: conditions precedent and duration of the agreement, quantity and measurement of the electricity, price, payment terms, allocation of possible imbalance costs, force majeure, change in circumstances, default and termination, assignment (also by the way of security to possible lenders of the investor), jurisdiction and governing law.


The use of PPAs has become more and more common as an alternative to the simplified purchase and resale agreement (i.e. ritiro dedicato) to be entered into with the Gestore dei Servizi Energetici – GSE S.p.A. especially after the minimum guaranteed prices of 1 January 2014 have been repealed and substituted by the payment of hourly zonal prices (i.e. prezzi zonali orari).

4.2 SEU/SEESEU

Another opportunity offered by the Italian legal system to electricity producers is to establish a SEU (i.e. Sistemi Efficienti di Utenza) or a SEESEU (i.e. Sistemi Esistenti Equivalenti ai Sistemi Efficienti di Utenza). SEU and SEESEU are systems created by Legislative Decree No. 115 of 30 May 2008, composed of a combination of heat and power (CHP) or a renewable power plant that supplies electricity to a certain consumption unit by means of a direct and private electrical line.

There are different types of SEU/SEESEU depending on whether or not the relevant power plant is already existing or authorised as of a certain date, whether or not the producer and the consumer are the same entity and whether or not both the power plant and the consumption unit are located on the same plots or adjoining plots.

The setup of a SEU or a SEESEU is convenient both for the producer and the consumer considering that it allows the sale of electricity at a convenient price and entitles the producer to obtain significant tariff advantages applied to the electricity produced and consumed within a SEU/SEESEU. After law No. 19 of 27 February 2017, a SEU/SEESEU does not need to be qualified as such by the GSE but it shall satisfy the requirements set out in the Resolution No. 578/2013 as subsequently modified of the Energy Authority (ARERA).

Another important feature of the SEU/SEESEU system is that it is compatible with feed-in tariffs and other incentives granted by the GEE to the power plants.

4.3 ENERGY SERVICES COMPANIES (ESCO) AND WHITE CERTIFICATES (TEE)

An ESCo is defined under Article 2 of the Legislative Decree No. 115 of 30 May 2008 as a business that delivers energy services and/or other energy efficiency improvement measures in a user’s facility or premise, and accepts some degree of financial risk in doing so. The payment for the services delivered is based – either entirely or partially – on the achievement of energy efficiency improvements and on the meeting of the other agreed performance criterion.


The Legislative Decree No. 102/2014 has introduced the obligation for any ESCo to obtain the certification UNI CEI 11352.

Under Italian Law, the involvement of an ESCo is often connected to the implementation of an energy efficiency intervention for which, under Italian law, there is the possibility to have access to the incentive mechanism of the TEE (or White Certificates).

TEEs were established by the Ministerial Decrees of 20 July 2004 on electricity and gas, as subsequently amended and supplemented by the Ministerial Decrees of 21 December 2007 and 28 December 2012.

TEEs are awarded by the Gestore dei Servizi Energetici – GSE Sp.A. to certify certain amounts of energy savings (calculated in tonnes of oil equivalent, “toe”) achieved by entities which are under the obligation to carry out interventions of energy efficiency or that voluntarily decide to do so. In particular, electricity and natural gas distributors supplying more than 50,000 final consumers are those entities required to achieve certain annual targets of energy efficiency savings. They may achieve their obligations of energy efficiency annual targets either by implementing their own energy efficiency projects (and gaining TEEs) or by purchasing TEEs from entities which voluntarily decide to carry out interventions of energy efficiency.

The GSE has the authority to evaluate the applications for energy efficiency interventions and establish if the interventions carried out are eligible for obtaining TEEs. In particular, energy efficiency interventions carried out during the period 2013-2016 must comply with the provisions contained in the Ministerial Decree of 28 December 2012 and the related guidelines contained in the Resolution No. EEN 9/11 of ARERA whereas for the period 2017-2020 the new guidelines are set out in the Ministerial Decree 11 January 2017, entered into force on 4 April 2017.


Some of the significant characteristics of the new guidelines compared with the previous regime are those outlined below:

■ extension of the duration of the projects (7 or 10 years instead of 5 or 8 years set out by the current regime);

■ TEEs are generally granted to the owner of the project (who bears the cost of the investment to construct the project) instead of the applicant (ESCo). There is the possibility to ask the GSE to grant TEEs directly to the applicant and, in this case, the owner and the applicant would be jointly liable vis-à-vis the GSE for the obligations set out in the Guidelines;

■ definition of the concepts of “baseline” and “additionality”, which are relevant for the admissibility of a project, and their description through an implementation guide, to be issued by the GSE, that will describe the best available techniques to carry out efficiency projects;

■ reduction of the methodologies for the evaluation of the projects to only 2: ex-post (i.e. a consuntivo) and standardized (i.e. standardizzato);

■ introduction of the multiplying factors K1 and K2 that – with the purpose of promoting the investments – will allow the payment of TEEs increased by 20% during the first half of the project term and decreased by 20% during the remaining period; and

■ regulation of the power of the GSE to carry out site inspections and documents verification aimed at controlling the correctness of the execution of the projects and of the information submitted to the GSE to obtain TEEs.

Once granted, TEEs can be traded by means of bilateral negotiations or in the Energy Efficiency Certificates Market managed by the GME.

Please note that TEE can be used as collateral for the obligations undertaken vis-à-vis banks and financing institutions by means of the procedure “blocking/unblocking” of TEEs (i.e. procedura blocco/sblocco), which allows banks and financing institutions to monitor the TEEs’ account and block the trade of the TEEs granted until the payments due under the financing agreements are made.


E-MOBILITY, BIO-METHANE AND ALTERNATIVE FUELS

Electric vehicle at a charging station


E-MOBILITY, BIO-METHANE AND ALTERNATIVE FUELS05

5.1 DIRECTIVE 2014/94/UE (AFID), IMPLEMENTED IN ITALY BY LEGISLATIVE DECREE NO. 257 OF 16 DECEMBER 2016

Alternative fuels are key to improving the security of energy supply, reducing the impact of transport on the environment and boosting EU competitiveness.

The final Directive 2014/94/UE concerning alternative fuels (AFID) has been adopted by the European Parliament and the Council on 29 September 2014.

In particular the AFID Directive pointed out new EU rules to ensure the build-up of alternative refuelling points across Europe with common standards for their design and use, including a common plug for recharging electric vehicles. Member States must set and make their targets public and present their national policy frameworks.

The AFID Directive sets a regulatory framework for the following fuels:

■ Electricity: The directive requires Member States to set targets for recharging points which are accessible to the public, to be built by 2020, to ensure that electric vehicles can circulate at least in urban and suburban agglomerations. Targets should ideally foresee a minimum of one recharging point per ten electric vehicles. Moreover, the AFID Directive makes it mandatory to use a common plug all across the EU, which will allow EU-wide mobility.

■ Liquefied Natural Gas (LNG): Natural gas/bio-methane vehicles offer today a well-developed technology, with performances and cost equivalent to petrol or diesel units and with clean exhaust emissions. Natural gas use in trucks and ships can substitute diesel. For the development of LNG for road transport, Member States have to ensure a sufficient number of publicly accessible refueling points, with common standards, on the TEN-T core network, ideally every 400 km, to be built by end-2025. The AFID Directive also requires a minimum coverage to ensure accessibility of LNG in main maritime and inland ports.

■ Compressed Natural Gas (CNG): The AFID Directive requires Member States to ensure a sufficient number of publicly accessible refuelling points, with common standards, to allow the circulation of CNG vehicles, both in urban and sub-urban areas as well as on the TEN-T core network, ideally every 150 km, to be built by end-2025.

■ Hydrogen: The AFID Directive aims to ensure a sufficient number of publicly accessible refuelling points, with common standards, in the Member States which opt for hydrogen infrastructure, to be built by end-2025.


In addition, the AFID Directive requires that clear information is given to consumers about the fuels that can be used by a vehicle, using standardised labelling in vehicle manuals, at dealerships and on the recharging and refuelling points. It also aims to provide clear information to users to compare alternative fuel prices with conventional fuel prices. Moreover, Member States must ensure that information about the geographical location of publicly accessible recharging and refuelling points is made available in an open and non-discriminatory manner.

By means of the National Plan for Infrastructures for recharging electric vehicles (PNIRE) approved on 2 December 2014, Italy provided the state of play and future market developments and indicated national targets and objectives and the measures to reach such targets and objectives all in a framework of European coordination.

In particular, the PNIRE established a Single National Platform (PUN) managed by the Minister of Infrastructures and Transports and collecting all information concerning owners of recharging infrastructures accessible by public and operators.

In addition, Italy implemented the Directive 2014/94/UE by means of the Legislative Decree no. 257 of 16 December 2016 (AFID Decree) providing mandatory objectives concerning electricity and natural gas (LNG e CNG) fuels and elective objectives concerning hydrogen (only experimental projects) and LPG.

Italy provided specific provisions allowing and promoting the utilisation of alternative fuels (as electricity).

The Italian AFID Decree provided specific prescriptions for the diffusion of refueling points in residential buildings and also along the high-speed roads in order to promote the utilisation of electric vehicles also outside city centres.

Each Region shall implement the AFID Decree. For this aim, on 6 April 2017, the Italian Conference State-Region published the Guidelines.

The guidelines allowed the diffusion of recharging points in the disadvantaged areas and, mainly, in already existing infrastructures. The project shall be filed by 31 December 2018 or by 31 December 2020 (depending on the capacity) and realized within 24 months from its filing.

5.2 NEW BIO-METHANE DECREE

On 2 March 2018 the Ministry of Economic Development (Ministero dello Sviluppo Economico), together with the Ministry of Environment (Ministero dell’Ambiente e della tutela del Territorio e del Mare) and with the Ministry of Agricultural, Food and Forestry Policies (Ministero delle Politiche Agricole, Alimentari e Forestali) approved the new decree setting out the supporting measures for the production of bio-methane from biogas (“Bio-methane Decree”).

The Bio-methane Decree, entered into force on 20 March 2018, applies to:


■ new bio-methane production plants entered into operation after the entry into force of the Bio-methane Decree and before 21 December 2022;

■ existing biogas production and utilization plants converted, either partially or totally, to produce bio-methane, after the entry into force of the Bio-methane Decree and before 21 December 2022;

■ existing plants already qualified or in the process of being qualified pursuant to the Ministerial Decree 5 December 2013, upon request to be made to the GSE within 30 days from the entry into force of the Bio-methane Decree.

The incentives are granted to the bio-methane fed into the distribution and transport systems of natural gas, including inter alia fuel distribution stations either connected or not to the public gas distribution networks.

The incentive mechanism is based on the obligation for the producers of gasoline and diesel to supply also a minimum quantity of biofuels. From the year 2018 such obligation is broken down into different minimum percentages for biofuels, advanced biofuels and other advanced biofuels other than bio-methane.

The bio-methane producers are entitled to certificates attesting the feeding into the gas network of bio-methane (“CICs”). The CICs can be purchased by the producers of gasoline and diesel to comply with their minimum bio-fuel supply obligations. CICs are issued on a monthly basis and can either be delivered to the GSE or sold on the exchange market managed by the GME. In addition to the feeding into the gas network by the producers, the Bio-methane Decree provides for the off-take of the advanced bio-methane and advanced biofuels other than bio-methane by the GSE for 10 years at a reference price equal to Euro 375/CIC (less the costs invoiced by the GSE for the off-take).

A higher number of CICs is granted to bio-methane and advanced biofuels produced from by-products such as algae, green waste, household waste, agricultural waste, food industry waste.

Electric vehicle charging station


ENERGY STORAGE

Gasometer on the Tiber river bank (Rome)


ENERGY STORAGE06

Electrical Energy Storage is one of the solutions provided by the energy market to solve the issues deriving from the transmission and distribution grid.

In particular, an EES is a set of devices, equipment and logics of management and control, functional to absorb and release electrical energy, designed to operate in a continuous manner in parallel with the grid with the obligation to connect third parties or able to operate in an alteration of exchange profiles with the electrical network (input and/or withdrawal of electricity from the network).

An energy storage facility could be installed as a stand-alone plant or integrated into an already existing power plant. It can be a bi-directional facility in case it absorbs electricity both from an existing plant and the national grid; it is said to be mono-directional if the electricity is absorbed only from the existing power plant.

Energy storage facilities can have significant applications in the electricity production sector such as:

(i) allow the control and management of the injection of electricity into the national grid depending on the fluctuation of the electricity demand in order to meet demand whenever needed and make the plant run efficiently;

(ii) guarantee the continuous injection of electricity even in case the grid operator orders the disconnection of the power plant from the national grid; and

(iii) support and maximize the self-consumption industry.

The Energy Authority (Autorità di regolazione per energia, reti e ambiente “ARER”) provided the technical rules to be complied for the installation of EES by means of the Deliberation No. 574/2014/R/EEL of 20 November 2014 providing conditions and means for the installation of energy storage facilities and their integration into the national grid.

The most important provision contained in the Deliberation No. 574/2014/R/EEL is the one that confirms the possibility to install energy storage facilities even in case of wind or photovoltaic plants that already benefit from public incentives or from the sale and simplified sale and resale purchase service (servizio di ritiro dedicato) granted by the GSE for the production of electricity.


The only case for which the Deliberation No. 574/2014/R/EEL does not allow the installation of energy storage facilities is for photovoltaic plants with a power up to 20 kW which benefit from the First Energy Account incentives and operate under the net metering system (scambio sul posto).

With the exception of this limited case, power plants already benefitting from public incentive schemes or from sale and simplified sale and resale purchase agreements can install energy storage facilities provided that they comply with the technical requirements for the electricity measurement set out in the Deliberation No. 574/2014/R/EEL.

With specific reference to plants producing electricity by renewable sources and admitted to public subsidies, GSE issued Guidelines providing that since 1 January 2015 it is possible to install storage systems on plants receiving public incentives and/or have access to minimum prices guaranteed with exception for the plants having power lower than 20 kW in net metering service (scambio sul posto) admitted to First Energy Account.


CORPORATE FORMS – FUNDS

Hadrian’s Temple, in Piazza di Pietra is the Chamber of Commerce of Rome conference centre (Rome)


CORPORATE FORMS – FUNDS07

Wind farm in the Sicilian countryside with Mount Etna in the background (Catania)

Italian law provides for different kinds of corporate forms, however, we can categorize the most relevant and common corporate entities as those granted with limited liability and those not granted with limited liability.

7.1 LIMITED LIABILITY COMPANIES (S.R.L. AND S.P.A.)

The main corporate entities with limited liability are the private "Limited Liability Company" – Società a Responsabilità limitata (S.r.l.) and the "Company Limited by Shares" – Società per Azioni (S.p.A.).

Limited liability companies are generally provided with (i) a limited liability regime for the company owners (the owner is not personally liable for any debt or company's obligation and the money or other assets which have been contributed to the company can be used to satisfy potential creditors in case of insolvency), (ii) freely transferable shares/quotas, and (iii) separation between the role of shareholder/quotaholder (being the owner) and director (i.e. is not necessary that a shareholder is also a director and vice-versa).

The investor's choice on one or the other form depends on several implications such as the required organization model, the specific business purposes, the expected investment amount range and other parameters.

7.1.1 Private limited liability companies (S.r.l. and S.r.l. semplificata)

The private Limited Liability Company (S.r.l.) can be either incorporated as a S.r.l. or as a "simplified" S.r.l. The S.r.l. requires a minimum initial capital of Euro 10,000 whilst the simplified one requires a minimum initial capital of Euro 1.


Further specific limitations are provided for the simplified S.r.l. In facts, only a S.r.l. can be owned by other companies (rather than only by individuals). Also, the simplified S.r.l. can only adopt a very simple and standard model of by-laws and articles of associations, being not allowed to modify its management (i.e. it is not possible to provide particular voting rights, transfer of quotas limitations, etc.). Finally, if the corporate capital is less than Euro 10,000, contributions in kind of any assets other than cash are not allowed and each year a percentage equal to 20% of the profits shall be accrued to create a non-distributable capital reserve equal to Euro 10,000, which can only be used to either increase the capital or cover losses.

To incorporate a S:r.l. at least one quotaholder is required. The quotaholder can also be a director of the company and does not need to be an Italian resident.

The incorporation is carried out before a notary public (by executing an incorporation deed i.e. articles of association and by-laws) and requires a registered address in Italy, a tax identification number (codice fiscale) to be provided by the tax authority upon specific request and a certified e-mail address (so called "PEC"). It is also possible to incorporate an S.r.l. without travelling to Italy, through a power of attorney to be granted to a trusted person. After the execution of the notarial deed, the notary takes care of registering the new company within the relevant Companies' Register and to take all the necessary steps to grant effectiveness to such incorporation.

The corporate capital of a S.r.l. may be divided into one or more participations ("quotas"), each of them is owned by one quotaholder (a quotaholder cannot hold more than one quota). Each quota represents a part of subscribed capital and grants the relevant quotaholder with a right to vote at the quotaholders' meetings.

The S.r.l. is governed by a management body (it can be either a sole director or a board of directors) which is initially appointed through the articles of associations and subsequently appointed by the quotaholders' meeting. The quotaholders' meeting is also, inter alia, in charge of amending the by-laws, approving the financial statements and appointing the supervisory body, which may be either formed by a Board of Statutory Auditors (Collegio Sindacale) or by a Sole Auditor (Sindaco Unico). The appointment of a supervisory body is not always mandatory.

7.1.2 Public limited liability companies by shares (S.p.A.)

The public limited company by shares (Società per Azioni) is a form of corporation generally adopted by a potential investor willing to establish a large business with a widely-spread share capital or a company that intends to offer equity or debt instruments on capital markets. In fact, differently from the S.r.l. a public limited company by shares may be listed on stock regulated markets.

A S.p.A. can be incorporated before a notary public with an initial corporate capital equal to Euro 50,000 which is composed by shares (azioni) subscribed by one or more shareholders. The incorporation may be carried out by distance.


The corporate governance of the S.p.A. can be either carried out by:

(i) a Sole Director (Amministratore unico) or a Board of Directors (Consiglio di Amministrazione) as the management body and a Board of Statutory Auditors (Collegio Sindacale) composed by 3 or 5 independent professionals in charge of the control of the compliance with the law and with the principles of good management (traditional governance model); such Board of Statutory Auditors attends the meetings of the Board of Directors and of the shareholders;

(ii) a Board of Directors that appoints among its members a Supervisory Committee; this governance model (Sistema monistico) is the simplest of the three and the information flows easily among the directors and the members of the committee (which is internal to the board);

(iii) a Management Board (Consiglio di Gestione) assisted by a Supervisory Board (Consiglio di Sorveglianza); this governance model (Sistema dualistico) provides a management body which is not directly selected by the owners of the company – the Management Board's members are directors performing management functions and are appointed and revoked by the Supervisory Board and not by the shareholders' meeting, unlike the traditional system, whilst the supervisory functions are carried out (together with certain decisions traditionally reserved to the shareholders) by the Supervisory Board.

The accounts of the S.p.A. must be audited by a Board of Statutory Auditors (under the traditional governance model and subject to certain conditions) or by an accounting firm.

7.2 PARTNERSHIPS (S.N.C. AND S.A.S.)

The main types of partnerships are the general partnership – Società in Nome Collettivo – (S.n.c.) and the limited partnership – Società in accomandita semplice (S.a.s.).

Such entities are characterized by (i) unlimited, joint and several liability of the partners related to all the obligations of the company, (ii) non-transferability of the partner status (with the exception of the case where this is authorized by all other partners), (iii) same role of the partner which is also a director having managing powers, (iv) tax transparency, and (v) requirement to have at least two partners.

Within a general partnership (S.n.c.) the management and representation are carried out jointly by the partners, unless otherwise agreed. The members have unlimited liability for partnership obligations and there can be no agreement to the contrary. The unlimited partnership is subject to bankruptcy law with the contemporaneous bankruptcy of all partners.

Unlike the general partnership, the limited partnership (S.a.s.) is managed only by general partners (soci accomandatari), who are unlimitedly liable for their partnership obligations. The other limited partners (soci accomandanti) are not in charge of the company's management and they are liable only within the limits of the investment made in the partnership. If a limited partner carries out management activities in the company, he will become unlimitedly liable.


7.3 REAL ESTATE FUNDS/OTHER INVESTMENT FUNDS

Investment funds can be established in Italy by contract or as corporate entities. In general terms, the establishment, marketing and management of Italian investment funds (having either contractual or corporate form) are regulated activities, exclusively reserved to duly licensed entities, subject to authorization requirements and on-going supervision and to be performed in compliance with the relevant rules and regulations.

In case of funds established by contract, a management company is needed and such entity, usually a "Società di Gestione del Risparmio" ("SGR"), shall qualify as a Company Limited by Shares, otherwise, the manager could be a licensed – and passported to Italy – management company under the relevant EU directives (UCITs or AIFMD).

In case of corporate funds (corresponding to the "Società di investimento a capitale variabile" ("SICAV") or "Società di investimento a capitale fisso" ("SICAF") models, based on the open-ended or closed-ended nature of the fund), the vehicle could be both self-managed or externally managed by an SGR.

Different categories of funds may be identified, based, inter alia, on:

i. the subscription and redemption modalities adopted (open-ended or closed-ended funds);

ii. the types of subscribers addressed (retail or reserved);

iii. the risk level involved (recourse to leverage on a substantial basis or not);

iv. the relevant investments to be made (real estate funds, private equity funds, master-feeder structures, fund of funds, etc.).

In this context, the most common investment structures, as anticipated, can be divided between (i) investment vehicles having a contractual form (i.e. investment funds, either qualifying as undertaking for collective investments in transferable securities – UCITSs – or alternative investment funds – AIFs), established and managed as a segregated pool of assets divided into units and collected, through one or more issues of units, among a plurality of investors, managed as a whole in the interest of (and independently from) the unit holders; and (ii) corporate vehicles (i.e. SICAV or SICAF, either qualifying as UCITSs or AIFs), both self-or externally managed.

Some common characteristics may be identified, such as the basic presence of a plurality of investors, the establishment of a predetermined investment policies to be followed, certain management independence and autonomy principles and the general pooling of investors contributions, profits and incomes. Generally, the rules set forth for retail funds are more stringent than those relating to funds exclusively reserved to professional investors. In fact, fewer and less stringent investment limits are imposed on the latter, as well as less onerous disclosure and reporting requirements.


In this context, with regards to the energy sector, the most commonly adopted investments structures are real estate funds ("RE Funds"), which generally qualify as close-ended AIFs abided to specific investment and risk concentration limits. Moreover, RE Funds' structures relating to such – typically indirect – investments in renewable energies usually present articulated underlying structures, involving the establishment of SPVs, to which then transfer the relevant licences, by means of going concern leasing contracts and subsequent tenancy and servicing agreements.

In addition to the above, also closed-ended private equity funds structures are usually adopted for investments in the energy sector, for the cases in which the relevant investments do not focus on the facilities for the production of energy (as in RE Funds) but on the activity of production and sale of energy itself.

In any case, several classes of units/shares can be issued, granting different administrative and economic rights to be modulated depending on the needs of the participants (core investment, governance prerogatives, sale&lease back structures, etc.).

7.4 LOCAL BRANCHES

It is possible to establish a branch of a foreign entity in Italy before a notary public. To do this, a permanent business and a substantial management autonomy of the branch itself are required.

The competent corporate body of the foreign entity will have to issue a resolution identifying the address where the branch will operate, its activities and the person (preposto) that will be the legal representative of such company. The preposto can manage the branch and represent the foreign company in Italy acting within the limits of the powers granted to him.

Under Italian law (and according to the case law of the Supreme Court), the Italian branches of a foreign entity have neither separate and independent legal personality, nor limited liability. Therefore, the foreign entity is directly liable for all obligations undertaken by the representative of its Italian branch. As a further consequence of this principle, there is no profit distribution by the branch to the foreign entity, since profits of the branch automatically belong to the foreign entity.

The branch needs to keep its own bank accounts and it must file tax returns every year. In case the branch employs some personnel, an annual return showing withholding taxes paid over employees' salaries needs to be filed with the Italian tax authority. Furthermore, on a yearly basis, the foreign entity's financial statements must be filed with the Chamber of Commerce where the branch is registered (the statements must be duly translated in Italian and accompanied by a declaration attesting that the accounts filing requirements provided for by the laws applicable to the foreign entity have been satisfied).


FINANCING

UniCredit Tower in Gae Aulenti Square (Milan);


FINANCING088.1 FORMS OF FINANCING

8.1.1 Project Financing

Historically, project financing has been the preferred tool to finance energy projects in Italy (gas powered power plants, wind farms, PV plants, biomass power plants, hydroelectric plants, gas distribution networks, etc.).

Sponsors and developers appreciate the “limited recourse” nature of this instrument, that limits the risk of the investment to the equity contributed in the special purpose vehicle created to build/operate the project.

The risk ring fencing and insolvency remoteness linked to this kind of financing allows the banks operating in this sector to offer low margins and interesting debt-to-equity ratios.

The transactions that have been closed in the Italian market in the past 12 months have mainly consisted in the financing of green field wind farms and the refinancing of portfolios of PV plants.

8.1.2 Minibonds/Green Bonds/Project Bonds/Hybrids

Minibond

Minibonds are purportedly one of the most interesting instruments to raise corporate debt, considering the low interest rates characterizing the current debt capital markets in Italy.

Such debt financial instruments are generally issued by

■ unlisted small and medium enterprises ("SMEs"); and

■ unlisted small corporations at early stage, excluding micro-enterprises (i.e. enterprises with less than 10 workers and annual revenues not higher than EUR 2 million) or start-ups.

Minibonds represent an alternative to bank credit facility in order to raise: (a) the financial indebtedness, and (b) the leverage ratio of such enterprises/corporations, without being submitted to the constraints of the Italian Civil Code.

In particular, art. 2412 par. 1 of the Italian Civil Code specifies that a company may issue debt securities for an amount not exceeding twice the share capital, the legal reserve and the available reserves of that company, as set out under its last approved balance sheet.


This limit should not apply in the case of debt securities that are to be listed on a regulated market or negotiated on a multilateral trading facility.

Minibonds issued by unlisted companies are (usually) negotiated on multilateral trading facilities including, without limitation, the ExtraMOT PRO, an Italian multilateral trading facility where trading is open to professional investors only. Therefore minibonds issuers do not fall within the limitations of art. 2412 par. 1 of the Italian Civil Code.

Furthermore, the companies issuing minibonds to be listed on a multilateral trading facility, such as, among the others, the ExtraMOT PRO, will be subject to specific taxation benefits that will apply to both the issuers and the investors (please see section 9.2.1.).

Minibonds perfectly fit the Italian marketplace, given the structure of the actors playing in the Italian energy field (i.e. generally SPVs or SMEs).

As to the market developments, the following graph represents the issues (also) regarding the energy sector.

Construction:66

Power and Utilities: 79

Financial Services: 44

Food: 7

Gaming: 59

Industrials:90

Services: 82

Utilities:203

Retail: 47 Natural Resources:

7

ICT: 57

Source: http://www.consorziocreditoefinanza.it/wp-content/uploads/2016/09/38.-Dalla-newsletter_Mini-bond-sempre-più-mini-gennaio-2015.pdf

The data refers to issues with a nominal amount lower than EUR 50 million each and are updated at 14 January 2015.

Green Bonds

Green bonds represent a recent tool in the debt capital markets scenario. They are debt securities whose proceeds "are exclusively used to finance projects with specific environmental benefits/impacts".

http://www.consorziocreditoefinanza.it/wp-content/uploads/2016/09/38.-Dalla-newsletter_Mini-bond-sempre-più-mini-gennaio-2015.pdf

http://www.consorziocreditoefinanza.it/wp-content/uploads/2016/09/38.-Dalla-newsletter_Mini-bond-sempre-più-mini-gennaio-2015.pdf


The International Capital Market Association ("ICMA") has set out some general principles concerning such financial products ("GBP"), and specifying which kinds of green projects could be financed through green bonds.

In particular, such green projects may concern, inter alia:

■ renewable energy (including production, transmission, appliances and products);

■ energy efficiency (such as in new and refurbished buildings, energy storage, district heating, smart grids, appliances and products); and/or

■ climate change adaptation (including information support systems, such as climate observation and early warning systems).

On March 2017, the ICMA GBP have been partially implemented in Italy within the ExtraMOT Market Rules.

The ExtraMOT Market Rules do not precisely provide a list of green projects, nevertheless it is laid out that the green bond issuers may negotiate debt securities with the denomination of "green bonds" to the extent that an independent third party certifies the environmental nature of the projects being financed through such financial instruments.

There are great expectations with regards to the efforts the Italian lawmaker should undertake in order to further define the green bond field.

Project Bonds

Project bonds are debt securities used with the aim of financing large-scale infrastructure projects in different sectors, including the energy one.

Under the Legislative Decree no. 50/2016, the project bonds can only be issued by:

■ project corporations which had been constituted in relation to a public procurement procedure aiming to realize a new infrastructure and/or a service of public interest

■ corporations which entered into public private partnership contracts;

■ corporations managing local public services having an economic importance;

■ corporations authorised to set up infrastrucutres that are part of the plan wishing to develop a network for the transmission of electric energy nationwide (Piano di sviluppo della rete di trasmissione nazionale dell'energia elettrica);

■ corporations authorized to set up electronic communications networks;

■ licenses for the set up and provision of public telecommunications networks; and

■ corporations authorized to build and operate through terminals wishing to re-gasify liquefied natural gas.


Target investors of project bonds all around the European Union, and also in Italy, are institutional investors such as infrastructure corporations and/or funds with a mid-long term investment horizon.

In Italy, the enterprises issuing project bonds may finance (or re-finance) new but also existing projects, using such debt securities in lieu of bank loans.

Pursuant to the Ministerial Decree dated 7 August 2012, the issuers' credit risk in respect of project bonds shall be mitigated by means of the so-called "wrapping" technique.

This is a form of guarantee to be released in written form after an assessment of the relevant issuer's creditworthiness and of the economic and financial sustainability of the investments. The potential guarantors are, inter alia: banks, financial intermediaries, insurance companies, Cassa Depositi e Prestiti S.p.A., S.A.C.E. S.p.A. and/or the European Investment Bank.

Thus, the guarantee avoids that investors holding the project bonds can exclusively rely on the cash flow generated by the financed project.

Project bonds are not subject to the limitations set out under art. 2412 par. 1 of the Italian Civil Code and benefit of some fiscal advantages, such as the minibonds.

Project bonds documentation (i.e. the relevant offering circular, among the other documents) should present adequate risk factors and warnings in respect of the high-degree of risks relating to the operation financed.

Finally, it should be noted that such debt securities may not be transferred to non-qualified investors.

Hybrids

Hybrids are particular tools used for raising financial indebtedness based on the blending of project finance loans and bonds financing. The proceeds of hybrids are mainly used in order to re-finance brown field energy projects.

Generally, the bank that grants loan and/or credit facilities within the hybrids structure will also act as arranger and first subscriber in respect of the bond component, that is subsequently placed to institutional investors.

8.1.3 Leasing

Financial leases, whereby a leasing company acquires the ownership of an asset and leases it to the special purpose vehicle, have been very common in the past especially for the financing of small-size projects (mainly PV plants) due to the limited arranging costs.

The reduction in the interest rates of project financing coupled to higher termination costs typical of leasing structures rendered this financing tool less competitive.


In addition, leasing companies often require support of the shareholders/sponsors in the form of a guarantee or a step-in obligation triggered by a default under the lease.

8.1.4 Securitisation

Securitisation is the financial practice of pooling various types of contractual debt (as residential mortgages, commercial mortgages, loans or credit card debt obligations or other non-debt assets which generate receivables) and selling them to third party investors as securities which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs).

In Italy the securitisation transactions are regulated by Law no. 130/1999.

Securitisation of solar and energy efficiency loans may be instrumental to achieve a greater level of investments.

The securitisation in the energy sector is a viable and important financing mechanism. In particular, the assets with a significant potential for securitisation include mortgages to green buildings; loans to energy projects; energy efficiency project loans.

One of the most important benefit of the securitisation of these small-scale low-carbon assets is the improved access to capital and the access to capital at lower cost.

However, the growth of the securitisation market in this sector is still low. In particular, the portfolios of this kind of receivables are limited and the market is dominated by a small number of players available to invest in these assets, also considering the potential credit risk linked to the financing of the constructions phase of plants.

The opportunities of securitisation in the energy sector are intertwined with the overall securitisation market in Europe.

Geothermal power plant in the Tuscan hills (Pisa)


In this direction, an effort should be made by European policymakers by ensuring that the market can offer investors green asset-backed securities that have attractive risk-adjusted returns. The public sector can facilitate securitisation market developments in the energy sector through the following action areas:

■ encouraging deal flow of "green loans";

■ supporting the development of standardized contracts for low-carbon assets;

■ supporting the establishment of financial warehousing facilities for aggregation;

■ reducing risks to investors in a transition phase; and

■ investor demand.

In addition, and in the event that a securitisation entails underlying receivables originated from contracts concluded between an ESCo and Italian public administrations (e.g. in relation to public lighting systems performed by the ESCo in favour of the public administration) there are several other issues that must be considered before assessing the acquisition of a similar portfolio. Inter alia, the compliance with the applicable legislation of the public tender process should be assessed followed by the public administration in order to award the agreement to the ESCo.

As to the formalities required for rendering the assignment of receivables valid and enforceable vis-à-vis the final debtors and third parties in general, it should be noted that, thanks to a recent change of Law 130/1999 it will be possible for a securitisation vehicle to notify the purchase of receivables to private and public debtors by using the same (not cumbersome) process. Before such amendments, for public clients there was the need to complete a public deed in front of a public notary for each debtor covering a position in public administration.

8.1.5 Derivatives, commodity derivatives and close-out netting regime for energy wholesale contracts

EU Regulation 600/2014 ("MIFIR") and EU Directive 2014/65 ("MIFID II") have changed the landscape of financial industry from 3 January 2018.

These new rules have impacted also the definition of "commodity derivatives" and the category of producers and persons dealing on own account on commodities (such as on oil or any kind of energy). Pursuant to the MIFIR/MIFID II rules, the concept of "financial instruments" will to a certain extent be enlarged in order to cover the broad commodity market and the large majority of the commodity derivatives activities (such as, inter alia, the emission allowances transactions).


This means that entities that were used to carry out business in commodity by making reference to certain exemption to the financial rules provided for under EU Directive 39/2004 ("MIFID I") could no longer have the possibility to use such exemption and will be required to comply with other specific requirements set forth for the financial industry under MIFID II.

Please find below the position of ESMA (the European Markets and Securities Authority):

"Commodity firms will have to either curtail some of their 'speculative' trading activity or become authorised under MiFID II, since the exemptions they benefited from under MiFID I are substantially narrowed. Consequently, the ancillary activity exemption and the thresholds ESMA will set is the focus of interest. ESMA's aim, in this regard, is to follow a principle of fairness: the exemption is intended to benefit commercial users and producers of commodities but to capture those firms which undertake pure financial trading that is not related to the hedging of their commercial operations."

Steven Maijoor ESMA Chair, MIFID/MIFIR – CSD hearing before ECON, 24 March 2015 (ESMA/2015/620)

In addition to that, other EU regulations such as Market Abuse Regulation (MAR) or the Regulation on Wholesale Energy Market Integrity (REMIT) will have a substantial impact on the producers and traders of energy and in this respect there will be frequent interactions between the mere financial regulation and the proper energy sector regulations.

Another important innovation in the Italian legal framework relates to the introduction of the close-out netting principle with respect to certain "wholesale energy contracts", pursuant to Article 1 paragraphs 86 and 87 of the Law no. 124 of 2017 ("Law 124").

The close-out netting mechanism is a well-known tool in the Italian legal system even though it has been recognized so far for the financial derivative transactions only, as defined pursuant to the Italian Financial Act (Legislative Decree no. 58 of 1998).

Until the enactment of Law 124 the energy supply and wholesale energy contracts not falling in the category of "financial instruments" (as defined under MIFID I and as recently modified pursuant to MIFIR/MIFID II) did not benefit from the close-out netting regime. In light of this, in case of bankruptcy or other similar insolvency events of one of the parties to the energy contract the non-defaulting party could not act for claiming the mark-to-market value (or substitution costs) of the energy contract, including those documented under standard master agreements frequently used in the markets.

This situation made necessary for the counterparties dealing with Italian entities in wholesale energy contracts to demand for a massive collateralization of the energy products transactions.


According to the new rules set forth under Law 124, it is possible to argue that:

■ the wholesale energy contracts as defined under REMIT (but excluding any energy contract concluded with a final customer) entered into with an Italian counterparty may now benefit from the close-out netting regime;

■ such close-out netting regime is very similar to the close-out netting that was previously applicable with respect to financial derivative transactions in Italy, and in light of the above: (i) early termination could be enforced by the non-defaulting party; (ii) the mark-to-market should be paid by one party to the other (irrespective of the party being the defaulting party); (iii) the close-out netting clause will be valid and enforceable also in case of the opening of a bankruptcy/insolvency procedure of the Italian counterparty to the energy contract;

■ it must be taken into account that the scope of REMIT and the notion of wholesale energy contracts under REMIT is limited to the transactions in the EU area only.

8.2 REGULATORY FRAMEWORK AND LENDING RESTRICTIONS

In Italy, performing lending to the public is a regulated activity which may be carried out only by banks and financial intermediaries that have been authorized by and registered with the Bank of Italy.

Additionally, the EU passporting regime (set out in the EU Capital Requirements Directive 2013/36/EU) allows a bank that is regulated in one EU member state to perform all the banking activities under the CRD in other EU member states (the "passporting regime" does not cover unregulated lenders or investment firms that wish to undertake lending activities in Italy on a cross-border basis).

Bank loan financings may be offered only by regulated Italian banks and financial intermediaries, or EU banks and financial intermediaries with a lending passport.

Certain changes to the regulatory framework have been implemented to provide new financing alternatives to the traditional bank financing model, so that insurers, Italian securitization vehicles (i.e. companies established pursuant to the Italian Securitization Law) and alternative investment funds (AIFs) may now engage in direct lending to Italian borrowers. Also the EU AIFs may lend directly into Italy by passporting their license in Italy, in compliance with the procedure set forth in the Regulation adopted by Bank of Italy last December, aimed at clearing terms and conditions of direct lending in Italy by EU AIFs.


8.3 PORTFOLIO FINANCING STRUCTURES

In the past months, the market has experienced different structures for the financing/refinancing of clusters of projects (typically PV plants).

8.3.1 Multi-borrower

The financing of a cluster of projects owned by different vehicles may be structured as a multi-borrower financing whereby various facilities/tranches are granted to each vehicle under the same loan agreement. Typically, the various borrowers are jointly and separately liable for the debt service, and all facilities/tranches are cross collateralised by the asset of each project.

Particular care is required in this transactions to assess the corporate benefit of each vehicle, especially if one or more of the financed projects are not performing well.

8.3.2 Sub-Holding portfolio financing

As a variation to the Multi-borrower structure, the facility may be granted to a holding company that owns the vehicles to be financed.

Typically, cash pooling arrangements are implemented to make the cash flow available to the holdco for the purposes of debt service. Cross collateralisation of the assets of the vehicles is generally required.

8.3.3 Real estate fund financing

Italian closed-ended real estate investment funds have been very active in the energy market. For regulatory reason, these funds acquire the ownership of the project, but need to delegate to an operating company (OpCo) the exercise of the electricity production enterprise.

The acquisition of plants by these funds is performed by a sale and lease back agreement, whereby the ownership of the plant is acquired by the fund, that in turn leases it to the vehicle. The cash flow originated by the plant covers operating costs and lease rent.

In this scenario, the financing is granted to the investment fund and secured by (i) mortgage on the plants, (ii) assignment of lease rents; (iii) pledge over the quotes of the OpCos; and (iv) security over all the assets of the various OpCos.


8.4 SECURITY AND QUASI-SECURITY

Project financing and bond financing typically envisage the constitution of security over all the assets of the projects, in absence of adverse tax effects.

Security instruments available in Italy are the following:

■ mortgage over real estate rights;

■ pledge over the quotas/shares of the borrower/vehicles;

■ special lien (privilegio speciale) over all movable assets of the borrower/vehicles;

■ pledge over bank accounts;

■ a pledge/assignment of the receivables arising from project contracts, insurances, power purchase agreements etc.;

■ assignment of the feed-in tariff/incentives from the GSE;

■ assignment of the VAT receivables; and

■ loss-payee clause in insurance policies.

In addition to the security package, banks typically require the sponsor/shareholder to undertake equity injections (subject to a cap to be agreed) to cover (i) extra-costs during construction; and (ii) cash shortfall due to a change in law reducing public incentives.


TAXATION

Lake Barcis Dam in the Italian Alps (Pordenone)


TAXATION09

Photovoltaic plant in the Sicilian countryside (Marina di Ragusa)

9.1 TAXPAYER'S RIGHTS STATUTE

Italian Taxpayer's rights are set forth by Law no. 212/2000 (Italian Taxpayer's Rights Statute). As clarified by the Italian Supreme Court, the Statute should be given predominance over normal legislation in that it is a law that directly implements the fundamental principles embodied in the Italian Constitution.

Importantly, the Statute states that:

a) tax law provisions cannot act retroactively;

b) with reference to annual taxes, legislative changes shall only apply starting from the tax year following the one during which they enter into force;

c) no tax obligation shall be put into place in case the term for fulfilment is within 60 days from its entry into force or implementation; and

d) tax limitation periods shall not be postponed.


Taxpayers, both resident and not, are entitled to file with the Tax Authorities a request for a preventive tax ruling in order to obtain a response on the interpretation and application of Italian tax law which is binding for the Tax Authorities. Conversely, the taxpayer will not be bound by the response.

9.2 HOW TO INVEST IN ITALY IN THE ENERGY SECTOR: TAX TREATMENT

As clarified in the previous sections, foreign investors may decide to invest in the energy sector in Italy by setting up different investing structures. Under a tax perspective, foreign investors may opt to:

i. invest in Italy through an Italian corporate vehicle (stock companies);

ii. invest in Italy through an Italian limited liability partnership;

iii. invest in Italy directly through an Italian permanent establishment; or

iv. invest in Italy through an investment fund, either Italian or non-Italian.

9.2.1 Investment through a corporate vehicle

In case the foreign investor decides to use an Italian corporate vehicle (stock companies), business income will be taxed at the level of the Italian company subject to Italian corporate income tax (IRES) at 24% (see section 9.2.2 for interest payment deductibility rules).

Italian stock companies (i.e. corporations – “S.p.A.” or limited liability companies – “S.r.l.”) are further subject to regional turnover tax (IRAP) at 3.9% please note, however, that Italian Regions are entitled to raise IRAP rate up to 4.82%. Differently from IRES, major costs are not deductible from the taxable base, in particular interest payments and employees costs. For this reason, it could occur that IRAP shows a positive taxable basis even if the company is in loss.

Under Italian tax law should a foreign entity control an Italian-resident company and, alternatively, (a) the former is controlled, even indirectly, by an Italian-resident subject, or (b) its board of directors is composed primarily by Italian-resident subjects, the foreign controlling company would be deemed as tax resident in Italy, unless it provides evidence of the contrary to the Tax Authorities.

9.2.2 Indirect investment through a limited liability partnership

Foreign investors may decide to set up a limited liability partnership in Italy, named società in accomandita per azioni or "s.a.s." under Italian company law.

The s.a.s., as all the Italian partnerships, is a transparent entity for IRES purposes only (it is an autonomous entity liable for IRAP purposes) meaning that income is taxed at the level of the partners. The partners are taxed on Italian business income even if non-resident.


In case of investment through a limited liability partnership, interest deductibility restrictions (see below) are not applicable. Interest payments may be deducted from the taxable basis of the partnership for 100% of their amount (this is one of the most important tax differences between partnerships and stock companies).

9.2.3 Direct investment through an Italian permanent establishment

Alternatively to setting up an Italian vehicle, foreign investors may decide to invest in Italy and operate by means of an Italian permanent establishment (PE).

The notion of permanent establishment is a “tax concept” providing that income arising from business activity carried out in Italy by a foreign enterprise showing a certain degree of physical permanence with the Italian territory should be taxed in Italy on the head of the Italian PE.

Italian tax law provides a "domestic" PE definition (recently updated by the 2018 Budget law) which, apart from some differences, essentially recalls the definition included in the OECD Model Tax Convention. The Italian definition applies, however, only in case the foreign entity involved is resident in a country not having a Double Tax Treaty. In case a Double Tax Treaty with Italy exists, the PE definition of such Double Tax Treaty would represent the standard to be met. Note that domestic law would only be applicable to the extent it provides a more favourable treatment.

As established by the OECD Model Tax Convention, "the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on".

The definition identifies the following conditions to be met in order for a permanent establishment to be deemed to exist:

■ the existence of a "place of business", i.e. a facility such as offices or premises or also a "place of management";

■ the place of business must be "fixed", i.e. it must be established at a distinct place with a certain degree of permanence;

■ the non-resident enterprise should carry out its business activity in the Italian territory through this fixed place of business.

Moreover, a person (either an individual or an entity) resident or non-resident in Italy who habitually concludes in the Italian territory contracts in the name of the foreign investor, other than contracts for the purchase of goods, would constitute a permanent establishment of the latter (so-called personal permanent establishment).

The provision would not apply, i.e. the requirement for the existence of an Italian personal permanent establishment would not be triggered, in case the person acting in the name of the non-resident enterprise shows a sufficient degree of independency from the latter and acts in the course of his ordinary business (so-called independent agent).


With specific reference to the energy industry, please note that, according to the OECD Model, "a mine, an oil or gas well, a quarry or any other place of extraction of natural resources", would in principle constitute a PE provided that the above conditions are met. Moreover, it is stated that "a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months".

The Italian Tax Authorities will consider a permanent establishment to exist in case the foreign investor has "declared" the opening of a so-called "branch office" in Italy, regardless of the fulfilment of the actual carrying out of any business activity. The opening of an Italian branch office is a mere formality which requires nothing more than the resolution of the competent body of the foreign investor to open such branch, define the activities to be carried out by the branch in Italy and appoint the legal representative of the branch. Once such resolution is deposited with an Italian notary and filed with the companies' register, the branch office exists.

The Italian PE is subject to the same accounting and tax obligations i.e. it should keep simplified financial statement and file annual income tax return set out for stock companies. The Italian PE is an autonomous tax-liable entity for tax purposes. Only income effectively attributable to the Italian PE should be taxed in Italy. This implies that income deriving from activity directly carried out in Italy by the foreign headquarters i.e. not through the Italian PE should not be taxed in Italy.

9.2.4 Investment in Italy through an investment fund

Foreign investors may decide to invest in Italy through collective investment undertakings (UCIs) holding real estate investments (typically renewable energy plants qualify as real estate assets). UCIs compliant with Italian regulatory requirements are considered as Italian-tax-resident entities and are exempted from corporate income tax, provided that the UCI or its managing company are subject to a form of prudential supervision. In other words, any profits/dividends generated/received by the fund will not be subject to taxation in Italy at the level of the fund. Taxes are levied on the head of the unitholders in case of distribution of proceeds from the fund or in case of disposal of the fund’s units. In case of distribution of proceeds, 26% withholding tax (unless a reduced rate applies under the relevant Double Tax Treaty) is usually collected by the managing company acting as withholding agent. Some withholding tax exemptions apply depending on the nature of the investors (e.g. pension funds and UCIs established in so called white-listed cooperative countries).

UCIs are not entitled to directly carry out business activity. Therefore it is likely that foreign investors will hold units in an either Italian or non-Italian UCI which, in turn, holds participations in an Italian corporate vehicle.


9.3 FUNDING STRUCTURE

9.3.1 Equity

Dividends received by an Italian-resident stock company are as a general rule taxable only by 5% of the amount received. In order for the exemption rule to apply, the amount distributed should not be deductible from the tax base of the dividend-distributing company. Special anti-avoidance rules apply in case the distributing company is resident in low-tax jurisdictions.

In case the foreign investor is a EU company, dividends distributed by the Italian corporate vehicle to the foreign investor would be exempt from the 26% Italian withholding tax under the European Parent Subsidiary Directive 2011/96/EU, to the extent the receiving entity: (i) holds a direct participation not lower than 10% in the share capital of the Italian entity; (ii) is set up under one of the legal forms set out in the Annex to the Directive; (iv) is subject to taxation in its EU State of residence without being subject to favourable tax regimes (unless these are limited in terms of territory and/or time); (v) has strong substance requirements; and (vi) qualifies as the beneficial owner of the payments. The exemption is granted after the participation is held for at least one year.

With regards to the beneficial ownership requirement, the receiving company should be able to demonstrate that the shareholding has not been held for the sole purpose of benefitting from the exemption provided by the Directive. As clarified by the Italian Supreme Court, in order to qualify as the beneficial owner the recipient should have the full right to use and enjoy the dividends received.

In case the Directive is not applicable, Italian withholding tax would apply at 1.20% rate (beneficial owner condition to still be met), provided that the recipient is established in an EU-Member State or in an EES-State included in the white list of cooperative countries.

Otherwise, dividends paid to non-resident entities are subject to withholding tax equal to 26%, unless a Double Tax Treaty applies. In this case, the withholding tax could be reduced depending on the percentage of the participation in the vehicle.

Should a withholding tax be applied on the basis of a Double Tax Treaty, it would be typically considered a tax credit in the country of residence of the shareholder.

Proceeds distributed by the Italian permanent establishment to its headquarters do not qualify as dividends. Hence no Italian withholding tax applies.

9.3.2 Interest payments

Under the Interest-Royalties Directive no withholding tax is levied on interest payments between parent companies and subsidiaries within the EU. As far as Italian companies are concerned, with reference to interest payments limitation rules there are no differences between inter-company loans and third-party loans.


In both cases, interest expenses are fully deductible up to the amount of interest income. Any exceeding interest expenses are deductible up to an amount not exceeding 30% of the EBITDA. EBITDA is computed as the difference between (i) revenues and (ii) costs, excluding depreciation, amortization and financial leasing instalments. The relevant items are those resulting from the profit and loss account.

Potential exceeding EBITDA not used for deduction purposes may be carried forward to increase the EBITDA of future tax periods. Interest expenses not deducted in the tax period to which they pertain may be carried forward without any time limitation and deducted in future tax periods, provided that any interest expenses exceeding interest income are lower than 30% of the EBITDA for that period.

Interest payment may benefit from withholding tax exemption under the Interest-Royalty Directive 2003/49/EC, provided that: (i) the receiving entity is resident in a EU Member State; (ii) the receiving entity is subject to tax in its EU State of residence, without being subject to favourable tax regimes; (iii) the receiving entity has strong substance requirements and qualifies as the beneficial owner of the interest payments; (iv) the interest paid is subject to tax in the State of residence of the recipient entity; (iii) the interest paying entity holds at least 25% of the voting rights in the receiving entity; or the receiving entity holds at least 25% of the voting rights in the payer entity; or a third entity holds at least 25% of the voting rights in both entities.

The Interest-Royalties Directive does not apply on interest payments made the Italian PE to its foreign headquarters.

Should the Directive not be applicable, the relevant double tax treaties could apply, providing reduced withholding tax rates.

Should DTTs not be applicable, Italian domestic withholding tax will apply at a 26% tax rate.

9.3.3 Shareholder loans

Foreign investors should pay attention to the fact that shareholder loans could be re-qualified as capital contribution by the Italian Tax Authorities, with the consequence that interest payments would be accordingly requalified as dividends and thus non-deductible. For example, this would occur in the following situations: (i) capital redemption and interest payments on shareholder loans are subordinated to capital redemption and interest payment on third party loans (i.e. external lenders); (ii) financial covenants in the shareholder loan agreements do not include in the definition of loan and of interest shareholder loans and interest on shareholder loans; (iii) capital redemption and interest payments on shareholder loans are subject to the same restrictions applied to dividends and to share capital reductions.

It is therefore crucial to structure the shareholder loans under the same conditions (both under a legal and an economic perspective) of third party loans.


Please note, moreover, that intercompany loans put into place with foreign entities which are controlled, control or are subject to joint control by the same parent company should be carried out at arm's length, i.e. by determining the amount of interest in the same way as it would have been determined by independent parties.

Interest from shareholder loans falls within the application of the interest barrier rule (see above) as well as domestic withholding tax unless an exemption is provided (or a reduced rate is set forth by the relevant Double Tax Treaty).

9.3.4 Bank loans

Interests paid by an Italian entity to an Italian bank are not subject to any withholding tax which would usually apply to cross-border interest payments.

Provided that regulatory requirements related to the reserve of lending activity under the Italian law are complied with, the domestic 26% withholding tax is not applied on interests and other proceeds deriving from medium-long-term loans (with a maturity higher than 18 months) paid to:

(a) Financial entities (e.g. banks) set up in a EU Member State;

(b) Insurance companies set up and authorized under the regulations issued by a EU Member State;

(c) Institutional investors resident in white-listed countries (even non-EU) and subject to surveillance in the country where they are set up.

Official guidelines are expected to be released by the Tax Authorities on this topic which should clarify the perimeter of application of such rule.

9.3.5 Substitute tax on bank loans

Loan agreements signed or executed in Italy, with a maturity higher than 18 months (medium-long-term loans) granted by Italian or EU banks and all operations related to such kind of loans could be exempted from registration tax, stamp duty, mortgage and cadastral taxes and governmental tax and be subject to a substitute tax (Imposta Sostitutiva).

The substitute tax (Imposta Sostitutiva) is an umbrella tax (it covers the ordinary indirect taxes of guarantees such as mortgages, pledges or sale of credits connected to the loans) levied at the rate of 0.25% of the principal amount of the loan distributed to the borrower.

The option for the Imposta Sostitutiva shall be expressed in written form in the loan agreement by the lending bank. Otherwise, all operations, agreements and relevant formalities connected with the loan shall be individually subject to the indirect taxes at the ordinary applicable rate. Please note that, once the option for the Imposta Sostitutiva is exercised, it provides for the exemption from any indirect tax (save for VAT where applicable) on any act or agreement connected with the loan, typically security interest (mortgage tax of 2% applies on mortgage over real estate properties), even if entered into after the execution of the loan agreement.


9.4 WAY OF ACQUISITION OF PROJECTS/COMPANIES AND GOING CONCERNS – ASSET DEALS, SHARE DEALS

The investment may be structured either through the direct acquisition of the going concern or through the acquisition of the participation in a vehicle holding the going concern. The two structures have different tax implication, with regard to indirect (transactional) taxes.

9.4.1 Purchase of going concern

The transaction is out of the scope of Italian VAT, while it is subject to proportional registration tax applicable through different rates. The taxable basis is given by the fair market value of the going concern (including goodwill) after the deduction of the value of the debt transferred. The following rates apply:

i. receivables: 0.5%;

ii. real estate: 9% of the real estate asset (building) or agricultural land (12%);

iii. other assets (including goodwill): 3% of their values.

Registration Tax is computed on the net value of each asset, equal to the difference between each asset value and the debt value proportionally allocated thereto.

The value of real estate included in the going concern is subject to mortgage and cadastral tax for a value of Euro 50 each.

9.4.2 Purchase of shareholding

Should the parties decide to structure the investment as a share deal therefore transferring the shares of the corporate vehicle owning the going concern, the operation would not be subject to VAT nor to mortgage or cadastral tax and registration tax would be due at the fixed amount of Euro 200.

9.4.3 Re-qualification risk

As a general rule, Italian Tax Authorities are entitled to scrutinise an agreement subject to registration tax in order to verify whether the juridical effects stemming from the agreement are consistent with its legal form. In some cases, the Tax Authorities challenge for registration tax purposes an agreement for the sale of 100% of the shares in a company by claiming that, taking into account the economic effects obtained, it amounts to a sale of going concern. This also particularly occurs when taxpayers put into place a set of operations involving the contribution of a going concern and subsequent sale of shares/participations.

Pursuant to 2018 Budget Law, differently from the past, the Italian TA should not be entitled to re-qualify share deal structures in asset deal transactions (with higher proportional registration tax), unless the Tax Authorities are able to demonstrate that the transactions at stake have no economic substance and have been put into place in order to obtain undue tax advantages (abuse of tax law).


9.5 TAX TREATMENT OF ENERGY PRODUCTION AND TAXATION OF INCENTIVES

9.5.1 Oil and carbon

Oil and carbon are generally subject to Italian excise duties under a legal framework set out at EU level. The event triggering the tax obligation is the production or importation from a non-EU State of energy products. The tax becomes due at the moment the energy products are released for consumption.

The hydrocarbon upstream production in Italy sees the following tax charges applied:

■ “Royalties”: they represent the consideration for the concession by the Public Authority to exploit underground resources. “Royalties” rates are applied on the consideration value of the quantities produced. Rates and exemptions are set as shown in the following table.

Royalties

Oil Production Land 10%

Off-shore 4%

Exemptions Land First 20,000 tons

Off-shore First 50,000 tons

Gas Production Land 10%

Off-shore 7%

Exemptions Land 20 Million SMC

Off-shore 50 Million SMC

■ License payments (“canoni”) for the concession of the right to use the surface area. They amount to:

– About Euro 3.5/sq. km for prospection permits;

– About Euro 16/sq. km for exploration permits;

– About Euro 70/sq. km for production concessions.

■ Ordinary 24% corporate income tax rate may be increased under certain circumstances by a 4% surcharge (therefore rising to 28%) for Italian-residents listed companies, having a market capitalisation value not lower than Euro 20 Million.

■ Italian Constitutional Court repealed the additional 10.5% corporate tax surcharge (so-called Robin Hood Tax). The additional surcharge is no longer due as of 12 February 2015.

9.5.2 Natural gas and electricity

The production of natural gas, including methane and other gaseous hydrocarbons, is subject to excise duties to the extent the gas is used as motor fuel or heating fuel (different rates per kWh apply depending on the specific case). Differently from oil and carbon, the


tax triggering event is the sale of natural gas to the final consumer (either individual or legal entities) and not its production and release for consumption. Further to excise duties, Italian VAT is due (in some cases 10% rate applies). The VAT taxable base includes the amount of excise duties.

Electricity production is subject to excise duties at the moment of its provision to final consumers. Further to excise duties, Italian VAT is due. The VAT taxable base includes the amount of excise duties.

Electricity used by electricity-generating plants in order to produce electricity may be exempted from excise duties.

9.5.3 Agroforestry renewable energy

Income deriving from the production and sale of agroforestry renewable energy and photovoltaic energy qualifies for tax purposes, within a determined threshold, as agricultural income, to the extent that the energy is obtained from the land owned by the farmer. Pursuant to Italian tax law, agricultural income is not analytically computed, rather it is determined using cadastral ratios as a form of tax incentive.

9.5.4 Taxation of energy incentives

Energy incentives are normally taxed as business incomes for companies pursuing the activity of the production and sale of energy.

9.6 POWER PLANTS AND IMU "IMBULLONATI" (SO-CALLED BOLTED ASSETS)

IMU is a municipal real estate tax. The IMU base is the cadastral value of the real estate, to be multiplied by ratios established by the Municipality concerned. IMU applies also on instrumental buildings owned by enterprises for business purposes. With respect to some cadastral categories of instrumental buildings (E and D), including power plants, cadastral income must be determined under a case-by-case analysis.

Up to 2016, in order to determine the actual cadastral value of such instrumental building and land, Tax Authorities took into account also elements (such as machineries) which, even though not physically fixed to or in the ground, appear as structurally connected to the building or land, meaning that their function is considered to be essential to the business activity carried out and that they have a stable nature.

The consequence was that energy plants like photovoltaic cells and wind turbines were treated as instrumental buildings for IMU purposes.

Starting from 2016, the law specified that only elements structurally connected with lands or buildings and able to increase their quality and utility should be included in the determination of the cadastral value for IMU purposes. Other machineries, devices, equipment and facilities which are merely functional to specific productive processes should be excluded.


The Italian Revenue Agency stated that rotors and nacelles of wind plants and inverters and photovoltaic solar panels should be excluded except when they are an integral part of the relevant building or land or constitute roofs or walls. In the latter case, they should be included in the cadastral value of such buildings or land and thus be subject to IMU.

The matter is far to be clarified and particular attention should be given to the relationship between the energy plant, the instrumental building and the business activity carried out. The qualification of a plant as building or as an instrumental good, in fact, entails significant tax consequences as it regards how to record the value of the plant in the company's financial statements, with specific reference to tax depreciation rules. Moreover, the rules applicable in case of sale of the plant would differ, particularly the ones regarding registration tax. Finally, the tax treatment of financial leasing of photovoltaic plants would depend on the qualification of real estate rather than instrumental good.

9.7 TAX INCENTIVES

9.7.1 Super-amortization and hyper-amortization

According to the 2018 Budget Law the price of acquisition of new instrumental assets purchased as to December 31st 2018 is increased by 30%. The incentive provision (named "superammortamento") affects the amortization deduction only from a tax point of view resulting in a higher amortization deduction in the annual business income tax return. Assets purchased by 30 June 2019 may benefit from the additional depreciation, provided that the relevant purchase order is made and at least 20% of the purchase price is actually paid by 31st December 2018. Please note that, as clarified by the Italian Tax Authorities, elements of a power plant which are considered as part of the buildings (so-called bolted assets) cannot benefit from the incentive.

Italian tax law offers a new tax amortization advantage aiming to support the current trend of automation and data exchange in the so-called Industry 4.0. The acquisition price of certain new highly technological assets purchased either by 31 December 2018 or, in some cases, by 31st December 2019, is increased by 150%. As a consequence the total amortization increase effect equals 250%. The following assets may be included: assets activated, controlled and/or managed by computer systems; assets aiming at assessing product quality and sustainability; and specific devices aiming at increasing the human-machine interaction and the health and safety level of the workplace.

Further, the extra 40% amortisation deduction is extended to new intangible assets (e.g. software, systems, platforms, etc.) related to the technological transformation mentioned below (the “Industry 4.0” plan).


Oil refinery on Sicilian shores (Milazzo)

9.7.2 VAT reduced rates

Italian VAT law sets out favourable VAT rates for:

■ the purchase of goods, not qualified as raw materials and semi-manufactured goods, used for the construction of production plants and distribution networks of heat and electric energy from a solar-photovoltaic or wind source; and

■ the purchase of services under procurement, sub-procurement and work contracts for the construction of production plants and distribution networks as defined above.

The above operations are subject to reduced 10% VAT rate (instead of ordinary 22%).

9.7.3 Italian Patent Box

The patent box regime in Italy allows a percentage—for calendar year taxpayers, 50% from Financial Year 2017 onwards—of qualifying income attributable to the use of certain eligible intangible assets or intellectual property to be excluded from the corporate income tax and regional tax base.


9.7.4 R&D tax credit

From Financial Year 2015 through Financial Year 2020, Italian companies that carry out qualifying R&D activities can benefit from a tax credit up to 50% computed as a percentage of the R&D expenditures in excess of the company’s average R&D expenditures in Financial Year 2012, Financial Year 2013, and Financial Year 2014.

The credit percentage applies for amortization costs of laboratory equipment and for technical expertise related to industrial or biotech IP; for costs related to ‘highly qualified’ personnel and for R&D activities outsourced to universities or other similar research institutions.

The tax credit cannot exceed EUR 20 million per year and requires qualifying R&D costs of at least EUR 30,000 per year.

9.7.5 Horizon 2020

Horizon 2020 is a huge funding scheme provided by EU resources aimed at financing R&D projects in Southern Regions of Italy. The amount of the resources equals Euro 180 Million. Some official guidelines, especially with reference to the possibility to combine such incentive with other tax incentives (e.g. R&D tax credit) have been recently provided by the Tax Authorities (see Ruling no. 12/2017).


EMPLOYMENT

Workers with safety harness and hard hat check the top of a wind turbine in Frosolone (Isernia)


EMPLOYMENT1010.1 THE STANDARD TERMS AND CONDITIONS IN THE ENERGY

SECTOR

Individual employment contracts set out the specific terms and conditions negotiated between the employer and the individual employee to govern their employment relationship. However, the parties are subject to several limits in determining the actual contents of their contract. In particular, the parties cannot include in their individual contracts terms and conditions which are less favourable to the employee than those contemplated by either the applicable collective agreements or law, and any such detrimental terms would be automatically overridden by the more favourable ones contemplated by the higher sources of law.

Furthermore, there are several mandatory provisions contemplated by statutes which are automatically incorporated into individual employment contracts, regardless of the parties’ intention.

The individual contract of employment (usually drafted in the form of a letter, a copy of which is signed by the employee as acceptance of its terms, i.e. the so-called lettera di assunzione) needs to include the following elements:

– details of the parties

– place of employment

– date of commencement of the employment

– duration of the employment (and reasons for the term in some specific case)

– status, level and duties of the employee.

Furthermore, the following elements need to be specified, either by way of reference to the applicable collective agreement or expressly:

– term of the probationary period (if any)

– initial salary, specifying the elements it is composed of and the payment terms

– holiday entitlement

– working hours

– notice of termination.


Considering the energy sector we summarize in the following table the main features according to the applicable Collective Bargaining Agreement (“CBA”) (which, for the sake of clarity, is the one for "energy/oil and gas companies – please note that there are several CBAs and the company is free to choose the one which suits best its needs).

Personnel Classification

The CBA provides six different levels of classification for employees where the 6th is the lowest and the 1st is the highest – including the Quadro level – depending on the skills and duties performed.

Probationary Period ("Periodo di Prova")

Employees may be also subject to a trial period. The maximum duration of the probationary period, depending of the level of the relevant employee, cannot exceed:

Level I – III Level IV and V Level VI

6 months 3 months 1.5 months

During the probationary period the parties have all the rights and all the duties provided by the CBA, including the severance pay (i.e. the so called "T.F.R."), the thirteen and fourteen monthly allowance and holidays.

During the probationary period, each part may terminate the employment contract without any notice period and without the payment of the indemnity in lieu of it.

At the end of the trial period, if any part does not declare its intention to terminate the employment contract, the employment relationship is to be considered confirmed and the trial period must be added to the employee's length of service.

Working time

For employees the normal working weekly hours are 37h 40'. Moreover the working time could be scheduled on shifts.

Holiday

Employees, even those with a part-time contract, are entitled to:

20 working paid vacation days per year in addition to paid bank holidays for employees with less than 10 years seniority;

25 working paid vacation days per year in addition to paid bank holidays for employees with more than 10 years seniority;

Illness

In case of illness, the employer has to keep the position of the employee who is not under probation for the period set up by the CBA. After this period the employer can dismiss the employee, paying all the compensations provided by the Law and by the CBA, including the indemnity in lieu of notice.


Seniority of less than 5 years

Seniority between 5 and 10 years

Seniority of more than 10 years

Continuous grace period

7 months 10 months 12 months

Non – continuous grace period

9 months in a year 12 months in 18 months 18 months in 27 months

Marriage Leave

The employer must grant an employee a special paid leave of 15 calendar days at the time of marriage.

Thirteenth and Fourteenth Allowance

The salary is paid in 14 instalments. The 13th instalment is paid on December of each year and the 14th instalment on June of each year.

Notice Period

In case of termination for justified reason, the law requires the employer to give notice to the employee.

The notice period does not run in case of illness and shall not coincide with the holidays.

During the trial period the parties are entitled to terminate the employment contract without a notice period.

After the trial period, the notice period in case of termination varies depending on the length of service and the level and category of each employee as follows:

SeniorityLevels

1 – 3 4-5 6

Up to 2 years 4 months 3 months 2 weeks

Between 2 and 5 years 4 months 3 months 1 month

Between 5 and 10 years 5 months 4 months 3 months

Between 10 and 15 years 6 months 5 months 4 months

More than 15 years 8 months 6 months 5 months

Resignation

In case of resignation the notice period that must be given by the employee is equal to half of the dismissal notice reported in the chart above.


10.2 ROLES, DUTIES AND RESPONSIBILITIES IN THE COMPANY

Italian law provides for different categories of employees:

– normal employees or workers (blue collars "Operai" and white collars "Impiegati")

– "Quadro" level (or managers/directive employees)

– and executives ("Dirigenti")

The Quadro level employee is a managerial or directive employee and is usually in charge of a small part of the company and has important duties even if not at the same level of the executives. One of the most important exceptions of their role is that the regulation on work hours does not apply and therefore they are not entitled to overtime.

Generally speaking, executives are the employer’s alter ego and are at the highest management level of the company. Accordingly, they are assigned all the highest level tasks and duties, and are usually provided with proxy to represent the company. As they are at the highest employee level in the company, they are not subject to work time limitations and are not entitled to overtime.

Executives are granted several more favourable treatments, with reference to:

– a longer holidays entitlement;

– a longer notice period;

– supplementary pension funds

– medical insurance;

– a longer sick leave and a longer job preservation period at full pay (one year);

– compensation in case of transfer;

– Some National Collective labour Agreements also provide coverage for all civil and criminal liabilities linked to the activity performed as executive in the company.

Moreover, even if executives do not enjoy the same protection for unfair dismissal as that granted to employees and Quadro level employees, the applicable CBA does discipline fairness of their dismissal.

Executives are entitled to an additional indemnity if a local court or a special arbitration panel finds their dismissal to be unjustified. This additional indemnity is not subject to the payment of social security charges and its amount (often significant) depends on the Dirigente's seniority and age. In addition, Dirigenti are never entitled to reinstatement, unless they are dismissed for discriminatory reasons. Note that in some cases such indemnity may reach 21 months of salary instalments, on top of the period of notice which can be 12 months long.

Almost all collective bargaining agreements contain provisions related to the dismissal of an executive (by stating a notice period and indemnities) and regulate an arbitration procedure applicable in case of dismissal.


10.3 EMPLOYING STAFF UNDER FLEXIBLE CONTRACTS

Staff agency contract

The staff supply contract allows companies to engage employees through specific agencies, provided that certain conditions are met.

These conditions vary depending on the type of staff supply contract entered into.

The staff supply contract can be on a fixed-term basis.

The relevant collective agreements set out limits to the amount of fixed-term supply contracts that can be entered into by a company and the terms and conditions of any renewals of such contracts.

Staff supply contracts cannot be used in stipulated circumstances which include the following:

– to cover for employees during a strike;

– where the company has made mass redundancies in the preceding six months in respect of posts which it has sought to fill with staff supply employees;

– where the company has applied for help from the government redundancy fund or has reduced its working hours in the preceding six months;

– where the company is in breach of health and safety at work regulations.

The staff supply contract entered into between the employment agency and the company must be in writing and must contain the terms and conditions required by the Decree (e.g. working hours, salary, place of work, probationary period if any, etc.).

Should the aforementioned terms and conditions not be specified, the staff supply contract shall be deemed to be an employment contract with the company, with all attendant liabilities.

The actual employees deployed to the business are considered to be employed by the employment agency and the agency is primarily responsible for paying salaries and national insurance contributions.

It is important to note that notwithstanding the fact that the deployed employee is deemed to be employed by the employment agency, the agency and the company are, in fact, jointly and severally liable for the payment of salaries and national insurance contributions in respect of such employees.

The deployed employee has the right to benefit from some of the company’s terms and conditions of employment which apply to the company’s employees. In particular, employees deployed by the agency are entitled to receive the same level of remuneration as permanent employees with equal qualifications.


Job-on-call

For work that has to be performed on a discontinuous or intermittent basis, it is possible to enter into a job-on-call contract, according to certain requirements specified in the collective agreements.

In any case this kind of contract shall be concluded only with employees being younger than 24 years old and older than 55 years old.

In this contract, the employee works only when called upon to do so by the company, despite the fact that the relationship is permanent.

When the employee is not working, the company pays an “on-call indemnity” and if the employee does not answer the call and does not go to work a fine may be applicable. The most significant aspect is that when the employee is on stand-by, the company does not have any obligation towards such employee, except for the on call indemnity. In addition, the relationship can be terminated at will of the employee.

Overall the employee cannot work with a job-on-call contract with the same employer for more than 400 days over a three year period.

Part-time contract

The part-time relationship has been reformed and is now more flexible and easier to enter into.

With the new law, and in contrast to previous legislation, both the distribution of the working hours established in the part-time contract and the quantity of working days or hours agreed between the parties can be changed. Furthermore, part time workers can now be asked to work overtime. The employment agreement in those circumstances should include the standard information referred to above and also the employee’s work schedule and specific responsibilities. A copy of the agreement must be sent to the local Employment Office within 30 days of the commencement of employment.

10.4 SECONDING EMPLOYEES FROM ABROAD

Any secondment must be for a limited and predictable period of time and be lawful (i) within the framework of a service agreement between the foreign and Italian companies; and (ii) within the framework of relations between companies in the same group. It is necessary that, during the secondment, the employment relationship continues with the foreign company: the original employment agreement with the seconder’s employer would remain intact and the remuneration would be paid by the seconder itself. The employment contract would remain subject to the laws of the seconder’s country.


However, it is important to consider that Italian mandatory law may overrule the seconder’s law in certain areas: for example, the seconded employee must enjoy the same labour conditions as the ones that employees having similar positions are entitled to receive in Italy (i.e. it is necessary to grant to them the same minimum wage provided in the event that a CBA is applied to the Italian company and the same amount of holidays, working hours, canteen facilities, etc.). This could become an issue in the event that the relationship deteriorates and the employer wishes to dismiss the employee.

In a scenario in which an employee is seconded from an EU country to Italy, the basic principle of the EU regulation is that a person seconded from one EU member state to work in another EU member state becomes subject to the host member state's social security legislation. That would be Italy in our scenario (the “territoriality” of the social security contribution).

It must be emphasized that such a provision has some exceptions, as EU directives offer the possibility to maintain the social security payments of the seconder’s country, by filing of a special “secondment form” issued by the social security authority.

For example, if an employee is posted from one member state to another member state and the work is expected to last for no more than 12 months, that employee can remain subject to the social security provisions of the home state.

In the event the seconded employee comes from a non-EU country, the relevant bilateral conventions on social security shall apply.

Petrol station worker (Milan)


COMPLIANCE – HEALTH AND SAFETY AND WHITE COLLARS CRIME

Corte di Cassazione (Rome)


COMPLIANCE – HEALTH AND SAFETY AND WHITE COLLARS CRIME

1111.1 HEALTH AND SAFETY (H&S)

In Italy, Health and Safety are regulated by the Code on Health and Safety Protection in the Workplace (L. D. 81/2008), which applies to the public and private sector and both to employees and independent contractors.

General measures to protect the health and safety of employees in the workplace must be adopted, e.g. the assessment of health and safety risks in the workplace, the adoption of a "Risk Assessment Document" ("RAD") and the elimination or the reduction of the above-mentioned risks.

The Code provides for both crimes (punished by imprisonment and/or financial penalties) and administrative violations (sanctioned by fines). In particularly serious circumstances (e.g. in the event of serious and reiterative health and safety violations), the supervisory bodies of the Ministry of Labour may eventually adopt suspension measures (provvedimenti di sospensione) in relation to the part of the company's activity that was concerned with the violations.

The fact of not having assessed risks within the company and, consequently, not having adopted the RAD, is a criminal offence for which the Employer may be sanctioned with a term of imprisonment from three to six months or with a pecuniary sanction spanning between Euro 2,740 to 7,014.40. If the RAD is drafted in the absence of the elements or the modalities as prescribed by law, a different criminal offence arises, punished only by means of a financial penalty from Euro 2,192 to 4,384.

It is worth pointing out that, in case of death or grievous bodily harm of employees, occurred as a consequence of violations of Health and Safety regulation, the Employer may be charged with the serious crime of negligent manslaughter (omicidio colposo) or grievous bodily harm (lesioni personali colpose).

As for criminal offences sanctioned only by imprisonment, the judge in certain circumstances may, if the accused so request, commute the imprisonment with the payment of a pecuniary sanction, provided that the sources of risk and the consequences of the crime were eliminated.


11.2 BRIBERY & CORRUPTION AND FRAUD RELATED OFFENCES

Under Italian Law ("Bribery for the Exercise of the Function", "Bribery for an Act which is Contrary to the Duty of the Office"), it is an offence for a public official to receive money or other advantages, or accept the promise of it, in order to:

■ perform his functions or powers;

■ fail or delay an act related to his function;

■ perform an act which is contrary to his official duties.

If the offer or the promise is not accepted, a different criminal offence ("Solicitation to Bribery") arises.

It is worth pointing out that no monetary criterion or value thresholds is stipulated for, so bribery and corruption could also occur if low-value items or benefits are given or promised.

Bribery is sanctioned with a term of imprisonment of maximum twelve years. Both active and passive bribery are punished, so the sanctions provided for the public officials also apply to the briber.

Fraud may generally consist in the attainment of an unjust profit by misleading someone through artifices or deceptions, or be specifically referred to public subsidies and grants not allocated for the public purposes they were aimed at.

Porto Marghera oil refinery (Venice)


In case the fraud is committed in the detriment of the State or other public entities (such as territorial entities, Ministries, ARERA and GSE, the Italian public entity regulating and managing the energy services etc.), the penalties are harsher, up to a maximum of 6 years of imprisonment.

With specific regard to the energy sector, bribing a functionary in order to obtain a permission to build an energy plant or a concession for the oil exploitation, or securing more rapidly an authorisation related to public funding thanks to a crooked business consultant, may be regarded to as examples of corruption.

Criminal liability may also arise in case of fraudulent request of European funds related to the investment in renewable energy, aimed at the misappropriation of the latter, and in relation to the submission to a supplier of financial resources of a false self-certification, in order to unduly obtain subsidies in the energy sector.

11.3 ENVIRONMENTAL CRIMES

Environment-related provisions are also enforced through criminal sanctions (e.g. imprisonment and pecuniary fines), provided for by the Italian Criminal Code and the L. D. 152/2006 (the so-called "Environmental Code").


Environmental crimes are stipulated separately, depending on whether they affect waste, air, water, soil or other particular aspects of the environmental system (e.g. protected species).

For example, as regards to wastes, the conducts of unauthorized management and illicit combustion and trafficking are punished, with a term of imprisonment and/or a pecuniary sanction: the sanction regime is harsher if dangerous waste is concerned.

In addition, regarding water pollution, several criminal offences are provided for, such as the discharge of waste water either without any authorisation (or with a suspended or revoked authorization), or exceeding the substances thresholds established by the Code itself.

In 2015, new environmental crimes were introduced and the list of predicate offences against the environment, pursuant to L. D. 231/2001 ("Decree"), was expanded, providing substantial pecuniary sanctions and disqualifying sanctions against companies and other legal entities.

In particular, the two most relevant criminal offences that were introduced in 2015 are:

■ Environmental pollution: whoever illegally causes a substantial and measurable impairment or deterioration of certain parts of the environment (e.g. air, water, ground, an ecosystem, biodiversity) is punished both by a term of imprisonment from two to six years and a fine ranging from Euro 10,000 to 100,000.

■ Environmental disaster: whoever alters the equilibrium of an ecosystem or endangers public safety for several reasons (e.g. because of the extension or the negative effects of the violation, number of harmed or endangered people) is heavily sanctioned (imprisonment from five to fifteen years).

11.4 THE CORPORATE CRIMINAL LIABILITY OF COMPANIES AND LEGAL ENTITIES (L. D. NO. 231/2001)

Pursuant to the Decree, a substantially "criminal" liability of a company may be established in connection with criminal actions performed by its managers, employees or even by its consultants or agents, in the interest of and/or to the advantage of the company. In this event, the company will be judged in a criminal proceeding, together with the individual(s) who committed the crime.

The Decree provides for a list of offences in relation to which the company's liability may occur (e.g. bribery & corruption, corporate crimes, organized crime, terrorism, money laundering, environmental crimes, health & safety violations etc…).

Pursuant to the Decree, the company may be sentenced to:

■ pecuniary sanctions;


■ disqualifying sanctions, namely:

– the prohibition to practice business activities;

– the suspension or the withdrawal of administrative permits, licenses and public concessions that were functional to the commission of the crime (as is to say, in the energy sector, permits or concessions);

– the ban on concluding contracts with the public administration, except where there is the need to obtain the performance of a public service;

– the exclusion from facilitations, financing, grants or subsidies and the potential revocation of those that have already been issued;

– the ban on advertising goods or services.

■ the confiscation of the illicit profits;

■ the publication of the judgement.

Precautionary measures, such as the seizure of assets and disqualifying sanctions, may also be issued before the start of the trial.

11.5 HOW TO PROTECT THE COMPANY

The only available option for companies to avoid the sanctions provided for by the Decree, in the event a criminal offence is committed, is proving that:

■ a compliance program (the so-called "231 Model"), adequate to prevent criminal offences equal to those committed, was adopted and implemented by the company before the commission of the crime;

■ the control on the implementation of the 231 Model was assigned to a specific supervisory body (Organismo di Vigilanza);

■ the crime was committed by infringing the Model's rules; and,

■ the supervisory body correctly fulfilled its duties.

Moreover, the adoption of a 231 Model after the commission of the crime may result in a reduction of pecuniary sanctions and in the avoidance of disqualifying sanctions.

The 231 Model is supposed, inter alia, to identify high risk activities within the company, provide for decision making and implementation related protocols, identify appropriate mechanisms for the management of the company’s financial resources, and introduce an appropriate disciplinary system in order to punish the violations of the Model or the Code of Ethics.


REAL ESTATE

Photovoltaic glass roof panels in Porta Susa railway station (Turin)


REAL ESTATE1212.1 REAL ESTATE RIGHTS

12.1.1 Property and ground lease ("superficie") rights

In Italy there are several types of rights relating to real estate assets. However, with specific reference to the energy sector, the following rights are the most important:

i. absolute freehold or full ownership (piena proprietà), which is the right to fully and exclusively enjoy and dispose of a property, and is the broadest right which may be held in real estate;

ii. surface right (diritto di superficie), which is the right to build and/or maintain a building on or underneath a third party's soil, granted for a specific period of time. When this expires, the landowner becomes the legal owner of the building. It is also possible to sell the title to a building without owning the title to the underlying land (where the seller is a public authority, the sale will be for a maximum 99-year term).

These rights are both classified as in rem rights (diritti reali), as further detailed below.

12.1.2 Restrictions

In general, there are no restrictions on the purchase of real estate assets by foreign investors in the energy sector. However, where an investment is by way of the purchase of shares in a corporate vehicle, there are certain restrictions that may be imposed by the Foreign Ministry (Ministero degli Affari Esteri).

12.1.3 Easements (electricity cable, pipeline, right of way, etc.)

Generally, an easement (servitù prediale) consists of an encumbrance (onere) burdening a property in order to provide another property, owned by a different person/entity, with a direct advantage (utilità); indeed, easements require the existence of a relationship between two properties, the burdened one (fondo servente) and the benefited one (fondo dominante), without prejudice to the possibility of establishing also reciprocal easements between the burdened properties.

A list of the most common kinds of easements within the energy sector may include:

i. rights of way (servitù di passaggio), which allow the passage through part of a property to reach another one;

ii. electric pipeline easements (servitù di cabina elettrica), in order to allow the main electric operators to place, maintain and operate electric booths and pipelines for distribution and supply of electricity;


iii. gas pipeline easements (servitù di gasdotto), providing to a pipeline operator a permanent, limited interest in the property that enables the pipeline company to install, operate, test, inspect, repair, maintain, replace, and protect one or more pipelines within the designated easement.

Moreover, with reference to the so-called "overflight" easements (servitù di sorvolo), the Italian administrative case law has stated that such easements – even if not explicitly provided and regulated by the Italian Civil Code – are lawful when established by the competent public bodies/authorities in relation to the proper functioning of a wind plant.

Being in rem rights, these easements can be enforced vis-à-vis third parties, and they do not terminate in case of transfer of the properties affected (adversely or usefully) by it, indeed they “follow” the property and stay connected to it (ius sequelae). Typically, easements are established by means of a contract entered into by the owners of two properties, but they could be also established by means of an administrative measure or judicial awards. The agreements which establish easements must be in writing and, in order to be effective vis-à-vis third parties, must be executed by means of a notarial deed and filed (trascritti) with the Real Estate Registers.

For an investor within the specific sector at issue, it is advisable to determine whether any easements adversely affect the target property, or whether also the latter property is granted with easements in its favour. Consideration must also be given to whether the implementation of a planned investment – such as the development of an energy plant – requires the establishment of easements in favour of the purchased property.

12.2 LEASES

12.2.1 General overview

The so-called "commercial lease agreements" are the most used within the energy sector.

These agreements can be: i) property lease agreements (contratti di locazione), or ii) business lease agreements (contratti di affitto d'azienda).

The main difference between these contracts lies in the fact that, under a business lease, the owner must not only make available to the tenant the premises as such, but an entire business or going concern to which the premises are a crucial, but not the only, component.

Moreover, it is worth to point out that commercial lease (or sublease) agreements are often used in relation to the rooftops pertaining to assets having logistic/industrial use destination.

12.2.2 Property lease agreements

Non-residential leases – that are the most common type of property leases in the business practice – are mainly governed by Law no. 392/1978 (so-called “Tenancy Law”) and by certain provisions of the Italian Civil Code.


Geothermal pipeline in the Tuscan countryside (Castelnuovo Val di Cecina, Pisa)

The Tenancy Law contains certain mandatory provisions (e.g.: relating to the term of the lease, rent increases, tenant’s right to sublease and assignment, etc.) that may not be departed from in favor of the landlord, but only in favor of the tenant. Any contractual deviation from these which is less favourable to the tenant, even if explicitly accepted, would be declared null and void and automatically replaced by the mandatory provision of the Tenancy Law.

With reference to non-residential lease agreements entered into after 11 November 2014 with a yearly rent higher than € 250,000 (excluding those regarding buildings with a historical value confirmed by a local administrative order), the parties are free to expressly agree terms and conditions which depart – even if they favour the landlord – from the mandatory provisions of the Tenancy Law.

Property lease agreements with an initial term longer than 9 (nine) years must be executed by means of a notarial deed and filed with the Real Estate Registers. This means that they acquire a value comparable to the above mentioned in rem rights, and that they can be used, within the energy sector, as an alternative to the surface right, depending on the specific features of the transaction. In this regard, it is worth to highlight that only surface right are used in order to lawfully establish a mortgage right and, therefore, this has to be taken in proper account when the relevant project has to be finances by financial institutions..

12.2.3 Business lease agreements

If the leased assets are a 'going concern' or 'business branch' (azienda or ramo d'azienda) and the parties execute a business lease agreement, the above-mentioned mandatory provisions of the Tenancy Law do not apply.


The choice to use either a going concern or a property lease contract is also based on the type of business activity carried out by the relevant operator. Property lease contracts are used either (a) when specific individual prerequisites are requested by the applicable laws and regulations for the issuance of the relevant trade authorisation and such pre-requisites do not exist in relation to the landlord only; or (b) when the activity carried out does not require a trade authorisation.

Pursuant to section 2555 of the Italian Civil Code and the relevant Court holdings, a going concern is a unitary and organized complex of movable and immovable assets, linked by an interdependence and complementary relationship, which are necessary to carry out the enterprise.

In any case, should a business lease agreement not actually have as its object a genuine going concern, the risk is that it may be re-classified as a property lease agreement, to which the mandatory provisions of the Tenancy Law applies.

12.2.4 Lease agreements' main terms and conditions

12.2.4.1 Property lease agreements' main terms and conditions

Save for any departure from the Tenancy Law's provisions – when permitted by the same Law – the following mandatory provisions apply to the property lease agreements.

12.2.4.2 Duration

A minimum term of 6 (six) years is the general limit applicable to the commercial leases within the energy sector. If the parties agree a term lower than the legal minimum, such term is automatically replaced by the minimum statutory term. Parties are free to agree longer leases within the 30-year maximum term provided by the Civil Code.


Upon expiration, the contract is automatically renewed on the same terms and conditions for another term, unless either party gives notice not to renew at least 12 months in advance. Upon the first expiration, the landlord can only refuse to renew in very limited circumstances, while at the end of the second term there are no restrictions on the landlord's right to refuse a renewal.

12.2.5 Withdrawal

The landlord is not entitled to withdraw from the property lease agreement before the expiration date and any contractual withdrawal right in favor of the landlord would be inconsistent with Tenancy Law and, therefore, null and void.

The tenant is entitled to withdraw from the property lease agreement before the expiration date if there are "serious reasons" (gravi motivi) by giving six months' prior notice; the parties may also provide the tenant with a contractual withdrawal right, entitling the same to freely withdraw from the lease agreement before its expiration.

The serious reasons have been defined by case law and may be summarized as unforeseeable, subsequent events outside the control of the tenant.

12.2.6 Rent and rent review

The parties are free to determine the amount of the rent. According to the Tenancy Law, rents may be adjusted annually by a maximum of 75% of the variation in the ISTAT index (a measure of consumer price inflation), or 100% where the duration of the lease exceeds the minimum term provided for by law.

High voltage towers in the tuscan countryside (Siena)


12.2.7 Operating expenses

Generally, expenses for any common services provided by the landlord are paid by tenants in proportion to the size of their units relating to the total rentable area of the property. The costs of the utilities are usually paid by the tenants on the basis of their specific usage and requirements.

12.2.8 Maintenance, repair and renovation at end of lease

Generally, the tenant is responsible for minor repairs and ordinary maintenance, while the landlord is responsible for extraordinary maintenance, unless otherwise set out in the contract. In this regard, given the peculiarities of the energy plants, the maintenance duties are usually fully borne by the tenant.

In any case, according to the prevailing case law, the costs of extraordinary maintenance of the structural parts of the property shall be borne by the landlord. The tenant has the right to be compensated for any improvements made during the lease, so leases usually state that the landlord can require the tenant to remove any additions and improvements at its own cost at the end of the lease (or, in any case, that the tenant has no indemnification rights in relation thereto).

12.2.9 Subleasing and assignment

Under Tenancy Law, the tenant is entitled to sublease the unit or to assign the lease in the event that the sublease or assignment takes place in the context of a sale or lease of the going concern of the tenant, which the property lease agreement is a part of.

12.2.10 Termination

Lease agreements generally provide termination clauses setting out the conditions which, if breached by the tenant, would allow the landlord to regard the lease as terminated. If the tenant does not hand over the premises once the lease contract expires or is terminated, the landlord must obtain a court order to recover possession (this can take several months).

12.2.11 Sale of leased property

The landlord may transfer the ownership of the leased premises and this does not automatically trigger an early termination of the lease, and a clause providing for the termination of the contract in the case of a transfer would be null and void whether or not the Tenancy Law applies.


LITIGATION

Court building (Milan)


LITIGATION13In the energy sector, disputes may arise on a wide variety of topics: from the gas distribution/supply agreements, to the gas price reviews to EPC contracts for the realization of power plants, just to mention a few.

Depending on the parties involved, or the kind of claims raised, energy disputes may be decided by civil, criminal or administrative Courts. Arbitration is also another well-established dispute resolution mechanism in Italy.

13.1.1 Civil litigation in Italy

A. Structure of the proceedings

Ordinary litigation in Italy is typically structured in three main phases:

1. Introductory phase (i.e. from the service of the statement of claims to the first hearing)

Through the service of the statement of claim, the claimant summons the respondent to appear in the proceedings.

The date of the first hearing is usually postponed by the Judge, depending on its backlog and calendar.

The respondent shall file its statement of defense at the latest 20 days before the first hearing, if it is willing to raise a counter-claims or to have a third party joined to the proceedings or, more in general, if it is willing to raise other objections that the Judge cannot assess ex officio. Alternatively, the respondent may submit its statement of defense directly at the first hearing.

Italy allows trials in default of appearance. The burden of proof rests on the claimant even in case of a default trial.

2. Evidence taking phase – from the first hearing to the final prayers for relief

After the first hearing, upon the parties' request, the Judge shall grant them terms for filing of three written submissions aimed at specifying or modifying the claims and the objections outlined in the statement of claim and/or in the statement of defense. In these additional submissions, the parties shall also supplement their evidence requests.

The duration of the evidence gathering phase is strictly related to the number and type of evidentiary means allowed in the proceedings (by way of example, the number of witnesses to be heard, the complexity of the expert report, etc.).


No obligation of discovery is set forth by the Italian law. The parties are not obliged to share relevant documents, unless an order by the Judge is issued upon another party’s request and provided that the requirements of relevance and admissibility are met.

3. Decisional phase – from the final prayers for relief to the decision

Once the evidence-taking phase is over, the Judge invites the parties to submit their final prayers for relief (in the form of post hearing briefs that should be filed by no later than 60 days after the filing of the final prayers for relief and 20 subsequent days for rebuttal).

The Judge should issue its relevant decision within 30 days from the filing of the rebuttal to the post hearing briefs. However, it is unlikely Italian Judges comply with this deadline. Usually Judges issue the decision in approximately 5 months from the filing of the reply to the post-hearing briefs. Given the heavy back-log of Italian Courts, and in view of the fact that the Judge should issue its decision in a limited timeframe (at least in theory) the hearing for the submission of the final prayers for relief is usually scheduled long after the conclusion of the evidence taking phase. It may take from one to two years.

The decision is immediately enforceable notwithstanding any appeal. The enforceability may be stayed only if the Court of Appeal finds that the provisional enforcement of the decision may cause a serious prejudice to one of the parties in case such decision is eventually overturned as a consequence of the appeal proceedings.

B. Costs

As a general rule, the losing party is ordered to repay the other party’s legal costs, including attorney’s fees, in an amount which is awarded by the Court and which usually represents only a relatively small portion of the legal costs actually incurred.

If the losing party has commenced or carried on civil proceedings with gross negligence or in bad faith, the winning party can claim the damages caused by the counterparty's behavior.

Italian law does not provide for punitive damages as a general rule.

C. Appeal

Under the penalty of forfeiture, appeal shall be filed within 6 months from the date in which the judgement was published or, if a certified copy of the judgement is served upon request of a party, within 30 days from such service.

The effect of the appeal is to have the case revised by the Court of Appeal and the parties are not allowed to make new claims. Further evidence is admissible to a very limited extent.


D. Appeal to Supreme Court

The appellate decision may be further challenged before the Supreme Court only on grounds of law (whether substantive or procedural), whereas ideally the Supreme Court may not review the decision under scrutiny on its factual grounds.

E. Duration

First instance proceedings – may last from 2 to 4 years, depending on the backlog of the district where the dispute is located. Usually – but not always – bigger districts (such as the one of Rome and Milan) are slower than smaller districts.

Appeal proceedings – may last from 2 to 4 years.

Supreme Court Appeal – may last 4 to 5 years.

Energy disputes may imply a longer evidence taking phase, often entailing the involvement of experts for the determination of the quantum, or for the assessment of the progress and of the quality of the works in EPC contracts. Ordinary judges may not always be familiar with the specific aspects of the energy sector, so this translates into increasingly longer timing for rendering the relevant decision.

13.1.2 Criminal litigation

The duration of criminal proceedings may depend upon the type and seriousness of the criminal offence charged and the complexity of the investigations.

13.1.3 Administrative litigation

Disputes devolved to the jurisdiction of administrative courts relate to questions of legality of administrative measures adopted by public administrations and/or companies governed by public law in respect of private sector operators.

In general, the claimant may challenge a final administrative measure in front of the Regional Administrative Court, requesting its annulment for violation of the law, incompetence or abuse of power (lack of investigation and/or motivation).

In the energy sector it is possible to identify two main types of litigation:

a. judgments concerning the authorizations for the construction and operation of plants for energy production. This category includes the claims proposed by the operators against a refusal to grant the authorizations and the claims proposed by counterparties (owners of neighboring land and/or expropriated, environmental associations, etc.) for the annulment of the authorizations issued by the competent authority for the construction and operation of the plants;


b. judgments concerning the recognition of and/or withdrawal of public incentives provided by the national law for the production of energy. Usually such judgments concerning measures taken by the GSE, as a result of checks and controls at the plants admitted to the incentive, questioning the absence and/or termination of the conditions for the provision of incentives (structural differences, plant modifications unauthorized, false statements)

First instance proceeding

The claim is proposed by appeal to be notified to the administration that has adopted the measure, within 60 days after becoming aware of the same administrative measure. Once notified, the appeal is filed with the competent Regional Administrative Court.

If there is a serious and irreparable prejudice, the claimant may ask the judge to issue an interim suspension measure.

The defendant has to file its statement of defense at the latest 60 days after the notification of the claim.

Received the claim, the judge fixes the hearing date and makes the decision after the first hearing. The time lapse between the filing of the claim and the hearing date can be very long. (1-2 years).

The Judge should issue its relevant decision within 30 days from the filing of the reply to the post hearing briefs. However, usually the Judge issues the decision within approximately 5 months from the hearing.

The decision is immediately enforceable notwithstanding any appeal. The enforceability may be stayed only if the State Council ("Consiglio di Stato") finds that the provisional enforcement of the decision may cause a serious prejudice to one of the parties in case such decision is eventually overturned as a consequence of the appeal proceedings.

As a general rule, the losing party is ordered to repay the other party’s legal costs, including attorney’s fees, in an amount which is awarded by the Court and which usually represents only a relatively small portion of the legal costs actually incurred.

If the losing party has commenced or carried on civil proceedings with gross negligence or in bad faith, the winning party can claim the damages caused by the counterparty's behavior. Italian law does not provide for punitive damages as a general rule.

First instance proceedings – may last from 2 to 4 years, depending on the backlog of the district where the dispute is located.


Appeal

Under the penalty of forfeiture, appeal shall be filed within 6 months from the date in which the judgment was published or, if a certified copy of the judgment is served on the request of a party, within 30 days from of such service.

The effect of the appeal is to have the case revised by the State Council ("Consiglio di Stato") and the parties are not allowed to make new claims. Further evidence is admissible to a very limited extent.

Appeal proceedings – may last from 2 to 4 years as well.

13.1.4 Commercial Arbitration

As opposed to investment arbitrations, which involve private parties and States or State-owned entities, commercial arbitrations involve private parties.

In the arbitration agreement the parties can decide whether the proceedings shall be regulated and conducted under the rules provided for by the Italian procedural law (ad hoc arbitration) or if it shall be administered and conducted under the rules of an arbitration institution (administered arbitration).

Should Italy be the seat of the arbitration, Italian procedural law provisions shall apply to regulate the ad hoc arbitrations and those procedural aspects not covered by the institutional rules in the administered arbitrations.

If the arbitration is seated abroad, the rules provided by the law of the State where it is seated apply.

A. Ad hoc arbitrations

The provisions of the Italian Code of Civil Procedure regulate the constitution of the arbitral tribunal and the conduct of the proceedings, if not otherwise provided for by the parties.

(a) Constitution of the arbitral tribunal

Number of arbitrators. Arbitral tribunals can consist of one or more arbitrators, but the number must be uneven. If the arbitration clause is silent, the arbitral tribunal shall consist of three arbitrators.

Qualifications for being appointed. Only individuals lacking legal capacity (minors or mentally disabled individuals) cannot be appointed as arbitrators. No qualification (such as a law degree or the admission to the bar) is required, unless otherwise specified by the parties.

Independence/impartiality. Arbitrators shall be independent and impartial. As a consequence, an arbitrator can be challenged and removed when certain circumstances set forth by the law that affect such independence and impartiality occur.


Appointment of arbitrators. Each party shall notify the other party in writing that its party appointed co-arbitrator has been nominated and invite the other party to do the same within 20 days the receipt of the relevant notification. Absent any response to such notification, the notifying party can request to the President of the Court where the arbitration is seated to proceed to such appointment in lieu of the inactive party. The third – and presiding – arbitrator shall be appointed by the two party appointed co-arbitrators.

Removal of arbitrators. If the arbitrator(s) fails or is delayed in carrying out an act related to her/his duties, she/he can be replaced by the parties or a third party, as set out in the arbitration agreement. Alternatively, if the arbitrator(s) does not perform her/his duties within 15 days of receiving the formal notice in the registered letter, either party can request the President of the Court where the arbitration is seated to declare the arbitrator's removal and proceed with his/her relevant replacement.

Costs of arbitration. The arbitral tribunal shall determine the costs of arbitration (i.e. the arbitrators fees and the general expenses for the management of the proceedings). In calculating the costs, the arbitrators shall apply the relevant Ministerial tables (therefore, the arbitrators' fees generally depend on the value of the dispute). However, when calculating costs, the arbitral tribunal can also consider the complexity of the dispute, the amount of work done and the procedural/substantial issues dealt with.

In any event, the arbitral tribunal's determination of the costs is not binding upon the parties, and, in case it is disputed, the President of the Court where the arbitration is seated shall determine the costs of arbitration. The arbitrators can request an advanced payment of the possible cost of the proceedings.

(b) Conduct of the proceedings

Rules governing the procedure

Party autonomy is at the heart of arbitration. Apart from the Italian mandatory procedural provisions and from the obligation to comply with the principle of due process of law there are no default rules governing the procedure. The parties can determine either in the arbitration agreement or in a separate written agreement prior to the commencement of the arbitration proceedings the procedural rules the arbitrators shall comply with.

If the parties do not reach an agreement on the procedural rules, the arbitrators can apply the procedural rules they consider more suitable to the case.

Gathering of evidence

The arbitrators can: (i) collect witnesses' testimony; (ii) require the assistance of one or more experts; (iii) request the public administration to provide the necessary information in order to solve the dispute.


However, arbitrators do not have coercive powers. As a consequence, if a witness refuses to appear, the arbitrators can only ask the President of the Court where the arbitration is seated to order the witness to appear before the arbitral tribunal.

Duration of the proceedings

Unless otherwise agreed by the parties, the arbitrators shall render the award within 240 days of the constitution of the arbitral tribunal.

This time limit can be extended upon joint request of the parties, as well as by the President of the Court where the arbitration is seated, upon request of the arbitrators or of one of the parties.

Unless otherwise agreed by the parties, the time limit is automatically extended by 180 days in some cases specifically set forth by the law, which often occur.

So, eventually ad hoc arbitrations may last until up to 14 months.

B. Administered arbitrations

In the arbitration agreement parties can provide that the proceedings shall be administered and regulated by the rules of arbitration institutions.

The most popular institutions in Europe are International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the Vienna International Arbitral Centre (VIAC), the Swiss Chambers' Arbitration Institution (SCAI). The Milan Chamber of Arbitration (CAM) is the most respected Italian arbitral institution.

For the purpose of this guide, we will not outline the specifics of all the rules of the main arbitral institutions.

Notably, although almost all of these institutions provide for the parties' possibility to apply for interim measures, only the rules of SCAI provide for the ex parte interim measures (i.e. a preliminary order that in exceptional circumstances may be issued before the other party is heard).

(c) Pros and cons of administered arbitrations vis-à-vis ad hoc arbitrations

The main advantage of administered arbitrations is the availability of a pre-established set of rules, specifically designed for international arbitrations. This proves to be particularly helpful in energy related disputes.

This allows to avoid the uncertainties of certain domestic arbitration rules which are not particularly favorable to, or familiar with arbitration.


Another important feature is the administrative assistance rendered by the institution. In particular, and depending on the institution, the assistance can involve transparency, the scrutiny of the impartiality and independence of the arbitrators, the speed, the examination of the award before it is notified to the parties so as to ensure that the same is well motivated and structured and, therefore, possibly resistant to any appeal.

As a downside, administered arbitrations can virtually be more expensive than ad hoc arbitrations (the parties will also have to bear the administrative fees of the institution in addition to the arbitrators' fees).

C. Interim measures within arbitrations seated in Italy

In Italy, arbitrators are not allowed to grant seizures or other interim measures unless otherwise provided for by the law.

Only within disputes relating to corporate matters (i.e. the suspension of the enforcement of a challenged shareholders’ resolution) Italian law allows arbitral tribunals to issue interim measures.

Other than this specific case, in Italy a party seeking to be awarded with an interim measure shall resort to ordinary courts.

Some of the main Italian arbitral institutions, such as the Milan Chamber of Arbitration and the Italian Arbitration Association (AIA), have included in their Rules provisions allowing arbitrators to grant interim measures.

However, there are no remedies to a party’s failure to voluntarily comply with interim measures issued by the arbitral tribunal, as arbitrators do not have any coercive power towards the parties under Italian law, nor an Italian State Court has the power to grant enforceability to interim measures issued by arbitral tribunals, regardless of where the arbitration is seated.

D. Set aside of awards

If the arbitration is seated in Italy, the arbitral award can be challenged before Italian courts. In particular, it can be set aside as a result of a:

1) challenge for nullity;

2) motion for new trial;

3) third party's challenge.

In general, the parties cannot waive the right of challenging an arbitral award before the dispute arises.


(d) Challenge for nullity

A challenge for nullity must be filed with the Court of Appeal of the district where the arbitration was seated, within 90 days of the service of the award and no later than one year from the date of the last signature of the arbitrators.

The award can be challenged only on the basis of specific grounds set forth by the law. Unless otherwise agreed by the parties, an award cannot be challenged on the basis of a wrongful application of the law with regards to the merits of the case. In any case, the award can always be challenged if it is contrary to public order.

(e) Motion for new trial (in Italian, Revocazione) and third party challenge

The award may be challenged by motion for new trial in the following cases:

■ willful misconduct by the counterparty;

■ willful misconduct by the arbitrators;

■ the award was based on false evidence and the falsity was established after the award was rendered;

■ after the award was rendered, a party finds decisive documents which could not be produced in the proceedings due to force majeure or willful misconduct of the counterparty.

A third party can challenge the award where it jeopardises its rights.

The motion for new trial and the third party challenge shall be filed with the Court of Appeal in the district where the arbitration is seated, within 30 days of the date the event that gives rise to the grounds mentioned above has been discovered.

E. Enforcement in Italy of arbitral awards

(f ) Enforcement of Italian awards

From the date the arbitral award is signed, the award will have the same effects of a judicial decision. As a consequence, it can be enforced in Italy. Yet, an exequatur procedure shall be started before the Court of the district where the arbitration was located.

(g) Enforcement in Italy of foreign arbitral awards

If the arbitration is seated abroad, the arbitral award shall be recognized in order to be enforced in Italy.

Italy is a signatory State of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“NY Convention”).


Therefore, should the State where the arbitration was seated also be a party of the NY Convention, foreign arbitral awards can be recognized and enforced in Italy in conformity with the provisions of such convention.

The first stage of the recognition proceedings is carried out without hearing the party against which enforcement is sought. The award is considered immediately enforceable following the decree from the President of the Court of Appeal.

The party against whom it has been issued may challenge such decree within 30 days from the notice that the decree has been issued.

The decision of the Court of Appeal may be subject to further examination before the Court of Cassation.

13.2 MAIN TREATIES AND EUROPEAN REGULATIONS TO PROTECT THE FOREIGN INVESTMENTS

Investment arbitrations involve private parties and States or state-owned companies.

On the grounds of multilateral or bilateral international treaties, private investors seek indemnification against the State where the investment was made, in case such investment was either jeopardized by way of non-indemnified expropriation or nationalization, or by way of application of discriminatory measures to the foreign investments and investors.

Energy disputes may be grounded on bilateral investment treaties entered into by the State where the investor is located and the State where the investment was carried out (“BIT”) or on multilateral treaties such as the Energy Charter Treaty approved on 17 December 1994, modified with the protocol adjustment dated 2 August, 1996 (“ECT”).

Both the bilateral and multilateral treaties are aimed at ensuring that foreign investors are not treated differently from the local investors by the State in which the foreign investment is made. This translates into some limitations for the Contracting Parties (i.e. States) of both the ECT and BITs to nationalize or expropriate such investments or to implement any measure that may permanently or temporarily limit the rights of the investors unless: (i) there are reasons of public interest at stake; (ii) the investor is immediately indemnified with a full and effective compensation; (iii) the measures are taken on a non-discriminatory basis.

Italy withdrew from the ECT in January 2015. Yet, in conformity with art. 47(3) of the ECT, the treaty shall be applied for the next 20 years as of January 2016 to pre-existing qualifying investments either carried out in Italy by foreign investors, or carried out by Italian investors in States that are members of the ECT.


BITs usually safeguard all kinds of investments made by an investor of a contracting party on the territory of another (including but not limited to those made in the energy sector). The ECT, on the other hand, is specifically designed to protect investments made in the energy sector.

Both the ECT and the BITs provide investors with a number of dispute resolution tools.

In particular, under the ECT private investors may either:

■ start ordinary/administrative litigation before the courts of the State involved in the dispute;

■ start arbitration under the rules of the International Center for Settlement of Investment Disputes (ICSID);

■ start arbitrations regulated under the UNCITRAL Rules;

■ start arbitrations regulated under the Rules of the Stockholm Chamber of Commerce (SCC).

BITs are not all the same, although they all pretty much look alike, especially for what concerns the dispute resolution.

Under BITs, it is likely that private investors are provided with the following options:

■ ad hoc international arbitrations,

■ other kinds of arbitrations from time to time agreed upon by and between the two State Contracting Parties.

The choice of one dispute resolution method over the others pretty much depends on the circumstances entailed by the case and by the relevant interpretation that each dispute resolution method gives to the notion of “investment” and “investor”.

Before entering the merit of the dispute, the arbitrators or the local Judge should assess whether the case actually entails the prejudice suffered by an “investor” in relation to an “investment” made within the territory of the contracting State.

It is because of this preliminary test that the notions of “investor” and “investment” are highly regarded.


The interpretation of the term “investment” varies according to the dispute resolution mechanism chosen by the investor. For example, law reports to date have allowed to identify a more restrictive orientation of Arbitral Tribunals constituted according to ICSID, against the wider trends interpretation offered by Arbitral Tribunals set up under the Rules of UNCITRAL or the SCC.

For example, ad hoc Arbitral Tribunals or those managed by the SCC have provided interpretation over the loose term “investment”. The ECT, per se, and the Agreement of the Final Act of the European Energy Charter Conference provide for a definition likely to cover activities beyond those traditionally related to the energy sector (i.e. exploration, construction and launching of activities in hydroelectric plants) even for activities with a more commercial attitude (such as marketing, sale of products/materials, research, consulting, etc.).

Rosamarina Dam (Palermo)

DLA Piper would like to thank the following professionals for their contributions:

Giulio Maroncelli, Dario Stifano, Germana Cassar and Immacolata Battaglino for chapter 1;

Giulio Maroncelli and Dario Stifano for chapters 2 and 7;

Germana Cassar and Immacolata Battaglino for chapters 3, 4, 5, 6;

Giovanni Ragnoni and Luciano Morello for chapter 8;

Giovanni Iaselli and Alberto Sandalo for chapter 9;

Federico Strada for chapter 10;

Benedetta Cicconi, Federico Strada and Carmen Chierchia for chapter 11;

Benedetta Cicconi for chapter 12; Francesco Calabria for chapter 13;

Federica Bocci and Immacolata Battaglino for chapter 14.

Special thanks also to Claudio D’Alia, Riccardo Malavolti and Katrina Malcolm.

114 | Doing Business in Italy – Energy Investor Guide 2018


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