Annual Report N.V. Nederlandse Gasunie. Annual Report. N.V. Nederlandse Gasunie - 1 -

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1 Annual Report N.V. Nederlandse Gasunie 1

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3 Contents Page Board and Employee Council 5 Serving customers in a changing European energy market 7 Key developments in 2009 and prospects for Summary of results: 16 Key financial data 16 Report of the Supervisory Board 18 Remuneration policy for the Executive Board 21 Corporate Governance and Risk Management 26 Report of the Executive Board 29 Regulated Network Management (the Netherlands and Germany) (TSO) 31 Regulation 31 Gas transport 33 Participations & Business Development (NonTSO) 37 Construction, Management & Maintenance 39 Personnel and Organisation 43 Statement by the Board 45 Primary and secondary posts held by Supervisory Directors of N.V. Nederlandse Gasunie 46 Accounts Consolidated financial statements 48 Company financial statements 107 3

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5 Board and Employee Council As at 31 December 2009 Supervisory Board G.J. van Luijk, chairman C. Griffioen A. Lont H.L.J. Noy J.P.H.J. Vermeire M.H. van der Woude Executive Board Marcel P. Kramer Marcel Kramer has been CEO and chairman of the Executive Board since July 1, He has worked for Gasunie since Prior to that he worked in several positions at various organisations including Statoil Norway, PetroCanada, NATO, the International Energy Agency and the Ministry of Economic Affairs. Marcel Kramer studied private law and business law. Other positions: Member of the Supervisory Board of Royal Boskalis Westminster N.V. President of Gas Infrastructure Europe (GIE) Chairman of the Royal Dutch Gas Association (KVGN) Member of the Supervisory Board of the North Netherlands Symphony Orchestra (NNO) Member of the International Supervisory Board of the Energy Delta Institute Member of the Advisory Board of Clingendael International Energy Programme Member of the International Gas Union Council Honorary Consul for Norway Henk A.T. Chin Sue Henk Chin Sue has been CFO and a member of the Executive Board since July 1, He has worked for Gasunie since Henk Chin Sue studied mechanical engineering and economics. He is also an Executive Master of Finance & Control. Other positions: Member of the Supervisory Board of APX N.V. Chairman of the Audit Committee of APX N.V. Member of the Supervisory Board of the Dutch Metrology Institute (NMi) Member of the board of governors of the Executive Master of Finance & Control at the University of Groningen (RUG) Pieter E.G. Trienekens Pieter Trienekens has been a member of the Executive Board and Participations & Business Development Director since July 1, He has worked for Gasunie since Prior to that he worked for the Ministry of Economic Affairs. Pieter Trienekens studied social sciences. Other positions: Member of the Policy Committee of the International Gas Union Research Conference Member of the Taskforce for Carbon Capture & Storage (CCS) Member of the Supervisory Board of Siza Dorp Group 5

6 Eric Dam Eric Dam has been a member of the Executive Board and Construction & Maintenance Director since July 1, He has worked for Gasunie since Eric Dam studied mechanical engineering. Other positions: Chairman of the Executive Board of the Energy Delta Institute (EDI) Chairman of the working group Transmission of the International Gas Union Member of the Executive Board of Energy Delta Research Centre, University of Groningen (EDReC) Vicechairman of European Business Congress (EBC), active in working groups for Human Resources, Education & Science Member of the Royal Dutch Gas Association (KVGN) Other positions also include unpaid positions. Management who are also members of the Executive Committee G.H. Graaf, Director Regulated Network Management (the Netherlands and Germany) (TSO) and General Manager Gas Transport Services B.V. C.S. Pisuisse, Legal Affairs, Regulation and Public Affairs Director J. Schumann, Director Gasunie Deutschland GmbH & Co KG Employee Council Gasunie the Netherlands D.C. Pol (chairman) G.G.J. Achterbosch M. Bekker R.J. Beks H.P. Brink E.E.M.L. Kersemakers H.D. Koers H.T.P.M. Lagarde C. van Leeuwen A. Saglam K. de Vries A. Zwaagstra Employee Councils Gasunie Deutschland Gasunie Deutschland Services GmbH D. Pröve (chairman) D. Backhaus K. Fischer T. Holeczy R. Marx J. Reichert C. Spönemann Gasunie Deutschland Technical Services GmbH U. Neitz (chairman) W. Bethke R. Hollwedel 6

7 Serving customers in a changing European energy market Profile N.V. Nederlandse Gasunie (Gasunie) is one of Europe s biggest gas infrastructure companies. Our network transports approximately 125 billion cubic metres of natural gas a year, nearly a quarter of the total volume consumed in Europe. Gasunie is the first European gas transport company with a crossborder network, consisting of more than 15,000 kilometres of pipeline in the Netherlands and Germany, connections to national and international pipeline systems and hundreds of installations, including an LNG facility (peak shaver) and approximately 1,300 custody transfer stations. Additional major extensions are under construction. Our aim is to create value for all our stakeholders. We also strive to maintain the highest standards of safety, reliability, efficiency and sustainability. By actively contributing to a secure energy supply, we serve the public interests in the countries supplied by our network. Gasunie is the first fully independent (i.e. not linked to a gas trading company) gas transport supplier with an extensive crossborder network throughout Europe. We regard the wishes of our customers as our main driver. Our primary customers are shippers (companies that contract transport services) and industries that are directly connected to our network. Many of our customers have crossborder interests and specifically ask for more crossborder service provision. We work closely with a large number of other national and international network companies. Gasunie s infrastructure enjoys a strong position in the Netherlands and northern Germany. This region is vital for supplying the European gas market. Gasunie s infrastructure plays an essential role in the smooth operation of the northwestern European gas market. Meeting the requirements of adjacent markets, existing and potential suppliers, importers, endusers and policymakers is crucial in improving market function. Mission and key pillars of strategy and implementation Gasunie is a European gas infrastructure company. We aim for the highest standards in safety, reliability, efficiency and sustainability. We serve public interests in the markets in which we are active and are committed to creating value for our stakeholders. Safe, reliable and uninterrupted transport of natural gas is Gasunie s license to operate. Its shareholder, customers and other stakeholders, such as suppliers and consumers of gas, governments and regulatory authorities, also expect us to do our work efficiently. Good business practice, benchmarking and a willingness to adjust processes, standards and the organisation where necessary are all means for achieving this. Our strategic goals are to facilitate and promote a secure gas supply in northwestern Europe, now and in the future. Because natural gas production in Europe itself is declining, an increasingly large share of the supply of natural gas will have to come from outside Europe. The Gasunie network fulfils a key role in securing the gas supply. The high quality of its infrastructure with its strategic location, many connections with international gas flows and the high level of knowledge and expertise of our staff all ensure that our network plays an indispensable role in the smooth functioning of the European gas market. A large proportion of our network is used to carry crossborder gas flows and is thus at the heart of what is referred to as the gas roundabout (hub) of northwestern Europe. In conjunction with our efforts to make the Gasunie infrastructure the gas roundabout of northwestern Europe, we are also developing a number of secondary activities to support this ambition. 7

8 Our aim is to offer the best possible service to our customers, and hence to society at large. To that end, we are focusing on the following strategic goals: Maintain and extend the existing Gasunie network Safety, reliability, efficiency and sustainability are spearheads in our policy. We will honour our license to operate and serve the public interest through the sound management and maintenance of our network and, where necessary, the expansion of our infrastructure. Through our network we offer our customers an attractive, reliable and competitive service. If there is strong demand from the market, we will expand our infrastructure where necessary and feasible in a commercially sound way. We impose the highest demands on quality and the processes surrounding it. This calls for top performances from our employees, the application of stringent norms and a high degree of efficiency when performing our tasks. Large parts of the existing infrastructure are now several dozen years old. Verification of quality and maintenance and replacement require increasing attention. Attract and facilitate gas flows to and within northwestern Europe We must respond to market demand for infrastructure on a sound commercial basis. Our largely regulated profits must be enough to guarantee the quality of the infrastructure and services in both the short and longer term and to attract the substantial capital that is needed from the international financial market. All our activities centre on serving the public interest by encouraging a competitive gas market and promoting liquidity. Based on the needs of our customers, we want to make an active contribution to the international interconnection of networks and more fully integrated gas infrastructure services. We will do this by expanding our infrastructure activities to adjacent networks, participating in longdistance pipelines (Nord Stream and associated networks in western Europe that ensure a good transit flow for the market) and strengthening our position in the infrastructure for liquefied natural gas (LNG) (Gate terminal). Offering ancillary gas infrastructure services By developing supplementary services, we can increase the attractiveness of the gas roundabout and better serve the markets in which we operate. These services are designed primarily to guarantee security of supply, market function and sustainability, and include the provision of good connections with longterm seasonal and multicyclical storage (natural gas buffer in Zuidwending) and the extension of quality conversion (storage of nitrogen in a salt cavern near Heiligerlee). Organisation The Dutch arm of our network is operated by Gas Transport Services B.V. (GTS) and the German arm by Gasunie Deutschland Transport Services GmbH (GUD). As Transmission System Operators (TSO), they are responsible for the daytoday management of the gas pipeline network. Together, they also take stock of future demand for transport capacity. This stocktaking exercise forms the basis for future investment plans, notably with regard to the regulated elements of the infrastructure. 8

9 The Construction and Maintenance Department is responsible for maintenance of the gas transmission network and for implementing new largescale infrastructure projects. It performs operational tasks for the benefit of gas transport and is responsible for the projectbased and technical preparation, construction and operationalisation of new construction projects such as the current northsouth expansion of the Dutch network, the natural gas buffer in Zuidwending and the nitrogen buffer in Heiligerlee. The Participations & Business Development (nontso) business unit focuses on nontso activities (which are not part of the regulated network management) such as BBL, Gate terminal, Zuidwending and Nord Stream. It is also responsible for Gasunie s overall strategy development and monitoring and for promoting sustainable operations in particular. The State of the Netherlands, represented by the Ministry of Finance, is the company s sole shareholder. Our aim is to satisfy the demands and expectations of our shareholder in respect of security of supply as a statutory duty (both in the Netherlands and Germany), return on investment, value creation and corporate governance. is also provided to several thousand staff working for contractors and subcontractors in the Netherlands and Germany. Public interest Natural gas is vital for our society and economy. Our gas infrastructure is part of the Netherlands vital infrastructure and this makes special demands on us as a company in relation to statutory tasks and responsibilities. They include: ensuring sufficient transport capacity to guarantee a safe and uninterrupted gas supply; contributing to longterm security of supply by developing access points and drawing gas flows to and via our network ( gas roundabout ); contributing to Dutch policy on gas production and marketing (Groningen and small fields) by offering sufficient transport capacity when it is needed; boosting the gas market and liquidity; achieving a return on investments comparable to the returns for this sector in Europe; ensuring that tariff levels and structures form an adequate basis for implementing the aforementioned tasks. Gasunie has over 1,700 employees (at yearend 2009) distributed across 28 locations throughout the Netherlands and northern Germany, and with offices in The Hague, Brussels and Moscow. The company s overall head office is in Groningen. The head office for the company s activities in Germany is in Hanover. Further employment 9

10 In 2009 we made excellent progress in working toward our strategic goals. Whether and to what extent we will continue to do so in future will to some extent depend on other players on the energy market. We are therefore in regular consultation with our stakeholders to jointly plan the future development of the energy supply. Interest in the vital role that will be played by the gas infrastructure in the future is growing. In 2009 the Dutch Minister of Economic Affairs sent parliament a proposal to amend the Gas Act. This bill of amendment seeks to further develop and improve the energy infrastructure. In a letter of October 2009, the minister reaffirmed the importance of the gas roundabout and the role of the Gasunie network in it. The government is working towards a situation whereby the Netherlands, where the Gasunie system plays a pivotal role, serves as an international gas flow interchange and as a distribution centre for gas in northwestern Europe. In the aforementioned letter, the government underlines the importance of making investments in the physical and nonphysical infrastructure over the coming years, which are needed to make the gas roundabout operational. The vital social importance of natural gas and hence of national gas transport was reaffirmed in 2009 by the role of GTS as peak supplier. One of GTS statutory responsibilities is to ensure that the supply of gas to domestic consumers (households, institutions and small industries) will be guaranteed at an average effective daily temperature of 9 degrees Centigrade or below. To meet this obligation, GTS must itself contract volume and capacity. On 19 December 2009 the effective daily temperature was 9.7 degrees Centigrade. Peak supply was therefore activated that day, a first in the history of GTS. Partly as a result, security of supply continued to remain at a high level throughout Corporate Social Responsibility (CSR) Gasunie presents its policy and results relating to People, Planet and Profit in a separate annual report on corporate social responsibility. The CSR report will be published for the first time in this form in

11 Key developments in 2009 and prospects for 2010 Key developments in 2009 Policy and regulation The government wants the Netherlands to be at the centre of the gas roundabout of northwestern Europe. In 2009 the Minister of Economic Affairs announces a series of new initiatives to accelerate the development of the gas roundabout. The government regards the Netherlands as an intersection for international gas flows in which the Gasunie network in the Netherlands and Germany fulfils a vital role. The fundamental aim behind these efforts is to ensure the prompt availability of gas transport capacity, flexibility of supply, sustainability and diversification. This must help to promote a smoothly functioning gas market and the integration of the northwestern European market. Gasunie fully supports this aim and will continue to actively work towards its successful implementation. Ensuring the smooth functioning of the liberalised gas market, characterised by free competition and ongoing security of supply, will require substantial expansions in the infrastructure. Investments of this nature and scope (such as those arising from the Integrated Open Season 2009) will only be commercially viable if they are facilitated by the regulatory framework. In view of this, we regard the way in which gas transport in Germany has recently been regulated as an obstacle to new investment in the German network. It is also giving other gas transport companies operating in Germany cause for serious concern. In 2009 the German regulatory authority, the Bundesnetzagentur (BNetzA), announced a substantial reduction in transport tariffs in Germany, together with a cap on the maximum allowable return on new investments. This applies to all TSOs in Germany, including GUD. As a result, income generated by the existing network will be lower than we consider responsible for the continuity of operations. Together with the regulation of the return on new investments, it will have an adverse effect on yield and on the development of the gas sector in Germany. An unaltered German policy could also have negative repercussions elsewhere in Europe due to Germany s role in the gas transport market, which also influences the supply of gas in neighbouring countries. We and other parties will therefore be working to bring about an amendment to the German legislation and regulations. In 2009 the Council of Ministers and the European Parliament adopted the Third Energy Package and the Climate Package. These new rules now provide the regulatory framework for energy companies that are active in Europe. Parts of these packages will need to be transposed into national laws and regulations; others apply directly to all member states and have direct consequences for companies such as Gasunie. In this context, the establishment of ENTSOG (European Network of Transmission System Operators for Gas) and of ACER, the new European regulatory body, deserve special attention. ENTSOG, of which all TSOs in the EU are obliged to be members, will acquire a number of tasks, including the drafting of new, binding European network codes and a tenyear network development plan. Projects An underground storage facility is currently under construction in salt caverns in Zuidwending (Groningen). This natural gas buffer will greatly boost the flexibility and security of supply of the gas transport system, since gas can quickly be pumped into the network from here. In 2009 Gasunie and Nuon reached an agreement whereby Gasunie took over Nuon s share of phase 1 of the Zuidwending project. Gasunie is also building a nitrogen buffer near Heiligerlee. This will make it possible to continue converting high to low calorific gas. The capacity of the network in the Netherlands and northern Germany must be expanded to meet growing consumer demand for transport capacity. The capacity expansion figures are the main result of the Integrated Open Season organised by GTS and GUD. Over 20 gas supply and trading companies have as a result entered into binding capacity agreements with the Gasunie network operators. Some have requested capacities in both the Dutch and the German Gasunie grid. This shows how important the further development of crossborder gas transport connections is. The extra capacity required is needed to connect new underground gas storages to the grid, to accommodate shifts in gas supply and to enable 11

12 the increase in crossborder trade and international competition. Further cooperation with the Belgian network company is desirable to achieve efficient solutions for crossborder gas transport to and from the south. New investments by market players, such as the gas storage project in Bergermeer, are making the expansion of our gas transport network imperative. In 2009 substantial progress was made in building a connection between Greifswald, the landfall point of the Nord Stream pipelines, and the GUD network. There are various projects under development at present. A final investment decision for the EastWest connection through Germany will in all probability be taken in mid Together with the extra capacity provided by the OPAL pipeline (the northsouth connection which links up with the Nord Stream landfall in Greifswald and which is currently under construction), this will need to ensure sufficient transport capacity to transport 55 billion cubic metres from Nord Stream, partly to the United Kingdom via the Dutch network and the BBL. Gasunie wishes to actively contribute to the creation of a sustainable society. We will therefore continue to apply stringent environmental standards to all our activities. As a gas infrastructure company, we encourage clean and efficient energy solutions. In 2009 we introduced a certification system for green gas in the Netherlands (Vertogas BV) at the request of the Minister of Economic Affairs. This system guarantees the origin and quality of green gas. We also want to stimulate further measures to promote the production of green gas and to facilitate the market for green gas. We are looking at how we can continue to guarantee the reliability of pipelines and the safety of green gas transport. Together with our commercial partners, we are working on pilot projects for the supply of green gas via the Gasunie infrastructure. efficient services and to increase liquidity to strengthen the market position of GASPOOL as the basis for a further integration with the Title Transfer Facility (TTF). GUD also provides services to this group. In 2009 KEMA took over Gasunie s research & development department, marking the start of a longterm partnership with KEMA. As from 1 July 2009, Gasunie is buying consultancy services and research activities from KEMA under a longterm contract. The services include pipeline integrity management, technical support, consultancy services and research on renewable energy. Within KEMA, these services can be extended within a broader international playing field. In summer 2009, NAM, Gasunie and GasTerra organised a successful anniversary programme to mark 50 years of gas production from the Groningen field (G50). One of the highlights of these celebrations was the official opening of the G50 conference by Her Majesty Queen Beatrix of the Netherlands began with an increase in the volumes traded on the TTF, followed by a dip from April onwards. In October, the volumes rose sharply once more. One or two other European hubs showed a similar pattern. In 2009 the volumes traded rose by 28% compared with 2008; in physical terms, 32% more gas was traded via the TTF than in The TTF is still regarded as the most liquid hub on the European continent. A recent report by ICIS Heren concluded that after the UK s NBP, TTF was the hub with the best tradability index. On 1 April 2009, GUD joined the Market Area Cooperation Aequamus, which balances the combined Lgas network (low calorific gas) supplied by various companies, including GUD. The German regulatory body wants the Lgas TSOs to create a single market for Lgas with effect from 1 October 2010 On 1 October, GASPOOL was established with a view to combining the markets for Hgas (high calorific gas) in Germany. The aim is to provide the market with more 12

13 Prospects for 2010 Security of supply in Europe will remain high on the agenda over the coming decades. Between 2010 and 2020, demand for gas in northwestern Europe is expected to rise as production in Europe and the Netherlands declines. The remaining gas reserves in the Netherlands and elsewhere will therefore need to be efficiently exploited. However, imports from the large gas fields in Norway and Russia, and increasingly also from the Middle East and Africa, will become progressively more important in the long term. The production of nonconventional gas has also taken off in the United States. There are indications that this may also be a possibility in Europe, especially in Eastern Europe. Developments and their potential influence on the gas infrastructure are being closely monitored The following key changes are likely to affect our commercial environment: the economic crisis, which is currently affecting financing and demand for gas (and to a lesser extent use of the gas infrastructure; demand for transport capacity remained largely unchanged in 2009). However, medium and longrange forecasts predict a recovering demand for natural gas on the markets we cater for; new regulatory and policy developments at national and EU level (including concerns about regulation in Germany, as outlined before); a strong focus on sustainability and on the role Gasunie must fulfil in this broad area; more pressure to prove that we are a fit for purpose organisation with an adequate governance model and effective risk management systems; finally, a financial course that strikes the right balance between our financing requirements, an acceptable rating policy and the need for an adequate return on investment for the shareholder, both in terms of a dividend payment and in terms of value growth for the company. The economic crisis has also had consequences for the costs and complexity of the financing of investments and projects. However, Gasunie and its partners have succeeded in achieving good results in this area, both with Nord Stream and with Gate terminal. Over the coming decades, natural gas will continue to play an important role in the European energy mix as a reliable and relatively clean source of energy. Natural gas is vital in providing the flexibility and backup in an energy system in which solar and wind power are becoming increasingly important. By making the infrastructure for natural gas available for biogases, we will not only strengthen the renewable characteristics of the gas itself, we will also provide a sustainable outlook for our gas infrastructure. 13

14 Groningen N BBL N N L N 14

15 Ellund Nord Stream Berlin Hanover L N feeder station(s) (entry points) compressor and blending station compressor station blending station export station underground gas storage LNG facility nitrogen injection planned extensions of the gas grid pipelineshighcalorific gas underground gas storage pipelinesgroningengas pipelineshighcalorific gas pipelineslowcalorific gas pipelinesdesulphurized gas pipelinesnitrogen 15

16 Summary of results Key financial data Results (consolidated figures) The valuation principles in the 2009 annual accounts did not undergo any substantial changes compared with Key figures 2009 in millions of euros Income 1,669 1,506 Total expenses / 1,369 / 903 Operating result Financial income and expenses / 139 / 81 Result before tax Funding In 2009, operational activities generated a positive net cash flow of 883 million. 1.2 billion was spent on acquisitions and investments during the year. A total dividend of million for the 2008 financial year was paid out in million net in finance was added to the balance sheet total, decreasing net liquid assets by 44 million. External funding requirements in 2009 came to 4.1 billion compared with 3.5 billion in This was met through 4.1 billion in longterm loans and 27 million in shortterm finance. Gas transport revenue as a proportion of total income rose by 9% in comparison with This increase was largely due to the transport revenue of GUD, which now represents a full year compared with only six months in Operating expenses, excluding financial income and expenses, came to a net total of 1,369 million compared with 903 million in This increase was due mainly to the exceptional 570 million decrease in value of the gas transport network in northern Germany. Total financial income and expenses rose from 81 million in 2008 to 139 million in This increase was due to the increase in longterm fixedrate finance in Interest charged on the financing raised at the end of 2008 has now also been included in the results for a full year. 1,600 1,400 1,200 1, NET TURNOVER (x 1 million euros) 1,277 1,251 1,319 1,506 1, NET PROFIT (x 1 million euros) Financial ratios The return on equity (expressed as a ratio of net earnings and shareholders equity) on 31 December 2009 was 2.3% (end of 2008: 7.1%). The proportion of shareholders equity as a share of the balance sheet total on 31 December 2009 was 51% (end of 2008: 56%). The decrease compared with 2008 is largely due to the increase in external funding of the acquisition of Nuon Zuidwending B.V. and investments in new construction projects

17 Sale of business operations On 1 July 2009 the activities of Gasunie Engineering & Technology (GET) were sold to KEMA N.V. These activities represent a turnover of approximately 13 million (2008 prices) per annum. Gasunie will continue to offer activities such as metering, safety inspections, maintenance of third party pipelines and secondments of Gasunie personnel to third parties via Gasunie Engineering B.V INVESTMENTS (x 1 million euros) Installations Main transmission pipelines Regional transmission pipelines Acquisition On 15 December 2009, Gasunie increased its 50% stake in the phase I activities for the construction of an underground gas storage facility in salt caverns near Zuidwending to 100%, following the acquisition of Nuon Zuidwending B.V. This included the formal acquisition of the accompanying 50% stake in Zuidwending V.O.F., which increased the balance sheet total by 122 million

18 Report of the Supervisory Board N.V. Nederlandse Gasunie made good progress in rolling out its strategy in Examples include the Gas roundabout phase 1, most components of which are now in the final stages of construction, the nitrogen buffer at Heiligerlee for which substantial technical preparations have now been completed, the completion of the licensing procedures for Nord Stream, the acquisition of Nuon shares in the Zuidwending natural gas buffer, the sale of Gasunie Engineering & Technology to KEMA and the results of the Integrated Open Season in the Netherlands and Germany. Gasunie s transport network in the Netherlands and Germany urgently needs to be expanded to meet customer demand for more transport capacity. Investment proposals arising from market demand are tested for economic feasibility, among other things. The current regulatory system in Germany is a source of great concern to the Supervisory Board. From a financial perspective, this system is leading to a substandard return on regulated assets. And from a strategic perspective, it threatens the integration of the European market and security of supply. In 2009, based upon the IFRS standards it also caused the devaluation of the German network by 570 million. High priority should therefore be given to improving the regulatory climate in Germany and to achieving closer coordination between the national systems throughout northwestern Europe. Annual accounts The annual accounts for 2009 have been drawn up by the Executive Board and audited by the external auditors Ernst & Young Accountants. The auditors opinion compiled by Ernst & Young Accountants is included after the Other information section. The Supervisory Board has approved these accounts and recommends that the General Meeting of Shareholders adopt the 2009 annual accounts without amendment. It also recommends that the General Meeting of Shareholders adopt the profit appropriation and the dividend over 2009 proposed by the Executive Board without amendment. Finally, the Supervisory Board recommends that the General Meeting of Shareholders should discharge the members of the Executive Board from liability for the policy implemented and the Supervisory Board for the supervision exercised. Composition of the Supervisory Board and posts held The Supervisory Board has three advisory committees: the Audit Committee, the Remuneration, Selection & Appointments Committee and the Strategic Investments Committee. Each committee consists of three Supervisory Directors, except for the Strategic Investments Committee, which consists of four members. A summary of the primary and secondary posts held by the members of the Supervisory Board is included at the end of this annual report. The Supervisory Board has set up a retirement schedule on a rotation basis to guarantee its continuity and stability. The following retirement schedule was drawn up on 26 October 2005 in accordance with Article 6.2 of the regulations of the Supervisory Directors. Name Supervisory Board Audit Committee Remuneration, Selection & Appointments Committee Strategic Investments Committee C. Griffioen Vicechairman Chairman Member A. Lont Member Member G.J. van Luijk Chairman Chairman Member H.L.J. Noy Member Member Chairman J.P.H.J. Vermeire Member Member Member M.H. van der Woude Member Member 18

19 Name Date of initial appointment End of fouryear term(s) Date of reappointment(s) C. Griffioen (1941) 1 July G.J. van Luijk (1943) 1 Sept H.L.J. Noy (1951) 1 July A. Lont (1958) 1 Sept J.P.H.J. Vermeire (1944) 1 Oct M.H. van der Woude (1960) 1 July The date of the Meeting of Shareholders at which the annual accounts of the previous financial year were adopted was taken as the date of retirement or reappointment (23 April 2010). Activities of the Board The Supervisory Board was especially active in 2009, partly due to the special attention that had to be given to project development, regulation and Corporate Governance. In addition to meetings of the Committees mentioned below, the Board met formally five times in 2009, in practically every instance with all its members. These meetings included close consultations with the Executive Board concerning a wide range of key issues, including a valuation of the assets partly due to impairment in Germany the new strategy, the organisational structure, the progress of projects in hand, including project management, the funding of these projects and appointment and remuneration policy. These consultations resulted in the approval of a number of specific proposals and reports. The Supervisory Board approved proposals for a number of largescale projects, a new system for project governance, the Business Plan, the annual reports, dividend payments and the remuneration policy. Regular consultations were also held with the shareholder, who was asked to give its statutory approval on various matters. Audit Committee The Audit Committee met three times in 2009, and discussed the quarterly figures, the annual accounts, results of operational audits, financing, Gasunie s financial strategy, the internal risk management and audit system and the Business Plan. The external auditor was present at these discussions. The Committee gave detailed consideration to the consequences of the German regulatory system and the resulting impairment based upon IFRS standards. At the meetings of the Supervisory Board, the Chairman of the Audit Committee accounted for the supervisory measures implemented by the Audit Committee with regard to the company s financial activities. The audit plan, management letter and auditor s statement to the annual accounts were discussed with the auditor. Remuneration, Selection & Appointments Committee The Remuneration, Selection & Appointments Committee met three times in The Committee discussed the performance, remuneration and terms of employment of the Executive Board, the adoption of longterm incentives and the Corporate Governance Code. Strategic Investments Committee The Strategic Investments Committee met six times in The main aim of the Strategic Investments Committee is to allow decisions concerning largescale investments to take place efficiently. The Committee evaluates major investment proposals by the Executive Board, submits recommendations to the Supervisory Board regarding the economic feasibility of the investment proposals and tests proposals for compatibility with strategic policy. The Committee discussed investment in major projects, such as the nitrogen buffer at Heiligerlee, the Gate terminal, Nord Stream and the Integrated Open Season. Remuneration policy for the Executive Board The remuneration policy for individual members of the Executive Board is described in a separate chapter in this report. The remuneration policy for members of the Executive Board will be approved by the General Meeting of Shareholders on 23 April 2010, on the recommendation of the Supervisory Board. 19

20 Within the policy, the Supervisory Board fixes the remuneration of the individual members of the Executive Board, on the recommendation of the Remuneration, Selection & Appointments Committee (RSA). This Committee consists of: G.J. van Luijk, chairman C. Griffioen M.H. van der Woude Meetings with the Employee Council Representatives of the Supervisory Board attended consultations between the Executive Board and the Dutch Employee Council twice during the reporting year. Acknowledgements The Supervisory Board wishes to express its appreciation and recognition for the dedication and achievements of the Executive Board, the management and the employees during the reporting year. The Board wishes them every success in meeting the goals for On behalf of the Supervisory Board of N.V. Nederlandse Gasunie G.J. van Luijk, chairman 20

21 Remuneration policy for the Executive Board In a letter of 19 December 2008 the shareholder gave a broad outline of the parameters within which the remuneration policy governing directors of stateowned joint ventures should be fixed. Consultations were duly held with the shareholder, including during the General Meeting of Shareholders in April The Remuneration, Selection & Appointments Committee then reconsidered the existing policy and suggested adjustments which have resulted in the remuneration policy presented in this report. Efforts will be made to obtain commitment for this policy at the General Meeting of Shareholders on 23 April Context of the remuneration policy Following the demerger on 1 July 2005, Gasunie s responsibilities changed from those of an integrated gas transport and trading company which it had assumed prior to Gasunie s mission now is to ensure safe and reliable gas transport and related services to an integrating European gas market. It must do so in an efficient, commercially sound and sustainable way centring on security of supply. To this end, it has defined three strategic pillars which together underpin the gas roundabout concept: to operate, manage and, where there is a specific need, adapt and expand the network; to promote gas flows in and to northwestern Europe. Gasunie encourages a competitive gas market by connecting the infrastructure to various domestic and international supply sources. This includes the new connection projects and taking part in international supply and transit pipelines, the creation of a position in the LNG market and participation in alliances; to offer supplementary services. Gasunie must become a fullservice infrastructure company. In this capacity, the company is active in gas storage, quality conversion and in the renewable energy market (green gas, transport of CO2). In just a few years, Gasunie has thus evolved from a management organisation on behalf of a single owner / user to an international, valuecreating company with many international customers in a converging European market. The value for the Dutch economy is created primarily by the realisation of a strong hub function, the possibility of arbitrage, flexibility (storage), the development and maintenance of the Lgas market and similar activities. The following figures illustrate Gasunie s growth: Turnover (in millions of euros) 1,277 1,669 Total assets (in millions of euros) 6,682 10,326 Employees 1,390 1,732 Customers ( shippers ) from the Netherlands / abroad 15 / / 84 N.V. Nederlandse Gasunie consists of various organisational components, viz. Regulated Network Management in the Netherlands and Germany, Participations & Business Development and Construction & Maintenance, and has a number of subsidiaries and joint ventures. They include: GTS for regulated network management in the Netherlands; GUD for regulated network management in northern Germany; Zuidwending, a facility for the underground storage of natural gas; BBL (60%), a pipeline with attendant installations to the United Kingdom; Gate terminal (40%), a landfall facility and storage tanks for LNG on the Maasvlakte; APX (25.5%), a gas trading platform; Nord Stream (9%), a pipeline system connecting Russia with northern Germany. Aims and principles underlying the remuneration policy The remuneration policy exists to reward excellent performance and to attract, motivate and retain directors of the right quality and experience, from within the company and in the form of experienced and proven talent from the market. This is necessary to realise the essential goals defined by Gasunie s strategy. The policy is based on the following considerations: the remuneration policy must reflect a balance between short and longterm results, and between operational and strategic performance; the company bases remuneration packages for future members of the Executive Board on a market 21

22 comparison using weighted averages for the labour market reference group cited below; although the Dutch Corporate Governance Code does not formally apply to Gasunie, the Supervisory Board will take it into account when defining the remuneration policy. Remuneration structure The remuneration consists of: a fixed component (basic annual salary); a variable component based on the meeting of short and longterm goals ; an employer s contribution to the pension premium and the life course savings scheme; other secondary employment conditions. Labour market reference group The labour market reference group is made up of companies and organisations of similar size and complexity with which Gasunie must compete, either on the market or on the labour market. These are grouped into three clusters: 1. the (semi)public labour market reference group. This consists primarily of (semi)public organisations involved with (energy and other) infrastructure (weighting factor 50%); 2. the private sector labour market reference group. This consists primarily of companies involved in construction infrastructure, energy, engineering consultancies, infrastructure management and chemistry (weighting factor 25%); 3. the international labour market reference group. This consists of foreign companies operating in Europe which, like Gasunie, are active in gastransport (weighting factor 25%). Basic annual salary The Supervisory Board will, when fixing a basic annual salary for its directors, use the results of a market comparison with the aforementioned labour market reference groups as a point of departure. The Supervisory Board has verified that the external consultant who carried out this market comparison in 2009 is independent of the members of the Executive Board. shareholder regards as acceptable. However, the Supervisory Board will, when appointing a new member of the Executive Board, restrict the sum of the fixed and variable salary to 350,000 at the specific request of the shareholder. If the Supervisory Board feels that this limitation may lead to unacceptable risks for the company due to the fact that the available candidates do not have the requisite profile and/or necessary experience, the Supervisory Board will consult with the shareholder. The Supervisory Board also decides on annual salary increments. If the maximum salary has been reached, further growth is limited to the structural increments set by the collective labour agreement. Variable remuneration Gasunie pays its directors a shortterm and a longterm variable bonus. The targets that must be attained in order to qualify for these bonuses are agreed annually. These targets will, wherever possible, be both measurable and ambitious. The Supervisory Board is authorised to adjust the variable component within the limits cited below if it is likely to lead to unfair discrimination due to exceptional circumstances during the performance period. The Supervisory Board is also authorised to reclaim from directors a variable bonus that has been awarded on the basis of inaccurate (financial) data. Progress in attaining the targets will be measured after the end of the year concerned, initially by the RSA and then by the full Supervisory Board. The Supervisory Board has chosen performance criteria which relate to the implementation of Gasunie s strategic goals. Company strategy is defined with specific regard for the social impact of Gasunie s activities and their effects on the environment and society. Application of the labour market reference method leads to a fixed and variable salary that exceeds the maximum 1 of 350,000 (reference date 1 January 2010) which the 1 The maximum percentage of the variable component is 35% of the fixed component. 22

23 Variable shortterm remuneration The purpose of the variable shortterm bonus is to reward the attainment of preagreed challenging targets in a number of primarily operational key areas. These operational targets apply to all Gasunie personnel; other employee groups will also be rewarded for the attainment of some of these targets. The criteria for the award of the variable bonus relate mainly to the rollout of the strategy. The strategy is approved by the Supervisory Board and is screened against the company s social responsibilities. This is reflected in, for example, challenging quantified targets relating to safety, security of supply and costefficiency. The level of the variable shortterm bonus will therefore depend on the attainment of the targets. Partly at the shareholder s request, the Supervisory Board intends to maximise the size of the shortterm bonus at 25% of the individual s basic annual salary, with effect from A longterm bonus of up to 10% will also be awarded (see below). The breakdown of this 25% is as follows: Combined Gasunie targets (10%), subdivided into: Financial 5% Result before tax EOperating costs Operational 5% Improving personal safety for inhouse and contract staff at a Gasunie location and in projects Reducing the incidence of pipeline damage Guaranteeing security of supply Individual targets (15%), subdivided into: Targets relating to the individual area 10% of responsibility of the director concerned Overall assessment of the contribution 5% made by the individual director (to be established by the Supervisory Board) In 2010, as in preceding years, the maximum bonus for attaining targets in individual areas of responsibility will be 15%, bringing the variable shortterm bonus to 30% if the targets are fully met. Variable longterm remuneration Gasunie also pays its directors a variable bonus linked to the creation of value over the longer term. This variable bonus consists of two components. The first component, to be introduced with effect from 2011, covers each member of the Executive Board individually. The target is formulated in a specific and practically measurable way (SMART) where possible, and relates to the development and implementation of Gasunie s strategic and investment portfolio. This includes both key strategic decisions, such as concluding or terminating partnerships, and major investment proposals and their implementation. As well as being assessed against financial criteria, these aspects are also screened against the public interest, such as security of supply and competition through diversification of supply options and facilitating the market for Lgas. Up to 5% of the basic annual salary is paid annually to each member of the Executive Board if, in the opinion of the Supervisory Board, they have contributed to the development and implementation of the strategic and investment portfolio. The multiyear criterion based on Economic Value Added (EVA ), which has been a feature of the policy in recent years, is also being retained. This performance is measured over a period of three years and is dependent on the development of the EVA (EVA = (ROIC WACC) x Invested Capital). A bonus of 5% of the annual basic salary is awarded annually based on progress in meeting interim targets. Scenario analyses have been made for the variable longterm bonus, and the results of these analyses have been approved by the Supervisory Board in the light of the strategy and risk management. Procedure The targets governing eligibility for variable bonuses are agreed at the start of the year in question between the Supervisory Board and the members of the Executive Board, once the Chairman of the Executive Board has discussed a proposal to this effect with the RSA Committee. Variable bonuses are paid during the first quarter of the year following that for which the targets have been set. 23

24 Pension provisions Gasunie will offer new members of the Executive Board a careeraverage salary scheme. The retirement age currently provided for is 65. If a member of the Executive Board stands down before the age of 65 but continues to be employed by Gasunie, agreements will be made about that individual s pension provisions up to the age of 65, based on satisfactory mutual agreements. The employment contracts of the Chairman of the Executive Board and the Participations & Business Development Director also include clauses giving them the option of leaving the company at the age of 60 under a revised retirement scheme. Other secondary employment conditions Gasunie has put together a package of secondary employment conditions for its directors. These conditions, which also apply to other staff, include: an incapacity for work scheme; a lease car scheme; an expense claims scheme; a loan to cover mortgage costs for the first house; compensation in lieu of time off. Compensation for dismissal Compensation for dismissal for new company directors will be limited to a maximum of one year s salary (fixed salary), in accordance with the Corporate Governance Code, except where such a limitation is clearly unreasonable. Change in control New directors are covered by a change in control clause which states that if they are forced to leave the company due to a merger or the acquisition of the company by an external party, or in the event of a fundamental change in the nature, management or structure of the company that is beyond the control of the Executive Board, they will be awarded compensation of up to a maximum of one year s basic salary, regardless of which party terminates the employment contract. Other conditions Length of appointments New members of the Executive Board will be appointed for a period of up to four years, with a possibility of reaffirmation for a further four years. New members will in principle stand down upon reaching the age of 62, unless in the opinion of the Supervisory Board special circumstances justify a longer term of office or a higher age limit. Current members of the Executive Board were appointed on 1 July 2005 for an unspecified period. If the Supervisory Board feels it is opportune, the Chairman will discuss with a member the date of his or her departure and the conditions attached. Existing contracts, employment conditions and agreements made will be respected. Relinquishments Members of the Executive Board who terminate their employment contracts must give two months notice. If the employment contract is terminated by Gasunie, a notice period of four months must be observed. 24