Risk management

Saipem implements and maintains an adequate system of internal controls and risk management, composed of the instruments, organizational structures and company regulations designed to safeguard company assets and to ensure the effectiveness and efficiency of company processes, reliable financial reporting, and compliance with all laws and regulations, the Articles of Association and company procedures. The structure of the internal control system of Saipem, which constitutes an integral part of the Organizational and Management Model of the company, which assigns specific roles to the company’s management bodies, compliance committees, control bodies, company management and all personnel, is based on the principles contained in the Code of Ethics and the Corporate Governance Code, taking into account the applicable legislation, the CoSO report1 and national and international best practices.
Additional information on the internal control system and risk management, including details concerning its architecture, instruments and design, as well as the roles, responsibilities and duties of its key actors, is contained in the Corporate Governance Report and Shareholding Structure document.
The main industrial risks that Saipem faces and is actively monitoring and managing are the following:

  1. the HSE risk associated with the potential occurrence of accidents, malfunctions, or failures with injury to persons and damage to the environment and impacts on operating and financial results;
  2. the country risk;
  3. the project risk associated with the execution phase of engineering and construction contracts undertaken by the Onshore Construction, Offshore Construction and Asset Business Units.

For information regarding financial risks, see the paragraph ‘Management of financial risks’ in the summary of significant accounting policies section of the notes to the consolidated financial statements.

(1) The Committee of Sponsoring Organizations of the Treadway Commission (1992), Internal Control - Integrated Framework.

HSE (Health, Safety & Environment) risk

Saipem’s business activities conducted both in and outside Italy are subject to a broad range of national legislation and regulations, including laws implementing international protocols and conventions relating to specific sectors of activity.
These laws and regulations require prior authorization and/or the acquisition of a license before operations may commence and the compliance with health, safety and environmental protection regulations.
Environmental regulations impose restrictions on the types, quantities and concentration of pollutants that can be released into the air, water and soil and require companies to adopt correct waste management practices. In particular, strict operating practices and standards to protect biodiversity must be adopted when exploring for, drilling and producing oil and gas in certain ecologically sensitive locations. Failure to comply with environmental, health and safety laws is punishable by criminal and civil sanctions against the individuals responsible and – in certain cases of violations of safety laws – against companies, in accordance with a European model of direct corporate liability implemented in Italy through Legislative Decree 231/2001.
Environmental, health and safety laws and regulations have a substantial impact on Saipem’s operations and expenses and liabilities that Saipem may incur in relation to compliance with environmental, health and safety laws and regulations are expected to remain material to the Group’s results of operations or financial position in future years. Recently enacted legislation regarding health and safety in the workplace in Italy introduced new requirements which will have an impact on operations at Eni sites and in particular on relationships with contractors as well as significant repercussions on the models used for attributing liability in the event of violations of health and safety legislation.
The new legislation emphasises the importance of adopting certified organizational and management models which can release companies from corporate liability in the event of violations of legislation regarding health and safety in the workplace. For this purpose, Saipem has adopted HSE guidelines to ensure the health and safety of employees, local communities, contractors and clients and the safeguarding of the environment, in compliance with local and international rules and regulations and in line with international best practices and standards.
An ongoing process of risk identification, evaluation and mitigation is at the heart of HSE management operations in all phases of activity and for all business units. This process is implemented through the adoption of effective management procedures and systems designed to suit the specific characteristics of each activity and the sites in which they take place and with a view to achieving the continuous improvement of plant and processes.
Additionally, the codification and proceduralisation of operating phases has led to a reduction of the human component in plant risk management. Operating emergencies that may have an adverse impact on assets, people and the environment are managed by the business units at site level through dedicated HSE structures equipped with emergency response plans indicating the corrective actions to be taken to minimize damage in the event of an incident and responsibilities for ensuring they are taken.
Saipem’s integrated approach to managing health, safety and environmental issues is supported by the adoption in all Group companies of an HSE management system based on the Saipem-Eni Management System Model, consisting of an annual cycle of planning, implementation, control, review of results and definition of new objectives. The system is aimed at achieving risk prevention and the systematic monitoring and control of HSE performance in a cycle of continuous improvement and is subjected to audit by internal and independent experts. Saipem’s facilities are certified to international standards such as ISO 14001, OHSAS 18001 and even EMAS. Saipem also provides an advanced programme of training and development for HSE staff with the aim of:

  • promoting conduct consistent with the applicable guidelines;
  • guiding HSE-related cultural, professional and managerial growth of all personnel;
  • supporting knowledge management and HSE risk control.

 

Country risk

Substantial portions of Saipem’s operations are performed in countries outside the EU and North America, certain of which may be politically or economically less stable. Developments in the political framework, economic crisis, internal social unrest and conflicts with other countries can compromise temporarily or permanently Saipem’s ability to operate cost efficiently in such countries and may require specific measures (where possible in compliance with Saipem corporate policy) to be taken at an organizational or management level in order to enable the continuation of activities underway in conditions that differ from those originally anticipated. If Saipem’s ability to operate is temporarily compromised, demobilisation is planned according to criteria designed to guarantee the protection of company assets that remain on-site and to minimize the business interruption by employing solutions that accelerate and reduce the cost of business recovery once favourable conditions have returned.
Themeasures outlined above may be costly and have an impact on expected results. Further risks associated with activities in such countries are: (i) lack of well-established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; (ii) unfavourable developments in laws and regulations and unilateral contract changes, leading to reductions in the value of Saipem’s assets, forced sales and expropriations; (iii) restrictions on construction, drilling, imports and exports; (iv) tax increases; (v) civil and social unrest leading to sabotage, attacks, violence and similar incidents. Such events are predictable only to a very limited extent and may occur and develop at any time, causing a material adverse impact on Saipem’s financial position and results.
Saipem employs a continuous and holistic approach to monitoring political, social and economic risk in countries in which it operates or intends to invest, drawing on the reports on principal project risks and related trends prepared in accordance with Corporate Risk Management Policy and Risk Management procedures and Standards and Security reports prepared in accordance with the Corporate Security Policy and Guidelines on Security Activities.
To manage the specific security risks to which it is exposed in the countries where it operates, Saipem has adopted a security model known as SECUR, based on the criteria of prevention, precaution, protection, information, promotion and participation, with the aim of protecting the safety of employees, contractors and the public, as well as the integrity of assets and brand reputation. As part of its adoption of the SECUR model, Saipem has implemented a comprehensive security management system, which essentially constitutes an organizational, legal and procedural tool for preventing and managing the consequences of security related events. The system is designed for the management of risks deriving from unlawful acts committed by physical or juridical persons which may expose the Company and its assets, people and image to potential damage.

Project risk

The main objectives of the Risk and Opportunity and Knowledge Management department are to:

  • promote the use of the Risk Management methodology for tenders and in the execution phase of projects managed by Business Units as well as on the Company’s principal investment projects;
  • assure periodic reporting to management on principal project risks and on trends observed, aggregated by Business Unit and at global level. Implement project portfolio analyses in order to support management decisions and provide an understanding of the external macro risk factors on projects that may impact on company results so that Management can intervene by deploying the appropriate risk management tools of avoidance, mitigation, transfer and acceptance;
  • assure the spread of a risk management culture within Saipem with a view to achieving structured management of risk and opportunity during business activities and contributing also to improved management of contingencies;
  • provide advice, support and guidelines to the Business Units and projects in identifying and evaluating risks and opportunities and in all activities related to the implementation of mitigation and improvement measures for risk management and the optimization of opportunities respectively;
  • define, develop and update tools and methods for collecting and organizing lessons learned and making them available to projects;
  • ensure adequate training and the necessary support to commercial and project management teams;
  • ensure the protection of Saipem’s intellectual property rights by monitoring the processes connected with the creation and filing of patents and the identification of distinct know-how that is to be protected, and by promoting the sharing and centralized collection of a corpus of Saipem’s intellectual property rights;
  • ensure that Corporate Guidelines, Procedures and Standards are constantly updated in accordance with international Standards and Codes of Practice, promoting full compliance and correct application within Saipem and its subsidiaries;
  • contribute to promoting the observance of the Golden Rules and Silver Guidelines, the tool for regulating risk assumption through which Saipem assigns management the responsibility for the decision to assume significant risks.

The Standards and Procedures in force at Saipem comply with the principal international risk management standards.

Insurance

The Corporate Insurance function, in close cooperation with top management, defines annual Saipem Group guidelines for insurance coverage against the risk of damage to property, third party liability, as well as risks related to the performance of contracts.
An Insurance Program is defined on the basis of the guidelines, which identifies specific excess and maximum limit coverage for each type of risk based on an analysis that takes into account claim statistics for recent years, industry statistics and conditions offered by the international insurance market.
The Saipem insurance program is structured in such a way as to appropriately transfer risks deriving from operations to the insurance market, in particular the risks associated with the management of the fleet, equipment and other assets, including third party liability risks and risks deriving from the performance of contracts awarded by its clients.
Given the coverage that is offered by the insurance market and the changing circumstances on the energy market in which Saipem operates, it is not possible to guarantee that all circumstances and events will be adequately covered by the insurance programme. Equally, due to the volatility of the insurance market, it cannot be guaranteed that it will be possible in the future to reasonably maintain adequate insurance coverage at the current rates, terms and conditions.
Within the Saipem Insurance Program, a distinction should be made between insurance cover for Group assets (‘Corporate insurance policies’) and the insurance cover connected with project execution.

Corporate insurance policies

The Corporate insurance programme is structured with an initial band of risk that is self-insured through a captive reinsurance company, with amounts in excess covered by a catastrophic insurance programme taken out on the insurance market.
The catastrophic insurance programme is composed of policies that cover damage to property, and maritime and non-maritime third party liability. Cover can be broken down as follows:

Damage to property

  • ‘Fleet Insurance’ policy: covers the entire fleet against events that cause partial or total damage to vessels;
  • ‘Equipment’ policy: covers all onshore and offshore equipment, for example site equipment, onshore drilling rigs, subsea Remote Operating Vehicles (ROV), etc.;
  • ‘Transport’ policy: covers transport, handling and storage of assets and equipment by land, sea or air;
  • ‘Buildings and Sites’ policy: covers owned or rented buildings, offices, storage facilities and shipyards;
  • ‘Other minor risks’ policy: covers minor risks such as theft and employee dishonesty.

Third-party liability

  • ‘Protection & Indemnity’ (‘P&I’) policy: shipowners’ liability cover through a P&I Club that is part of the International Group of P&I Clubs, up to a limit of US$5.6 billion for events occurring during transit and up to US$300 million for events occurring during offshore operations. The policy also includes a sublimit for sea surface pollution by vessels of an amount per event of up to US$1 billion during transit and up to US$300 million during offshore operations.
  • ‘Comprehensive General Liability’ policy: covers all other types of general and third party liability claims arising from Saipem’s industrial activities and supplements the specific P&I coverage up to a limit of €300 million per event for offshore operations and up to a limit of €400 million per event, for onshore operations.
  • ‘Employer’s Liability’ and ‘Personal Accident’ policies: these cover employer liability and employee accident risks respectively on the basis of the specific regulations in force in each country where the Group operates.

A key tool in the management of Saipem’s insurable risks is the captive reinsurance company Sigurd Rück AG, set up in and operational since 2008, which covers the initial part of risk, corresponding to €10 million per event for all classes of risk.
Sigurd Rück AG in turn carries out risk mitigation by re-insuring its portfolio on primary securities markets.

Project execution insurance policies

For all contracts awarded, specific project insurance coverage must be taken out. Generally, the contractual responsibility for such insurance lies with the client.
Where the responsibility lies with the contractor, Saipem takes out insurance that will cover all risks connected with the project for its entire duration.
Usually it takes out ‘Builders’ All Risks’ insurance, which covers the scope of work of the contract, i.e. damage to the works under construction, as well as to equipment, products and materials required for its construction and third party liability for all works to be performed by the Group during all phases of project execution (engineering, transportation, construction, assembly, testing) including the contractual guarantee period.
The high insurance premiums and excesses on such policies are an incentive to Saipem in its efforts to achieve the continuous improvement of its prevention and protection processes in terms of quality, health, safety and environmental impact.