Report of the Supervisory Board
As Supervisory Board (hereafter Board), we supervise and give advice (both solicited and unsolicited) to the management of N.V. Nederlandse Gasunie, hereafter also referred to as Gasunie or the company, with regard to formulating and achieving the company’s objectives, strategy and policy. We act as the employer of the Executive Board.
Composition and organisation
The composition of our Board did not change in 2016. The composition of our Board is diverse and balanced, and all relevant skills are sufficiently represented. All Supervisory Board members are independent. Details on the individual Board members are provided in section Composition of the Supervisory Board.
In 2017, we will test our working methods against the new Dutch Corporate Governance Code and make adjustments if necessary. However, we have already decided to adjust the existing practice of appointing members of the Board to historically defined positions. In addition, we have abolished the upper age limit of 70 as mentioned in our rules of procedure. The Chair of the Board is Mr Rinse the Jong and the Vice-Chair is Mr Dirk Jan van den Berg.
We nominated Mr Willem Schoeber for reappointment, and the shareholder appointed him as member of the Supervisory Board as of 1 October 2016 for another period of four years. In 2017, the mandates of Ms Jolanda Poots-Bijl and Ms Martika Jonk are due to expire. Both are eligible for reappointment and the Board intends to nominate them for reappointment.
Our Board has two committees. The Audit Committee consists of Ms Jolanda Poots- Bijl (Chair) and Messrs Jean Vermeire and Willem Schoeber. The Remuneration, Selection and Appointment Committee is chaired by Ms Martika Jonk and further consists of Messrs Dirk Jan van den Berg and Rinse the Jong. The work of these two committees is reported on below.
At the end of 2015/beginning of 2016, we evaluated our performance with the help of an external consultancy. This resulted in several action points, and we spent most of the evaluation of 2016 on the question as to what extent these action points were followed up. We have concluded that this follow-up has indeed taken place for a large part. There is now more (and more substantive) interaction with the shareholder, which means both the shareholder and we ourselves can operate more effectively. Our mutual contact outside meetings has also intensified, and we have taken the first steps in freeing up meeting time for topical issues, even if they are not on the agenda. If useful or necessary, conference calls are scheduled to discuss such issues. Nevertheless, there should be structurally more time available for substantive discussions. To this end, an annual calendar is drawn up, and the formal part of the agenda will be limited as much as possible.
Way of working
In 2016, we met eight times, including twice in the form of a conference call. Most meetings took place at Gasunie’s headquarters in Groningen, but we also met once at the location of Gate terminal, the LNG terminal in the port of Rotterdam. Gasunie has a 50% interest in this terminal, which we also visited. Besides the regular meetings, separate meetings were devoted to the strategy and to a workshop on the relevant Dutch and German regulations relating to gas transport; in addition, we discussed, without the presence of the Executive Board, the functioning of the members of the Executive Board and, in a different meeting, our own functioning. Ms Poots-Bijl, Mr Schoeber and Mr Van den Berg were each unable to attend one meeting due to other obligations. Where relevant, they provided their input in advance.
We exercise our supervision through frequent, intensive meetings with the management of Gasunie, both in plenary sessions and via the two committees. During 2016, a discussion of what would be the most appropriate form of management for Gasunie was completed successfully by the appointments of Ms Annie Krist, General Director of Gasunie Transport Services (GTS), and Mr Ulco Vermeulen, General Director of Participations, as titular members of the Executive Board.
With a view to the legally regulated strictly neutral position of the TSO GTS, when topics are dealt with that are competition-sensitive (such as knowledge of transport contracts and capacity bookings or draft proposals to adjust regulations), it is always determined beforehand to what extent the full Executive Board is allowed to learn about, discuss or decide on these topics.
Since the implementation of this change, we always meet in the presence of the Executive Board and no longer with the executive committee. It should be noted, however, that the members of this former forum still regularly attend our meetings to shed light on substantive issues. In the autumn of 2016, we nominated Mr Oudejans for a second term as member of the Executive Board and CFO. This nomination was honoured by the shareholder.
Besides the Executive Board, there is regular contact with the Works Council. In September 2016, our Board spoke with the entire Works Council in groups of varying composition about relevant developments at and for Gasunie, what these could mean for the employees of Gasunie, and to what extent HR policy is anticipating these developments. In addition, two members of the Supervisory Board each attended a consultative meeting with the Works Council, Ms Poots-Bijl in the spring and Mr De Jong in the autumn of 2016.
We reviewed many topics in the course of 2016. The matter of safety is always at the top of the agenda for all our meetings, just as it is for the meetings of the Executive Board. The safety of our employees, contractors, subcontractors, customers and local residents, as well as the integrity of our assets, deserve our continuous attention. The discussion relating to a number of fixed agenda items, such as risk management, financial results, taxation, financing, regulation, the business plan, automation and related security aspects, remuneration and governance, is prepared via one of the two committees. This means that, in the plenary meeting, we only need to deal with any additional questions, and can take the required decisions. This is necessary to create more time for the other, substantive issues that are important for the role and position of Gasunie in the increasingly broadening energy debate.
In the course of 2016, after intensive discussions between the Executive Board, the Supervisory Board and the shareholder, Gasunie’s new strategy was established. Especially elements such as international activities and activities relating to the energy transition required much explanation and discussion, also because, besides the Ministry of Finance as shareholder, the Ministries of Economic Affairs and of Foreign Affairs were involved as policy departments. For Gasunie, these two elements are important with a view to the less self-evident role of gas in the future energy supply in the Netherlands and Northwestern Europe. In consultation with the Ministry of Economic Affairs, the important investment in a nitrogen plant mentioned in our Annual Report 2015 is no longer deemed necessary for the time being. In order to ensure that the substantial investments in the infrastructure made in the past (approximately € 15 billion) continue to pay off, Gasunie is looking for alternative uses of its broad and in-depth knowledge of gas and infrastructure, and also of the infrastructure itself, for example, by looking for international transit flows of natural gas and expanding the share of renewable gas. The focus here is on both guaranteeing security of supply and sustainable sources and applications as part of the energy transition. This approach has now taken shape in the form of the new strategy approved by us, which has been aligned with the shareholder. An example of the former is that Gasunie successfully managed to expand its position as shareholder of the German pipeline NETRA at the end of 2016. This is one of the most important pipelines in Germany, both for the inflow of natural gas from Norway and for East-West transport, and it is connected to Gasunie’s existing network in Germany. An example of the latter is that Gasunie acts as an investor in the development of new forms of extraction or production of green gas in the Netherlands through co-financing and by making the necessary infrastructure available.
As a consequence of the social debate on the role of natural gas in the energy supply, which is and will be mainly driven by the earthquakes in the extraction area, and the ever more intensive debate on greenhouse gases (CO2), people’s attitude with regard to the extraction of natural gas has changed. Although Gasunie does not extract nor supply natural gas, but makes its infrastructure available for the transport of natural gas, the substantially smaller extraction volumes compared to the recent past affect the traditional business model. A lower deployment of the infrastructure also results in less work, and this means that, in due course, Gasunie’s workforce will shrink. To this end, the Executive Board has developed Vision 2023, which serves as a foundation for an HR policy that focuses on the sustainable employment of employees, both within and outside Gasunie. During 2015 and 2016, a lot of work was carried out in this respect by everyone involved, including the Works Council and the employee organisations. In 2017, this will work will continue. This process has been on our agenda several times, and we are happy with the first results.
Another topic that was discussed often and intensively, both with and by us, concerns a new method to determine the efficiency of our Dutch regulated activities (GTS) by the external regulatory authority ACM. Through benchmarking with other European gas transport companies (TSOs), GTS’s revenue level (sum of permitted revenues and rate of return) can be determined by means of what is known as a ‘method decision’ for the coming period. The approach, further development and outcomes were discussed extensively with the regulatory authority. These discussions also dealt with the extent to which GTS’s legal tasks are comparable to those of foreign TSOs. In February 2017, ACM established the new method decision for the period 2017–2021. As a result of this decision, the tariffs of GTS will go down. The annual permitted revenues will gradually decrease by a total of € 200 million. In addition, the method decision has led to an impairment of the GTS network of € 450 million.
New transport management system
For some time now, in collaboration with a number of IT partners, Gasunie has been working on a new gas transport management system. There are no standard solutions for such a system, which is why an extensive redesign was needed of systems that are functionally most similar. Given the size of the project (an investment of approximately € 100 million), the lead time of many years, and the importance of a well-functioning system for the security of supply, this project has our full attention. From time to time, we are being updated on progress, including the actual time spent compared to the planning and the actual expenditure compared to the approved budget. Because the design, building, testing and progress monitoring all take place at different locations that are geographically far apart, good project management, communication and reporting are of paramount importance. So far, everything is going to plan, although due to the realignment of design tasks, the agreed delivery date is under some pressure.
Financial statements 2016
The Board discussed the Annual Report 2016, and upon receipt of the positive recommendation given by the Audit Committee and the unqualified auditor’s report from the external auditor PwC, it decided to submit the financial statements 2016 for adoption to the Annual General Meeting of Shareholders. In addition, the Board proposes that of the net profit of € 183 million an amount of € 110 million be paid as dividend and that the remaining amount be added to the General Reserve.
The Audit Committee assists the Supervisory Board in supervising the Executive Board on matters such as the installation and proper functioning of the internal risk management and control systems, the financial reporting process and installing and maintaining associated internal procedures, the financing of the company and the relationship with the internal and external auditors.
The Audit Committee met four times in 2016. Besides the members of the Audit Committee, the CFO, the operational auditor and the external auditor were all present on all occasions, as well as the group controller.
The agenda included regular items, such as periodical internal and external financial reporting, the business plan, taxation, financing, the weighted average cost of capital, profit appropriation and dividend, the operational auditor’s periodical reports and working schedule, the external auditor’s audit plan, a review of the first experiences with external auditor PwC, appointed in 2015, the management letter and the auditor’s report, the Executive Board’s Document of Representation, the risk matrix and the control of the main risks, IT developments and the organisation and effectiveness of security with a view to safe and reliable gas transport/corporate security. The Audit Committee also discussed the valuation models, a new model to determine possible impairments and the internal control of some participations.
Before the meetings of the Audit Committee, the Chair of the Audit Committee speaks directly with the external auditor, usually in the presence of the CFO of Gasunie. The discussions and findings of the Audit Committee are reported in the plenary meetings of the Board. The Committee’s meeting documents and minutes are made available to all Supervisory Board members.
Remuneration, Selection and Appointment Committee
The Committee met four times in 2016. In addition to regular items, such as the achievement of the objectives for the purpose of determining the variable remuneration for 2015, the adoption of new collective and individual targets in line with the budget for 2017, the Annual Report 2015, and the remuneration section with regard to 2015, the Committee also frequently discussed the composition of the Executive Board and the management of the company, resulting in the appointment of Ms Annie Krist and Mr Ulco Vermeulen as titular members of the Executive Board. The Committee extensively discussed the way in which variable remuneration can be used effectively to ‘further develop’ the company. With regard to this topic, everyone involved agrees that, to a certain extent, the approach followed so far rewards what could be called ‘hygiene factors’, matters that are actually part of basic tasks. To support the role of Gasunie in the energy transition, as well as value preservation and creation, the method of determining the variable remuneration for 2017 was adjusted in such a way that a larger part of the variable remuneration (50% instead of 25%) is made dependent on the extent to which the Board members have been successful in bringing long-term strategic objectives closer. This includes both internal (e.g., sustainable employability of employees, customer focus, innovation) and external themes (e.g., customer satisfaction, positioning of gas, attractiveness for new talent). The Supervisory Board is to judge whether or not these qualitative targets have been met. In 2017, it will be reviewed how this approach is working and to what extent the relationship between remuneration and the interest of the company can be improved further. The Committee’s meeting documents and minutes are made available to all Supervisory Board members.
Remuneration structure of the Supervisory Board
The remuneration received by members of the Board for exercising their duties is given in the following table. These amounts exclude reimbursement of travel costs and other expenses.
|Position||Remuneration per quarter|
|As of 1-7-2015||As of 1-7-2016|
|Chair of the Supervisory Board (or Interim Chair)||7.65||7.711|
|Vice-Chair of the Supervisory Board||5.61||5.655|
|Member of the Supervisory Board||5.1||5.141|
|Chair or member of the AC||1.275||1.285|
|Chair or member of the BBC||510||514|
The remuneration paid in 2016 and 2015 is shown in the financial statements.
Composition of the Executive Board
As of 28 February 2017, Ms Annie Krist stepped down as CEO of GTS and as member of the Executive Board. As of 1 April 2017, she will be appointed CEO of Gasterra, one of GTS’s most important transport customers. We would like to thank Annie Krist for everything she has done in her 30-year career at Gasunie, and we wish her every success in her new role. The process of finding a suitable successor is already under way.
Word of appreciation
The Board wishes to thank the Executive Board, the management and employees for their commitment and dedication.
Groningen, 14 March 2017
Supervisory Board of N.V. Nederlandse Gasunie
Rinse the Jong, Chair
Dirk Jan van den Berg, Vice-Chair