Report of the Supervisory Board
As Supervisory 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 2015. In the years 2013 and 2014, we welcomed three new members. In the appointment process, we used a competence profile drawn up in conjunction with the shareholder. The composition of our Board is diverse and balanced, and all relevant skills are sufficiently represented. The Chair of the Board is Mr Rinse de Jong, and the Vice-Chair is Mr Dirk Jan van den Berg.
Our Board has two committees: the Audit Committee, consisting of Ms Jolanda Poots-Bijl (Chair) and Messrs Jean Vermeire and William Schoeber; and the Remuneration, Selection and Appointments Committee, consisting of Ms Martika Jonk (Chair) and Messrs Dirk Jan van den Berg and Rinse de Jong.
Evaluation
Having now worked a full year in this composition, we arranged for our performance to be appraised in the autumn of 2015 by an independent consultancy firm. This appraisal involved questionnaires and interviews. In addition, all members of our Board, the Executive Board, the Secretary and the shareholder took part in a 360ᵒ appraisal, in which they gave their opinion on the functioning of our Board and the quality of collaboration with our Board. The consultancy firm discussed this approach, the results of the questionnaires and the analyses of the interviews with the Chair, and shared a written report with those involved. Finally, a meeting was held at which all stakeholders (except the shareholder) were represented.
Our Board experienced the appraisal process as professional and constructive, yielding valuable insights into how we can support the company and its management more effectively. The main findings relate to how we can deepen the company’s relationship with the State as shareholder in a broad sense, and thereby help Gasunie in pursuing its vision and mission. This is especially important at a time when the long-term future of gas within society is no longer seen as self-evident. A number of useful suggestions were also made with regard to creating more room in our meetings for the main strategic and substantive issues that are relevant here.
Way of working
We have adjusted our way of working so that we have more time to discuss matters related to, or arising from, the role the company sees for itself, i.e., as a leading European infrastructure company in the gas space in general. The company has some valuable assets. On the one hand, it has a physical infrastructure that forms part of the most important European gas corridors. On the other hand, it has extensive knowledge and expertise in construction and operations, in creating open and transparent markets (TTF), and in realising international connections with other TSOs in Europe. In this regard, much attention is devoted to independent and well-organised governance, to ensure that the international gas flows are transported as safely, reliably and efficiently as possible. The totality of these activities (also referred to as the ‘gas roundabout’) is of great importance for the management of energy and heat in the Netherlands and north-west Europe, and as such deserves our active attention.
Our Board met on nine occasions during 2015, including three times in the form of a conference call. Most meetings took place at Gasunie’s headquarters in Groningen, but we also met in Bremen, close to a major hub of international gas pipelines belonging to Gasunie Deutschland, which we also visited. All members of the Supervisory Board were present at all meetings.
Supervision
We exercise our supervision of the Executive Board through frequent, intensive meetings with the management of Gasunie, both in plenary sessions and via the two committees. Management in this respect consists of the Executive Committee, i.e., the two members of the Executive Board, together with the General Directors of the Dutch (GTS) and German (GUD) regulated activities, the General Director of Participations & Business Development, the Director of Legal Affairs, Regulation & Communication and the Director of Personnel & Organisation. This group constitutes the de facto management of the company, led by the Executive Board, which makes it the relevant group for us to consult with. In this way, we have direct access to the statutory management, which we supervise formally, as well as to those operationally responsible for Gasunie’s main activities. Where useful and necessary, we also invite other managers to give presentations to us or to inform us in any other way on a wide range of topics. This not only gives us more substantive insight into the topics discussed, but also gives us insight into the management levels below the Board. This helps us to develop a good understanding of the quality and succession potential of the organisation. Because we also wished to form an impression of the quality of the organisation’s leadership and succession potential, in 2015, we started discussions with the Executive Board on the potential of Gasunie’s current and future leaders. In 2015, together with the Executive Board, the Supervisory Board also considered the question of what the most appropriate form of management for Gasunie would be, and subsequently the best form of governance. These discussions, in which the shareholder is also involved, are expected lead to a change in governance in 2016.
Topics covered
We reviewed many topics in the course of 2015. 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 and the Executive Committee for that matter. The safety of our employees, customers and local residents, as well as the integrity of our assets, deserve our full 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 safety aspects, remuneration, and governance is prepared before the meetings by 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. As mentioned above, we will streamline this way of working even further in order to create more time to discuss substantive issues of importance to the role and position of Gasunie in the ever broader energy debate.
Strategy
In addition to these operational issues, we devoted considerable attention to the company’s strategy and the alignment with the Ministry of Finance, as direct shareholder, and the Ministry of Economic Affairs, as policy ministry in the field of energy. The strategy is closely linked to the public task that Gasunie performs, i.e., the safe, reliable and efficient transport of gas for its customers. In the case of transport for Dutch customers, this public task is performed by GTS. However, Gasunie's role is wider, in the sense that it also co-manages the international connections with Germany, Belgium and the UK. Gasunie Deutschland operates an extensive transmission grid in north-west Germany, linking up with the transport network of Denmark and the important supply lines from Russia (Nord Stream) and (indirectly) Norway. In this way, safe, reliable and affordable diversification of gas supplies to north-west Europe becomes possible. This is also in the interest of the Dutch energy and heating system.
Besides these tasks, Gasunie provides a number of support activities aimed at enhancing the reliability and efficiency of the gas supply, and on facilitating a liquid gas market that leads to transparent pricing for all parties involved.
Security of supply
Gasunie sees it as part of its public task to seek value retention of its tangible and intangible assets. This implies playing an active role in relation to national and international decision-making regarding the energy supply of north-west Europe, the heartland of Gasunie’s operations. After all, active control of the routing of gas flows to or via the Netherlands is of great importance for the security of supply – not only for the Netherlands (in the light of the ‘Groningen Debate’), but also for our neighbouring countries for which we co-manage the connections – and ultimately for the value of our company. Such an active approach could, in our view, consist of intensive collaboration with other infrastructure companies in Europe, or of engaging in debates about future (EU) laws and regulations. Our goal here would be to become a sparring partner and help shape the outcome of discussions. Obviously, the public interest, proportionality, risk profile and investment all need to be weighed against each other here. As Supervisory Board, we wish to take an active part in this debate with a view to the undisrupted performance of the public task.
Outlook demand for gas transport
The Dutch Government’s Energy Report confirms that, as a flexible and relatively clean source of energy, gas will have a key role to play during the long transitional period towards a fully sustainable energy supply. Dutch society is struggling to find the best way of benefiting from its still sizeable and economically significant gas reserves – and to do so safely and for as long as possible. Following the recent earthquake problem, production levels of Groningen gas have been reduced. This lost production can be compensated for in several ways. The manner in which replacement is arranged could have important implications for how the network capacity managed by Gasunie is used in the future. It is clear that, for the foreseeable future, the Netherlands will not have enough production capacity from its own gas fields to meet the total current and future demand for energy and heat in the Netherlands and that of contracted foreign buyers of Dutch natural gas. This includes gas from ‘small’ fields and energy from alternative sustainable sources. This means that, for a long time, it will still be necessary to import gas to facilitate the transition to a sustainable energy and heat system. The main current – and future – suppliers of this gas are Russia and Norway, as well as several LNG producers. To make the various qualities of gas suitable for use with domestic equipment, Gasunie, in close cooperation with the Ministry of Economic Affairs, is making a substantial investment to expand its nitrogen capacity.
Energy transition
One of Gasunie’s strategic pillars is to facilitate the transition to a more sustainable use of energy. Part of this is involves ‘greenifying’ gas and energy transport. This can be achieved, for example, by mixing natural gas with as much gas as possible of sustainable origin (mostly gas from biomass) and by participating in sustainable energy projects. Gasunie has already launched a number of such projects, which will become increasingly effective as time goes on. We regularly discuss these matters with the Board. We have also sought advice about a portfolio of investment projects, based on innovative ideas designed to facilitate the production of green gas. In these projects, Gasunie has the role of co-investor in the infrastructure. In this way, together with partners, Gasunie can facilitate the transition to a sustainable supply of energy by providing solutions that, in part, continue to make use of our network.
We believe that, as an infrastructure company, Gasunie can, par excellence, play a role in activities that also allow for innovative initiatives with regard to the energy transition. These initiatives should come mainly from the market. However, experience has taught us that, often, parties only move if a technology or idea proves its value in practice. Gasunie and related companies can play a stimulating and facilitating role here. In this way, the government will be investing indirectly in a more sustainable society. This seems in line with the priorities that politicians have also set themselves in the climate debate. As Supervisory Board, we seek to encourage this development through stimulating discussion and issuing challenges.
New employment conditions
With respect to the internal organisation of Gasunie, two important issues required our attention. The first relates to the unrest that arose in 2014 regarding the proposal for a new remuneration policy. The second relates to the development of a new transport management system. Regarding the first point, the need for a new policy was not sufficiently clear to employees, resulting in a loss of confidence in the organisation. The developments relating to gas mentioned above will have a predictable, adverse effect on income in the future. Legitimate stakeholder interests require of the Executive Board (and the Supervisory Board) that they think about such a development in good time, and respond in a timely manner. This can also protect the interests of other stakeholders, such as shareholders in the form of Dutch society. The organisation will need to be more flexible and agile. Employees, too, will need to keep developing continuously. Sustainable employability is promoted through training and competence development. An intensive discussion took place in 2015 between the company, the Works Council and the relevant unions concerning sensible and sustainable employment conditions and HR policy for the next 5 to 7 years, including terms in line with the market. This has led to a unique partnership, with the three parties jointly submitting a package of measures to the employees. This package is the first step in a process in which material employment conditions can be ‘exchanged’ for training and development. The financial contributions to this package come from both the employees and the employer. We are very pleased with the results achieved so far, and are impressed by the innovation and willingness of all concerned to think ‘outside the box’. We have also complimented them on this. At the same time, we would remark that any structural change in external conditions should lead to a new dialogue. This is also implicitly agreed in the present package, where the partners, in an ongoing dialogue, monitor HR and employment conditions policy. We are continuing to follow this process closely, keeping in mind the interests of all stakeholders.
New transport management system
The second important internal issue is the replacement of the management system of our gas transport network. The existing system was originally developed in-house and then built and rebuilt many times to accommodate changes in market behaviour and/or regulations. The system is now approaching the end of its life. Several years ago, Gasunie looked into possible alternative systems. However, such systems turned out not to exist (at least not for gas), and a kind of ‘next best’ solution has now been chosen. In close cooperation with two software suppliers, an existing management system for electricity is being converted into a management system for gas infrastructure. This is a major project, and given the complexity and the robustness required of the solution, we are following it closely. The history of large IT projects and government organisations is not good. Gasunie therefore, together with the suppliers, designed a step-by-step approach, with short-cycle milestone reports. Several members of our Board, along with the management, discussed the IT and project management, with a focus on the estimated requirements of the management structure. This is further complicated by the fact that the suppliers are working on the joint solution at two different, geographically distant locations from each other. Gasunie employees and consultants check on progress very regularly through video conferencing, and also on the spot. Reports on progress are made to us, and these have so far been in line with the plans.
Information security
A related matter is a session at which members of the Audit Committee and the Chair of the Board, together with the Board, management and IT security employees, talked with an outside party about cybersecurity. Gasunie operates a top-rank, flexible infrastructure, has access to the best-connected sources in the Netherlands in this field, and has also organised itself in accordance with the corresponding implicit standard. The discussion confirmed this approach, but also how rapidly circumstances in this field are changing and that constant vigilance is required.
Audit Committee
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 its relationship with the internal and external auditors.
The Audit Committee met five times in 2015, including one telephone conference. Besides the members of Audit Committee, the CFO, the operational auditor and the external auditor were all present on all occasions, as well as senior staff members of the Group Finance Department.
The agenda included regular items, such as periodical internal and external financial reporting, the business plan (including efficiency targets), taxation, financing, the operational auditor’s periodical reports and working schedule, the external auditor’s audit plan, the management letter and the auditor’s report, the Document of Representation of governance, the risk matrix and the control of the main risks, the developments in information technology, and the organisation and effectiveness of security with regard to safe and reliable gas transport/corporate security. The Audit Committee also discussed the valuation models and received an update of the activities relating to fraud awareness.
In connection with the mandatory rotation of the external auditor, Gasunie passed from EY to PricewaterhouseCoopers (PwC). At the meeting of the Audit Committee of March 13, both external auditors were present, EY for the treatment of the annual financial statements for 2014 and PwC because it will be conducting the audit of the accounts of Gasunie with effect from the financial year 2015.
From time to time, the Chair of the Audit Committee speaks directly with the external auditor, usually in the presence of the Chief Financial Officer of Gasunie. The discussions and findings of the Audit Committee are reported in the plenary meetings of the Supervisory Board. The Committee’s meeting documents and minutes will be made available to all Supervisory Board members.
Reporting under the whistleblower scheme
Following the announcement in 2014 of a ‘suspicion of wrongdoing’, concerning a possible flaw in a tender procedure by an employee of Gasunie, this matter has since been reviewed by a law firm. The review contained a number of recommendations for improving our processes, which were converted into specific actions. These were discussed in the Supervisory Board in 2015 and have now been implemented.
Remuneration, Selection and Appointment Committee
The Committee met three times in 2015. In addition to regular subjects, such as the achievement of the objectives for the purpose of determining the variable remuneration for 2014, the adoption of new collective and individual targets according to the budget of 2016, the annual report for 2014 and the remuneration section concerning 2015, the Committee also discussed the management of the company, developments regarding the employment conditions policy of the Executive Board, and the recovery of variable remuneration from former members of the Executive Board.
Remuneration structure of the Supervisory Board
The remuneration received by members of the Board exercising their duties is given in the following table. These exclude reimbursement of travel costs and other expenses.
| Position | Remuneration per year |
|---|---|
| Chair of the Supervisory Board (or Interim Chair) | € 30.000 |
| Vice-Chair of the Supervisory Board | € 22.000 |
| Member of the Supervisory Board | € 20.000 |
| Chair or member of the AC | € 5.000 |
| Chair or member of the BBC | € 2.000 |
The remuneration paid over 2015 and 2014 is shown in the financial statements.
Meetings with the Works Council
The custom at Gasunie for members of the Supervisory Board to attend at least two meetings of the Works Council a year was also followed in 2015. During 2015, Mrs Jolanda Poots-Bijl and Mr Rinse de Jong each attended a consultative meeting (in June and November respectively). The autumn meeting was preceded by an informal ‘grass-roots lunch’, when the Board member could talk directly with the employees of the site where the meeting was being held.
Word of appreciation
The Board wishes to thank the Executive Board, the management and all employees for their commitment and dedication in 2015. Through their commitment and professionalism, they ensured that Gasunie customers were provided with a safe and uninterrupted supply of gas in 2015.
16 March 2016,
Supervisory Board of N.V. De Nederlandse Gasunie
Rinse de Jong, Chair
Dirk Jan van den Berg, Vice-Chair
Martika Jonk
Jolanda Poots-Bijl
Willem Schoeber
Jean Vermeire