AnnuAl finAnciAl report 2010 82nd financial year - RepoRts to the Annu Al GeneRAl MeetinG of 10 M Ay 2011 ANNUAL P.23 REPORT FOREwORD�����������������������6 1.1 KEY EVENTS��������������������������������������������������������������25 1.4 Corporate Governance Declaration��������������85 1�1�1 Results........................................................................25 1�4�1 Developmentsin2010�������������������������������������������������85 ShAREhOLDERS' 1�1�2 Legalandregulatoryframework...............................25 1�4�2 Internalmonitoringandrisk-management GUIDE�������������������������������10 1�1�3 Developmentofactivities...........................................30 systems........................................................................87 1�1�4 Investmentin2010......................................................41 1�4�3 NotificationsofmajorstakeholdingsinFluxys..........87 FluxYS 1�4�4 Votingrightsandspecialpowers................................88 IN A NUTShELL���������������14 1�1�5 Stafftrends.................................................................48 1�1�6 Researchanddevelopment........................................49 1�4�5 Limitationsonsharetransferssetbylaw ortheArticlesofAssociation......................................89 1.2 FINANCIAL SITUATION���������������������������������������������51 1�4�6 Rulesgoverningtheappointmentand 1�2�1 Fluxysgroup–2010results(IFRS)............................51 replacementofmembersoftheBoardofDirectors 1�2�2 FluxysSA–2010results(BelgianGAAP)..................60 andamendmentstotheArticlesofAssociation.........91 1�2�3 Outlook2011...............................................................61 1�4�7 Issueorbuy-backofshares........................................91 1�2�4 Activitiesandresultsofsubsidiaries.........................61 1�4�8 BoardofDirectors�������������������������������������������������������93 1�2�5 Riskmanagement......................................................63 1�4�9 CommitteesformedbytheBoardofDirectors........104 1 �4�10 Assessment................................................................115 1.3 SPECIFIC INFORMATION...........................................72 1 �4�11 Remunerationreport.................................................116 1�3�1 StructureofFluxyscapital at31December2010..................................................72 1 �4�12 Companymanagement.............................................121 1�3�2 ChangesinthestructureofFluxys' 1 �4�13 Transactionsandothercontractualrelations..........123 capitalin2010.............................................................73 1 �4�14 Auditor........................................................................124 1�3�3 Changesafteryearend..............................................83 1 �4�15 Subsidiaries...............................................................125 1�3�4 Guaranteeinthecontextofthetakeover ofDistrigas&C°.........................................................83 cONSOLidATEd SustaiNABLE fiNANciAL P.127 P.153 dEvelopmENT STATEmENTS UNdER ifRS 2.1 OPERATING SAFELY.....................................................128 2�1�1 Safety:Aday-to-daypriority.........................................128 2�1�2 IntegratedQuality&SafetyManagementSystem������130 2�1�3 Awareness-raisingcampaigns.....................................131 2�1�4 Simplifyingnotificationofworks..................................134 2.2 GOOD NEIGhBOURLY RELATIONS..............................136 2�2�1 Infrastructureprojects:transparent Statutory AccOUNTS communication.............................................................136 Of FluxyS SA P.261 2�2�2 DedicatedFluxyscontactsforowners UNdER BELgiAN gAAP andoperatorsoflandtraversedbyapipeline............137 2.3 PEOPLE: OUR PRIME CONCERN................................138 2�3�1 Stafftrends....................................................................138 2�3�2 Well-beingatwork........................................................142 2.4 ENVIRONMENT.............................................................145 2�4�1 Keyelementsinenvironmentalpolicy.........................145 2�4�2 Kyotosites.....................................................................145 2�4�3 Focusonenergy-efficiency...........................................147 2�4�4 Indicators......................................................................149 Foreword 2010: A record year in all respects For Fluxys, its staff and shareholders, 2010 was once again a year full of challenges and developments. The economy recovered, we rounded off a substantial investment programme and conveyed the largest volumes of natural gas to date – without any interruption – both to Belgian end-users and to neighbouring markets. In addition, the group's financial structure underwent radical changes as well. Belgian grid shores up its pivotal role as a natural gas crossroads Belgium does not have any natural gas production of its own and ever since the latter was introduced into North-Western Europe, Fluxys has developed into a crucial link for cross- border natural gas flows both north/south and east/west. We have constantly sought to enhance this crossroads role through investment in transmission and LNG terminalling, which is funded through long-term contracts. This strategy has enabled us to overcome the lack of domestic natural gas production in Belgium as well as the shortfall in storage capacity, while at the same time forming the basis for exceptionally high security of natural gas supply – a major feat considering that natural gas currently accounts for approximately 25% of all energy consumed in Belgium. In a bid to promote the attractiveness of the Fluxys grid as a natural gas crossroads, we have underpinned our approach via competitive tariffs for transmission, storage and LNG terminalling with all three activities showing tariffs among the lowest in Europe. The tariff agreement signed between Fluxys and CREG in late 2009 has consolidated our position in this regard: our tariffs have become even more competitive, show better predictability over the long term and thus form a solid basis for funding our comprehensive investment programme as well. 6 Fluxys annual financial report 2010 In 2010, we further consolidated the role of our grid as a natural gas crossroads in North- Western Europe through a raft of measures including expansion of the transmission grid, commencement of additional long-term contracts for transmission between Zeebrugge, Zelzate and Eynatten, and marketing of short-term transmission between spot markets. The LNG terminal saw a high utilisation rate as well and plans for a second capacity enhancement at the facility gained ground towards the end of the year with the decision to build a second jetty. In addition, if sufficient long-term capacity is booked, a fifth storage tank will be built. Fluxys is to invest between €200 million and €300 million in constructing a second jetty and a fifth storage tank since the general expectation is that in the future additional natural gas volumes will need to be imported from outside Europe, to offset the rapid decline in natural gas production in Europe among other things. Given the policy in European countries of importing natural gas from as broad a range of sources as possible, we believe it is reasonable to anticipate that approximately 20% of additional imports will be in the form of LNG. Thus, with the Zeebrugge LNG terminal capacity enhancement and the expansion of east/west transmission capacity Fluxys is well placed to be able to attract a considerable proportion of these additional flows. As for storage, 2010 was also the year in which we launched a feasibility study into broadening our offer to include long-term storage. This new policy is intended to benefit all storage users by boosting capacity utilisation and enhancing flexibility in the market. 82nd financial year 7 Our prime concern: building and operating natural gas infrastructure safely The precondition for Fluxys' further development as a natural gas crossroads in North- Western Europe is that our prime concern remains that of building and operating our infrastructure safely. Following the gas leak that occurred in Wilsele during commissioning of a pipeline, we have learned valuable lessons concerning how the incident arose and have worked closely with the authorities in taking the appropriate remedial actions to ensure safe re-commissioning of the infrastructure. At the same time, Fluxys management has also decided to embed the company’s safety culture even deeper in all our activities and at all levels through a medium- and long-term programme addressing staff, management and organisation. As part of the programme, the awareness campaigns and discussions will be continued – and scaled up where required – with the authorities, emergency services and local residents in particular and with all stakeholders in general. European industrial group Following the group's restructuring in 2010 spearheaded by its reference shareholder, Fluxys has become the key piece in the strategy approved by the Board of Directors of Fluxys G and aimed at broadening the scope of our activities both upstream via involvement in the NEL project and downstream via shoring up our stake in Interconnector. This development falls squarely within the European policy of integrating markets and consolidating security of natural gas supply, and as system operator, Fluxys’ role is to help achieve these goals. Optimising our financial structure The Board of Directors