I. CONTROL MECHANISMS AND PROCEDURES
89. RELATED-PARTY TRANSACTIONS CONTROLLING MECHANISMS
In order to supervise the transactions between the Group Companies and its qualified shareholders, the Board of Directors has created the Related-Party Transactions Committee, a permanent body with delegated functions. The Related-Party Transactions Committee duties are described on topic 29 of the Report. The Audit and Control Committee also supervises the transactions with qualified shareholders when requested by the Board of Directors according to Article 8.2, i) of its Regulations. This information is included on the annual report of the Audit and Control Committee. The mechanisms established on both committees regulation and also the fact that one of the members of the Related-Party Transactions Committee is member of the Audit and Control Committee constitutes a relevant element for an adequate evaluation of the relations established between EDPR and third entities.
90. TRANSACTIONS SUBJECT TO CONTROL DURING 2015
During 2015, EDPR has not signed any contracts with the members of its corporate bodies or with holders of qualifying holdings, excluding EDP, as mentioned below.
The contracts signed between EDPR and its related parties have been analysed by the Related-Party Transactions Committee according to its competences, as mentioned on the previous topic, and have been concluded according to the market conditions.
The total amount of supplies and services in 2015 incurred with or charged by the EDP Group was € 15.8 million, corresponding to 5.4% of the total value of Supplies & Services for the year (€ 293.1 million).
The most significant contracts in force during 2015 are the following:
The framework agreement was signed by EDP and EDPR on May 7th, 2008 and came into effect when the latter was admitted to trading. The purpose of the framework agreement is to set out the principles and rules governing the legal and business relations existing when it came into effect and those entered into subsequently.
The framework agreement establishes that neither EDP nor the EDP Group companies other than EDPR and its subsidiaries can engage in activities in the field of renewable energies without the consent of EDPR. EDPR shall have worldwide exclusivity, with the exception of Brazil, where it shall engage its activities through a joint venture with EDP Energias do Brasil S.A., for the development, construction, operation, and maintenance of facilities or activities related to wind, solar, wave and/or tidal power, and other renewable energy generation technologies that may be developed in the future. Nonetheless, the agreement excludes technologies being developed in hydroelectric power, biomass, cogeneration, and waste in Portugal and Spain.
It lays down the obligation to provide EDP with any information that it may request from EDPR to fulfil its legal obligations and prepare the EDP Group’s consolidated accounts. The framework agreement shall remain in effect for as long as EDP directly or indirectly owns more than 50% of the share capital of EDPR or nominates more than 50% of its Directors.
EXECUTIVE MANAGEMENT SERVICES AGREEMENT
On November 4th, 2008 EDP and EDPR signed an Executive Management Services Agreement that was renewed on May 4th, 2011 and effective from March 18th, 2011 and renewed again on May 10th, 2012.
Through this contract, EDP provides management services to EDP Renováveis, including matters related to the day-to-day running of the Company. Under this agreement EDP nominates four people from EDP to be part of EDPR’s Management: i) two Executive Managers which are members of the EDPR Executive Committee, including the CEO, and (ii) two Non-Executive Managers, for which EDP Renováveis pays EDP an amount defined by the Related Party Committee, and approved by the Board of Directors and the Shareholders Meeting. Under this contract, EDPR incurred an amount of EUR1.089.484,80 for the management services rendered in 2015.
ACQUISITION OF 45% OF THE SHARE CAPITAL OF EDP RENOVÁVEIS BRASIL S.A. BY EDP RENOVÁVEIS S.A.
Following the Memorandum of Understanding (“MoU”) executed with EDP Energias do Brasil, S.A. (“EDP Brasil”) on November 27th, 2014, EDP Renováveis, S.A. signed an agreement with EDP Brasil for the acquisition of 45% of EDP Renováveis Brasil, S.A. on April 27th 2015. This transaction finally concluded on December 21st 2015.
The agreed transaction price totals R$190 million, divided in R$ 176 million at closing and up to R$ 14 million in earn-out payments.
FINANCE AGREEMENTS AND GUARANTEES
The most significant finance agreements between EDP Group companies and EDPR Group companies were established under the above described Framework Agreement and currently include the following:
EDPR and EDPR Servicios Financieros SA (as the borrower) have loan agreements with EDP Finance BV and EDP Servicios Financieros España (as the lender), a companies 100% owned by EDP Energias de Portugal S.A. Such loan agreements can be established both in EUR and USD, up to 10-year tenor and are remunerated at rates set at an arm’s length basis. As of December 31st 2015, such loan agreements totalled USD 1,836,699,611 and EUR 1,450,000,000.
A counter-guarantee agreement was signed, under which EDP or EDP Energias de Portugal Sociedade Anónima, Sucursal en España (hereinafter guarantor or EDP Sucursal) undertakes on behalf of EDPR, EDP Renewables Europe SLU (hereinafter EDPR EU), and EDPR North America LLC (hereinafter EDPR NA) to provide corporate guarantees or request the issue of any guarantees, on the terms and conditions requested by the subsidiaries, which have been approved on a case by case basis by the EDP’s executive board.
EDPR will be jointly liable for compliance by EDPR EU and EDPR NA. The subsidiaries of EDPR undertake to indemnify the guarantor for any losses or liabilities resulting from the guarantees provided under the agreement and to pay a fee established in arm’s length basis. Nonetheless, certain guarantees issued prior to the date of approval of these agreements may have different conditions. As of December 31st 2015, such counter-guarantee agreements totalled € 14,001,170 and USD 507,747,430.
There is another counter-guarantee agreement signed, under which EDP Energias do Brasil, SA or EDPR undertake on behalf of EDPR Brasil, to provide corporate guarantees or request the issue of any guarantees, on the terms and conditions requested by the subsidiaries, which have been approved on a case by case basis by the EDPR executive board. Each party undertakes to indemnify the other pro-rata to its stake of any losses or liabilities resulting from the guarantees provided under the agreement and to pay a fee established in arm’s length basis. As of December 31st 2015, such counter-guarantee agreements totalled BRL 350,486,830.
CURRENT ACCOUNT AGREEMENT
EDP Servicios Financieros España SLU and EDPR Servicios Financieros SA signed an agreement through which EDP Servicios Financieros España manages EDPR’s cash accounts. The agreement also regulates a current account between both companies, remunerated on arm’s length basis. As of December 31st 2015, there are two different current accounts with the following balance and counterparties:
- in USD, EDPR SF with EDP SFE for a total amount of €90,895,672 in favour of EDPR SF;
- in EUR, EDPR SF with EDP SFE for a total amount of €47,305,519 in favour of EDPR SF.
The agreements in place are valid for one year as of date of signing and are automatically renewable for equal periods.
CROSS CURRENCY INTEREST RATE SWAPS
Due to the net investment in EDPR NA, EDPR Brazil, and Polish companies, EDPR’s accounts were exposed to the foreign exchange risk. With the purpose of hedging this foreign exchange risk, EDPR Group companies settled the following Cross Currency Interest Rate Swap (CIRS):
- in USD/EUR, with EDP Sucursal for a total amount of USD 2,619,281,096;
- in BRL/EUR, with EDP Energias de Portugal SA for a total amount of BRL 118,000,000;
- in PLN/EUR, with EDP Energias de Portugal SA for a total amount of PLN 924,312,841
HEDGE AGREEMENTS – EXCHANGE RATE
EDPR Group companies entered into several hedge agreements with EDP Energías de Portugal S.A. and Servicios Financieros España SLU, with the purpose of managing the transaction exposure related to the short term or transitory positions in the North American, Polish, and Romanian subsidiaries, fixing the exchange rate for EUR/USD, EUR/PLN and EUR/RON in accordance to the prices in the forward market in each contract date. As of December 31st 2015, the total amount of Forwards and Non Delivery Forwards by geography and currency are as following:
- Polish operations, for EUR/PLN, a total amount of PLN 678,027,680 (FWDs);
- Romanian operations, for EUR/RON a total amount of RON 70,075,674 (FWDs);
- US operations, for EUR/USD a total amount of USD 316,000,000 (NDF);
- Canada operations, for EUR/CAD a total amount of CAD 22,950,000 (NDF).
HEDGE AGREEMENTS – COMMODITIES
EDP and EDPR EU entered into hedge agreements for 2015 for a total volume of 2.644.328MWh (sell position) and 98.280MWh (buy position) at the forward market price at the time of execution related with the expected sales of energy in the Spanish market.
CONSULTANCY SERVICE AGREEMENT
On June 4th, 2008, EDP and EDPR signed a consultancy service agreement. Through this agreement, and upon request by EDPR, EDP (or through EDP Sucursal) shall provide consultancy services in the areas of legal services, internal control systems, financial reporting, taxation, sustainability, regulation and competition, risk management, human resources, information technology, brand and communication, energy planning, accounting and consolidation, corporate marketing, and organizational development.
The price of the agreement is calculated as the cost incurred by EDP plus a margin. For the first year, it was fixed at 8% based on an independent expert on the basis of market research. For 2015 the estimated cost of these services is €4.411.787,33. This was the total cost of services provided for EDPR, EDPR EU, and EDPR NA.
The duration of the agreement is one (1) year tacitly renewable for equal periods.
RESEARCH AND DEVELOPMENT AGREEMENT
On May 13th, 2008, EDP Inovação S.A. (hereinafter EDP Inovação), an EDP Group Company, and EDPR signed an agreement regulating relations between the two companies regarding projects in the field of renewable energies (hereinafter the R&D Agreement).
The object of the R&D Agreement is to prevent conflicts of interest and foster the exchange of knowledge between companies and the establishment of legal and business relationships. The agreement forbids EDP Group companies other than EDP Inovação to undertake or invest in companies that undertake the renewable energy projects described in the agreement.
The R&D Agreement establishes an exclusive right on the part of EDP Inovação to project and develop new renewable energy technologies that are already in the pilot or economic and/or commercial feasibility study phase, whenever EDPR exercises its option to undertake them.
The fee corresponding to this agreement in 2015 is €644.380.
The agreement shall remain in effect for as long as EDP directly or indirectly maintains control of more than 50% of both companies or nominate the majority of the members of the Board and Executive Committee of the parties to the agreement.
MANAGEMENT SUPPORT SERVICES AGREEMENT BETWEEN EDP RENOVÁVEIS PORTUGAL S.A., AND EDP VALOR – GESTÃO INTEGRADA DE RECURSOS S.A.
On January 1st, 2003, EDPR – Promoção e Operação S.A., and EDP Valor – Gestão Integrada de Recursos S.A. (hereinafter EDP Valor), an EDP Group Company, signed a management support service agreement.
The object of the agreement is the provision to EDPR – Promoção e Operação S.A. by EDP Valor of services in the areas of procurement, economic and financial management, fleet management, property management and maintenance, insurance, occupational health and safety, and human resource management and training.
The remuneration paid to EDP Valor by EDPR Promoção e Operação S.A. and its subsidiaries for the services provided in 2015 totalled €973.412. The initial duration of the agreement was five (5) years from date of signing and it was tacitly renewed for a new period of five (5) years on January 1st, 2008.
Either party may renounce the contract with one (1) year’s notice.
INFORMATION TECHONOLOGY MANAGEMENT SERVICES AGREEMENT BETWEEN EDP RENOVÁVEIS S.A. AND EDP ENERGIAS DE PORTUGAL S.A.
On January 1st, 2010 EDPR and EDP signed an IT management services agreement.
The object of the agreement is to provide to EDPR the information technology services described on the contract and its attachments by EDP.
The amount incurred for the services provided in 2015 totalled €404.506,64.
The initial duration of the agreement is one (1) year from date of signing and it is tacitly renewed for a new period of one (1) year.
Either party may renounce the contract with one (1) month notice.
CONSULTANCY AGREEMENT BETWEEN EDP RENOVÁVEIS BRASIL S.A., AND EDP ENERGIAS DO BRASIL S.A.
The object of the agreement is to provide to EDP Renováveis Brasil S.A. (hereinafter EDPR Brasil) the consultancy services described on the contract and its attachments by EDP – Energias do Brasil S.A. (hereinafter EDP Brasil). Through this agreement, and upon request by EDPR Brasil, EDP Brasil shall provide consultancy services in the areas of legal services, internal control systems, financial reporting, taxation, sustainability, regulation and competition, risk management, human resources, information technology, brand and communication, energy planning, accounting and consolidation, corporate marketing, and organizational development.
The amount incurred by EDP Brasil for the services provided in 2015 totalled BRL135.000.
The initial duration of the agreement is one (1) year from the date of signing and it is tacitly renewed for a new period of one (1) year.
91. DESCRIPTION OF THE PROCEDURES APPLICABLE TO THE SUPERVISORY BODY FOR THE ASSESSMENT OF THE BUSINESS DEALS
The most significant contracts signed between EDPR and its Qualified Shareholders are analysed by the Related- Party Transactions Committee according to its competences, as mentioned on topic 89 of the report and by the Audit and Control Committee when requested.
According to Article 9.1 c) of the Related-Party Transactions Committee Regulation, the committee analyses and supervises, according to the necessities of each specific case, the transactions between Qualifying Holdings other than EDP with entities from the EDP Renováveis Group whose annual value is superior to € 1.000.000. This information is included on the annual report of the Audit and Control Committee regarding those cases whose previous opinion was requested. The mechanisms established on both committees regulations and also the fact that one of the members of the Related-Party Transactions Committee is a member of the Audit and Control Committee constitutes a relevant element for an adequate evaluation of the relations established between EDPR and third entities.
II. DATA ON BUSINESS DEALS
92. DETAILS OF THE PLACE WHERE THE FINANCIAL STATEMENTS INCLUDING INFORMATION ON BUSINESS DEALINGS WITH RELATED PARTIES ARE AVAILABLE, IN ACCORDANCE WITH IAS 24, OR ALTERNATIVELY A COPY OF SAID DATA.
The information on business dealings with related parties is available on Note 37 of the Financial Statements.