Report of the Supervisory Board

As the 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 2017. Our Board is diverse and balanced. All Supervisory Board members are independent. Details on the individual Board members are provided on the ‘Composition of the Supervisory Board’ page.

Gasunie complies with the Dutch Corporate Governance Code. Instances in which Gasunie does not or cannot comply with certain principles or best practices are indicated in the ‘Corporate Governance’ chapter. We have reviewed the Supervisory Board’s working procedures against the new code and formalised a few changes announced earlier. The maximum appointment period for the members of our Board is now two four-year terms. Since the practice of appointing officers to existing vacancies gives rise to ambiguity in relation to the appointment periods, we have linked the appointment of new members of the Supervisory Board to the date of the Annual General Meeting. In 2017, the current term of the members of the Supervisory Board in office was amended on a one-off basis so that, with effect from 2018, new appointments and reappointments will take place on the date of the Annual General Meeting. The chair of the Board is Mr Rinse de Jong and the vice-chair is Mr Dirk Jan van den Berg.

We have nominated Mr Rinse de Jong for reappointment from the date of the next Annual General Meeting (24 April 2018). This new term ends at the Annual General Meeting of 2020, because the maximum appointment period of eight years will have been reached at that point. Mr Jean Vermeire’s term expires in 2018. He is not eligible for reappointment and will resign as of the date of the Annual General Meeting in March 2018. Mr Vermeire has served on the company’s Supervisory Board for more than 10 years and has a great deal of expertise in relation to the international transport of natural gas, LNG and the related infrastructure. We thank him for his contribution and his many years of dedication to Gasunie’s interests. In view of Gasunie’s core tasks, we are seeking a new Supervisory Board member with a similar profile.

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 de Jong. The work of these two committees is reported on below.

Evaluation of own performance

During the second half of 2017, we evaluated our performance with the help of an external consultancy. A 360 picture was approximated on the basis of eleven individual interviews. The key conclusions from the evaluation, which were discussed with us in a joint session with the Executive Board at the end of November, were primarily substantive in nature. There should be more critical debate on Gasunie’s strategy and role in the energy transition, partly by bringing in views from external stakeholders or by adapting the Board's profile. Since Gasunie is a state-owned company, an effort must also be made to recognisably distinguish the Supervisory Board from the shareholder, and there is still the need for detailed discussion (as opposed to strictly the formal aspects of the work of the Supervisory Board), and for better control of the agenda. Permanent education is a point for attention.

Way of working

We held eleven meetings in 2017, six of which took the form of a conference call. Most meetings took place at the head office in Groningen and one meeting took place in Amsterdam. The ‘physical’ meetings were regular meetings, while the conference calls concerned special topics, such as progress and/or decision-making on major investments or particular developments in relation to operations. In addition to the regular meetings, a separate meeting was devoted to the strategy. Four Supervisory Board members participated in the one-day Safe@Gasunie safety workshop, which involved a drill of a practical situation in the field in which a total of approximately 1,300 Gasunie employees, managers, members of the Executive Board and contractors participated. In a meeting not attended by the Executive Board, we discussed the Executive Board’s performance and our own performance and then shared our findings and recommendations in a joint discussion. 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.

Supervision

We exercise our supervision through frequent, intensive meetings with the management of Gasunie, both in plenary sessions and through the two committees. Managers and employees regularly come to the plenary meetings and often attend the committee meetings in order to give presentations or explanations on specific topics. In addition to these formal meetings, there is a great deal of contact between our chair and the CEO concerning the preparation of meetings and in order to take note of developments and plans so that these can be acted on in a timely fashion. The two committee chairs have similar consultation with the CEO and CFO, respectively, in relation to ‘their’ topics. Supervisory Board members have also provided advice in the preliminary process for certain investment proposals. In the autumn of 2017, we nominated Mr Fennema for a second term as member of the Executive Board and CEO, from the date of the next Annual General Meeting (24 April 2018).

Beyond the Annual General Meeting, we have regular contact with our shareholder, both together with the CEO and separately. During these meetings, we discuss matters such as the remuneration policy, strategy, impending appointments/reappointments, as well as general business matters, finances and the dividend policy. In the case of appointments/reappointments, representatives of the shareholder hold interviews with candidate members of the Supervisory Board. 

Regular meetings with the Works Council are also held. In September 2017, two Supervisory Board members spoke with the entire Works Council in groups of varying composition about the influence of the changing local environment in relation to the use of gas, the identified contraction in the organisation entailed by this, what this could mean for Gasunie employees and to what extent the HR policy anticipates this. The sustainable employability and resilience of employees are focal points in this context. In addition, two members of the Supervisory Board each attended a consultative meeting with the Works Council, Ms Jonk in the spring and Mr De Jong in the autumn of 2017. During the autumn meeting, time was freed up for an open discussion on the energy section in the new government’s coalition agreement and what this could mean for Gasunie. The conclusion was that the plans certainly presented Gasunie with opportunities, but that the necessary effort would have to be put into actually making the most of these opportunities. Our observation is that there is structured and open dialogue between the management and the employee representation.

Topics covered

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.

Since the energy transition has caused demand for the transport of natural gas to decline, which results in lower revenues, high-quality but at the same time effective maintenance deserves a significant amount of attention in order to keep the various cost ratios at or below the maximum desired level. The contraction in the organisation must not be at the expense of added value in the service and products provided to customers (customised gas, green gas), the sustainable employability of employees (from work to work) or income for the shareholder, ultimately Dutch society.

We expect that gas will still play a supporting role in the Dutch and European energy mix for several decades.

In an environment in which natural gas as part of the energy mix is up for discussion, it is important for Gasunie to weigh the financial and social interests of Dutch society so that major investments by that same society in infrastructure and knowledge are not unnecessarily put at risk. Gas can take various forms: natural gas, green gas, CO2 or hydrogen. The vast knowledge of gas in all its manifestations and the extensive and high-quality infrastructure can play an important facilitating role in the energy transition in Gasunie’s work area. This also allows implementation of the strategy approved in 2016 and ensures that value can be not only retained for the long term, but also created. On its website, the company has created a platform and designed a strategy map (‘metro map’) for stakeholders and interested parties to engage in a structured debate, but above all in order to put together a practical plan in relation to the transition to a new energy mix. To this end, Gasunie itself participates in various initiatives in the areas of hydrogen storage and transport, heat transport in the Rotterdam region and CO2 transport and storage. On top of this, the strategy we have approved aims, with our shareholder’s support, to help manage the important international gas flows in order to guarantee both the security of supply and economic interests of the communities in our core area. An example of this in 2017 was the participation in the EUGAL pipeline being constructed in eastern Germany.

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 make the required decisions. The evaluation of our performance demonstrated that this approach works well and also creates the necessary room for the other, practical issues that are important for the role and position of Gasunie in the broadening energy debate.

Good employment practices

We have the role of employer with respect to the members of the Executive Board according to the articles of association, but are of course also responsible for the good performance of the Executive Board as a whole. To that end, the members of the Remuneration, Selection and Appointment Committee periodically conduct formal performance reviews with all members of the Executive Board, most recently in January 2018. From the extensive contact we have with the members of the Executive Board, we have plenty of other input for forming an opinion on how the Executive Board manages the business. For the annual review linked to the variable remuneration, the qualitative opinion of our Board on the performance and contribution of the members of the Executive Board in achieving the strategic goals now carries more weight. In our view, this is consistent with the importance that the achievement of the company’s long-term goals must have as opposed to the more short-term operational matters, which really simply need to be properly in order. These have therefore been made less important in determining the variable remuneration. The variable remuneration is determined by the full Board on the advice of the Remuneration, Selection and Appointment Committee.

HR

The following passage appeared in our 2016 report: ‘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 employability of employees, both within and outside Gasunie.’ This vision only became even more relevant in 2017. Effective management of the Dutch network has resulted in the decommissioning of one compressor station; the effect of diminishing gas flows is suddenly becoming tangible and resulting directly in less work. Representatives of the organisation, the Works Council and the employee organisations are working together to come up with ideas and solutions to translate, as well as possible, the effects of these developments into concrete measures for personal education, training programmes, guidance from work to work, both within the organisation and beyond it, and for how the related expenses are allocated between employees and the employer. To this end, Gasunie has concluded a four-year collective labour agreement, which contains both this allocation of expenses and an amendment of the pension scheme that applies for all employees and members of the Executive Board. We are positive about these initiatives.

Regulation

After much substantive discussion in 2016, the regulatory authority ACM adopted a new method decision for the 2017-2021 period, effective in 2017. As a result of this decision, GTS’ rates will go down. The annual permitted revenues will gradually decrease by a total of € 200 million over this period. The method decision prompted an impairment of the GTS network of € 450 million in 2016.

In 2017, the regulatory authority in Germany determined the tighter revenues for the upcoming (2018-2022) regulatory period, leaving insufficient scope in terms of rates to operate efficiently at the same level and to achieve additional positive results as was the case in the 2013-2017 period. In addition, recent expansion investments have generated cash benefits in previous years. Based on these effects over time, an impairment of € 150 million of the German gas transport network needs to be recognised in 2017.

New transport management system

In September 2017, the user acceptance tests for the new transport management system were started. After an intensive period of design, construction and testing at geographically dispersed locations with several IT partners of different nationalities and sorts, a completely new system has entered the test phase. The new system fully meets the current requirements of security and flexibility and enables the employees using the system to manage the gas flows in a manner in keeping with the times. Our Board visited the project team in December, witnessed a demonstration of the new acceptance system, and was given an explanation of how it works. The system is expected to be delivered in the second quarter of 2018, within the budget of nearly € 100 million. The project team has delivered excellent results to date, on which we congratulate them.

2017 financial statements

The Board discussed the 2017 annual report, 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 2017 financial statements for adoption to the Annual General Meeting of Shareholders. In addition, the Board proposes that, of the net profit of € 259.5 million, an amount of € 258.8 million be paid as dividend and that the remaining amount be added to the General Reserve.

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 the relationship with the internal and external auditors. The Audit Committee held five meetings in 2017. 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, 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 started the discussion on the payback period of the assets based on the regulatory depreciation periods in relation to the decreasing capacity utilisation prompted by the energy transition. Before the meetings of the Audit Committee, the chair of the Audit Committee speaks directly with the external auditor, usually in the presence of Gasunie’s CFO. The discussions and findings of the Audit Committee are reported in the plenary meetings of the Supervisory Board. The Committee’s minutes are made available to all Supervisory Board members.

Remuneration, Selection and Appointment Committee

The Committee held four meetings in 2017. In addition to regular items, such as the periodic performance discussions with the members of the Executive Board, the achievement of the objectives for the purpose of determining the variable remuneration for 2016, the adoption of new collective and individual targets in line with the budget for 2018, the 2016 annual report and the remuneration section with regard to 2016, the Committee also discussed a successor for Ms Annie Krist, who was appointed CEO of GasTerra on 1 April 2017. The Executive Board prepared a profile that does justice to the broad position: a profile that is essentially technical, with a great deal of attention to safety, security of supply and regulation, but also preparing the organisation for the energy transition and at the same time guaranteeing as well as possible the conditions under which the largest virtual gas market in continental Europe (TTF) can function optimally. Someone who can represent the interests of Gasunie Transport Services (GTS) and the Dutch gas market well nationally and internationally and who also has sufficient internal authority to implement the changes desired by society in such a way that security of supply is not jeopardised. There was frequent consultation with our Board and with the shareholder concerning the details of this profile.
 An external search agency then extensively took stock of potential internal and external candidates and, after consulting the candidates on the shortlist, conducted a second search specifically with the diversity desired by all the parties in mind. This search also failed to produce the desired combination of characteristics and background. In this situation, a decision had to be made between an emphasis on continuity, on the one hand, or diversity, on the other. In light of the challenges in the coming years, it was decided to opt for an emphasis on continuity. We are pleased that the internal candidate, Mr Bart Jan Hoevers, was appointed titular member of the Executive Board and director according to the articles of association of GTS, manager of the regulated network in the Netherlands, with effect from 1 September 2017, and we wish him every success.

At the shareholder’s request, the committee worked with an external adviser to look into Gasunie’s remuneration policy and, to that end, made a proposal incorporating benchmarking, which was accepted by the shareholder. The policy does not require any material adjustment. The Committee’s minutes are made available to all Supervisory Board members.

Supervisory Board remuneration structure

The remuneration received by members of the Supervisory Board for exercising their duties is given in the following table. The increase in remuneration in 2017 is linked to the structural increases in the collective labour agreement that applies to Gasunie. These amounts exclude reimbursement of travel costs and other expenses.

Position Remuneration per quarter  
  As of 1-7-2016 As of 1-1-2017
(in euros)    
     
Chair of the Supervisory Board (or Interim Chair)  7,711   7,727 
Vice-Chair of the Supervisory Board  5,655   5,667 
Member of the Supervisory Board  5,141   5,152 
Chair or member of the AC  1,285   1,288 
Chair or member of the BBC  514   516 

The remuneration paid in 2017 and 2016 is shown in the financial statements.

Word of appreciation

We would like to thank the members of the Executive Board, the management and the employees for their commitment and dedication.

Groningen, Netherlands, 28 March 2018

Supervisory Board of N.V. Nederlandse Gasunie

Rinse de Jong, Chair
Dirk Jan van den Berg, vice-chair
Martika Jonk
Jolanda Poots-Bijl
Willem Schoeber
Jean Vermeire