ENGIE SA – Annual report – 31 December 2023
Industry: utilities
1.3 Use of estimates and judgment (extract)
1.3.2 Judgment
As well as relying on estimates, Group management also makes judgments to define the appropriate accounting policies to apply to certain activities and transactions, particularly when the IFRS Standards and IFRIC Interpretations in force do not specifically deal with the related accounting issues.
In particular, the Group exercised its judgment in:
- assessing the nature of control (see Notes 2 and 3);
- identifying the performance obligations of sales contracts (see Note 7);
- determining how revenues are recognized for distribution or transmission services invoiced to customers (see Note 7);
- recognizing support measures granted by certain governments, particularly in France and Romania (“tariff shield”), aimed at protecting both consumers and suppliers of gas and electricity against sharp fluctuations in commodity prices (see Note 7);
- identifying “own use contracts” as defined by IFRS 9 within non-financial purchase and sale contracts (electricity, gas, etc.) (see Note 14);
- identifying offsetting arrangements that meet the criteria set out in IAS 32 Financial Instruments: Presentation (see Note 14);
- determining whether arrangements are or contain a lease (see Note 13.3);
- recognizing contributions in the energy sector in Europe (see Note 8).
Entities for which judgment on the nature of control has been exercised are listed in Note 2 “Main subsidiaries at December 31, 2023” and Note 3 “Investments in equity method entities”.
NOTE 2 MAIN SUBSIDIARIES AT DECEMBER 31, 2023 (extract)
2.2 Significant judgments exercised when assessing control
The Group primarily considers the following information and criteria when determining whether it has control over an entity:
- governance arrangements: voting rights and whether the Group is represented in the governing bodies, majority rules and veto rights;
- the nature of substantive or protective rights granted to shareholders, relating to the entity’s relevant activities;
- deadlock resolution mechanisms;
- whether the Group is exposed, or has rights, to variable returns from its involvement with the entity.
The Group exercised its judgment regarding the entities and sub-groups described below.
Entities in which the Group has the majority of the voting rights
GRTgaz (France Infrastructures): 60.8%
The analysis of the shareholders’ agreement concluded with Société d’Infrastructures Gazières, a subsidiary of Caisse des Dépôts et Consignations (CDC), which holds 38.6% of the share capital of GRTgaz, was completed by an assessment of the rights granted to the French Energy Regulatory Commission (Commission de Régulation de l’Énergie – CRE). As a regulated activity, GRTgaz has a dominant position on the gas transportation market in France. Accordingly, since the transposition of the Third European Directive of July 13, 2009 into French law (Code de l’énergie – Energy Code) on May 9, 2011, GRTgaz has been subject to independence rules as regards its directors and senior management team. The French Energy Code confers certain powers on the CRE in the context of its duties to control the proper functioning of the gas markets in France, including verifying the independence of the members of the Board of Directors and senior management and assessing the choice of investments. The Group considers that it exercises control over GRTgaz and its subsidiaries (including Elengy) based on the Group’s ability to appoint the majority of the members of the Board of Directors and take decisions about the relevant activities, especially in terms of the level of investment and planned financing.
Entities in which the Group does not have the majority of the voting rights
For entities in which the Group does not have the majority of the voting rights, judgment is exercised with regard to the following items, in order to assess whether there is a situation of de facto control:
- dispersion of the shareholding structure: number of voting rights held by the Group relative to the number of rights held respectively by the other holders of voting rights and their dispersion;
- voting patterns at shareholders’ meetings: the percentages of voting rights exercised by the Group at shareholders’ meetings in recent years;
- governance arrangements: representation in the governing body with strategic and operational decision-making power over the relevant activities;
- rules for appointing key management personnel;
- contractual relationships and material transactions.
The main fully consolidated entity in which the Group does not have the majority of the voting rights at December 31, 2022 is Compagnie Nationale du Rhône (49.98%).
Compagnie Nationale du Rhône (“CNR” – Renewables France): 49.98%
The Group holds 49.98% of the share capital of CNR, with CDC holding 33.2%, and the balance of 16.82% being dispersed among around 200 local authorities. In view of the current provisions of the French “Murcef” law, under which a majority of CNR’s share capital must remain under public ownership, the Group is unable to hold more than 50% of the share capital. However, the Group considers that it exercises de facto control as it holds the majority of the voting rights exercised at shareholders’ meetings due to the widely dispersed shareholding structure and the absence of evidence of the minority shareholders acting in concert.
NOTE 3 INVESTMENTS IN EQUITY METHOD ENTITIES (extract)
Significant judgments
The Group primarily considers the following information and criteria in determining whether it has joint control or significant influence over an entity:
- governance arrangements: whether the Group is represented in the governing bodies, majority rules and veto rights;
- the nature of substantive or protective rights granted to shareholders, relating to the entity’s relevant activities. This can be difficult to determine in the case of “project management” or “one-asset” entities, as certain decisions concerning the relevant activities are made upon the creation of the joint arrangement and remain valid throughout the project. Accordingly, the analysis of rights relates to the relevant residual activities of the entity (those that significantly affect the variable returns of the entity);
- deadlock resolution mechanisms;
- whether the Group is exposed, or has rights, to variable returns from its involvement with the entity. This can also involve analyzing the Group’s contractual relations with the entity, in particular the conditions in which these contracts are entered into, their duration as well as the management of conflicts of interest that may arise when the entity’s governing body casts votes.
The Group exercised its judgment regarding the following entities and sub-groups:
Project management entities in the Middle East and in Africa
The significant judgments made in determining the consolidation method to be applied to these project management entities related to the risks and rewards relating to contracts between ENGIE and the entity concerned, as well as an analysis of the residual relevant activities over which the entity retains control after its creation. The Group considers that it exercises significant influence or joint control over these entities, since the decisions taken throughout the term of the project about the relevant activities such as refinancing, or the renewal or amendment of significant contracts (sales, purchases, operating and maintenance services) require, depending on the case, the unanimous consent of two or more parties sharing control.
Joint ventures in which the Group holds an interest of more than 50%
Tihama (60%)
ENGIE holds a 60% stake in the Tihama cogeneration plant in Saudi Arabia and its partner Saudi Oger holds 40%. The Group considers that it has joint control over Tihama since decisions about its relevant activities, including for example the approval of the budget and amendments to major contracts, etc., require the unanimous consent of the parties sharing control.
Transportadora Associada de Gás S.A. (“TAG” – Latin America): 65.0% holding interest representing a net interest in TAG of 54.8% (1)
The Group exercises joint control over TAG since decisions about its relevant activities, including, for example, the preparation of the budget and medium-term plan, investments, operations and maintenance, etc., are taken by a majority vote requiring the agreement of ENGIE and Caisse de dépôt et placement du Québec (CDPQ).
Joint control – difference between joint ventures and joint operations
Classifying a joint arrangement requires the Group to use its judgment to determine whether the entity in question is a joint venture or a joint operation. IFRS 11 requires an analysis of “other facts and circumstances” when determining the classification of jointly controlled entities.
The IFRS Interpretations Committee (IFRS IC) (November 2014) decided that for an entity to be classified as a joint operation, other facts and circumstances must give rise to direct enforceable rights to the assets, and obligations for the liabilities, of the joint arrangement.
In view of this position and its application to our analyses, the Group has no material joint operations at December 31, 2023.
(1) In January 2024, the Group completed the sale of a 15% stake in TAG to CDPQ (current partner). On completion of this transaction the Group no longer holds any potential voting rights. The Group’s holding in TAG amounts to 50%, resulting in a net interest of 44.5% (the impact of this partial disposal on net financial debt 2024 amounts to €0.5 billion).
Accounts examples 