22.1. Provisions for other liabilities and charge
The following table shows the movement of the non-current heading of “Provisions for Other Liabilities and charges” for the years 2011 and 2010:
Item Taxes Liabilities Dismantling Total
Balance as of 01.01.10 54,274 69,813 11,384 135,471 Increases (expenses) 5,971 7,797 324 14,092 Decreases (income) (5,107) (4,869) (1,526) (11,502) Translation differences 3,005 459 32 3,496 Changes in consolidation 198 356 - 554 Reclassifications (1,823) 5,289 8,212 11,678 Transfer to Continued operations - - - - Other movements - - - - Balance as of 12.31.10 56,518 78,845 18,426 153,789 Increases (expenses) 2,930 3,712 2,177 8,819 Decreases (income) (669) (13,729) (141) (14,539) Translation differences (1,625) (224) 474 (1,375) Changes in consolidation (2,650) (4,317) - (6,967) Reclassifications (14,796) (22,052) 16,471 (20,377) Transfer to Continued operations - - - - Other movements - - - -
Balance as of 12.31.11 39,708 42,235 37,406 119,349
The most significant variations of the 2011 financial year are mainly related to to the increase brought about by the payment of €9 M during the financial year, for the purpose of acquiring the necessary coverage for the tax risks, liabilities and dismantling and due to the reduction caused by the reversal of €15 M of provisions, set up during previous financial years since the reversal was considered advisable given its current classification as remote contingent liabilities or since the risk for which they were set up had materialized. In addition, there was an entry of provisions amounting to €16 M due to dismantling mainly in connection with the operating segment of Solar.
Provision set aside for other liabilities in 2010 for the amount of €14 M was for the purpose of underwriting the coverage necessary against tax risks, responsibilities and dismantling mainly related to Industrial Engineering and Construction activity, Bioenergy and Environmental Services respectively. Also, there was a reversion of provisions in the amount of €-12 M set aside in previous fiscal years since its reversion was thought advisable given in current classification as remote contingent liabilities or since the risk for which it was set up had materialized.
Provision for tax and legal contingencies
This provision represents the Group’s best estimates in connection with risks relating to tax contingencies arising during the normal course of the Group's business, fundamentally in Latin America, when it is considered probable that there will be an outflow of resources in the medium or long term (which has been estimated being comprised in a period between 2 to 5 years or over 5 years), although the development of the contingencies and the new facts and circumstances that may arise overtime could change such estimated settlement period.
There are also provisions recorded by Group companies in relation with court rulings and unfavorable tax inspections that are under appeal but have not be resolved, yet. For these tax disputes the Group considers that it is probable that there will be an outflow of resources in the medium term (between 2 and 5 years).
Provision for liabilities
This provision includes the Group’s best estimates of probable cash outflows in connection with litigation, arbitration and claims in progress in which the various group companies are defendants as a result of the activities they carry out. Management considers that these liabilities will likely be settled in the medium or long term (which has been estimated being comprised in a period between 2 to 5 years).
Dismantling provision
This provision is intended to cover future expenditures related to the dismantlement of the solar and environmental plants and those expenses deriving from the sealing and closing of waste safety deposits that are operated by several companies in the Environmental Services segment and it will be likely to be settled an outflow of resources in the long term (over 5 years).
22.2. Contingent liabilities
As of December 31, 2011 Abengoa and its Group of companies are involved in certain claims and litigations both against and in their favor. Such matters arise during the Group’s normal course of business and represent the technical and economic claims that the contractual parties tipically invoke.
We have briefly summarized below the most significant of these proceedings:
In May 2000, Abengoa Puerto Rico S.E., a subsidiary of Abengoa S.A, brought a lawsuit against the Electricity Power Authority (Autoridad de Energı´a Eléctrica, “AEE”) of Puerto Rico and terminated the agreement that both parties had entered into in relation to an EPC project for the construction of an electricity power station in Puerto Rico, in which the AEE was the Principal Contractor. The referred lawsuit contained different claims such as, inter alia, withholding payments, default invoices, loss of future profits damages and several other costs, which tentatively amounted to US$ 40 M.As a reaction to the lawsuit brought by Abengoa Puerto Rico, S.E., the AEE brought a counterclaim based on the agreement against Abengoa Puerto Rico, S.E. and, at the same time, brought an additional lawsuit for the same amount against Abengoa and its insurer, American International Insurance Co. of Puerto Rico. The amount claimed by the AEE is approximately US$450 M. We believe this litigation will be resolved in the short term and we do not consider it a probable obligation to be recognized as a liability in the financial accounts.
Abengoa, S.A. has initiated an arbitration procedure before the CIADI arbitration court in Washington, D.C. against the Mexican State for an alleged breach of the international treaty between Mexico and Spain for the reciprocal protection of investments. The arbitration procedure is in its early stages and concerns the nonrenewal of a license for an industrial waste landfill plant in Mexico. This claim provisionally amounts to $96 M plus interest. At the 2011 year-end any amount of impairment has been recorded because Abengoa’s management considers that there is ground to expect a favourable resolution to the interests of the company, which would lead the company to recoup the assets cost and interest on.22.3. Contingent assets
Below is a summary of the most significant contingent assets:
As of July 14, 2011 Abengoa Bioenergy US Holding received a favourable jury verdict in a case against Chicago Title Insurance Company in the amount of $48.4 M. The case was filed made by Chicago Title in 2006 which delayed the opening of ABUS's plant in Colwich, Kansas by 15 months. Chicago Title has filed an appeal on the verdict but does maintain the right to do so for a period of time. Therefore following the applicable rules regarding contingencies assets defined in IAS 37, Abengoa has not recorded in these consolidated condensed financial statements any amount regarding to this situation. Management depending on the evolution of the sentences, they will evaluate the need to record any amount in the Consolidated Financial Statements. November 21, 2011, International Chamber of Commerce has awarded ASA Bioenergy Holding with 90% of the amount claimed to Adriano Ometto, previous owner of Abengoa Bioenergy Brasil.The amount which has been awarded to Abengoa totals US$ 151 M plus interest and law costs associatted in the process. The tribunal has found dolo and damages caused in most of the actions claimed and consecuently has awarded the company for several damages and losses that Abengoa has incurred as a consequence of some contracts, agreements and contingences since Abengoa Bioenergy Brasil acquisition took place in previous year. As of today, defendant has appealed for overturning the award based on some law and formal procedures and counterclaim must claim for the approval of the decision in the Brazilian's Supreme Court to execute the final award received. According IAS 37 of Contingent Assets, Abengoa has not recorded any amount in the Consolidated Financial Statements. The Directors will evaluate whether some amount should be recorded according new stages and status during the process.