Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Snam Nine Months 2022 Consolidated Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there'll be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Stefano Venier, CEO of Snam. Please go ahead, sir.
Ladies and gentlemen, good afternoon, and welcome to Snam Nine Months Results Presentation. Page one. Gas prices volatility continued, with peaks during August, September, followed by sharp decline from October on the back of mild weather, the end of EU storage filling campaign and recession fears. Italian demand was down 3% in nine months, driven by decline of residential demand, but -5% due to mild weather and a drop by 9% in industrial demand due to high prices, while thermoelectric sector was up 3% as effect of low hydro production. Exports to Northern Europe continued, reaching 2.7 BCM, confirming Italy's role as a transport hub. Q3 demand was down by 7% year-on-year, mainly as an effect of industrial demand decline acceleration.
This trend was even stronger in October, with overall demand down by 20% also due to mild weather. We have to consider that not all of this shortfall in demand was, let's say, in connection to reduction of production because many of these industrial users switched to other kind of fuels to substitute the gas due to the cost of this fuel. In nine months, we experienced an unprecedented swing in gas flows. Volumes from North, that means Tarvisio and Passo Gries, were down 18% year-on-year. While import from southern routes like through TAP, Gela, and Mazara were up by 18% and LNG volumes increased by 27%, again, on year-on-year. Moving to macro conditions.
RAB deflator reached nearly 4% in H1 2022, while the tightening of the monetary policy with European Central Bank 75 basis points hike was coupled with the widening of credit spreads. Our regulatory framework provides a good cash flow edge against this backdrop over time, even if some short-term mismatch between revenues and financial charges rollover are possible. With regard to 2023, all the variables are available. We expect an announcement from ARERA by the end of November to provide clarity in that sense. Over this time period, Snam has performed well and has contributed to the national supply security by, firstly, acquiring two floating storage and regasification units that have been both recently authorized. Second, by taking the role of storage operator of last resort, supporting in filling campaign.
Storage vault facilities are 90%-95% full, a level well above the ambitious national target of 90% before the winter. The expansion of new businesses continued as well. We added in Q3 9 biogas plants for a total capacity of 9 MW to our portfolio. The Gigafactory project, the one that we are developing in joint venture with De Nora, was selected in July by the EU Commission within the IPCEI Hy2Tech. At the same time, we have delivered sound results. Adjusted net profit is broadly in line with the same period of last year, despite the WACC revision impact in 2022. Many thanks to the resilience of our core business, the contribution of transition businesses, and the strong performance of our associates.
Net debt reduction was year-end 2021, was driven by a temporary working capital swing that we already explained during H1 results and that we expect to revert by year end. As for financing, 2022 funding needs were covered in the first half of the year at a very favorable condition versus current levels. Moreover, a EUR 2 billion credit facility was secured in the H2 2022 as of 2023 pre-funding, providing adequate flexibility to manage current market volatility. Switching to the following page that regards security of supply. Current energy crisis has reshaped priorities with an increased focus on security and diversification of supply. Snam, since the beginning of the emergency, has put its experience in building and managing large energy infrastructure to deliver the shortest possible time to new regasification units with 5 BCM capacity each.
The important conditions for the success of this complex project has been the definition of a supporting framework providing for the full recognition of acquisition costs in RAB, along with a regulated return and an 85%-90% minimum guarantee. Second, the appointment of two extraordinary commissioners and the design of a fast-tracked authorization process that are both completed. The first vessel, named Golar Tundra, will be located in Piombino onshore for the first three years, and then relocated on an offshore site that has still to be selected. We have started in parallel all the permits, engineering, and tendering process, and we received on the 25th of October the full authorization to proceed.
On November the ninth, we will start the construction phase of the 8.5-kilometer pipeline, with a target to have the asset in place by next April and start operations in May 2023 to support the next storage infilling season. Sorry. We will soon also start the process for allocating and tendering the capacity for the forthcoming years. The second vessel, named BW Singapore, instead will be placed offshore of Ravenna. We have received a few days ago, last Monday, the authorization, and we have just completed the acquisition of an onshore terminal under a long-term concession, of which we are planning the revamping.
We will start the construction of the sea line, 8.5 km, and an onshore pipeline of 34 km to connect the terminal to the transport network, aiming to have the infrastructure ready as planned by the end of Q3 2024. Next slide on gas storage and filling. Stogit, the subsidiary that controls all the storage capacity of the company, has its own storages fulfilled, as I said, by 95%, meaning 11.2 BCM of working gas plus 4.5 BCM of strategic storage. Snam significantly contributed to this achievement, as I mentioned in the beginning. In detail, in April, given that the infilling curve was low, we stored the operating volume needed for the year, almost 0.8 BCM.
Since June, Snam started also to act as an operator of last resort to overcome a slow infilling process from the shippers and trader, driven by market conditions, mainly the high prices. Then we contributed to the infilling by 1.3 BCM. It's worth noting that we have been financed fully for the purchase, and we do not carry any volume or commodity risk for the gas we have stored in the storages. In nine months, we have had a positive contribution on the other side from the output-based incentive, deriving from flexibility services provided on short-term storage auctions. On top of this, in the next eight weeks, we will offer for the first time also an additional reverse flow service. Next slide. Biomethane is the cheapest and most competitive, scalable green gas available. It can decarbonize consumption without changing infrastructure and end user appliances.
Consistently with an increased ambition, EU ambition, we can now rely on a national incentive framework as the long-awaited biomethane decree, filed to EC nearly a year ago, was finally approved and published on the Italian official journal on 26th of October. The incentive scheme leverages EUR 1.7 billion resilience funds, with grants covering up to 40% of the investment for the realization of new plants and the conversion of existing biogas plants. Tariffs will be based on a competitive process and provide support for both waste and agri plants. Snam has built a sound proposition on this business with more than 30 megawatts of biomethane and biogas plants in operation or under construction as of today, and a strong expertise in both urban and agricultural feedstock production, so creating a strong platform that is among the most largest in the country.
The decree will finally provide the needed visibility to go ahead with spending final investment decisions and ramp up of the investments. Now, moving to the nine-month results on the following page. Let's go through the bridge on EBITDA. Those numbers has been approved by the board. As you know, EBITDA for the period was EUR 1.706 billion, broadly in line with nine months of 2021, despite the effects of the weighted average cost of capital review that is applied from January 1, 2022, which implied an overall cap of EUR 95 million in the period in the regulated revenues. The other key changes that allow to offset almost entirely this reduction in revenues are EUR 55 million increase in regulated revenues, mainly attributable to the tariff RAB growth by EUR 34 million.
A positive volume effect again by EUR 23 million, which we expect to be partly reabsorbed by year-end. Higher output-based incentives, EUR 14 million, due to the default and storage flexibility services. In the comparison with 2021, it's worth noting that nine months of 2021 revenues benefited from a release of past items related to storage by EUR 17 million, as already explained also in commenting the first half results. EUR 17 million increase in fixed costs mainly related to higher utilities costs, volumes and costs and vehicle fuel costs. Moreover, an EUR 18 million increase in the EBITDA of energy transition businesses. The growth is mainly due to the strong performance of energy efficiency, mainly thanks to the deployment of the residential business pipeline and to the contribution of biomethane.
that I just mentioned, that benefited from the entering into operation of new plants and also the contribution that came from the M&A activity that progressed in this month significantly. EUR 13 million one-off contribution also came from the sale of past years gas excess inventories, as we already mentioned in commenting the first half results. EUR 3 million rental fee related to the lease of the Golar Tundra, that, as you might remember, was bought at the end of May and then rented for a few months before getting into the yard for the refurbishment to be prepared for the Piombino installation. In the year-on-year comparison, it must be taken also into consideration that the first half 2021 benefited again from a one-off profit provision release. Moving to the net adjusted net profit analysis, so that in the following page.
Adjusted net profit for the period was EUR 930 million, substantially in line with last year. D&A increased by EUR 40 million due to the new assets that were put on stream. The increase of net financial expenses is mainly the result of higher interest rates due to the higher gross cost of debt, that moved from 0.8% in the nine months 2021 to about 1.1% in the nine months of 2022, substantially in connection with the rise of interest rates in general. This trend will continue also in Q4, of course.
Associates' contribution was higher by EUR 48 million with respect to nine months 2021, as, by the way, was almost achieved in the first half of the year, mainly due to the strong performance of Interconnector, the subsidiary that connects Belgium with the U.K., one that has reached its regulatory profit cap. Thanks to the high gas flows supported by the gas price spreads and the greater LNG capacity available in U.K. that supported the European demand. It also had a positive Teréga contribution by EUR 6 million, thanks to the higher revenues following an increase in bookings of flows toward Spain and lower financial charges as a result of bonds rollover. Finally, the good and the satisfying performance of the Italian subsidiaries.
On the basis of strong nine-month results, we are fully confident on delivering at least EUR 1.13 billion of the full year net profit that we disclosed as a guideline in commenting the first half results. In valuing the nine-month results, we should consider that about EUR 9 million were non-repeatable, such as gas inventories, disposals, or non-recurring items, or subject to phasing, such as the Interconnector contribution or gas volume effect, that both reached the first part of the year, the maximum achievable target in terms of return. Now let's make a more deep focus on the performance of the single associates that, as I said, did extremely well also in the first nine months.
Our portfolio performed as I mentioned in a very outperforming way, confirming nine months with lower performance that we already booked on the first half for the reasons I already mentioned that refers to the Interconnector performance, but also the TAP short-term volume exceeding contracted capacity. Both will not determine any additional contribution because of the cap that is in place.
The expansion of the latter is, has been also endorsed by the European Commission, and the market test is likely to happen in two steps, with the first one providing outcome in the first quarter of 2023 for a limited expansion, and the second one in July 2023 for the so-called full expansion of capacity. For the Interconnector, looking forward, this maximum contribution that has been achieved in 2022 is expected to be achieved also in 2023, given that more than 50% of the capacity has been already booked. Teréga showed an increase in revenues, thanks to higher bookings towards Spain, as I said, as well as the lower financial charges. Storage capacity was fully fulfilled as new. DESFA continue to benefit from strong LNG imports going to Bulgaria through the new interconnection.
The ten-year development plan approved by the regulator this August contains about EUR 800 million of investments, up by 50% versus the previous plan. As far as TAG is concerned, the capacity sold under long-term contract is fully offsetting the Q3 shortfall in volumes delivered. For the first time last October, the infrastructure was operated on a physical reverse flow, and 6.5 BCM of reverse flow capacity was sold for the next thermal year, 2022- 2023, and two BCM for 2023- 2025. This flexibility is confirming the strategic role that the asset can play, not only in the short term, but also in the long run, with respect to the flows that can serve the central European market for gas today and hydrogen in the future.
2023 potential volume reduction and mid-term market perspectives requires a total reassessment of the regulatory framework with respect to both the volume exposure and the entry-exit tariff scheme due to the radical change in the operation of this asset. With that respect, consistently, a specific proposal will be submitted to the regulator in the upcoming months. Finally, EMG and ADNOC performed in line with expectation. The value of the stake of ADNOC Gas Pipelines will be reassessed for accounting purposes by year-end with respect to the development of the interest rates. But no cash impact. Finally, there is an associate that is not part of the portfolio yet, but was supposed to be part of by the end of September, that is the so-called SeaCorridor.
That means the combination of the stakes of TTPC and TMPC that we agreed to buy from Eni. The process of getting all the full clearance is taking a bit longer, so we agreed with Eni to postpone to Q4 2022 the deadline to finalize the different steps of the final steps of the authorization and the closing of the deal. Last, the cash flow statement and balancing. Cash flow from operation for the period amounted to EUR 2.5 billion, including EUR 1.1 billion of cash generation from change in working capital.
The main dynamics behind this are the same explained in the previous quarter, deriving basically from balancing and settlement activities, which should be reversed in the next quarters, even if subject to gas market volatility that, of course, will influence the total value of this item. These come from an increase of cash deposits also as well, and other items, partly offset by an increase in receivables related to the default service we are running for several companies. In addition, we experienced some cash absorption from energy efficiency due to the growth of, say, in deep renovation line of business.
Net investment for the period are mainly related to CapEx and tax payables, cash out for acquisition of Golar Tundra that happened beginning June 2022 by EUR 329 million, and the cash out for the acquisition of three different plants from Aelios, being part of the deal agreed last December 2021. We also had a cash in from the partial reimbursement of the OLT shareholders loan and the cash in from the De Nora IPO by EUR 153 million. Other outflow of the period was payment for dividend equal to EUR 845 million, while the non-cash item mainly refers to the convertible bond.
As for the full year, we expect net debt in the range of EUR 14.5 billion-EUR 15 billion, depending on the timing of the cash in of the default receivables and the evolution of working capital related to the balancing activity, which is subject to market volatility, as I mentioned before. The first hardly predictable interest rates and credit spread spike has been managed via first, the frontloading of our funding actions in the first part of 2022. Second, the larger recourse to committed credit facilities versus debt capital market, leveraging on our strongly rooted relationship with our core banks. The shift to bank facility is providing us with a tenure that is more consistent with our tariff framework and the market consensus expectation of rate hike.
Cycle slowdown in the second part of 2023, and second, flexibility in terms of early repayment and management of that capital market window opportunity. In this regard, in 2022 to date, we have raised about EUR 5 billion of funding out of which EUR 1.5 billion via BCN at 1% yield for 10-year tenure, and the balance by a credit facility with a tenure from two to five years at favorable conditions. Let me make final comments, some very few closing remarks.
I think that the nine-month results confirm the resilience of the group against the backdrop of an uncertain scenario, changing gas flows, volatile gas prices, and the impact of the revision of the weight, leverage, and cost of capital on our infrastructure business that weighed in more than EUR 95 million in the first nine months. We are very satisfied with the authorization on the two storage and regas unit. Two projects that, along with the complete refilling of the storage facility, corroborate our commitment to support the country's energy security and is providing definitely a support on the development of the company in the upcoming years. Thank you for your attention, and I will be pleased to answer your questions, and I turn the floor to you. Thank you.
Excuse me. This is a Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on their touchtone telephone. To remove your question, please press Star and Two. Please pick up the receiver when asking questions. The first question comes from Javier Suarez of Mediobanca.
Hi. Thank you for the presentation. Three questions. The first one is on security of supply. Second one is the strategic and positioning of the Italian network, and then on your managerial imprinting. On the security of supply, the question is, in addition to the installation of the two new floating regasification unit, what other measures is Snam intend to undertake to better underpin the security of supply of the Italian gas system? The second question on the strategic position of Italian network. After the agreement between the French and the Spanish government that have decided to build a new direct offshore gas pipeline, which are the implications for the development, the future development, and design of the Italian gas system. The third question on your managerial imprinting.
There is a significant increase in rates, and the question would be, is this changing your view on how the company should look at capital allocation? Would you intend to accelerate, for example, on the asset rotation of plenty of your subsidiaries in a kind of back to basics strategy? Thank you.
I will start with the sequence you put the question. The first, how we tend to underpin the security of the country. Of course, as you mentioned, the floating vessels is the first step, but we are also working on putting forward the project of the new backbone from south to north that is called Adriatic Line. The importance of this pipeline is not only with respect to the possible additional flows of gas that could come from the TAP development, but it's also important to guarantee flexibility on the network and put some additional capacity available for additional volumes that would come from Algeria, from Libya, and also from the new developments of gas fields outside of Sicily.
It's something that is extremely important because I think that in the long run, the strategic security of supply can be achieved only if we are able to build and develop the infrastructure with certain redundancy that provides flexibility, and also put us in a position to better manage the flows of gas toward the major consumption areas. Jointly, we are also working on expanding the gas storage capacity. We have a project that we submitted to the Ministry of Environment, located in the northern part of Italy, that could add more than 10% of the storage capacity to the country. We have seen in these months how important the role that can play some additional capacity for the security of the country. We currently have, as I mentioned, a total capacity of 12 BCM.
Those 12 BCM secure in between 25%-30% of the demand during winter. Of course, the more we have in terms of capacity, the more the higher is the flexibility for the system we can put. Also, we also have the opportunity to further optimize the cost of gas, because if you have more space in the storage, you can also trade or, let's say, wisely with respect to the gas prices. These are the three main pillars as far as security of supply is concerned. These are very committing also going forward and will be also the true pillar of the development of the new business plan.
Second question was about the role of the Italian network, if I understood correctly, with respect to the European scenario and in the Mediterranean area, in relation to the announced project of the so-called BarMar, Barcelona and Marseille connection. Let me say first that is not clear to me entirely if this pipeline will be purely dedicated to hydrogen or will be used partly also for gas. Here there is a, there's like mismatch in the communication between the French government and the Spanish government. I think that, however, even if this infrastructure will be used for some years to ship some gas, this will not influence the competitiveness and the role of the Italian infrastructure also in the perspective of supporting some of the central European demand for a simple reason.
Because I think through the floating vessels, we can, let's say, offer to the market almost 30 BCM of LNG capacity. That, of course, is a sizable capacity that will be definitely more competitive than having LNG delivered to Spain and then shipped through a pipeline to France and Central Europe. That makes a clear, let's say, competitive advantage. The second, I think, relates to the possible perspective toward new opportunities and new developments in the Eastern Med, means outside Israel, outside Cyprus, where new capacity and new giant fields has been discovered and will be developed in the upcoming years.
The LNG facilities we have on the Adriatic Sea and also Mediterranean Sea will be only two to three days journey from that place, making those assets the most, let's say, favorable approaching gate point for Central Europe, being also in the middle part of Italy. The third was about the capital allocation. As, as I told you, in the last conference calls, we are working on the new business plan that we introduce to the market next January 19, if I do recall correctly. We are still making some works to understand how we can optimize the funding of this new wave of investments.
If any, let's say, asset rotation will be, let's say, in the interest also of the shareholders, because we don't have to forget that of course, this asset rotation can provide cash proceeds to fund new investment, but also all these assets, given the performance I showed to you, provides a very unattractive return in terms of earnings per share. We have also to balance in the perspective of managing the asset portfolio, the impact that possible disposals can have on EPS of the company going forward.
Interesting. Thank you.
The next question is from.
Thank you.
Excuse me, sir. The next question is from Jose Ruiz of Barclays.
Yeah, good afternoon, and thanks for taking my questions. I have only two. The first one is, if you see any possibility of improvements in terms of, output-based incentives, for 2023. I mean, given that, the generosity, regarding Terna, and considering the importance of Snam in terms of managing the gas system, if there would be a little bit of a balance there. Secondly, related to the previous question from Javier, if you can share with us, how much investment is this Adriatic pipeline project connecting the north with the south and the expansion of gas storage. Thank you very much.
With respect to the first, yes, in 2023, we expect an, let's say, an enlargement in the kind of output-based we can get. The first and most important will be the one related to the asset health. Let me give you an update on this process. We have been asked by the authority to prepare a methodology to, let's say, support and define the mechanism and the advantages for, the final customers and the system in, let's say, optimizing the substitution of part of the network that expired its technical life. We have done the job we have been asked for. We submitted the methodology that has been published at the end of October. If I do recall correctly, it was the first and is now under the consulting phase.
According to the time plans set by the authority, we should have the final decision by year-end, beginning next year, to see the methodology and the approach applied from January 1, 2023. This should provide a sizable contribution. I can't say that this contribution will be in line with the astonishing numbers that Enel made on an output base, but will be definitely a sizable contribution with respect to the numbers we have achieved so far. The second is about the Adriatic Line. Of course, this infrastructure is gonna take roughly five years to be built. The total cost is EUR 2.7 billion. The part that will fall into the next business plan, ending at 2023, is about EUR 1 billion.
The new pipeline is planned to be on stream the end of 2027.
Thank you very much.
The next question is from Stefano Gamberini of Equita.
Yeah. Good afternoon, everybody. A few questions also from my side. The first regarding the asset rotation, among the other assets, there is also, you know, could we expect a, we can say, a reduction of the stake at the end of the lock-up that, if I'm not wrong, expires at the end of the year? And what could be a level of stake that you consider core in this company? The second, regarding the investment in biomethane. You underlined that EUR 59 million have been invested in the first nine months in energy transition. What is the target for year-end, including also the acquisitions? And which kind of acceleration could we expect next year?
In particular, I am also trying to understand what is the return that you expect for the investment in biomethane plants, considering that the decline has been disclosed. Finally, I have a question regarding the current scenario of rising interest rates. In the last six months, the interest rates increased by around 300 basis points. Considering what could be a likely WACC in 2024 or 2025, we will see, but more or less this should be impacted by just 100 basis points. Do you consider to invest in this scenario, the returns could be higher than your cost of capital?
Very final question, if you can repeat how you can finance or what are the measures that you put in place during this month, in order to reduce your cost of debt, in 2023. Many thanks.
Okay. Let's start with the asset rotation. I mean, you mentioned making a reference to the De Nora. Yes, we have the lockup period ending after six months as usual. But that doesn't mean that we are eager to sell part of the stake, at least in during this period. I think that in spite of the fact that the share price bounced back today by more than 4%, thanks to the very good results they released, we think that the real value of this company is much higher. For the time being, unless the price goes back rapidly, we don't see, I mean, the opportunity to sell at these current prices that stake. That is one point. The second point, of course, refers to the funding needs.
Presently, we don't have funding needs, so why should we sell part of the stake right now? This can be part of the thoughts we are doing with respect to the entire business plan, okay? Not in the, let's say, very next future. That works, as I said, also for the other associates. Because the performance that we have posted in 2022 and the outlook we have for 2023 makes those associates extremely, let's say, extremely rewarding in terms of return.
Of course, the ramp-up in investments that will happen in 2023, 2024, and 2025 will drive some thoughts about how to optimize the portfolio, considering that, as I said last time, there are strategic stakes we want to retain, and probably can be some stakes that might be less strategic. The second. The question was on biomethane and the projection of CapEx year-end, including the M&A. I have the total number is gonna be for the 12 months, EUR 300 million. That is the total CapEx we are planning in the energy transition.
The question about the internal rate of return of biomethane investment on the basis of the new decree, we value it between 8%-10%. The IRR we have posted so far in the acquisitions is gonna be between 7%-8%. No, just 7%-8%. About the third question that how we are tackling with the rising interest rates. As I mentioned, we have done for 2022 a sizable prefunding for EUR 5 billion in total.
We also secured through the bond we did in the beginning of the year and the credit lines we arranged in the following months, we covered entirely the need for 2022, and we also have prepared and made some prefunding for 2023 for a total number of EUR 2 billion. Going forward, of course, mainly will depend on the interest rate course. What we do expect is a softening in the mid-term, means two, three years time. We will go for optimizing in between the capital markets and, let's say, credit market to try to optimize the cost.
Great. Just a quick follow-up, if I may. Regarding 2022, you have more or less an idea what could be the cost of debt next year, and or we can say a magnitude of the increase that you expect versus 2022?
I think we are still finalizing because, of course, the cost relates to the additional funding we need to cover for 2023, and this will depend on some decisions we have still to take and will be, let's say, finalized for the industrial plan we will present to you in January. That will make a change because, of course, this will be funded with additional new lines or sources, and therefore, that will change the total cost, the average cost of debt for 2023. Just be patient a few weeks.
Okay. Many thanks.
The next question is from Emanuele Oggioni of Kepler Cheuvreux.
Good afternoon. Thank you for the presentation. I have two questions left. The first one is on associates. When we assume a stable contribution in Q4, stable, I mean, year on year, Snam could record roughly EUR 330 million, at least EUR 330 million from associates, compare it with roughly EUR 300 million in 2021, which was already a historic record for the group. My question is if you agree with my forecast for the full year. The second question is on the deflator. What are your expectations for the deflator on 2023, after the... You mentioned in the slide 3.9% recorded in H1. Thank you.
As far as the associate is concerned, don't forget that as I stressed, the two largest contributor to the growth of performance, with respect to last year has reached the cap. In fact, if you look at the first half result, the overperformance was exactly in line with the overperformance we are posting in the first nine months. Okay? That is something that cannot additionally contribute to the projection of the year. The second, I made a note in my speech that refers to the ADNOC. ADNOC is a sort of industrial/financial asset. For the way we have to account it, we have to, let's say, reassess the fair value of the forthcoming cash flows and dividends for years going forward.
Given the increased interest rates, at the end of the year, we will have to reassess, okay, the fair value of the stake. We do expect, given the higher interest rates, that will require a reduction in the value of the fair value of that stake, that will bring the total net total contribution of the associates more in line with the number we had last year. The second one is the deflator. Okay? The question is...
What are your expectation for 2023? For deflator of 2022, which will be applied to next year up.
It's not a number that has been published by the authority. What we do expect is something above 3%.
Okay. Thank you.
Thank you.
The next question is from James Brand of Deutsche Bank.
Hi. Thanks for the presentation. I was hoping you could help us understand a bit better some elements around the overall gas outlook for Italy, given how plugged in you are. I had kind of two or three elements to the question. The first is, it looks like there isn't any more Russian gas flowing to Italy, but I haven't actually seen a confirmation of that anywhere. I was wondering whether you could confirm that there isn't any more Russian gas flowing to Italy. If that continues to be the case, I think everyone expects that this winter looks fine, but maybe the winter after looks a bit tighter.
I was wondering whether you can maybe share your thoughts on whether that's the case, and if that is the case, whether there's anything extra you can do to try and improve the situation? For instance, maybe trying to bring forward your second floating LNG terminal that's coming online. Thank you very much.
Okay. About the Russian gas, you mean. One thing is the physical volumes that are entering into the country. Another thing is the volumes that could be available. In October, I'm talking about the most recent numbers, of course. In October, due to the mild weather and the strong flows from south, the Italian market was longer. Therefore, as I mentioned, we swapped the flows from Russia toward the Central European market. We also had some days with the physical reverse flow from Italy to Austria, and the largest majority of the 2.9 billion cubic meter of gas that was exported was exported toward Austria. The Russian flows are still coming in a region of 20-25 million cubic meter per day.
That is about 10% of the normalized demand in this period. But physically, they are not delivered in this week's delivery because of, let's say, the exceeding offer of gas. So we still have the contribution from Russia. Second question is about the outlook for the winter. Let me refer for a while to the role of the storages can play. Of course, let me start first, considering, let's say a normal winter, okay? When we have a peak in demand in January that is between 340 and 350 million cubic meter per day. With this kind of shape, the total gas we have stored there will be fairly sufficient to guarantee the coverage of the demand.
In case there is a more freezing winter, mainly will depend if it's gonna happen in January or February, and the reason why depends on the reason why there is a difference is because the pressure and the total amount of gas in the storage is higher in January than in February, and how long this freezing period stays in the country. Because if it is for a few days, for a week, Given the very strong, very full storage of the storages, we can guarantee another performance in the, let's say, supply of gas, okay, by 10, 20%, even 30% for a few days.
To further guarantee this over-performance, we introduced for the first time this reverse flow for November and December, when we will reinject some gas to get to, let's say, preserve the total amount stored and therefore the pressure in the storage for January. These are, let's say, the things we are technically doing. On top of that, we also requested the authorization to expand the capacity of the OLT terminal from 3.7 BCM- 5 BCM. This request has already obtained the local authorization and now is in process for getting the national authorization that we expect to be obtained by year-end, therefore delivering for 2023 since January, let's say, additional volumes. Last, we are also operating to optimize the capacity through the southern SeaCorridor.
As far as Algeria is concerned, of course, that takes the majority of the share, the lion's share of the contribution, but we are also testing in these phases, and add up in the flows of TAP that used to be run at 28-29 million cubic meters per day, and now it's hovering around 30 million, and we are expecting to test 32 million per day. That's on, let me say, yearly basis, it's equivalent to one BCM more. Of course, I'm playing with small numbers, but the tight balancing between supply and demand relates exactly to this kind of numbers. That is in general the levers we are playing with.
Of course, on the government side, there has been set a procedure, or it's to be finalized, a procedure to, let's say, have possible reduction in industrial demand in case of a very strong shortage in the supply due to a very freezing and prolonged period during winter or sizable shortfall in electricity production.
That's really helpful. Can I just confirm on your first answer about the flows from Russia? Your position is that you could get the gas if you wanted, it's just not kind of needed at the moment, or it's needed more elsewhere in kind of Eastern Europe. Because there was the whole, you know, quite public press reports around Russia halting flows through Austria, and then nothing to report, but they were resuming. Then you know, when you actually look at the data, it seems like they didn't resume, or at least not on the net basis. You're saying that you could if you wanted to get that gas, you know, in December or January, then you could get it.
Yeah. I'm just trying to answer your question with the information I do have, because I do not manage the portfolio and the contracts of Russian gas that the different shippers have. What I can tell you is the fact that, if I look in so-called nominations, in days where there was the need for, let's say, internal demand, we had the supply. Don't forget that the entire, the total supply of Russian gas that is delivered in Baumgarten comes through Ukraine, and that is the sole pipeline that hasn't been never, let's say, affected by a sizable reduction in flows. Of course, if we compare it to the first half of the year, there has been a remarkable reduction in the flows by, let's say, 60%.
From let's say June, July forward, we have seen a stable flow in between 20-25 million cubic meters per day. That is the rate of flows that we see still coming. My comment was with respect to the physical flows that are delivered to Italy. In these weeks, we haven't. If you go on our website and you see in real time the flows transiting toward Austria, you will see zero because simply there is an oversupply in the country, and those flows are routed to the other subsidiary, GCA, toward Central Europe.
Okay. Very interesting. Thank you very much.
The next question is from Bartek Kubicki of FactSet.
Good afternoon. Thank you for taking my question. Just three quick things to discuss, please. Firstly, on the regulation and the allowed WACC, and more specifically, the allowed cost of debt and the formula which is in place, which will be sort of lagging the increase in the actual cost of debt. I wonder if you see a necessity to renegotiate with the regulator the framework for calculating the allowed cost of debt, because it will definitely not increase over the next couple of years, given how the formula is established. That's the first thing.
Secondly, I wonder if you see any change in the payments behavior from gas distribution companies because they have been simply hit quite hard lately with lower allowed OpEx or allowed WACC with rising cost of financing, maybe various issues from supply companies. I wonder if you see any tension in the payment system from especially the smaller gas distribution companies right now. Thirdly, just curiosity, given the fact that gas flows or the flows directions have changed in Italy, do you see also any change in cash flows related to tariff collection? Because obviously, I guess you are collecting entry and exit fees, and obviously exits and entries are a bit different right now than they were a year ago. Thank you very much.
Okay. With respect to the regulation and the tariff scheme, I think we have the mechanism with the triggers that allows to recognize both the adjustment for the inflation or the so-called deflator, that by the way, checking backward, that tends to be largely consistent, and also with respect to the interest rates. I mean, we expect if interest rates will remain at the current levels, we will trigger in 2024. We have this kind of, let's say, hedging. The sole issue is that this hedging operates with a mismatch in timing. We will recover, okay, two years later, the effects we see today. That is basically how the mechanism works.
This is organized on the basis of the looking forward with the yearly trigger mechanism. I think is significantly protecting, I mean, the kind of business we have. The second is about possible, if I understood correctly, say sort of credit crunch or impact on the activities we have with respect to distributors. I have to say with respect to the companies that manage the distribution activities and then the supply to final customers, we haven't seen any, let's say, impact. Having in mind that we are fully guaranteed on the revenues recognized by the regulation. The second aspect refers to the default service we manage. That is the last instance service we provide to those kind of clients that lose the gas supply.
Again, since we provide this service on behalf of the national system, we are fully protected on credit risk. If we don't cash in, we will reimbursed entirely within roughly 12 months. What do we spend? Nowadays, we have a credit outstanding of EUR 0.5 billion that refers to the first 9 months of the year for this kind of service. As I said, that figure will be, let's say, notified to the national system operator by year-end, and then we will reimbursed for the part we have not cashed in.
Of course, this kind of service and activity that, by the way, provides some output revenues, additional output revenues, being a service that goes on top of our, let's say, regulated activities, might have an impact on working capital, but this impact is limited in time. I can also tell you that we are in conversation, discussion with the national authority and the government to guarantee eventually resources or an anticipation on the reimbursement in case the total amount of outstanding credits overcome its physiological level. I think I answered both the second and the third, if I understood correctly.
Okay. Yeah. Okay. Thank you.
Sir, at this time, there are no questions registered. Would you like to make some closing remarks?
Gentlemen, thank you so much for the time you devoted to the nine months results of the company. I'm pleased to, let's say, talk to you again in January, when we will introduce the new business plan of the company. Thank you so much.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.