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ACCOUNTING POLICIES
Provisions
The Group recognises a provision if the Group companies have a present obligation (legal or constructive) resulting from past events whose settlement is likely to result in an outflow of economic benefits and whose amount can be reliably estimated.
Where the effect of changes in the time value of money is material, the amount of provision matches the current value of expenditure expected to be necessary to settle the obligation. A discount rate is determined before tax; therefore, it reflects the current market assessment of the time value of money and the risk relating specifically to a given liability. A discount rate is not burdened by the risk by which estimated future cash flows have been adjusted.
The unwinding of the discount is recognised as a finance cost.
Provision for post-employment benefits and length-of-service awards
Depending on the entity, employees of Group companies are entitled to the following post-employment benefits:
The Group’s employees are also entitled to receive length-of-service awards that are paid after an employee has worked for a specified period of time. The amount of such awards depends on the number of years in service and the average monthly remuneration.
The Group recognises a provision for post-employment benefits and length-of-service awards in order to allocate costs to the periods to which they relate. The provision is recognised as an operating expense in the amount corresponding with accrued future employees’ benefits. The present value of these obligations is measured by an independent actuary.
Actuarial gains and losses arising from the change of actuarial assumptions (including change in discount rate) and ex post actuarial adjustments are recognised in other comprehensive income (for post-employment benefits) or in operating expenses of the current period (for length-of-service awards).
Rehabilitation provision
The mining companies which belong to the Group recognise provisions for costs of rehabilitation of post-exploitation mining properties. The amount of the provision is based on the estimated cost of rehabilitation and development works related to final excavations. This cost is divided into the part attributable to stripping cost and the part attributable to mined lignite. The provision is recognised:
The provision is updated in the case of changes in estimated time or amounts of expenses necessary to conduct rehabilitation process, or in case of change of discount rate. Estimation of rehabilitation provision requires making technical, geological, environmental, legal and tax assumptions, as well as schedule, scope and the level of rehabilitation costs. Changes in assumptions mentioned above impact the value of rehabilitation provision and capitalized rehabilitation costs recognized in property, plant and equipment, as well as statement of comprehensive income.
In case of rehabilitation of ash storages (production waste from electricity production) the cost of provision is recognised in operating expenses in proportion to the extent of storage filling.
Provision for rehabilitation of grounds after wind farm construction is created when the farm is brought into use in the present value of estimated costs of dismantling and removal of remaining devices, constructions and buildings and also cost of bringing grounds to condition as close to its state prior to the commissioning of the farm as possible.
Estimates concerning expected costs of rehabilitation are subject to revaluation at least once in a 5-year-period. However, once a year the amount of provision is verified according to actual assumptions in terms of inflation rate, discount rate and the volume of lignite extraction or the extent of storage filling, respectively.
The increase in the provision concerning the given year is recognised in operating expenses or in the initial value of property plant and equipment, respectively. The unwinding of the discount is recognised in finance costs. Changes in the valuation of provisions resulting from the change of assumptions (e.g. macroeconomic factors, way of conducting the rehabilitation, date, etc.), are recognised in the following way:
Provision for shortfall of CO2 emission allowances
The provision for liabilities due to CO2 emission allowances is recognised by PGE Group entities with regard to the shortfall of CO2 emission allowances allocated free of charge. The provision is recognised in the amount reflecting the best estimate of the expenditure required to settle the present obligation as at the reporting date. The estimation of expenditure necessary to fulfil the obligation to surrender CO2 emission allowances is based on a detailed identification method, taking into account the allocation of both free and purchased allowances to a given year.
The cost of the provision recognised is presented in the statement of comprehensive income under operating activities and recorded as cost of goods sold in accordance with the classification of expenses by function and as cost of taxes and charges in accordance with the classification of expenses by nature.
Provisions for property rights held for surrender
The provision is recognised based on the requirement of the percentage share of the renewable energy and the energy generated from cogeneration units in the total sales of electricity to end users and the volume of sales to end users. To the extent of property rights held for surrender, the provision is recognised at the value of those rights. The part of provision that is not covered by property rights is measured at a reliably estimated amount of future surrender obligation. When making the estimate, the Group takes into account substitution fees and market prices. The provision is recognised in distribution and selling expenses.
The carrying amount of provisions is as follows:
| As at December 31, 2019 | As at December 31, 2018 | |||
| Non-current | Current | Non-current | Current | |
| Employee benefits | 2,796 | 270 | 2,460 | 245 |
| Rehabilitation provision | 3,763 | 3 | 119 | 1,802 |
| Provision for shortage of CO2 emission allowances | 121 | 3,411 | 112 | 1,341 |
| Provisions for property rights held for surrender | – | 572 | – | 423 |
| Provision for non-contractual use of property | 62 | 10 | 63 | 10 |
| Other provisions | 25 | 102 | 23 | 125 |
| TOTAL PROVISIONS | 9,652 | 4,366 | 6,428 | 2,608 |
Changes in provisions
| Employee benefits | Rehabilitation provision | Provision for shortage of CO2 emission allowances | Provisions for property rights held for surrender |
Provision for non-contractual use of property | Other | Total | |
|---|---|---|---|---|---|---|---|
| January 1, 2019 | 2,705 | 3,766 | 1,921 | 423 | 73 | 148 | 9,036 |
| Actuarial gains and losses | 65 | – | – | – | – | – | 65 |
| Current service costs | 110 | – | – | – | – | – | 110 |
| Past service costs | 5 | – | – | – | – | – | 5 |
| Interest cost | 81 | 123 | – | – | – | – | 204 |
| Adjustment to discount rate and other assumptions | 300 | 2,637 | – | – | – | – | 2,937 |
| Benefits paid / Provisions used | (200) | (1) | (1,803) | (640) | – | (26) | (2,670) |
| Provisions reversed | – | – | (6) | (6) | (9) | (43) | (64) |
| Provisions recognised – costs | – | 43 | 3,419 | 784 | 8 | 49 | 4,303 |
| Provisions recognised – expenditure | – | 75 | – | – | – | – | 75 |
| Other changes | – | 6 | 1 | 11 | – | (1) | 17 |
| DECEMBER 31, 2019 | 3,066 | 6,649 | 3,532 | 572 | 72 | 127 | 14,018 |
| Change recognised in operating expenses | (214) | (41) | (3,413) | (778) | – | (15) | (4,461) |
| Change recognised in other operating income/(expense) | – | (835) | – | – | 1 | (9) | (825) |
| Change recognised in other finance income/(costs) | (81) | (123) | – | – | – | – | (204) |
| Change recognised in assets | – | (3,413) | – | – | – | – | (1,879) |
| Change recognised in other comprehensive income | (266) | – | – | – | – | – | (266) |
| Employee benefits | Rehabilitation provision | Provision for shortage of CO2 emission allowances | Provisions for property rights held for surrender |
Provision for non-contractual use of property | Other | Total | |
|---|---|---|---|---|---|---|---|
| JANUARY 1, 2018 | 2,529 | 3,086 | 1,453 | 340 | 83 | 151 | 7,642 |
| Actuarial gains and losses | 179 | – | – | – | – | – | 179 |
| Current service costs | 94 | – | – | – | – | – | 94 |
| Past service costs | (105) | – | – | – | – | – | (105) |
| Interest cost | 86 | 103 | – | – | – | – | 189 |
| Adjustment to discount rate and other assumptions | 100 | 242 | – | – | – | – | 342 |
| Benefits paid / Provisions used | (181) | (1) | (1,311) | (769) | – | (17) | (2,279) |
| Provisions reversed | – | (1) | (29) | (9) | (18) | (85) | (142) |
| Provisions recognised – costs | – | 276 | 1,808 | 861 | 8 | 94 | 3,047 |
| Provisions recognised – expenditure | – | 58 | – | – | – | – | 58 |
| Purchase of new subsidiaries | 1 | – | – | – | – | 6 | 7 |
| Deconsolidation of entities from PGE Group | – | – | – | – | – | – | – |
| Other changes | 2 | 3 | – | – | – | (1) | 4 |
| DECEMBER 31, 2018 | 2,705 | 3,766 | 1,921 | 425 | 73 | 148 | 9,036 |
| Change recognised in operating expenses | (61) | (38) | (1,779) | (852) | – | (14) | (2,744) |
| Change recognised in other operating income/(expense) | – | (146) | – | – | 9 | (9) | (146) |
| Change recognised in other finance income/(costs) | (86) | (103) | – | – | 1 | 14 | (174) |
| Change recognised in assets | – | (394) | – | – | – | – | (394) |
| Change recognised in other comprehensive income | (207) | – | – | – | – | – | (207) |
