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Provision for rehabilitation of post-exploitation mining properties
The area of PGE Group’s surface lignite mines is subject to rehabilitation after mining is completed. According to current plans, costs will be incurred in the years 2030–2065 (in the case of KWB Bełchatów) and 2046–2088 (in the case of KWB Turów).
The Group recognises a provision for rehabilitation of post-exploitation mining properties. The amount of the provision recognised in the financial statements includes also the value of Mine Liquidation Fund created in accordance with the Geological and Mining Law Act. As at December 31, 2019, the provision amounted to PLN 6,127 million (as at December 31, 2018: PLN 3,338 million).
In 2019, the Group updated the data as at the reporting date with respect to the amounts of expenditures necessary to carry out rehabilitation, dates of completion of extraction and commencement of rehabilitation and – as regards the volume of excavations assigned to overburden and to coal – as at the moment of completion of operation of individual excavations.
In particular, significant changes in the assumptions underlying the valuation were made for KWB Turów in connection with the development and adoption of a new Technical Design for the target production from the “Turów” deposit and internal dumping of the overburden. This design assumes the relocation of much larger masses of soil during rehabilitation than assumed in previous years (an increase by about 130%), which also results in extending the planned total rehabilitation period by 5 years. Therefore, the Group commissioned a new valuation of the rehabilitation costs for the excavation in KWB Turów which showed a significant increase in the estimated expenditures necessary to complete the rehabilitation in KWB Turów.
In addition, the Group adjusted the level of discount and inflation rates used to estimate the present value of future expenditure on rehabilitation of excavations in both surface lignite mines. In previous years, the provision was calculated using the projected inflation rate of 2.5% and a discount rate of 3.7%. In 2019, the Group updated its inflation projections for the next two years, i.e. for 2020 and 2021, to 2.85% and 2.58%, respectively, while leaving the long-term inflation projection unchanged at 2.5% and reducing the discount rate to 2.8%.
The largest rehabilitation expenditures in the mines will be incurred in the years 2037-2065 (about 95% of total expenditures) and the discount rate should be adjusted to the timing of these expenditures. Since there are no observable discount rates for payments with such maturities, the Group extrapolates the yield on 10-year treasury bonds.
The adjustment to technical assumptions for rehabilitation and the level of discount and inflation rates used to estimate the present value of provisions for rehabilitation of final excavations in surface lignite mines resulted in an increase in the provision by PLN 2,563 million, an additional cost of PLN 798 million and an increase in assets by PLN 1,765 million.
Estimated changes in the rehabilitation provision due to a change in the discount rate:
| Carrying amount | Discount rate | ||
|---|---|---|---|
| -1 p.p. | +1 p.p. | ||
| Provision for rehabilitation of post-exploitation mining properties | 6,127 | 2,204 | (1,554) |
Provision for rehabilitation of ash storage sites
PGE Group power generating units recognise provisions for rehabilitation of ash storage sites. As at December 31, 2019, the provision amounted to PLN 249 million (PLN 195 million as at the end of the comparative period).
Provision for rehabilitation of wind-farm sites
Companies that own wind farms recognise provision for rehabilitation of wind-farm sites. As at December 31, 2019, the provision amounted to PLN 60 million (as at December 31, 2018: PLN 49 million).
Liquidation of property, plant and equipment
The obligation to liquidate assets and rehabilitate the area results from the „Integrated permission for running electric energy and heat energy producing installation” in which the restitution of the area was specified. As at the reporting date, the provision amounts to PLN 213 million (PLN 184 million as at the end of the comparative period) and refers to some assets of the Conventional Generation and Renewables segments.
