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ACCOUNTING POLICIES
Derivative financial instruments and hedges
Derivative financial instruments used by the Group to hedge against interest rate and currency risks include in particular currency forwards, futures and interest rate swaps (IRSs), as well as CCIRS transactions hedging both the exchange rate and interest rate. Derivative financial instruments of this type are measured at fair value. Derivatives are recognised as assets if their value is positive and as liabilities if their value is negative.
Gains or losses resulting from changes in the fair value of a derivative which does not qualify for hedge accounting and ineffective portion of hedging relationships in cash flow hedges are charged directly to the net profit or loss for the financial year.
The fair value of currency forwards is established by reference to the prevailing forward rates calculated on the basis of market data. The fair value of interest rate swaps is calculated on the basis of yield curves.
| As at December 31, 2019 | ||||
|---|---|---|---|---|
| Recognised in profit or loss |
Recognised in other comprehensive income |
Assets | Liabilities | |
| DERIVATIVES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Currency forwards | (7) | – | 13 | 16 |
| Commodity forwards | 277 | – | 265 | 8 |
| Commodity SWAP | (152) | – | 11 | 16 |
| Contracts for purchase/sale of coal | (20) | – | 6 | 1 |
| IRS transactions | – | – | – | – |
| Options | (7) | – | 5 | – |
| HEDGING DERIVATIVES | ||||
| CCIRS hedges | 97 | 11 | 18 | – |
| IRS hedges | (5) | (90) | – | 106 |
| Currency forward – USD | – | (3) | – | – |
| Currency forward – EUR | – | (254) | 34 | 332 |
| OTHER ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Investment fund participation units | (3) | – | 68 | – |
| TOTAL | (4) | (336) | 420 | 479 |
| current | 327 | 327 | ||
| non-current | 93 | 107 | ||
| As at December 31, 2018 | ||||
|---|---|---|---|---|
| Recognised in profit or loss |
Recognised in other comprehensive income |
Assets | Liabilities | |
| DERIVATIVES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Currency forwards | 2 | – | 18 | 11 |
| Commodity forwards | – | – | 6 | – |
| Commodity SWAP | – | – | 4 | 46 |
| Contracts for purchase/sale of coal | – | – | 2 | 7 |
| IRS transactions | 8 | – | – | – |
| Options | 12 | – | 12 | – |
| HEDGING DERIVATIVES | ||||
| CCIRS hedges | (16) | (31) | 113 | – |
| IRS hedges | (4) | (109) | 4 | 24 |
| Currency forward – USD | – | 7 | 2 | – |
| Currency forward – EUR | – | (25) | 4 | 48 |
| OTHER ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Investment fund participation units | 1 | – | 66 | – |
| TOTAL | 11 | (158) | 231 | 136 |
| current | 114 | 110 | ||
| non-current | 117 | 26 | ||
Commodity and currency forwards
Commodity and currency forward transactions mainly relate to trade in CO2 emission allowances and to sales of coal. To recognise currency futures, the Group uses hedge accounting.
Options
On January 20, 2017 PGE S.A. purchased a call option to purchase shares of Polimex-Mostostal S.A. from Towarzystwo Finansowe Silesia Sp. z o.o. The option was measured using the Black-Scholes method.
Coal swaps
In the current period, PGE Paliwa sp. z o.o., in order to hedge the commodity risk related to the price of imported coal, executed a number of transactions to hedge this risk using commodity swaps for coal. The number and value of these transactions is correlated to the quantity and value of imported coal. Changes in fair value are recognised in profit or loss.
Purchase and sale contracts with physical delivery of coal
PGE Paliwa Sp. z o.o. measures all of its sales and purchase contracts with physical delivery of coal at fair value using the trader-broker model. As at the reporting date, the Company held contracts that would be performed in 2020.
IRS transactions
PGE S.A. entered into IRS transactions to hedge interest rates on credit facilities and bonds issued with a total nominal value of PLN 7,030 million. To recognise these IRS transactions, the Group uses hedge accounting. The impact of hedge accounting on the revaluation reserve is presented in note 20.3 to these consolidated financial statements.
In 2014, PGE S.A. entered into IRS transactions to hedge interest rates on bonds issued with a total nominal value of PLN 1 billion. Payments arising from IRS transactions are correlated with interest payments on bonds. Changes in fair value of IRS transactions are fully recognised in profit or loss. In 2018, the company redeemed the bonds and the IRS hedging transaction was finally settled.
CCIRS hedges
In connection with loans received from PGE Sweden AB (publ), PGE S.A. concluded CCIRS transactions, hedging both the exchange rate and interest rate. In these transactions, banks-counterparties pay PGE S.A. interest based on a fixed rate in EUR and PGE S.A. pays interest based on a fixed rate in PLN. In the consolidated financial statements, a relevant part of the CCIRS transactions is treated as a security for bonds issued by PGE Sweden AB (publ).
In the current period, PGE Sweden bonds were partially redeemed and the CCIRS transaction securing these bonds was settled.
To recognise these CCIRS transactions, the Group uses hedge accounting. The impact of hedge accounting is presented in note 20.3 to these financial statements.
Investment fund participation units
In previous years, PGE S.A. purchased investment certificates from the PGE Ventures Closed-end Private Equity Investment Fund; their value as at the reporting date is PLN 14 million. It also purchased participation units from PGE Towarzystwo Funduszy Inwestycyjnych S.A. in three sub-funds; their value as at the reporting date is PLN 53 million.
