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ACCOUNTING POLICIES
HEDGE ACCOUNTING
Changes in fair value of derivative financial instruments designated as cash flow hedges, CCIRSs and IRSs, are recognised in revaluation reserve in the portion determined to be an effective hedge, while the ineffective portion of the hedge is recognised in profit or loss.
The accumulated changes in fair value of a hedging instrument, previously recognised in revaluation reserve are taken to profit or loss in the period or periods in which the hedged item affects profit or loss. Alternatively, if the hedge of a forecast transaction results in the recognition of non-financial assets or non-financial liabilities, the Group excludes the amount from equity and includes it in the initial cost or other carrying amount of a non-financial asset or liability.
In connection with loans received from PGE Sweden AB (publ), PGE S.A. concluded CCIRS transactions, hedging the exchange 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).
PGE S.A. hedges cash flow risk resulting from exchange rates related to forward contracts to purchase CO2 emission allowances, the price of which is denominated in EUR.
Hedge accounting is also applied to the IRS transactions hedging interest rate due to the financial liabilities under credit facility agreements such as the Facility Agreement with a syndicate of banks signed on September 7, 2015 and Facility Agreement with Bank Gospodarstwa Krajowego signed on December 17, 2014. In these transactions, banks – counterparties pay PGE S.A. interest based on a fixed rate in PLN and PGE S.A. pays interest based on a fixed rate in PLN.
To recognise these transactions, the Group uses hedge accounting.
The only source of inefficiency in hedge accounting is the CCIRS transaction hedging the interest rate on bonds issued by PGE Sweden AB.
| Year ended December 31, 2019 | |
|---|---|
| VALUE OF THE HEDGED ITEM AS AT JANUARY 1 | 2,768 |
| Redemption of bonds | (2,141) |
| Interest accrual | 35 |
| Interest repayment | (53) |
| Foreign exchange differences | (14) |
| VALUE OF THE HEDGED ITEM AS AT DECEMBER 31 | 595 |
Information on hedging instruments – maturity structure as at December 31, 2019. Payments received by the Group are presented with “-“ and payments made by the Group are presented with “+”.
| Derivative | Currency | Up to 1 year | 1 year to 5 years | More than 5 years |
|---|---|---|---|---|
| CCIRS | EUR | 11 | 41 | (83) |
| IRS | PLN | 21 | 71 | 19 |
| Currency forwards | EUR | 179 | 124 | – |
The Group estimates that the effect of the ineffective portion of the hedge resulting from the EUR exchange rate and change in WIBOR, recognised in profit or loss, will not have a material impact on future financial statements.
The impact of hedge accounting on the revaluation reserve is presented in note 20.3 to these financial statements.
