Integrated report 2020
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Integrated report 2020
The Group establishes provisions when the Group has a (legal or customarily expected) liability resulting from past events and when it is probable that meeting this liability will result in the necessary outflow of economic benefits and it is possible to assess reliably the amount of such a liability.
If the consequence of changes in time value of money is significant, the amount of a provision corresponds to the current value of expenditures expected to be necessary to meet such a liability. The discount rate is determined before taxation, i.e. the discount rate reflects the current market assessment of the time value of money and the risk related specifically to a given liability. The discount rate is not effected by the risk used to adjust the estimates of future cash flows.
Reversals of discounts are charged to finance costs.
Depending on the company, employees of the Group’s companies are entitled to receive the following post-employment benefits:
Employees of the Group’s companies are also entitled to jubilee awards payable after an employee has worked a particular number of years. The amount of jubilee awards depends on an employee’s service period and average salary.
The Group creates the provision for post-employment benefits in order to allocate related costs to particular periods. The provision is charged to operating costs in amounts corresponding to the value of future rights acquired gradually by the present employees. The current value of such liabilities is calculated by an independent actuary.
Actuarial gains and losses resulting from changes in actuarial assumptions (including changes in the discount rate) and ex post actuarial adjustments are recognised in other comprehensive income with respect to post-employment benefits and in operating costs of the reporting period with respect to jubilee awards.
The lignite mines belonging to the Group create provisions for the cost of land rehabilitation to be carried out after the termination of mining operations. 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 a part attributable to excavated overburden and a part attributable to lignite. The provision is created:
The provision is revaluated in the event of changes in the estimated rehabilitation period, changes in expenditures necessary for rehabilitation or changes in the discount rate. The estimation of a rehabilitation provision requires the adoption of technical and geological, environmental, legal, and tax assumptions, as well as a schedule, scope and level of rehabilitation process costs. Any changes in the aforementioned assumptions influence the value of the rehabilitation provision, the value of the capitalised rehabilitation costs recognised in property, plant and equipment as well as the statement of comprehensive income.
With respect to the rehabilitation of the ash (power generation waste) disposal sites, the cost of creating the provision is charged to operating costs in proportion to the degree of a particular site’s filling.
A provision for rehabilitation of wind farm construction sites is created when a farm is brought into use in the present value of estimated costs of dismantling and removal of remaining devices, structures and buildings and also cost of returning the sites to a condition as close to its state prior to the construction 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 the provision is verified according to actual assumptions in terms of inflation rate, discount rate and the volume of lignite extraction or the degree of a disposal site’s filling, respectively.
The increase in the provision concerning a given year is recognised in operating expenses or in the initial value of property plant and equipment, respectively. The effect discount reversal is recognised in finance costs. A change in the valuation of the provision resulting from changes in the assumptions (e.g. macroeconomic factors, land rehabilitation methods, time of particular operations, etc.) is recognised as follows:
The PGE Capital Group maintains a provision for liabilities related to emission allowances with respect to the shortage of emission allowances granted free of charge. The provision is created in the amount of the most appropriate estimate of expenditures necessary to fulfil the present obligation as at the reporting date. The assessment of expenditures necessary to fulfil the obligation to redeem CO2 emission allowances is carried out based on the method of detailed identification, taking into account the allocation of both free and purchased allowances to a particular year.
The cost of the created provision is presented in the statement of comprehensive income in operating activities and recorded as cost of sales in the case of classifying expenses by kind and as taxes and fees in the case of the comparative variant.
The provision is created based on the requirement for a certain percentage share of renewable energy and energy from cogeneration units in total sales of electricity to the final customer and the volume of sales to the end user. Up to the amount of property rights held for redemption, the provision is recognised at the value of such rights. The part of provision that is not covered by property rights is measured at a reliably estimated amount of the future property rights redemption obligation. In making such an estimate, the Group takes into account, among other things, the amount of the substitute fee and the market price. The cost of the provision is recognised in the cost of sales.
The current book value of the provisions is as follows:
| As at December 31, 2020 | As at December 31, 2019 | |||
|---|---|---|---|---|
| Long-term | Short-term | Long-term | Short-term | |
| Employee benefits | 3,007 | 276 | 2,796 | 270 |
| Provision for land rehabilitation | 8,110 | 1 | 6,648 | 1 |
| Provision for the shortage of CO2 emission allowances | – | 6,318 | 121 | 3,411 |
| Provision for value of property rights held for redemption | – | 589 | – | 572 |
| Claims related to non-contractual use of real property | 58 | 5 | 62 | 10 |
| Other provisions | 32 | 122 | 25 | 102 |
| TOTAL PROVISIONS | 11,207 | 7,311 | 9,652 | 4,366 |
| Employee benefits | Provision for land rehabilitation costs |
Provision for the shortage of CO2 emission allowances |
Provision for property rights to be redeemed |
Provision for non-contractual use of real property | Other | Total | |
| JANUARY 1, 2020 | 3,066 | 6,649 | 3,532 | 572 | 72 | 127 | 14,018 |
| Actuarial gains and losses | 40 | – | – | – | – | – | 40 |
| Current employment costs | 121 | – | – | – | – | – | 121 |
| Past employment costs | (10) | – | – | – | – | – | (10) |
| Interest costs | 61 | 168 | – | – | – | – | 229 |
| Adjustment to discount rate and other assumptions | 231 | 1.173 | – | – | – | – | 1,404 |
| Benefits paid / Provisions used | (228) | (1) | (3,411) | (947) | – | (32) | (4,619) |
| Provisions reversed | – | – | (121) | (2) | (16) | (15) | (154) |
| Established reserves – costs | – | 55 | 6,318 | 966 | 7 | 80 | 7,426 |
| Provisions recognised – expenditure | – | 43 | – | – | – | – | 43 |
| Acquisitions of companies in the Group | – | 14 | – | – | – | – | 14 |
| Other changes | 2 | 10 | – | – | – | (6) | 6 |
| December 31, 2020 | 3,283 | 8,111 | 6,318 | 589 | 63 | 154 | 18,518 |
| Change charged to operating costs | (147) | (55) | (6,197) | (964) | – | (35) | (7,398) |
| Change charged to other operating income/(costs) | – | (306) | – | – | 9 | (28) | (325) |
| Change recognised in other finance income/(costs) | (61) | (168) | – | – | – | (2) | (231) |
| Change charged to assets | – | (912) | – | – | – | – | (912) |
| Change charged to other comprehensive income | (235) | – | – | – | – | – | (235) |
| Employee benefits | Provision for land rehabilitation costs |
Provision for the shortage of CO2 emission allowances |
Provision for property rights to be redeemed |
Provision for non-contractual use of real property | Other | Total | |
| JANUARY 1, 2019 | 2,705 | 3,766 | 1,921 | 423 | 73 | 148 | 9,036 |
| Actuarial gains and losses | 65 | – | – | – | – | – | 65 |
| Current employment costs | 110 | – | – | – | – | – | 110 |
| Past employment costs | 5 | – | – | – | – | – | 5 |
| Interest costs | 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) |
| Established reserves – 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 charged to operating costs | (214) | (41) | (3,413) | (778) | – | (15) | (4,461) |
| Change charged to other operating income/(costs) | – | (835) | – | – | 1 | 9 | (825) |
| Change recognised in other finance income/(costs) | (81) | (123) | – | – | – | – | (204) |
| Change charged to assets | – | (1,879) | – | – | – | – | (1,879) |
| Change charged to other comprehensive income | (266) | – | – | – | – | – | (266) |