Integrated report 2020
After the termination of mining operations the areas of the Group’s opencast lignite mines will undergo the process of land rehabilitation. According to the current plans, costs will be incurred in the years 2030-2065 in the case of the Bełchatów Lignite Mine Branch and in the years 2045-2077 in the case of the Turów Lignite Mine Branch.
The Group creates provisions for land rehabilitation costs. The amount of the provision presented in the financial statements includes also the value of the Mining Plant Liquidation Plan established in accordance with the Geology and Mining Law Act. As at 31 December 2020 the value of the provision was PLN 7,463 million (as at 31 December 2019 – PLN 6,127 million).
In 2020, the Group updated some of the assumptions adopted for the valuation of the provision for rehabilitation of mine pits. In particular, significant changes in the assumptions for valuation were made for the Turów Lignite Mine in connection with the updated valuation of the costs of liquidating the pit after the termination of mining operations. The prepared revaluation of the costs assumes that during rehabilitation works smaller earth masses will have to be moved as compared to the assumptions adopted in the study from the previous year (a decrease of approximately 30%) and greater volumes of water will occur during the flooding of the pit, which also results in shortening the planned total period of rehabilitation by 15 years.
Furthermore, the Group adjusted the discount rate used in assessing the present value of future expenditures on the rehabilitation of the pits in both opencast lignite mines. In the previous year, the value of the provision was calculated using a discount rate of 2.8%. In 2020, the Group changed the discount rates used to estimate the value of these provisions and adopted the following discount rates depending on the expected period over which expenditures for pit rehabilitation will be incurred:
The mines will incur the largest expenditures on the rehabilitation of the pits in the years 2037-2058 (more than 90% of total expenditures) and the discount rate should be adjusted to the time of incurring such expenditures. In view of the fact that there are no observable discount rates for payments with aforementioned maturity, the Company uses the interest rate for ten-year treasury bonds.
The adjustments in the land rehabilitation technical assumptions and the discount rate used to assess the present value of the provisions for the rehabilitation of final pits in the opencast lignite mines resulted in increasing the value of the provision by PLN 1,119 million, an additional cost of PLN 251 million and an increase in the value of assets by PLN 868 million.
The estimated changes in the rehabilitation provision due to a change in the discount rate:
| Value in statement | Discount rate | ||
|---|---|---|---|
| -1 p.p. | +1 p.p. | ||
| Provision for the rehabilitation of mine pits | 7,463 | 2,432 | (1,787) |
The power plants create a provision for the rehabilitation of the furnace waste disposal sites. As at December 31, 2020, the provision amounted to PLN 318 million (PLN 249 million as at the end of the comparative period).
The companies that own wind farms create a provision for the rehabilitation of wind farm sites. As at December 31, 2020, the provision amounted to PLN 71 million (PLN 60 million as at the end of the comparative period).
As at the reporting date, the provision amounted to PLN 259 million (PLN 213 million as at the end of the comparative period) and referred to some assets of the Conventional Power Generation and Renewable Power Generation segments.