Integrated report 2020
Derivative instruments used by the Group to hedge against interest rate and currency exchange rate risks include in particular forwards, futures and interest rate swap contracts, as well as CCIRS transactions to hedge the exchange rate and interest rate. Financial derivative instruments of this type are measured at fair value. Derivative instruments are recognised as assets if their value is positive or as liabilities if their value is negative.
Gains and losses from changes in the fair value of derivative instruments that do not meet the conditions of hedge accounting and the ineffective part of hedging relationships in cash flow hedges are charged directly to profit or loss for the financial year.
The fair value of currency forward contracts is determined by reference to the current forward rates calculated on the basis of market data. The fair value of interest rate swap contracts is calculated on the basis of yield curves.
| As at December 31, 2020 | ||||
| Recognised in profit or loss |
Recognised in other comprehensive income |
Assets | Liabilities | |
| DERIVATIVES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Currency forwards | (117) | – | 3 | 4 |
| Commodity forwards | 231 | – | 11 | 4 |
| Commodity SWAP | – | – | 11 | 13 |
| Contracts for purchase/sale of coal | (89) | – | 17 | 18 |
| IRS transactions | – | – | – | – |
| Options | 11 | – | 16 | – |
| HEDGING DERIVATIVES | ||||
| CCIRS hedging transactions | 37 | (7) | 64 | – |
| IRS hedging transactions | (73) | (261) | – | 385 |
| Currency forward – USD | – | (1) | – | 1 |
| Currency forward – EUR | – | 656 | 381 | 23 |
| OTHER ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Investment fund participation units | (4) | – | 52 | – |
| TOTAL | (4) | 387 | 555 | 448 |
| short-term part | 423 | 63 | ||
| long-term part | 132 | 385 | ||
| 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 hedging transactions | (97) | 11 | 18 | – |
| IRS hedging transactions | 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 |
| short-term part | 327 | 372 | ||
| long-term part | 93 | 107 | ||
Commodity and currency forward transactions mainly relate to trade in CO2 emission allowances and lignite sales. To recognise forward currency transactions, the Group applies hedge accounting.
PGE S.A. acquired from Towarzystwo Finansowe Silesia Sp. z o.o. a call option to purchase shares in Polimex-Mostostal S.A. The option was measured using the Black-Scholes method.
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.
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.
PGE S.A. entered into IRS transactions to hedge interest rates on taken credits and issued bonds 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 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 CCIRS transactions is treated as a hedge of bonds issued by PGE Sweden AB (publ).
To recognise these CCIRS transactions, the Company uses hedge accounting. The impact of hedge accounting is presented in note 20.3 to these financial statements.
In the current reporting period, the Group redeemed its FIZAN Eko-Inwestycje certificates and FIZAN Ventures certificates.
As at the reporting date, the Company held participation units in three sub-funds of Towarzystwo Funduszy Inwestycyjnych Energia S.A., whose value as at the reporting date was PLN 53 million.