The financial statements have been prepared under the historical cost convention, which was modified in relation to:
- Property, plant and equipment and intangible assets – property, plant and equipment and intangible assets that were owned by the Group at the date of transition to IFRS were measured at deemed costs as at that date. In addition, for certain property, plant and equipment and intangible assets impairment loss has been recognized.
- Financial instruments – selected categories of financial instruments are measured and presented in the statement of financial position at fair value. Details on the valuation of individual categories of financial instruments are presented in the description of the accounting principles applied.
- Impaired assets – presented in historical cost adjusted by impairment losses.
- Inventories – CO2 emission rights acquired in order to realize profits from fluctuations in market prices, are measured at fair value less costs of disposal.
4.1 Consolidation principles
These consolidated financial statements of the PGE Group have been prepared on the basis of the financial statements of the parent company, financial statements of its subsidiaries, associates and joint ventures. The financial statements of consolidated entities are prepared for the same reporting period, based on unified accounting principles.
All balances, income and expenses arising between the Group entities and unrealized gains from intra-group transactions, were fully eliminated.
Subsidiaries are consolidated from the date of taking control over them by the Group, till the date of cessation of control. Control by a parent company occurs when this company owns, directly or indirectly through its subsidiaries, more than half of votes in the entity unless it is possible to prove that such ownership does not constitute control. Exercising control occurs when the company, due to its involvement in another entity holds the rights to variable financial results and has the power to influence the amount of financial results by controlling the entity. Exercising control may also occur when the parent company does not own half of votes in a subsidiary.
Accounting for the formation of the PGE Group in the consolidated financial statements
The issues related to the mergers and acquisitions of business units are generally regulated by International Financial Reporting Standard 3 Business Combinations. However, the scope of this standard does not include transactions among business entities under common control. Same as the companies of the PGE Group of that time, the business entities contributed to the Company in May 2007 were controlled by the State Treasury. Thus, in the Company’s opinion, the contribution of the companies described above meets the definition of transaction under common control, and thus is excluded from the scope of IFRS 3.
The aforementioned mergers of the entities under common control were accounted for by the pooling of interests method and thus the consolidated financial statements reflect the fact of the common control continuity and does not present the changes in the net asset value to fair value (or recognition of new assets), or valuation of the goodwill.
Further mergers and acquisitions within the PGE Group were recognized as transactions concluded between jointly controlled entities, therefore should be accounted within the equity of the PGE Group, not affecting the goodwill.
The purchase of companies from third parties is accounted using the acquisition method.
Joint ventures and joint operations
In relation to participation in a joint venture (a joint arrangement giving the right to the net assets of the arrangement) a joint venture accounts for its interest i a joint venture under the equity method.
Joint control is the contractually agreed sharing of control in the framework of the contractual arrangement, wich exists only when decisions about relevant activities require the unanimous consent of the parties who share control.
Investments in associates
The associates are entities over which the parent company directly, or through the subsidiary, has significant influence and that are neither controlled nor jointly controlled. Investments in associates are recognized in the statement of financial position at cost increased or decreased to recognize the investor’s share in the investee’s net assets after the date of acquisition less impairment losses if applicable.
Investments in associates are recognized using the equity method.
4.2 Methods applied to convert positions denominated in foreign currencies
Transactions denominated in foreign currencies are translated into PLN at the rate on the transaction date. As at the reporting date:
- monetary items are translated at the closing NBP rate;
- non-monetary items are valued at historical cost in foreign currency at an exchange rate on the day of the transaction;
- non-monetary items measured at fair value in foreign currency are translated at an exchange rate on the day of fair value measurement.
Foreign exchange differences resulting from transalation are recognized in profit or loss or, in cases specified in the accounting policies applied, recorded in the cost of assets.
Foreign exchange differences resulting from translation of non-monetary items, such as equity instruments measured at fair value through profit or loss, are recognized as a change in fair value. Foreign exchange differences resulting from translation of non-monetary items, such as equity instruments classified as financial assets available for sale, are recognized in other comprehensive income. Foreign exchange differences resulting from translation of assets and liabilities of foreign entities with functional currency other than functional currency of the parent company are recognized in separate position of the equity.
4.3 Operating segments
An operating segments is a component of the Group:
- that engages in business activities from which it may earn revenues and incur expenses,
- whose operating results are regularly reviewed by the entity’s chief operating decision maker in the Group to make decisions about resources to be allocated to the segment and assess its performance,
- for which discrete financial information is available.
Due to the types of production processes as well as the current system of regulation within the PGE Group, the following segments are distinguished:
- Conventional Generation,
- Other operations that include the activities of the subsidiaries other than listed above, but not material enough to create separate segments.
Segment revenues are the revenues, including both sales to external customers and intersegment transfers within the Group that are presented in profit or loss of the Group and can be directly attributed to the segment together with a relevant portion of revenue that can be allocated on a reasonable basis to the segment. Segment expenses include cost of sales to external customers and the cost of intersegment transfers within the Group, which results from operating activities of the segment and can be directly attributed to the segment together with a relevant portion of entity’s expenses that can be allocated on a reasonable basis to the segment. Segment result is a difference between revenues and expenses of the segment.
Segment assets are those operating assets that are used by that segment in its operating activity and that can be directly attributed to the segment or can be allocated on a reasonable basis to the segment. Segment liabilities are those operating liabilities that result from operating activities of the segment and can be directly attributed to the segment or can be allocated on a reasonable basis to the segment. Segment assets and liabilities do not include settlements connected with income tax.
Revenues are measured at the fair value of the consideration received or due. The revenue is recognized after deducting value added tax (VAT), excise tax and other sales-based taxes as well as discounts. When recognizing the revenues, the criteria specified below are also taken into account.
Revenues from sale of goods and merchandise
Revenues from the sale of goods and merchandise are recognized when related risks and rewards have been transferred and when the amount of revenue can be reliably measured and costs incurred can be reliably estimated. In particular, revenues from the sale of electricity are recognized at the time of delivery.
Revenues from sale of goods and merchandise primarily include:
- amounts receivable from: wholesales and retail sales of electricity, sales of heat energy, gas, lignite, certificates of energy origin from renewable energy sources, certificates of production of energy in high efficiency cogeneration plants, greenhouse gas emission rights, distribution and transmission services and other services relevant to core business,
- amounts receivable from sales of materials and merchandise not mentioned above.
Revenues from sale of services
Revenues from services rendered are recognized when the service is performed. When the outcome of a transaction involving the rendering of long-term services can be estimated reliably, revenue associated with the transaction is recognized by reference to the stage of completion of the transaction at the reporting date less revenue recognized in the previous reporting periods.
When the outcome of the transaction involving the rendering of services cannot be estimated reliably, the Group recognizes revenue only to the extent of the expenses recognized that are recoverable.
PGE Dystrybucja S.A. generates revenues from connecting clients to the network, so-called connection fees. According to the interpretation IFRIC 18 Transfers of Assets from Customers, starting from July 1, 2009 these revenues are recognized at once when the service is performed. Fees received until July 1, 2009 are recognized as deferred income and settled through the period of 25 years.
Revenues from LTC compensations
Producers of electric energy, who joined the program of early termination of long-term contracts for sale of capacity and electricity, are entitled to receive compensations to cover stranded costs. The compensations are paid in the form of annual advances as four quarterly instalments which are adjusted on yearly basis. At the end of the adjustment period, the final amount of stranded costs will be determined. Due to the above, the producers of electricity of the PGE Group estimate and recognize the revenue from LTC compensations in the amount in which it will be finally approved for the given period, i.e. after annual and final adjustments expected as at the date of the preparation of the consolidated financial statements. Allocation of the final adjustment to the respective reporting period is based on estimated schedule of sales of electricity and system services in the adjustment period, including the final adjustment.
Revenues adjustments in respect of LTC compensations arising from court decisions are presented in other operating activities.
4.5 Cost of goods sold
Cost of goods sold includes:
- production costs incurred in the reporting period adjusted for related changes in inventories (finished goods, semi-finished products and production in progress) and costs related to production of goods for the Group’s own use,
- value of electricity, certificates of origin for energy and gas sold, and goods and materials at purchase prices.
Costs that can be directly attributable to revenues recognized by the Company are recognized in profit or loss for the reporting period in which the revenues were recognized.
Costs that can only be indirectly attributed to revenues or other economic benefits recognized by entities, are recognized in the profit or loss in the reporting periods, to which they relate in accordance with accrual basis of accounting, taking into account the principles of measurement of property, plant and equipment and inventories.
Corporate income tax recognized in profit or loss comprises current income tax and deferred income tax, that are actual fiscal charges for the reporting period calculated by the Group entities in accordance with regulations of the Corporate Income Tax Act and the change in deferred tax assets and deferred tax liabilities other than the ones charged or credited directly to equity.
Deferred tax asset or deferred tax liability are calculated on the basis of temporary differences between the carrying amount of a given asset or liability and its tax base and tax loss that is recoverable in the future.
A deferred tax liability is recognized for all taxable temporary differences.
A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible emporary difference can be utilized.
The carrying amount of a deferred tax asset and deferred tax liability is reviewed at each reporting date. The deferred tax asset and deferred tax liabilities are classified as long-term. The Group offsets deferred tax asset and liabilities, at the level of each company of the Group.
The Group reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow deferred tax asset to be utilized partially or entirely.
4.7 Earnings per share
Earnings per share for each period is calculated by dividing profit or loss attributable to equity holders of the parent company by the weighted average number of shares outstanding during the reporting period.
An entity calculates diluted earnings per share by dividing profit or loss attributable to ordinary equity holders (after deduction of interest on redeemable convertible preference shares) by the weighted average number of shares outstanding during the period (adjusted by the number of dilutive options or dilutive redeemable convertible preference shares).
4.8 Property, plant and equipment
Property, plant and equipment are assets:
- held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and
- expected to be used for more than one year.
After initial recognition, as an asset, an item of property, plant and equipment is measured at carrying amount, i.e. initial value (or deemed cost for items of property, plant and equipment used before the transition to IFRS) less any accumulated depreciation and any impairment losses. Initial value comprises purchase price including all costs directly attributable to the purchase and bringing the asset into use. The cost comprises estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having it used for purposes other than to produce inventories. As at the date of acquiring or manufacturing of an item of property, plant and equipment, the Group identifies and distinguishes all components being a part of a respective asset that are significant as compared to the acquisition price, cost of manufacture or deemed cost, and depreciates them separately.
The depreciable amount is the cost of an asset less its residual value. Depreciation commences when the asset is available for use. Depreciation is based on a depreciation plan reflecting the future useful life of the asset. The depreciation method used reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. Major inspection and overhauls recognized as a component of property, plant and equipment are depreciated starting from the next month after finishing the inspection/overhaul until the beginning of the next major inspection/overhaul.
The following useful lives are adopted for property, plant and equipment:
|Group||Average remaining depreciation period in years||The most often applied total amortization period in years|
|Buildings and structures||16||20 – 60|
|Machinery and equipment||14||4 – 40|
|Vehicles||6||4 – 14|
|Other||3||3 – 10|
Depreciation methods, depreciation rates and residual values of property, plant and equipment are verified at least each financial year. Changes identified during verification are accounted for as a change in an accounting estimate and possible adjustments to depreciation amounts are recognized in the year in which the verification took place and in the following periods.
If there is an impairment loss on property, plant and equipment to be recognized the PGE Group applies principles described in note 4.11.
Investments relating to fixed assets under construction or assembly are recognized at cost of acquisition or cost of manufacturing less impairment losses. Property, plant and equipment under construction is not depreciated until the construction is completed and the items are available for use.
Surface mines from the Group recognize stripping costs incurred during the construction and start of the mine as assets and present them as property, plant and equipment.From the beginning of lignite exploitation those capitalized cost are systematically depreciated using the natural method of depreciation based on the amount of the lignite extracted.
If the conditions of the IFRIC 20 interpretation are met, mines also recognize as a property, plant and equipment so-called deferred stripping cost, i.e. stripping costs incurred during the production phase. The value of the assets arising due to stripping costs in the production phase is determined based on the model that takes into account, inter alia, the estimated value of the overall N-W ratio (the proportion of overburden to lignite) and annual real rate of N-W. An asset arising due to stripping costs is systematically depreciated using the natural method of depreciation based on the amount of lignite extracted from the given deposit.
Costs of rehabilitation of post-exploitation surface mining properties
Surface mines operating in the Group capitalize in the value of the corresponding component of fixed assets estimated costs of rehabilitation of post-exploitation mining properties in the proportion of the volume of the excavation resulting from stripping of overburden at the reporting date to the planned volume of excavation resulting from stripping of overburden at the end of exploitation period.
Capitalized costs of rehabilitation are systematically depreciated using the natural method of depreciation based on the amount of lignite extracted from a particular field.
4.9 Intangible assets
An intangible asset is an identifiable non-monetary asset without physical substance, such as:
- economic rights acquired by the Group entities and recognized in non-current assets, with an economic useful life exceeding one year intended to be used by the Group,
- development costs,
- goodwill excluding internally generated goodwill,
- acquired right of perpetual usufruct of land,
- easements acquired and set free.
The right of perpetual usufruct of land obtained free of charge by an administrative decision is not recognized in the statement of financial position.
As at the date of initial recognition, an intangible asset is measured at acquisition cost or production cost with respect to development costs. After initial recognition, an intangible asset shall be carried at its cost less any accumulated amortization and any accumulated impairment losses. The cost of an internally generated intangible asset, except for development costs, are not capitalized and are recorded in profit or loss for the period when the related cost was incurred.
The Group assesses whether the useful life of intangible assets is definite or indefinite. If the useful life is definite, the Group estimates the length of useful period, the volume of production or other measures as the basis to define the useful life. An intangible asset is regarded as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group.
The amortizable amount of an intangible asset with a definite useful life shall be allocated on a systematic basis over its useful life. Amortization starts when the asset is available for use.
Intangible assets with a definite useful life are amortized over their useful life and analyzed for potential impairment, if there are indications of impairment. Amortization periods and amortization methods of intangible assets with a definite useful life are verified at least each financial year. Changes in the expected useful lives and in the expected pattern of consumption of the future economic benefits embodied in the asset are treated as change of estimate.
Intangible assets with an indefinite useful life and those not being used are subject to impairment testing each year. The following useful lives are adopted for intangible assets:
|Group||Average remaining amortization period in years||The most often applied total amortization period in years|
|Acquired patents and licenses||3||3 – 8|
|Costs of finished developed works||2||3 – 15|
|Other||16||3 – 25|
An intangible asset arising from development phase of a project shall be recognized if, and only if, the Group can demonstrate all of the following:
- the technical feasibility of completing the intangible asset so that it will be available for use or sale,
- its intention to complete the intangible asset and use or sell it,
- its ability to use or sell the intangible asset,
- how the intangible asset will generate probable future economic benefits,
- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset,
- its ability to reliably measure the expenditure attributable to the intangible asset during its development.
4.10 Borrowing costs
Borrowing costs are interest and other costs that the Group incurs in connection with the borrowing of funds. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense. Exchange differences arising from foreign currency borrowings the Group capitalizes to the extent that they are regarded as an adjustment to interest costs.
4.11 Impairment of non-financial assets
The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, or if there is a need to perform an annual impairment testing, the Group estimates the recoverable amount of the asset or cash-generating unit.
Recoverable amount is defined as the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If the carrying amount is higher than the recoverable amount, an impairment loss is recorded. When estimating the value in use of an asset, future cash flows are discounted to the present value using a discount rate before tax, which represents current market estimate of time value of money and risk relevant to an asset. Impairment losses applicable to assets used in continuing operations are recognized in costs relating to the function of impaired assets.
4.12 Financial assets
Financial assets are classified in the following categories:
- Held-to-maturity investments (HTM),
- Financial assets at fair value through profit or loss (FVP),
- Loans and receivables,
- Available-for-sale financial assets (AFS).
Financial assets at fair value through profit or loss
A financial asset at fair value through profit or loss is a financial asset that meets either of the following conditions:
It is classified as held-for-sale. A financial asset is classified as held-for-sale if it is:
- acquired or incurred principally for the purpose of selling in the near term,
- part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking, or
- a derivative, except for a derivative that is a designated and effective hedging instrument.
Upon initial recognition it is designated by the entity as at fair value through profit or loss. Any financial asset within the scope of this standard may be designated when initially recognized as a financial asset at fair value through profit or loss except for investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured.
These assets are measured at fair value as at the reporting date. Gains and losses on financial assets classified as FVP are recognized in profit or loss and are not reduced by the amount of accrued interest.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets, if their maturity does not exceed 12 months from the reporting date. Loans and receivables with maturity exceeding 12 months are classified as non-current assets. If the time value of money is significant over the period, the assets are measured at discounted value.
Trade receivables are measured at least at each reporting date in the amount due, i.e. at the nominal value increased by applicable penalty interest, in accordance with the principle of prudence, i.e. less applicable impairment allowances. Impairment allowances on receivables are recognized as other operating expenses or financial expenses. Non-current receivables are measured at present (discounted) value.
Available-for-sale financial assets
All other financial assets (except for shares in subsidiaries) are accounted for as available-for-sale financial assets. Financial assets available for sale are recognized at fair value as at each reporting date. Fair value of an instrument which does not have a quoted market price is estimated with regards to another instrument of similar characteristics or based on future cash flows relevant to an investment asset (measurement using discounted cash flow method).
Positive and negative differences between fair value of available-for-sale financial assets (if their price is determinable on a regulated active market or if the fair value may be estimated by some other reliable method) and cost, net of deferred tax are recognized in other comprehensive income, except for:
- impairment losses,
- exchange gains and losses arising on monetary assets,
- interest recognized using the effective interest rate method.
Dividends from equity instrument in the AFS portfolio are recognized in profit or loss on the date that the entity’s right to receive payment is established.
4.13 Derivatives and hedging instruments
The Group uses derivatives in order to hedge against interest rate risk and exchange rate risk. The most frequently used derivatives are forward contracts and interest rate swaps (IRS). Such derivatives are measured at fair value. Depending on whether the valuation of a derivative is positive or negative, it is recognized as a financial asset or financial liability, respectively.
The gain or loss resulting from the change in fair value of a derivative not qualifying for hedge accounting, is recognized directly in profit or loss.
The fair value of currency forward contracts is estimated with reference to current forward rates for contracts of similar maturity. Fair value of interest rate swaps is estimated with reference to the market value of similar financial instruments.
4.14 Hedge accounting
Changes in fair value of derivative financial instruments designated as cash flow hedges CCIRS (Cross Currency Interest Rate Swap) and IRS (Interest Rate Swap) are recognized in hedging reserve in the portion determined to be an effective hedge, while the ineffective portion of the hedge is recognized in the profit or loss.
The accumulated changes in fair value of hedging instrument, previously recognized in hedging reserve are transferred to profit or loss in the period or periods in which the hedged item affects profit or loss. Alternatively, if the hedge of a planned transaction results in the recognition of non-financial assets or non-financial liabilities, the Group excludes the amount from equity and includes in the initial cost or other carrying amount of a non-financial asset or liability.
Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in rendering of services.
- finished goods,
- work in progress,
- energy origin rights – purchased rights of origin for energy produced from renewable energy sources, rights of origin for energy relating to energy generated in cogeneration and rights to energy efficiency certificates,
- merchandise (especially CO2 emission rights purchased for resale).
Inventories are measured at the lower of cost and net realizable value.
CO2 emission rights acquired in order to realize profits from fluctuations in market prices are measured at fair value less costs of disposal.
Cost of usage of inventories is determined as follows:
- Materials and merchandise (except for the CO2 emission rights) – using FIFO method;
- CO2 emission rights:
- acquired in order to realize profits from fluctuations in market prices - using detailed identification method,
- purchased for resale to conventional generating units in the PGE Group - according to the FIFO method.
- Energy origin rights - using detailed identification method.
As at reporting date, the cost of inventories cannot be higher than net realizable value. Impairment allowances on inventories are recognized in operating expenses. When the realizable value of a specific item of inventory is recovered fully or partially, its carrying amount is adjusted by decreasing revaluation adjustment.
4.16 CO2 emission rights for own use
European Union Allowances (EUA) for carbon dioxide emissions intended for captive use of power generating units and CO2 emission rights are presented in a separate line in the statement of financial position. EUA received free of charge are recognized in the statement of financial position in nominal value, which is zero. Purchased EUA are recognized at purchase price. Use of CO2 emission rights for captive use is measured based on FIFO method.
4.17 Other assets (including prepayments)
The Group recognizes an asset as a prepayment under the following conditions:
- an expense was incurred in the past in relation to operating activity,
- it can be reliably measured,
- it refers to future reporting periods.
Prepayments are recognized at reliably measured amounts, relate to future periods and will generate future economic benefits.
Other assets include in particular state receivables, advances for deliveries and services (including advances for construction in progress) and dividends receivables.
4.18 Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
4.19 Non-current assets classified as held for sale
Non-current assets classified as held for sale are those which comply simultaneously with the following criteria:
- the appropriate level of management (General Shareholders Meeting, Supervisory Board, Management Board) is committed to a plan to sell the asset,
- the assets are available for immediate sale in their present condition,
- an active program to locate a buyer has been initiated,
- the sale transaction is highly probable and can be settled within 12 months following the decision,
- the selling price is reasonable in relation to its current fair value,
- it is unlikely that significant changes to the sales plan of these assets will be made.
Non-current assets (or disposal groups) classified as held for sale are not subject to depreciation. Non-current assets or group of assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. In the consolidated statement of financial position assets (or disposal groups) classified as held for sale are presented in separate line of current assets.
Equity is stated at nominal value, classified by nature, in accordance with legal regulations and the Company’s Articles of Association.
Share capital, reserve capital and other capital reserves in the consolidated financial statements are the ones of the parent company. Hedging reserve, foreign exchange differences from translation on foreign entities and retained earnings include both the amounts deriving from the financial statements of the parent company and the relevant portion of the subsidiaries’ equity, established in accordance with the consolidation principles. Declared, but not yet contributed, share capital contributions are recognized as outstanding share capital contributions as negative value.
In the consolidated statement of financial position equity is divided into:
- Equity attributable to equity holders of the parent company,
- Non-controlling interests.
The Group recognizes provisions when there is present obligation (legal or constructive) that arises from past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
When the effect of the time value of money is significant, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The discount rate does not reflect risks for which future cash flow estimates have been adjusted.
Post-employment and jubilee awards provision
Depending on an entity, employees of the Group companies are entitled to the following post-employment benefits:
- retirement and pension benefits – paid once when the employee retires or becomes a pensioner,
- post-mortem severance,
- cash equivalent related to energy tariff for employees of power industry,
- coal allowance given in nature or paid as a cash equivalent,
- benefits from the Social Fund,
- medical benefits.
The employees of the Group are entitled to receive jubilee awards that are paid after an employee has worked for a specified period of time. The amount of awards paid depends on the period of service and the average remuneration of the employee..
The Group recognizes a provision for future obligations relevant to past service costs and jubilee awards for the purpose of assigning costs to the periods in which they are incurred. The provision raised is recognized as an operating expense in the amount corresponding with accrued future employees’ benefits. The present value of these obligations is measured by an independent actuary.
Actuarial gains and losses arising from the change of actuarial assumptions (including change in discount rate) and ex post actuarial adjustments are recognized in other comprehensive income for past service costs and in operating expenses of the current period for jubilee awards.
The mining companies which belong to the Group raise provisions for costs of rehabilitation of post-exploitation mining properties. The value of the provision is based on the estimated cost of rehabilitation and development works related to final excavations. This cost is divided into the part attributable to stripping cost and the part attributable to mined lignite. The provision is created:
- for the part attributable to mined lignite: in the proportion of the extracted lignite as at the reporting date to the total planned volume of extraction over the period of the lignite deposit exploitation,
- for the part attributable to the stripping cost: in the proportion of the volume of the excavation resulting from stripping of overburden as at the reporting date to the planned excavation volume resulting from stripping of overburden at the end of exploitation period.
In case of rehabilitation of ash storages (production waste from electricity production) the cost of provision is recognized in operating expenses in proportion to the extent of storage filling, whereas the reversal of the discount is recognized in the financial expenses.
Provision for rehabilitation of grounds after wind farms is created when the farm is brought into use in the present value of estimated costs of dismantling and removal of remaining devices, constructions and buildings and also cost of bringing grounds to condition as close to its state prior the commissioning 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 provision is verified according to actual assumptions in terms of inflation rate, discount rate and the volume of lignite extraction or the extent of storage filling, respectively.
The increase in the provision concerning the given year is recognized in operating expenses or in the initial value of property plant and equipment, respectively. The unwinding of the discount is recognized in financial expenses. Changes in the valuation of provisions resulting from the change of assumptions (e.g. macroeconomic factors, way of conducting the rehabilitation, date, etc.), are recognized in the following way:
- for the provisions recognized as the part of the cost of property, plant and equipment: they are added to or deducted from the costs of the asset to which they relate, however the amount deducted from the cost of the asset should not exceed its carrying amount;
- as other operating expenses or other operating income - in other cases.
Provision for deficit of CO2 emission rights
The provision for deficit of CO2 emission rights is created by the PGE Group entities for the shortfall of CO2 emission rights obtained free of charge. The provision is measured at the best estimate of the expenditure to be incurred to fulfil the existing obligations as at reporting date, taking into account recorded EUA obtained free of charge and EAU purchased.
Provisions are recognized in operating expenses (as costs of goods sold in cost by function and taxes and charges in cost by nature).
Provisions for energy origin rights held for redemption
The provision is created based on the requirement of the percentage share of the renewable energy and the energy generated in cogeneration units in the total sales of electricity to end users and the volume of sales to a end users. To the extent of owned energy origin rights held for redemption the provision is recognized at the value of those rights. The provision for the energy origin rights missing is measured at a reliably estimated amount of future obligation of redemption. When making the estimate, the Group takes into account substitution fees and prices. The provision is recognized in distribution and selling expenses.
Liabilities are the Group’s present obligations, arising from past events, settlement of which will cause an outflow of resources embodying economic benefits from the Group.
The Group divides liabilities into the following categories:
- financial liabilities at fair value through profit or loss,
- other financial liabilities measured at subsequent reporting dates at amortized cost,
- non-financial liabilities.
When the effect of the time value of money is significant, liabilities are presented at discounted value.
4.23 The Social Fund and Other Special Funds
The Social Fund Act of March 4, 1994 states that a Social Fund is created by employers employing over 20 employees (calculated using full time equivalents). The Group creates such fund and makes periodic contributions to it. The objective of the fund is to subsidize the social activity for employees of the Group, loans granted to its employees and other social expenses. Contributions to the Social Fund are recognized as an expense in the period in which they are incurred.
The assets and liabilities of the Social Fund are netted off in the financial statements. In addition, as described in note 22, the Group creates provision for the post-employment benefits from the Social Fund.
4.24 Deferred income and government grants
Deferred income is recognized under the principle of prudence and accrual basis of accounting. Deferred income comprises:
- amounts received or due from business partners to be realized in subsequent reporting periods. Deferred income form connection fees that were received before July 1, 2009 is amortised evenly to sales revenues,
- grants obtained to finance acquisition or production of property, plant and equipment and intangible assets,
- property, plant and equipment and intangible assets acquired free of charge. Deferred income is amortized to other operating income in line with the depreciation charges on these assets.
Government grants are recognized if there is a reasonable assurance that the grant will be received and all the related conditions will be met. Government grants related to assets are amortized to other operating income proportionally to the depreciation charges on these assets.
Classification of the lease is made at the lease inception, based on the economic substance of the lease agreement.
A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. At the commencement of a finance lease, the leased asset and the leased liability are recorded at the lower of the fair value of the leased asset or the present value of the minimum lease payments. Any initial direct costs of the lessee are added to the amount recognized as an asset. Lease payments shall be apportioned between reduction of the outstanding liability and the finance charge. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. The finance charge as recognized as financial expenses in the statement of comprehensive income throughout the lease term.
An operating lease is a lease under which the lessor retains significant part of the risks and rewards incidental to ownership of the asset. Lease payments under an operating lease are recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user’s benefit.
4.26 Statement of cash flows
The statement of cash flows is prepared using the indirect method.