Credit risk is connected with a potential credit event that can occur, such as insolvency of a customer, partial payment of a receivable, significant delay in receivable payment or other breaches of contract conditions (in particular the lack of delivery and acceptance of the goods as agreed in the contract and the possible non-payment for damages and contractual penalties).
The PGE Group entities are exposed to credit risk arising in the following areas:
- basic activities of entities – the credit risk results from, among others, purchases and sales of electricity and heat, purchases and sales of energy origin rights and CO2 emission rights, purchases of fuels etc. It relates primarily to the possibility of a default by the other party of the transaction, if fair value of the transaction is positive from the point of view of the Group;
- investment activities of entities – the credit risk results from transactions resulting from investment projects which depend on the financial situation of the Group’s suppliers;
- investing free cash of entities – the credit risk results from investing free cash of the PGE Group entities in securities bearing credit risk, i.e. financial instruments other than those issued by the State Treasury.
There are significant concentrations of credit risk within the PGE Group related to:
- trade receivables from key customers. The three most significant customers accounted for ca. 10% of the trade receivables balance;
- LTC compensations.
Maximum credit risk exposure resulting from PGE Group’s financial assets is equal to the carrying value of these items.
|Year ended December 31, 2016||Year ended December 31, 2015|
|Trade and other financial receivables||6,562||3,890|
|Cash and cash equivalents||2,669||3,104|
|Derivatives – assets||365||50|
|MAXIMUM CREDIT RISK EXPOSURE||9,596||7,044|
26.5.1 Trade receivables. Other loans and financial receivables
The terms of payments for trade receivables are usually 2-3 weeks. In 2016 the PGE Group received payments for receivables on average after 37 days (debtors turnover ratio in the main companies of the PGE Group ranged between 7 and 56 days). Trade receivables relate mainly to receivables for energy sold and distribution services. According to the management, due to current control over trade receivables, there is no additional credit risk that would exceed the level reflected by allowances for receivables.
The Group reduces and controls credit risk related to commercial transactions. In case of high-value commercial transactions, which may generate significant losses as a result of default of a contracting party, the assessment of the contractor is carried out before the transaction is concluded taking into account financial analysis, past experiences and other factors. Based on the above assessment, the internal rating is awarded or the PGE Group uses ratings given by the independent renowned agencies. Credit limit is determined on the basis of the rating. As a general rule, entering into contracts, which would increase an exposition over the approved limits, requires a collateral consistent with accepted principles of credit risk management. The level of limits used is regularly monitored, and in case of exceeding the limit the units responsible for counterpart risk management are obliged to take action to eliminate them. The PGE Group regularly monitors payments of receivables and uses system of early vindication, taking into consideration deadlines arising from the energy law and high level of repayment of receivables with short term of expire. It also works with business intelligence agencies and debt collection companies.
Credit risk relating to trade receivables by geographical regions is presented in the table below:
|December 31, 2016||December 31, 2015|
|Receivables balance||Share %||Receivables balance||Share %|
Ageing of receivables and impairment allowances
As at December 31, 2016 part of financial assets was covered by impairment allowances. The change in allowances accounts for these classes of financial instruments is presented in the table below:
|Year ended December 31, 2016||Trade receivables||Other financial receivables||Bonds|
|Impairment allowance as at January 1||(212)||(181)||(386)|
|Impairment allowance used||46||12||-|
|Impairment allowance reversed||4||11||89|
|Impairment allowance raised||(16)||(25)||-|
|Impairment allowance as at December 31||(170)||(195)||(297)|
|Value before the impairment allowance||2,875||3,963||386|
|Net value (carrying amount)||2,705||3,768||89|
The majority of impairment allowances on trade receivables concern companies from supply and distribution segment. Total impairment allowances on trade receivables recognized in these companies as at December 31, 2016 amounted to PLN 147 million (PLN 171 million in 2015).
PGE S.A. possesses bonds issued by Autostarda Wielkopolska S.A., which in previous years were fully covered with an impairment allowance. Due to revaluation of recoverable amount, the Company partly reversed the impairment allowance of PLN 89 million.
There are no significant receivables in the Group that would be substantially past due and not covered by an impairment allowance, except for disputed claims from ENEA S.A. described in detail in note 28.4 of these financial statements.
|Year ended December 31, 2015||Trade receivables||Other financial receivables||Bonds|
|Impairment allowance as at January 1||(243)||(163)||(415)|
|Impairment allowance used||33||-||29|
|Impairment allowance reversed||7||15||-|
|Impairment allowance raised||(16)||(33)||-|
|Impairment allowance as at December 31||(212)||(181)||(386)|
|Value before the impairment allowance||2,760||1,523||386|
|Net value (carrying amount)||2,548||1,342||-|
The analysis of ageing structure of trade receivables and other loans and receivables taking into account impairment allowances is presented below:
|December 31, 2016||December 31, 2015|
|Gross amount||Impairment allowances||Carrying amount||Gross amount||Impairment allowance||Carrying amount|
|Receivables before due date||6,638||(360)||6,278||4,096||(447)||3,649|
|Past due 360 days||273||(272)||1||287||(287)||-|
|Receivables past due, total||586||(302)||284||573||(332)||241|
|Trade and other financial receivables||7,224||(662)||6,562||4,669||(779)||3,890|
As at December 31, 2016, more than 66% of overdue trade receivables and other loans and receivables that were not covered by an impairment allowances related to sale of energy to end-users.
26.5.2 Deposits, cash and cash equivalents
The Group manages credit risk related to cash and cash equivalents by diversification of banks in which surpluses of cash are allocated. All entities, that the PGE Group concludes deposit transactions with, operate in the financial sector. These can only be banks registered in Poland or divisions of foreign banks with at least investment ratings, adequate indicators of solvency and equity as well as strong, stable market position. The share of three major banks in which the PGE Group allocated the most significant cash balances as at December 31, 2016 accounted for approximately 80%.
All entities, that the PGE Group concludes derivatives transactions with, operate in the financial sector. These are banks with investment ratings, adequate equity and strong, stable market position. As at the reporting date, the PGE Group was a party to the derivative transactions, described in detail in note 25.1.2 of these consolidated financial statements.
26.5.4. Guarantees and sureties granted
Guarantees and sureties granted by the PGE Group entities are presented in note 28 of these consolidated financial statements.