ACCOUNTING RULES
Provisions
The Group recognises 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.
Reversals of discounts are charged to finance costs.
Post-employment and jubilee awards provision
Depending on the unit, the Group’s employees 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 Group’s employees are also 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 recognises 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 recognised as an operating expense in the amount corresponding with accrued future employees’ benefits. The present value of these liabilities 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 recognised in other comprehensive income for post-employment benefits and in operating expenses of the current period for jubilee awards.
Rehabilitation provision
The mining companies which belong to the Group raise provisions for costs of rehabilitation of post-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.
The provision is updated in case of change of estimated time or amounts of expenses necessary to conduct the rehabilitation process, or in case of change of discount rate. Estimation of rehabilitation provision requires making technical, geological, environmental, legal and tax assumptions, as well as schedule, scope and the level of rehabilitation costs. Changes in assumptions mentioned above impact the value of rehabilitation provision and capitalised rehabilitation costs recognized in property, plant and equipment, as well as statement of comprehensive income.
In the case of the rehabilitation of ash landfills (post-production waste from electricity generation), the cost of creating the provision is recognised in operating costs in proportion to the degree to which the landfill is filled.
A provision for reclamation of land following the construction of wind farms is created at the time of commissioning of the farm in the amount of the present value of the estimated costs of dismantling and removing the remains of equipment, structures and buildings and bringing the land to a condition as similar as possible to its condition prior to the construction of the farm.
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 for the year is recognised as operating costs or recognised in the initial value of tangible assets as appropriate. The unwinding of the discount is recognised in finance costs. Changes in the valuation of provisions resulting from the change of assumptions (e.g. macroeconomic factors, way of conducting the rehabilitation, date, etc.), are recognised in the following way:
- for the provisions recognised 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 allowances
The reserve for CO2 liabilities is recorded by PGE Group entities in relation to the shortfall of CO2 emission allowances granted free of charge. The provision is made for the most appropriate estimate of the expenditure required to settle the present obligation at the reporting date. The estimate of the expenditure necessary to meet the obligation to surrender CO2 allowances shall be based on a detailed identification method taking into account the allocation of both free and purchased allowances to a given year.
Provisions are recognised in the statement of comprehensive income as 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 final customers. To the extent of owned energy origin rights held for redemption the provision is recognised at the value of those rights. The provision for the amount not covered by property rights is measured at the reliably estimated amount of the fulfilment of the future obligation to redeem the property rights. The estimation takes into account, inter alia, the level of the substitution charge and the market price. The cost of the provision made is recognised in selling costs.
The carrying amount of provisions is as follows:
| At December 31, 2021 | At December 31, 2020 | |||
| Non-current | Current | Non-current | Current | |
| Employee benefits | 2,381 | 276 | 3,007 | 276 |
| Rehabilitation provision | 6,071 | 4 | 8,110 | 1 |
| Provision for shortage of CO2 emission allowances | – | 11,553 | – | 6,318 |
| Provision for energy origin units held for redemption | – | 276 | – | 589 |
| Provision for non-contractual use of property | 6 | 5 | 58 | 5 |
| Other provisions | 101 | 486 | 32 | 122 |
| TOTAL PROVISIONS | 8,559 | 12,600 | 11,207 | 7,311 |
Changes in provisions
| Employee benefits | Rehabilitation provision | Provision for cost of CO2 emissions | Provisions for energy origin rights held for redemption | Provision for non-contractual use of property | Other | Total | |
|---|---|---|---|---|---|---|---|
| JANUARY 1, 2021 | 3,283 | 8,111 | 6,318 | 589 | 63 | 154 | 18,518 |
| Actuarial gains and losses | 209 | – | – | – | – | – | 209 |
| Current employment costs | 86 | – | – | – | – | – | 86 |
| Past employment costs | (51) | – | – | – | – | – | (51) |
| Interest costs | 42 | 177 | – | – | – | – | 219 |
| Adjustment of discount rate and other assumptions | (678) | (2,323) | – | – | – | – | (3,001) |
| Benefits paid / Provisions used | (233) | (1) | (6,318) | (1,284) | (1) | (45) | (7,882) |
| Provisions reversed | – | (3) | (2) | (1) | (56) | (34) | (96) |
| Provisions recognised – costs | – | 74 | 11,555 | 972 | 5 | 500 | 13,106 |
| Provisions recognised – expenditures | – | 40 | – | – | – | – | 40 |
| Sale of Group companies | (1) | – | – | – | – | (2) | (3) |
| Other changes | – | – | – | – | – | 14 | 14 |
| DECEMBER 31, 2021 | 2,657 | 6,075 | 11,553 | 276 | 11 | 587 | 21,159 |
| Change recognised in operating expenses | 30 | (72) | (11,553) | (971) | – | (22) | (12,588) |
| Change recognised in other operating income/ (expenses) | – | 1,463 | – | – | 51 | (403) | 1,111 |
| Change recognised in other financial income/ (expenses) | (42) | (177) | – | – | – | (41) | (260) |
| Change recognised in assets | – | 821 | – | – | – | – | 821 |
| Change recognised in other comprehensive income | 404 | – | – | – | – | – | 404 |
| 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 of 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) |
| Provisions recognised – costs | – | 55 | 6,318 | 966 | 7 | 80 | 7,426 |
| Provisions recognised – expenditures | – | 43 | – | – | – | – | 43 |
| Acquisition of companies within 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 recognised in operating expenses | (147) | (55) | (6,197) | (964) | – | (35) | (7,398) |
| Change recognised in other operating income/ (expenses) | – | (306) | – | – | 9 | (28) | (325) |
| Change recognised in other financial income/ (expenses) | (61) | (168) | – | – | – | (2) | (231) |
| Change recognised in assets | – | (912) | – | – | – | – | (912) |
| Change recognised in other comprehensive income | (235) | – | – | – | – | – | (235) |
21.2 Provision for cost of CO2 emissions
21.3 Provision for energy origin rights held for redemption
21.4 Provision for claims concerning non-contractual use of property