The key accounting principles applied in the preparation of these consolidated financial statements have been presented below. The principles have been applied consistently in all presented financial periods.
53.1 Basis for preparation
These consolidated financial statements for the financial year ended 31 December 2015 have been prepared in compliance with the requirements of IFRS-EU.
These consolidated financial statements have been prepared on the historical cost basis, except for financial assets measured at fair value through profit or loss and financial assets available for sale.
53.2 Consolidation principles
Subsidiaries include all entities whose financial and operational policy may be managed by the Group, which usually results from the majority of votes in the Company’s decision-making bodies. When assessing whether the Group controls an entity, the existence and impact of potential voting rights that may be exercised or exchanged at a given moment are taken into consideration. The subsidiaries are subject to consolidation using the full method as from the date of the Group’s assumption of control over such entities. They are not consolidated starting from the date when the Group loses control over them.
The cost of business combination, which is not under common control, is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets, liabilities and contingent liabilities acquired in a business combination are measured initially at their fair value at the acquisition date, irrespective of the minority interest, if any.
The Group measures non-controlling interests in proportion to their share in the fair value of identifiable acquired net assets. In the following periods the value of non-controlling interests accounts for the amount recognized at the initial recognition adjusted by changes in the subsidiary’s net assets in proportion to the non-controlling interests’ share. The total comprehensive income is allocated to non-controlling interests even when it results in their negative value.
If a gain for a bargain purchase occurs, the Group verifies the fair value of each net asset acquired. If following the verification, the outcome remains negative, it is recognized in profit or loss.
Inter-company transactions, balances and unrealized gains on transactions between Group’s companies are eliminated. Unrealized losses are also eliminated unless there is an impairment indicator of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(b) Associates and joint-ventures
Associates include all entities over which the Group has a substantial influence without exercising control, which usually results from holding 20%-50% of the total number of votes in an entity’s decision-making bodies. Investments in associates are accounted for using the equity method and are initially recognized at cost. Any surplus of the cost over the fair value of identifiable net assets of an associate as of the acquisition date is recognized as goodwill. Goodwill is included in the carrying amount of investments with impairment measured in relation to the total investment value. Any surplus of the Group's interest in the net amount of identifiable assets, liabilities and contingent liabilities over the acquisition cost after revaluation is immediately recognized in profit or loss.
Joint-ventures include all entities over which ENEA S.A. exercises control together with other companies based on contractual arrangements. Investments in jointly-controlled entities are accounted for using the equity method in the same way as investments in associates.
The post-acquisition Group’s share in profits or losses of associates and/or joint-ventures is recognized in the profit or loss, and Group’s share of post-acquisition movements in other capitals is recognized in other comprehensive income. The carrying value of investments is adjusted by post-acquisition cumulative changes in equity. When the Group’s share of losses in an associate or joint-venture equals or exceeds its interest in the equity accounted associate or joint venture, including any other unsecured receivables, recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of an associate or joint-venture company.
Unrealized gains on transactions between the Group and associates or joint-ventures are eliminated proportionally to the Group’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of impairment of the transferred asset. Accounting policies of associates and jointly controlled entities have been changed where necessary to ensure consistency with the policies adopted by the Group.
53.3 Business combinations/acquisitions
Business combinations/acquisitions of entities beyond common control are settled using the acquisition method, presented in Note 52.2.(a).
Business combinations/acquisitions of entities under common control do not fall within the scope of IFRS regulations. Considering the lack of detailed IFRS regulations, in line with the guidelines laid down in IAS 8 – “Accounting Policies, Changes in Accounting Estimates and Errors”, the entity ought to develop accounting principles applicable to such transactions.
The Group adopted an accounting policy according to which such transactions are recognized in carrying amounts.
The acquirer recognizes the assets, equity and liabilities of the acquiree at their current carrying amount adjusted only for the purpose of applying the same accounting principles for the combined entities beginning from the acquisition date. Goodwill and gain on bargain purchase is not recognized. Any difference between the carrying amount of the net assets acquired and the fair value of the payment in the form of equity instruments and/or assets given by the entity is recognized in the equity of the Group.
Comparative data for the previous periods presented are not restated when the method based on carrying amounts is used.
53.4 Foreign currency transactions and measurement of foreign currency balances
(a) Functional and presentation currency
Balances presented in the financial statements of Group individual entities are measured in the currency of the primary economic environment in which the entity carries out its business activity (functional currency). The consolidated financial statements are presented in the Polish zloty (PLN), which is the functional and presentation currency of all Group companies.
(b) Transactions and balances
Foreign currency transactions are translated upon their initial recognition to the functional currency at the exchange rate ruling as at the transaction date.
As at the end of the reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the closing rate (the average exchange rate published by the National Bank of Poland as at the measurement date).
Exchange gains and losses arising from settlement of foreign currency transactions and measurement of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss, while gains or losses on exchange differences on fixed assets under construction are capitalized as part of fixed assets under construction.
53.5 Property, plant and equipment
Property, plant and equipment is measured at acquisition price or manufacturing cost less accumulated depreciation and accumulated impairment losses.
Further expenditures are recognized in the carrying amount of a given fixed asset or recognized as a separate fixed asset (where appropriate) only if it is probable that the Group will generate economic benefits in connection with such an asset, whereas the cost of an item may be reliably measured. Any other expenditure incurred for repair and maintenance are recognized in profit or loss in the period when they are incurred.
If a fixed asset is replaced, the cost of the replaced component of the asset is recognized in its carrying amount, whereas the carrying amount of the replaced component is derecognized from the statement of financial position irrespective of whether it has been depreciated separately, and recognized in profit or loss.
Included in the initial value of fixed assets, mine liquidation costs are depreciated using such method that is used to depreciate fixed assets, which they relate to, beginning from the moment of starting to use a given asset, for the period specified in the plan of liquidation of groups of objects within the expected timetable for the mine liquidation.
Land is not subject to depreciation. Other fixed assets are depreciated using the straight-line method over the expected useful life of the asset. Depreciation is calculated based on the gross value reduced by the residual value, provided it is material. Each material component of a fixed asset with a different useful life is depreciated separately.
The useful lives of fixed assets are as follows:
- buildings and structures10 – 80 years
- including power grids 33 years
- structures (exploitation excavation)depreciated using natural method basedon the length of exploited walls
- technical equipment and machines 2 – 50 years
- vehicles 3 – 30 years
- other fixed assets 3 – 25 years
The residual value and useful lives of tangible fixed assets are reviewed at least on an annual basis. Any change in the depreciation period needs to be justified and the depreciation is adjusted prospectively.
The assessment of circumstances indicating the possible impairment in accordance with IAS 36 is carried out at each reporting date of a financial year. Impairment test in accordance with IAS 36 is carried out if there is any evidence indicating the possible impairment.
Depreciation begins when a given asset has been commissioned for use. Depreciation is no longer recognized when an asset is to be sold or derecognized from the statement of financial position.
The Group receives fixed assets constituting electricity infrastructure free of charge. Until 31 December 2009, fixed assets taken over were measured at fair value upon initial recognition, with the corresponding entry to deferred income from fixed assets received free of charge, settled over time proportionally to depreciation of these fixed assets. Since 1 January 2010 components of electricity infrastructure received free of charge have been fully recognized in other operating revenues at the moment of acquisition.
Gains and losses on disposal of fixed assets, which constitute the difference between revenue from sales and the carrying amount of the fixed asset disposed are recognized in profit or loss.
53.6 Perpetual usufruct of land
Land owned by the State Treasury, local governments or their associations may be used based on the right of perpetual usufruct (PU). The perpetual usufruct of land is a special property right based on which property may be used with the exclusion or other parties and the object (right) may be disposed of.
Depending on the method of acquisition, the Group classifies the right of perpetual usufruct as follows:
- PU acquired by virtue of the law free of charge pursuant to a decision of the Voivode or local government authorities is recognized as an operating lease;
- PU acquired for consideration from third parties is recognized as an asset under right of perpetual usufruct at acquisition price reduced by depreciation charges;
- PU acquired under a land perpetual usufruct agreement entered into with the State Treasury or local governments is recognized as a surplus of the first payment over the annual fee, disclosed as an asset under right of perpetual usufruct and depreciated.
The right of perpetual usufruct is amortized in the period for which it was granted (40-99 years).
53.7 Intangible assets
Goodwill arising from an acquisition results from a surplus of the consideration paid, non-controlling interests and fair value of shares previously held in the entity over the Group’s share in the net fair value of the identifiable assets, liabilities and contingent liabilities as of the acquisition date.
If gain on a bargain purchase occurs, the Group verifies the fair value of each net asset acquired. Any remaining gain from a bargain purchase after completing the re-assessment is immediately recognized in profit or loss.
Goodwill is initially recognized as an asset at cost and subsequently measured at cost less accumulated impairment loss.
For impairment testing purposes, goodwill is allocated to each cash generating unit (CGU) that should benefit from the post-combination synergy. CGU to which the goodwill is allocated are tested for impairment once a year or more frequently if according to reliable assumptions, impairment could occur. If the recoverable amount of a CGU is lower than its carrying amount, the impairment loss is first assigned in order to reduce the carrying amount of goodwill allocated to that CGU, and then to other assets of the unit pro rata to the carrying amount of each asset belonging therein. The impairment loss recognized for goodwill is not reversed in the following period.
(b) Geological information
Purchased geological information is accounted for in accordance with IFRS 6 "Exploration for and Evaluation of Mineral Resources" at the value arising from the agreement concluded with the Ministry of Environment. Information is not amortised until its receipt. Then capitalized costs are amortised over the concession lifetime.
The fee for the mining usufruct for the purpose of extraction to coal from the Bogdanka deposit is capitalized in the amount of the fee paid. The capitalized cost are amortised over the estimated useful life of the mine.
(d) Other intangible assets
Other intangible assets include: computer software, licenses as well as other intangible assets. Intangible assets are measured at acquisition price or manufacturing cost less accumulated amortization and accumulated impairment losses.
Amortization is calculated based on the straight-line method, taking into account the estimated useful life amounting to:
- for server licenses and software 2 - 10 years;
- for workstation licenses and software as well as anti-virus software 2 - 10 years;
- for geological information concession lifetime
- for other intangible assets 2 - 40 years.
The useful lives of intangible assets are reviewed by Group at least on an annual basis. Any change in the depreciation period needs to be justified depreciation is adjusted prospectively.
The assessment of circumstances indicating the possible impairment is carried out at each reporting date of a financial year. Impairment test in accordance with IAS 36 is carried out if there is any evidence indicating the possible impairment.
53.8 Research and development expenses
Research and development expenses are recognized in profit or loss in the period when they are incurred.
Like other intangible assets, research and development expenses meeting the capitalization criteria presented below are measured at
acquisition price or manufacturing cost less accumulated amortization and accumulated impairment losses. Amortization is calculated based on the straight-line method, taking into account the estimated useful life, which is 2-7 years.
- the technical feasibility of completing the intangible asset so that it will be available for use or sale;
- the intention to complete the intangible asset and use or sell it;
- ability to use or sell the intangible asset;
- the way the intangible asset will generate probable future economic benefits. Among other things, the enterprise should demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;
- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;
- the ability to reliably measure the expenditure attributable to the intangible asset during its development.
53.9 Borrowing cost
Borrowing costs that may be directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as a portion of the acquisition price or manufacturing cost of the asset. Other borrowing costs are recognized as an expense in the period they are incurred.
Capitalization of borrowing costs commences at the later of when expenditures for the asset are being incurred or when borrowing costs are being incurred. The borrowing costs are no longer capitalized when all substantially all the activities necessary to prepare the asset for its intended use are complete.
Lease agreements that transfer substantially all the risks and rewards incidental to ownership to the Group are classified as finance leases. Leases other than finance leases are recognized as operating leases.
The object of a finance lease is recognized in the assets as at the lease commencement date at the lower of: the fair value of the leased asset or the present value of the minimum lease payments. Each finance lease payment is divided into an amount reducing the balance of the liability and financial expenses so as to produce a constant rate of interest on the remaining balance of the liability. The interest component of each lease payment is recognized in the income statement over the lease period in such a way as to arrive at a fixed periodic interest rate compared to the unsettled liability amount. Depreciable assets acquired under finance lease agreements are depreciated over their useful life.
Lease payments under an operating lease (less any special promotional offers from the lessor) are recognized as an expense on a straight-line basis over the lease term.
53.11 Impairment of assets
The Group’s assets are tested for impairment whenever there are indicators that an impairment loss might have occurred. Goodwill is tested annually.
An impairment loss is recognized up to the amount by which the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of: the fair value less the costs of bringing an asset into condition for its sale or value in use (i.e. the present estimated value of the future cash flows expected to be derived from an asset or cash-generating unit). For the purpose of impairment testing, assets are grouped at the lowest possible level with respect to which separate cash flows may be identified (cash-generating units).
All impairment losses are recognized in profit or loss. Impairment losses may be reversed in subsequent periods (except from losses on goodwill) if events occur justifying the lack or change in the impairment of assets.
Financial assets are analyzed as at each reporting date so as to determine whether there are any indications of their impairment. It is assumed that financial assets have been impaired if there are objective indications that one or more events having a negative impact on the estimated future cash flows relating to the assets have occurred.
Individual by significant financial instruments with material value are analyzed for impairment on a case-by-case basis. Other financial assets are analyzed for impairment by groups with similar credit risk.
The principles for recognition of impairment losses on financial assets have been presented in detail in Note 53.13.
53.12 Investment property
Investment property is maintained in order to generate rental income, for capital appreciation or for both. For measuring investment property after the initial recognition, the Group selected the acquisition cost model.
Investments in property are depreciated according to the straight-line method. Depreciation begins in the month of its commissioning. The estimated useful life period is as follows:
Buildings 25 – 35 years
Revenue from lease of investment property is recognized in the profit or loss according to the straight-line method over the term of the lease.
53.13 Financial assets
Financial instruments are classified to the following categories: financial assets measured at fair value through profit or loss, loans and receivables, investments held to maturity and financial assets available for sale.
The classification is based on the purpose of acquiring an investment. The assets are classified upon initial recognition and then reviewed at each reporting date, if required or accepted by IAS 39.
(a) Financial assets measured at fair value through profit or loss
The category includes two sub-categories:
- financial assets held for; a financial asset is classified in this category if it has been acquired principally for the purpose of being sold in the short term, is part of a portfolio of financial instruments managed together and for which there is a probability of profit in the short term, or is a derivative not constituting a hedging instrument.
- financial assets designated as measured at fair value through profit or loss upon initial recognition.
These assets are recognized as current assets, if the Company intends to sell or realize them within 12 months from the end of the reporting period.
Financial assets measured at fair value through profit or loss are measured at fair value taking into account their market value at the balance sheet date, excluding transaction costs. Changes in the value of these financial instruments are recognized in profit or loss as financial income or expenses. If a contract contains one or more embedded derivatives, the whole contract may be classified as financial assets measured at fair value through profit or loss. This does not apply to cases where the embedded derivative does not significantly modify the cash flows of the contract or separation of embedded derivatives is clearly prohibited.
(b) Loans and receivables
Loans and receivables are financial assets with determined or determinable payments, which are not quoted on the active market, not classified as derivatives. They arise when the Group spends cash, delivers goods or services directly to the debtor without the intention of classifying them as receivables held for trading.
Loans and receivables are classified as current assets if their maturity as at the end of the reporting period does not exceed 12 months. Loans and receivables whose maturity as at the end of the reporting period exceeds 12 months are classified as non-current assets. Loans and receivables are recognized in the statement of financial position under trade and other receivables. Loans and receivables are measured at amortized cost.
(c) Investments held to maturity
Investments held to maturity that do not constitute derivative instruments are financial assets with determined or determinable payments and fixed maturity that Group intends to and is able to hold to maturity other than:
- designated by the Company upon initial recognition as measured at fair value through profit or loss,
- designated as available for sale and
- meet the definition of loans and receivables.
Investments held to maturity are measured at amortized cost using the effective interest rate.
If there is evidence of possible impairment of loans and receivables or investments held to maturity which are measured at amortized cost, the impairment loss is determined as the difference between the carrying amount of assets and the present value of estimated future cash flows discounted at the original effective interest rate for these assets (i.e. the effective interest rate computed at initial recognition for assets based on a fixed interest rate and the effective interest rate determined at the time of the last revaluation of assets based on a variable interest rate). An impairment loss is recognized in the statement of profit and loss and other comprehensive income. Impairment loss is reversed if in subsequent periods the impairment loss decreases and the decrease can be attributed to events occurring after recognition. As a result of reversal of the impairment, the carrying amount of financial assets may not exceed the amortized cost which would be determined if no impairment loss was recognized. Reversal of impairment loss is recognized in profit or loss.
(d) Financial assets available for sale
Financial assets available for sale (AFS) are non-derivative financial assets designated as “available for sale” or not classified to any of the remaining categories. This category includes mainly shares in unrelated parties. AFS financial assets are recognized as non-current assets if the Group does not intend to dispose of the investment within 12 months from the end of the reporting period.
Acquisition and sale of financial assets is recognized as at the date of the transaction, i.e. the day when the Group undertakes to purchase or sell a given asset. Financial assets are initially recognized at fair value increased by transaction costs, except for investments classified as financial assets measured at fair value through profit or loss, which are initially measured at fair value without transaction costs.
Financial assets are derecognized from the accounting records if the rights to the related cash flows have expired or have been transferred and the Group has transferred substantially all the risks and rewards incidental to their ownership.
Assets available for sale and those measured at fair value through profit or loss are initially recognized at fair value. Available for sale financial assets are measured at acquisition price less impairment losses if it is not possible to determine their fair value and they do not have a fixed maturity. Financial assets held to maturity are measured at amortized cost using the effective interest rate.
The effects of measurement of financial assets at fair value through profit or loss are recognized in profit or loss in the period when they occurred. The effects of the valuation of financial assets available for sale are recognized in the components of other comprehensive income except for impairment losses and gains or losses from foreign exchange differences that arise on monetary assets. Upon derecognition of an asset classified as available for sale from the accounting records, the total accumulated profits or loss (previously recognized in in the components of other comprehensive income) are recognized in profit or loss.
The fair value of investments quoted in an active market is determined with reference to their current purchase price. If there is no active market for financial assets (or the securities are not quoted), Group determines their fair value using adequate measurement techniques which include: recent transactions conducted under arm’s length conditions, comparison to other instruments which are identical in substance, an analysis of discounted cash flows, option valuation models and other techniques and models widely applied in the market, adjusted to the specific situation of the issuer.
If there are indicators of impairment of unquoted equity instruments, which are valued at acquisition cost (due to the inability to reliably determine the fair value), the impairment loss is determined as a difference between the carrying amount of the assets and the present value of estimated future cash flows discounted at the current market return rate of similar financial assets. Such impairment losses are not reversed.
At the end of each reporting period, Group verifies whether there is any objective evidence indicating impairment of a financial asset or a group of financial assets.
If such evidence exists in the case of financial assets available for sale, the total accumulated losses recognized in equity, determined as the difference between the acquisition price and their current fair value less possible impairment losses recognized previously in profit or loss, are excluded from equity and recognized in profit or loss. Impairment losses recognized in profit or loss and relating to equity instruments are not reversed in correspondence with profit or loss. The reversal of impairment losses on debt securities is recognized in profit or loss if the fair value increased as a result of subsequent events after the recognition of impairment in the periods following the recognition of the impairment loss.
(e) Hedge accounting
Derivative instruments used by the Company to hedge against the risks associated with changes in interest rates and exchange rates are measured at fair value. Derivative instruments are presented as assets when their value is positive and as liabilities - when their value is negative.
The fair value of foreign exchange contracts is calculated by reference to current forward rates for contracts with the same maturity date or based on valuations obtained from financial institutions. The fair value of contracts for interest rate change can be determined based on the valuation received from independent financial institutions.
In relation to the part of the secured exposure the Company applies hedge accounting.
The Company defines certain hedges against the risk of exchange rate differences, including derivatives, embedded derivatives and other instruments as fair value hedges or cash flow hedges. Foreign currency risk hedge in relation to probable future liabilities are accounted for as cash flow hedges.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions.
Derivatives are accounted for in accordance with fair value or cash flow hedge accounting, if all of the following conditions are met:
- at the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for undertaking the hedge,
- the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship,
- or cash flow hedges, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss,
- the effectiveness of the hedge can be reliably measured,
- the hedge is assessed on an ongoing basis and determined to have been highly effective throughout the financial reporting periods for which the hedge was designated.
If a fair value hedge is used, it is accounted for as follows:
- the gain or loss from remeasuring the hedging instrument at fair value is recognized in profit or loss, and
- the gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognized in profit or loss (this applies also if the hedged item is an available-for-sale financial asset, whose changes in value are recognized directly in revaluation reserve).
The Group discontinues fair value hedge accounting if:
- the hedging instrument expires, is sold, terminated or exercised,
- the hedge no longer meets the criteria for hedge accounting, or
- the Group revokes the designation.
Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. A forecast transaction is an uncommitted but anticipated future transaction.
If a cash flow hedge is used, it is accounted for as follows:
- the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in revaluation reserve,
- the ineffective portion of the gain or loss on the hedging instrument is recognized in profit or loss.
If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognized in revaluation reserve are reclassified to profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss. However, if the Group expects that all or a portion of a loss recognized in revaluation reserve will not be recovered in one or more future periods, it reclassifies to profit or loss the amount that is not expected to be recovered.
If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, or a forecast transaction for a non-financial asset or non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, the Group removes the associated gains and losses that were recognized in revaluation reserve and includes them in the initial cost or other carrying amount of the asset or liability.
The Group discontinues cash flow hedge accounting if the hedging instrument expires, is sold, terminated or exercised or no longer meets the criteria for hedge accounting. In this case, the cumulative gain or loss on the hedging instrument is recognized in revaluation reserve until the hedged transaction occurs. In case the hedged transaction is no longer expected to occur, related cumulative net gain or loss recognized in revaluation reserve is immediately recognized in profit or loss.
Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.
53.14 CO2 emission rights
CO2 emission rights granted free of charge under the National Allocation Plan (Krajowy Plan Rozdziału Uprawnień) and additional CO2 emission rights purchased for the purpose of redemption, i.e. fulfilling the CO2 emission settlement obligation, are presented as current intangible assets which are not amortized but tested for impairment and are presented separately in current assets.
CO2 emission rights granted free of charge for the given financial year are recognized at nominal cost, i.e.zero.CO2 emission rights purchased are measured at acquisition price less any impairment loss.
CO2 emission rights are registered in the following groups:
- green CER,
- free-of-charge and purchased EUA.
Within the above mentioned groups, costs are recognized according to first in, first out method (FiFo).
As regards CO2 emissions associated with the electricity production process, the Group is obliged to settle them through presentation of a specified quantity of CO2 emission rights for redemption. The costs related to fulfilling the aforementioned obligation are recognized in the accounting records systematically throughout the annual reporting period, in proportion to the actual and planned volume of production of electricity.
A provision is created for estimated CO2 emissions during the reporting period, and charged to costs of operating activities.
The amount of the provision, presented in the statement of financial position within liabilities, is determined in compliance with the following rules:
- the amount recognized as a provision should be the best estimate of the expenditure required to settle, in annual periods, the present obligation at the reporting date,
- first, the provision is established on the basis of the value of emission rights owned on the reporting date,
- if the demand for emission rights is not covered by the quantity of owned rights, a provision is established for the volume of uncovered estimated emissions, on the basis of the purchase prices of emission rights as specified in forward contracts made (if the delivery date is set before the date of actual settlement of the obligation, i.e. redemption of emission rights),
- if the demand for emission rights is not covered by the quantity of emission rights owned, due and purchased on forward date, then a provision is established for the volume of uncovered estimated emissions, on the basis of market quotes (Bluenext) as at the reporting date.
The liability (provision) due to CO2 emission is settled through redemption of emission rights.
Sales revenues and the cost of CO2 emission rights sold are presented in operating income and costs, respectively.
The value of the emission rights sold is determined according to FIFO in the given group of emission rights:
- green CER,
- free-of-charge and purchased EUA.
Inventories are measured at acquisition cost, which consists of purchase price plus the costs incurred in their purchase, i.e. in particular the costs of transport to storage location or production cost not higher than net selling price.
The cost of inventories is based on:
- in system SAP ERP using weighted average cost method,
- in system IFS using the method of specific identification of actual price (cost) of assets, that relate to specific projects, regardless of date of their purchase or manufacturing, except for coal for production, fuel oil, biomass and lime meal, which costs are recognized using the weighted average purchase price method.
Certificates of origin acquired for redemption, for resale and manufactured are presented as inventory.
Certificates of origin of energy are confirmation of the production of energy from renewable sources of energy (energy from e.g. wind, water, sun, biomass - so-called green certificates) or the energy generated in cogeneration (from three types of sources, i.e. the sources of gas or sources of power less than 1 MW - so-called yellow certificates, sources of power more than 1 MW other than burning gaseous fuels, methane and gas from biomass - so-called red certificates and sources of gas-fired obtained from biomass or methane released by demethylation in mines - so-called purple certificates). The President of URE grants them at the request of an energy company engaged in the production of energy from renewable energy sources and cogeneration.
Certificates of energy efficiency, i.e. white certificates are a confirmation of the declared energy savings resulting from the undertaken projects to improve energy efficiency in three areas, i.e. increasing energy savings by end users, increasing energy savings by the device's own needs and reducing the loss of electricity, heat or natural gas transmission and distribution. For these categories of projects tenders for so-called white certificates are carried out by the President of URE. The President of URE grants them at the request of the party, which won the tender.
Rights resulting from certificates of origin and certificates of energy efficiency arise as the moment of registration of certificates of origin of energy and certificates of energy efficiency conducted by Towarowa Giełda Energii S.A. (TGE S.A.).These rights are transferable and are a commodity exchange. The transfer of rights takes place upon an appropriate entry in the register of certificates of origin or in the register of certificates of energy efficiency. Rights expire at the time of redemption.
Acquired ccertificates of origin are valued at purchase price less any accumulated impairment losses.
In accordance with the Energy Law and Energy Efficiency Act, energy company engaged in energy trading and selling energy to end users is obliged:
(a) obtain and present for redemption to the President of URE certificates of origin of energy and certificates of energy efficiency or
(b) pay a substitution fee.
The Group is required to obtain and present for redemption:
(a) certificates of origin of energy corresponding to the size specified in the regulations to the Energy Law, as a percentage of total energy sales to end users,
(b) certificates of energy efficiency in tonnes of oil equivalent [toe], no more than 3% of quotient of revenue from the sale of electricity to end users, achieved for the year in which this obligation is implemented and substitution fee. The amount of revenue from the sale of electricity to end users reached for the accounting year shall be reduced by the amounts and costs accordingly to Article 12 paragraph. 4 of the Energy Efficiency Act. The size of the obligation in each accounting year of account is defined in the regulation to the Energy Efficiency Act.
The deadline for complying with the requirement of certificate redemption or substitute fee payment expires on dates specified in the applicable law.
The Group presents certificates of origin for redemption on a monthly basis in order to fulfill its obligation regarding the financial year. Redemption of certificates of origin is recognized in the accounting records based on a redemption decision issued by the President of Energy Regulatory Office, the redeemed certificates being subject to detailed identification.
At the reporting date in the absence of a sufficient number of certificates required to fulfill the obligations imposed by the Energy Law and Energy Efficiency Act, the Company creates a provision for redemption of certificates of origin of energy and certificates of energy efficiency or pay a substitution fee.
53.16 Cash and cash equivalents
Cash and cash equivalents include cash in hand, cash at bank, call deposits with banks and other short-term investments maturing within three months and with high liquidity. As at the end of the reporting period, cash is measured at nominal value.
53.17 Share capital
The share capital of the Group is recognized in the amount stipulated in the by-laws and registered in the National Court Register, adjusted by the effects of hyperinflation as well as settlement of the effects of business combinations and acquisitions, respectively. Increases in the share capital covered by the shareholders as at the end of the reporting period and not yet registered in the National Court Register are also disclosed as share capital.
53.18 Loans, borrowings and debt securities
Upon initial recognition financial liabilities are measured at fair value less transaction costs.
Following their initial recognition, financial liabilities are measured at amortized cost using the effective interest method. Amortized cost includes the costs associated with obtaining the loan and discount or premium on liabilities.
53.19 Income tax (including deferred income tax)
Income tax presented in the statement of profit or loss and other comprehensive income includes the current and deferred portion.
The current tax liability is calculated based on the taxable profit (tax base) for a given reporting period. The taxable profit/(loss) differs from net accounting profit/(loss) due to the exclusion of taxable income and expenses classified as tax-deductible in the following years as well as expenses and revenue which will never be subject to taxation. Tax liabilities are calculated based on tax rates applicable in a given reporting period.
The deferred tax is a tax of from events that occurred in a given period, recognized on the accrual basis in the accounting records of the period but realized in future. It arises when the tax effect of income and expenses is the same as the balance sheet, but it occurs in different periods.
During the term of Tax Group agreement, ENEA S.A. as representing entity calculates and settles Tax Group income tax. The subject of the income tax in tax groups is income (achieved in the fiscal year) representing surplus of the sum of income of all the companies forming the group over the sum of their losses.
53.20 Employee benefits
The following types of employee benefits are provided by the Group:
A. Short-term employee benefits
Short-term employee benefits at ENEA S.A. include: monthly wages, annual bonuses, electricity allowance, short-term paid leave with social security contributions, award at Dzień Energetyka and liability due to Voluntary Redundancy Program.
The liability due to short-term (accumulated) paid leave (compensation for paid leave) is recognized even if employees are not entitled to receive payment in lieu of holiday.
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The Group determines the expected cost of accumulating paid leave as the additional amount that the entity expects to pay as a result of the unused entitlement established at the balance sheet date.
B. Defined benefit plans
Defined benefit plans of the Group include:
1) Retirement benefits
Employees retiring (eligible for disability benefits) are entitled to receive retirement benefits in the form of cash compensation. The value of such benefits depends on the length of service and the remuneration received by the employee. The related liabilities are estimated using actuarial methods.
2) Electricity allowance for pensioners
Retiring employees who have worked for ENEA S.A. for at least one year are entitled to a reduced price of consumed energy. Pensioners and disability pensioners acquire the right to an electricity allowance in the amount of 3000 kWh x 80% of the electricity price and the variable component of the transmission charge and 100% the fixed network charge and subscription charge at the single-zone rate household tariff. The equivalent is paid twice a year, each time in the amount of the half of the annual equivalent. Equivalent value is indexed on the increase of energy price of generally applicable tariff for households in the year preceding the payment.
In case of an employee’s death, the right is transferred to his/her spouse if that person receives a family allowance.
3) Appropriation to the Company’s Social Benefits Fund for pensioners
Appropriation to the Company’s Social Benefits Fund for pensioners covered by the social care is made in the amount resulting from the applicable regulations.
Employee benefits are recognized in the statement of financial position in liabilities due to employee benefits and the change in provisions is presented in the statement of profit and loss and other comprehensive income.
4) Coal allowance benefits
Former employees of Lubelski Węgiel Bogdanka S.A. whose contracts of employment were terminated due to retirement or transiction to pension, and optionally relatives or spouses of deceased employees, will annually get perpetual coal allowance. The projected unit credit method requires the recognition of provisions for current employees of the Company at the reporting date, but only for the part of benefit, which will be paid upon death or retirement.
Only person that acquired or will acquire the right to this benefit by 31 December 2034, are its beneficiaries and will not loose rights to the benefit. Other person are not entitled to this benefit and provision for them was not recognized.
Actuary estimates the amount of provisions for employee benefits, which are mentioned in par. 1-4, using Projected Unit Credit Method. Actuarial losses are fully recognized in other comprehensive income.
C. Other long-term employee benefits
Other long-term employee benefits at ENEA S.A. include jubilee bonuses. Their value is dependent on the length of service and the remuneration received by the employee. The related liabilities are estimated using actuarial methods. The total value of actuarial gains and losses is recognized in profit or loss.
D. Defined contribution plan
1) Social security contributions
The social security system in Poland is a state programme, in accordance with which the Group is obliged to make social security contributions for employees when they become due. No legal or constructive obligation has been imposed on the Group to pay future benefits relating to social security. The costs of contributions pertaining to the current period are recognized by the Group in profit or loss as the costs of employee benefits.
2) Employee Pension Scheme
Pursuant to Appendix to the Collective Labor Agreement, ENEA S.A. operates an Employee Pension Scheme in the form of unit-linked group employee insurance in line with the statutory principles and under conditions negotiated with the labor unions.
The Employee Pension Scheme is available to all employees of ENEA S.A. after one year of service, irrespective of the type of their employment contract.
Employees join the Employee Pension Scheme under the following terms and conditions:
- the insurance is group life insurance with insurance protection;
- the amount of the basic premium is set at 7% of the participant’s salary;
- 90% of the basic premium is allocated to investment premium and 10% to insurance protection.
The Company recognizes the cost of current premiums for Employee Pension Scheme in the statement of profit and loss and other comprehensive income as costs of employee benefits.
E. Share-based payments
The fair value of share options granted is recognized as payroll costs in correspondence with the increase in equity. The fair value is determined at the grant date of share options to employees and spread over the period in which employees willl acquire the unconditional right to exercise the option (due to the fact that the fair value of employees’ services can not be assessed directly, their value is determined based on the fair value of equity instruments granted). The amount charged to costs is adjusted to reflect the number of granted options for which service conditions and non-market vesting conditions are met.
F. Profit-sharing programmes and bonus programmes
Lubelski Węgiel Bogdanka S.A. recognizes liabilities and costs related to awards, bonuses and profit-sharing programmes where it is contractually obliged to pay them or where previous practice has created constructive obligation.
Provisions are created if the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount of the obligation can be reliably estimated.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation as at the end of the reporting period.
Use of previously created provisions for certain or highly probable future liabilities is recorded as the reduction of the provision when the liabilities occur.
Unused provisions in the event of a reduction or cessation of risk justifying their creation, increase the financial revenues or other operating income.
The Company also creates provisions for claims which have not been submitted to court yet reported by the owners of the property, where there are distribution networks and devices, and other potential claims related to construction of the network assets of the Company on property to which the Company has no legal title. Estimating the value of claims includes potential compensation for so-called non-contractual use of land and is made by the technical service.
Provision for redemption of certificates of origin and energy performance certificates
When at the end of the reporting period there is the missing amount of required number of certificates according to the Energy Law and Energy Effectiveness Law the Company recognizes a provision for redemption of certificates of origin and energy performance certificates or substitute fee.
The basis for determining the provision for redemption of certificates of origin for each of the values is the number of certificates of origin accounting for the difference between the number of certificates redeemed as at the end of the reporting period and the number required for redemption by the Energy Law.
The basis for determining the provision for the redemption of certificates of energy efficiency is the number of of certificates in tonnes of oil equivalent representing the difference between the number of certificates required for redemption in accordance with the requirements of the Energy Efficiency Act, and the number of certificates redeemed at the balance sheet date.
Provisions are measured:
- firstly, at acquisition price of unredeemed certificates of origin held as the end of the reporting period,
- secondly, on the basis of the purchase price resulting from the concluded sales contracts by the Group, in respect of that part of the certificates, which the Company plans to receive in the first instance,
- thirdly, on the basis of weighted average price in session transactions closed at the Property Rights Market operated by the Polish Power Exchange during the month preceding the reporting date at which the measurement of the provision is determined,
- and if there are no such transactions or there is a shortage of specific certificates on the market, preventing the Group from acquiring a required number of certificates to be redeemed according to the Energy Law, the missing amount of certificates is measured at the unit substitute fee for the given financial year.
Provision for mine liqudation
ENEA Group creates a provision for future costs of mine liquidation due to obligations arising under the Geological and Mining Law. The act requires a mining company to liquidate mines on discontinuation of production in the amount of the expected costs related to:
- securing or liquidating excavations and facilities and equipment of mine;
- securing the unexploited part of a mineral deposit;
- securing adjacent mineral deposits;
- securing excavations of adjacent mining plants;
- taking the necessary measures to protect the environment, land reclamation and development of post-mining areas.
The costs of mine liquidation is calculated by an independent consulting company using historical data on the costs of mine liquidations in coal mining sector in Poland.
53.22 Revenue recognition
Sales revenue is measured at the fair value of the consideration received or receivable less the value added tax, discounts and rebates.
Revenue from the sales of energy and distribution services is recognized upon delivery of the energy or transmission services to the customer. In order to determine the value of revenue for a period from the last billing date to the end of the reporting period, an estimate is made and recognized in the statement of financial position under trade and other receivables.
Revenue from the sale of certificates of origin acquired for resale is recognized according to the principles described in 53.15.
Revenue from the sales of goods, merchandise and materials is recognized when the entity has transferred to the buyer the significant risks and rewards of ownership of the goods and materials it is probable that the economic benefits associated with the transaction will flow to the entity.
Revenue from lease of investment property is recognized in profit or loss according to the straight-line method over the term of the lease.
Interest income is recognized on an accrual basis using the effective interest rate if its receipt is not doubtful.
Dividend income is recognized when the Company acquires the right to receive the related payments.
The Group receives tangible fixed assets constituting electricity infrastructure free of charge. Until 31 December 2009 such transactions were recognized at fair value as property, plant and equipment, and their value was recognized under deferred income and settled over time in the profit or loss pro rata to depreciation costs accrued on the received assets. Since 1 January 2010 fixed assets constituting electricity infrastructure received free of charge are recognized in full amount as revenue in profit or loss.
Other subsidies received by the Group (i.e. grants in the form of other fixed assets and compensation for expenses incurred for other fixed assets) are recognized by the Group in the statement of financial position as deferred income when there is reasonable assurance that they will be received and that the Group will comply with appropriate conditions related to such grants. Grants received as compensation for costs already incurred by the Group are recognized on a systematic basis as revenue in profit or loss in the periods in which the entity recognizes as expenses the related costs. Grants received by the Group as compensation for capital expenditure incurred are recognized on a systematic basis in proportion to the depreciation charges as other operating revenue in profit or loss over the useful life of an asset.
53.24 Connection fees
Revenue from connection fees for tasks completed by 31 December 2009 is recognized in deferred income and settled over the depreciation period of the connection, at present determined as 35 years. In financial statements the fees are recognized under long-term liabilities. At the end of each reporting period, the fees up to one-year maturity are reclassified to short-term liabilities.
Advances for connection fees paid to the Group until 31 December 2009 with connections commissioned after 1 January 2010 are recognized in full amount in revenue.
53.25 Compensation to cover stranded costs originating from early termination of long-term power and electricity sales contracts (LTC)
Compensation to cover the stranded costs is recognized in the profit or loss as revenue in the periods when the related stranded costs are incurred.
Compensation to cover stranded costs is recognized in the amount of advances due for a given financial period as determined in Appendix 4 to the Act on principles to cover producers’ costs originating from early termination of LTC of 29 June 2007 adjusted by an estimated adjustment amount for the given period. The compensation for stranded costs for the given year is settled by the President of the Energy Regulatory Office by 31 July of the subsequent year and by 31 August following the last year of LTC remaining in force.
53.26 Dividend payment
Payments of dividends to shareholders (including minority shareholders for dividends of subsidiaries) are recognized as a liability in the financial statements of the Group for the period when they were approved by the Parent’s shareholders.
53.27 Non-current assets held for sale
Non-current assets held for sale include items satisfying the following criteria:
- their carrying amount will be recovered principally through sale transactions rather than through continuing use;
- the Management Board of the Company submitted a sales declaration and started to search actively for a potential buyer;
- the assets are available for immediate sale in their current condition;
- the sale transaction is highly probable and may be settled within 12 months of the date of the decision;
- the sales price is reasonable compared to the current fair value;
- the probability that changes to the asset disposal plan will be made is low.
If the aforementioned criteria have been satisfied after the end of the reporting period, the asset is not reclassified at the end of the financial year preceding the event. The classification change is reflected in the reporting period when the aforementioned criteria have been satisfied. Amortization/depreciation charges are no longer applied starting from the date when the asset is designated as held for sale.
Assets held for sale are measured at the lower of: the net carrying amount or the fair value less costs to sell.
53.28 Statement regarding application of International Financial Reporting Standards
53.28.1 Standards, Interpretations and amendments to published Standards as adopted by the EU that are not yet effective for annual periods ending on 31 December 2015
The following new Standards, amendments to the existing Standards and Interpretations adopted by the EU are not yet mandatorily effective for annual periods ending on 31 December 2015 and were not used in the consolidated financial statements:
- Amendments to IAS 19 Employee Benefits entitled Defined benefit plans: Employee contributions - for annual periods beginning 1 February 2015,
- Amendments to IFRS 2010-2012 - for periods beginning 1 February 2015,
- Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11 Joint Arrangements)- for periods beginning 1 January 2016,
- Agriculture: Bearer Plants (Amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture) - for periods beginning 1 January 2016,
- Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets) - for periods beginning 1 January 2016,
- Improvements to IFRS (2012-2014) - for periods beginning 1 January 2016,
- Disclosure initiative (Ammendments to IAS 1 Presentation of Financial Statements) - for periods beginning 1 January 2016,
- Equity Method in Separate Financial Statements (Amendments to IAS 27 Separate Financial Statements) - for periods beginning 1 January 2016.
The Group plans to adopt these pronouncements when they become effective.
The Group is currently evaluating the impact of above mentioned new Standards, amendments to Standards and Interpretations. However, it is not expected to have a significant effect on its consolidated financial statements.
53.28.2 Standards and interpretations not yet endorsed by the EU
The following new Standards, amendments to Standards and Interpretations not yet endorsed by the EU are not mandatorily effective for annual periods ending on 31 December 2015 and were not used in the consolidated financial statements:
- IFRS 9 Financial Instruments (2014) – for annual periods beginning 1 January 2018,
- IFRS 14 Regulatory Deferral Accounts – for annual periods beginning 1 January 2016,
- IFRS 15 Revenue from Contracts with Customers – for annual periods beginning 1 January 2018,
- Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates) – for annual periods beginning 1 January 2016,
- Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in associates and joint ventures) – for annual periods beginning 1 January 2016.
- IFRS 16 Leases - for annual periods beginning 1 January 2019,
- Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12 Income Taxes) - for annual periods beginning 1 January 2017,
- Disclosure Initiative (Amendments to IAS 7 Statement of Cash Flows) - for annual periods beginning 1 January 2017.
The Group plans to adopt these pronouncements when they become effective.
The Group has not yet analysed the likely impact of the new Standards, amendments to Standards and Interpretations on its financial position or performance.