33. Provisions

Provisions are created when the Group has a present obligation (legal or customarily expected) resulting from past events, and there is a likelihood that  performing  this  obligation  will  result  in  an  outflow  of  economic  benefits and if the amount of this obligation can be reliably estimated.

Provisions  for liabilities  are measured at justified,  reliably estimated values. Specific  provisions  are established   for losses related to court cases against the Group. The amount of the provision constitutes the most accurate estimate of funds necessary to satisfy the claim as at the balance sheet date. The cost to create provisions is recognised in other operating costs.

Using a previously created provision for certain or highly likely future obligations is recognised when these obligations arise as a decrease of the provision.

In the event of a decrease or cessation of risk justifying the creation of a provision, an unused provision increases finance income or other operating revenue.

The Group also creates provisions for onerous contracts if the costs to comply with an obligation arising from a contract exceed the benefits (that are expected to be) received from that contract.

The Group also creates provisions for pre-trial claims submitted by the owners of properties on which its distribution grids  with equipment are located and for other claims related to the Group’s  grid assets on properties for which     the Group has no legal title.

Estimating the amount of compensation includes potential payments of compensation for non-contractual use of land and for rent, and is prepared by technical personnel.

 Provision for energy origin certificates and energy efficiency certificates

The Group creates provisions for redemption of energy origin certificates and energy efficiency certificates or payment of substitute fees.

The basis for determining provisions for redemption of energy origin certificates for  each instrument  is the quantity  of energy origin certificates constituting the difference between  the quantity of certificates required for  redemption   in accordance with the Energy Law and the quantity of certificates redeemed as at the reporting date.

The basis for determining provisions for redemption of energy efficiency certificates is the quantity of certificates expressed in tonnes of  oil  equivalent  constituting  the  difference  between  the  quantity  of  certificates  required  for redemption under the Energy Law and the quantity of certificates redeemed as at the reporting date.

Provisions are measured as follows:

1. first, based on the purchase price for the energy efficiency certificates held but not redeemed at the balance sheet date,
2. second, based on the purchase price resulting from the Group’s  sale agreements  as regards  the part      of the certificates that the Group intends to receive first,
3. third, based on the weighted average price in session transactions executed on the property rights market managed by Towarowa Giełda Energii S.A. in the course of the month with the reporting date that is used to determine the amount of provision,
4. in the case of a lack  of  such transactions  or  a market  shortage preventing the Group from  purchasing   a sufficient quantity of rights required to perform its obligation, the missing quantity of the provision is valued based on the unit substitute fee for the given financial

The provision for origin certificates will be performed in Q1-Q2 2022.

 Provision for mine liquidation

A provision for future costs associated with mine closure is recognised in compliance with the requirements stemming from the Geological and Mining Law, pursuant to which a mining enterprise is required to close mines after production ends, in an amount of the expected costs associated with:

• securing or liquidating mining excavations and mine facilities and equipment;
• securing any unused parts of the deposit;
• securing any neighbouring deposits;
• securing excavations adjacent to the mining facility;
• providing the necessary means to protect the environment and rehabilitate land and manage post-mining areas.

The amount of provision is recognised in the present value of expenditures  that – it is expected – will be necessary   to comply with the obligation. An interest rate before tax is then used, which reflects the present market assessment of the value of money in time and risk associated specifically with the liability. Increase in the provision associated with the passage of time is recognised as interest costs. Changes in the amount of this provision related to updated estimates (inflation rate, expected nominal value of expenditures on liquidation) in reference to the provision for mine closure are recognised as adjustment of the value of non-current assets subject to the closure obligation.

Provision for non-contractual use of property

Valuation includes estimating the potential payments of compensation for non-contractual use of land and for rent. The provision for non-contractual use of land is estimated using the stages and weights approach, i.e. the likelihood of losing the dispute and the necessity to satisfy the claim. The size of awarded compensation for non-contractual use of land might be significant for the Group given the number of properties in question however the Group is unable to estimate the maximum compensation amount. The Group, in connection with establishing transmission corridors, has estimated and taken into account in the provision also compensation for non-contractual use of land on which its grid assets (power lines) are situated such as were not subject to any claims as of the reporting date. There is a high uncertainty around when this provision will be used.

 Provision for other claims

This  item includes  provisions  for  claims that  are unrelated to the non-contractual  use of  land.  It is not  possible  to estimate the deadline for outflow of economic benefits on account of the rest of the provisions.

 Provision for landfill site reclamation

After filling or closing a slag and ash landfill site, the Group is required to rehabilitate the land. Given the fact that    the Group has large unfilled landfill sites, the rehabilitation obligation is expected to arise in 2060.

 Provision for CO2 emission allowance purchases

Judgements concern assumptions related to the allocation of free CO2 emission allowances due for the Group for 2021.

 Provision for mine liquidation costs

The Group creates a provision for the costs of mine closure that it is required to incur by law. The key assumptions used in determining the mine closure costs include mine life-cycle, expected inflation and long-term discount rates. Any changes  to these assumptions  have an impact  on the provision’s  book value. Mine closure costs  are calculated   by an independent advisory firm using historic data concerning mine closure costs in the hard coal sector in Poland.  It is difficult to determine when this provision will be performed.

 Provision for claims concerning terminated agreements for the purchase of property rights

Recognising this provision requires the most accurate estimate of potential compensation for terminating contracts  for the purchase of property rights (note 43.6). It is difficult to determine when this provision will be performed