IntegratedReport2014

19.1 Change in impairment allowances of inventories to net realizable value 

Additional information regarding inventories, which were used as pledge for the Group’s liabilities is presented in note ‎30. 

19.2  Mandatory reserves

Obligation to maintain of mandatory reserves of crude oil and oilderivative products in European Union (EU) is defined by Council Directive 2009/119/WE of 14 September 2009, which requires Member States to hold the minimum level of mandatory reserves.     

In Poland and in Lithuania regulations regarding mandatory reserves require an obligation to held the mandatory reserves between entities producing or importing the crude oil and fuels and the specialized state agencies. In the Czech Republic maintaining and gathering mandatory reserves obligation is carried out only by the Government.

The ORLEN Group uses solutions developed in the previous years, that include sale of the part of the mandatory reserves to the third party and outsourcing keeping the mandatory reserves in favour of PKN ORLEN while ensuring the possibility of storing them in the current locations. These transactions each time obtained the approval from The Material Reserves Agency. The selling prices and the repurchase prices of reserves are determined basing on the market quotations. PKN ORLEN concluded transactions hedging future prices of crude oil in case of repurchase of mandatory reserves – detailed information is presented in note 32.4.  

Hedging crude oil price expressed in USD, the ORLEN Group uses commodity swaps and currency forwards. As at 31 December 2014 positive valuation of currency forwards was recognized in other financial assets of PLN 141 million (note 21), whereas negative value of commodity swaps was recognized in other financial liabilities, both long- and short-term  (note 26 and 29) of PLN (1,530) million. Net effect of PLN (1,125) million of the above mentioned valuations after consideration of deferred tax impact was recognized in equity in the position: hedging reserve (note 23.3).

As at 31 December 2013 the Group recognized in other financial assets, both short- and long-term (note 17 and 21) positive valuation of commodity swaps of PLN 169 million, whereas the negative value of currency forward was recognized in other financial liabilities (note 29) of PLN (12) million. Net effect of the above mentioned valuations after consideration of deferred tax impact of PLN 127 million in equity in the position: hedging reserve (note 23.3).

In the period from 1 January 2013 till the publication of the foregoing consolidated financial statements, the following contracts of sale/repurchase of mandatory reserves were concluded:

As at 31 December 2014 and as at 31 December 2013 the value of mandatory reserves  presented in consolidated financial statement amounted to PLN 4,024 million and PLN 7,219 million, respectively.