14.11.1. Environmental provision
The Group has legal obligation to clean contaminated land – water environment in the area of production plants, generating installations, fuel stations, fuel terminals, power stations, warehouses and ash landfills.
The Group estimated the provision for environmental risk related to the removal of pollution based on analyses provided by independent expert or own analysis taking into account the expected costs of remediation. Depending on the type of facility generating the pollution, the provision is estimated by taking into account the frequency of remediation, the scale of environmental pollution and the achieved ecological effects. The decommissioning of most facilities will take place in the more distant future and the precise requirements that will have to be met when the removal event occurs are uncertain. The level of uncertainty is burdened with potential change in regulations concerning, among others environmental and social expectations. At the same time, technological progress is an important factor that will determine future decommissioning costs.
At the stage of development and extraction of hydrocarbon deposits, the Group recognises provisions for the cost of removal of drillings and supporting infrastructure. Within this category, the provisions also include costs of dismantling wind farms.
The line environmental provision mainly concerns entities operating in Poland, the Czech Republic and Canada. In the Czech Republic, obligations arising from pollution of soil-cum-water environment arising before the date of privatization of individual entities lies with the Czech state. In case of pollutants, arising after this date, this is the obligation of the Group companies.
The decrease in the balance of the environmental provision by PLN 143 million compared to the previous year was mainly due to the increase in the discount rate applied in 2021.
The calculations were discounted based on the risk-free rate set on the level of bond yields (10, 20 or 30-years depending on the expected maturity of the provision).
As at 31 December 2021 and as at 31 December 2020 the average discount rate amounted to 3.90% and 1.72% (Poland), and 2.27% and 0.94% (Canada) and 3.06% and 1.76% (the Czech Republic), respectively. The discount rate was adjusted by the inflation effect.