16.4. Hedge accounting
The ORLEN Group applies cash flow and fair value hedge accounting of the following strategies:
- Cash flow concerns:
- forward sales and purchase of foreign currency operating activity hedging,
- hedging the change in margins on refinery products sold,
- hedging the periodic increase in operating inventories,
- hedging the timing mismatches due to sales of refinery products.
- Fair value concerns:
- hedging the sales of bitumen and aviation fuel at a fixed price.
Currently, the sources of ineffectiveness in case of hedge accounting for currency risk is the difference between the maturity date for hedging instrument, falling on the last business days of the M-1 month and maturity of the hedged item, where the revenues from sale of petrochemical and refinery products are realized in the first consecutive days of the given M month.
However, in case of commodity risk, sources of ineffectiveness result from the risk components designated for the hedged item, which are a part of the probable planned future purchase of oil and hedging instruments based solely on commodity indices of refinery products sold.
There is partially natural hedging for USD/PLN exchange rate, as revenues from sales of products depending on USD exchange rate are offset by the cost of buying crude oil in the same currency. Due to the fact that PKN ORLEN has a long position in EUR and the relatively low interest rates for EUR (as compared to PLN rates), it was considered reasonable to strive for a situation in which the Group has partially debt obligations in foreign currency.
Information on hedging instruments – maturity structure
2021
| Risk type / type of instrument | Unit of measure | up to 1 year | above 1 to 3 years |
above 3 to 5 years |
| Cash flow hedge | ||||
| Foreign exchange risk | ||||
| Currency forwards -long position hedge (purchase) | ||||
| Nominal value | USD | 8 058 576 | 9 076 707 | – |
| Average exchange rate USD/PLN | 3.97 | 3.72 | – | |
| Currency forwards – short position hedge (sale) | ||||
| Nominal value | EUR | 480 000 000 | 930 000 000 | 455 000 000 |
| Average exchange rate EUR/CZK | 27.27 | 27.29 | 27.76 | |
| Nominal value | EUR | 501 000 000 | 1 026 500 000 | 794 500 000 |
| Average exchange rate EUR/PLN | 4.64 | 4.71 | 4.88 | |
| Nominal value | USD | – | – | – |
| Average exchange rate USD/PLN | – | – | – | |
| Commodity risk | ||||
| Commodity swaps – future revenues hedge (sale) | ||||
| Petrol | ||||
| Volume | MT | 11 800 | – | – |
| Average price | 646.00 | – | – | |
| Diesel | ||||
| Volume | MT | 70 000 | – | – |
| Average price | 642.00 | – | – | |
| Crude oil | ||||
| Volume | BBL | – | – | – |
| Average price | – | – | – | |
| Heating oil | ||||
| Volume | MT | – | – | – |
| Average price | – | – | – | |
| Commodity swaps – inventories (purchase) | ||||
| Petrol | ||||
| Volume | MT | – | – | – |
| Average price | – | – | – | |
| Commodity swaps – future manufacturing costs hedge (purchase) | ||||
| Crude oil | ||||
| Volume | BBL | – | – | – |
| Average price | – | – | – | |
| Fair value hedge | ||||
| Commodity risk | ||||
| Commodity swaps – future revenues hedge (purchase) | ||||
| Crude oil | ||||
| Volume | BBL | 122 400 | 178 550 | – |
| Average price | 65.84 | 50.84 | – |
2020
| Risk type / type of instrument | Unit of measure | up to 1 year | above 1 to 3 years |
above 3 to 5 years |
above 5 years |
| Cash flow hedge | |||||
| Foreign exchange risk | |||||
| Currency forwards -long position hedge (purchase) | |||||
| Nominal value | USD | 12 923 334 | 6 813 312 | – | – |
| Average exchange rate USD/PLN | 3.95 | 3.73 | – | – | |
| Currency forwards – short position hedge (sale) | |||||
| Nominal value | EUR | 430 000 000 | 945 000 000 | 353 000 000 | – |
| Average exchange rate EUR/CZK | 27.02 | 27.26 | 27.39 | – | |
| Nominal value | EUR | 481 300 000 | 1 067 012 228 | 756 330 807 | 25 000 000 |
| Average exchange rate EUR/PLN | 4.58 | 4.66 | 4.74 | 4.88 | |
| Nominal value | USD | 900 000 | – | – | – |
| Average exchange rate USD/PLN | 4.17 | – | – | – | |
| Commodity risk | |||||
| Commodity swaps – future revenues hedge (sale) | |||||
| Petrol | |||||
| Volume | MT | 50 000 | – | – | – |
| Average price | 437.63 | – | – | – | |
| Diesel | |||||
| Volume | MT | 91 250 | – | – | – |
| Average price | 368.00 | – | – | – | |
| Crude oil | |||||
| Volume | BBL | 553 000 | – | – | – |
| Average price | 38.06 | – | – | – | |
| Heating oil | |||||
| Volume | MT | 4 000 | – | – | – |
| Average price | 283.30 | – | – | – | |
| Commodity swaps – inventories (purchase) | |||||
| Petrol | |||||
| Volume | MT | 24 000 | – | – | – |
| Average price | 429.75 | – | – | – | |
| Commodity swaps – future manufacturing costs hedge (purchase) | |||||
| Crude oil | |||||
| Volume | BBL | 144 000 | – | – | – |
| Average price | 43.86 | – | – | – | |
| Fair value hedge | |||||
| Commodity risk | |||||
| Commodity swaps – future revenues hedge (purchase) | |||||
| Crude oil | |||||
| Volume | BBL | 265 470 | 138 210 | – | – |
| Average price | 45.29 | 49.30 | – | – |
Planned realization date of hedged cash flow and fair value which will be recognised in the profit or loss
| 31/12/2021 | 31/12/2020 | |
| Currency operating exposure | 2022-2026 | 2021-2026 |
| Commodity risk exposure | 2022-2023 | 2021-2023 |
Hedge accounting effects on financial situation and results
2021
| Link type / risk type / type of instrument |
Purchase (P) / Sale (S) |
Hedging strategies within the cash flow hedge |
Unit of measure |
Nominal value / volume
31/12/2021 |
Assets
31/12/2021 |
Liabilities
31/12/2021 |
Changes in fair value (as basis for determining an ineffective part in a given period) |
| Cash flow hedge | |||||||
| Foreign exchange risk | |||||||
| FX_EUR.PLN | S | sales of goods denominated in foreign currencies/indexed to foreign currencies | EUR | 2 322 000 000 | 1 | 674 | (581) |
| FX_EUR.CZK | S | EUR | 1 865 000 000 | 220 | 59 | 10 | |
| FX_USD.PLN | B | deliveries for purchases denominated in foreign currency or indexed to exchange rate of foreign currency | USD | 17 135 283 | 6 | – | 8 |
| FX_USD.PLN | S | sales of goods denominated in foreign currencies/indexed to foreign currencies | USD | – | – | – | – |
| 227 | 733 | (563) | |||||
| Commodity risk | |||||||
| Crude oil | S | time mismatch on crude oil purchases oversize inventories hedge |
BBL | – | – | – | 27 |
| Crude oil | B | oversize inventories hedge | BBL | – | – | – | (4) |
| Petrol | S | oversize inventories hedge | MT | 11 800 | – | 3 | 6 |
| Petrol | B | oversize inventories hedge | MT | – | – | – | (2) |
| Diesel | B | oversize inventories hedge | MT | – | – | – | – |
| Diesel | S | oversize inventories hedge | MT | 70 000 | – | 8 | 14 |
| Heating oil | S | oversize inventories hedge | MT | – | – | – | – |
| Aviation fuel | S | oversize inventories hedge | MT | – | – | – | – |
| – | 11 | 41 | |||||
| 227 | 744 | (522) | |||||
| Fair value hedge | |||||||
| Commodity risk | |||||||
| Crude oil | B | bitumen sale at fixed price | BBL | 300 950 | 19 | – | 14 |
| Heating oil | B | bitumen sale at fixed price | MT | – | – | – | – |
| 19 | – | 14 | |||||
| 246 | 744 | (508) | |||||
Carrying amount was recognised in statement of financial position in Derivatives, Note 14.10.1, 14.10.2
2020
| Link type / risk type / type of instrument |
Purchase (P) / Sale (S) |
Hedging strategies within the cash flow hedge |
Unit of measure |
Nominal value / volume
31/12/2020 |
Assets
31/12/2020 |
Liabilities
31/12/2020 |
Changes in fair value (as basis for determining an ineffective part in a given period) |
| Cash flow hedge | |||||||
| Foreign exchange risk | |||||||
| FX_EUR.PLN | S | sales of goods denominated in foreign currencies/indexed to foreign currencies | EUR | 2 329 643 035 | 10 | 102 | (369) |
| FX_EUR.CZK | S | EUR | 1 728 000 000 | 153 | 1 | (27) | |
| FX_USD.PLN | B | deliveries for purchases denominated in foreign currency or indexed to exchange rate of foreign currency | USD | 19 736 646 | – | 3 | (6) |
| FX_USD.PLN | S | sales of goods denominated in foreign currencies/indexed to foreign currencies | USD | 900 000 | – | – | – |
| 163 | 106 | (402) | |||||
| Commodity risk | |||||||
| Crude oil | S | time mismatch on crude oil purchases | BBL | 553 000 | – | 27 | 37 |
| Crude oil | B | oversize inventories hedge | BBL | 144 000 | 4 | – | 4 |
| Petrol | S | oversize inventories hedge | MT | 50 000 | – | 10 | (10) |
| Petrol | B | oversize inventories hedge | MT | 24 000 | 2 | – | 2 |
| Diesel | B | oversize inventories hedge | MT | – | – | – | (4) |
| Diesel | S | oversize inventories hedge | MT | 91 250 | – | 21 | (5) |
| Heating oil | S | oversize inventories hedge | MT | 4 000 | – | – | – |
| Aviation fuel | S | oversize inventories hedge | MT | – | – | – | 1 |
| 6 | 58 | 25 | |||||
| 169 | 164 | (377) | |||||
| Fair value hedge | |||||||
| Commodity risk | |||||||
| Crude oil | B | bitumen sale at fixed price | BBL | 403 680 | 6 | 1 | 2 |
| Heating oil | B | bitumen sale at fixed price | MT | – | – | – | 3 |
| 6 | 1 | 5 | |||||
| 175 | 165 | (372) | |||||
Carrying amount was recognised in statement of financial position in Derivatives, Note 14.10.1, 14.10.2
Cash flow hedge
2021
| Risk type / position type | Changes in fair value of the hedged item (as basis for determining an ineffective part in a given period – off-balance sheet item) | Hedging reserve (gross value) for relationships remains in hedge accounting |
| Cash flow hedge | ||
| Foreign exchange risk (EUR) | ||
|
Future sales revenues |
55 | (245) |
| Foreign exchange risk (USD) | ||
|
Future manufacturing costs |
(8) | 4 |
| 47 | (241) | |
| Commodity risk | ||
| Inventories | 1 | – |
| Future sales revenues | (52) | (8) |
| Future manufacturing costs | 5 | – |
| (46) | (8) | |
| 1 | (249) |
2020
| Risk type / position type | Changes in fair value of the hedged item (as basis for determining an ineffective part in a given period – off-balance sheet item) | Hedging reserve (gross value) for relationships remains in hedge accounting |
| Cash flow hedge | ||
| Foreign exchange risk (EUR) | ||
|
Future sales revenues |
613 | (361) |
| Foreign exchange risk (USD) | ||
|
Future manufacturing costs |
4 | (2) |
| 617 | (363) | |
| Commodity risk | ||
|
Inventories |
(1) | 1 |
|
Future sales revenues |
(25) | (57) |
|
Future manufacturing costs |
1 | 4 |
| (25) | (52) | |
| 592 | (415) |
Fair value hedge
2021
| Risk type / position type | Accumulated balance sheet adjustment due to fair value | Item in statement of financial position in which carrying amount was recognised | Change in value of hedged item adjustment in a given period | Changes in fair value (as basis for determining an ineffective part in a given period) | Difference between profit or loss due to hedge on hedging instrument and hedged item | |
| Assets | Liabilities | |||||
| Commodity risk | ||||||
| Future sales revenues | – | 19 | Derivatives and other assets and liabilities | (14) | 14 | – |
2020
| Risk type / position type | Accumulated balance sheet adjustment due to fair value | Item in statement of financial position in which carrying amount was recognised | Change in value of hedged item adjustment in a given period | Changes in fair value (as basis for determining an ineffective part in a given period) | Difference between profit or loss due to hedge on hedging instrument and hedged item | |
| Assets | Liabilities | |||||
| Commodity risk | ||||||
| Future sales revenues | 2 | 7 | Derivatives and other assets and liabilities | (5) | 5 | – |
Impact of cash flow hedge accounting on the statement of profit or loss and other comprehensive income
2021
| Risk type / position type | Profits or losses from hedge for the reporting period recognised in other comprehensive income | Ineffectiveness of hedge recognized in profit or loss in the period | Item in the statement, where ineffectiveness of hedge was recognised | Amount reclassified from other comprehensive income to profit or loss as adjustment due to reclassification, because of: | |
| Implementation of hedged item in the period (continued relationships) | Item in profit or loss, that includes reclassification adjustment | ||||
| Foreign exchange risk (EUR/PLN) | |||||
|
currency forwards |
102 | – | (186) | Sales revenues | |
|
currency forwards |
– | – | 2 | Manufacturing costs (operational) | |
|
currency forwards |
(676) | – | Other operating income and costs | 287 | Other operating income/expenses |
| Foreign exchange risk (USD/PLN) | |||||
|
currency forwards |
– | – | 1 | Sales revenues | |
|
currency forwards |
6 | – | (3) | Manufacturing costs (operational) | |
|
currency forwards |
1 | – | Other operating income and costs | (1) | Other operating income/expenses |
| (567) | – | 100 | |||
| Commodity risk | |||||
|
commodity swaps |
(6) | – | 43 | Inventories | |
|
commodity swaps |
50 | (1) | Other operating income and costs | (180) | Sales revenues |
| 44 | (1) | (137) | |||
| (523) | (1) | (37) | |||
In other comprehensive income related to gross hedging reserve in the amount of PLN (513) million, the Group recognises profit or loss in the amount of PLN (523) million recognised in the 12 month period of 2021 and settled derivatives awaiting hedged item in the amount of PLN 10 million, including PLN 14 million from 2021 and PLN (4) million settled from the previous year.
2020
| Risk type / position type | Profits or losses from hedge for the reporting period recognised in other comprehensive income | Ineffectiveness of hedge recognized in profit or loss in the period | Item in the statement, where ineffectiveness of hedge was recognised | Amount reclassified from other comprehensive income to profit or loss as adjustment due to reclassification, because of: | |
| Implementation of hedged item in the period (continued relationships) | Item in profit or loss, that includes reclassification adjustment | ||||
| Foreign exchange risk (EUR/PLN) | |||||
| currency forwards | (396) | – | 95 | Sales revenues | |
| currency forwards | – | – | 2 | Manufacturing costs (operational) | |
| Foreign exchange risk (USD/PLN) | |||||
| forwardy walutowe | – | – | (4) | Sales revenues | |
| currency forwards | (6) | – | (12) | Manufacturing costs (operational) | |
| currency forwards | – | (167) | Other operating income/expenses | ||
| (402) | – | (86) | |||
| Commodity risk | |||||
| commodity swaps | – | Other operating income and costs | 202 | Inventories | |
| commodity swaps | 25 | 1 | Other operating income and costs | (363) | Sales revenues |
| 25 | 1 | (161) | |||
| (377) | 1 | (247) | |||
Reconciliation of equity from hedge accounting
2021
| Hedging reserve by | ||||
| Effective part of change in fair value | Effective part due to settlement of instruments | Cost of hedging related to occurrence of transaction | Total | |
| Foreign exchange risk |
||||
| 01/01/2021 | (363) | 14 | 402 | 53 |
| Cash flow hedge * | 122 | (29) | (650) | (557) |
| Impact of valuation of hedging transactions (effective part) | (58) | (20) | (393) | (471) |
| Reclassification to profit or loss in connection with realization of hedged item, incl.: | 180 | 6 | (286) | (100) |
| reclassification of instruments from the previous year – no hedged item | – | 6 | (10) | (4) |
| Instruments for settlement | – | (15) | 29 | 14 |
| 31/12/2021 | (241) | (15) | (248) | (504) |
| Commodity risk |
||||
| 01/01/2021 | (52) | – | – | (52) |
| Cash flow hedge | 44 | – | – | 44 |
| Impact of valuation of hedging transactions (effective part) | (110) | – | n/a | (110) |
| Reclassification to profit or loss in connection with realization of hedged item | 137 | – | n/a | 137 |
| Settlement of ineffective part | 17 | – | n/a | 17 |
| 31/12/2021 | (8) | – | – | (8) |
| Hedging reserve, gross 01/01/2021 | (415) | 14 | 402 | 1 |
| Deferred tax from hedging instruments settlement and valuation | 60 | 1 | (78) | (17) |
| Hedging reserve, net 01/01/2021 | (355) | 15 | 324 | (16) |
| Hedging reserve, gross 31/12/2021 | (249) | (15) | (248) | (512) |
| Deferred tax from hedging instruments settlement and valuation | 37 | 3 | 42 | 82 |
| Hedging reserve, net 31/12/2021 | (212) | (12) | (206) | (430) |
* The significant change in cost of hedging related to occurrence of transaction is mainly due to the increase in interest rates and consequently a change in the discount factors used in settlements of forward transactions, as well as the fluctuation of the EUR/PLN exchange rate.
2020
| Hedging reserve by | ||||
| Effective part of change in fair value | Effective part due to settlement of instruments | Cost of hedging related to occurrence of transaction | Total | |
| Foreign exchange risk |
||||
| 01/01/2020 | 298 | 16 | 147 | 461 |
| Cash flow hedge * | (661) | (2) | 255 | (408) |
| Impact of valuation of hedging transactions (effective part) | (740) | – | 415 | (325) |
| Reclassification to profit or loss in connection with realization of hedged item, incl.: | 97 | (16) | (167) | (86) |
| reclassification of instruments from the previous year – no hedged item | – | (35) | (11) | (46) |
| Instruments for settlement | (18) | 14 | 7 | 3 |
| 31/12/2020 | (363) | 14 | 402 | 53 |
| Commodity risk |
||||
| 01/01/2020 | (40) | – | – | (40) |
| Cash flow hedge | (12) | – | – | (12) |
| Impact of valuation of hedging transactions (effective part) | 186 | – | n/d | 186 |
| Reclassification to profit or loss in connection with realization of hedged item | (161) | – | n/d | (161) |
| Settlement of ineffective part | (37) | – | n/d | (37) |
| 31/12/2020 | (52) | – | – | (52) |
| Hedging reserve, gross 01/01/2020 | 258 | 16 | 147 | 421 |
| Deferred tax from hedging instruments settlement and valuation | (62) | (3) | (28) | (93) |
| Hedging reserve, net 01/01/2020 | 196 | 13 | 119 | 328 |
| Hedging reserve, gross 31/12/2020 | (415) | 14 | 402 | 1 |
| Deferred tax from hedging instruments settlement and valuation | 60 | 1 | (78) | (17) |
| Hedging reserve, net 31/12/2020 | (355) | 15 | 324 | (16) |