21. Financial Instruments

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Description of Financial Instruments

Financial Assets and Liabilities Held for Trading

The Group discloses derivative transactions with positive fair values under financial assets held for trading. Derivative transactions with negative fair values are disclosed under financial liabilities held for trading. Under financial assets and liabilities held for trading the Group discloses valuation of the following types of derivatives: swaps, futures, forwards, options, interest-rate swaps, forward rate agreement.

Fair value of commodity swaps is established by reference to future cash flows connected with the transactions, calculated on the basis of the difference between the average market price and the transaction price. The fair value has been established on the basis of prices quoted on active markets, as provided by an external consultancy (Level 2 in the fair value hierarchy).

Fair value of futures contracts for carbon dioxide (CO₂) allowances (EUA, CER) is established by reference to the difference between the market price, quoted by the European Climate Exchange (ECX) for the valuation date, and the transaction price (Level 1 in the fair value hierarchy).

Fair value of spots and currency forwards is established by reference to future discounted cash flows connected with the transactions, calculated on the basis of the difference between the forward rate and the transaction price. The forward rate is calculated on the basis of the fixing rate quotations of the National Bank of Poland and the interest rate curve implied in fx swaps (Level 2 in the fair value hierarchy).

Apart from the parameters used in the valuation of currency forwards, implied volatility is additionally taken into account in calculating the value of currency options (Level 2 in the fair value hierarchy).

Fair value of FRAs is established by reference to future discounted cash flows connected with the transactions, calculated on the basis of the difference between the forward rate and the transaction price. The forward rate is calculated using the zero-coupon interest rate curve based on 6M or 3M LIBOR, depending on the type of transaction. In 2008, the forward rate was calculated on the basis of the zero-coupon interest rate curve based on 3M LIBOR, so the basis swaps between the 3M and the 6M LIBOR reference rate were not accounted for. This is considered Level 2 in the fair value hierarchy.

Financial Assets Available for Sale

Non-current financial assets available for sale measured at fair value as at December 31st 2009 and December 31st 2008 include mainly shares and equity interests for which there is no active market.

Loans Advanced and Receivables

1. On September 23rd 2003 and April 8th 2004, Grupa LOTOS S.A. signed with Rafineria Nafty GLIMAR S.A. loan agreements for the financing of operating and investing activities, including, in particular, the Glimar Hydrocomplex investment project, for an aggregate amount of PLN 90m. By December 31st 2004, Grupa LOTOS S.A. had advanced PLN 48m to Rafineria Nafty GLIMAR S.A. under these agreements. Additionally, in connection with the Letter of Comfort signed by Grupa LOTOS S.A. on February 12th 2004 for Bank Przemysłowo-Handlowy S.A., the Company undertook commitments relating to the co-financing of the Glimar Hydrocomplex investment project and maintaining of an appropriate financial standing of Rafineria Nafty GLIMAR S.A. In the opinion of the Company’s Management Board, these commitments do not represent financial liabilities as at the balance-sheet date.

As at December 31st 2009 and December 31st 2008, assets under the advanced loans were fully covered by a recognised impairment charge. As at December 31st 2008, the Company had provisions of PLN 15,853 thousand for potential liabilities under these agreements. During the year ended December 31st 2009, the provisions were released (see Note 31).

On January 19th 2005, the District Court of Nowy Sącz declared Rafineria Nafty GLIMAR S.A. of Gorlice bankrupt. Upon consideration on March 11th 2008 of the petition for discontinuation of the bankruptcy proceedings, submitted by bankruptcy administrator Capricorn Sp. z o.o. of Nowy Sącz, the District Court of Nowy Sącz, Commercial Court Division V, decided to discontinue the bankruptcy proceedings pursuant to Art. 361.2 of the Bankruptcy and Recovery Law.

The decision issued by the District Court of Nowy Sącz, Commercial Court Division V, was appealed against to the Regional Court of Kraków, Appellate Commercial Division XII. On July 25th 2008, the Regional Court of Kraków, Appellate Commercial Division XII, issued a decision (court docket No. XII Gz 242/08) dismissing the appeals. Accordingly, the decision of the District Court of Nowy Sącz, Commercial Court Division V on discontinuation of the bankruptcy proceedings became final.

On December 1st 2008, Grupa LOTOS S.A. concluded an agreement with Podkarpacki Holding Budowy Dróg Drogbud Sp. z o.o. of Strzyżów concerning disposal of its shares in Rafineria Nafty GLIMAR S.A. Under the agreement, Grupa LOTOS S.A. sold 9,520,000 shares in Rafineria Nafty GLIMAR S.A. with a par value of PLN 10 per share, representing 91.54% of the company’s share capital. The agreed transaction value was PLN 1,000 thousand. As at the agreement execution date, the carrying value of the shares in Grupa LOTOS S.A.’s accounting books was PLN 0.

2. On November 12th 2001 an agreement was concluded under which Petrobaltic S.A. granted a loan to Energobaltic Sp. z o.o. Petrobaltic S.A.’s receivables under the loan (including accrued interest) amounted to PLN 10,438 thousand as at December 31st 2009 (PLN 22,994 thousand as at December 31st 2008). As at December 31st 2008, an impairment loss was recognized on the full value of the loan, on the basis of an analysis of the economic and financial standing of Energobaltic Sp. z o.o., performed based on the 2007 financial statements, and considering the projections for the following years and the related risk of a loss of liquidity in the event of failure of the measures taken by the Management Board of Energobaltic Sp. z o.o. to restructure the company’s indebtedness, i.e. to postpone the repayment of bank loans and shareholder loans. As at December 31st 2008, an impairment loss was also recognised on the shares held in Energobaltic Sp. z o.o.

As at December 31st 2009, in connection with performance of terms of the Arrangement implemented at Energobaltic Sp. z o.o. (see Note 17), including acquisition of new and purchase of existing shares in Energobaltic Sp. z o.o., Petrobaltic S.A. reversed the impairment loss on the financial assets in the amount of PLN 29,344 thousand. The amount was recognised in finance income.

Financial Liabilities Valued at Amortised Cost

Financial liabilities valued at amortised cost include loans, overdraft facilities, and liabilities under finance lease.

None of the following economic events or situations requiring disclosure occurred at the Group during the reporting periods ended December 31st 2009 and December 31st 2008:

• The Group did not reclassify any financial assets (IFRS 7, Par. 12.),
• No collateral was established for the benefit of the Group on any class of assets, which would result in credit enhancements (IFRS 7, Par. 15.),
• The Group did not issue any instrument that contains both a liability and an equity component (IFRS 7, Par. 17.),
• The Group met all contractual provisions (IFRS 7, Par. 18.),
• Interest income in connection with impaired financial assets was recognised by the Group as immaterial (IFRS 7, Par. 20.d.),
• The Group does not apply hedge accounting; accordingly, changes in fair value of derivative instruments are charged to the statement of comprehensive income (IFRS 7, Par. 22.)
• The Group did not acquire any financial assets at a price different from their fair value (IFRS 7, Par.28.)
• The Group did not obtain any assets by taking possession of collateral held as security (IFRS 7, Par. 38.).

21.1. Carrying Value of Financial Instruments

Dec 31 2009 (PLN ‘000)	Note	Financial assets at fair value through profit or loss – held for trading	Loans and receivables	Financial assets available for sale	Financial liabilities at fair value through profit or loss – held for trading	Financial liabilities at amortised cost	Total
Shares:		-	-	9,929	-	-	9,929
- non-current	19	-	-	9,917	-	-	9,917
- current	20	-	-	12	-	-	12
Prepayments for shares	20	-	-	-	-	-	-
Decommissioning fund	19	-	20,962	-	-	-	20,962
Non-current deposits	19	-	311	-	-	-	311
Loans:	21	-	-	-	-	-	-
- non-current		-	-	-	-	-	-
- current		-	-	-	-	-	-
Derivative financial instruments:		101,879	-	-	-	-	101,879
- non-current	19	54,862	-	-	-	-	54,862
- current	20	47,017	-	-	-	-	47,017
Trade and other receivables:		-	1,515,812	-	-	-	1,515,812
- non-current	12	-	22,061	-	-		22,061
- current	23	-	1,493,751	-	-	-	1,493,751
Cash and cash equivalents	24	-	362,078	-	-	-	362,078
Trade and other payables:	33	-	-	-	-	(1,094,702)	(1,094,702)
- non-current			-	-	-	(38,894)	(38,894)
- current			-	-	-	(1,055,808)	(1,055,808)
Loans and borrowings:	30	-	-	-	-	(5,701,071)	(5,701,71)
- non-current		-	-	-	-	(4,942,590)	(4,942,590)
- current		-	-	-	-	(758,481)	(758,481)
Financial liabilities	32	-	-	-	(236,371)	(83,149)	(319,520)
Lease liabilities:	32	-	-	-	-	(83,149)	(83,149)
- non-current		-	-	-	-	(80,304)	(80,304)
- current		-	-	-	-	(2,845)	(2,845)
Derivative financial instruments:	32	-	-	-	(236,371)	-	(236,371)
- non-current		-	-	-	(220,085)	-	(220,085)
- current		-	-	-	(16,286)	-	(16,286)
Total		101,879	1,899,163	9,929	(236,371)	(6,878,922)	(5,104,322)

As at December 31st 2009, the Group held no financial assets whose terms would be renegotiated due to the possibility of default or impairment.

As at December 31st 2009, the Group did not carry any financial assets or liabilities measured at fair value through profit or loss whose components would be designated as measured at fair value through profit or loss on initial recognition (fair value option).

As at December 31st 2009, the Group did not carry any financial assets held to maturity.

As at December 31st 2009, the carrying value of the above classes of financial instruments corresponded to their fair value.

As at December 31st 2009, the carrying value of cash and cash equivalents, deposits, receivables, payables/liabilities and financial liabilities measured at amortised cost approximated their fair value. Long-term bank loans bear interest at floating rates, with interest payable in a short term.

As at December 31st 2009, financial assets available for sale measured at fair value comprised mainly shares for which there was no active market.

The methods and assumptions used to measure the fair value of financial instruments held by the Group are described in Note 10 and Note 21.

Dec 31 2008 (comparable data) (PLN ‘000)	Note	Financial assets at fair value through profit or loss – held for trading	Loans and receivables	Financial assets available for sale	Financial liabilities at fair value through profit or loss – held for trading	Financial liabilities at amortised cost	Total
Shares:		-	-	11,041	-	-	11,041
- non-current	19	-	-	9,917	-	-	9,917
- current	20	-	-	1,124	-	-	1,124
Prepayments for shares	20	-	25,332	-	-	-	25,332
Decommissioning fund	19	-	16,599	-	-	-	16,599
Non-current deposits	19	-	-	-	-	-	-
Loans:	21	-	-	-	-	-	-
- non-current		-	-	-	-	-	-
- current		-	-	-	-	-	-
Derivative financial instruments		302,304	-	-	-	-	302,304
- non-current	19	22,848	-	-	-	-	22,848
- current	20	279,456	-	-	-	-	279,456
Trade and other receivables:		-	1,260,660	-	-	-	1,260,660
- non-current	12	-	9,152	-	-	-	9,152
- current	23	-	1,251,508	-	-	-	1,251,508
Cash and cash equivalents	24	-	712,801	-	-	-	712,801
Trade and other payables:	33	-	-	-	-	(1,260,855)	(1,260,855)
- non-current		-	-	-	-	(4,824)	(4,824)
- current		-	-	-	-	(1,256,031)	(1,256,031)
Loans and borrowings:	30	-	-	-	-	(3,919,605)	(3,919,605)
- non-current		-	-	-	-	(3,412,245)	(3,412,245)
- current		-	-	-	-	(507,360)	(507,360)
Financial liabilities	32	-	-	-	(218,526)	(1,415)	(219,941)
Lease liabilities:	32	-	-	-	-	(1,415)	(1,415)
- non-current		-	-	-	-	(854)	(854)
- current		-	-	-	-	(561)	(561)
Derivative financial instruments	32	-	-	-	(218,526)	-	(218,526)
- non-current		-	-	-	(175,533)	-	(175,533)
- current		-	-	-	(42,993)	-	(42,993)
Total		302,304	2,015,392	11,041	(218,526)	(5,181,875)	(3,071,664)

As at December 31st 2008, the Group held no financial assets whose terms would be renegotiated due to the possibility of default or impairment.

As at December 31st 2008, the Group did not carry any financial assets or liabilities measured at fair value through profit or loss whose components would be designated as measured at fair value through profit or loss on initial recognition (fair value option).

As at December 31st 2008, the Group did not carry any financial assets held to maturity.

As at December 31st 2008, the carrying value of the above classes of financial instruments corresponded to their fair value.

As at December 31st 2008, the carrying value of cash and cash equivalents, receivables, payables/liabilities and financial liabilities measured at amortised cost approximated their fair value. Long-term bank loans bear interest at floating rates, with interest payable in a short term.

As at December 31st 2008, financial assets available for sale measured at fair value comprised mainly shares for which there was no active market.

21.2. Items of Income, Expenses, Gains and Losses Disclosed in the Statement of Comprehensive Income by Categories of Financial Instruments

Year ended Dec 31 2009 (PLN ‘000)	Financial assets/ liabilities at fair value through profit or loss – held for trading	Loans and receivables	Financial assets available for sale	Financial liabilities at amortised cos	Total
Interest income/ (expense)	-	22,196	-	(69,190)	(46,994)
Foreign exchange gains/ (losses)	-	(64,005)	-	513,441	449,436
Reversal/(recognition) of impairment losses	-	(28,778)	-	-	(28,778)
Gains/ (losses) on fair value measurement	(214,594)	-	-	-	(214,594)
Gains/ (losses) on realisation	216,047	-	-	-	216,047
Gains/ (losses) on disposal	-	-	688		688
Total	1,453	(70,587)	688	444,251	375,805

 

Year ended Dec 31 2008 (PLN ‘000)	Financial assets/ liabilities at fair value through profit or loss – held for trading	Loans and receivables	Financial assets available for sale	Financial liabilities at amortised cost	Total
Interest income/ (expense)	-	51,849	-	(52,285)	(436)
Foreign exchange gains/ (losses)	-	(69,309)	-	(377,414)	(446,723)
Reversal/(recognition) of impairment losses	-	(28,619)	-	-	(28,619)
Gains/ (losses) on fair value measurement	(12,238)	-	-	-	(12,238)
Gains/ (losses) on realisation	(234,999)	-	-	-	(234,999)
Gains/ (losses) on disposal	-	-	1,027	-	1,027
Total	(247,237)	(46,079)	1,027	(429,699)	(721,988)

21.3. Financial Risk Management

The Group is exposed to financial risk, including chiefly:

• market risk (risk related to the prices of raw materials and petroleum products, risk related to prices of CO₂ emission allowances, currency risk, interest rate risk)
• liquidity risk
• credit risk related to financial and trade transactions.

The Financial Risk Management Committee (“FRMC”) operating within the Parent Undertaking is responsible for the supervision and coordination of the financial risk management process at Grupa LOTOS S.A. In order to ensure the efficiency and operational security of this process, the following areas have been distinguished: financial transaction area (front-office), risk analysis and control area (middle-office), and transaction documentation and settlement area (back-office).

The key objectives sought to be achieved through financial risk management are as follows:

• limiting volatility of cash flows,
• increasing the probability that budget and strategic objectives will be met,
• ensuring short-term financial liquidity,
• maximising the result on market risk management, at the assumed risk level.

In order to achieve these objectives, documents have been prepared at the Parent Undertaking and approved at appropriate decision-making levels of the Parent Undertaking. These documents specify the necessary framework for effective and secure functioning of the financial risk management process, including principally:

• methodology for quantifying exposures to particular risks (risk mapping),
• acceptable financial instruments,
• method of assessing financial risk management,
• limits within risk management,
• reporting method,
• credit limits for counterparties in financial transactions.

The Parent Undertaking monitors all managed market risks on an ongoing basis. Opening a position with respect to risks which do not arise as part of the Company’s core activity is prohibited. Grupa LOTOS S.A. uses liquid derivatives which it is able to value by applying commonly applied valuation models. The valuation of the underlying position and derivatives is performed based on market data received from reliable providers.

The Group does not apply hedging accounting; accordingly, any change in the fair value of derivatives is charged to the statement of comprehensive income.

Risk Related to Prices of Raw Materials and Petroleum Products

The Company regards management of the risk related to prices of raw materials and petroleum products, as well as the currency risk, as an issue of utmost importance.

The concept for the management of risk related to prices of raw materials and petroleum products covers the period until the end of 2010, by which time also the 10+ Programme is to have been completed. The main objective of the management concept is to increase the probability of generating cash flows guaranteeing safe financing of investment projects under the 10+ Programme.

The risk management concept provides for maximum hedge ratios for the underlying position, decreasing each year relative to a current budget year. Within the framework of accepted limits and guidelines, the Financial Risk Management Committee adopts decisions defining the limits and volumes of hedging transactions.

The basic risk map is created by converting the map of price indices used in trade contracts into the map of indices for which there exist liquid markets of derivatives. Such conversion takes into account relevant statistical relations between base indices and market indices. The converted map serves a basis for defining the model of the refining margin. The margin is defined as the difference between the value of indices representing products sold, weighted by the share of particular indices in a barrel, and the index representing raw materials purchased.

As at December 31st 2009, the underlying refining margin position stood at (in barrels):

Period	Underlying position
Q1 2010	10,117,129
Q2 2010	10,752,077
Q3 2010	11,203,544
Q4 2010	11,817,957

As at December 31st 2008, the underlying refining margin position stood at (in barrels):

Period	Underlying position
Q1 2009	9,930,140
Q2 2009	6,720,316
Q3 2009	9,894.993
Q4 2009	9,452,383
Q1 2010	11,805,410
Q2 2010	15,699,834
Q3 2010	15,569,563
Q4 2010	14,712,155

The last transactions hedging refining margin expired on September 30th 2009. Due to adverse market conditions, the LOTOS Group resolved not to enter into hedging transactions until margins improve to levels which are satisfactory to the Company.

There were no open refining margin transactions as at December 31st 2009.

Open refining margin transactions as at December 31st 2008:

Company	Type of transaction	Transaction execution date	Beginning of the valuation period	End of the valuation period	Number of barrels	Price (USD/barrel)	Fair value as at Dec 31 2008 (PLN ‘000)1
Grupa LOTOS S.A.	Commodity swap	Mar 4 2008	Jan 1 2009	Mar 31 2009	(500,001)	8	1,773
Grupa LOTOS S.A.	Commodity swap	Mar 7 2008	Jan 1 2009	Mar 31 2009	(999,999)	8	4,110
Grupa LOTOS S.A.	Commodity swap	May 30 2008	Apr 1 2009	Jun 30 2009	(501,000)	12	7,881
Grupa LOTOS S.A.	Commodity swap	May 30 2008	Jan 1 2009	Mar 31 2009	(999,999)	10	11,366
Grupa LOTOS S.A.	Commodity swap	Jun 2 2008	Jan 1 2009	Mar 31 2009	(501,000)	10	5,472
Grupa LOTOS S.A.	Commodity swap	Jun 2 2008	Jul 1 2009	Sep 30 2009	(501,000)	14	9,601
Grupa LOTOS S.A.	Commodity swap	Jun 6 2008	Jul 1 2009	Sep 30 2009	(999,999)	14	17,504
Grupa LOTOS S.A.	Commodity swap	Jun 17 2008	Apr 1 2009	Jun 30 2009	(500,001)	10	5,570
Grupa LOTOS S.A.	Commodity swap	Jun 19 2008	Jul 1 2009	Sep 30 2009	(500,001)	13	7,716
Grupa LOTOS S.A.	Commodity swap	Jun 20 2008	Jul 1 2009	Sep 30 2009	(499,998)	13	7,715
Grupa LOTOS S.A.	Commodity swap	Sep 25 2008	Jul 1 2009	Sep 30 2009	(500,001)	12	8,338
Grupa LOTOS S.A.	Commodity swap	Oct 2 2008	Apr 1 2009	Jun 30 2009	(500,001)	11	7,687
Grupa LOTOS S.A.	Commodity swap	Oct 6 2008	Apr 1 2009	Jun 30 2009	(500,001)	10	6,206
Grupa LOTOS S.A.	Commodity swap	Oct 7 2008	Apr 1 2009	Jun 30 2009	(500,001)	10	6,354
					(8,503,002)	TOTAL, including	107,293
						positive	107,293
						negative	-

Open transactions adjusting the structure, as at December 31st 2008:

Company	Type of transaction	Transaction execution date	Beginning of the valuation period	End of the valuation period	Number of barrels	Number of barrels	Fair value as at Dec 31 2008 (PLN ‘000)1
Grupa LOTOS S.A.	Commodity swap	Oct 8 2008	Jan 1 2009	Mar 31 2009	230,001	(2)	(275)
Grupa LOTOS S.A.	Commodity swap	Oct 9 2008	Jan 1 2009	Mar 31 2009	90,000	(2)	(107)
Grupa LOTOS S.A.	Commodity swap	Oct 13 2008	Jan 1 2009	Mar 31 2009	(120,000)	(18)	(1,040)
Grupa LOTOS S.A.	Commodity swap	Oct 29 2008	Jan 1 2009	Mar 31 2009	70,023	93	(6,488)
Grupa LOTOS S.A.	Commodity swap	Oct 29 2008	Apr 1 2009	Mar 31 2009	(70,023)	91	6,041
					200,001	TOTAL, including	(1,869)
						positive	6,041
						negative	(7,910)

As at December 31st 2008, positive fair value of commodity swaps was PLN 113,334 thousand.

As at December 31st 2008, negative fair value of commodity swaps was PLN (7,910) thousand.

⁽¹⁾ Fair value of commodity swaps is established by reference to future cash flows connected with the executed transactions, calculated on the basis of the difference between the average market price and the transaction price. The fair value has been established on the basis of prices quoted on active markets, as provided by an external consultancy (Level 2 in the fair value hierarchy).

Total refining margin position as at December 31st 2009 (in barrels):

Period	Underlying position	Transaction position	Total position	Hedge ratio
Q1 2010	10,117,129	-	10,117,129	0%
Q2 2010	10,752,077	-	10,752,077	0%
Q3 2010	11,203,544	-	11,203,544	0%
Q4 2010	11,817,957	-	11,817,957	0%
2010	43,890,707	-	43,890,707	0%

Total refining margin position as at December 31st 2008 (in barrels):

Period	Underlying position	Transaction position	Total position	Hedge ratio
Q1 2009	9,930,140	(3,000,999)	6,929,141	30%
Q2 2009	6,720,316	(2,501,004)	4,219,312	37%
Q3 2009	9,894,993	(3,000,999)	6,893,994	30%
Q4 2009	9,452,383	-	9,452,383	0%
Q1 2010	11,805,410	-	11,805,410	0%
Q2 2010	15,699,834	-	15,699,834	0%
Q3 2010	15,569,563	-	15,569.563	0%
Q4 2010	14,712,155	-	14,712,155	0%
2009	35,997,832	(8,503,002)	27,494,830	24%
2010	57,786,962	-	57,786,962	0%

Risk Related to Prices of Carbon Dioxide (CO₂) Allowances

The risk related to prices of carbon dioxide (CO₂) allowances is managed in line with the assumptions set forth in The Strategy for Managing the Risk Related to Prices of Carbon Dioxide (CO₂) Allowances by Grupa LOTOS S.A. The period covered by the management is determined by the individual phases of the Kyoto protocol; currently, it is the period until the end of 2012.

A position limit is defined based on the number of allowances granted for a given phase. The position in a given phase comprises the aggregate of positions for individual years within the phase. The maximum loss limit is defined based on the Company’s equity.

Depending on the market situation and allowances granted, Grupa LOTOS S.A. maintains an appropriate position in carbon allowances by entering into financial transactions or changing the underlying position.

The basic risk map takes into account the allowances granted and the carbon dioxide (CO₂) emissions planned for a given phase, which can be reliably determined both with respect to the existing installations and the installations which are planned to be constructed.

Underlying carbon dioxide (CO₂) allowances position as at December 31st 2009:

Period	EUA	CER	TOTAL
Phase II (2008-2012)	(122,789)	82,010	(40,779)

Underlying carbon dioxide (CO2) allowances position as at December 31st 2008:

Period	EUA	CER	TOTAL
Phase II (2008-2012)	40,238	114,000	154,238

In connection with concerns that the prices of carbon dioxide (CO₂) emission allowances might decline in the short-term perspective, the Company maintained a short position in the allowances. Additionally, due to uncertainty as to the number of allowances to be granted for the units constructed under the 10+ Programme, the Company sought to minimise the size of its open position in the carbon dioxide (CO₂) emission allowances. In 2009, the Company entered into EUA/CER swap transactions, as that was justified by the spread between these two types of emission allowances.

Open CO₂ allowances transactions as at December 31st 2009:

Company	Type of transaction	Transaction execution date	Transaction settlement date	No. of CO2 allowances	Price (EUR/tonne)	Fair value as at Dec 31 2009 (PLN ‘000)2
Grupa LOTOS S.A.	EUA Futures	Nov 2 2009	Dec 20 2012	(1,000)	16	9
Grupa LOTOS S.A.	CER Futures	Nov 2 2009	Dec 20 2012	1,000	14	(9)
Grupa LOTOS S.A.	EUA Futures	Nov 5 2009	Dec 23 2010	(27,000)	15	237
Grupa LOTOS S.A.	EUA Futures	Nov 5 2009	Dec 23 2010	(1,000)	15	9
Grupa LOTOS S.A.	EUA Futures	Nov 5 2009	Dec 23 2010	(3,000)	15	27
Grupa LOTOS S.A.	EUA Futures	Nov 5 2009	Dec 23 2010	(9,000)	15	80
Grupa LOTOS S.A.	EUA Futures	Nov 5 2009	Dec 23 2010	(10,000)	15	89
Grupa LOTOS S.A.	CER Futures	Dec 10 2009	Dec 23 2010	10,000	13	(73)
Grupa LOTOS S.A.	CER Futures	Dec 10 2009	Dec 23 2010	22,000	13	(162)
Grupa LOTOS S.A.	CER Futures	Dec 10 2009	Dec 23 2010	10,000	13	(75)
Grupa LOTOS S.A.	CER Futures	Dec 10 2009	Dec 20 2012	5,000	13	(35)
Grupa LOTOS S.A.	CER Futures	Dec 10 2009	Dec 20 2012	25,000	13	(178)
Grupa LOTOS S.A.	CER Futures	Dec 10 2009	Dec 20 2012	20,000	13	(143)
Grupa LOTOS S.A.	EUA Futures	Dec 16 2009	Dec 22 2011	(1,000)	15	8
Grupa LOTOS S.A.	EUA Futures	Dec 16 2009	Dec 22 2011	(1,000)	15	8
Grupa LOTOS S.A.	EUA Futures	Dec 16 2009	Dec 22 2011	(1,000)	15	8
Grupa LOTOS S.A.	EUA Futures	Dec 16 2009	Dec 22 2011	(8,000)	15	62
				31,000	TOTAL, including:	(138)
					positive	537
					negative	(675)

Open CO₂ allowances transactions as at December 31st 2008:

Company	Type of transaction	Transaction execution date	Transaction settlement date	No. of CO2 allowances	Price (EUR/tonne)	Fair value as at Dec 31 2008 (PLN ‘000)2
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	1,000	16	(0)
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	3,000	16	(1)
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	1,000	16	1
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	1,000	16	1
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	4,000	16	2
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	1,000	16	-
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	1,000	16	-
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	20,000	16	5
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	1,000	16	-
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	2,000	16	-
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	1,000	16	-
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	5,000	16	1
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	30,000	16	4
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	10,000	16	1
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	1,000	16	-
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	2,000	16	-
Grupa LOTOS S.A.	EUA Futures	Dec 3 2008	Dec 17 2009	4,000	16	-
				88,000	TOTAL, including:	14
					positive	15
					negative	(1)

⁽²⁾ Fair value of futures contracts for carbon dioxide (CO₂) allowances (EUA, CER) is established by reference to the difference between the market price, quoted by the European Climate Exchange (ECX) for the valuation date, and the transaction price (Level 1 in the fair value hierarchy).

Total CO₂ allowances position as at December 31st 2009:

	EUA position			CER position
Period	Underlying	Transaction	Total	Underlying	Transaction	Total
Phase II (2008-2012)	(122,789)	(62,000)	(184,789)	82,010	93,000	175,010

Total CO₂ allowances position as at December 31st 2008:

	EUA position			CER position
Period	Underlying	Transaction	Total	Underlying	Transactiona	Total
Phase II (2008-2012)	40,238	88,000	128,238	114,000	-	114,000

Currency Risk

Currency risk is managed in line with the assumptions stipulated in The Strategy of Currency Risk Management at Grupa LOTOS S.A. The exposure management horizon is connected with the introduction of a budget roll over into four quarters in advance as a permanent component of planning activities at the Company. The four quarter period is treated as the basis for determining the exposure management time horizon. The base map of currency positions takes into account principally the volumes and price formulas for purchases of raw materials and sales of products, investments, loans denominated in foreign currencies, as well as valuation of derivatives, and may be adjusted for a ratio reflecting the volatility in the prices of raw materials and petroleum products. The strategy provides for the calculation of the following limits:

• transaction position limit (open currency transactions must not increase the Company’s underlying position);
• maximum loss and liquidity limits are expressed as a percentage of the Company’s equity (the liquidity limit is calculated in order to reduce the risk of excessive accumulation of financial transactions over a limited period of time, the settlement of which could result in liquidity and operating problems);
• gross total and global currency position limits applicable for the entire management period as well as for sub-periods.

For the purpose of the limits calculation, equity is remeasured on a quarterly basis. Moreover, when a loss on risk management exceeds a defined threshold, limits are immediately revised in order to prevent any significant exceeding of the maximum loss limit set by the Management Board of Grupa LOTOS S.A.

The strategy allows for the possibility of consolidated risk management at the Group level.

The natural currency of Grupa LOTOS S.A.’s operating market is USD. This currency is used in market price quotations for crude oil and petroleum products. Consequently, Grupa LOTOS S.A. has a structurally long position in USD on its operating activity. For this reason it has been decided that USD is the most appropriate currency for contracting and repaying long-term loans to finance the 10+ Programme, as such an approach contributes to reducing the structurally long position, and consequently to reducing the strategic currency risk.

Under the agreement on the financing of the 10+ Programme, Grupa LOTOS S.A. has the obligation to maintain a specified level of the hedge ratio for the currency risk (EUR/USD and USD/PLN) which arises in connection with the fact that the currency in which the investment projects are financed is different from the currencies in which project execution contracts are denominated. This obligation remains binding only with respect to payments under the 10+ Programme projects execution contracts to be made by mid-2011.

Underlying currency position as at December 31st 2009:

Period	USD	EUR
2010	406,436,729	(287,449,821)

Underlying currency position as at December 31st 2008:

Period	USD	EUR
2009	596,635,901	(368,983,750)

Grupa LOTOS S.A. actively manages its currency position and changes it depending on the expected market developments. The Company’s currency position at the end of 2009 was in line with the market expectations as to appreciation of the US dollar against the euro. Grupa LOTOS S.A. resolved to hedge a part of its currency position at lower prices in 2010, bearing in mind that the maximum loss caused by the absence of full hedging may not exceed the loss limit set by the Management Board, representing a small fraction of the equity.

Open currency transactions as at December 31st 2009:

Company	Type of transaction	Transaction execution date	Transaction settlement date	Currency pair	Amount in base currency	Rate	Amount in quote currency	Fair value as at Dec 31 2009 (PLN ‘000)3
Grupa LOTOS S.A.	Currency forward	May 27 2009	Jan  8 2010	USD/PLN	(15,000,000)	3.2	48,297,000	5,532
Grupa LOTOS S.A.	Currency forward	May 27 2009	Jan 14 2010	USD/PLN	(15,000,000)	3.2	48,394,500	5,610
Grupa LOTOS S.A.	Currency forward	May 27 2009	Jan 28 2010	USD/PLN	(18,000,000)	3.2	58,024,800	6,627
Grupa LOTOS S.A.	Currency forward	May 27 2009	Feb 19 2010	USD/PLN	(15,000,000)	3.2	48,637,500	5,732
Grupa LOTOS S.A.	Currency forward	May 27 2009	Mar 11 2010	USD/PLN	(15,000,000)	3.2	48,547,500	5,576
Grupa LOTOS S.A.	Currency forward	May 27 2009	Mar 18 2010	USD/PLN	(14,000,000)	3.3	45,592,400	5,465
Grupa LOTOS S.A.	Currency forward	May 27 2009	Apr 8 2010	USD/PLN	(4,000,000)	3.2	12,960,000	1,479
Grupa LOTOS S.A.	Currency forward	Aug 20 2009	Jan 28 2010	USD/PLN	7,700,000	3.0	(22,730,400)	(748)
Grupa LOTOS S.A.	Currency forward	Aug 20 2009	Feb 19 2010	USD/PLN	15,000,000	3.0	(44,332,500)	(1,444)
Grupa LOTOS S.A.	Currency forward	Aug 20 2009	Mar 11 2010	USD/PLN	10,000,000	3.0	(29,579,000)	(947)
Grupa LOTOS S.A.	Currency forward	Aug 20 2009	Mar 18 2010	USD/PLN	19,000,000	3.0	(56,215,300)	(1,790)
Grupa LOTOS S.A.	Currency forward	Aug 20 2009	Apr 8 2010	USD/PLN	4,000,000	3.0	(11,858,000)	(385)
Grupa LOTOS S.A.	Currency forward	Sep 21 2009	Jan 8 2010	USD/PLN	15,000,000	2.9	(42,817,500)	(55)
Grupa LOTOS S.A.	Currency forward	Sep 21 2009	Jan 14 2010	USD/PLN	15,000,000	2.9	(42,835,500)	(56)
Grupa LOTOS S.A.	Currency forward	Sep 21 2009	Jan 28 2010	USD/PLN	10,300,000	2.9	(29,435,855)	(33)
Grupa LOTOS S.A.	Currency forward	Oct 14 2009	Apr 16 2010	USD/PLN	(7,000,000)	2.9	20,064,800	(19)
Grupa LOTOS S.A.	Currency forward	Oct 16 2009	Jan 21 2010	USD/PLN	(2,000,000)	2.8	5,687,200	(19)
Grupa LOTOS S.A.	Currency forward	Oct 30 2009	Jan 25 2010	USD/PLN	(19,500,000)	2.9	56,181,450	527
Grupa LOTOS S.A.	Currency forward	Oct 30 2009	Jan 29 2010	USD/PLN	(6,000,000)	2.9	17,206,800	78
Grupa LOTOS S.A.	Currency forward	Oct 30 2009	Jan 14 2010	USD/PLN	12,000,000	2.9	(34,563,600)	(340)
Grupa LOTOS S.A.	Currency forward	Oct 30 2009	Apr 8 2010	USD/PLN	7,000,000	2.9	(20,279,000)	(204)
Grupa LOTOS S.A.	Currency forward	Nov 17 2009	Jan 15 2010	USD/PLN	(1,800,000)	2.8	4,969,800	(164)
Grupa LOTOS S.A.	Currency forward	Dec 16 2009	Jan 4 2010	USD/PLN	(1,500,000)	2.9	4,301,400	26
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Jan 15 2010	EUR/USD	6,000,000	1.4	(8,618,850)	83
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Jan 20 2010	USD/PLN	(40,000,000)	2.9	116,888,000	2,761
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Jan 21 2010	EUR/USD	10,000,000	1.4	(14,328,500)	241
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Feb 11 2010	EUR/USD	10,000,000	1.4	(14,327,850)	241
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Mar 15 2010	EUR/USD	10,000,000	1.4	(14,309,000)	292
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Mar 17 2010	EUR/USD	10,000,000	1.4	(14,341,400)	200
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Apr 15 2010	EUR/USD	10,000,000	1.4	(14,307,500)	294
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	May 20 2010	EUR/USD	10,000,000	1.4	(14,338,300)	200
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Jul 15 2010	EUR/USD	10,000,000	1.4	(14,332,850)	203
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Jul 22 2010	EUR/USD	10,000,000	1.4	(14,295,500)	308
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Sep 15 2010	EUR/USD	10,000,000	1.4	(14,325,650)	205
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Sep 22 2010	EUR/USD	10,000,000	1.4	(14,288,250)	309
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Oct 21 2010	EUR/USD	10,000,000	1.4	(14,340,500)	153
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Nov 22 2010	EUR/USD	10,000,000	1.4	(14,316,000)	214
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Dec 9 2010	EUR/USD	10,000,000	1.4	(14,332,000)	164
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Feb 18 2010	EUR/PLN	10,000,000	4.2	(42,025,000)	(821)
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Feb 23 2010	EUR/PLN	10,000,000	4.2	(42,052,000)	(834)
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Feb 24 2010	EUR/PLN	10,000,000	4.2	(42,045,000)	(825)
Grupa LOTOS S.A.	Currency forward	Dec 21 2009	Feb 25 2010	EUR/PLN	5,000,000	4.2	(21,024,000)	(413)
Grupa LOTOS S.A.	Currency forward	Dec 22 2009	Jun 17 2010	USD/PLN	10,000,000	3.0	(29,583,500)	(761)
Grupa LOTOS S.A.	Currency forward	Dec 23 2009	Jan 8 2010	EUR/USD	25,000,000	1.4	(35,625,750)	1,160
Grupa LOTOS S.A.	Currency forward	Dec 23 2009	Jan 13 2010	EUR/USD	20,000,000	1.4	(28,500,400)	929
Grupa LOTOS S.A.	Currency forward	Dec 23 2009	Jan 8 2010	EUR/USD	(40,000,000)	1.4	57,020,000	(1,803)
Grupa LOTOS S.A.	Currency forward	Dec 28 2009	Jan 14 2010	USD/PLN	(15,000,000)	2.9	43,390,500	610
Grupa LOTOS S.A.	Currency forward	Dec 28 2009	Jan 15 2010	USD/PLN	(10,000,000)	2.9	28,927,000	405
Grupa LOTOS S.A.	Currency forward	Dec 28 2009	Feb 4 2010	EUR/USD	(16,700,000)	1.4	24,081,400	35
Grupa LOTOS S.A.	Currency forward	Dec 28 2009	Mar 16 2010	USD/PLN	(20,000,000)	2.9	58,069,000	793
Grupa LOTOS S.A.	Currency forward	Dec 28 2009	Apr 15 2010	EUR/USD	10,000,000	1.4	(14,400,000)	31
Grupa LOTOS S.A.	Currency forward	Dec 28 2009	Aug 30 2010	EUR/USD	10,000,000	1.4	(14,380,000)	57
Grupa LOTOS S.A.	Currency forward	Dec 29 2009	Jan 6 2010	USD/PLN	5,000,000	2.9	(14,393,500)	(141)
Grupa LOTOS S.A.	Currency forward	Dec 29 2009	Feb 19 2010	EUR/PLN	10,900,000	4.2	(45,283,505)	(370)
Grupa LOTOS S.A.	Currency spot	Dec 30 2009	Jan 4 2010	USD/PLN	6,000,000	2.9	(17,275,800)	(175)
Grupa LOTOS S.A.	Currency spot	Dec 30 2009	Jan 4 2010	USD/PLN	6,800,000	2.9	(19,530,280)	(149)
Grupa LOTOS S.A.	Currency spot	Dec 30 2009	Jan 4 2010	USD/PLN	3,000,000	2.9	(8,628,000)	(78)
Grupa LOTOS S.A.	Currency forward	Dec 30 2009	Jan 6 2010	USD/PLN	5,000,000	2.9	(14,402,400)	(150)
Grupa LOTOS S.A.	Currency forward	Dec 31 2009	Jan 21 2010	EUR/USD	12,000,000	1.4	(17,283,480)	35
Grupa LOTOS S.A.	Currency forward	Dec 31 2009	Jan 6 2010	USD/PLN	9,000,000	2.9	(25,728,480)	(74)
							TOTAL, including:	33,777
							positive	46,575
							negative	(12,798)

Open currency transactions as at December 31st 2008:

Company	Type of transaction	Transaction execution date	Transaction settlement date	Currency pair	Amount in base currency	Rate	Amount in quote currency	Fair value as at Dec 31 2008 (PLN ‘000)3
Grupa LOTOS S.A.	Currency forward	Oct 1 2008	Feb 10 2009	EUR/USD	(18,800,000)	1.4	26,647,120	623
Grupa LOTOS S.A.	Currency forward	Oct 1 2008	Mar 5 2009	EUR/USD	(8,000,000)	1.4	11,335,200	254
Grupa LOTOS S.A.	Currency forward	Oct 3 2008	Mar 5 2009	EUR/USD	7,000,000	1.4	(9,708,300)	397
Grupa LOTOS S.A.	Currency forward	Oct 6 2008	Mar 5 2009	EUR/USD	3,500,000	1.4	(4,755,170)	491
Grupa LOTOS S.A.	Currency forward	Oct 7 2008	Mar 5 2009	EUR/USD	10,000,000	1.4	(13,580,000)	1,421
Grupa LOTOS S.A.	Currency forward	Oct 8 2008	Feb 13 2009	EUR/USD	(7,000,000)	1.4	9,608,200	(694)
Grupa LOTOS S.A.	Currency forward	Oct 9 2008	Feb 13 2009	EUR/USD	(3,000,000)	1.4	4,134,000	(249)
Grupa LOTOS S.A.	Currency forward	Oct 14 2008	Feb 2 2009	EUR/USD	7,000,000	1.4	(9,637,600)	617
Grupa LOTOS S.A.	Currency forward	Oct 15 2008	Feb 2 2009	USD/PLN	(10,000,000)	2.6	25,735,500	(3,973)
Grupa LOTOS S.A.	Currency forward	Oct 20 2008	Feb 11 2009	USD/PLN	(4,000,000)	2.7	10,620,000	(1,275)
Grupa LOTOS S.A.	Currency forward	Oct 27 2008	Feb 13 2009	EUR/USD	450,000	1.2	(560,835)	213
Grupa LOTOS S.A.	Currency forward	Oct 29 2008	Apr 30 2009	USD/PLN	(22,000,000)	2.9	62,733,000	(3,155)
Grupa LOTOS S.A.	Currency forward	Oct 30 2008	Feb 11 2009	EUR/PLN	3,000,000	3.5	(10,513,800)	2,026
Grupa LOTOS S.A.	Currency forward	Oct 30 2008	Apr 30 2009	USD/PLN	10,000,000	2.7	(26,800,000)	3,118
Grupa LOTOS S.A.	Currency forward	Oct 30 2008	Apr 30 2009	USD/PLN	5,000,000	2.7	(13,402,500)	1,556
Grupa LOTOS S.A.	Currency forward	Nov 3 2008	Feb 4 2009	USD/PLN	(1,300,000)	2.8	3,612,635	(252)
Grupa LOTOS S.A.	Currency forward	Nov 3 2008	Jan 16 2009	EUR/USD	25,000,000	1.3	31,455,250	11,081
Grupa LOTOS S.A.	Currency forward	Nov 3 2008	Feb 4 2009	EUR/PLN	1,100,000	3.6	(3,928,705)	668
Grupa LOTOS S.A.	Currency forward	Nov 4 2008	Jan 14 2009	EUR/USD	25,000,000	1.3	(31,456,250)	11,089
Grupa LOTOS S.A.	Currency forward	Nov 4 2008	Feb 12 2009	EUR/USD	20,000,000	1.3	(25,526,000)	7,679
Grupa LOTOS S.A.	Currency forward	Nov 4 2008	Feb 12 2009	EUR/USD	6,000,000	1.3	(7,657,800)	2,304
Grupa LOTOS S.A.	Currency forward	Nov 4 2008	Mar 16 2009	EUR/USD	25,000,000	1.3	(31,409,250)	11,009
Grupa LOTOS S.A.	Currency forward	Nov 4 2008	Mar 17 2009	EUR/USD	25,000,000	1.3	(31,408,000)	11,009
Grupa LOTOS S.A.	Currency forward	Nov 12 2008	Apr 15 2009	EUR/USD	30,000,000	1.2	(37,425,000)	13,857
Grupa LOTOS S.A.	Currency forward	Nov 12 2008	Apr 20 2009	USD/PLN	(20,000,000)	3.0	60,524,000	623
Grupa LOTOS S.A.	Currency forward	Nov 12 2008	May 15 2009	EUR/USD	30,000,000	1.2	(37,416,300)	13,759
Grupa LOTOS S.A.	Currency forward	Nov 12 2008	May 20 2009	USD/PLN	(15,000,000)	3.0	45,474,000	411
Grupa LOTOS S.A.	Currency forward	Nov 12 2008	Jun 15 2009	EUR/USD	30,000,000	1.3	(37,789,500)	12,544
Grupa LOTOS S.A.	Currency forward	Nov 12 2008	Jun 19 2009	USD/PLN	(15,000,000)	3.0	45,480,000	284
Grupa LOTOS S.A.	Currency forward	Nov 19 2008	Feb 11 2009	USD/PLN	(17,000,000)	3.1	52,450,100	1,853
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Jul 16 2009	EUR/USD	5,000,000	1.2	(6,246,250)	2,226
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Jul 16 2009	EUR/USD	10,000,000	1.2	(12,492,500)	4,453
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Jul 17 2009	USD/PLN	(15,000,000)	3.1	46,605,000	1,260
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Aug 12 2009	USD/PLN	(15,000,000)	3.1	46,627,500	1,181
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Aug 13 2009	EUR/USD	25,000,000	1.2	(31,238,750)	11,058
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Sep 11 2009	USD/PLN	(5,000,000)	3.1	15,550,000	364
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Sep 16 2009	EUR/USD	20,000,000	1.2	(24,997,000)	8,791
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Oct 9 2009	USD/PLN	(5,000,000)	3.1	15,557,500	339
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Oct 16 2009	EUR/USD	15,000,000	1.3	(18,772,500)	6,490
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Nov 16 2009	EUR/USD	10,000,000	1.3	(12,516,500)	4,285
Grupa LOTOS S.A.	Currency forward	Nov 20 2008	Dec 16 2009	EUR/USD	25,000,000	1.3	(31,292,500)	10,618
Grupa LOTOS S.A.	Currency forward	Dec 9 2008	Dec 11 2009	USD/PLN	23,500,000	3.1	(72,885,250)	(966)
Grupa LOTOS S.A.	Currency forward	Dec 9 2008	Dec 11 2009	EUR/USD	(2,500,000)	1.3	3,195,000	(873)
Grupa LOTOS S.A.	Currency forward	Dec 18 2008	Jan 7 2009	USD/PLN	(35,000,000)	2.8	99,455,300	(4,230)
Grupa LOTOS S.A.	Currency forward	Dec 18 2008	Jan 8 2009	USD/PLN	(30,000,000)	2.8	85,244,400	(3,640)
Grupa LOTOS S.A.	Currency forward	Dec 18 2008	Jan 9 2009	USD/PLN	(25,000,000)	2.8	71,092,000	(2,988)
Grupa LOTOS S.A.	Currency forward	Dec 29 2008	Jan 15 2009	EUR/USD	50,000,000	1.4	(71,345,150)	(2,789)
Grupa LOTOS S.A.	Currency spot	Dec 31 2008	Jan 5 2009	USD/PLN	2,000,000	3.0	(5,942,720)	(19)
Grupa LOTOS S.A.	Currency spot	Dec 31 2008	Jan 5 2009	EUR/USD	(1,000,000)	1.4	1,403,780	(15)
Grupa LOTOS S.A.	Currency forward	Dec 31 2008	Jan 14 2009	USD/PLN	11,100,000	3.0	(33,029,160)	(114)
Grupa LOTOS S.A.	Currency forward	Dec 31 2008	Jan 14 2009	EUR/USD	3,800,000	4.2	(15,903,000)	(36)
Grupa LOTOS S.A.	Currency forward	Dec 31 2008	Jan 15 2009	USD/PLN	22,000,000	3.0	(65,250,900)	(6)
Grupa LOTOS S.A.	Currency forward	Dec 31 2008	Jan 15 2009	USD/PLN	7,000,000	3.0	(20,778,100)	(19)
Grupa LOTOS S.A.	Currency forward	Dec 31 2008	Mar 16 2009	USD/PLN	21,400,000	3.0	(63,868,300)	(20)
Grupa LOTOS S.A.	Currency spot	Dec 31 2008	Jan 2 2009	USD/PLN	(2,000,000)	3.0	5,940,000	19
Grupa LOTOS S.A.	Currency spot	Dec 31 2008	Jan 2 2009	EUR/USD	1,000,000	1.4	(1,404,000)	15
							TOTAL, including:	134,672
							positive	159,985
							negative	(25,313)

 

Company	Type of transaction	Transaction execution date	Transaction settlement date	Currency pair	Amount in base currency	Rate	Amount in quote currency	Premium settlement date	Premium (PLN‘000)	Fair value as at Dec 31 2008 (PLN ‘000)4
Grupa LOTOS S.A.	Call option	Aug 8 2008	Feb 12 2009	EUR/USD	50,000,000	1.6	(79,500,000)	Aug 12 2008	(1,563)	384
Grupa LOTOS S.A.	Call option	Aug 11 2008	Feb 13 2009	EUR/USD	100,000,000	1.6	(159,000,000)	Aug 13 2008	(2,900)	815
Grupa LOTOS S.A.	Call option	Aug 11 2008	Mar 5 2009	EUR/USD	60,000,000	1.6	(95,400,000)	Sep 9 2008	(666)	1,192
Grupa LOTOS S.A.	Call option	Oct 20 2008	Mar 9 2009	EUR/USD	(60,000,000)	1.6	95,400,000	Oct 22 2008	438	(1,192)
Grupa LOTOS S.A.	Call option	Oct 27 2008	Feb 13 2009	EUR/USD	(15,000,000)	1.6	23,850,000	Oct 29 2008	85	(122)
Grupa LOTOS S.A.	Call option	Nov 4 2008	Feb 12 2009	EUR/USD	(50,000,000)	1.6	79,500,000	Nov 7 2008	329	(385)
Grupa LOTOS S.A.	Call option	Nov 4 2008	Feb 13 2009	EUR/USD	(85,000,000)	1.6	135,150,000	Nov 7 2008	600	(692)
								TOTAL, including:	(3,677)(5)	-
								positive	1,452	2,391
								negative	(5,129)	(2,391)

⁽³⁾ Fair value of currency spots and forwards is established by reference to future discounted cash flows connected with the transactions, calculated on the basis of the difference between the forward rate and the transaction price. The forward rate is calculated on the basis of the fixing rate quotations of the National Bank of Poland and the interest rate curve implied in fx swaps. (Level 2 in the fair value hierarchy).

⁽⁴⁾ Apart from the parameters used in the valuation of currency forwards, implied volatility is additionally taken into account in calculating the value of currency options  (Level 2 in the fair value hierarchy).

⁽⁵⁾ As at December 31st 2008, the option premium was presented at net value under “derivative financial instruments” (see Note 20).

The Parent Undertaking’s total currency position as at December 31st 2009:

Period	USD/PLN position			EUR/PLN position
	Underlying	Transaction	Total	Underlying	Transaction	Total
2010	406,436,729	(282,890,380)	123,546,349	(287,449,821)	202,200,000	(85,249,821)

The Parent Undertaking’s total currency position as at December 31st 2008:

Period	USD/PLN position			EUR/PLN position
	Underlying	Transaction	Total	Underlying	Transaction	Total
2009	596,635,901	(598,067,105)	(1,431,204)	(368,983,750)	372,550,000	3,566,250

The LOTOS Group companies executed transactions to hedge their euro-denominated export sales revenue (2008) and the USD exchange rate in connection with the purchase of bonds from a LOTOS Group company (2009).

Open currency transactions as at December 31st 2009:

Company	Type of transaction	Transaction execution date	Transaction settlement date	Currency pair	Amount in base currency	Rate	Amount in quote currency	Fair value as at Dec 31 2009 (PLN ‘000)3
LOTOS Asfalt Sp. z o.o.	Currency swap	Nov 12 2009	Nov 12 2010	USD/PLN	(20,500,000)	2.8355	58,127,750	(1,758)
LOTOS Asfalt Sp. z o.o.	Currency swap	Nov 12 2009	Nov 12 2010	USD/PLN	(19,500,000)	2.8354	55,290,300	(1,420)
							SUMA	(3,178)
							positive	-
							negative	(3,178)

Open currency transactions as at December 31st 2008:

Company	Type of transaction	Transaction execution date	Transaction settlement date	Currency pair	Amount in base currency	Rate	Amount in quote currency	Fair value as at Dec 31  2008 (PLN ‘000)
LOTOS Asfalt Sp. z o.o.	Currency forward	Jul 8 2008	Jul 10 2009	EUR/PLN	(3,000,000)	3.3	9,984,000	(2,623)
LOTOS Asfalt Sp. z o.o.	Currency forward	Dec 1 2008	Jan 2 2009	EUR/PLN	(155,000)	3.8	595,510	(51)
LOTOS Asfalt Sp. z o.o.	Currency forward	Dec 3 2008	Jan 5 2009	EUR/PLN	(388,000)	3.8	1,491,860	(128)
LOTOS Asfalt Sp. z o.o.	Currency forward	Dec 8 2008	Jan 9 2009	EUR/PLN	(305,000)	3.9	1,182,333	(91)
LOTOS Asfalt Sp. z o.o.	Currency forward	Dec 10 2008	Jan 12 2009	EUR/PLN	(168,000)	4.0	665,112	(36)
LOTOS Asfalt Sp. z o.o.	Currency forward	Dec 11 2008	Jan 13 2009	EUR/PLN	(250,000)	4.0	992,750	(52)
LOTOS Asfalt Sp. z o.o.	Currency forward	Dec 22 2008	Jan 23 2009	EUR/PLN	(469,000)	4.1	1,925,949	(35)
							TOTAL, including:	(3,016)
							positive	-
							negative	(3,016)

 

Company	Type of transaction	Transaction execution date	Transaction settlement date	Currency pair	Amount in base currency	Rate	Amount in quote currency	Fair value as at Dec 31  2008 (PLN ‘000)
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Jan 28 2009	EUR/PLN	300,000	3.6	1,080,000	1
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Feb 25 2009	EUR/PLN	300,000	3.6	1,078,500	4
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Mar 27 2009	EUR/PLN	300,000	3.6	1,077,000	8
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Apr 28 2009	EUR/PLN	300,000	3.6	1,074,000	11
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	May 27 2009	EUR/PLN	300,000	3.6	1,072,500	14
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Jun 18 2009	EUR/PLN	300,000	3.6	1,071,000	16
LOTOS Parafiny Sp. z o.o.	Call option	Oct 16 2008	Jan 28 2009	EUR/PLN	(600,000)	3.6	2,160,000	(402)
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Jan 28 2009	EUR/PLN	(300,000)	3.6	1,068,000	(1)
LOTOS Parafiny Sp. z o.o.	Call option	Oct 16 2008	Feb 25 2009	EUR/PLN	(600,000)	3.6	2,157,000	(412)
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Feb 25 2009	EUR/PLN	(300,000)	3.6	1,068,000	(4)
LOTOS Parafiny Sp. z o.o.	Call option	Oct 16 2008	Mar 27 2009	EUR/PLN	(600,000)	3.6	2,154,000	(423)
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Mar 27 2009	EUR/PLN	(300,000)	3.6	1,068,000	(7)
LOTOS Parafiny Sp. z o.o.	Call option	Oct 16 2008	Apr 28 2009	EUR/PLN	(600,000)	3.6	2,148,000	(437)
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Apr 28 2009	EUR/PLN	(300,000)	3.6	1,068,000	(10)
LOTOS Parafiny Sp. z o.o.	Call option	Oct 16 2008	May 27 2009	EUR/PLN	(600,000)	3.6	2.145,000	(448)
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	May 27 2009	EUR/PLN	(300,000)	3.6	1,068,000	(13)
LOTOS Parafiny Sp. z o.o.	Call option	Oct 16 2008	Jun 18 2009	EUR/PLN	(600,000)	3.6	2,142,000	(457)
LOTOS Parafiny Sp. z o.o.	Put option	Oct 16 2008	Jun 18 2009	EUR/PLN	(300,000)	3.6	1,068,000	(15)
							TOTAL, including:	(2,575)
							positive	54
							negative	(2,629)

Interest Rate Risk

The base map of interest rate positions reflects the planned schedule of drawdowns and repayments under the loan extended to finance inventories and the implementation of the 10+ Programme. The interest rate risk is connected with the interest calculated on the basis of a floating rate (LIBOR USD). The structure of limits is based on the underlying’s nominal value hedge ratio. In a long-term perspective, a partial risk mitigation effect was achieved through the choice of a fixed interest rate for the SACE sub-tranche under the investment loan granted to finance the 10+ Programme described in Note 30.

The agreement on the financing of the 10+ Programme provides for the obligation to maintain a specified hedge ratio for the interest rate risk, i.e. the risk connected with the LIBOR USD floating interest rate on the loan to finance the 10+ Programme in the period until mid-2011.

As at December 31st 2009, the underlying interest rate position stood at (USD ’000):

Period	Underlying position
2010	(1,782,231)
2011	(1,820,792)
2012	(1,388,528)
2013	(1,302,032)
2014	(1,201,506)
2015	(1,083,753)
2016	(959,280)
2017	(830,913)
2018	(690,720)
2019	(533,154)
2020	(374,596)

As at December 31st 2008, the underlying interest rate position stood at (USD ’000):

Period	Underlying position
2009	(1,465,047)
2010	(1,733,870)
2011	(1,752,352)
2012	(1,323,175)
2013	(1,240,750)
2014	(1,144,955)
2015	(1,032,745)
2016	(914,130)
2017	(791,805)
2018	(658,210)
2019	(508,060)
2020	(356,965)

In connection with its obligation to maintain the hedge ratio prescribed in the loan agreement and given its intention to partly mitigate the interest rate risk which is not covered by mandatory hedges, the Company executed hedging transactions. Taking advantage of the favourable market conditions prevailing at the long end of the USD interest rate curve, the Company hedged a part of its exposure in a time horizon of up to ten years.

Open interest rate transactions as at December 31st 2009:

Company	Type of transaction	Transaction execution date	Beginning of period	End of period	Nominal value (USD)	Company pays	Company receives	Fair value as at Dec 31 2009 (PLN ‘000)5
Grupa LOTOS S.A.	Interest rate swap (IRS)	May 9 2008	Oct 15 2008	Jun 30 2011	50,000,000	3.4%	6M LIBOR	(9,058)
Grupa LOTOS S.A.	Interest rate swap (IRS)	May 13 2008	Oct 15 2008	Jun 30 2011	50,000,000	3.6%	6M LIBOR	(9,473)
Grupa LOTOS S.A.	Interest rate swap (IRS)	May 16 2008	Oct 15 2008	Jun 30 2011	100,000,000	3.7%	6M LIBOR	(19,598)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Jun 4 2008	Jul 15 2009	Jun 30 2011	122,000,000	4.1%	6M LIBOR	(20,420)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Jun 4 2008	Oct 15 2008	Jun 30 2011	208,000,000	3.8%	6M LIBOR	(42,633)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Jun 26 2008	Jan 15 2009	Jun 30 2011	100,000,000	4.3%	6M LIBOR	(23,991)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Jun 27 2008	Jul 15 2009	Jun 30 2011	150,000,000	4.3%	6M LIBOR	(27,254)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Sep 5 2008	Oct 15 2008	Jan 15 2013	100,000,000	3.8%	6M LIBOR	(23,222)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Sep 16 2008	Jan 15 2009	Jan 15 2013	100,000,000	3.5%	6M LIBOR	(20,125)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Sep 19 2008	Jan 15 2009	Jan 15 2013	(100,000,000)	6M LIBOR	4,0%	25,194
Grupa LOTOS S.A.	Interest rate swap (IRS)	Oct 7 2008	Jan 15 2009	Jan 15 2013	100,000,000	3.5%	6M LIBOR	(19,787)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Oct 8 2008	Jul 15 2011	Jan 15 2013	100,000,000	4.2%	6M LIBOR	(4,159)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Mar 19 2009	Jul 15 2011	Jan 15 2018	100,000,000	3.3%	6M LIBOR	18,070
Grupa LOTOS S.A.	Interest rate swap (IRS)	Apr 15 2009	Jul 15 2011	Jan 15 2018	50,000,000	3.5%	6M LIBOR	7,914
Grupa LOTOS S.A.	Interest rate swap (IRS)	May 8 2009	Jul 15 2011	Jan 15 2018	50,000,000	4.0%	6M LIBOR	3,589
							TOTAL, including:	(164,953)
							positive	54,767
							negative	(219,720)

Open interest rate transactions as at December 31st 2008:

Company	Type of transaction	Transaction execution date	Beginning of period	End of period	Nominal value (USD)	Company pays	Company receives	Fair value as at Dec 31 2008 (PLN’000)5
Grupa LOTOS S.A.	Interest rate swap (IRS)	May 9 2008	Oct 15 2008	Jun 30 2011	50,000,000	3.4%	6M LIBOR	(5,912)
Grupa LOTOS S.A.	Interest rate swap (IRS)	May 13 2008	Oct 15 2008	Jun 30 2011	50,000,000	3.6%	6M LIBOR	(6,515)
Grupa LOTOS S.A.	Interest rate swap (IRS)	May 16 2008	Oct 15 2008	Jun 30 2011	100,000,000	3.7%	6M LIBOR	(13,494)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Jun 4 2008	Jul 15 2009	Jun 30 2011	122,000,000	4.1%	6M LIBOR	(16,271)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Jun 4 2008	Oct 15 2008	Jun 30 2011	208,000,000	3.8%	6M LIBOR	(30,172)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Jun 26 2008	Jan 15 2009	Jun 30 2011	100,000,000	4.3%	6M LIBOR	(18,803)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Jun 27 2008	Jul 15 2009	Jun 30 2011	150,000,000	4.3%	6M LIBOR	(22,190)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Sep 5 2008	Oct 15 2008	Jan 15 2013	100,000,000	3.8%	6M LIBOR	(20,121)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Sep 16 2008	Jan 15 2009	Jan 15 2013	100,000,000	3.5%	6M LIBOR	(17,678)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Sep 19 2008	Jan 15 2009	Jan 15 2013	(100,000,000)	LIBOR  6M	4,0%	22,848
Grupa LOTOS S.A.	Interest rate swap (IRS)	Oct 7 2008	Jan 15 2009	Jan 15 2013	100,000,000	3.5%	6M LIBOR	(17,333)
Grupa LOTOS S.A.	Interest rate swap (IRS)	Oct 8 2008	Jul 15 2011	Jan 15 2013	100,000,000	4.2%	6M LIBOR	(7,044)
							TOTAL, including:	(152,685)
							positive	22,848
							negative	(175,533)

 

 

Company	Type of transaction	Transaction execution date	Beginning of period	End of period	Nominal value (USD)	Company pays	Company receives	Fair value as at Dec 31 2008 (PLN’000)5
Grupa LOTOS S.A.	Forward rate agreement (FRA)	Oct 7 2008	Jan 15 2009	Jul 15 2009	100,000,000	2,5%	6M LIBOR	(1,733)
							TOTAL	(1,733)

⁽⁵⁾ Fair value of FRAs is established by reference to future discounted cash flows connected with the transactions, calculated on the basis of the difference between the forward rate and the transaction price. The forward rate is calculated using the zero-coupon interest rate curve based on 6M or 3M LIBOR, depending on the type of transaction. In 2008, the forward rate was calculated using  the zero-coupon interest rate curve based on 3M LIBOR, so the basis swaps between the 3M and the 6M LIBOR reference rate were not accounted for (Level 2 in the fair value hierarchy).

Total interest rate position as at December 31st 2009:

Period	Underlying position	Fixed interest rate loans	Transaction position	Total position	Hedge ratio
2010	(1,782,230,827)	357,329,116	980,000,000	(444,901,710)	75%
2011	(1,820,792,177)	420,654,375	740,000,000	(660,137,802)	64%
2012	(1,388,528,072)	401,678,125	500,000,000	(486,849,947)	65%
2013	(1,302,032,010)	376,656,250	200,000,000	(725,375,760)	44%
2014	(1,201,505,590)	347,575,625	200,000,000	(653,929,965)	46%
2015	(1,083,753,414)	313,511,875	200,000,000	(570,241,539)	47%
2016	(959,279,889)	277,503,750	200,000,000	(481,776,139)	50%
2017	(830,913,122)	240,369,375	200,000,000	(390,543,747)	53%
2018	(690,719,718)	199,813,750	0	(490,905.968)	29%
2019	(533,153,644)	154,232,500	0	(378,921,144)	29%
2020	(374,595,895)	108,364,375	0	(266,231,520)	29%

Total interest rate position as at December 31st 2008:

Period	Underlying position	Fixed interest rate loans	Transaction position	Total position	Hedge ratio
2009	(1,465,046,833)	307,798,312	894,000,000	(263,248,521)	82%
2010	(1,733,870,372)	401,860,932	980,000,000	(352,009,440)	80%
2011	(1,752,351,666)	420.654 375	640,000,000	(691,697,291)	61%
2012	(1,323,175,000)	401,678,125	300,000,000	(621,496,875)	53%
2013	(1,240,750,000)	376,656,250	-	(864,093,750)	30%
2014	(1,144,955,000)	347,575,625	-	(797,379,375)	30%
2015	(1,032,745,000)	313,511,875	-	(719,233,125)	30%
2016	(914,130,000)	277,503,750	-	(636,626,250)	30%
2017	(791,805,000)	240.369,375	-	(551,435,625)	30%
2018	(658,210,000)	199,813,750	-	(458,396,250)	30%
2019	(508,060,000)	154,232,500	-	(353,827,500)	30%
2020	(356,965,000)	108,364,375	-	(248,600,625)	30%

To optimise the interest balance, the cashpooling service for the LOTOS Group members is used. The service consists in the application of favourable interest rates for debit and credit balances, which are subject to offsetting as at the end of each business day.

Liquidity Risk

The liquidity risk management process at the LOTOS Group consists in monitoring the forecast cash flows, matching maturities of assets and liabilities, analysing working capital and maintaining access to various financing sources.

In the period covered by the budget, liquidity is monitored on an ongoing basis across the Group as part of the financial risk management. In the mid and long term, it is monitored as part of the planning process, which helps create a long-term financial strategy.

In the area of financial risk, in addition to an active management of market risk, the Parent Undertaking follows the following rules with respect to liquidity management:

• employs no margins with respect to trade in derivatives on the over-the-counter market,
• limits the possibility of an early termination of financial transactions,
• establishes limits for spot financial instruments of low liquidity,
• establishes credit limits for counterparties in financial transactions,
• ensures adequate quality of the available credit lines,
• implements internal control processes and ensures organisational efficiency, which facilitates prompt reaction in case of emergencies.

Maturity structure of derivative financial instruments as at December 31st 2009:

Beginning of period	End of period	Period	Net cash flows (EUR’000)	Net cash flows (USD’000)	Net cash flows  (PLN’000)
Jan 1 2010	Jan 31 2010	Up to 1 month	33,000	(123,874)	159,927
Feb 1 2010	Mar 31 2010	1–3 months	59,200	(38,897)	(121,710)
Apr 1 2010	Dec 31 2010	3–12 months	110,032	(145,458)	(28,696)
Jan 1 2011	Dec 31 2015	1–5 years	(66)	(35,826)	0
Jan 1 2016	Dec 31 2030	Over 5 years	0	4,801	0

Note 24 presents additional free cash remaining at the Group’s disposal. Note 21.5 contains information on the contractual maturities of financial liabilities as at December 31st 2009 and December 31st 2008.

Credit Risk

Management of credit risk relating to counterparties in financial transactions consists in ongoing monitoring of credit exposure in relation to the limits granted. The counterparties must have an appropriate credit rating assigned by leading rating agencies or hold guarantees granted by institutions meeting the minimum rating requirement. The Group enters into financial transactions with reputable firms with good credit standing.

As at December 31st 2009, the concentration of credit risk with respect to a single counterparty in financial transactions did not exceed 0.2% of the Company’s balance-sheet total.

As regards management of credit risk relating to counterparties in the Group’s trade transactions, all customers requesting trade credit undergo verification of their financial reliability, whose results determine the level of credit limits to be granted. Furthermore, due to the fact that the receivables are monitored on an ongoing basis, the risk of it holding uncollectible receivables is low.

Carrying values of financial assets represent the maximum credit risk exposure. The maximum credit risk exposure as at the balance-sheet date stood at:

PLN ‘000	Note	Dec 31 2009	Dec 31 2008
			(comparable data)
Shares:		9,929	11,041
- non-current	19	9,917	9,917
- current	20	12	1,124
Prepayments for shares	20	-	25,332(1)
Derivative financial instruments		101,879	302,304
- non-current	19	54,862	22,848
- current	20	47,017	279,456
Decommissioning fund	19	20,962	16,599
Non-current deposits	19	311	-
Loans:	21	-	-
- non-current		-	-
- current		-	-
Trade and other receivables:		1,515,812	1,260,660
- non-current	12	22,061	9,152
- current	23	1,493,751	1,251,508
Cash and cash equivalents	24	362,078	712,801
Total		2,010,971	2,328,737

⁽¹⁾ As at December 31st 2008, the Group carried assets invested in associated undertaking AB Naftos Gavyba (AB Geonafta after the merger) in the total amount of PLN 25,332 thousand. As at December 31st 2009, these assets were disclosed under “Investments in associated undertakings” in the statement of financial position (see Note 18).

The age analysis of past due financial assets as at December 31st 2009 and December 31st 2008 is shown in Note 23.

21.4. Sensitivity Analysis with Respect to Market Risk Related to Fluctuations in FX Rates, Interest Rates, Prices of Carbon Dioxide (CO₂) Emission Allowances and Prices of Raw Materials and Petroleum Products

Below is presented an analysis of the Group’s sensitivity to currency risk as at December 31st 2009, along with the effect of such a risk on the financial performance, assuming a 4% increase or decrease in the USD/PLN and EUR/PLN currency exchange rates and constant levels of all other variables:

Dec 31 2009 (PLN ‘000)	Note	Carrying value in a foreign currency, translated into PLN as at the balance-sheet date	4% increase in exchange rate, effect on year’s result		4% decrease in exchange rate, effect on year’s result
			USD	EUR	USD	EUR
Trade and other receivables	23	78,389	1,469	1,668	(1,469)	(1,668)
Financial assets – derivative financial instruments	20	101,879	(53,432)	32,158	53,432	(32,158)
Non-current deposits	19	311	-	12	-	(12)
Cash and cash equivalents	24	33,919	784	574	(784)	(574)
Trade and other payables	33	(803,944)	(28,753)	(3,405)	28,753	3,405
Loans	30	(5,016,021)	(199,674)	(584)	199,674	584
Financial liabilities – derivative financial instruments	32	(236,371)	14,685	938	(14,685)	(938)
Finance lease liabilities	32	(81,344)	-	(3,232)	-	3,232
Total		(5,923,182)	(264,921)	28,129	264,921	(28,129)

As at December 31st 2009, the Parent Undertaking held futures for the purchase of carbon dioxide (CO₂) emission allowances (EUA – Emissions Unit Allowance), measured at fair value as at the balance-sheet date.

As at December 31st 2009, the financial assets related to positive valuation of the futures for the purchase of carbon dioxide (CO₂) emission allowances amounted to PLN 537 thousand.

As at December 31st 2009, the financial liabilities related to negative valuation of the futures for the purchase of carbon dioxide (CO₂) emission allowances were PLN 675 thousand.

A change in the price of the carbon dioxide (CO₂) emission allowances up or down by 10% could potentially lead to a change in the fair value of financial assets and liabilities related to the futures for the purchase of carbon dioxide (CO₂) emission allowances of PLN 107 (107) thousand.

Below is presented an analysis of the Group’s sensitivity to currency risk as at December 31st 2008, along with the effect of such a risk on the financial performance, assuming a 4% increase or decrease in the USD/PLN and EUR/PLN currency exchange rates and constant levels of all other variables:

Dec 31 2008 (PLN ‘000)	Note	Carrying value in a foreign currency, translated into PLN as at the balance-sheet date	4% increase in exchange rate, effect on year’s result		4% decrease in exchange rate, effect on year’s result
			USD	EUR	USD	EUR
Trade and other receivables	23	109,891	2,675	1,721	(2,675)	(1,721)
Financial assets – derivative financial instruments	20	302,304	(53,808)	54,808	53,808	(54,808)
Non-current deposits	19	-	-	-	-	-
Cash and cash equivalents	24	94,387	2,689	1,087	(2,689)	(1,087)
Trade and other payables	33	(630,602)	(18,252)	(6,971)	18,252	6,971
Loans	30	(3,198,294)	(126,993)	(1,012)	126,993	1,012
Financial liabilities – derivative financial instruments	32	(218,526)	(18.506)	6,507	18,506	(6,507)
Finance lease liabilities	32	-	-	-	-	-
Total		(3,540,840)	(212,195)	56,140	212,195	(56,140)

As at December 31st 2008, the Parent Undertaking held futures for the purchase of carbon dioxide (CO₂) emission allowances (EUA – Emissions Unit Allowance), measured at fair value as at the balance-sheet date.

As at December 31st 2008, the financial assets related to positive valuation of the futures for the purchase of carbon dioxide (CO₂) emission allowances amounted to PLN 15 thousand.

As at December 31st 2008, the financial liabilities related to negative valuation of the futures for the purchase of carbon dioxide (CO₂) emission allowances were PLN 1 thousand.

A change in the price of the carbon dioxide (CO₂) emission allowances up or down by 10% could potentially lead to a change in the fair value of financial assets and liabilities related to the futures for the purchase of carbon dioxide (CO₂) emission allowances of PLN 584 (584) thousand.

As at December 31st 2008 the Parent Undertaking held OTC full barrel swaps, measured at fair value as at the balance-sheet date.

As at December 31st 2008, the financial assets related to positive valuation of the full barrel swap amounted to PLN 113,334 thousand.

As at December 31st 2008, the financial liabilities related to negative valuation of the full barrel swap were PLN 7,910 thousand.

A change in the values of the indices included in the full barrel swap up or down by 10% could potentially lead to a change in the valuation of the fair value of financial assets and liabilities related to the OTC full barrel swap of PLN 16,655 (16,655) thousand.

Below is presented an analysis of the Group’s sensitivity to interest rate risk as at December 31st 2009, assuming a 0.2% increase or decrease in the interest rate:

Dec 31 2009 PLN ‘000	Note	Carrying value	Change
			0.2% increase	0.2% decrease
Cash and cash equivalents	24	362,078	724	(724)
Decommissioning fund	19	20,962	42	(42)
Non-current deposits	19	311	1	(1)
Financial assets – derivative financial instruments(1)	19	54,767	4.120	(4,225)
Loans and borrowings	30	(5,701,071)	(11,605)	11,605
Finance lease liabilities	32	(83,149)	(166)	166
Financial liabilities – derivative financial instruments(1)	32	(219,720)	12,426	(12,508)
Total		(5,565,822)	5,542	(5,729)

⁽¹⁾ including interest rate swap (IRS)

As at December 31st 2009, the carrying value of financial assets and liabilities (loans, cash and cash equivalents, decommissioning fund, non-current deposits, derivative financial instruments, liabilities under: loans and borrowings, finance lease and derivative financial instruments) which are sensitive to interest rate risk amounted to PLN (5,565,822) thousand net.

A change in interest rates up or down by 0.2% could potentially lead to a change in the value of financial assets and liabilities as at December 31st 2009 of PLN 5,542 (5,729) thousand net.

Below is presented an analysis of the Group’s sensitivity to interest rate risk as at December 31st 2008, assuming a 0.2% increase or decrease in the interest rate:

Dec 31 2008 PLN ‘000	Note	Carrying value	Change
			0.2% increase	0.2% decrease
Cash and cash equivalents	24	712,801	1,426	(1,426)
Decommissioning fund	19	16,599	33	(33)
Non-current deposits	19	-	-	-
Financial assets – derivative financial instruments(1)	19	22,848	(2,355)	2,378
Loans and borrowings	30	(3,919,605)	(7,839)	7,839
Finance lease liabilities	32	(1,415)	(3)	3
Financial liabilities – derivative financial instruments(1)	32	(177,266)	18,742	(18,901)
Total		(3,346,038)	10,004	(10,140)

⁽¹⁾ Including interest rate swap (IRS) and/or forward rate agreements (FRAs).

As at December 31st 2008, the carrying value of financial assets and liabilities (loans, cash and cash equivalents, decommissioning fund, derivative financial instruments, liabilities under loans and borrowings, finance lease and derivative financial instruments) which are sensitive to interest rate risk amounted to PLN (3,346,038) thousand net.

A change in interest rates up or down by 0.2% could potentially lead to a change in the value of financial assets and liabilities as at December 31st 2008 of PLN 10,004 (10,140) thousand net.

21.5. Maturity Structure of Financial Liabilities and Derivative Financial Instruments

Maturity structure of financial liabilities as at December 31st 2009:

PLN ‘000	Note	Carrying value	Contractual cash flows	Up to 6 months	6–12 months	1–2 years	2–5 years	Over 5 years
Secured bank loans (other than overdraft facilities)	30	5,190,356	5,291,777	140,616	116,197	1,295,279	864,392	2,875,293
Overdraft facilities	30	510,715	510,715	510,600	115	-	-	-
Finance lease liabilities	32	83,149	83,149	1,159	1,686	3,873	19,949	56,482
Trade and other payables	33	1,094,702	1,094,702	1,046,171	9,637	15,728	23,166	-
Total		6,878,922	6,980,343	1,698,546	127,635	1,314,880	907,507	2,931,775

Maturity structure of financial liabilities as at December 31st 2008:

PLN ‘000	Note	Carrying value	Contractual cash flows	Up to 6 months	6–12 months	1–2 years	2–5 years	Over 5 years
Secured bank loans (other than overdraft facilities)	30	3,544,631	3,546,455	91,644	42,566	70,508	1,629,552	1,712,185
Overdraft facilities	30	374,974	374,974	373,114	1,860	-	-	-
Finance lease liabilities	32	1,415	1,415	165	396	799	55	-
Trade and other payables	33	1,260,855	1,260,855	1,254,638	1,393	2,193	2,631	-
Total		5,181,875	5,183,699	1,719,561	46,215	73,500	1,632,238	1,712,185

Maturity structure of derivative financial instruments as at December 31st 2009:

PLN ‘000	Note	Carrying value*	Contractual cash flows	Up to 6 months	6–12 months	1–2 years	2–5 years	Over 5 years
Futures (CO2 emissions)	19, 20, 32	(138)	(138)	-	132	86	(356)	-
Currency forward and spot contracts	20, 32	33,777	33,777	32,165	1,612	-	-	-
Interest rate swap (IRS)	19, 20, 32	(164,953)	(164,953)	-	-	(152,428)	(42,098)	29,573
Currency swap	32	(3,178)	(3,178)	(3,178)	-	-	-	-
Total		(134,492)	(134,492)	(28,987)	1,744	(152,342)	(42,454)	29,573

*carrying value (positive valuation of derivative financial instruments less negative valuation of derivative financial instruments) represents the fair value of derivative financial instruments

Maturity structure of derivative financial instruments as at December 31st 2008:

PLN ‘000	Note	Wartość bilansowa*	Contractual cash flows	Up to 6 months	6–12 months	1–2 years	2–5 years	Over 5 years
Commodity swap	20, 32	105,424	105,424	54,550	50,874	-	-
Futures (CO2 emissions)	20, 32	14	14	(1)	15	-	-	-
Currency forward and spot contracts	20, 32	131,656	131,656	82,432	49,224	-	-	-
Currency options	20, 32	1,102	1,102	1,102	-	-	-	-
Forward rate agreements (FRAs)	32	(1,733)	(1,733)	(1,733)	-	-	-	-
Interest rate swap (IRS)	19, 20, 32	(152,685)	(152,685)	-	-	-	(152,658)	-
Total		83,778	83,778	136,350	100,113	-	(152,685)	-

* Carrying value (positive valuation of derivative financial instruments less negative valuation of derivative financial instruments) represents the fair value of derivative financial instruments.

This is a translation of a document originally issued in Polish

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