16. Right-of-use assets

A contract contains a lease if:

1. it concerns an identified asset that is explicitly specified in the contract (e.g. using an inventory number or indication of a specific floor of a building) or indirectly specified when it is made available to the customer; and
2. the lessee receives essential all of the economic benefits from such assets during the period of use, i.e. both basic benefits and the benefits derived from it; and
3. the lessee has the right to specify the method in which it uses the identified asset.

As lessee, the Group recognises Leases in its financial statements as:

1. right-of-use assets at purchase price;
   • covering the value of the lease liability plus payments made on or before the contract date, initial direct costs, an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories,
   • less any lease incentives received.
2. lease liabilities constituting the sum of the present value of lease payments and the present value of payments expected at the end of the lease term.

Subsequent to initial recognition, the Group measures the right-of-use assets at purchase price less amortisation and impairment. The amortisation period is set as:

1. if the lease transfers ownership of the underlying asset to the lessee or if the lessee is certain that it will exercise a purchase option, the amortisation period is from the commencement date to the end of the useful life of the underlying asset, or
2. the amortisation period starts from the commencement date to the earlier of:
   • the end of the useful life of the right-of-use asset, or
   • the end of the lease term.

The present value of future lease payments is calculated using a discount rate. ENEA S.A., ENEA Operator Sp. z o.o., ENEA Wytwarzanie Sp. z o.o., Enea Elektrownia Połaniec S.A. and Lubelski Węgiel „Bogdanka” S.A. apply a residual interest rate, i.e. a rate that ENEA S.A. would be required to pay based on a similar lease or, if not possible to determine, an interest rate at the commencement date that ENEA S.A. would have to use to make a loan necessary to purchase the given asset for a similar period and with similar collateral. ENEA S.A. uses an interest rate equal to 6-month WIBOR from the last day of the year preceding the financial year, plus margin. The other companies use an interest rate equal to 1-month WIBOR from the last day of the year preceding the financial year, plus margin. The discount rate is analysed and updated every year. In the case of sub-leases, lessees at ENEA Group use the lessor’s discount rate.

The Group sets the lease term, i.e. irrevocable lease term, together with:

1. term for an option to extend the lease if the Group is sufficiently certain that it will exercise this right; and
2. term for an option to terminate the lease if the Group is sufficiently certain that it will not exercise that right.

In most of its leases, the Group uses a lease period in accordance with the contractual period. For contracts executed for an indefinite period, the Group determines the minimum contractual term for both of the parties. If the Group is unable to determine how long it intends to use the asset and such an estimate could be treated as a lease term in the case of contracts with an indefinite period, the Group assumes that the irrevocable contractual period will be the termination period for that lease.

In the case of rights to perpetual usufruct of land, the lease term is the same as the term for the right to perpetual usufruct.

In subsequent periods, the lease liability is measured taking into account:

1. interest charged (unwind of discount),
2. lease payments made
3. reflection of the re-evaluation of contract, changes in the contract or changes in the nature of variable payments that are fixed in substance.

The liability in a given period will constitute the difference between the present value of lease payments and the sum of lease payments for the given period. The interest part of a lease payment is directly recognised in the statement of profit and loss.

For multi-element contracts, the Group recognises lease components separately from non-lease components. The Group allocates contractual remuneration to all components, using individual sales prices in the case of lease components and aggregated individual sales prices in the case of non-lease components.

The Group applies a practical expedient and does not apply the lease model in reference to:

1. short-term leases (contracts with a term of up to 12 months and without the right to purchase the asset),
2. the leasing of low-value assets, the initial value of which does not exceed PLN 10 thousand (even if the value of such assets is significant after aggregation) and assets that are not largely depended on or tied to other assets specified in the contract.

This exemption does not apply in situations where the Group transfers the asset under a sub-lease or expects to transfers it. If the Group decides to use this expedient, it recognises lease payments as cost on a straight-line basis throughout the lease term.

From 1 January 2019, rights to the perpetual usufruct of land are recognised as right-of-use assets and are subject to amortisation.

In June 2019, the IFRS Interpretations Committee issued a summary of decisions taken at public meetings concerning interpretations regarding IFRS 16, including regarding the right to underground parts of land. Prior to this decision being issued by the IFRIC, the Group had not treated contracts giving it the right to use underground portions of land as contracts constituting a lease in accordance with the definition of a lease introduced by IFRS 16. The Group also had not treated transmission easements as Leases both when electricity poles are situated on land covered by the easement and when infrastructure is not present and the easement only concerns an overhead power line. Following a detailed analysis of the impact of the Committee’s decisions on accounting rules, the Group considered these contracts as leases. This led to an increase in right-of-use assets and lease liabilities presented in the statement of financial position. Right-of-use assets concerning easements for State Forests was recognised at zero value due to the variability of fees. Detailed impact of this change is presented in note 15 and in the table below.

Right to use underground parts of land

The value of right-of-use assets and lease liabilities were estimated on the basis of annual payments and the estimated period of economic use resulting from the register of tangible asset. In the future, the Group plans to identify in detail contracts concerning the use of underground parts of roadways and other contracts concerning the placement of equipment on roadways, and to specify on this basis the precise values of the right to use these assets

Discount rate

The way in which the discount rate is determined is described above in accounting rules.

For the financial year ended 31 December 2020:

For the financial year ended 31 December 2019