39. Debt

Debt liabilities include: bank loans, borrowings, bonds issued and lease obligations.

• Bank loans, borrowings, bonds issued

Upon initial recognition, bank loans, borrowings and bonds issued are measured at a fair value less transaction costs and discounts or premiums. After initial recognition, these liabilities are measured at amortised cost, using the effective interest rate method.

• Lease

An agreement or part of a rental, lease or other agreement or part of an agreement of a similar nature under which the right to control the use of an asset (underlying asset) for a given period is transferred in exchange for remuneration is classified as a lease. The lease liability is measured at the present value of the outstanding lease payments, discounted using either the contractual interest rate (if determinable) or the incremental borrowing rate. Lease payments included in the measurement of the lease liability include:

• fixed lease payments less any lease incentives payable,
• variable lease payments that depend on an index or a rate, measured initially using that index or rate according to their value at the starting date,
• amounts expected to be paid by the lessee under the residual value guarantee of the underlying asset,
• the strike price of the call option if it can be assumed that the lessee will exercise it,
• the strike price of the call option if it can be assumed that the lessee will exercise it,
• financial penalties for lease termination.

PROFESSIONAL JUDGEMENT AND ESTIMATES

When measuring liabilities at amortised cost using the effective interest rate method, the Group estimates future cash flows considering all contractual terms of a given financial instrument, including the early repayment option. As at the reporting period end, early buy-back of bonds was included in the measurement of liabilities arising from issue of hybrid bonds under agreements concluded with the European Investment Bank and Bank Gospodarstwa Krajowego, in relation to the intention to buy back the bonds after the end of the first financing period.

In the case of a loan agreement defining the maximum term of individual loans tranches up to 1 year or with the payment date at the end of the interest period, where the financing available under the agreement is revolving and the term of availability exceeds 1 year, the Group classifies the tranches according to the intention and ability of maintaining financing under the agreement, i.e. as long-term or short-term liabilities.

The lease incremental borrowing rate is estimated as a weighted average cost of TAURON Group’s debt adjusted for the individual rating of the companies, taking into account a breakdown by lease term.