52.2 Liquidity risk

The Group maintains a balance between continuity, flexibility and cost of financing by using various sources of funding, which enable management of liquidity risk and effective mitigation of risk consequences. The Company pursues policy of diversification of financing instruments but first of all it seeks to secure financing and maintain the ability of the Group companies to meet current and future liabilities in the short and long term. Liquidity risk management is connected with planning and monitoring cash flows in the short and long term and taking actions to ensure funds for the operations of the Group companies.

The TAURON Group carries out a centralized finance management policy, allowing effective management in this respect on the Group level. Among others, the TAURON Group has adopted Liquidity management policy for the TAURON Group, which facilitates optimization of liquidity management at the TAURON Group, reduces the risk of liquidity loss, as well as financial expenses in the Group and in each company from the TAURON Group. Having implemented appropriate projection standards, the TAURON Group can precisely determine its liquidity position and optimize the time of obtaining funding, maturity and types of deposit instruments, as well as an appropriate level of the liquidity provision.

Additionally, in order to mitigate a possibility of cash flow disruption and liquidity risk, the TAURON Group uses the cash pooling mechanism. The cash pooling structure enables the Group companies that experience short-term shortage of funds to use cash provided by companies with cash surplus, without the need to obtain borrowings from third parties.

The Company also has available financing under the concluded overdraft agreements up to the amount of EUR 45 000 thousand allocated for financing transactions on the European exchanges. The purpose of concluding a FX loan agreement is to mitigate the exchange rate risk associated with euro-denominated trade transactions. As at 31 December 2020, the Company did not have any liabilities arising from the aforementioned loan.

In addition, the Company primarily has available financing under syndicated loan agreements which can be used for general corporate purposes, including securing the Group’s current liquidity position.

The policy pursued with regard to the acquisition of financing sources enables, above all, an increase in the possibility of obtaining financing for general corporate purposes and capital expenditure, a reduction in the cost of external capital, a reduction in the amount and forms of collateral established on TAURON Group assets and covenants required by financial institutions, and a reduction in administrative costs. The corporate finance model also makes it possible to acquire sources of financing that are not available to individual companies.

In terms of liquidity, the Company was obliged, as a result of the high price volatility in the electricity and related products market, which was affected by the COVID-19 pandemic, to pay (especially in the first half of 2020) high amounts of the required variation margins both to the IRGiT and to the ICE exchange, which consequently translated into the level of cash committed for this purpose. In order to mitigate the impact of the pandemic on its liquidity position, the Company has undertaken a number of measures including, but not limited to, entering into additional agreements to allow the required collateral to be lodged with the IRGiT in non-cash form, as further described in Note 59 to these consolidated financial statements.

In 2020, the Group demonstrated full capacity to settle its liabilities on their maturity date.

The tables below show the ageing of the Group’s financial liabilities by non-discounted contractual payments.