НАК „НАФТОГАЗ УКРАЇНИ“. Річний звіт англійською (2017 рік) - 15

FINANCIAL STATEMENTS

ANNUAL REPORT 2017

229

228

6�  PROPERTY, PLANT AND EQUIPMENT

Movements in the carrying amount of property, plant and equipment were as follows:

In millions of Ukrainian 

hryvnias

Pipelines and r

ela

ted 

equipmen

t

O

il and gas pr

oducing 

pr

oper

ties

M

achiner

y and 

equipmen

t

Buildings

Cushion gas

D

rilling and e

xplor

ation 

equipmen

t

O

ther  fix

ed assets

Construc

-tion in 

pr

og

ress

Total

Net book value at 

31 December 2015

210,782

53,405

75,920

62,392 142,140

582

3,900

10,675 559,796

Cost or valuation

212,066

53,826

76,593

63,439 142,140

861

5,122

11,617 565,664

Accumulated 
depreciation and 
impairment

(1,283)

(420)

(673)

(1,047)

–

(279)

(1,224)

(942)

(5,868)

Additions and transfers

(12,549)

5,487

38,019 (22,236)

–

790

(2,588)

1,851

8,774

Revaluation

–

–

–

–

13,282

–

–

–

13,282

Disposals

(3)

(33)

(16)

(68)

–

(34)

(1)

(247)

(402)

Depreciation charge

(7,137)

(5,719)

(7,104)

(3,521)

–

(295)

(307)

– (24,083)

Impairment

(20)

(799)

(1)

(2,156)

(1,856)

(91)

–

(783)

(5,706)

Net book value at 

31 December 2016

191,074

52,342 106,818

34,411 153,566

952

1,002

11,496 551,661

Cost or valuation

199,270

59,300 116,533

39,194 155,422

1,447

2,724

13,117 587,007

Accumulated 
depreciation and 
impairment

(8,196)

(6,958)

(9,715)

(4,783)

(1,856)

(495)

(1,722)

(1,621) (35,346)

Additions and transfers 

(522)

4,335

2,106

1,673

–

870

338

6,740

15,540

Revaluation

(42,181)

27,140

(8,506)

(6,383)

(3 526)

548

(99)

– (33,007)

Disposals

–

(19)

(20)

(6)

–

(20)

(4)

(289)

(358)

Depreciation charge

(16,882)

(6,202) (14,919)

(2,728)

–

(565)

(292)

– (41,588)

Impairment

–

–

(41)

(119)

–

(74)

(6)

(526)

(766)

Net book value at 

31 December 2017

131,489

77,596

85,438

26,848 150,040

1,711

939

17,421 491,482

Cost or valuation

132,909

77,944

86,105

27,484 150,045

1,738

2,128

19,443 497,796

Accumulated 
depreciation and 
impairment

(1,420)

(348)

(667)

(636)

(5)

(27)

(1,189)

(2,022)

(6,314)

The Group engaged 

independent appraisers to 

determine the fair value of 

its major groups of property, 

plant and equipment as at 

31 December 2017. The fair value 

was determined in accordance 

with International Valuation 

Standards. 

Taking into account the nature 

of the Group’s property, plant 

and equipment, fair value was 

determined using depreciated 

replacement cost for specialised 

assets, and using market-based 

evidence for non-specialised 

assets. Consequently, the 

fair value of main producing 

properties and equipment was 

primarily determined using 

depreciated replacement cost. 

This method considers the cost 

to reproduce or replace the 

property, plant and equipment, 

adjusted for physical, functional 

and economic depreciation, and 

obsolescence. The depreciated 

replacement cost was estimated 

based on internal sources and 

analysis of available market 

information for similar property, 

plant and equipment (published 

information, catalogues, 

statistical data etc), and industry 

experts and suppliers. 

The results obtained using 

different valuation approaches 

provided evidence of the 

existence of economic 

obsolescence and impairment 

costs. Economic obsolescence 

is caused by the fact that 

replacement cost of assets less 

physical depreciation exceeded 

the future economic benefits 

that could be obtained from 

the use of assets (with future 

economic benefits calculated 

based on current estimates 

of the Group’s management, 

expectations of independent 

appraisers and consensus 

forecasts). Therefore, the fair 

value of specialised assets 

was determined using the 

depreciated replacement 

cost approach as adjusted 

for economic obsolescence 

amount. If the fair value is lower 

than carrying value of property, 

plant and equipment, an 

impairment loss is recognised 

(Note 26).

The major part of economic 

obsolescence identified 

is attributed to the cash 

generating unit “Gas 

Transmission System”. It is 

explained by the implied 

expectation of the Group’s 

management that there would 

not be any gas transit flows 

starting from 1 January 2020 

after the expiration of existing 

Gas Transit Contract with 

Gazprom, because currently 

Gazprom has not booked any 

gas transit capacities beyond 

2019 and is actively investing in 

construction of alternative gas 

pipelines bypassing Ukraine. 

Should the assumption of no 

transit flows from 1 January 

2020 change, this could have 

resulted in lower economic 

obsolescence per results of 

income approach in valuation 

procedures.

The following table summarises 

values of property, plant and 

equipment by selected cash 

generating units based on 

different valuation approaches as 

at 31 December 2017:

Cash generating unit 

In millions of Ukrainian hryvnias

Cost Approach (net replacement 

costs less physical depreciation)

Income Approach

Gas Transmission System 

419,309

188,628

Underground Gas Storages

160,533

126,579

Gas upstream, refinery and fuel filing stations

120,479

91,094

Oil transmission and transit

15,923

14,444

Group’s management 

expectations of gas transit 

flows after 1 January 2020 

(Note 27) is the main 

assumption that affected both 

revaluation of property, plant 

and equipment and remaining 

useful lives revision for gas 

transit assets included to the 

”Gas Transmission System” cash 

generating unit. Expectation of 

no gas transit flows after this 

date has resulted in shortened 

useful lives for gas transit assets 

planned for decommissioning 

after 31 December 2019, their 

higher depreciation in 2017, 

and lower net replacement 

costs less physical depreciation 

as at 31 December 2017. 

Should expectation of material 

transit beyond 2019 have 

been used for revaluation, 

net replacement costs less 

physical depreciation of “Gas 

Transmission System” cash 

generating unit would be 

10% higher. For other assets, 

expectation of no gas transit 

flows after 1 January 2020 

has resulted in a lower value 

under income approach 

with respective impairment 

loss, if any, according to the 

accounting policy (Note 26).

In 2017, the depreciation 

and depletion expenses of 

UAH 39,144 million (2016: 

UAH 22,387 million) was 

included in cost of sales, 

UAH 604 million (2016: 

UAH 1,065 million) in 

other operating expense, 

UAH 775 million (2016: 

UAH 631 million) were 

capitalised in the cost of 

property, plant and equipment, 

and UAH 1,085 million were 

capitalised in cost of inventories.

As at 31 December 2017 and 

2016, the Group has pledged 

its property, plant and equip-

ment with carrying amount 

of UAH 2,682 million and 

UAH 10,536 million, respec-

tively, to secure its borrowings 

(Note 14).

Included in property, plant 

and equipment in 2016 

are capital expenditures of 

FINANCIAL STATEMENTS

ANNUAL REPORT 2017

231

230

UAH 1,872 million, for which 

nature of expenditures could 

be different from their legal 

form according to primary 

documents (Note 27). 

These expenditures were 

presented on the basis 

of the relevant primary 

documents in the consolidated 

financial statements as at 

and for the years ended 

31 December 2016.

Had the Group’s property, plant 

and equipment been measured 

on a historical cost basis, their 

carrying amounts would have 

been as shown in the table 

below:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Pipelines and related equipment

6,662

7,237

Oil and gas producing properties

14,081

11,751

Machinery and equipment

8,371

9,149

Buildings

5,905

4,693

Cushion gas

217

212

Drilling and exploration equipment

931

354

Other fixed assets

721

482

Total

36,888

33,878

7�  INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

Details of each of the Group’s associates and joint ventures as at 31 December 2017 are as follows:

Name of associate 

Principal activity

Place of 

incorporation 

and principal 

place of business

Proportion 

of ownership 

interest

Share of 

(loss)/

profit

Dividends 

received 

from the 

associate

Carrying 

amount of 

investment

“Gaztransit” PJSC

Construction works Ukraine

40.2%

(1)

(84)

937

“Ukrtatnafta” PJSC

Oil refinery

Ukraine

43.05%

–

–

–

Other 

miscellaneous

Ukraine

miscellaneous

(46)

–

260

(47)

(84)

1,197

Details of each of the Group’s associates and joint ventures as at 31 December 2016 are as follows:

Name of associate  Principal activity

Place of 

incorporation 

and principal 

place of 

business

Proportion 

of ownership 

interest

Share of 

(loss)/

profit

Share 

of other 

comprehen-

sive income

Dividends 

received 

from the 

associate

Carrying 

amount of 

investment

“Gaztransit” PJSC

Construction works Ukraine

40.2%

93

–

(123)

1,022

“Ukrtatnafta” PJSC

Oil refinery

Ukraine

43.05%

(241)

2

–

–

Other 

miscellaneous

Ukraine

miscellaneous

49

–

–

306

(99)

2

(123)

1,328

All of the above associates are accounted for using the equity method in these consolidated financial state-

ments. 
The Group’s investments in associates and joint ventures were as follows:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Investments in associates

937

1,047

Investments in joint ventures

260

281

Total

1,197

1,328

8�  OTHER NON-CURRENT ASSETS

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Accounts receivable on product sharing agreement

 4,866 

 4,204 

Intangible assets

 2,318 

 977 

Restructured accounts receivable of gas consumers

 753 

 1,340 

Other

 3,194 

 2,805 

Total

 11,131 

 9,326 

Accounts receivable on product 

sharing agreement. The Com-

pany entered into a concession 

agreement for hydrocarbon 

exploration and development 

with the Arab Republic of Egypt 

and Egyptian General Petro-

leum Corporation (“EGPC”) on 

13 December 2006. Under the 

terms of the concession agree-

ment the Company has the right 

to recover all exploration and 

development costs incurred in 

connection with the concession 

agreement (Note 27). The amount 

presented in the table above 

represents such costs claimed by 

the Group for recovery, and which 

are expected to be refunded after 

one year since the reporting date.

In 2017 the Company engaged 

independent consultants to eval-

uate exploration and evaluation 

assets and hydrocarbon explo-

ration and development assets 

in the Arab Republic of Egypt. 

The Company plans to make a 

decision in respect of viability 

of its future activities within the 

Concession Agreement per results 

of such evaluation, including, but 

not limited to potential exit from 

this project.

Intangible assets. As at 

31 December 2017 and 2016, 

included in intangible assets 

are licenses for exploration 

and extraction amounting 

to UAH 1,641 million and 

UAH 535 million, respectively. 

Restructured accounts receiv-

able of gas consumers. In May 

2011, the Law of Ukraine “On 

certain matters on indebtedness 

for natural gas and electricity con-

sumed” #3319-VI was approved. 

According to this Law, accounts 

receivable due from entities sup-

plying natural gas under the reg-

ulated tariff that were originated 

in 2010, were restructured for the 

period from 1 to 20 years and are 

stated at amortised cost using 

effective interest rate which at the 

restructuring dates varied from 

15% to 24% per annum.

Other. As at 31 December 2017 

and 2016, included in other 

non-current assets are research 

and development expenditures 

amounting to UAH 1,171 million 

and UAH 1,443 million, respec-

tively, that were incurred within 

the concession agreement for oil 

exploration and development 

with the EGPC on 13 Decem-

ber 2006, but not yet claimed for 

recovery (Note 27).

FINANCIAL STATEMENTS

ANNUAL REPORT 2017

233

232

9� INVENTORIES

The Group’s inventories were as follows:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Natural gas

 48,472 

 38,792 

Crude oil and petroleum products

 4,299 

 3,378 

Spare parts

 2,829 

 2,843 

Oil for industrial and technological needs

 1,954 

 1,976 

Raw materials

 1,500 

 1,760 

Other

 1,121 

 1,495 

Total

 60,175 

 50,244 

Management estimates the 

necessity of write-down of 

inventories to their net realis-

able value taking into consider-

ation indicators of economical 

and physical obsolescence. In 

2017 write-down adjustment 

amounted to UAH 1,452 mil-

lion was included in cost of 

sales and UAH 451 million was 

included in other operating 

expense (2016: UAH 1,867 mil-

lion included in cost of sales 

and UAH 38 million included 

in other operating expense). 

Amount included in cost of 

sales represents write down 

adjustment to imported gas 

subsequently sold for house-

hold needs at regulated prices.

As at 31 December 2017 and 

2016, inventories with carrying 

amount of UAH 38,208 million 

and UAH 37,698 million, respec-

tively, were pledged as collateral 

for borrowings (Note 14).

10� TRADE ACCOUNTS RECEIVABLE

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Trade accounts receivable

 108,907 

 86,438 

Less: provision for impairment

 (49,919)

 (37,229)

Total

 58,988 

 49,209 

Out of total carrying amount of trade accounts receivable as at 31 December 2017 there are UAH 42,517 million 

of accounts receivable for gas sales and supply (31 December 2016: UAH 35,652 million).
Movements in provision for impairment of trade accounts receivable were as follows:

In millions of Ukrainian hryvnias

2017

2016

Balance at 1 January

37,229

20,553

Provision for impairment recognised during the year

15,053

18,497

Reversal of provision for impairment

(2,480)

(1,757)

Amounts written off during the year as uncollectible

(11)

(64)

Other movements

128

-

Balance at 31 December

49,919

37,229

Other movements in provision 

for impairment of trade 

accounts receivable relate to 

reclassification of provision 

between current and non-

current accounts receivable and 

to difference in proportion of 

assets and profits consolidation 

related to joint ventures of one 

of the Group’s subsidiaries, 

recognised in equity 

movement.

Analysis of credit quality of trade accounts receivable is as follows:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Neither past due nor impaired

27,333

29,774

Past due but not impaired:
Less than 30 days overdue

13,279

13,220

31 to 90 days overdue

6,854

3,221

91 to 180 days overdue

4,559

265

181 to 365 days overdue

6,738

2,415

Over 365 days overdue

225

314

Past due and individually impaired (gross):
Less than 30 days overdue

1,663

2,858

31 to 90 days overdue

732

820

91 to 180 days overdue

1,180

738

181 to 365 days overdue

13,053

3,102

Over 365 days overdue

33,291

29,711

Less: provision for impairment

(49,919)

(37,229)

Total

58,988

49,209

11�  PREPAYMENTS MADE AND OTHER CURRENT ASSETS

The Group’s prepayments made and other current assets were as follows:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016 

(as restated, Note 3)

Indebtedness under the Gas Transit Arbitration

 57,125 

 – 

Prepayments to suppliers for materials, works and services

 10,834 

 11,224 

Taxes prepaid, other than income tax

 8,935 

 529 

VAT recoverable

 2,175 

 2,242 

Receivables under assignation agreements in respect of natural gas 
sales

 1,637 

 1,690 

Promissory notes receivable

 1,468 

 1,471 

Prepayments for pipelines construction

 1,348 

 1,412 

Prepayments to suppliers for natural gas

 649 

 5,731 

Other

 5,385 

 4,162 

Less: Provision for impairment

 (18,309)

 (18,962)

Total

 71,247 

 9,499 

On 28 February 2018, the 

Arbitral Tribunal rendered the 

Final Award in the Gas Transit 

Arbitration (Note 23), where, 

amongst other, it supported 

Company’s claim in respect 

of Gazprom failure to deliver 

minimum contractual volume 

of gas transit (underdeliveries) 

during 2009–2017. As a 

result, the Tribunal awarded 

USD 4,674 million to be paid 

in favour of Company by 

Gazprom as a compensation 

of losses in this respect. As 

further described in Note 23, 

the Company has received 

a legal right to set-off the 

amounts owing between 

the parties pursuant to the 

Gas Sales Arbitration and Gas 

Transit Arbitration, supporting 

a respective Company request. 

Amount of such set-off as at 

31 December 2017 amounts 

to UAH 57,125 million, and is 

recognised in other current 

assets.

Net amount receivable from 

Gazprom after the set-off 

amounts to UAH 71,861 million 

(equivalent to USD 2,560 mil-

lion at the exchange rate as 

at 31 December 2017, Note 

23). As at the date when these 

FINANCIAL STATEMENTS

ANNUAL REPORT 2017

235

234

separate financial statements 

were authorised for issue, 

this amount was not settled, 

and the Company does not 

recognise it as an asset as at 

31 December 2017 (Note 23).

As at 31 December 2017, included 

in taxes prepaid, other than 

income tax are prepayments for 

subsoil royalty amounting to 

UAH 3,250 million (31 December 

2016: UAH 15 million).

Movements in provision for 

impairment of prepayments 

made and other current assets 

were as follows:

In millions of Ukrainian hryvnias

2017

2016

(as restated, Note 3)

Balance at 1 January

18,962

11,514

Provision for impairment recognised during the year

116

7,999

Reversal of provision for impairment

(317)

(355)

Amounts written off during the year as uncollectible

(129)

(16)

Other movements

(323)

(180)

Balance at 31 December

18,309

18,962

Other movements in provision 

for impairment of prepayments 

made and other current assets 

relate to reclassification of pro-

vision between current and 

non-current assets and to dif-

ference in proportion of assets 

and profits consolidation related 

to joint ventures of one of the 

Group’s subsidiaries, recognised in 

equity movement.

12� CASH AND BANK BALANCES

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Cash in banks

 22,895 

 20,024 

Term deposits

 3 

 2,163 

Other

 195 

 149 

Total

 23,093 

 22,336 

As at 31 December 2016, included 

in term deposits are bank depos-

its amounting to UAH 483 million 

with original maturity of more 

than three months and less than 

one year, which are excluded from 

cash and cash equivalents for the 

purpose of cash flow statement.

13� SHARE CAPITAL

As at 31 December 2017 and 

2016, nominal amount of 

registered, issued and fully paid 

share capital of the Company 

was UAH 190,150 million and 

UAH 160,450 million, respectively, 

comprising 190,150,481 and 

160,450,481 ordinary shares, 

respectively, with a par value of 

UAH 1,000 per share.

Also, as at 31 December 2017 

and 2016, share capital of the 

Company has been adjusted 

for the effect of hyperinflation 

in accordance with IAS 29 

“Financial Reporting in 

Hyperinflationary Economies” by 

UAH 4,156 million. Therefore total 

amount of share capital of the 

Company as at 2017 and 2016 

was UAH 194,307 million and 

UAH 164,607 million, respectively.

Unregistered contributed 

capital
In 2015, according to the 

Resolutions of the Cabinet 

of Ministers of Ukraine, 

the Government issued 

UAH 29,700 million of the State 

treasury bonds in exchange to the 

new share issue of the Company. 

In April 2017 the National 

Commission on Securities and 

Stock Market registered the 

report of share placement of the 

Company and issued respective 

share issue certificate. As a result, 

registered share capital was 

increased to UAH 190,151 million 

(net of effect of hyperinflation).

Profit share payable to the State 

Budget of Ukraine
For the year ended 31 Decem-

ber 2016, the profit share paid 

to the State Budget of Ukraine 

amounted to UAH 1,021 million.

Distribution of profits

Profit available for distribution 

to the shareholders for each 

reporting period is determined 

by reference to the stand alone 

financial statements prepared in 

accordance with International 

Financial Reporting Standards. 

Under Ukrainian legislation, the 

amount of dividends is limited to 

net profit of the reporting period 

or other distributable reserves 

not exceeding retained earnings 

as calculated in the financial 

statements prepared in accor-

dance with International Financial 

Reporting Standards.

According to the Resolution 

of the Cabinet of Ministers of 

Ukraine #282-p dated 26 April 

2017, portion of net profit of 

the Company amounting to 

UAH 13,264 million was paid as 

dividends to the State Budget of 

Ukraine in June 2017.

At the date of these 

consolidated financial 

statements, basic allowance 

for profit distribution per 

results of 2017 was set at 

75% of net profit (2016: 50%). 

The Company has accrued 

respective provision in respect 

of the portion of net profit 

attributable to the State 

Budget of Ukraine in current 

provisions (Note 15). Currently, 

the Company is negotiating 

with its shareholder on the 

level of allowance for profit 

distribution per results of 2017. 

The allowance can be revised as 

the result of the negotiations.

According to the Ukrainian 

legislation, the Company has to 

make a decision in respect of 

profit distribution up to 30 April, 

and make payment to the State 

Budget of Ukraine up to 30 June 

of the year following the report-

ing year.

FINANCIAL STATEMENTS

ANNUAL REPORT 2017

237

236

14� BORROWINGS

The Group’s borrowings were as follows:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Non-current
Bank borrowings

 14,927 

 23,275 

Unamortised discount

 (191)

 (175)

Total non-current portion

 14,736 

 23,100 

Current
Bank borrowings

 43,993 

 47,099 

Interest accrued

 586 

 645 

Total current portion

 44,579 

 47,744 

Total

 59,315 

 70,844 

In 2017 the Group has concluded 

additional agreements with two 

state-owned banks in respect 

of decreasing interest rates and 

changes to the borrowings 

repayment schedules prolonging 

their maturities to 2018–2020, 

and converting one loan to 

a revolving credit line. The 

Group analysed the impact of 

such changes to the financial 

obligations and concluded that 

they lead to no material changes 

in their value.

In December 2017 the Com-

pany has completed redemp-

tion of bonds amounting to 

UAH 4,800 million that were 

issued in 2013 guaranteed by the 

State. The Company has fulfilled 

all its obligations during the 

bonds circulation period.

The effective interest rates and 

currency denomination of bor-

rowings were as follows:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Balance

% per annum

Balance

% per annum

UAH

21,162

18%

 27,315

 19%

USD

26,706

7%

 43,316

 8%

EUR

11,447

2%

 213

 7%

Total

59,315

70,844

Pledges. All the Group’s borrowings were secured as at 31 December 2017 and 2016. 
The Group’s borrowings were secured by the following pledges:

31 December 2017

31 December 2016

Proceeds from future sales

43,393

 143,965

Property, plant and equipment (Note 6)

2,682

 10,536

Inventories (Note 9)

38,208

 37,698

Total

84,283

 192,199

Guarantees. As at 31 December 2017, the Group’s borrowings in the amount of UAH 22,023 million were guar-

anteed by the State (31 December 2016: UAH 28,912 million).
Reconciliation of financial liabilities from financing activities

In thousands of 

Ukrainian hryvnias

1 January 2017

Cash flows from 

financing activities

Non-cash 

transactions

Interest expense 

(Note 20)

31 December 2017

Bank borrowings

66,044

(38,627)

25,069

6,829

59,315

Bonds

4,800

(5,279)

-

479

-

Total

70,844

(43,906)

(25,069)

7,308

59,315

Non-cash transactions relate to payment for the natural gas acquired by a lending bank and foreign exchange 

differences. 

15� PROVISIONS

Movements in provisions for the years were as follows:

In millions of Ukrainian hryvnias

Pr

ovisions f

or litiga

tions

Emplo

yee benefit 

obliga

tions

Dec

om-missio

-ning 

pr

ovision

Pr

ovision f

or fines and 

penalties

Por

tion of net pr

ofit 

attributable t

o the S

ta

te 

Budget of Uk

raine (Not

e 13)

O

ther pr

ovisions

Total

Balance at  

31 December 2015

 5,180 

 3,616 

 1,423 

 7,078 

 – 

 973 

 18,270 

Provision for dividends payable to 
the State Budget (Note 13)

 – 

 – 

 – 

 – 

13,264

 – 

13,264

Charge for the year

6,728

1,111

109

4,099

 – 

21

12,068

Unwinding of discount (Note 20)

 – 

379

134

 – 

 – 

 – 

513

Used or paid during the year

(64)

(770)

(11)

(23)

 – 

(5)

(873)

Remeasurements

 – 

174

116

 – 

 – 

 – 

290

Balance at  

31 December 2016

 11,844 

 4,510 

 1,771 

 11,154 

 13,264 

 989 

 43,532 

Non-current

 7,670 

 3,447 

 1,299 

 – 

 – 

 – 

 12,416 

Current

 4,174 

 1,063 

 472 

 11,154 

 13,264 

 989 

 31,116 

Provision for dividends payable to 
the State Budget (Note 13)

 – 

 – 

 – 

 – 

29,498

 – 

29,498

(Reversed)/charged during the year

(6,083)

1,809

235

2,997

 – 

221

(821)

Unwinding of discount (Note 20)

 – 

521

152

 – 

 – 

 – 

673

Used or paid during the year

 – 

(1,553)

(1)

(18)

(13,264)

(9)

(14,845)

Remeasurements

 – 

381

140

 – 

 – 

 – 

521

Balance at  

31 December 2017

 5,761 

 5,668 

 2,297 

 14,133 

 29,498 

 1,201 

 58,558 

Non-current

 – 

 3,907 

 2,100 

 – 

 – 

 – 

 6,007 

Current

 5,761 

 1,761 

 197 

 14,133 

 29,498 

 1,201 

 52,551 

Provisions for Litigations
The Group is involved into a 

number of litigations both as 

a plaintiff and as a defendant. 

Provision for litigations 

represents management 

assessment of the probable 

outflow of the Group’s 

resources arising from a 

negative (adverse) outcome 

of the court and arbitration 

procedures.

In 2017 provision for 

litigations amounting to 

UAH 7,300 million was reversed 

after the court decision was 

received in favour of the 

Company.

Employee Benefit Obligations
The Group companies have 

certain obligations to its 

employees according to the 

collective agreements. 

Current provisions for employee 

benefits include provision for per-

formance bonuses and provision 

for employees’ unused vacations.

Non-current provisions for 

employee benefits include lump 

sum benefits payable upon retire-

ment and post-retirement benefit 

programs. These benefits plans 

are not funded, and there are no 

plan assets.

FINANCIAL STATEMENTS

ANNUAL REPORT 2017

239

238

The principal actuarial assump-

tions used were as follows:

2017

2016

Nominal 
discount 
rate, %

14.5–14.6 14.7–14.9

Long-term 
inflation, %

6.7

7.7

Nominal 
salary 
increase rate, 
%

10.0–16.0 10.0–36.0

Staff 
turnover 
ratio, %

1.5–5.3

1.5–5.7

The sensitivity of the non-current 

employee benefit obligations to 

changes in the principal assump-

tions is as follows:

2017

2016

Nominal 
discount rate 
increase/
decrease by 
1%, %

(7.68) / 

8.84

(7.60) / 

8.75

Nominal salary 
increase/
decrease by 
1%, %

7.22 / 

(6.46)

6.54 / 

(5.93)

Staff turnover 
increase/
decrease by 
1%, %

(4.68) / 

5.44

(3.96) / 

4.58

The sensitivity analysis pre-

sented above may not be repre-

sentative of the actual change in 

the non-current employee ben-

efit obligations as it is unlikely 

that the change in assumptions 

would occur in isolation of one 

another as some of the assump-

tions may be correlated. 

Furthermore, in presenting the 

above sensitivity analysis, the 

present value of the employee 

benefit obligations has been cal-

culated using the projected unit 

credit method at the end of the 

reporting period, which is the 

same as that applied in calculat-

ing the obligation recognised in 

the consolidated statement of 

financial position.

There were no changes in the 

methods and assumptions used 

in preparing the sensitivity anal-

ysis from prior years.

Decommissioning Provision
In accordance with the legisla-

tion requirements, the Group 

is obliged to restore the lands 

that underwent changes in the 

relief structure, environmental 

state of soils and parent rocks, as 

well as hydrological regime due 

to drilling, geological survey, 

constructing and other works. 

The decommissioning provision 

represents present value of 

decommissioning costs relating 

to oil and gas properties.

Provision for fines and penal-

ties 
As a result of non-payment and 

late payment by “Ukrnafta” PJSC 

of subsoil royalty, income tax 

and VAT, the Group had accrued 

provision for possible fines, pen-

alties and late payment interest.

16� ADVANCES RECEIVED AND OTHER CURRENT LIABILITIES

The Group’s advances received and other current liabilities were as follows:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

Advances from customers for natural gas

 1,461 

 1,130 

Advances for natural gas transportation

 448 

 316 

Advances for oil transportation

 301 

 303 

Advances received for geophysical surveys

 237 

 240 

Advances for petroleum products 

 149 

 205 

Other advances received

 85 

 132 

Total advances received

 2,681 

 2,326 

Indebtedness according to the Gas Sales Arbitration

 57,125 

 – 

Taxes payable other than income tax

 10,347 

 13,768 

VAT payable

 4,138 

 6,195 

Liabilities for purchase of property, plant and equipment

 2,002 

 1,050 

Dividends payable to non-controlling shareholders of “Ukrnafta” PJSC

 475 

 2,781 

Wages, salaries and related social charges payable

 348 

 343 

Recognised liabilities for litigations

 47 

 482 

Other current liabilities

 1,445 

 1,382 

Total other current liabilities

 75,927 

 26,001 

Total

 78,608 

 28,327 

As at 31 December 2017, taxes 

payable other than income 

tax include UAH 10,128 million 

of subsoil royalty payable 

(31 December 2016: 

UAH 13,450 million). 

On 22 December 2017, the 

Company received the Final 

Award of the Arbitral Tribunal in 

the Gas Sales Arbitration (Note 

23). As at 31 December 2017, 

the Company recognised its 

obligations in respect of this 

award in other current liabilities. 

In February 2018, the Company 

received a legal right to set-off 

the amounts owing between 

the parties pursuant to the Gas 

Sales Arbitration and Gas Transit 

Arbitration (Note 23).

FINANCIAL STATEMENTS

ANNUAL REPORT 2017

241

240

17�  COST OF SALES

In millions of Ukrainian hryvnias

2017

2016

Cost of gas supplied 

 52,527 

 27,267 

Depreciation, depletion and amortisation

 39,191 

 23,003 

Subsoil royalty and other taxes other than on income

 24,999 

 37,508 

Non-reimbursable VAT on gas transit

 14,788 

 11,998 

Cost of purchased oil and petroleum products

 8,782 

 6,877 

Staff costs and related social charges

 7,781 

 6,433 

Repair and maintenance costs

 861 

 834 

Oil and gas transportation costs

 407 

 1,169 

Other

 7,811 

 6,715 

Total

 157,147 

 121,804 

Subsoil royalty and rent tax are calculated with reference to the volume of crude oil, gas condensate or natural 

gas produced, and volume of crude oil transportation.

18� OTHER OPERATING INCOME

In millions of Ukrainian hryvnias

2017

2016

Change in provisions for litigations and other provisions

 2,787 

 – 

Income from sale of inventories and other current assets

 1,594 

 76 

Fines and penalties received

 259 

 1,112 

Reversal of inventories impairment

 – 

 749 

Other

 452 

 690 

Total

 5,092 

 2,627 

19� OTHER OPERATING EXPENSES

In millions of Ukrainian hryvnias

2017

2016

(as restated, Note 3)

Net movement in provision for trade accounts receivable, prepayments 
made and other assets and direct write-offs

 12,353 

 24,383 

Staff costs and related social charges

 5,227 

 3,861 

Impairment of property, plant and equipment

 3,399 

 1,231 

Fines and penalties

 1,356 

 354 

Professional fees

 716 

 618 

Depreciation and amortisation

 633 

 1,065 

Write down of inventories to net realisable value

 451 

 – 

Transportation costs

 449 

 326 

Research, development and exploration costs

 387 

 250 

VAT liabilities written off

 260 

 279 

Change in provisions for litigations and other provisions

 – 

 10,957 

Other

 2,244 

 2,221 

Total

 27,475 

 45,545 

20� FINANCE COSTS

In millions of Ukrainian hryvnias

2017

2016

Interest expense on bank borrowings

 7,308 

 8,634 

Unwinding of discount on employee benefit obligations

 521 

 379 

Unwinding of discount of decommissioning provision

 152 

 134 

Other

 321 

 434 

Total

 8,302 

 9,581 

21� FINANCE INCOME

In millions of Ukrainian hryvnias

2017

2016

(as restated, Note 3)

Interest income on bank deposits and bank balances

 1,244 

 1,182 

Unwinding of discount

 213 

 4,328 

Other

 141 

 403 

Total

 1,598 

 5,913 

22� INCOME TAX

The components of income tax expense for the years ended 31 December were as follows:

In millions of Ukrainian hryvnias

2017

2016

(as restated, Note 3) 

Current tax expense

22,426

8,042

Deferred tax benefit

(9,124)

(7,406)

Income tax expenses

13,302

636

The Group is subject to taxation 

in Ukraine. In 2017 and 2016, 

Ukrainian corporate income tax 

was levied on taxable income 

less allowable expenses at the 

rate of 18%.

Reconciliation between the 

expected and the actual taxation 

charge is provided below:

In millions of Ukrainian hryvnias

2017

2016

(as restated, Note 3) 

Profit before income tax 

52,751

18,485

Income tax at statutory rate of 18%

9,495

3,327

Effect of changes in tax legislation

-

(924)

Tax effect of items not deductible or assessable for taxation purposes:
•  Non-deductible expenses

2,964

1,876

•  Non-taxable income

(1,895)

(133)

Change in unrecognised deferred tax asset

2,738

(3,510)

Income tax expenses

13,302

636

FINANCIAL STATEMENTS

ANNUAL REPORT 2017

243

242

Parent and its subsidiaries are 

separate tax payers and, there-

fore, the deferred tax assets and 

liabilities are presented on an 

individual basis. The deferred tax 

liabilities and assets reflected in 

the consolidated statement of 

financial position after appropri-

ate set off are as follows:

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016

(as restated, Note 3)

Deferred tax assets

4,204

4,508

Deferred tax liabilities

(67,304)

(82,312)

Net deferred tax liability

(63,100)

(77,804)

Net deferred tax liabilities as at 31 December 2017 related to the following:

In millions of Ukrainian hryvnias

31 December 2016 

(as restated, Note 3)

Recognised in profit 

or loss

Recognised in other 

compre-hensive 

income

31 December 2017

Property, plant and equipment

(84,890)

9,068

5,488

(70,334)

Trade accounts receivable

300

64

-

364

Advances received and other 
current liabilities

-

57

-

57

Provisions

3,588

933

92

4,613

Inventories

125

1,550

-

1,675

Prepayments made and other 
current assets

418

108

-

526

Trade accounts payable

27

(27)

-

-

Other non-current assets

(2)

1

-

(1)

Unused tax losses

2,630

(2,630)

-

-

Net deferred tax liability

(77,804)

9,124

5,580

(63,100)

Net deferred tax liabilities as at 31 December 2016 related to the following:

In millions of Ukrainian hryvnias

1 January 2016

Recognised 

in profit 

or loss

Recognised in other 

compre-hensive 

income

31 December 2016 

(as restated, Note 3)

Property, plant and equipment

(86,534)

3,208

(1,564)

(84,890)

Trade accounts receivable

63

237

-

300

Provisions

2,402

1,155

31

3,588

Inventories

399

(274)

-

125

Prepayments made and other 
current assets

(3)

421

-

418

Trade accounts payable

3

24

-

27

Other non-current assets

(4)

2

-

(2)

Unused tax losses

(3)

2,633

-

2,630

Net deferred tax liability

(83,677)

7,406

(1,533)

(77,804)

As at 31 December 2017 and 2016, unrecognised deductible temporary differences and unused tax losses are as 

follows: 

In millions of Ukrainian hryvnias

31 December 2017

31 December 2016 (as 

restated, Note 3)

Tax losses carried forward

–

19,328

Provisions

45,529

8,977

Inventories

9,327

11,145

Trade accounts receivable, prepayments made and other current assets

14,387

14,387

Property, plant and equipment

–

196

Total

69,243

54,033

23� CONTINGENCIES, COMMITMENTS AND OPERATING RISKS

Tax legislation. Ukraine’s tax 

environment is characterised by 

complexity in tax administer-

ing, arbitrary interpretation by 

tax authorities of tax laws and 

regulations that, inter alia, can 

increase fiscal pressure on tax 

payers. Inconsistent application, 

interpretation, and enforcement 

of tax laws can lead to litiga-

tion which, as a consequence, 

may result in the imposition of 

additional taxes, penalties, and 

interest, and these amounts 

could be material. Facing current 

economic and political issues, the 

Government has implemented 

certain reforms in the tax system 

of Ukraine by adopting the Law 

of Ukraine “On Amending the Tax 

Code of Ukraine and Certain Laws 

of Ukraine” which is effective from 

1 January 2015, except for certain 

provisions which will take effect at 

a later date.

Management believes that the 

Group has been in compliance 

with all requirements of the effec-

tive tax legislation. In the ordinary 

course of business the Group is 

engaged in transactions that may 

be interpreted differently by the 

Group and tax authorities. Where 

the risk of outflow of financial 

resources associated with this 

is deemed to be probable and 

the amount is measured with 

sufficient reliability, the Group 

provides for those liabilities. 

Where management of the Group 

estimates the risk of financial 

resources outflow as possible, the 

Group makes a disclosure of these 

contingent liabilities. 

As at 31 December 2017, man-

agement estimated possible 

tax exposures in total amount 

of UAH 6,374 million, including 

different taxes exposure of 

UAH 5,842 million and related 

penalties of UAH 532 million 

(2016: UAH 5,802 million and 

UAH 498 million, respectively).

Management believes that it is 

not likely that any significant set-

tlement will arise from the above 

cases and, therefore, the Group’s 

consolidated financial statements 

do not include any amount of 

provision in this respect.

During 2015 “Ukrnafta” PJSC 

was engaged in transactions for 

petroleum products and crude oil 

sales, and made prepayments in 

respect of future supply of petro-

leum products. In 2017 National 

Anti-corruption Bureau of Ukraine 

initiated a claim in the court 

to declare such transactions 

invalid. The Group’s management 

believes that there is likelihood 

that certain transactions per-

formed by “Ukrnafta” PJSC can be 

challenged or declared invalid in 

future, leading to additional tax 

obligations. The Group’s manage-

ment cannot estimate impact of 

such potential obligations to the 

consolidated financial statements 

reliably, and does not recognise 

any provision in this respect as at 

31 December 2017.

The Group conducts transactions 

with its subsidiaries. It is possible 

with evolution of the interpre-

tation of tax law in Ukraine and 

changes in the approach of tax 

authorities under the Tax Code, 

that such transactions could be 

challenged in the future. The 

impact of any such challenge can-

not be estimated, however, man-

agement believes that it should 

not be significant.

The Group exports refinery prod-

ucts and transportation services, 

performs intercompany transac-

tions and is involved in transac-

tions with related parties, which 

may potentially be in the scope of 

the new Ukrainian transfer pricing 

(“TP”) regulations. The Group’s 

companies have submitted the 

controlled transaction report for 

the year ended 31 December 

2016 within the required dead-

line. The report on controlled 

transactions for the year ended 

31 December 2017 shall be pre-

pared by the Group’s companies 

by 1 October 2018. 

Management believes that the 

Group is in compliance with TP