According to the changes enacted in the Russian Federation from
2012, the utilisation of associated gas emissions for subsoil
licence holders was set up at the rate of 95% of total produced
gas; while a 5% target limit was introduced for gas flaring.
Pollution tax is payable at the increased rates on unutilised gas
volumes exceeding this limit. From 2012 the applicable rate has
increased fourfold. Currently the Group continues the development
of infield infrastructure to enable the use of associated gas as
fuel for internal purposes. This will enable the Group to achieve
the preset rate of utilisation with a subsequent reduction of
pollution tax payments.
29. TRANSACTIONS WITH RELATED PARTIES
In considering each possible related party relationship,
attention is directed to the substance of the relationship, not
merely the legal form.
Transactions with related parties during the period were as
follows:
For the year ended 31
December
2012 2011
$'000 $'000
Key Management personnel:
Interest-free loan forgiven - 140
Interest-free loan repaid - 224
Compensation of key management personnel - Key management
personnel consist of independent non-executive directors, executive
directors, directors and presidents of operational subsidiaries.
Compensation of key management personnel is set by senior
executives of the Group. Compensation of key management includes
salary and other short-term benefits. Total compensation to key
management personnel included in administrative expenses in the
consolidated statement of comprehensive income was $14,197 thousand
for the year ended 31 December 2012 (2011: $8,505 thousand).
Key management compensation is summarised below:
For the year ended 31
December
Note 2012 2011
$'000 $'000
Salaries and other short-term
employee benefits,
including bonuses 5,051 3,857
Share based payment 27 9,146 4,178
Accommodation allowance 12 - 470
Total 14,197 8,505
30. Risk management
Capital management - The Group's objectives when managing
capital are to safeguard the Group's ability to continue as a going
concern in order to provide returns for shareholders and benefits
to other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital. In order to maintain or adjust the
capital structure, the Group may raise capital from shareholders or
restructure its borrowings.
Consistent with others in the industry, the Group monitors
capital on the basis of its gearing ratio. This ratio is calculated
as debt divided by equity. Debt represents total borrowings
(including current and non-current borrowings as shown in the
statement of financial position, less cash and cash equivalents).
Equity represents 'equity' as shown in the statement of financial
position.
The gearing ratios at 31 December 2012 and 2011 were as
follows:
As at 31 December
Note 2012 2011
$'000 $'000
Total borrowings 25 100,245 49,038
Less: Cash and cash equivalents 22 (120,965) (117,567)
Total net cash (20,720) (68,529)
Total equity 567,534 521,454
Total capital 546,814 452,925
Gearing ratio (3.8%) (15.1%)
Under the terms of the new loan agreement (Note25), the Group is
subject to three financial covenants and a number of general
covenants. The financial covenants are tested on a rolling 6 month
basis from June 2012. The Group has complied with these covenants
during 2012.
Major categories of financial instruments - The Group has
various financial assets such as trade and other accounts
receivable, cash and cash equivalents. The Group's principal
financial liabilities comprise borrowings, trade and other accounts
payable.
In 2011 the Group enhanced the risk management policies in
respect of efficient use of temporarily free cash surpluses, with
the major part of cash being held on short-term deposits and
minorinvestments in highly liquid short-term marketable securities.
The Group has adopted the policy of only dealing with low-risk
securities with high credit ratings provided by independent rating
agencies. The financial ability of existing investments and overall
market circumstances are continuously monitored by management.
On 6 May 2011, the Group purchased Eurobonds issued by EBRD for
the total consideration of US$15,399 thousand. According to
Standard & Poor's independent rating agency the bonds have AAA
credit rating. The financial instruments are denominated in RUR
with the fixed interest rate of 6%.
These financial assets were measured at amortised cost using the
effective interest method with interest income recognised by
applying the effective interest rate.
The Group received proceeds of US$14,313 thousand comprising the
nominal value and accrued interest in relation to the maturity of
Eurobonds on 14 February 2012.
The difference between the consideration paid and the receipt
relates to the foreign exchange loss arising on the revaluation of
foreign currency denominated bonds at the maturity date.
Cash is placed in financial institutions which are considered to
have minimal risk of default, considered based on ratings set out
by independent rating agencies and is held mainly on short-term
deposits.
As at 31 December
Note 2012 2011
$'000 $'000
Financial assets
Cash and cash equivalents 22 120,965 117,567
Eurobonds 20 - 13,561
Trade and other receivables 19 2,814 3,907
Total financial assets 123,779 135,035
Financial liabilities
Trade and other payables 24 8,640 14,748
Borrowings 25 100,245 49,038
Total financial liabilities 108,885 63,786
The main risks arising from the Group's financial instruments
are foreign currency, interest rate, credit and liquidity
risks.
Interest rate risk - Interest rate risk arises from long-term
borrowings and short-term bank deposits. Short-term bank deposits
bear no significant interest rate risk due to short maturity.
Group's borrowings are exposed to interest rate risk which impact
cash flows. If the interest rate had increased by 100 base points
for the year ended 31 December 2012, interest paid would have been
$1,000 thousand higher (2011: $507 thousand).
In 2012, the Group's income issubstantially independent of
changes in market interest rates since borrowing costs were
capitalized in full (Note 17). In 2011, the Group's net losswould
have been $62 thousand higher in relation to the portion of
borrowing costs, which have not been capitalised during the
period.
Credit risk - Credit risk refers to the risk that a counterparty
will default on its contractual obligations resulting in a
financial loss to the Group. The Group has adopted a policy of only
dealing with creditworthy counterparties and obtaining sufficient
collateral, where appropriate, as a means of mitigating the risk of
financial loss from default. In 2011, the Group introduced
aprepayment scheme dealing with customers.The Group only transacts
with entities that demonstrate strong financial ability or are
rated the equivalent of investment grade. This information is
supplied by independent rating agencies where available and, if not
available, the Group uses other publicly available financial
information and its own records to rate its major customers. The
Group's exposure and the credit ratings of its counterparties are
continuously monitored and the aggregate value of transactions
concluded is spread amongst approved counterparties. Credit
exposure is controlled by counterparty limits that are reviewed and
approved by the management for each customer individually.
The Group's credit risk principally arises from cash and cash
equivalents and from credit exposures of its customers relating to
outstanding trade and other receivables.
Cash is placed in financial institutions which are considered at
time of deposit to have minimal risk of default.
As at 31 December
Note 2012 2011
$'000 $'000
Cash and cash equivalents
Counterparties with external
credit rating:
Aaa(ru)* (S&P) 55,877 74,606
A (S&P) 258 27,726
1 (Moody's) 64,830 7,141
a2 (Moody's) - 728
a3 (Moody's) - 6,770
Cash on hand - 596
Total cash and cash equivalents 22 120,965 117,567
* The rating is attributable to the banks incorporated in the
Russian Federation.
The maximum exposure to credit risk is the carrying amount of
trade and other receivables of $2,814 thousand as of 31 December
2012 (2011: $3,907thousand).
Trade and other receivables included no amounts past due, but
not impaired as of 31 December 2012(2011: nil).
At 31 December 2012, trade receivables amounted to $1,918
thousand (Note 19), with 100% due from a single customer.
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