The ORLEN Group applies cash flow and fair value hedge accounting of the following strategies:
a) Cash flow concerns:
- forward sales and purchase of foreign currency operating activity hedging,
- hedging the change in margins on refinery products sold,
- hedging the periodic increase in operating inventories,
- hedging the timing mismatches due to crude oil purchase and sales of refinery products.
- price hedging of gas resulting from gas purchase and sale contracts
- price hedging of CO2 emission allowances.
b) Fair value concerns:
- hedging the sales of bitumen at a fixed price.
Currently, the sources of ineffectiveness in case of hedge accounting for currency risk is the difference between the maturity date for hedging instrument, falling on the last business days of the M-1 month and maturity of the hedged item, where the revenues from sale of petrochemical and refinery products are realized in the first consecutive days of the given M month or the difference between the initial value of the hedging instrument and the hedged item.
However, in case of commodity risk, sources of ineffectiveness result from the risk components designated for the hedged item, which are a part of the probable planned future purchase of crude oil, gas sales and purchases compared to and hedging instruments based solely on commodity indexes of refinery products sold and hedging instruments based on the European gas index TTF.
There is partially natural hedging for USD/PLN exchange rate, as revenues from sales of products depending on USD exchange rate are offset by the cost of buying crude oil in the same currency. Due to the fact that ORLEN has a long position in EUR and the relatively low interest rates for EUR (as compared to PLN rates), it was considered reasonable to strive for a situation in which the Group has partially debt obligations in foreign currency.
