Financial statements of JSW S.A. for 2012

34. Contingent items

Contingent assets

Until 2008 the Company in its property tax declarations included a tax on underground infrastructure. In 2008-2011 the Company gradually adjusted the declarations filed and submitted applications to assert an overpayment. Since the municipalities rejected these applications and on account of the pending dispute with the municipalities on this subject, the Company recognizes payments for the underground infrastructure tax as contingent assets. Contingent assets concerning the overpayment of the property tax on underground infrastructure as at 31 December 2012 are PLN 14.6 million and did not change from the same period of the previous year.

Contingent liabilities

Under its provisioning policy, the Company establishes provisions for mining damages in the financial statements which are the result of operating the black coal mines belonging to the Company in the amount of documented claims reported, recognized or being reviewed by the courts. The Company is not aware of a method for establishing the value of future mining damages that would make it possible to estimate in a credible manner future costs of rectifying mining damages resulting from mining operations.

Under the agreement of 7 December 2010 on the sale of a 90.59% stake in Przedsiębiorstwo Gospodarki Wodnej i Rekultywacji S.A. (“PGWiR”), concluded between the State Treasury and JSW S.A., JSW S.A. accepted an obligation that, within no more than 5 years after the agreement date, it will procure that PGWiR acquires property, plant and equipment with an aggregated value on the acquisition date of no less than PLN 20.0 million and will contribute as contribution-in-kind the property, plant and equipment items used by PGWiR on the date of the foregoing agreement under leases concluded with JSW S.A. as the lessor, worth no less than PLN 12.0 million.

As at 31 December 2012, PLN 9.9 million has been expended for the purchase of property, plant and equipment, which represents 49.5% of the total commitment amount mentioned above. As at 31 December 2012, JSW S.A. has not yet increased the capital of PGWiR by contributing property, plant and equipment as contribution-in-kind. On 22 February 2013, JSW S.A. and PGWiR signed an agreement transferring the ownership title to property, perpetual usufruct right to land and the ownership title to buildings and equipment and other property, plant and equipment. This agreement is described in Note 36.

On 29 September 2011, the State Treasury Minister signed a share sale agreement pertaining to the 85% stake in PEC with SEJ, a member company of the Capital Group. Based on the agreement, SEJ accepted an unconditional obligation to procure and ensure that, by 31 December 2014, PEC acquires property, plant and equipment components for the overall amount of PLN 71.7 million and to acquire PEC shares from its employees for the amount of PLN 17.8 million. Under the corporate guarantee agreement, JSW S.A. undertook to secure the funding for SEJ to make the expenditures required due to the acquisition of PEC.

As at 31 December 2012, investments for the overall amount of PLN 11.7 million have been realized, which represented 16.3% of the total commitment amount mentioned above.

On 5 October 2011, JSW S.A. and the State Treasury concluded an agreement on the sale of 399,500 shares constituting 85% of the share capital of WZK Victoria seated in Wałbrzych for PLN 413.9 million. As a result of the aforementioned agreement, an investment commitment was made, under which the Buyer (JSW S.A.) undertakes to procure that within 60 months of the Transaction Closing (19 December 2011), WZK Victoria will make investments in the amount of at least PLN 220.0 million. At the same time, in connection with the acquisition of the WZK Victoria shares, JSW S.A. submitted a Statement of submitting to enforcement up to the amount not exceeding PLN 300.0 million.

As at 31 December 2012, capital expenditures of PLN 36.8 million have been made, which represented 16.7% of the total commitment amount mentioned above.

As a result of discussions conducted with the social side in the Voivodship Social Dialog Commission pertaining to, among others, guarantee of employment and matters associated with the public offering, on 5 May 2011, the Company’s Management Board signed and the unions operating in the Company initialed a memorandum of agreement with the Management Board ("Memorandum of Agreement"). In the Memorandum of Agreement, the parties agreed among others that by principle the employment guarantee period for Company employees is 10 years from the date the Company's shares are made public. If the Company does not fulfill its employment guarantee it will be obligated to pay compensation equal to the product of the average monthly remuneration in the Company in the year preceding the termination of employment and the number of months remaining until the expiration of the employment guarantee period (in the case of administrative employees – no more than 60 times the average salary in the previous year). The provisions relating to the employment guarantee came into force on the date the Company's shares were made public on the Warsaw Stock Exchange.

Moreover, on 18 May 2011, KK Zabrze and the Company concluded a memorandum of agreement with the trade unions operating in KK Zabrze regarding the social guarantee package for KK Zabrze employees; its content with respect to employment guarantees is the same as the content of the Memorandum of Agreement agreed upon in the Company. The Company took the responsibility of a guarantor of KK Zabrze's commitments.

On 6 September 2011 the Company concluded a memorandum of agreement with the trade unions operating in WZK Victoria regarding the social package for WZK Victoria employees, including among others the guarantee of employment in the company for 7 years from the effective date of the WZK Victoria share purchase agreement.

The following table presents other contingent liabilities:

	31 Dec 2012	31 Dec 2011
Sureties granted	10.3	10.3
Assignment of receivables	10	-
Bill-of-exchange liabilities	80	80
Disputed claims	13.7	4.7

download table