Management Board Report on the activity of the JSW S.A. for 2012

3.1.4. Material off-balance sheet items

Material off-balance sheet items include:

Contingent assets

Until 2008 the Company in its property tax declarations included a tax on underground infrastructure. In 2008-2010 the Company gradually adjusted the declarations filed and submitted applications to assert an overpayment. In connection with the municipalities rejecting these applications and on account of the dispute pending 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 compared to the same period of the previous year.

Furthermore, the disbursed amounts of the disputed property tax on underground mine workings together with interest of PLN 204.8 million (in 2011: PLN 56.6 million, in 2010: PLN 37.8 million, in 2009: PLN 56.5 million, in 2008: PLN 53.9 million), recognized as receivables after the posting of a revaluation charge of PLN 41.0 million, remain at PLN 163.8 million.

Contingent liabilities

Under the agreement of 7 December 2010 between the State Treasury and JSW S.A. on the sale of a 90.59% stake in PGWiR, JSW S.A. undertook to procure, within a period not longer than 5 years from the date of the agreement, the acquisition by PGWiR of property, plant and equipment of a total value as at the date of acquisition of not less than PLN 20.0 million and to make an in-kind contribution of property, plant and equipment remaining in use by PGWiR as at the date of the agreement, under the lease agreements entered into with JSW S.A. acting as the lessor, for an amount of at least PLN 12.0 million.

As at 31 December 2012, PLN 9.9 million was earmarked for the purchase of property, plant and equipment, accounting for 49.5% of the aforementioned total amount of liabilities. Furthermore, as at 31 December 2012, JSW S.A. did not increase PGWiR’s share capital by an in-kind contribution of property, plant and equipment. However, on 22 February 2013, an agreement was signed to transfer the title to real properties, the perpetual usufruct right to land and the title to buildings, equipment and other fixed assets, between JSW S.A. and PGWiR.

On 29 September 2011, the State Treasury Minister signed a share sale agreement for an 85% stake in PEC with SEJ, a Capital Group company. Under the agreement, SEJ took an unconditional obligation to procure and ensure that, by 31 December 2014, PEC acquires property, plant and equipment components for the total amount of PLN 71.7 million and redeems PEC shares from the company’s employees for PLN 17.8 million. Under a corporate guarantees agreement, JSW S.A. committed to provide SEJ with funds to cover expenditures arising from the acquisition of PEC. As at 31 December 2012, investments were realized for an amount of PLN 11.7 million, accounting for 16.3% of the aforementioned total amount of liabilities.

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 entering into the above agreement, an investment commitment was established under which the Buyer (JSW S.A.) undertakes to procure that, in the period of 60 months from the Closing (19 December 2011), WZK Victoria will carry out investment projects worth 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 on submission to enforcement for a maximum amount of PLN 300.0 million.

As at 31 December 2012, investments were realized for an amount of PLN 36.8 million, accounting for 16.7% of the aforementioned total amount of liabilities.

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.

Information about other off-balance sheet items is presented in Note 34 to the Financial Statements of Jastrzębska Spółka Węglowa S.A. for the financial year ended 31 December 2012.