Annual Report 2013 | Suomeksi |

19 Property, plant and equipment

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Accounting policies + -
Property, plant and equipment comprise mainly power and heat producing buildings and machinery, transmission lines, tunnels, waterfall rights and district heating network. Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses as applicable in the consolidated balance sheet. Historical cost includes expenditure that is directly attributable to the acquisition of an item and borrowing costs capitalised in accordance with the Group’s accounting policy. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Acquired assets on the acquisition of a new subsidiary are stated at their fair values at the date of acquisition.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Additionally the cost of an item of property, plant and equipment includes the estimated cost of its dismantlement, removal or restoration.
See Note 31 Other provisions for information about asset retirement obligations.
Land, water areas, waterfall rights and tunnels are not depreciated since they have indefinite useful lives. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
Hydro power plant buildings, structures and machinery
Thermal power plant buildings, structures and machinery
Nuclear power plant buildings, structures and machinery
CHP power plant buildings, structures and machinery
Substation buildings, structures and machinery
Distribution network
District heating network
Other buildings and structures
Other tangible assets
Other machinery and equipment
Other non-current investments
40–50 years
25 years
25 years
15–25 years
30–40 years
15–40 years
30–40 years
20–40 years
20–40 years
3–20 years
5-10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each closing date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Impairment of non-financial assets
The individual assets’ carrying values are reviewed at each closing date to determine whether there is any indication of impairment. An asset's carrying amount is written down immediately to its recoverable amount if it is greater than the estimated recoverable amount.
When considering the need for impairment the Group assesses if events or changes in circumstances indicate that the carrying amount may not be recoverable. This assessment is documented once a year in connection with the Business Plan process. Indications for impairment are analysed separately by each division as they are different for each business and include risks such as changes in electricity and fuel prices, regulatory/political changes relating to energy taxes and price regulations etc. Impairment testing needs to be performed if any of the impairment indications exists. Assets that have an indefinite useful life, such as goodwill, are not subject to amortisation and are tested annually for impairment.
An impairment loss is recognised in the income statement for the amount by which the assets' carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
Value in use is determined by discounting the future cash flows expected to be derived from an asset or cash-generating unit. Cash flow projections are based on the most recent Business Plan that has been approved by management. Cash flows arising from future investments such as new plants are excluded unless projects have been started. The cash outflow needed to complete the assets is included.
The period covered by cash flows is related to the useful lives of the assets reviewed for impairment. Normally projections should cover a maximum period of five years but as the useful lives of power plants and other major assets are over 20 years, the projection period is longer. Cash flow projections beyond the period covered by the most recent business plan are estimated by extrapolating the projections using a steady or declining growth rate for subsequent years.
Non-financial assets other than goodwill that suffered an impairment charge are reviewed for possible reversal of the impairment at each reporting date.
Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are deducted from the acquisition cost of the asset and are recognised as income by reducing the depreciation charge of the asset they relate to.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Jointly controlled assets
Fortum owns, through its subsidiary Fortum Power and Heat Oy, the coal condensing power plant Meri-Pori in Finland. Teollisuuden Voima Oyj (TVO) has the contractual right to participate in the plant with 45.45%. The capacity and production is divided between Fortum and TVO. Each owner can decide when and how much capacity to produce. Both Fortum and TVO purchase fuel and emission rights independently. Since Fortum and TVO are sharing control of the power plant, Meri-Pori is accounted for as a jointly controlled asset. Fortum is accounting for its part of the investment, i.e. 54.55%. Fortum is also entitled to part of the electricity TVO produces in Meri-Pori through its shareholding of 26.58% of TVO C-series shares.
For further information regarding Fortum’s shareholding in TVO, see Note 20 Participations in associated companies and joint ventures.
Critical accounting estimates: Assumptions related to impairment testing + -
The Group has significant carrying values in property, plant and equipment as well as goodwill which are tested for impairment according to the accounting policy described in this note.The recoverable amounts of cash-generating units have been determined based on value in use calculations. These calculations are based on estimated future cash flows. Preparation of these estimates requires management to make assumptions relating to future expectations. Assumptions vary depending on the business the tested assets are in. For power and heat generation business the main assumptions relate to the estimated future operating cash flows and the discount rates used to present value them. The distribution business is regulated and supervised by national authorities. Estimated future cash flows include assumptions relating to the development of the future regulatory framework.
The Group has not recognised any impairment losses in 2013 based on impairment testing done in late 2013.
The Group has considered the sensitivity of key assumptions as part of the impairment testing. When doing this any consequential effect of the change on the other variables has also been considered. The calculations are most sensitive to changes in estimated future operating profit levels and discount rate. If the revised estimated operating profit before depreciation on 31 December 2013 was 10% lower than management's estimates or pre-tax discount rate applied to the discounted cash flows was 10% higher than management's estimates, the Group would not have recognised impairment losses for property plant and equipment or goodwill.
Estimates are also made in an acquisition when determining the fair values and remaining useful lives of acquired intangible and tangible assets, see note 18 Intangible assets.
EUR million Land, waterfall,
rights and
tunnels
Buildings, plants
and structures
Machinery
and equipment
Other tangible assets Advances paid and construction
in progress
Total
Cost 1 January 2013 3,401 3,436 15,398 199 2,550 24,984
Translation differences and other adjustments -103 -158 -558 4 -152 -967
Increases through business combinations 0 1 9 0 0 10
Capital expenditure 1 74 269 2 889 1,235
Nuclear asset retirement cost - - 45 - - 45
Disposals 0 -114 -119 -1 0 -234
Sale of subsidiary companies -1 -19 -17 0 -1 -38
Reclassifications 1 580 1,051 1 -1,638 -5
Moved to Assets held for sale -3 -30 -1,977 -1 -50 -2,061
Cost 31 December 2013 3,296 3,770 14,101 204 1,598 22,969
Accumulated depreciation 1 January 2013 - 1,549 6,784 154 - 8,487
Translation differences and other adjustments - -47 -201 0 - -248
Increases through business combinations - 0 0 0 - 0
Disposals - -96 -90 -1 - -187
Sale of subsidiary companies - -4 -7 0 - -11
Depreciation for the period - 122 582 6 - 710
Reclassifications - 28 -31 0 - -3
Moved to Assets held for sale - -22 -957 -1 - -980
Accumulated depreciation 31 December 2013 - 1,530 6,080 158 - 7,768
Carrying amount 31 December 2013 3,296 2,240 8,021 46 1,598 15,201
The change in property, plant and equipment was negative, even though capital expenditures were higher than depreciation during the year. The decreases were mainly due to the transfer to assets held for sale and translation differences. The main increases were due to the ongoing investment programme in OAO Fortum and construction of CHP plants in Heat segment.
See Note 9 Assets held for sale
For more information on credit risks regarding ongoing investments, see Note 3.8 Credit risk.
Property, plant and equipment that are subject to restrictions in the form of real estate mortgages amount to EUR 240 million (2012: 261).
See Note 35 Pledged assets.
EUR million Land, waterfall,
rights and
tunnels
Buildings, plants
and structures
Machinery
and equipment
Other tangible assets Advances paid and construction
in progress
Total
Cost 1 January 2012 3,277 3,305 14,830 200 1,864 23,476
Translation differences and other adjustments 124 105 418 4 64 715
Increases through business combinations - - 0 - - 0
Capital expenditure 1 33 272 0 1217 1523
Nuclear asset retirement cost - - -1 - - -1
Disposals -4 -79 -625 -10 -3 -721
Reclassifications 3 72 504 5 -592 -8
Cost 31 December 2012 3,401 3,436 15,398 199 2,550 24,984
Accumulated depreciation 1 January 2012 - 1,460 6,629 153 - 8,242
Translation differences and other adjustments - 32 192 3 - 227
Increases through business combinations - - 0 - - 0
Disposals - -47 -568 -7 - -622
Depreciation for the period - 107 530 5 - 642
Reclassifications - -3 1 0 - -2
Accumulated depreciation 31 December 2012 - 1,549 6,784 154 - 8,487
Carrying amount 31 December 2012 3,401 1,887 8,614 45 2,550 16,497
19.1 Capitalised borrowing costs
Buildings, plants and structures Machinery and equipment Advances paid and construction
in progress
Total
EUR million 2013 2012 2013 2012 2013 2012 2013 2012
1 January 17 16 73 74 149 67 239 157
Translation differences and other adjustments -3 1 -12 3 -12 2 -27 6
Increases - - - - 69 80 69 80
Reclassification 27 0 108 0 -135 0 0 0
Depreciation -1 0 -6 -4 - - -7 -4
Moved to Assets held for sale - - -1 - - - -1 -
31 December 40 17 162 73 71 149 273 239
New borrowing costs of EUR 69 million were capitalised in 2013 (2012: 80) for the OAO Fortum investment program, and for CHP plant projects in Finland, Sweden, Latvia and Lithuania. The interest rate used for capitalisation varied between 2.8 - 8.7% (2012: 3.4 - 8.1%) depending on country and loan currency.
19.2 Capital expenditure 1)
Finland Sweden Estonia Poland Norway Other countries,
total
Total
EUR million 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
Power
Hydropower 17 12 91 86 - - - - - - - - 108 98
Nuclear power 60 53 - - - - - - - - - - 60 53
Fossil-based electricity 2 4 - - - - - - - - - - 2 4
Renewable-based electricity 4 1 3 27 - - - - - - - - 7 28
Other 1 1 - - - - - - - - 0 6 1 7
Total Power 84 71 94 113 - - - - - - 0 6 178 190
Heat
Fossil-based heat 7 9 6 12 - - 2 3 - - 1 - 16 24
Fossil-based electricity - - - - - - 2 1 - - - - 2 1
Renewable, of which 17 66 218 150 - - - - - - 39 87 274 303
waste 0 0 105 106 - - - - - - 14 47 119 153
biofuels 17 66 111 41 - - - - - - 25 40 153 147
other - - 2 3 - - - - - - - - 2 3
District heat network 14 12 42 33 16 10 6 15 4 21 4 0 86 91
Other 5 12 14 32 - 0 0 - - - 0 1 19 45
Total Heat 43 99 280 227 16 10 10 19 4 21 44 88 397 464
Distribution 128 158 123 151 - 0 - - 9 15 - - 260 324
Electricity Sales 1 - - 0 - - - - - - - 1 1 1
Other 10 10 0 1 - - 0 - - - 3 - 13 11
Total excluding Russia-segment 266 338 497 492 16 10 10 19 13 36 47 95 849 990
Russia
Fossil-based electricity 387 535
Fossil-based heat 48 32
Other 0 1
Total Russia 435 568
Total including Russia-segment 1,284 1,558
1) Includes capital expenditure to both intangible assets and property, plant and equipment.
Maintenance investments during 2013 in property, plant and equipment were EUR 239 million (2012: 247). Investments due to requirements of legislation were EUR 187 million (2012: 223). Investments increasing productivity were EUR 385 million (2012: 422) and growth investments were EUR 473 million (2012: 666).
19.2.1 Power
In Finland, Fortum invested EUR 60 million (2012: 53) into the Loviisa nuclear power plant. Fortum invested additionally EUR 108 million (2012: 98) into hydro production, mainly refurbishment and productivity investments. The biggest of these were Höljes, Skedvi and Gammelänge refurbishment in Sweden, EUR 35 million (2012: 21). Investments for CO2 free production were EUR 175 million (2012: 178).
19.2.2 Heat
In year 2013 Heat segment commissioned new bio-mass fired CHP plants in Jelgava, Latvia and Järvenpää, Finland. In Klaipeda, Lithuania new waste-to-energy CHP-plant was taken into production, while in Brista 2, in Sweden test-runs were started. Growth investments in Heat segment totalled EUR 105 million (2012: 142). Refurbishment and legislation investments totalled EUR 90 million (2012: 102). This amount consists mainly of investments in district heat networks and plants as well as the maintenance of existing CHP plants and measures defined by legal requirements. Larger ongoing projects in 2013 comprised of a new fuel handling systems in Stockholm aiming to increase biomass share of fuels in the coal fired CHP-plant KVV6 and new CHP plant KVV8 in Värtan. New pyrolysis based bio-oil plant was inaugrated in November 2013 in Joensuu, Finland. Investments for CO2 free production were EUR 272 million (2012: 301).
19.2.3 Distribution
Distribution invested EUR 260 million (2012: 324) in reliability of electricity distribution, maintenance and new investments in Finland, Sweden, and Norway. This includes EUR 31 million (2012: 59) investment in the Finnish smart metering with hourly measurement capabilities to network customers, project was finalized in the end of 2013 with almost 620,000 installed meters.
19.2.4 Russia
OAO Fortum has an extensive investment programme aiming to almost double its power capacity with 2,300 MW. During 2013 EUR 249 million (2012: 371) was invested in this programme. The value for the remaining part of the programme is estimated to be approximately EUR 0.5 billion from January 2014 onwards. The last three units are to be completed by mid of 2015. Nyagan power plant unit 1 started operations in March 2013 and Nyagan power plant unit 2 was commisioned in December 2013. Altogether, Fortum’s extensive investment programme in Russia consists of eight new units.
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