Tatneft-3

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ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember 253400PAT768SVJMV121 2021-12-31 ifrs-full:RetainedEarningsMember 253400PAT768SVJMV121 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 253400PAT768SVJMV121 2021-12-31 ifrs-full:NoncontrollingInterestsMember iso4217:RUB xbrli:shares iso4217:RUB xbrli:shares Tatneft Group IFRS CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDI TOR’S REPORT 31 DECEMBER 2021 Contents INDEPENDEN T AUDITOR’S REPORT CONSOLIDATED FINANCIAL ST ATEMENTS Consolidated Statement o f Financial Position .................. ............................................................... .......... 1 Consolidated Statem ent of Profit or Loss a nd Other Com prehensiv e Income .......................................... 2 Consolidated Statement o f Change in Equity .................... ............................................................... ......... 4 Consolidated Statem ent of Cash Flows .......................... ............................................................... ............ 5 Notes to the Consolidated Financial Statements Note 1: Orga nisation .......................................... ............................................................... ........................ 7 Note 2: Basis of preparation .................................. ............................................................... ..................... 7 Note 3: Summary of si gnifi cant accounting policies ............ ............................................................... ...... 7 Note 4: Critical accoun ting estimates and j udgements in applyin g accounting po licies ......................... 22 Note 5: Adoption of new o r revised standards and interpretation s .......................................................... 26 Note 6: Cash and cash e quivalents ............................. ............................................................... .............. 27 Note 7: Accoun ts receivable ................................... ............................................................... .................. 27 Note 8: Banking: L oans to custom ers ........................... ............................................................... ............ 30 Note 9: Other financial assets ................................ ............................................................... ................... 32 Note 10: Inventories .......................................... ............................................................... ....................... 36 Note 11: Prepaid expe nses and other c urrent assets ............ ............................................................... ..... 36 Note 12: Property, p la nt and equipm ent ........................ ............................................................... ........... 37 Note 13: Right-of-use asse ts and lease liabilities. ........... ............................................................... ......... 40 Note 14: Taxes................................................. ............................................................... ......................... 41 Note 15: Debt ................................................. ............................................................... .......................... 43 Note 16: Accounts payabl e a nd accrued liabilities ............. ............................................................... ...... 45 Note 17: Banking: D ue to banks and CB RF ...................... ............................................................... ...... 45 Note 18: Banking: C ustomer accounts ........................... ............................................................... .......... 46 Note 19: Other long- term liabilities .......................... ............................................................... ................ 47 Note 20: Sharehol ders’ equity ................................. ............................................................... ................. 48 Note 21: Employee be nefit expenses ............................ ............................................................... ............ 49 Note 22: I nterest incom e and interest e xpense on no n-banking ac tivities ............................................... 50 Note 23: I nterest and c ommission inc ome and expe nse on bankin g activity ......................................... 50 Note 24: Segment informa tion .................................. ............................................................... ............... 51 Note 25: Related par ty transactions ........................... ............................................................... ............... 54 Note 26: Contingencies an d commitm ents ........................ ............................................................... ....... 57 Note 27: Principal s ubsidiaries ............................... ............................................................... .................. 59 Note 28: Business com binations................................. ............................................................... .............. 60 Note 29: Financial risk m anagement ............................ ............................................................... ............ 60 Note 30: Subseque nt events .................................... ............................................................... .................. 83 AO Pricewaterho useCoopers Audit White Square Office Cente r 10 Butyrsky Val Moscow, Russian Federation, 125047 T: +7 (495) 967 6000, F:+7 (495) 967 6001, www.pwc.ru Independent Auditor’s Report To the Shareholders and Board of Director s of PJSC Tatneft: Opinion In our opinion, the consolidated financial state ments present fairly, in all material respects, the consolidated financial po sition of PJSC Tatneft (t he “Company”) and its subsi diaries (together – the “Group”) as at 31 December 2021, and the Group’s co nsolidated financial performance and consolidated cash flows fo r the year then ended in accordan ce with International Financial Reporting Standards (IFRS). What we have aud ited The Group’s consolidated financial statements comp rise:  the consolidated statement of financial position as at 31 December 2021;  the consolidated statement of pr ofit or loss and other compreh ensive income for the year then ended;  the consolidated statement of change in equity for the year then ended;  the consolidated statement of cash flo ws for the year then ended; and  the notes to the consolidated financial statements, which include significa nt accounting policies and other explanatory informati on. Basis for opinion We conducted our au dit in accordance with International Standard s on Auditing (ISAs). Our responsibilities under those standa rds are further descr ibed in the Auditor’ s responsibilities for the audit of the consolidated financial stat ement s section of our report. We believe that the audit evidence we have obtained is sufficient a nd appropriate to provide a basis for our opinion. Independence We are independe nt of the Group in accordance with the International Code of Ethics fo r Professional Accountants (includin g International Independence Standards) issued b y the International Ethics Standards Board for Accountants (IE SBA Code) and the ethical requirements of the Auditor’s Professional Ethics Code and Audito r’s Independen ce Rules that are relevant to our audi t of the consolidated financial st atements in the Russian Federation. We have fulfilled our other ethical responsibilities in accordance with these requirem ents and the IESBA Code. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in o ur audit of the consolidated financial statements of the current perio d. These matters were addressed in the context of our audit of the consolidated financi al statements as a whole, and in forming our opinion thereon, and we do not provide a sep arate opinion on these matters. 2 Key audit matter How our audit addressed the key audit matter Recoverability of assets associated with the production of super viscous oil Refer to Note 12 to the consolidated financial statements Management updated the impairment test models for assets associated with the production of super viscous oil as of the reporting date, due to an increase in the discount rate resulting from increased cost of borrowings, and followin g the adoption of legislative acts clarif ying the application of certain aspects of the mineral extract ion tax legislation after elimination in 2021 of the incentive benefits for production of supe r viscous oil. We focused on this matter due to materiality of the carrying value of assets tested for impairment and the significance of estimate s and judgements involved. We performed the followi ng audit procedures to test whether the estimates and calculati ons used by the Group to identify reco verable values of assets associated with the produ ction of super viscous oil, are reasonable:  examination of the models and calculations used for the impairment test, including verification of the mathematical accuracy of discounted cash flow models;  testing for rea sonableness of key assumptions used by the Group’s management when estimating the recoverable values;  comparison of the crude oil volumes used for the impairment test with the volumes estimated by the independent engineeri ng firm;  analysis of the macroeconomic assumptions used by the Group's management, including foreca sts for hydrocar bon prices , by compar ing them with consensus estimates from investment banks and analytical agencies;  assessment of compliance wit h IFRS of the disclosures in the consolidat ed financial statements. We used PwC valuation specialist s to assess the appropriateness of the di scou nt rate used in calculatin g the recoverable amount. 3 Key audit matter How our audit addressed the key audit matter Measurement of the decommissionin g provis ion Refer to Note 12 to the consolidated fi nancial statements The Group's consolidated financial statements include provision for decommissi oning of assets and environmental restoration. Decommissioning provi sion is remeasured by management at the end of each reporting period. Due to the inherent complexity of future costs assessment, the measurem ent procedure involves the use of va rious estimates and judgements by the management. Decommissioning provi sion (including its current portion) is material for the co nsolidated statement of financial position of the Group as of 31 December 2021 and amounts to RR 38,710 million (31 December 2020: RR 55,373 million). We focused on the measurem ent due to the materiality of this provision and also due to the significant decrease in t he amount of the decommissioning provi sion by RR 16,663 million as at 31 December 2021 compared to 31 December 2020. This de crease was due to several multidirectional factors, the most significant of which was the revision of the discount rate used in the calculation. Other changes primaril y relate to the accrual of decommissioning pro vision for newly commissioned items of propert y, plant and equipment. We performed the followi ng audit procedures in respect of valuation models for the decommissioning provi sion:  verification of the mathematical accura cy of calculations and of com pleteness of the underlying data such as a l ist of assets to be disposed of, cost of well suspensio n and abandonment, the number of wells and other items of property, plant and equipment, cost of land restoration and land acreage , the period up to the field decommissioning (discounting period);  testing whether the assumption s used in calculation of the decommi ssioning provision, such as discount rate, are reasonable; Our procedures to testing the app ropriateness of the cost of decommissioning the wells, other property, plant and equipm ent and land restoration which is used to measur e the decommissioning provision, included discu ssions with the Group’s technical specialists of th e list of procedures for decommissioning and restoration works, and reconciliation with Group budgets for liquidation of property, plant and equipment. The change in the discoun t rate used to measure future decommissioning costs had the most significant impact on the reme asurement of the decommissioning p rovision in 2021. We recon ciled the discount rate applied by the Group management with the yield to maturity of government securities the maturity of which is comparable with the expected maturity of decommissionin g and restoration obli g ations. Other matter – Materiality and Group audit scope Overview Materiality Overall Group materiality: Russi an Roubles (“RUB”) 12 800 million, which represents 5% of profit before tax. 4 Group scoping  We conducted audit work at 4 repo rting units.  The Group engagement team visited Group’ s operations in Almetievsk, Ni zhnekamsk and Mosco w.  Our audit scope addressed 96% of the Group’s reven ues and 95% of the Group’s absolute value of unde rlying profit before tax. Materiality As part of designing ou r audit, we determined materialit y and assessed the ri sks of material misstatement in the con solidated financial statements. In particular, we considered where management made subjective judgements; for exampl e, in respect of significant accounting estimates that involved making assumptions an d considering future events t hat are inherently uncertain. As in all of our audit s, we also addressed the risk of managem ent override of internal co ntrols including, among other matters, consideration of whether there was ev idence of bias that represented a risk of material misstatement due to fraud. The scope of our audit was influenced by our application of materiality. An au dit is designed to obtain reasonable assurance whether the con solidated financial statements ar e free from material misstatement. Misstatements may a rise due to fraud or erro r. They are considered material if individuall y or in aggregate, they could reasonably be expecte d to influence the economic decisions of users ta ken on the basis of the consoli dated financi al statements. Based on our professiona l judgement, we determin ed certain quantitative thresholds for materialit y, including the overall Gro up materiality for the con solidated financial statements as a whol e as set out in the table below. These, together with qualitative considerations, helpe d us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually a nd in aggreg ate on the consolidated financi al statements as a whole. Overall Group materiality RUB 12 800 million How we determined it 5% of profit before tax Rationale for the materiality benchmark applied We chose profit before tax as the benchmar k because, in our view, it is the benchmark against whi ch the performance of the Group is most commonly measured by users, and is a generally accepted benchmark. We chose 5% whi ch is consistent with quantitative materiality thresholds u sed for profit-oriented companies in this sector of the economy and with previous year benchmark. How we tailored our Group audit scop e We tailored the scope of our audit in ord er to perform sufficient work to enable us to provide an opinion on the consolidated financi al statemen ts as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group o perates. In establishing the overall approach to the group au dit, we determined the type of work that neede d to be performed at reporting units by us, as the gr oup engagement t eam, or component teams operating under our instructio n. Where the work was performed b y the component team of ZENIT Banking Group, we determined the level of invol vement we needed to hav e in th e audit work at this reporting unit to be able to conclude whether sufficient app ropriate audit evidence had been obtai ned as a basis for our opinion on the Group’s co nsolidated financial statements a s a whole. 5 We identified the following significant reporting u n its where we performed full-scope audit procedures: PJSC Tatneft (parent holding comp any, located in Al metievsk), JSC TANE CO (oil refinery subsidi ary, located in Nizhnekamsk) , PJSC Nizhnekamskshi na (tires producing subsidi ary, located in Nizhnekamsk) and ZENIT Bankin g Group (banking su bsidiaries, holding co mpany is located in Moscow). In addition, we performed specified audit pr ocedures over selected financial state ments line items at a number of less significant re porting units in order to increase the level of audit co mfort. Other information Management is responsible for the other informatio n. The other information comprises “Manage ment’s discussion and anal ysis of financial condition and re sults of operations for the th ree months ended 31 December and 30 Septem ber 2021 and years en ded 31 December 2 021 and 2020” (but does not include the consolidated financial st atements and our auditor’s report t hereon), which we obtained prio r to the date of this auditor’s report, and PJSC Tatn eft Annual Re port 2021 and Report of the Equity Securities Issuer for 12 months of 2021, whi ch are ex pected to be made available to us after that date. Our opinion on the consolidated financi al statements does not cover the other information and we do not and will not express any form of assurance concl usion thereon. In connection with our audit of the consolidated finan cial statem ents, our responsibilit y is to read the other information identified abo ve and, in doing so, c onsider whether the othe r information is materially inconsistent with the consolidated financial stat ements or our knowledge o btained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other in formation that we obtained prior to the date of this auditor’s report, we conclude that there is a mate rial misstatement of this other information, we are required to report that fact. We have n othing to report in this regard. When we read the PJSC T atneft Annual Report 2021 and Rep ort of the Equity Securities I ssuer for 12 months of 2021, if we conclude that there is a ma terial misstatement therein, we are required to communicate the matter to those charged with go vernance. Responsibilities of management and those charged with governance for the consolidated fi nancial statements Management is responsib le for the preparation and fair presentation of the consolid ated financial statements in accordance with IF RS, and for such internal control a s management determin es is necessary to enable the preparatio n of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolida ted financial statements, manageme nt is responsible for assessing the Group’s ability to continue as a going concern, di sclosing, as applicable, matters related to going concern and using the going con cern basis of accou n ting unless management either intends to liquidate the Group or to cease operations, or has no reali stic alternative but to do so. Those charged with governance are responsi ble for ov erseeing the Group’s finan cial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtai n reasonable assurance ab out wheth er the consolidated financial st atements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assur ance is a high level of assurance, but is not a guarantee that an audit conducted in accordan ce with ISAs will always detect a material mi sstatement when it exists. Misstatements ca n arise from fraud or erro r and are considered material if, individually or in the aggregate, they could reasonably b e expe cted to influence the econ omic decisions of use rs taken on the basis of these cons olidated financial sta tements. 6 As part of an audit in accordance with ISAs, we exercise professional judgment an d maintain professional scepticism through out the audit. We also:  Identify and assess the risks of materi al misstatement of the consoli dated financial statements, whether due to fraud or error, de sign and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriat e to provide a basi s for our opinion. The risk of not detecting a material misstatement resulting fro m fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissi ons, misrepresentations, or the o verride of internal control.  Obtain an understanding of internal control relevant to the audit in orde r to design audit procedure s that are appropriate in the circum stances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s intern al control.  Evaluate the appropriateness of acco unting policies used and th e reasonableness of accounting estimates and related disclosure s made by management.  Conclude on the app ropriateness of management’s use of the going concern basi s of accounting and, based on the audit evidence obtai ned, whether a material un certainty exists related to events or conditions that may cast significant doubt on t he Group’s ability to continue as a going concern. If we conclude that a material uncertaint y exists, we are required to draw attention in our auditor’s report to the related disclosure s in the consolidat ed financi al statements or, if such disclosure s are inadequate, to modify our opinion. Our conclusio ns are based on the audit evid ence obtained up to the date of our auditor’s rep ort. However, future ev ents or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and cont ent of the co nsolidated financial statem ents, including the disclosure s, and whether the cons olidated financial state ments represent the underlying transaction s and events in a m anner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regardin g the financial information of the entities or business activities within the Group to express an opinion on th e consolidated financial statements. We are responsible for the dire ction, supervisi on and performance of the Group audit. We remain solely responsible for o ur audit opinion. We communicate with those charged with gove rnance regarding, among other matters, the planned scope and timing of the audit and significant audit find ings, including an y significant deficiencies in internal control that we identify during o ur audit. We also provide tho se charged with governa nce with a statement that we have complied with relevant ethical requirements regarding indepen dence, and to communicate with them all relationship s and other matters that may reasonably be thought to bear on our indepe ndence, and where applicable, action s taken to eliminate threats or safegua rds applied. From the matters com municated with those ch arged with governance, we determine those matters that were of most significance in the audit of the cons olidated financi al statements of the current period and are therefore the key audi t matters. We describe thes e matters in ou r auditor’s report unless law or regulation preclude s public disclosure about the ma tter or when, in extremely rare circum stances, we determine that a matter should not be communi cated in our report because the adve rse consequences of doing so would reasonably be e xpected to outwe igh the public inte rest benefits of such communication. 7 The certified auditor responsible fo r the audit result ing in this independ ent auditor’s report is M. E. Timchenko. 15 March 2022 Moscow, Russian Federati on M. E. Timc henko is authorised to sign on behalf of the general director of AO Pricewaterhous eCoopers Audit (Principal Registration Number of the Record in the Regis ter of Auditors and Audit Organizations (PRNR) – 12006020338), certified auditor (PRNR – 219 0 6100451) TATNEFT Consolidated Statement of Financial Position (In million of Russian Rubles) The accompanying notes are an inte gral part of these consolidat ed financial statements. 1 Note 31 December 2021 31 December 2020 Assets Cash and cash equivalents 6 66,487 40,105 Banking: Mandatory reserve dep osits with the Bank of Russia 1,429 1,528 Short-term accounts receiv able, net 7 89,004 83,734 Banking: Loans to customers 8 32,342 22,492 Other short-term financi al assets 9 108,162 44,314 Inventories 10 81,062 44,988 Prepaid expenses and other cu rrent assets 11 32,278 20,075 Prepaid income tax 763 995 Banking: Non-current assets held for sale 715 764 Total current assets 412,242 258,995 Long-term accounts receivable, net 7 918 1,484 Banking: Loans to customers 8 102,360 79,163 Other long-term financial assets 9 81,084 70,605 Investments in associates and joint ventures 2,125 2,122 Property, plant and equipm ent, net 12 879,782 826,569 Right-of-use assets 13 11,897 12,185 Deferred income tax assets 14 3,333 2,218 Other long-term asse ts 8,548 10,100 Total non-current asse ts 1,090,047 1,004,446 Total assets 1,502,289 1,263,441 Liabilities and shareholders’ equity Short-term debt and current portion of long-term debt 15 22,541 10,961 Accounts payable and accrued liabilities 16 101,270 83,893 Dividends payable 20 22,984 823 Banking: Due to banks and the B ank of Russia 17 23,553 13,659 Banking: Customer accounts 18 150,141 146,753 Banking: Other financial liabilities at f air value through profit or loss 7,063 1,764 Taxes payable, other than income tax 14 89,705 30,401 Income tax payable 4,443 2,905 Other short-term liabilities 414 352 Total current liabilities 422,114 291,511 Long-term debt, net of current portion 15 9,631 23,652 Banking: Due to banks and the B ank of Russia 17 4,026 1,551 Banking: Customer accounts 18 1,288 1,872 Decommissioning provision, net of current portion 12 38,653 55,372 Lease liabilities, net of current portion 13 10,324 10,679 Deferred income tax lia bility 14 43,073 33,343 Other long-term liabilities 19 29,805 13,871 Total non-current liabilities 136,800 140,340 Total liabilities 558,914 431,851 Shareholders’ equity Preferred shares (authorised, i ssued and paid as at 31 December 2021 and at 31 December 2020 – 147,508,500 shar es; nominal value – RR 1.00) 20 746 746 Ordinary shares (authorised, i ssued and paid as at 31 Decem ber 2021 and at 31 December 2020 – 2,178,690,700 shar es; nominal value – RR 1.0 0) 20 11,021 11,021 Additional paid-in ca pital 84,437 84,437 Accumulated other compreh e nsive income 2,345 2,186 Retained earnings 850,198 739,641 Less: Ordinary s hares held in tre asury, at cost (75,636,735 shares at 31 December 2021 and 2020) (10,359) (10,359) Total Group shareholders’ equity 29 938,388 827,672 Non-controlling interest 27 4,987 3,918 Total shareholders’ equity 943,375 831,590 Total liabilities and e quity 1,502,289 1,263,441 Approved for issue and signed on b ehalf of the Board of Directo rs on ___ 2022. _____ ____ CEO Maganov N. U. Chief A ccountant Matveev O.M. TATNEFT Consolidated Statement of Profit or Loss and Other Comprehensive Income (In million of Russian Rubles) The accompanying notes are an inte gral part of these consolidat ed financial statements. 2 Note Year ended 31 December 2021 Year ended 31 December 2020 (restated) Revenue on non-banking activities 3,24 1,265,380 795,815 Costs and other deduc tions on non-banking ac tivities Operating expenses (180,897) (146,088) Purchased crude oil and refined products (125,834) (89,340) Exploration (2,799) (2,515) Transportation (35,854) (35,453) Selling, general and admini strative (73,203) (60,066) Depreciation, depletion and amor tization 12,13,24 (42,663) (40,865) Expected credit losse s on financial assets net of reversal 7,9 (78) (756) Impairment losses on property, plant and equipment and o ther no n- financial assets net of reversal 12 (3,576) (6,677) Taxes other than income taxes 3,14 (498,143) (235,701) Export duties 3 (39,033) (24,976) Maintenance of social infrastructure and trans fer of social ass ets 12 (13,130) (10,890) Total costs and other deduc tions on non-banking activities (1,015,210) (653,327) Loss on disposals of interests i n subsidiaries and associates, net (14) (54) Fair value gain/(losses) from financial assets at fa ir value t hrough profit or loss, net 9 3,382 (5,180) Other operating income, net 3,264 836 Operating profit on non-banki ng activities 256,802 138,090 Net interest, fee and commission and other operating income/(expenses) and gains/(losses) on banking activities Interest, fee and commission income 23,24 16,448 18,086 Interest, fee and c ommission expense 23 (8,229) (9,611) Net income/(expense) on recovery/creating provis ion for credit losses associated with debt financial as sets 8 543 (3,629) Operating expenses (8,335) (8,438) Gain arising from dealing in for eign currencies, net 8 96 Other operating (expense)/income, net (75) 68 Total net interest, fee and co mmission and other operating income/(expenses) and gains/(losses) on banking activities 360 (3,428) Other income/( expenses) Foreign exchange gain, net 29 2,475 5,597 Interest income on non-banking activities 22 3,962 4,428 Interest expense on non-banking activities, net of amounts capi talised 22 (6,304) (7,384) Share of results o f associates and joint ventures, net 11 (258) Total other income, net 144 2,383 Profit before income tax 257,306 137,045 Income tax Current income tax ex pense (50,670) (35,820) Deferred income tax (expense)/benefit (7,750) 1,348 Total income tax expense 14 (58,420) (34,472) Profit for the period 198,886 102,573 TATNEFT Consolidated Statement of Profit or Loss and Other Comprehensive Income (In million of Russian Rubles) The accompanying notes are an inte gral part of these consolidat ed financial statements. 3 Note Year ended 31 December 2021 Year ended 31 December 2020 (restated) Other comprehen sive (loss)/ income net of income tax: Items that may be reclassified subsequently to profit or loss: Foreign currency translatio n adjustments (847) 2,099 Loss on debt financial assets at fair value thro ugh other compr ehensi ve inc ome , n et (957) (224) Items that will not be reclassified t o profit or loss: Gai n/ (los s) on equity financial assets at fair valu e through ot her comprehensive income, net 255 (247) Actuarial gain/(loss) on empl oyee benefit plans 1,536 (597) Other comprehen sive (loss)/income (13) 1,031 Total comprehensive income for the period 198,873 103,604 Profit/(loss) attributable to: - Group shareholders 198,412 103,490 - Non-controlling interest 474 (917) 198,886 102,573 Total comprehensive income/(loss) attributable to: - Group shareholders 198,571 104,603 - Non-controlling interest 302 (999) 198,873 103,604 Basic and diluted earnin gs per share (RR) Ordinary 20 88.16 45.92 Preferred 88.16 46.92 Weighted average shares outstanding (millions of shares) Ordinary 20 2,103 2,103 Preferred 148 148 * Certain amounts have been r esta ted to conform to current year pre sentation (Note 3). TATNEFT Consolidated Statement of Change in Equity (In million of Russian Rubles) The accompanying notes are an inte gral part of these consolidat ed financial statements. 4 Attributable to Gr oup sharehold ers Non-con- trolling interest Total equity Number of shares ( thousands ) Share capital Additional paid-in capital Treasury shares Actuarial (loss)/gain on employee benefit plans Foreign currency translation adjustments Gain/(loss) on financial assets at fair value through other compre- hensive income, net Retained earnings Total shareholders’ equity Balance at 1 January 2020 2,250,562 11,767 84,437 (10,359) (1,914) 1,092 1,895 658,614 745,532 6,598 752,130 Profit/(loss) for the year - - - - - - - 103,490 103,490 (917) 102,573 Other comprehensive (loss)/income for the year - - - - (597) 2,099 (389) - 1,113 (82) 1,031 Total comprehensive (loss)/income for the year - - - - (597) 2,099 (389) 103,490 104,603 (999) 103,604 Acquisition of non-controlling in terest in subsidiaries - - - - - - - - - (56) (56) Dividends declared (Note 20) - - - - - - - (22,518) (22,518) (1) (22,519) Subsidiary’s shares requested for the redemption (Note 16) - - - - - - - 55 55 (1,624) (1,569) Balance at 31 December 2020 2,250,562 11,767 84,437 (10,359) (2,511) 3,191 1,506 739,641 827,672 3,918 831,590 Balance at 1 January 2021 2,250,562 11,767 84,437 (10,359) (2,511) 3,191 1,506 739,641 827,672 3,918 831,590 Profit for the year - - - - - - - 198,412 198,412 474 198,886 Other comprehensive incom e/(loss) for the year - - - - 1,536 (847) (530) - 159 (172) (13) Total comprehensive income/(loss) for the year - - - - 1,536 (847) (530) 198,412 198,571 302 198,873 Acquisition of non-controlling in terest in subsidiaries - - - - - - - - - 321 321 Disposal of non-controlling interests in subsidiaries - - - - - - - - - (40) (40) Dividends declared (Note 20) - - - - - - - (87,322) (87,322) (47) (87,369) Intercompany transactions on the purchase and sale of loans (Not e 20) - - - - - - - (533) (533) 533 - Balance at 31 December 2021 2,250,562 11,767 84,437 (10,359) (975) 2,344 976 850,198 938,388 4,987 943,375 TATNEFT Consolidated Statement of Cash Flows (In million of Russian Rubles) The accompanying notes are an inte gral part of these consolidat ed financial statements. 5 Note Year ended 31 December 2021 Year ended 31 December 2020 Operating activities Profit for the year 198,886 102,573 Adjustments: Net interest, fee and commi ssion and other operating (income)/ expenses and (gains)/ losses on banking activities (360) 3,428 Depreciation, de pletion and am or tization 12,13,24 42,663 40,865 Income tax expense 14 58,420 34,472 Impairment losses on fi nancial assets net of reversal 7,9 78 756 Impairment losses on property , plant and equipment and other non-financial assets net of reversal 12 3,576 6,677 Loss on disposals of interests i n subsidiaries and associates, net 14 54 (Gain)/losses from changes in the fair value of fin ancial assets measured at fair value t hrough profit or loss, net 9 (3,382) 5,180 Effects of foreign exchange (268) 989 Share of results o f associates and joint ventures, net (11) 258 Interest income on non-banking activities 22 (3,962) (4,428) Interest expense on non-banking activities, net of amounts capitalised 22 6,304 7,384 Other 1,529 3,139 Changes in operational working capital related to operating activities, exclud ing cash: Accounts receivable (4,559) (26) Inventories (32,467) 8,302 Prepaid expenses and other current assets (10,748) 695 Securities at fair value through pr ofit or loss (49) 2 Accounts payable and accrued liabilities 15,114 22,462 Taxes payable, other than income tax 58,441 (7,064) Net cash provided by non-banki ng operating activities before income tax an d interest 329,219 225,718 Net interest, fee and commi ssion and other operating income/(expenses) and gains/(l os ses) on banking activities 360 (3,428) Adjustments: Net expense on creating provisio n for credit losses a ssociated with debt financial assets 8 (543) 3,629 (Reversal of provision)/provision for losses on c redit related commitments (186) 100 Change in fair value of debt financial assets through profit or loss 234 201 Other 1,006 4,664 Changes in operational working capital on banki ng activities , excluding cash: Mandatory reserve deposits w ith the Bank of Russia 99 44 Due from banks (1,334) 5,180 Banking loans to customers (36,841) 21,713 Due to banks and the Bank of R ussia 12,007 (9,866) Banking customers accounts 3,391 (17,038) Debt securities issued (43) (333) Securities at fair v alue through profit or loss 2,316 1,178 Other financial liab ilities at fair v alue through profit or los s 5,299 (2,687) Net cash (used)/ provide d by banking operating ac tivities before income tax (14,235) 3,357 Income taxes paid (48,900) (29,670) Interest paid on non-banking activities (2,434) (3,348) Interest received on non-banking activities 3,844 4,309 Net cash provided by operating activities 267,494 200,366 TATNEFT Consolidated Statement of Cash Flows (In million of Russian Rubles) The accompanying notes are an inte gral part of these consolidat ed financial statements. 6 Note Year ended 31 December 2021 Year ended 31 December 2020 Investing activities Additions to property, plant and equipment (119,106) (104,668) Proceeds from disposal of prop erty, plant and equipment 1,593 767 Acquisition and increase of interest in associate (12) (1,940) Net cash flow from acquisitions of subsidiaries 28 (6,589) - Purchase of securities at fai r v al ue thr ou gh oth er co mpr eh ens iv e inc ome (35,424) (39,938) Purchase of securities at am ortised cost (5,018) (14,752) Proceeds from dispos al of securities at f ai r v alu e th rou gh ot he r com pre hen siv e in com e 25,830 39,072 Proceeds from redemption of securities at am ortised cost 12,368 5,819 Proceeds from sale of non-current assets h eld for sale 316 242 Proceeds from investm ents in associates and join t ventures 7 1 Proceeds from redemption of bank deposits mea sured at amortised cost 40,364 674 Placement of bank depos its measured at am ortised cost (86,083) (10,016) Proceeds from redemption of bank deposits meas ured at fair valu e through profit or loss 30,480 - Placement of bank deposits m easured at fair valu e through profi t or loss (62,295) - Proceeds from redemption of loans and notes re ceivable 9 9,164 21,211 Issuance of loans and notes r eceivable 9 (598) (1,270) Net cash flow from currency swaps 1,904 - Proceeds from sale/(purchase) of other non-current assets 4,658 (489) Proceeds from government grant s 19 15,803 5,090 Net cash used in investing activities (172,638) (100,197) Financing activities Proceeds from issuance of deb t from non-banking activities 29 9,338 218,758 Repayment of debt from non-banki ng activities 29 (9,689) (225,083) Repayment of principal por tion of lease liabilities (1,440) (1,419) Issuance of bonds 29 50 3,198 Redemption of bonds 29 (1,713) (3,029) Repayment of subordinated debt - (1,545) Dividends paid to sharehol ders 20 (64,804) (77,560) Dividends paid to non-controllin g sharehold ers 20 (47) (1) Net cash used i n financing activities (68,305) (86,681) Net change in cash and cash equivalents 26,551 13,488 Effect of foreign exchange on cas h and cash equivalents (169) 1,460 Cash and cash equiva lents at the beginning of the year 6 40,105 25,157 Cash and cash equivalents at the end of the period 6 66,487 40,105 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 7 Note 1: Organisation PJSC Tatneft (the “Company”) and its controlled subsidia ries (j ointly referred to as the “Group”) are engaged in crude oil exploration, development and production principally i n the Republic of Tatarstan (“Tatarstan”), a republic within the Russian Federation. The Group also engages in refini ng of c rude oil and associated petroleum gas processing, marketing of crude oil and r efined products as well as pr oduction and marketing of tires and banking activities (Note 27). The Company was incorporated as an open joint stock company (no w referred to as a public joint stock company) effective in January 1994 purs uan t to the appr ov al of the Stat e Property Managem ent Com mittee of the R epublic o f Tatarstan in accordance with Decr ee of the President of the Rus sian Federation No. 1403 on Privatization and Restructurin g of Enterpri ses and Corpo rations into J oint-Stock Companies. The Company does not ha ve an ultim ate controlli ng party. As a t 31 Dece mber 20 21 an d 20 20 t he go ver nme nt o f Ta tar sta n con trols a bout 36 % of the Company’s voting stock. Tatarstan also holds a “Golden S hare”, a special governmental r ight , in the C ompany (N ote 20). T he Tatarstan governm ent also c ontrols or exercises significant i nfluence ove r a number of the Group’s suppliers and contractors. The Company is domiciled in the Russian Federation. The address of its registered office is Lenina St., 75, Almetyevsk, Republic of Tatarstan, Russian Federation. Note 2: Basis of preparatio n The accom panying co nsolidated fin ancial stateme nts have been prepared in accordance with International Fina ncial Reporting Standar ds (“IFRS”). These consolidated financial statements have been prepared o n a historical cost basis, except fo r initial recognition of financial instrum ents based on fair value, revaluation of fi nancial instruments categorised at fair value through profit or l oss (“FVTPL”) an d at fair value through other c ompre hensive incom e (“FVOCI”). The entities of the Group maintai n their accounting records an d prepare their statutory financial statements principally in accordance with the Regulations and Federal stan dards on Accounting and Reporting of the Russian Federation (“RAR”), and applicable accounting and reporting sta ndards of countries outside the Russian Federation. A number of entities of the Group prepare their financial state ments in accordance with IFRS. The accompanying consolidated financial statement s have been prepared from these accounting records and adjusted as necessary to comply with IFRS. The preparation of financial statements in conformity with I FRS requ ires the use of certain critical accountin g estimat es. It also requires m anagement to exercise it s judgem en t in the process of applying the Group’s accounting policies. The a reas involvi ng a higher degree of judgem ent or c om p l e x i t y , o r a r e a s w h e r e a s s u m p t i o n s a n d e s t i ma t e s are significant to the con solidat ed financial statements are di sclosed in Not e 4. Note 3: Summ ary of signif icant accounting policies The k ey accounting policies used i n preparing these consolidate d financial statem ents are present ed below. These principles ha ve been appli ed consiste ntly to al l periods presen ted i n the statements. Functional and presentation currenc y. The presentation curren cy of the Group is the Russian Ruble. Management has determined the functional currency for the Compa ny and each consolidated subsidiary of the Group, except for subsidia ries located outsi de of the Russi an F ederation, is the Russian Ruble because the m ajority of Group revenue s, costs, prope rty and equi pment purchased, deb t and trad e liabilities are e ither priced, incurred, payable or otherwise m easured in Russia n Rubles. Acc ordingly, t ransactions and balances not measured i n Russian Rubles (pri marily US Dollars) have been re-measured into Russia n Rubles in accordance with the relevant provisions of IAS 21 “The Effect s of Changes in Foreign Exchang e Rates”. For operations of major subsidiaries located outside o f the Rus sian Federation, that primarily use US Dollar as th e functional currency, ad justments resulting from translating for eign fun ctional cu rrency assets and liabilities into Russian Rubles are recorded in othe r comprehensive income. Reve nues, expenses and cash flows are translated at average exchange rates of the relevant period (unless this aver age is n ot a rea sonable approxim ation of the cumulative effect of the rates prevailing on the transaction da tes, in which case income a nd expenses are translated at the rate on the dates of the transactions). The official rates of exchange, as published by the Central Bank of the Russian Federatio n (“the Bank of Russia”), of the Russian Ruble (“RR”) to the US Dollar (“US $”) at 31 Dec ember 2021 and 31 December 2020 were RR 74.29 and RR 73.88 to US $, respectivel y. Average rates of exchange for the years ended 31 December 2021 and 31 December 2020 were RR 73.65 and RR 72.15 per US $, respectively . TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 8 Note 3: Summ ary of significant accounting policies (continued) Consolidation. Subsidiaries are all entities over which the Group has control. The Group contro ls an entity when the Group has t he power to direct relevant activities of the in vestee that si gnificantly affect their returns, exposed to, or has rights to, variable returns from its involvement with th e entity and has the ability to affect those returns through its power over the entity. Sub sidiaries are fully conso lidated from th e date on which con trol is transferred to the Group. They are de consoli dated fr om the date t hat contro l ceases. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisitio n of a subsidiary is the fair val ues of the assets transferred, th e liabilities incurred and the equity interests issued by the Group. The co nsideration tra nsferred includes the fair valu e of any asset or liability resulting from a contingent consideration arrangement. Acquisit ion-related costs are expensed as incurred. Identifiable acquired assets and liabilities and contingent lia bilities assumed in a bu siness combination are measured initially at their fair v alues at the acquisition date. The Gro up recognises any non-controlling interest in the acquiree on an acqu isition-by-acquisition ba sis at the non-con trolling i nterest’s proportionate share of the acquiree’s net assets or at fair value. The excess of the consideration transf erred, the amoun t of any no n-controlling interest in the acquiree and the acquisition-date fair value of an y previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded with in o t he r n on - c u rr e n t as s e t s a s goodwill. If the total of consideration transferred, non- controlling interest recognised and previously held interest me asured is less than the fair value of the net assets of the subsidiary , the difference is recognise d directly i n the pr ofit or loss for the year. Inter-company transactions, ba lances and unrealised gains and l osses on transactions between Group companies are eliminated. Unrealised losses are also elim inated unless the co st cannot be recovered. Associates and joint ventures. Associates and join t v entures are entities over which th e G rou p has significant influence (directly or indirectly), but not control, generall y accompanying a shareholding of between 20 and 50 percent of the voti ng rights. Inve stments i n associates and joint ve ntures are accounted f or using the equi ty method of accounting and are initially recognised at co st. Dividends r eceived from associates and joint ventures reduce the carrying value of the investment in associates and joint ventures. Other post-acquisition changes in Group’s share of net assets of an ass ociate and joi nt vent ures are recognised as follows: (i) the Group’s share o f profits or losses of associates or joint ventures is recorded in the consolidated pr ofit o r loss for the year as sh are of r esult of associates or joint ventures, (ii) the Group’s share of other com prehensiv e income is recognised in other comprehensive income and presented separately, (iii) all other changes in the Group’ s share of t he carrying val ue of net assets of associates or joint ve ntures are recog nised in profit or loss within the s hare of result of associates or joint ventures. However, when the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including any other unsecured recei vables, the Group does not r ecognise further losses , unless it has incurred obligat ions or m ade payment s on behalf o f the associate or joint venture. Unrealised gai ns on transactions between the Group and its asso ciates and joint ventures are eliminated to the e xtent of the Group’s interest in the associates and joint ventures; u nrealised losses are also eliminated unless the transaction provides evide nce of an im pairment of t he asset trans ferred. The Group reviews equity metho d investments for impairment on a n annual basis, and records im pairment when circumstances indicate that the carrying value exceeds the reco ve rable amount . Financial instruments – key measurement terms. Result s of fair value is the p rice that would b e received to sell an asset or paid to transfer a liability in an orderly transact ion between market participants at the m easurement date. The best evi dence of fair value is the price in an active m arke t. An active market is one i n whi ch t ransactions for the asset or liability take place with sufficient frequency and vol ume to provide pricing information on an ongoin g basis. Fair value of financial instruments traded in an active market is measured as the p roduct of the quoted pri ce for the individual asset o r liability and the number of instru ments hel d by the Group. This is the case even if a market’s normal daily trading volume is not sufficient to absorb the qua ntity held and p lacing orders to sell the po sition in a single transaction might affect the quoted price. Valuation techniques such as d iscounted cash flow models or mod els based on r ecent arm’s length transactions or consideration of financial data of the investees are used to me asure fair value of certain financial instrume nts for which external market pr icing information is not av ailable. Fair value measurem ents are anal ysed by level in the fair value hie ra rc hy a s f o llo w s: (i ) lev e l o ne ar e me as u re me nt s at quoted prices (unad justed) in active markets for id entical a ssets or liabilit ies, (ii) level two measurements are valuations techniques with all material inputs observable for t he asset or liability, either directly (th at is, as prices) or indirectly (that is, deriv ed from prices), and (iii) level t hree measurements are valuations not based on solely observable market data (that is, the measurement requires signi ficant unobservable inputs). Transfe rs between levels of the fair val ue hier archy are deem ed to ha ve occurred at the end of the reporting period. Refer to Note 29. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 9 Note 3: Summ ary of significant accounting policies (continued) Transaction costs are incremental costs that are d irectly attri bu table to the acquisition, issue or disposal of a financial instrument . An incremental cost is one that would not have been incurred if the transac tion had not taken place. Transaction costs include fees a nd commissions paid to agents ( including employees actin g as selling ag ents), advisors, bro kers and dealers, l evies by regulatory agencies an d securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, fi nancing costs or internal administrat ive or holding costs. Amortised cost (“AC”) is the amount at which the financial inst rument was recognised at i nitial recognition less any principal repay ments, plus ac crued interest, and for financial assets less any allowance for expected credit losses (“ECL”). Accrued interest includes amortisation of transaction costs deferred at initial recognition and o f a ny premium or discount to the matu rity amount using the effective interest rate method. Accrued interest income and accrued interest expense, includi ng both accrued coupon and amo rtised d iscount or p remium (including fees deferred at origi nation, i f any), are not prese nted se parately and are i ncluded in the carrying values of the related item s in the consolidated statement of financ ial position. The effective interest rate method is a method of allocating in terest income or interest expense over the relevant p e r i o d , s o a s t o a c h i e v e a c o n s t a n t p e r i o d i c r a t e o f i n t e r e s t ( effective interest r ate) on the carrying amount. The effective interest rate is the r ate that exactly discounts esti mated future cash payments or receipts (excluding future credit losses) through the expect ed life of the financial instr ument or a shorter period, if appropr iate, to the gross carrying am ount of the fi nancial instrument. The effective interest rate discounts cash flows of variable in terest instruments to the next interest repricing d ate, except for the premium or disco unt which reflects th e credit sp read over th e floatin g rate s pecified in the instrument, or other v ariables that are not reset to market rates. Such pre miums or discoun ts are amortised over the who le expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part o f the effective interes t rate. For assets that are p u rchased or originated credit impaired (“POCI”) at initial recognition, th e effective interest rate is adjusted for credit risk, i.e. it is calculated b ased on the expected cash flows on initial recognition in stead of co ntractual payment s. Financial instruments – initial recognition. Finan cial instruments at FVTPL are initially recorded at fair value. All other financial instru ments are initially r ecorded at fair value adjusted for transaction costs. Fair value at in itial recognition is b est ev idenced by the tran saction price. A gain or loss on initial recogn ition is on ly recorded if there is a difference between fair val ue and transa ction price whi ch can be evi denced by ot her observabl e current m arket transactions in the same ins trument o r b y a valuation techn ique whose inputs include only data from observable markets. After the initial recogn ition, an ECL allowance is rec ognised for financial assets measured at AC and investments in debt instruments measured at FVOCI, resulting in an immediate accounting loss. Purchases and sales of financial assets that require delivery w ithin the time frame estab lished by regu lation or m arket convention ( “regular way” purcha ses and sales) are recorde d at trade date, which is the date on which the Group commits to deliver a fin ancial asset. All oth er purch ases are recognised when the en tity becomes a pa rty to the contractual pr ovisions of t he instrument . Financial assets – classification and subsequent measurement – meas urement categories. The G roup classi fies financial assets in the followi ng measurement categories: FVTPL , FVOC I and AC. The classification and subsequent measurement of debt financial assets depends on: (i) the Group’s business model for managing the related assets portfolio and (ii) the cash flow characteristics of the asset. Financial assets – classification a nd subsequent measurement – business model. The business model reflects how the Group manages the assets in order to generate cash flow s – whether the Group’s objectiv e is: (i) solely to collect the contractual cash flo ws from the assets (“hol d t o c o llect contract ual cas h flows” ,) or (ii) to collect both t he contractual cash flows and the cash flows arising from the sale of assets (“hold to c ollect c ontractual cash flows and sell”) or, if neither of (i) and (ii) is applicable, the financ ial assets are classified as part of “other” business model and measured at FVTPL. Business model is determ ined for a group of assets (on a portfo lio level) based on all relevant evidence about the activities that the Gro up undertakes to achieve the objective s et out for the portfolio availabl e at the date of the assessment. F actors considered b y the Group in determining the business mode l include the p urpose and compo sition of a portfolio, past experience on how the cash flows for the r es pective assets were collect ed, how risks are asse ssed and managed, how the assets’ performance is assessed and how ma nagers are compensated. Refer to Note 4 for critical judgem ents appli ed by the Gr oup in de termining t he bus iness models for its financial assets. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 10 Note 3: Summ ary of significant accounting policies (continued) Financial assets – classification and subsequent measurement – cash flow characteristics. Where the business model is to h old assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether the ca sh flows represent solely pay ments o f principal a nd interest (“SPPI”). Financial assets with embedded derivatives are considere d in their entirety when determining w hether their cash flows are consistent wit h the SPPI feature. In makin g this assessment, the Group conside rs whether the contractual cash flows are consistent with a basic lendi ng arrangem ent, i.e . interest includes o nly consider ation for credit risk, time value o f money, other b asic lending risks and profit margin. Where the contractual terms in trodu ce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessmen t is performed on initial recognition of an asset and it is not subsequently reassessed. Refer to Note 4 for critical judgements applied by the Group in performing the SPPI test for its finan cial assets. Financial assets – reclassification. F i n a n c i a l i n s t r u m e n t s a r e r e c l a s s i f i e d o n l y w h e n t h e b u s i n e s s model for managing the p ortfolio as a whole changes . The reclassification has a prospective effect and takes place from the beginning of the first re porting period that follows after the change in the business model. The Group did not change its business model during the cu rr ent and com parative period an d did not make any reclassifications. Financial assets impairment – credit loss allowance for ECL. The Group assesses, on a forward-looking basis, the ECL for debt instrum ents measured at AC and FVOCI and for t he exposures arising from loan commitments and financial guarantee contracts, for contract assets. The Gro up measures ECL and recognises Net impairment losses on fi nancial and contract assets at each reportin g date. Th e mea sur emen t of ECL ref lec ts: (i) an u nb ias ed and probability weighted amount that is determined by evaluating a range of possible outcomes, (ii) time value of m oney and (iii) all reasonable and supportable information that is av ailable without undue cost and effort at the end of each reporting period about past even ts, current condition s and fore casts of future con ditions. D e b t i n s t r u m e n t s m e a s u r e d a t A C a n d c o n t r a c t a s s e t s a r e p r e s e n t ed in the consolidated statement of finan cial position net of the allowance for ECL. For loan c ommitments a separate p rovision for ECL is recogn ised as a liability in the consolidated statement o f financial position. For d ebt instrume n t s a t F V O C I , c h a n g e s i n a m o r t i s e d c o s t , n e t o f allowance for ECL, are recognised in profit or loss and other c hanges in carrying value are recognised in OCI as gains less los ses on de bt instruments at FVOCI. The Group applies a three stage model for impairment, based on ch anges in credit quality since initial recognitio n. A financial instrument that is not credit-impaired on initial r ecognition is classified in Stage 1. Finan cial assets in Stage 1 have their ECL measured at an amount equal to the porti on of lifetime ECL that results from defau lt events possible within the next 12 months or until contractual maturit y, if shor ter (“12 Months ECL”). If the Group identifies a significant increase i n c r e d i t r i s k ( “ S I C R ” ) s i n c e initial recognitio n, the asset is tran sferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until contractual maturity but con sidering expected prepayments, if any (“L ifetime ECL”). Refer to Note 29 for a d escription of how the Gr oup determines when a SICR has occurre d. If the Group determ ines that a financ ial asset is credit-impaired, the asset is transferred t o S t a g e 3 a n d i t s E C L i s m e a s u r e d a s a L i f e t i m e E C L . T h e G r o u p ’s defin ition of credit impaired assets and definition of default is explained in Note 29. For financial assets that a re pu rchased or origin ated credit-impaired (“POCI Assets”), the ECL is always measured as a Lifetime ECL. Note 29 provides information about inputs, assu mptions and estimation techniques used in m easuring ECL. The Grou p applies the IFRS 9 sim plified approach for measuring expected cred it losses which uses a lifetime expected loss allowance for all trade and other receivables. To measure the expected cred it losses, trade and oth er receivables have been grouped based on shared credit risk chara cteristics and the days past due. The Group calculates expected credit losses on trade receivables based on historical data assumin g r easonable approximation of c urrent losses rates adj usted on forwa rd-looking information. Financial assets – write-off. Financial assets are written-off, in whole or in part, wh en th e Group exhausted all practical recovery efforts and has concluded that there is no r easonable expectation of recovery. The write-off represents a derecognition event. The Group may write-o ff finan cial assets that are still subject to enfo rcement activity when the Group seeks to recover amounts that are contr act ually due, however, there is no reasonable expectation of recovery. Financial assets – derecognition. The Group derec ognises finan cial assets whe n (a) the assets ar e rede emed or the rights to cash flows from the assets otherwise expire or (b) th e Group has transferred the rights to the cash flows from th e financial assets or entered into a qualifying p ass-thr ough arra ngement whilst (i) also transfer ring substantial ly all the risks and rewards of ownership of the ass ets or (ii) n either transferring nor retaining substantially all the risks a nd rewards of ownership but not retaini ng contro l. Control is retained if the count erparty does not have the pract ical ability to sell the asset in its entirety to an un related third party without needi ng to im pose additi onal restrictio ns o n the sale. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 11 Note 3: Summ ary of significant accounting policies (continued) Financial assets – modification. The Group sometimes renegotiates or otherwise m odifies the c on tractual terms of the financial assets. The Group assesses whether the modifi cati on of contractual cash flows is s ubstantial considering , among other, the following factors: any new contra ctual terms that substantially affect the risk pro file of the asset (e.g. profit share or equity-based r eturn), signif icant change in interest rate, change in the currency denomination, new collateral or c redit enhancem ent that s ignificantly affects the credit risk associated with the asset or a significa nt extension of a loan when the borrower is not i n financial difficulties. If the modified terms are substantially different, the rights t o cash flows from the original asset ex pire and the Group derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be th e date of initial recognition for subsequent impairment calculation purposes, including determining w hether a SICR has occu rred. The Group als o assesse s whether t he new loan or debt instrum ent meets the SPPI criterion. Any differen ce between the carrying amount of the original asset derecogni sed and fai r value of the new su bstantially m odified asset is recognised in profit or loss, unless the substance of the difference is attribut ed to a capital transaction with owners. In a situation wh ere the renego tiation was dr iven b y financial d ifficulties of the counterparty and inability to make the originally agreed payments, the Group compares the origin al and revised expected cash flows to assets whether the risks and rewards of th e asset are substantially different as a result of the contractual modification. If the risks and rewards do not change, the modified asset is n ot substantia lly different from th e or iginal asset and the modification does not result in derecognition. T he Group recalc ulates the gross carrying amount by discount ing the modified contractual cash flows by the origi nal effective inter est rate (or credit-adjusted effective interest rate fo r POCI financial assets), and recog nises a modifi cation gain or l oss in p rofit or lo ss. Presentation of cash flow s on deposi ts at f air value through pr ofit or loss in the consolidated statement of cash flows. Placements and proceeds from redem ption of bank deposits at fa ir value through profit or loss mature less than three months are presented in the consolidated statement o f cash flows on a net basis . Placements and p roceeds from redemption of bank deposits at fair value through profit o r loss mature more than three months are presented in the consolidated statement of cash flows separately in gross amounts. Presentation o f cash flows from currency swap in the consolidat ed statement of cash f lows. Cash flow s from currency swap transactions are p resented i n the co nsolid ated s t atement of cash flow s on a net basis. Financial liabilities – measurement categories. Finan cial liabilities are classified as subsequently m easured at AC, except for (i) financial liab ilities at FVTPL: this classificat ion is applied to d erivatives, financial liabilities h eld for trading (e.g. short pos itions in securities), contin gent consid eration recognised by an acquirer in a business combination and o ther financial liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan com mitments. Financial liabilities – derecognition. Finan cial liabilities are derecognised when they are extingu is hed (i.e. when the obligation specified in the contract is discharged, cancell ed or expire s). An exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as substantial modifications of the terms and conditions o f existing financial liabilitie s, are accounted for as an extinguishment of the original financial liability a nd the recognition of a new fin ancial liability. The terms are substantial ly different if the discounted present value of the cash flows under t he new terms, including any fees paid net of any f ees received and discounted using the original effe c t i ve i n t er e s t r at e , is a t l e a s t 10 % d i ff e r en t f r om t h e discounted present val ue of th e remaining cash flo ws of the ori ginal financial liability. In addition, other qualitative factors, such as the currency that the instrument is denominate d in, changes in the type of interest rate, new conversion features attached to the instrument and change in lo an covenants are also considered. If an exchange of debt instruments or modification of terms is accounted for as a n extinguishment, any costs or fees incurred are recognised as part of the gain o r loss on the extin guishment. I f the excha nge or m odification is not accounte d for as an e xt i ng uis h me nt, a ny c os t s or fe es i ncu rre d ad jus t t he ca rry i ng amount of the liability and are amortised over the remaining term of the modified liability. Modifications of liabilities th at do not result in extingu ishme nt are accounted for as a change in estima te using a cumulati ve catch up method, w ith any gain or loss reco gnised in p rofit or loss, u nless the economic substance of the difference in c arrying values i s attributed to a capital transa ction with owners. Financial liabilities designated at FVTPL. The Grou p may designate certain liabilities at FVTPL at initia l recognition. Gains and losses on such liabilities are presented in profit or loss except for the amount of change in the fair v alue that is attributable to changes in the credit ri sk of that liability (determined as the amount that is not attributable to changes in market conditions th at g ive r ise to market risk), which is recorded in OCI and is not subsequently reclassified to p rofit or loss. T his is unless suc h a presentation would create, or e nlarge, an acc ounting mismatch, in which case the gains and losses attributable to ch anges in credit risk of the liability are a lso presented in profit or loss. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 12 Note 3: Summ ary of significant accounting policies (continued) Offsetting financi al instruments. Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally en forceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to re alise the asset and settle the liability simultan eously. Such a right of set off (a) must not be continge nt on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) in the even t of default and (iii) in the event of insolvency or b ankruptcy. Cash and cash equivalents. Cash represe nts cash on hand and in bank accounts a nd the Bank of Russia , othe r than mandatory reserves deposits wit h the B ank of R ussia, which can be effectively withdrawn at any time without prior notice. Cash equivalents include highly liquid short-term inves tments that can be convert ed to a certain cash am ount and mature within three months or less from the date of purchas e. Cash and cash equivalent s are carried at AC because: (i) they are held for collection of c ontractual cash f lows and those cash flows r e present SPPI, and (ii) t hey are not designated at FVTPL. Features mandated solely by legisl ation, such as the bail-in legislation in certain countries, do not have an impact on the SPPI test, unless they are included in contractual terms such that the feature would apply even if the le gislation is subsequent ly change d. Mandatory reserve deposits with the Bank of Russia. Mandatory cash balances with the Bank of Russia are carried at AC and represent non-interest bearing mandatory rese rve deposits, which are not available to finance the Group’s day to day operations, and hence ar e not considered as part of cash and cash equivalents for the purposes of the consol idated statem ent of cash fl ows. Due from banks. Amounts due from banks othe r t han th ose t hat are part of the Gr oup are record ed when the Group advances money to counterparty banks due on fixed or determinab le dates. Amounts due from other banks are carried at AC when: (i) they are held fo r th e purpo ses of collecting co ntractual cash flows and those cash flows represe nt SPPI, and (ii) they are not designated at FVTPL. Due from banks that mature within three months or less from the date of placement are included i n cash a nd cash equivalents. Investments i n debt securities. Based on the business model and the cash flow characteristics, th e G ro up c la ss i fi es investments in debt securities as carried at AC, FVOCI or FVTPL . Debt securities are carried at AC if they are held for collection of contractual cash flows and where those cash f lows represent SPPI, and if they are not voluntarily designated at FVTPL in order to si gnificantly reduce an acc ount ing mismatch. Debt secur ities are carried at FVOCI if they are held for collection of contractual cash flows and f or selling, wher e those cash flow s represent SPPI, and if they are not de signated at FVTPL. Interest income from these assets is calculated using the effec tive interest r ate method an d recognised in pro fit or loss. An impairment allowance esti mated using the expect ed cred it loss model is recognised in pro fit or lo ss for th e year. All other changes in the carrying value are recognised in OCI. When the d ebt security is derecognised, the cumulative gain or loss prev ious ly recognised in OCI is reclass ified from OCI to profit o r loss. Investments in debt securities are carried at FVTPL if they do no t m ee t th e c r i t e ri a f o r A C o r F V OC I . T he G r o u p may also irrevocably designate investments in debt securities a t FVTPL on initial recognition if app lying this op tion significantl y reduces a n accountin g m ismatch between financial assets and liabilities b eing recognised or measured on different accountin g bases. Investments in equity securities. Fi na nc ia l a s s e t s t h a t me et th e d ef in it io n o f e qu it y f ro m t h e i ssuer’s perspective, i.e. instrument s that do not contain a contractual obligation t o pay cash and that evidence a residual interest in the issuer’s net assets, are consider ed as investments in equity se curities by the Group . Investments in equity securities are measured at FVTPL, except wh ere the Group elects at initial recognition to irrevocabl y designate an equity investments at FVOCI. The Group’s policy is to designate equity investments as FVOCI when those investm ents are held for strategic purposes other than solely to generate investment returns. When the FVOCI election is used, fair value gains and l osses are recognised in OCI and a re not s ubseque ntly reclassified to profit or loss, including on disposal. Impairm ent l osses an d their reversals, if any, are no t measured separately from other changes in fair value. Dividends continue to be recognised in p rofit or loss when the Group’s right to receive p ayments is established except when they repres ent a recove ry of an inve stment rather t han a ret urn on such investm ent. Loans and advan ces to customers. Loans and advances to customers are recorded when the Group advances money to purchase or ori ginate a l oan due from a customer. Based on t he business m odel and the cash flow c haracteristics, the Group classifies loans and advances to customers in to one o f the fo llowing measurement categories: (i) A C: loans that are held for collection of contractual cash flows an d those cash flows represent SPPI and loans that are not vo luntarily d esignated at FVTPL, and (ii) FVTPL: lo ans that do not meet the SPPI test or other criteria for AC are measured at FVTPL. Note 29 pr ovides info rmation about inputs, assum ptions an d esti mati on technique s used in m easuring ECL. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 13 Note 3: Summ ary of significant accounting policies (continued) Loan commitments. The G roup issues comm itments to provide l oans in the course of its bank ing activities. T hese commitments are irrevocable or re vocab le only in r esponse to a materia l ad verse chang e. Su ch co mmitments are initially reco gnised at their fair value, which is n ormally evi denced by the amount of fees received. This amount is amortised on a straight li ne basis over the life of the commi tm ent, except for commitm ents t o originate loans if it is probable that the Group will enter into a specific lending arra ng ement and do es not expect to sell the resultin g loan sh o rt l y a ft er o rig i na ti on; s uc h lo a n c om mi tm en t fe es are def err ed and included in the carrying value of the loan on initial recogn ition. At the end of each repo rting period, the c ommitments are measured at (i) the remaining unamortised balance of the amount at initial recogn ition, plus (ii) the amount of the loss allowance determined b ased on the expecte d credit loss model, unless the comm itment is to provid e a loan at a below market interest rate, in which case the m easurement is at the higher of these t wo amount s. The carrying amount of the loan commitment s represents a liabil i ty. For contracts that include both a loan and an undrawn co mmitment and where th e Group cannot separately distin guish the ECL on t he undrawn loan com ponent from the loan component, the ECL on the undrawn commitment is r ecognised together with the loss allowance for the loan . To the extent that the combin ed ECLs exceed the gr oss carrying amount of the loan, they are r ecognise d as a liability. Financial guarantees. Bank financial guarantees require the Group in the course of it s banking activities to m ake specified payments to reimbu rse the holder of the guarante e for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modifi ed terms of a debt instrument. Financial guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the guar antee. At the end of each repo rting period, the guarantees are measured at the hi gher of (i) the am ount of the loss allo wa nce for the guara nteed exposure determined base d on the expected loss m odel and (i i) the remaining unam ortised bala nce of t he amount at initial recognition. I n addition, an ECL loss allowance is recogni sed for fees receivable that ar e recognised in the statemen t of financial positio n as an asset. Sale a nd repurchase agreements and lending of securities. Sale and repurchase agreements (“repo agreements”), which effectively provide a lender’s return to the counterpart y , are treated as secured financing transactions. Securities sold under such sale and repurchase agreements are n ot derecognised. Securities sold under repo agreements are presented as other financial assets carried at F VTPL, FVOCI, AC. The corresponding liability is presented wit hin amounts “Due to othe r banks and t he Bank of Ru s sia” or “Customer accounts”. Securities pu rchased under agreements to resell (“reverse repo agreements”), which effec tively prov ide a lender’s return to the Group, are recorded as “Due from other banks” or “Banking loans to customers”, as appropriate. The difference between the sale and repurchase price, adjusted by i nterest and dividend income collected by the counterparty, is treated as interest income and accrued over th e life of repo agreements using the effective interest rate method. Notes receivable. Notes receivable a re included in “Other fin ancial assets” and a re c a r r i e d a t A C i f : ( i ) t h e y a r e h e ld for collection of contractual cash flows and those cash flows r epresent SPPI, and (ii) they are not designated at FVTPL. Trade and other receivables. Trade and other receivables are recognise d initially a t fair v alue and are subseque ntly carried at AC using the effecti ve interest rate method. Trade and other payables. Trade payables are accrued when the counterparty performs its obligations under the contract and are recognised initially at fair v alue and subsequ ently carried at AC using the effective interest rate method. D u e t o o t h e r b a n k s a n d t h e B a n k o f R u s s i a . Amounts due to other banks and the Bank of Russia are recorded when money or other assets are advanced to the Group by count er party banks. The non-derivative liability is carried at AC. If the Group purch ases its own debt, th e liability is re m oved from the consolidated statement of financial position and the differe nce between the carrying amount of the liability and the consid eration paid is included in gains or losses arising fr o m retirement of debt. Customer accounts. Customer accounts are non-derivative liabilities to individual s, state or corporate customers and are carried at AC. Subordinated debt. Subordin ated de bt can only be pai d in the eve nt of a liquidati on after the claims of other hig her priority creditors have b een met . Subordinated deb t is carried at AC. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 14 Note 3: Summ ary of significant accounting policies (continued) Debt securities and bonds is sued . Debt securities issued include promissory notes and certificat es of deposit issued by the Gr oup t o its cust omers i n the course of its bank ing acti vities. Bonds issu ed represent securities issued by the Bank that are traded and quoted in the open market. Promissory notes car ry a fixed d ate of repayment. Th ese may be issued against cash depos its or as a payment instrument, whi c h t he c u s t o m e r ca n se ll a t a di s co u nt i n t h e o v er - the-counter market. Debt secur ities and bonds issued are carrie d at AC. I f the Group purchases its own debt, it is removed from the con solidated statement of financial position a nd the difference between the carrying am ount and the amount pai d is recognised as a gain or loss on redem ption o f de bt. Non-current assets classified as held for sale. Non -current assets are classified in the statement of financia l position as “Non-current assets h eld for sale” if their carryin g amount w ill be r ecovered p rincipally thro ugh a s ale transaction within twelve months after the end of the reporting p e r i o d . A s s e t s a r e r e c l a s s i f i e d w h e n a l l o f t h e following conditions are met: (a) the assets are av ailable for immediate sale in their present condition; (b) the Group’s management approved and initiated an active programme t o locate a buyer; (c) the assets are actively marketed for sale at a reasonable price; ( d) the sale is expect ed withi n one year and (e) it is unl ikely that si gnificant changes to the plan to sell w ill be made or that th e plan will be withdrawn. Non-current assets classified as held f or sale in the current period’s statement of financial position ar e not reclassified or re-pre sented in the comparative statement of financial position to reflect the classification a t the end o f the current pe riod. Non-current assets held for sale are m easured at the lower of i ts carrying amount and fair value less costs of disposal. If the fair value less costs of disposal of an asset held for s al e is lower than it s carrying am ount, an im pairment loss is recogn ised in the consolidated statement of profit or loss a nd other comprehensive income as expense. Any subsequent increase in an asset’s fair value less costs of disp osal is recognised to the extent of the cumulative impairme nt loss that was previously rec ognised in rel ation to t hat specific asset. Precious metals. The Group has a practice of tak ing delivery of precious metals a n d s e l l i n g t h e m w i t h i n a s h o r t period aft er delivery, for the p urpose of ge nerating a profit f rom short-te rm fluctuations in price o r dealer’s m argin. Precious metals are carried at pu rchase price from the Bank of Russia and are subsequently measured at fair v alue based on L ondon precious metals exchange. Pr ecious metals are p resented in prepaid expe nses and other curre nt assets line in the statement of consolidated fin ancial position . Inventories . Inventor ies of crude oil, refined oil products, materials and s uppli es, fi nished goods and othe r inventori es are valued at the l ower of cost or net realizable v alue. Net realisable value is the estimated selling price in the ordinary course of busine ss, less the estimated cost of completion an d selling exp enses. The Group u ses the weighted-average-cost method . Costs include bo th direct and ind irect expenditures incu rred in bringing an item or product to its existing conditio n and location. Prepaid expenses. Prepaid expenses include advances for purchases of products and services, insurance fees, prepayments fo r export duties, VA T and other taxes. Prepayments are carri ed at cost less provisi on for im pairment. P r ep a y m e n t s t o a cq u i r e a s s e t s a r e t r a n sf e r r e d t o t h e c a r r y i n g a mount of the asset once the Group h as obtain ed control of the asset and it is probable that future economic benefits a ssociated with the asset will flow to the Group. Prepayments for services such as insurance, transportation and others are written off to profit or loss when t he goods or services relati ng to the prepaym ents are received. If the re i s an indi cati on th at t he as sets , go ods o r ser vice s re lating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corre sponding impairm ent loss is recog nised in the profit or loss for the year. Mineral extraction tax. The base rate of mineral extraction tax (MET) relating to oil produ ction, established for 2021 at RR 919 per ton ne (2020: RR 919 per tonne), ad justed dep ending on the average world market prices of the Urals blend a nd the RR/US $ average exc hange rate. From 1 Januar y 2017 an additi onal coefficient was introduced in to the calcula ting the MET, which increases the amount of tax in 20 21 equal t o RR 428 per tonne (2020: RR 428 p er tonne). Since 2019, additional coeffici ents have been added to the MET calcu lation in connection with the introductio n of a "reverse excise" on crude oil and with a reduction in export custom s duties as part of the com pletion of the tax maneuvere. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 15 Note 3: Summ ary of significant accounting policies (continued) In 2020 for some fields and reserv es, the Group applies coeffic ients that reduce the generally established MET tax rate on the basi s of the Ta x Code of t he Russian Federat ion:  for fields whose depletion ra te exceeds m ore than 80%;  for fields with initial recovera ble reserves less than 5 milli on tons;  for superviscous oil with viscosity in the range from 200 to 10 ,000 Megapascal second (in reservoir conditions);  for superviscous crude o il (with viscosity of 10,000 Megapascal second in reservoir co nditions);  for oil p roduced from domanic pro ductive sedim ents. Start ing fr om 1 Ja nuary 2021 the p referential coefficients for calculating the MET for oil produ ction from depleted subsoil areas were can celed, while the right to transfer to the calculation of the Tax on Additional Income from Hydrocarbon Productio n (AIT) was granted. In addition the tax i ncentives for MET for the extraction of superviscous oil are canceled and the possib ility of establishing special fo rmulas for calcu lating the rates of export du ties in relation to supervisco us oil is excluded. A t the same time, for the pro duction of supervisco us oil in subsoil areas located fu lly or partially within the borders of the Repub lic o f Tatarstan, subject to certain conditio ns, a tax deduction for MET is est ablished, which is applied from 1 January 2021 un til the tax period in which the deduction amount for the first time will be more than RR 36 billion. M E T i s r e c o r d e d w i t h i n t a x e s o t h e r t h a n i n c o m e t a x i n t h e c o n s o lidated statements of profit or loss and other comprehensive income. Tax on additional income from hydrocarbon extraction. AIT is lev ied at the rate of 5 0% on additional income from oil production, calculated as the difference between the e stimated revenue from the sale of hydrocarbons and the actual and estimated costs of its production, including cap ital costs. This tax regime includes MET, but with a reduced rate. T his regime covers depleted oil fields in Republ i c of Tatarstan, as well as the Group's license areas in the Nen ets Autonomous District. AIT is included in tax es other than income tax in the consol idated stateme nts of profit or l oss and ot her comprehens ive income. Reverse excise on crude oil refined a nd negative excise on gaso line and diesel fuel sold on domestic market. In t he consolidat ed st atement of profi t or loss and ot her compr ehe nsive i ncome reverse (“negati ve”) e xcise on cr ude oil refined and negative excise on gasoline and diesel fuel is recognised as a reduction (additional expense, if reverse excise payable) in excise tax expense included in taxes other t han incom e tax (Note 4) and is presented in prepaid expenses and other current assets line in the statement of cons olidated financial position. In fi rs t q ua rt er 20 21 , t he Group signed an agreement with the Ministry of Energy of the Ru ssian Federation on d eveloping new deep oil refining capacities which allows it to receive the investment p remium on reverse (negative) excise on crude oil refined. The investm ent premium for refineri es Kinv is applied in calcu lating the tax deduction for ex cise duty and gives the r ight to taxp ayers who hav e con cluded an inv estment a greement with the Ministry of E nergy of the Russian Federation to reduce the excise tax payable. The investment pre mium is calculated according to the formula specified in the Tax Code of the Russian Federation, takes into account t he excise tax rate for crude oil refined, the regional coefficient and the sh are in t he investm ent agreement financing a nd is include d in in reverse (negative) exci se. Value added tax. Value added tax (VAT) at a standard rate of 20% is payab le on t he difference between output VAT on sales of goods and services an d recoverable input VAT ch arged by suppli ers. Output VAT is charged on the earliest of the dates: either the date of the shipment of g oods (works, services) or the date of advance payment by the buyer. Input VAT can be recovered when purchased goods ( works, ser vices) are accounted for and o ther necessary requirements provided by the tax legislation are met. Where provision h as been made for the ECL of receivables, the im pairment loss is recorde d for the gross amou nt of the de btor, includi ng VAT. Export of goods and renderin g certain services related to expor ted goods are subject to 0% VAT rate upon the submission of confirmation documents to the tax authorities. VAT related t o sales and purchases is r ecognised in t he consoli dated statement of financial position on a gross basis and disclosed separately within Prepaid expenses and o ther current assets and Taxes payable other than income taxes. Oil and gas exploration and development cost. Oil and ga s explorat ion and de velopment activities are accounte d for using the successful efforts method whereby costs of ac quir ing unproved and proved oil an d gas property as well as costs of drilling and equipping productive wells and related produ ction facilities are capitalised. Other exploration expenses, including geologi cal and geophysica l expenses and the costs of carrying and retaining undeveloped properties, are expensed as incurred. The costs of explorat ory wells that find oil and gas reserves are capitalised as exploration and ev aluation assets on a “field by field” basis p ending determ ination of whether proved reserves have been found. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 16 Note 3: Summ ary of significant accounting policies (continued) Exploration and evaluation assets are subject to technical, com mercial and management review as well as review for impairment at least once a year to confirm the continue d in tent to develop or otherwise extract value from the discovery. When indicators of imp airment are pr esent, resulting impairment loss is measured. If subsequently commercial reserves are discovered, the carryin g valu e, less losses from impairment of respective exploration and evaluation assets, is classified as development a s s e t s . H o w e v e r , i f n o c o m m e r c i a l r e s e r v e s a r e discovered, such c osts are expen sed after exploration and evalu ation activities have been com pleted. Property, plant and equipment. Property, plant and equipment are carried at historical cost of acquisition or construction less accumulated depr eciation, depletion, amortiza tion a nd impai rment. Proved oil and gas prop erties include the initial estimate of t he costs o f dismantling and removing the item and restoring t he site on which it is located. The co st of m aintena nce, repairs and replacem ent of m inor items of property are expensed when incurred within operating expenses; renewal s and improvem ents of assets are capitalised and depreciated during the remaining useful life. Cost of replacing major part s or components of property , plant and equipment item s are capitalised and the re placed part is retire d. Advances made o n c onstruction of property, plant and equipment are accounted for within Construction in progress. Non-current assets, including proved oil and gas properties at a field level, are assessed for possible impairment in accordance with IAS 36 Impairment of assets, which requires non -curre nt assets with recorded values that are not expected to b e recov ered through fu ture cash f lows to be writte n down to their recoverable amount which is the higher of fair value less costs of disposal and value-in-use. Individual assets are grouped for impairment purposes at the lo west level for w hich t here are i dentifiable cash flows t h a t a r e l a r g e l y i n d e p e n d e n t o f the cash flows of other groups of assets - generally on a field-by-field basis for exploration and producti on assets, at an entire complex level f or refinin g assets or at a site level for petrol stati ons. Impairme nt losses are recogni sed in the pro fit or loss f or the year. Impairments are reversed as applicable to the extent that the events or circumstances that triggered the original impairme nt have chan ged. The reversal of im pairment wo uld be li mited to the original carrying v alue less depreciation which would ha ve been otherwise char ged had the i m pairm ent not been recor ded. Non-current assets committed by management for disposal within on e y ea r, a nd m eet th e ot he r c ri te ria fo r h el d fo r sale assets, are accounted for at the lower of am ortised cost o r fair value, less cost of disposal. Costs of unproved oil and gas prope rties are evaluat ed periodical ly and any im pairment assessed is charged t o expense. The Group calculates depreciation expense for oil and gas prove d properties using the units-of -production method for each fiel d based upon pro ved develope d oil and gas reserves , e xcept in the case of sig nificant asset com ponents whose useful life differs from the lifet ime of the fiel d, in wh ich case the straight-line method is applied. Oil and gas licenses for exploration of unpr oved reserves a re c apitalised within property, plant and equipment; they are depreciated on the straight -line basis ove r the period o f e ach license validity. Depreciation of all other property, plant and eq uipment is dete rmined on the straight-line method based on estimated useful lives which are as follows: Years Buildings a nd construct ions 30-50 Machinery and equipment 5-35 Gains or losses on disposals of property, plant and equipm ent a re determined by comparing proceeds, if any, with the carrying amount. Gains/(losses) are recorded in impairment losses on property, plant and equipment and other non-financial assets net of reve rsal in the consolidated statem ent of profit or loss and other com prehensive incom e. Leases. At inception of a contract, the Group assesses whet her a contra ct is, o r contains, a lease. A contract is, or contains, a lease if the contr act conveys the right to control the use of an iden tified asset for a period of time in exchange for consi deration. An asset is ident ified by being exp licitly specified in a co ntract, or implicitly specified at the tim e that the asset is made available for use by the cus tomer. The Group does not have the right to use an identified asset if the supplier has the substantive right to s ubstitute th e asset throughout the period of use. To assess whether a contract conveys the right to control the u se of an iden tified asset for a period of time, the Gr oup assessed whether bot h of the following m et:  The Group has the right to obtain substantially all of the econ om ic benefits from use of the identified asset, and  The Group has the right to d irect the use of the identified ass et. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 17 Note 3: Summ ary of significant accounting policies (continued) The Group leases s ervice equipmen t used in oil extraction, land plots, railway tanks and oth er assets. Some of service agreements include lease componen t for a heavy and special vehi cles used in oil production, drilling rigs, pipeline. The lease payments on heavy a nd special vehicles, drilling rigs , pipelines, land plot s and railway tanks com prise of variable payments that are not b ased on an index or rate and th erefore are recognised in profit or loss in the period in which those payments occur. S ervice equipment lease contract s are typically made for fixed periods from 1 to 3 years, but ha ve extensio n options as described below. Leases are recogni sed as a right-of-use asset and a correspondi ng liability at the date at which th e leased asset is available for use by the Group. Each lease payment is allocated b etween the liab ility and finance cost. The finance cost is charged to profit or loss over the lease period so as t o produce a constant periodic rate of interest on the remaining balance of the liability for each period. The r ight-o f-use asset is depreciated over the shorter of the asset’s useful life and the lease term o n a straight-line basis. The es timated useful lives of right-of-use assets are determined on the sam e basis as those of pr operty, plant and equipment. Assets a nd liabilities arising from a lease are initially measu red on a present value basis. Lease liab ilities include the net present value of the lease payments that are not paid at th e commencement date, disco unted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used. Generally, the Group determi nes its incremental borrowing r ate as possible borrowing rate o ffered b y banks for the fund s, necessary to obtain an asset of sim ilar value in a similar econ om ic environment with simil ar terms and cond itions. The right-of-use asset is initially measured at cost, which com prises the amount of the initial measurement of lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received, plus any initial direct costs incurre d and an estim at e of costs to dismant le and remove the underly ing asset or to restore th e underlyi ng as set or th e site on which it is l ocated. The right-of-use asset is periodically reduced by impairment losses, if any, and ad justed for certain remeasureme nts of the lease liability. The term used to measure a liability and an asset in the form o f a right of use is defined as the period during which the Group has su fficient confidence that it will lease the asse t. Any option for renewal or termination is taken into account when estimating the term. Extension options a re included in a number of equipment leases across the Group. The majority of extension options held are exercisable only b y the Group and no t by the respective lessor. The Group considers monetary and non-monetary aspects to determine the le ase term of the contract, such as business plans, past practices and economic incentives to extend or terminate t he contract (the presence of inseparable improvem ents, integration to the production process, potentiall y high con sequential terminatio n costs, etc.) and other factors that may affect managem en t’s judgment on the lease term . Extension optio ns and termination optio ns are only included in the lease term i f the lease is reas onably cert ain to be extended (or not terminated). Potential future cash outflows that h ave not been included in t he lease liability because it is not reasonably certain that the lease agreements will be extended (or not terminated) are not significant. Payments associated with short-t erm leases and leases of low-va lue assets are recogn ised on a straight-line ba sis as an expense in profit or loss. S hort-te rm leases are leases with a lease term of 12 months or less. The Group presen ts right-of-use assets and lease liabilities in the separate lines in the consolidated statement of financial position. Debt. Debt is recognised in itially at fair v alue, net of transaction cost s incurred and is subsequently carried at AC using the effective in terest rate method. Interest income on non-banking activities. Interest income on non-banking activities is recognised on a ti me - proportion basis using the effective interest rate meth od. This method defers, as part of interest income, all fee received between the parties to the contract that are an integr al part of the effective i nterest rate, all other premiums. Fees integral to th e effective interest rate include orig inatio n fees received by the Group re lating to the creation or acquisition of a financial asset or the issuance of a financial liability. For fin ancial assets that are originated or purchased credit-im paired, the effective interest rate is the rate that discounts the expected cash fl ows (including the initial expect ed credit losses) to t he fair value on initial recognition (normally represented by the pu rc hase price). As a result, the effecti ve interest i s cred it-adjus ted. Interest income is calculated by applying the effective interes t rate to the gross carryin g amount of fina ncial assets, except for (i) financial assets that have become credit i mpaire d (Stage 3), for which interest reve nue i s c alculated by applying the effective interest r ate to their AC, net o f the EC L provision , and (ii) fina ncial assets that are purcha sed or originate d credit im paired, fo r which the original credit-adjusted effective interest r ate is applied to the AC. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 18 Note 3: Summ ary of significant accounting policies (continued) Employee benefits, post-employment and other lon g-term benefits . Wages, salaries, contributi ons to the social insurance funds, paid annual leave and sick leave, bonuses, an d non-monetary benefits (such as health services and kindergarten services) a re accrued in the year in which the ass ociated services are rendered by th e employees of the Group. The Group has various pension pl ans coveri ng sub stantial ly all eligible emp loyees and members of management. Th e pension liab ilities are measured at th e present v alue of the estimated future cash outflows using interest rates of government securities, which have the sam e cu rrency and terms to maturity approximating the term s of the related liability. Pension costs are reco g nised using th e projected unit credit method. The cost of providing pensions is accrued and charg ed to staff expense within operating expenses in the Consolidate d Statement of Profi t or Los s and Other C omprehensive Income refl ecting t he cost of bene fits as they are earned over the service lives of employees. Remeasurements of th e net defined benefit liability arising as the actuarial gains or losses from c hanges i n assumptions and from experience adju stments with regard to post emp loyment benefit plans are recognised immediately in other comprehensi ve income. Actuarial gains and losses related to other long-term benefits are recognised immediately in the profit or loss for the year. Past service costs are recognised as an expense for the yea r im mediately. P l a n a s s e t s a r e m e a s u r e d a t f a i r v a l u e a n d a r e s u b j e c t t o c e r t a in limitations. Fair value of plan assets is based on market prices. When no market price is available the fair value of plan assets is estimated by diffe rent valuation techniques, including d iscounted expected future cash flow usin g a discount rate that reflects both the ris k associated with the plan assets and maturity or expected disposal date of these assets. In the normal course of business the Group contributes to the R ussian Federation State Pension Fund o n behalf of its empl oyees. Mandatory c ontributions t o the Fun d are expensed when incur red and are incl uded withi n staff costs in operating expenses. Share-based payments. The Group operates a cash-settled share-based compensation pla n, under which the entity receives services from employees a s consi deration for equity in struments ( options or s hares) of the C оmpany. Services, including employee services received in exchange for cash-settled share-based pa yments, are recognised at the fair value of the liability incurred and are expensed wh en consumed. Until the liability is settled, the Group remeasures the fair valu e of the liability at t he end of each r eporting period and at the date of settlement, with any changes in fair value recognised in pr ofit or loss for the peri od. M arket conditions , such as increase of s hare prices upon which vesting (or exercisability) is condition ed, as well as non-vesting conditions, are taken into account when estimating the fair value of th e cash-settled share-based payme nt grant ed a nd when remeasuri ng t he fai r value at t he end of each reporting period a nd at the date of settlement. Ves ting cond itions, other than market conditio ns, are not taken into acco unt when estim ating the fair val ue of the cash-s ettled share-based payment at the measurement date, however are taken into account by adjusting the number of award s in cluded in the measurement of the liability arising from the transaction. The amount recognised for the se rvices received during t he vest ing peri od is based on the best available estimate of the number of awards that are expected to vest. The Group revis es that estimate, if necessary, if su bsequent information indicates that the nu mber of awards that are expect e d t o v e s t d i f f e r s f r o m p r e v i o u s e s t i m a t e s . O n t h e vesting date, the Group revises the estimate to equa l the numbe r of awards that ultimately vested. The cumulative amount ultimately recognised for services received as considera tion fo r th e cash-settled share-b ased payment is equal to the cash that is paid. The terms of share-based com pen sation plan, initial data, assu mptions and models used in measurement of cash-se ttled sh are-based compensation p l an are presented in Note 19. Decommissioning provisions. The Group recognises a liability for the present value of legal ly required or constructive decommissi oning provisions associat ed with non-cur rent assets in the period in which the retiremen t obligations arise. The Group has numerous asset removal obligat ions that it is required to perform under law or contract once an asset is permanently taken out of service. The Group’s field exploration, development, and production activities include assets r elated to: well bores and related equipment and oper ating sites, gathering and oil processing systems, oil storage facilities and gathering pi pelines. Generally, the Group’s licenses and other operating permits require certain actions to be taken by the Gr oup in the abandonment of th ese operatio ns. Su ch actions includ e well abando nment activities, equipment dismantl ement an d other reclamation activities. The Gro up’s estimates of future abandonment costs consider present regulato ry or license requi rements, as well as actual dismantling and other related costs. These liab ilities are meas ur ed by the Group u sing th e presen t value of the estimated future co sts of decommiss ioning of these assets. Th e discount rate is reviewed at each r eporting date and reflects current market assessments of the time value of money and th e risks specific to the liability. Most of these costs are no t expected to be incurred until sev eral years, or d ecades, in the future and will be funded from general Group reso urces at the tim e of removal. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 19 Note 3: Summ ary of significant accounting policies (continued) The Group capitalises the associat ed decommissioning costs as p art of the carrying amount of the non-curre nt assets. Changes in obligation, reassessed regularly, related to new cir cumstances o r changes in law or technology, or in the estimate d amount o f the oblig ation, or in t he pre-tax di scount rates, are recognised as an i ncrease or decrease of the cost of the relevant asset. If a decrease in the liability exce eds the carrying amount of the asset, the excess shall be recognised immediately in profit or loss. The Group’s petrochemical, refini ng and marketing and distribut ion operations are carried out a t large manufacturing facilities and fuel o utlets. The n ature of these operation s is such that the u ltimate date of decommissioning o f any sites or facilities i s unclear. Current regulatory and licensing rules do not provide for liabilities related to the liquidation of such manuf acturing fa cilities or of retail fuel outlets. Manag ement therefore believes that there are n o leg al or con tractual oblig ations rel ated to decommissioning or other disposal of these assets. Income Taxes. Effecti ve 1 Janua ry 2012, the Company has establ ished the Conso lidated Taxpayer Group which currently includes 5 companies of t h e G r o u p . I n c o m e t a x e s h a v e been provided for in the consolidated financial statements in accord ance with legislation enacted or substantiv ely enacted by the end of the reporting period. The income tax charge c omprises current tax a nd deferre d tax and is recog nised in pro fit or loss for the year, except if it is recognised in other comprehen sive incom e or directly in equi ty because it relates to tran sactions that are also recognised, in t he same or a di fferent period , in other com preh ensive i ncome or directly i n equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses fo r the cu rrent and pri or periods . Deferred income tax is pro vided us ing the balance sheet liabili ty method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabili ties and their carrying amounts for financial reporting purposes. In accord ance with the initial reco gnition exemptio n, defe rred taxe s are no t record ed for t emporar y differences on initial reco gnition of an asset o r a liability i n a transaction other tha n a business combination if the transaction, when initially reco rded, affects neith er accountin g nor ta xable pro fit. Deferre d tax balances are measured at tax rates e nacted or substantively enacted at the e nd of the reporting period, which are expected to apply to the period when th e temporar y differences will reve rse or th e tax loss carry forwa rds will be utilised. Deferred tax assets for deduct ible tem porary diffe rences and ta x los s carr y forwards are recorded only to the extent that it is probable that the t emporary difference will reverse in the future and there is su fficient future taxable profit available against which the deductions can be utilised. Deferred tax balances are measured at tax rates enacted or subs tantively enacted at the end of the reporting pe riod, which are ex pected t o ap ply to the period when t he tem porary di fferences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are nette d only within the Consolidated Taxpayer Group or individual companies o f the Group outside the C onsolidated Tax p ayer Group. Income tax pen alties expense and income tax pen alties payable a re i n c l u d e d i n T ax es ot he r t ha n i nc om e t a x i n t h e consolidated state ment of profit o r loss and other co mprehensiv e income and taxes payable in the consolidate d statement of financial position, r espectively. In come tax inter est expense and payable are included in interest expense in the consolidated statements of pr ofit or loss and ot her comprehensive incom e and other accounts payable and accrued expenses in the c onso lidated statement of fina ncial position, respectiv ely. Share capi tal. Ordina ry s hares an d non- redeemab le preference shares with discr etiona ry di vidends are both classified as equity. Dividends paid to shareholders are determ ined by the Board of directors and approved at the annual or extra ordinary s harehol ders’ meeting. Dividends are re corded as a liability and deducted from equity in the period in w hich they are decl ared and approved. Treasury shares . Common shares of the Company owned by the Group at the reportin g date are designated as treasury shares and are recorded at cost using the weighted-ave rage method. G ains on resale of treasury shares are credited to additional paid-in cap ital wh ereas losses are ch arg ed to addition al p aid-in capital to the ex tent that previous net gains from resale are included therei n or other wis e to retained earni ngs. Earnings per share. Preference shares are not redeemab le and are considered to be p articip ating shares. Basic and diluted earnings per share are calculated by dividing profit or loss attributable to ordinary a nd prefe rence shareholde rs by the wei ghted average n umber of ordi nary a nd pre ferred shares outstanding during the period. Profit or loss attri buted to equity holders is reduced by the amount o f dividen ds declared in the current period for each cl a s s o f s h a re s . T he r e ma i n i n g p r o f it o r l os s i s a l l o ca t e d to o rdinary and preferred shares to the exte nt that each class may share in earnings if all the earnings for the period had be en distributed. Treasury shares are excluded from calculations. The total earnings allocated to each class of sha res are determined by adding together the amount allocated for di vidends and th e amount alloc ated for a parti cip ation feature. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 20 Note 3: Summ ary of significant accounting policies (continued) Revenue from Contracts with Customers. Revenue is income arising in the course of the Group’s ordinary activities. Revenue is recognised in the amount o f transaction price. Transacti on price is the amount o f consideration to which the Group expects to be en titled in exchange for trans ferring control over promised g oods or services to a customer, excl uding the am ounts collect ed on behalf of third pa rties. Revenue is recognised net of discounts, value added taxes. The Group’s business activities include sales of crud e oil and refined p roducts, sal es of tires and pet rochemical raw materials. Revenues are recognised at a point in time when cont rol o ver such products has transferred to a customer, which refers to ab ility to d irect the use of, and obtain substantially all o f the r emaining ben efits f rom th e products. Transfer occurs when the product s have been shipped to the spec ific locat ion, the risks of obsolesce nce and loss have been transferred to the customer, and either the custome r has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the G roup has objective evidence that all criteria for acceptance have been satisfie d. The Group co nsiders indicat ors that custom er has obtai ned contr ol of an asset, which include, but are not li mited to the following: the Group has a present right to payment for the products; th e Group has tr ansferred ph ysical possession of the p roducts; the customer has leg al title to the products; the customer h as the significant risks and rewards of own ership of the products; the customer has accepted the products. Not all of the indicators need to be met for managem ent to conclude that control has transferred and revenue could be reco gnised. Ma nagement uses judgement to determi ne whether factors collectively indicate th at the customer has obtained cont rol. If the contract includes variable consideration, revenue is rec ognise d o nly to the extent that it is highly probable t hat there will be no significant r eversal of su ch revenue. The Group operates a chain of ow n petro l (gas) stations selling refined products. Reve nue from the sale of prod ucts is recognised when a group en tity s e l l s a p r o d u c t t o t h e c u s t o m er. Payment of the transaction price is due immediately when the cust omer purchases the fuel. Since no ri ght of retu rn, no refund liability is recognised. Revenues from pr oviding services are recognised in the perio d i n which the ser vices are rendere d. A receivable is recognised when the goods are de livered as this is the poin t in time that the consideration is unconditional because only the passage of time is required befo re the payment is due. No significant element of financing is deemed present as the sales are made with short-te rm credit term s consistent with market practice. As a consequence, t he Group does not adjust any of the transacti on p rices for the time value of m oney. Recognition of interest, fee and commission income and expense o n ba nking activities . Interest income and expense are recognised on an accrual basis calculated using the effective interest rate method. Th is method d efers, as part of interest income or e xpense, all fees paid or receive d between the pa rties t o the contract that are an integral part of the effective interest r ate, transaction costs an d all other prem iums or disc ounts. Fees i ntegral to t he e ffective interest r ate include originatio n fees received or p aid by the en tity relating to the creation o r acquisition of a fin ancial asset or issuance of a financial liability, for example fees fo r evalu ating creditworthiness, evaluating and recording guarantees or collateral, negotiatin g the terms of th e instrume nt and for processing tra nsaction documents. Commitment fees r eceived by the G roup to originate loans at mar ket interest rates are integral to the effective interest rate if it is probab le that the Gro up will enter into a specifi c lending arrangem ent and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan commitments as financial liabilities at FVTPL. For fin ancial assets that are originated or purchased credit-im paired, the effective interest rate is the rate that discounts the expected cash fl ows (including the initial expect ed credit losses) to t he fair value on initial recognition (normally represented by the pu rc hase price). As a result, the effecti ve interest is credit risk ad justed. Interest income is calculated by applying the effective interes t rate to the gross carryin g amount of fina ncial assets, except for (i) financial assets that have become credit i mpaire d (Stage 3), for which interest reve nue i s c alculated by applying the effective interest r ate to their AC, net o f the EC L provision , and (ii) fina ncial assets that are purcha sed or originate d credit im paired, fo r which the original credit-adjusted effective interest r ate is applied to the AC. Fee and commission income is recognised over time on a straight line basis as the services are rendered, when the customer simultaneously receives a n d c o n s u m e s t h e b e n e f i t s p r o v ided by the Group’s performance. Such income includes recurring fees for accou nt maintenance, account servic ing fees, account subscrip tion fees, premium service package fees, portfolio and other asset management advisory and service fees, wealth management and financial planning servi ces, or fees for s ervicing loans on behalf of t hird partie s, etc. Variable fees are recognised only to the extent that m anagement det ermine s that it is hig hly probable th at a significant reversal will not occur. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 21 Note 3: Summ ary of significant accounting policies (continued) Other fee and commission income is recognised at a point in tim e wh en the Group satisfies its performance obligation, usually upon execution of the underlying transacti o n. The amount of fee or commission received or receivable represents the transac tion price for th e services id entified as distinct performance ob ligations. Such i n c o m e i n c l u d e s f e e s f o r a r r a n g i ng a s ale or purchase of foreig n currencies on b ehalf of a customer, fees for processing payment trans actions, fees for cash settlements, col lection or cash disbursements, as well as, commissions and fees arising f rom negotiating, or participating in the nego tiation of a transactio n for a th ird party, such as the acquisition of loans, shares or o ther securities or the purchas e or sale of businesses. Transportati on expenses. Transportation expenses recognised in the consolidated state men ts of profit or loss and other comprehensive income represent all expenses incurre d by t he Group to transport crude oil and refine d products to end customers (th ey may in clude pipeline tariffs and an y add itional railro ad costs, h andling costs, p ort fees, sea freight and other costs). Compou nding fees are i ncluded i n sell ing, ge neral and adm inistrative expe nses. Government g rants. Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will co mply with all attached conditions. Government grants relating to the purchase of property, plant and equipment are i ncluded in non-curren t liabilities as deferred income and are credited to pro fit or loss on a straight line basis ove r the expected lives o f the related assets. Changes in the presentation o f financial statements . During the year ended 31 Decem ber 2021 the Group changed the presentation of export duties and exci se taxes i n the conso lidated s tatement of profit or loss and other comprehensive incom e. Prior to the change, the Group's revenue wa s presente d net of export duties and excise taxes, including a rev erse (negative) excise tax on crude oil, motor gasoline and diesel fuel. After the change, export duties and excise taxes ar e recorded as expenses: expor t duties on the line "Export duties", excise taxes, including reverse (negative) excise tax on crude oil, gasolin e and diesel fuel, o n the line "Taxes other than income tax" of the consolidated report profit or loss and other comprehensive inco m e. The Group management b elieves that t he change allows to better assess the overall effect o f the tax maneuver and prov ides more r elevant information on how it affects the fin ancial results of the Group. Prior period amount s were adjusted to conf orm to current year presentation. The impact of the pres entat ion change s for the year e nded 31 De cember 2021 the fo llowing: Consolidated stat ement of profit or loss and other comprehensive income Value before change The change Value after ch ange Revenue from sales 1,256,839 +8,541 1,265,380 Taxes other than income tax (528,635) +30,492 (498,1 43) Export duties х (39,033) (39,03 3) The impact of the pres entat ion change s for the year e nded 31 De cember 2020 the fo llowing: Consolidated stat ement of profit or loss and other comprehensive income Value before change The change Value after ch ange Revenue from sales 720,677 +7 5,138 795,815 Taxes other t han incom e tax (185,539) (50,162) (235,701) Export duties х (24,976) (24,97 6) TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 22 Note 4: Critical accou nting estimate s and judgements in applyin g accounting policies The Group makes estimates and assumptions that affect the amoun ts recognised in the consolidated financial statements and the carrying am ounts of assets and liabilities w ithin the next financial year. Estimates and judgements are continually evaluated and are based on management’s experie nce and other factors, including expe ctations of future events t hat are believed to be reasona ble under the circ um stances. Management o f the Group al so makes certa in judgeme nts, apart fr om those in volving est imations, in the process o f applying t he account ing poli cies. Judgem ents that have the most significant effect on the am ounts rec ognised in the consolidated financial statement s and estimates that can cause a significa nt adjustm ent to the carryi ng amount of assets and liabilities within the next financ ial year include:  Estimation of oil and gas res erves;  Useful life of p roperty, plant and equipm ent;  Decommissioni ng provisio ns;  Impairment of property, plant and equi pment;  Accounting of in vestments in JSC “National Non-State Pension Fu nd”;  Sale and purchase of o il under c o ntracts for counter o il delive ries;  Financial assets impairment;  Financial assets classification;  Financial instrum ents fair value estim ation;  Presentation o f excise tax, i ncluding re verse excise and export duties. Estimation of oil and gas reserves. Oil and gas devel opment and production asset s are depreciated o n a unit-of- production (UOP) basis fo r each field o r group of fields wi th s im ilar characteristics at a rate calculated by reference of proved developed reserves. Estimat es of proved reserves are also used in the determi nation of whether impairme nts ha ve ari sen or sho uld be reve rsed. Also, exploratio n drilling costs are capitalised pending the results of further exploration or apprai sal activity, which may take sever al years to complete and before any related proved reserv es can be book ed. Proved reserves are estimated by reference to available geologi cal and engineering d ata and only include volumes for which access to market is assured with reasonable certainty . Estimates of oil and gas reserves are inherently imprecise, require the a pplication of judgment and are subject to regular r evision, either upward or downward, based on new information such as from the drilling of additional well s, observation of long-te rm reservoir performance under producing conditions and changes in economic factors, inc ludi ng product prices, contract terms or development plans. The Group estimates its oil and gas reserves in accordance with rules p romulgated by the Oil and Gas Reserves Committee of the Society of Petro leum Engineer s (SPE) for pr oved r eserves. Changes to the Group’s estimates of proved developed reserves a ffect prospectively the amounts of depreciation, depletion and a mortizati on charged and, c onsequently, the carry ing amounts of oil and gas properties. It is expected, however, that in the normal course of business the diversity of the Group’s portfolio will limit the effect of such revisions. The outcome of, or assessment of plans for, explorat ion or appraisal activity may result in the related capitalised exploration dr illing costs being written off in the profit or loss for the year. Useful life of property, plant and equipment. Based on the term s included in the licenses an d past experience , management believes hydrocarbon pro duction licenses will be ext ended past their current expiration dates at insignificant add itional costs. As a result of the anticip ated license extensions, the assets are depreciated over their useful lives be yond the end of the current license term. Management assesses the useful life of an asset by considering the expected usage, estimated technical obsolescence, residual value, physical wear and tear and the operating enviro nment in which the asset is located. Differences between such estimates and actual results may have a material i mpact on the amount of the carrying values of the property, plant and equipm ent and may result in adjustments to future depreciation rates and expenses for the period. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 23 Note 4: Critical accou nting estimate s and judgements in applyin g accounting policies (con tinued) Management reviews t he appropri ateness of the asset s’ useful ec onomic lives and residual values at the end of each reporting peri od. The revie w is based on t he current condi tion of the asset s, the estimated perio d during which they will continue to bring economic ben efit to the Group and the es timated residual valu e. Decommissioning provisions. Managem ent makes p rovision for the future costs of decomm ission ing o il and gas production facilities, wells, pipelines, and related su pport eq uipment and for site restoration based on the best estimates of future costs and eco nomic lives of th e oil and gas assets. Estimating future decommissioning provisions is c omplex and req uires m anagement to make estimates and judgme nts with respect to remova l obligations that will occur many y ears in the futur e. Changes in the measurement of existing obligations ca n result f rom changes in estimated t im ing, future costs or discount rates used in v aluation. The amount r ecognise d as a provision is the best estimate of th e expend itures required to settle the present obligation at t he report ing date based on current legi slation in eac h ju ri sdiction where the Group‘s operating assets are located, and is also subject to change b ecause of revisions and cha nges in laws and regulations and their interp retation. As a result of the subjectivity of these provision s there is uncerta inty regarding both the am ount and estim ated tim ing of such costs. The results of the sensitivity analysis for changes in discount rate are presen ted in the table below: Impact on decommissioning provision Change in At 31 December 2021 At 31 December 2020 Discount rate 100 bp increase (7,419) (11,931) 100 bp decrease 9,579 15,745 Informat ion about decom missioning provision i s presented i n Not e 12. Impairment of proper ty, plant and equipment. At 31 Ma rch 2020 m anagement assessed whether the re is any indic ation of i mpairment of non-current assets. Based on the results of analysis, a decision was made to test the ass ets for impairm ent. As at 31 December 2020, due to changes in the legislation on mineral extraction tax , as well a s the law "On customs tariff" in terms of the cancellation of a number of benefits, includi ng incentives aimed at stimulat ing the productio n o f superviscous oil, additional testing was carried out for impa irment of assets related to exp lorati on and pr oduction of supervisco us oil. During the year ended 31 December 2021, there are no indicators of impair ment. As of 31 December 2021 impairment estimates were update d for assets received in 2021 a nd related to CGUs for wh ich an impairment loss was previously recog nized as of 31 Decem be r 2020 (Note 12). Accounting of investments in JSC “National Non-St ate Pension Fu nd” As at 31 December 2 021 and 2020 th e Group has 74.46% o f shares of JSC “National Non-Governm ental Pension Fund”. The Group does not exercise either control or significan t influence over JSC “National Non-Government al Pension Fund” based on corporate governance and pension legisla tion. These investments are presented within financial assets carried at FVOC I as at 31 December 2021 and 20 20 (refer to Note 9). Operations for the sale and purchase of oil under contracts for counter oil deliveries. During th e years ended 31 December 2021 and 2020 sales of crude oil under counter-deli very contract s in the amount of RR 221,526 million and RR 90,296 million respectively are presented net in the con solidated statement of profit or loss an d o ther comprehensive income of the Group in accordance with the IFRS 1 5 requirement s for exchange of products of similar quality. Financial assets impairment ECL measurement. Calculation and measurem ent of ECLs is an area o f significant judgement, and im plies methodol ogy, models and data inputs. The following compone nts o f ECL calculation have the major impact on credit loss allowance for ECLs: default d efinition, significant incr ease in cr edit ris k (SIC R), probability of default (PD ), exposure at default (EAD ), loss given default (L GD) , macr omodels and scenario analysis for credit impaired l o a n s . T h e G r o u p r e g u l ar l y r ev i e w s a n d v a l i d a t e s mo d e l s a n d i n p uts to the models to reduce any differences between expected credit loss estim ates a nd actual credit loss experienc e. Refer to Note 29. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 24 Note 4: Critical accou nting estimate s and judgements in applyin g accounting policies (con tinued) Significant increase in credit risk (SICR). In order to determ ine whether there has been a signi ficant inc rease in credit ris k, t he Group compares the risk of a default occ urring o ver t he li fe of a financial i nstrument at the end of the reporting date with the risk of default at the date of initial recognition. The assessment considers relative increase in credit risk rather tha n achie ving a s pecific le vel of credit ri sk at the end of the r eporting period. The Group considers all reasonable and supportable forward looking information avai lable wi thout undue c ost and effort, which i ncludes a range of factors, including b ehavioural aspects of particular c ustomer portfoli os. The Group identifi es behavioural indicators of increases in credit risk pr ior to delinquency and incorporated appr opriate forwar d looking informa tion into the credit risk assessment, either at an individu al instru ment, or on a portfolio l evel. Refer t o Note 29. Financial assets classificatio n Business model assessment. The business model drives classification of financial assets. M anagement applied judgement in determining the level of aggregation and portfolio s of f inancial instruments when performing the business model assessment. When assessing sales transactions, t he Group conside rs their historical frequency, timing and value, reas ons for the sale s and expectations ab out future sales activity. Sales transactions aimed at minimising potential losses due to credit de terior ation are consid ered con sistent with the “hold to collect” business model. Other sales before maturity, no t related to credit risk management ac tivities, are also co nsistent with the “hold to collect” business model, provided that they are infrequent or insignific ant in value, both individu ally an d in aggreg ate. The Group assesses significance of sa les transactions by co mparing the value of the sales to the value of the portfolio subject to the business model assessment over the average life of the portfolio. In addition, sales of financial asset expected only in stress case scenario, or in response to an iso lated event that is beyond the Grou p’s control, is not recurring and could not have been anticipated by the Group, are regarded as incidental to the business model objective and do not im pact the classification of the respectiv e financial assets. The “hold to collect and sell” b usiness model m eans that assets are hel d to collect the cas h flows, but selling is also integral to achieving the busine ss m odel’s o bjective, such as, managi ng li quidity needs, achi eving a particular yield, or matching the duration of the finan cial assets to the duratio n of the liabilities that fund those assets. The residual category includes those portfolios of financial as sets, which are managed with the objective of reali sing cash flows primarily thr ough sale, such as where a pattern of t rading exists. Collecting contractual cash fl ow is often incidental for t his business m odel. Assessment whether cash flows are solely paym ents of principal and interest (“SPPI”). Determining whether a financial asset’ s cash flows are sole ly payments of principal a n d interest re quired judgem ent. The time value of money element may be modified, for example, i f a contractual interest rate is periodically reset but the freque ncy of that reset does not match the tenor of the debt inst rument’s underlying base interest rate, for example a loan pays three m onths interbank r ate but the rate is re se t e v e r y m on t h. T he e f fe c t of th e m od if ie d t im e value of money was assesse d by comparing relevant instrument’s cash flows against a benchmark debt instrument with SPPI cash flo ws, in eac h period and cum ulatively over the life of the instrument. The assessment was done for all reasonably possible scenario s, inclu ding reasonably p ossibl e fi nancial st ress situation t hat can occur i n financial markets. The Group identified and consider ed contractual terms that chan ge the timing or amount of contractual cash flows. The SPPI criterion is met if a loan allows early s ettlement and the prepayment amount substantiall y represents principal and accrue d interest, plus a reasonable additional co mpensation for the early termination of the contract. The asset’s principal is the f air value at initial recogn ition less subse quent pri ncipal repay ments, i.e. instalment s net of interest determined using the effective interest rate method . As an exception to thi s principle, the standard also allows instru ments with prepayment features that meet the follo wing condition to meet SPPI: (i) the asset is originated at a premium or discount, (ii) the prepayment amount represe nts cont ractual am ount and accrued interest and a reasonable additional compensation for the early terminat ion of the contract, and (iii) the fair value o f the prepayment feature is immaterial at in itial recognition. The Group’s loan s, primarily to real estate developers, have ca sh flows that highly depend on performance of the underlying assets. The loans are carried at FVTPL where managem ent determined that such loans are in substance non-reco urse. The instruments that failed th e SPPI test are measured at FVTPL are describe d in Note 8 and 9. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 25 Note 4: Critical accou nting estimate s and judgements in applyin g accounting policies (con tinued) Financial instruments fair value estimation. F i n a n c i a l i n s t r u m e n t s c a r r i e d a t F V T P L o r F V O C I a n d a l l d e r i v a tives are stated at fair v alue. If a quoted market price is available for an instrument, th e fair valu e is calcu lated b ased on the market price. When valuation parameters are not observable in t he mark et or cannot b e deri ved fr om observa ble market prices, the fair value is de rived through analysis of ot her observable market data appro priate for each product and pricing models which use a mathem atical methodology based o n accepted financial theo ries. Pricing models take into account the contract terms of the securities as well as market-based valuati on paramete rs, such as interest rates, volatility, ex change rates and the credit rating o f the co unterparty. Where market-ba sed valuation p aramete rs are missed, management will make a judgmen t as to its best esti mate of that parameter in order to determine a reasonable reflection of how the market would be expecte d to pr ice the instrument, in exercising this judgment, a variety of tools are used including proxy observable data, hist orical data, and extrapolation techniques. The best evidence of fair v alue of a financial instrument at initial recogn ition is the transaction price unless th e instrument is evidenced by comparison with data from observable markets. Any difference between the transaction price and the value base d on a v aluation technique is not recognised in the consolidate d statem ent of profit or loss and othe r comprehensiv e inco me on initial recognition un less the value is based on v aluation techniqu e that uses only data from observable markets. Subseque nt gains or losses are only recognised to the extent that th ey arise from a change in a fac tor that market particip ants wou ld consider in setting a price. Information on fair value of fin ancial instruments where estima te is based on assumptions that do no t u tilize observable market prices i s presented in Note 29. Excises, including reverse (“negative”) excise, and export duti es . For the years ended 31 December 2021 and 2020 excises including reverse (“negative”) excise on cr ude oil refin ed and nega tive e xci se on gasoline and diesel fuel are recognized in the taxes other than incom e tax in the G roup's consolidated statements of profit or loss and other com prehensive incom e (N ote 14). In 2021 several amendment s were made to the reverse (“negative”) excises, including the calculation of negative excise on gasoline a nd di esel fuel and implementation of investm ent premium. In conjunction with change in presentation of excises, as resul t of further tax maneuver developm ent, the Group presented expor t duties as separate fin ancial statement line in Co sts and other d eductions on non-banking activities section of the consolidated statements of profit o r loss and ot her comprehensi ve income. Suc h presentation refl ects d y n a m i c s i n e x p o r t d u t i e s , w h i c h a r e s u b j e c t f o r t h e f u r t h e r e l imin ation in 2024, with resp ective growth in MET, and provides more comprehensive presentati on of the overall tax maneuver effect for the f inancial results of the Group (Not e 3). TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 26 Note 5: Adoptio n of new or rev is ed standards and interpretation s The following amended standards be came effective for the Group from 1 January 2021 or later, but d id not have any material impact on the Group:  Interest rate benchmark (IBO R) reform – phase 2 amendments to I F R S 9 , I A S 3 9 , I F R S 7 , I F R S 4 a n d IFRS 16 (iss ued on 27 August 202 0 and effe ctive for annua l peri ods beginning on or af ter 1 Janu ary 2021).  COVID-19-Relat ed Rent Concessi ons Am endment to IFRS 16 (issued on 31 March 2021 and effective for annual periods beginni ng on or afte r 1 April 202 1). Effect of IBOR reform . Reform and replacement of various inter-bank offered rates (‘IBORs’) has become a priority for regulators. Most IBOR rates would stop being publi shed by 31 December 2021, while certain USD LIBOR rates would stop being published by 30 June 2023. At the reporting date, the Group h as loan agreements with LIBOR and EURIBOR interest rates. Debt is presented in Note 15. As of the date of issue of the consolidated financial statement s, thes e rates hav e not been rev ised and are used to determine the amount of i nterest expense. The followin g other new standar ds and inter pretations are not e xpected to ha ve any materia l im pact on the Group’s consolidated fin ancial statements when adopted :  Sale or Contribution of Assets between an Investor and its Asso ciat e or Joint Ventu re – Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 a nd effective f or annual periods beginning on or after a date to be determined b y the IASB).  Classification o f liabilities as current or non-curren t – Amend m e n t s t o I A S 1 ( is su ed on 23 Ja nu a r y 20 2 0 and effective fo r annual periods beginning o n or after 1 Januar y 2022).  Proceeds before intended use, Onerous contra cts – cost of fulfi lli ng a contra ct, Reference to t he Conceptual Framework – narrow scope amendments to IAS 16, IAS 37 and IFRS 3, and Annual Improvements to IFRSs 2018-202 0 – amendm ents to IFRS 1, IFRS 9, IFRS 16 and IAS 41 (i ssued o n 14 May 2020 and effectiv e for annual periods beginni ng on or afte r 1 January 2022).  IFRS 17 “Insurance Contracts” (issued on 18 May 2017 and ef fect ive for annual periods beginning on or after 1 January 2023). IFRS 17 replaces IFRS 4, which has given c ompanies dispensation to carry on accounting for ins urance cont racts using existing practic es. As a conseque nce, it was difficult for investors to compare and contrast the financial performan ce of otherwise similar insuran ce companies. IFRS 17 is a single principle- based standa rd to account for all types of insurance contracts, including reinsurance contracts that an insurer holds.  Amendments to IFRS 17 and an amendm ent to IFRS 4 (issued on 25 June 2020 and effect ive for annual periods b eginning on or af ter 1 January 2023) . The amendments include a number of clar ifications intended to ease implem entation of IFRS 17, simplify some requirements of t he standard and transition. The amend ments relate to eight areas of IFRS 17, and they are not intended to cha nge t he f undamental principl es o f the standa rd.  Classification of liabilities as c urrent or non-c urrent, deferr al o f effective date – Amendments to IAS 1 (issued on 15 July 202 0 and effective for annual pe riods begin n ing on o r after 1 Ja nuary 2023).  Amendments to IAS 1 and IFRS Practice State ment 2: Disclosure o f Accounting policies (issu ed on 12 February 2021 and eff ective for annual per iods beginning on or after 1 Janu ary 2023).  Amendments to IAS 8: Definition of Accou nting Estimat es (issued on 12 Febru ary 2021 and effective for annual periods beginni ng on or afte r 1 January 2023).  Deferred tax related to assets and liabilities arising from a s ingle transaction – Amendments to IAS 12 (issued on 7 May 2021 a nd effective for a nnual periods beginnin g on or after 1 January 2023).  Transition option to insure rs applying IFRS 17 – Amendments to IFRS 17 (issued on 9 December 2021 and effective fo r annual periods beginning o n or after 1 Januar y 2023). TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 27 Note 6: Cash and cash eq uivalents Cash and cas h equivalents c omprise the f ollowing: At 31 December 2021 At 31 December 2020 Non- banking activity Banking activity Total Non- banking activity Banking activity Total Cash on hand and in banks 26, 925 22,012 48,937 2,686 28,049 30, 735 Term deposits with original maturity of less than three months 10,015 - 10,015 7,242 - 7,242 Due from banks - 7,535 7,535 - 2,128 2,1 28 Total cash and cash equivalent s 36,940 29,547 66,487 9,9 28 30,1 77 40,105 Term deposits with original maturity of less than three months represent deposits placed in banks in the course of non-banking activities. Due from banks represent deposits with original maturities of less than three months placed in the course of ban king activities in banks o ther than those t hat are part of the Group. The fair value and credit quality analysis of cash and cash equivalents is presented in N ote 29. As at 31 Decem ber 2021 financial as sets whic h are s ubject of of fsetting include RR 7,231 million of cash and cash equivalents collateralised by s ecurities, fair value of wh ich i s RR 7,544 million (as at 31 Decem ber 2020: nill) Note 7: Accounts receivable Short-term and long-term accoun ts receivable comprise the follo wing: At 31 December 2021 At 31 December 2020 Short-term accounts receivabl e: Trade receivables 90,348 84,254 Other financial r eceivables 9,138 9,241 Other non-financia l receivables 153 163 Less credit loss allowan ce (10,635) (9,924) Total short-term accoun ts receivable 89,004 83,734 Long-term accounts receivabl e: Trade receivables 579 1,080 Other financial receivables 808 861 Less credit loss allo w ance (469) (457) Total long-ter m accounts re ceivable 918 1,484 Total trade an d other receivables 89,922 85,218 The estimated fair value of shor t-term and long-term accounts r eceivable approximates their carrying value (Note 29). The Grou p app lies th e IFRS 9 sim plified approach to measuring e xpected credit losses which uses a lifetime expected loss allowance for all trade and other receiva bles. The credit loss allowance for tr ade and other receivables is de termined according to provision matrix presented in the table bel ow. The pr ovision m atrix is base d on the number of days t hat an asset is past due, with a distribu tion to portfolios of receivables, homogene ous in terms of credit risk. I n addition to the number of days that an asset is past due, types of p roducts sold, geographical specificity of distribut ional channels and other factors were taken into account. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 28 Note 7: Accounts receivable (continued) Analysis by credit qu ality of trade and ot her receiva bles is as follows: At 31 December 2021 At 31 December 2020 Loss rate Gross carrying amount Lifetime ECL Loss rate Gross carrying amount Lifetime ECL Trade receivables - current 0.485% 84,259 (409) 0. 046% 78,800 (36 ) - less than 90 days overdue 1.19% 1,007 (12) 1.33% 905 (12) - 91 to 1 80 days over due 4.50% 289 (13) 4.44% 135 (6) - over 18 0 days over due 99.74% 5,372 (5,358) 98.43% 5,494 (5,408) Total trade receivables (gross car ryi ng am oun t) 90,927 85,334 Cre dit los s all owa nce (5,792) (5,462) Total trade receivables (carrying amou nt) 85,135 79,872 Other receivables - current 0.153% 4,583 (7) 0. 158% 5,060 (8) - less than 90 days overdue 100% 9 (9) 10 0% 17 (17) - 91 to 1 80 days over due - - - 100% 4 (4) - over 18 0 days over due 98.92% 5,354 (5,296) 97.39% 5,021 (4,890) Total other receivables (gross carrying amount) 9,946 10,102 Credit loss allowance (5,312) (4,919) Total other receivables (carrying amount) 4,6 34 5,183 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 29 Note 7: Accounts receivable (continued) The following table explains the changes in t he credit loss all owance for trade and other receivables under simplified ECL model bet ween the beginni ng and the en d of the annual perio d, ended 31 Decem be r 2021 and 2020: 2021 2020 Trade receivables Other receivables Trade receivables Other receivables Expected credit lo ss allowance at 1 Janu ary (5,462) (4,919) (2,559 ) (7,135) (New originated or purc hase d)/ reve rsed (7) (392) (2,899) 1,449 Other movem ents - - (4) 1 49 Total credit loss allowance c harge in prof it o r los s fo r th e pe riod (7) (392) (2,903 ) 1,598 Write-offs 1 ( 1) - 6 18 Other changes (324) - - - Expected credit loss allowance at 31 December (5,7 92) (5 ,31 2) ( 5, 462 ) (4, 919 ) Analysis by credit qu ality of trade and ot her receiva bles is as follows: At 31 December 2021 At 31 December 2020 Trade receivables Other receivables Trade receivables Other receivables Not past due - International traders o f crude oil, oil products an d petrochem icals 23,946 - 17,676 - - Russian c rude oil and oil product s traders 4 87 - 13,591 - - Russian oi l and petrochem icals refineries 36,617 - 20,855 - - Central and Eastern Euro pe refineries 6 ,877 - 12,308 - - Russian tire dealers and auto motive manufacture rs 3,331 - 5,048 - - Natural monopoly entity 127 - - - - Russian c onstruction c ompanies 263 - 8 - - unrated 12,611 4,583 9,314 5,060 including rel ated parti es 2,452 228 1,373 192 Not past due 84,259 4,583 78,800 5,060 Past due but not indi vidually assessed for credit loss allowan ce - less than 90 days overdu e 1,0 07 9 905 17 - 91 to 180 days ove rdue 289 - 135 4 - over 18 0 days over due - 1 - 82 Total past due but not individually assessed for credi t loss allow ance 1,296 10 1,040 103 Individually assessed for credit loss allowance (gross) - less than 90 days overdue - - - - - 91 to 1 80 days over due - - - - - over 18 0 days over due 5,372 5,353 5,49 4 4,939 Total individually assessed for credit loss allowance 5, 372 5,353 5,494 4,939 Less credit loss allowance (5 ,792 ) (5,312) (5,462) (4,919) Total 85,135 4,634 7 9,872 5,183 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 30 Note 8: Banking: Loans to customers At 31 December 2021 At 31 December 2020 Loans to legal entities 3 7,622 2 7,488 Loans to individu als 1,977 1 ,755 Short term loans to custom ers measured at amortised cost before credit loss allo wance 39,599 29,243 Credit loss allowance (7,257) (8,580) Total short term loans to cust omers measured at amortised cost 32,342 20,663 Short term loans to legal entities measured at fair value throu gh profit or loss - 1,829 Total short term loans to customers 32,342 22,492 At 31 December 2021 At 31 December 2020 Loans to legal entities 5 1,653 37,986 Loans to individu als 54,939 4 5,607 Long term loans to customers measured at amor tised cost before credit loss allo wance 106,592 83,593 Credit loss allowance (4,232) (4,645) Total long term loa ns to customers measured at amortised cost 10 2,360 78,948 Long term loans to legal entities measured at fair value throug h profit or loss - 215 Total long t erm loans to custo mers 102,360 79,163 As a t 31 December 2021 and 2020 the Bank ZENIT gr anted lo ans to 1 7 and 13 customers to talling RR 54,85 2 million and RR 37 ,808 million respectiv ely, which individually exceeded 5% of the Bank ZE NIT equity. As at 31 December 2020 th e Group holds a portfolio of loans to customers that does not m eet the SPPI requirem ent for measured at amortised cost classification under IFRS 9. Dom inant features that failed SPPI test were the following: the amount o f net ope rating cash flows accordi ng t o business-plan is not sufficient to fully repay of loans within the period specified in loan contract; the time value o f money is not compensated to the Group, interest payments will be perform ed in th e end of loan co ntract; amount of collateral is not suffici ent for re payment of loan. As a result, these loans wer e measured at fair value through pr ofit or loss from the dat e of initial recognition. Loans to customers measured at fair value throug h profit or los s are measured taking into account the credit risk. The carrying amount presented in the consolidated statement of financial positio n best r epresents the Group's max imu m ex po sur e t o cr ed it r isk a rising from loans to customers . The fair value of loans to customers, including a breakdown by f a i r v a l u e h i e r a r c h y l e v e l , i s d i s c l o s e d i n N o t e 2 9 . Information on rel ated party balances is disclosed i n Note 25. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 31 Note 8: Banking: Loans to customers (continued) Movements in the credit lo ss allo wance durin g the year ended at 31 December 2021 are as follows: Loans to le g al entities Loans to individuals Total Credit loss allowance as at 1 Januar y 2021 (9,427) (3,798) (13 ,225) Net reversal of provision/(p rovision) for credit loss allowance during the peri od 592 (49) 543 Reclassification to the c redit loss allowance for other lon g-term loans 298 - 298 Other ch anges 678 217 895 Credit loss allowance as at 31 December 20 21 (7,859) (3,630) ( 11,489) Movements in the credit lo ss allo wance durin g the year ended at 31 December 2020 are as follows: Loans to le g al entities Loans to individuals Total Credit loss allowance as at 1 Januar y 2020 (7,791) (2,687) ( 10,478) Net provisio n for credit loss allowance du ring the period (2,507) (1,122) (3,629) Reclassification to the c redit loss allowance for other lon g-term loans 645 - 645 Other chan ges 226 11 237 Credit loss allowance as at 31 December 20 20 (9,427) (3,798) (13 ,225) Risk concentra tions by cust omer industry within the cust omer lo an port folio are as follows: At 31 December 2021 At 31 December 2020 Gross book value Share in customer loan portfolio, % Gross book value Share in customer loan portfolio, % Trade 15,314 10.48 % 9,092 7 .91% Manufacturing 41,788 28.58% 2 4,287 21.14% Constructi on 1,537 1.05% 4,984 4.34% Services 12,925 8.84% 11,361 9 .89% Food 572 0.39% 508 0.44% Finance 8,311 5.69% 3,638 3.17% Agricultu re 2,310 1.58% 1,008 0.88% Oil and gas 4,463 3.05% 5,415 4.71% Individuals, includ ing: 56,916 38.93% 47,362 41.23% mortgage loans 27, 660 18.92% 23,939 20.84% consumer loans 15, 920 10.89% 13,207 11.50% car loans 12,844 8.79% 9,667 8.41% plastic cards overdrafts 452 0.31% 504 0.44% other 40 0.02% 45 0 .04% Other 2,055 1.41% 7,225 6.29% Total loans to custo mers before credit loss allowance 146,191 100% 114,880 100% TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 32 Note 9: Other financial assets Other short-term financial assets comprise the following: At 31 December 2021 A t 31 December 2020 Non-banking activity Banking activity Total Non- banking activity Banking activity Total Financial a ssets meas ured at am ortised cost Other loans (net of cred it loss allowance o f RR 3,515 million and of RR 3,6 67 million as at 31 December 2021 and 31 December 2020 respectiv ely) 820 - 820 5,946 - 5,946 Bank deposits (net of cr edit loss allowance RR 5,547 million as at 31 December 2021 and 31 December 2020 respectively) 56,492 - 56,492 10,000 - 10,000 Due from banks - 2,472 2,472 - 2 ,391 2,391 REPO with banks - - - - 1,551 1,551 Securities held by the Group (net of credit loss allowance of RR 8 million and of RR 27 million as a t 31 December 2021 and 31 December 2020 r espectively): - 3,993 3,993 3,091 6,486 9 ,577 Russian government and municipal debt securities - 12 12 - 12 12 Corporate debt securities - 3,981 3,981 3,091 6,474 9,565 Securities pledged under sale and repurchase agreements (net of credit loss allowance of RR 9 million as at 31 December 2021 and 31 Decem ber 2020 respectively) : - 4,560 4,560 - 4,517 4,517 Corporate debt securities - 4,560 4,560 - 4,517 4,517 Tot al 57,312 11,025 68,337 19,037 14,945 33,982 Financial a ssets meas ured at fai r value through profit or loss Bank deposits 33,465 - 33,465 - - - Securities held by t he Group: - 4,090 4,090 - 5,744 5,744 Russian government and municipal debt securities - 1,160 1,160 - 1,518 1,518 Corporate debt securities - 2,546 2,546 - 3,995 3,995 Derivatives - 384 384 - 231 231 Securities pledged under sale and repurchase agreements: - 319 319 - 17 17 Russian government and municipal debt securities - - - - 17 17 Corporate debt securities - 319 319 - - - Tot al 33,465 4,409 37,874 - 5,761 5,761 Financial a ssets meas ured at fai r value through other comprehensive income Securities held by the Gr oup: 897 948 1,845 848 593 1,441 Russian government and municipal debt securities 171 44 215 192 35 227 Corporate debt securities 448 884 1,332 454 558 1,012 Corporate shares 278 - 278 202 - 202 Foreign country’s debt securities - 20 20 - - - Securities pledged under sale and repurchase agreements: - 106 106 - 3,130 3,130 Russian government and municipal debt securities - 96 96 - 959 959 Corporate debt securities - 10 10 - 2,171 2,171 Total 897 1,054 1,951 848 3,723 4,571 Total short-term financial asse ts 91,674 16,488 108,162 19,885 24,429 44,314 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 33 Note 9: Other financial assets (c ontinued) Other long-term financial assets comprise the following: At 31 December 2021 A t 31 December 2020 Non- banking activity Banking activity Total Non- banking activity Banking activity Total Financial a ssets meas ured at am ortised co st Loans to employees (net of credit loss allowance of RR 1,776 million and of RR 1,717 million as at 31 December 2021 and 31 December 2020 respectively) 940 - 940 981 - 981 Other loans (net of cred it loss allowance o f RR 19,938 million and of RR 20,896 m illion as at 31 December 2021 and 31 December 2020 respectively) 1,463 - 1,463 2,618 - 2,618 Due from banks - 2,943 2,943 - - - Securities held by the G roup (net of credit loss allowance of RR 16 m illion and of RR 92 million as at 31 December 2021 and 31 December 2020): - 8,917 8,917 - 19,814 19,814 Russian government and municipal debt securities - 1,252 1,252 - 1,272 1,272 Corporate debt securities - 7,665 7,665 - 18,542 18,542 Securities pledged unde r resale agreements (net of credit los s allo wance of RR 26 million as at 31 December 2021) - 8,818 8,818 - - - Corporate debt securities - 8,818 8,818 - - - Tot al 2,403 20,678 23,081 3,599 19,814 23,413 Financial a ssets meas ured at fai r value through profit or loss Other loans 4,251 - 4,251 5,079 - 5,079 Securities held by the Group: - 159 159 - 342 342 Corporate debt securities - 139 139 - 245 245 Corporate share - 20 20 - 97 97 Tot al 4,251 159 4,410 5,079 342 5,421 Financial a ssets meas ured at fai r value through other comprehensive income Securities held by the Group: 23,429 25,767 49,196 23,550 18,221 41,771 Russian government and municipal debt securities - 11,013 11,013 - 11,627 11,627 Corporate shares 11,361 1,968 13,329 10,570 1,830 12,400 Corporate debt securities - 12,113 12,113 - 4,764 4,764 Foreign country’s debt securities - 673 673 Investment fund units 12,068 - 12,068 12,980 - 12,980 Securities pledged under resale agreements - 4,397 4,397 - - - Russian government and municipal debt securities - 3,764 3,764 - - - Corporate debt securities - 633 633 - - - Total 23,429 30,164 53,593 23,550 18,221 41,771 Total long-term financial assets 30,083 51,001 81,084 32,228 38,377 70,605 The fair value of financial ass e ts and valuation techniques use d are discl osed in Note 2 9. The Group holds a portfolio of other long-term loans that does not meet the SPPI requirement for measured at amortised cost classification under IFRS 9. Dominant features t hat failed SPPI test were the following: the amount of net operating cash flows according to business-plan is not s ufficient to fully repay of loans with in the period specified in loan contract; the time value of money is not comp ensated to the Group, interest payments will be performed in the e nd of loan cont ract; am ount of col lateral is not sufficient for repayment of loan . As a result, th ese other long-term lo ans were measured at fair v alue through profi t or loss from the date of initial recognition. Other lon g-term l oans measured at fair value through pr ofit or loss are m easured taking i nto account the credit risk. The carrying amount presented in the consolidated statement of financial po sition best represents the Group's maximum exposure to credit risk arisin g from ot her loans. Deposits measured at fair value t h rough profit or loss represen t prepaym ents under foreign excha nge forward contracts wit h a Russian com mercial bank. The term s of the co nt racts include exposure to cash flows and volatility that are not consistent with the terms of the unde rlying loa n a greement. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 34 Note 9: Other financial assets (c ontinued) For the year ended 31 December 2021 the Group r ec ognised f air v alue g ains on financial assets from non-banking activities measured at fair value through profit or los s, net in the amount of RR 3,382 million. For the year ended 31 December 2020 t he Group recognised fair value losses on fi n ancial assets f rom non-bank ing activities measured at fair value t hrough profit or loss, net in t he amount o f RR 5,180 million. Corporate bond s consist of Russian Rub le and US Do llar denominated bonds and Eurobonds issued by Russian banks and comp anies, as well as by foreign co mpanies. Federal loan bon ds consist of Russian Rubl e denomi nated governm ent securities issu ed by the Min istry of Finance of the Russian Federation, which are comm only referred t o as “O FZ” and Russian Federation E urobonds. Municipal bonds consist of Russian Ruble denominated b onds issu ed by regional and municip al authorities of the Russian Federation. Foreign government deb t securitie s consist of US Dollar denomin ated bonds. Corporate shar es measured at fair value include quoted and unqu oted shares of R ussian c ompanies and ba nks. As at 31 Decem ber 2021 and 31 December 2020 unquoted secu rities measu red at fair value through other com prehensive income incl ude investm ent in AK BAR S Bank ordi nary shares (17.2 4%) in the amount o f RR 7,300 m illion. Investment fund units are solely presented with investm ent in c losed mutual investment rental fund AK BARS – Gorizont (45.45% of the total amount a shares). The main assets of th is fund are th e land plots located in Tatarstan Republic. The Group does not exercise significant influence ove r this investment and therefore accounts for it as a financial asset measured at fair valu e through other comprehens ive income. In 2021 the Group recognised an expected credit losses on finan cial assets net of recovery in the amount of RR 78 million (in 2020 amount of RR 756 mil lion). These lo ss co nsists an allowance for expected credit losses on receivables in the amount of RR 39 9 m illion (in 2020 amount of RR 1,305 million) , an impairment loss o n other financial assets in the amount of RR 13 million (in 2020 amount of RR 310 million), less income from reversal of impairment on loans issue d in the am ount of RR 334 million (in 2020 am ount of RR 859 mill ion). The following tables d isclose th e changes in the credit loss al lowance and gross carryi ng amount for other loans measured at amortised cost. Credit loss allowance Gross carrying amount Stage 1 (12- months ECL) Stage 2 (lifetim e ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) Total Stage 1 (12- months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) Total Other loans At 31 December 2020 - (92) (24,471) (24,563) 73 1,315 31,739 33,127 Movements with impact on credit loss allowance charge for 2021: Net remeasurement of credit loss allowance within the same stage - - (65) (65) - - - - Loans repaid or derecognised (excluding write-offs) - - 452 452 - (122) (6,714) (6,836) New originated or purchased - - (53) (53) - 270 328 598 Total movements w ith impact on cre dit loss allowance charge for 2021 - - 334 334 - 148 (6,386) (6,238) Movements without impact on credit loss allowance charge for 2021: Write-off - - 1,160 1,160 - - (1,160) (1,160) Reclassification from loans to customers - - (298) (298) - - 298 298 Other changes - - (86) (86) (73) 11 (229) (291) At 31 December 2021 - (92) (23,361) (23,453) - 1,474 24,262 25, 736 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 35 Note 9: Other financial assets (c ontinued) In Decem ber 2018 the Group entered into a t ransaction to acquir e from a num ber o f Russi an government -controlled banks their rights of claim unde r the credit facilities with NE FIS Group. Total rights in the amount of RR 5,355 million were account ed as other loans in other short-te rm finan cial assets carried at amortised cost at 31 December 2020. These claims wer e fully repai d in the second quarter of 2 021. Credit loss allowance Gross carrying amount Stage 1 (12- months ECL) Stage 2 (lifetim e ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) Total Stage 1 (12- months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) Total Other loans At 31 December 2019 - (241 ) (25,76 6) (26,007) 73 1,531 45,911 47,515 Movements with impact on credit loss allowance charge for 2020: Transfers: - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - 149 (149) - - (208) 208 - Net remeasurement of credit loss allowance within the same stage - - (106 ) (106) - - - - Loans repaid or derecognised (excluding write-offs) - - 1, 046 1,046 - (46) (20,713) (20,759) New originated or purcha sed - - (81) (81) - 38 873 911 Total movements w ith impact on cre dit loss allowance charge for 2020 - 149 710 859 - (216) (19,632) (19,84 8) Movements without impact on credit loss allowance charge for 2020: Write-off - - 1,171 1,171 - - (1,224) (1,224) Reclassification from loans to customers and accounts receivable - - (645) ( 645) - - 6,655 6,655 Other changes - - 59 59 - - 29 29 At 31 December 2020 - (92) (24,471) (24,563) 73 1,315 31,739 33 ,127 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 36 Note 10: Inve ntories At 31 December 2021 At 31 December 2020 Materials and supplies 22,384 15,361 Crude oil 20,748 5,597 Refined oil prod ucts 2 1,973 14,370 Supplies an d finished pr oducts of tires business 9,942 7,226 Other fi nished pro ducts and g oods 6,015 2,434 Total inventories 81,062 4 4,988 Note 11: Prepa id expe nses a nd other current assets Prepaid expenses and other current assets are as follows: At 31 December 2021 At 31 December 2020 Prepaid ex port dutie s 1,754 1,807 VAT recoverab le 7,277 4,117 Advances 8,807 5,977 Prepaid trans portatio n expenses 2,495 2,367 Excise 10,891 697 Other 1,054 5,110 Prepaid expenses and other current assets 32,278 20,075 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 37 Note 12: Property, pl ant and equipment Oil and gas properties Buildings and constructions Machinery and equipment Construc- tion in progress Total Cost As at 31 December 2 019 450,768 268,59 8 206,532 190,266 1,116, 164 Additions - - - 105,087 105,087 Disposals (453) ( 649) (1,664) (1,678) ( 4,444) Changes in Group structure - 2 13 - - 213 Transfers 22,824 26,194 15,241 (64 ,259) - Changes in decom missioning provision 973 - - - 973 As at 31 December 2 020 474,112 294,356 2 20,109 229,416 1 ,21 7,993 Depreciation, depletion and amortisation, impairment As at 31 December 2 019 189,560 53,706 79,610 24,391 347,267 Depreciation ch arge 19,647 7,919 11,645 - 39,211 Impairm ent 1,364 1,572 1,325 2,610 6,871 Disposals (361) (428) (1,136) - (1,925) Transfers 38 1, 193 (1,231) - - As at 31 December 2 020 210,248 63,962 90,213 27,001 391,424 Net book val ue As at 31 December 2 019 261,208 214,892 126,922 165,875 768,897 As at 31 December 2 020 263,864 230,394 129,896 202,415 826,569 Cost As at 31 December 2 020 474,112 294,356 2 20,109 229,416 1 ,21 7,993 Additions - - - 120,151 120,151 Disposals (662) ( 2,448) (3,646) (2,696) ( 9,452) Changes in Group struct ure (Note 28) - 2,016 1,788 169 3,973 Transfers 6,087 4 5,695 30,568 (82,350) - Changes in decom missioning provision (20,198) - - - (20,198) As at 31 December 2 021 459,339 339,61 9 248,819 264,690 1,312, 467 Depreciation, depletion and amortisation, impairment As at 31 December 2 020 210,248 63,962 90,213 27,001 391,424 Depreciation ch arge 21,038 8,593 12,158 - 41,789 Impairm ent 327 - - 2,466 2,793 Disposals (328) (382) (2,611) - (3,321) Transfers (2,837) 3,051 (214) - - As at 31 December 2 021 228,448 75,224 99,546 29,467 432,685 Net book val ue As at 31 December 2 020 263,864 230,394 129,896 202,415 826,569 As at 31 December 2 021 230,891 264,395 149,273 235,223 879,782 Additions for years 2021 and 20 20 years include con struction of TANECO refinery complex, wells, oil fields facilities and development of tires busin ess. Within constructio n in progres s there are advances for con struc tion of RR 21,794 million and RR 25,531 million at 31 December 2021 and 2 020, respectively. As stated in No te 3, the Group calculates depr eciation, depleti on and amortization for oil and gas properties using the units- of-producti on method over pro ved develo ped oil and ga s reserv es. The prove d develope d reserves used in the units-of-pr oduction method assume the extension of the Grou p’s production license beyond their current expiration dates until the en d of the economic lives o f the fie lds as discussed below in further detail. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 38 Note 12: Property, plant a nd equipment (continued ) The Grou p’s oil and ga s fields are locat ed princi pally on the t erritory of Tatarstan. The Group obtains licenses from the governmental autho rities to explore and produce o il and gas from these fields. The Gr oup’s existing prod uction licenses for its major fields expire, after their recent extens ion, between 2038 and 2090, with other productio n licenses expiring between 2023 and 2109. The economic lives of several of the Group’s licensed fields extend beyond the da tes of licenses expiration. Under Russian law, th e Group is entitled to renew t he licen ses to the end of the economic lives of the fields, provid ed certain conditio ns a re met. Company management is reasonably certain that the Group will be allowe d to produce oil from the Group’s reserves after the expiration of existi ng produ ction licenses and until the end of the economic lives of the fields. Changes in the net book value of exploratio n and evaluatio n ass ets are presented below: At 1 Ja nuary 2 020 2,094 Additions 2,671 Charged to expens e (978) At 31 December 2020 3,787 Additions 1,679 Reclassification to development assets (1) Charged to expens e (2,291) At 31 December 2021 3,174 For the year ended 31 December 2 021 the Group recognised an imp airm ent of the asset additions of the period for those CGU s, for which an impairm ent lo ss was previously recogni sed as at 31 December 2020:  assets used in the producti on of tire products of the Tires bus iness segment in the amount of RR 290 million;  exploration and evaluation assets related to the oilfields loca ted outside the Repub lic of Tatarstan in the amount of RR 2, 727 m illion;  other assets in the amount of RR 9 million. In addition, for th e year ende d 31 Decem ber 2021 the Group reversed a pre viously reco gnized im pairment loss in the amount of RUB 233 million. As at 31 December 2021 impairment testing for super viscous oil production assets for which an impairment loss was previously recognised as at 31 December 2020 was updated du e to increase in the discount rate caused by an increase in the cost of borrowing and adoption of legislati ve a cts clarifying th e application of certain nor ms o f the mineral extraction tax law after cancelling the ince ntive benef its for production of super visco us oil. Key assumptions applied to the calculation of value in use are follows: • oil prices and US dollar / Russian ruble exchange rates are b ased on available forecasts from globally recognized research institutions ; • estimate d production volum es were based on detailed inform ati on for the produ ction plan s approv ed by management as part of the l ong-term strat egy, consideri ng the e st imates of proved oil reserves. The discount rate calculated based on the Company ’s weighted av erage cost o f capital adju sted for asset specific risks. The Group applied the nom inal pre-tax discount rate equa l to 21. 35 %. The following Brent price assum ptions have been used: $7 7.1 per barrel in 2022, $70.7 per barrel in 2 023, $68.6 per ba rrel in 2024, $66.8 per barr el in 2025 and $67.4 per barrel in 202 6 with furthe r growth in s ubsequent ye ars according t o forecasts. The recovera ble amounts of oil fields in the amount of RR 73,91 9 million less unwinding of the discount corresponds to the carrying value of the assets. A reasonably justified cha nge in key assumptions, taken into account by management for the purpo se of preparin g models as at t he report ing date, does not necessita te the recognition of an additional impairment other than the above. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 39 Note 12: Property, plant a nd equipment (continued ) Due to indications of possible impairment as at 31 March 2020 t he Grou p conducted impairment testing for the m ain groups of assets. As of 3 1 December 2020, estimat es have been u pdated for the assets associated with the pro duction of super viscous oil. According to the accounting policy, indiv idual assets were groupe d for im pairment purposes to the cash g enerating units at the lowest level for wh ich there a re identifiable cash flows th at are largely inde pendent of the cash flows of other g roups of asset. For the year ended 31 December 2020 the Group recognised an impairment of the follo wing assets:  assets used in the production of tire products of the Tires bus iness segment in the amount of RR 3,976 milli on;  exploration ass ets related to t he superviscous oil fields, in t he amounts of RR 1,364 m illion;  exploration and evaluation assets related to the oilfields loca ted outside the Repub lic of Tatarstan in the amount of RR 97 8 milli on;  other a ssets, inc luding s ocial assets, in the total amount of RR 553 million, whic h are not pro viding future economic benefits. An impairment loss is included in the corresponding line of th e consolidated statement of profit or loss and o ther comprehensive income. Social assets . During the years ended 31 Decem ber 2021 and 2020 the Group tr a n s f e r r e d s o c i a l a s s e t s w i t h a n e t book value of RR 363 million and RR 34 million, r espectively, t o social institutions. At 31 December 2021 a nd 2020 the Group hel d social assets wi th a net book val ue of RR 4,07 5 milli on and RR 5, 148 mil lion, respectiv ely. The social assets comprise mainl y dormitories, hotels, gym s and other facilities. The Group may transfer so me of these so cial assets to local authorities in the future, bu t doe s n ot e x p ec t t h e s e t o b e s i gn i f i ca n t. F o r t h e y e a r e n de d 31 December 2021 and 2020 the Gro up incurred social infrastruct ure expenses of RR 12,767 and RR 10,856 million respectively (including an im pairment loss on costs of construc tion and acquisition of social assets not providing future econom ic benefits, in th e amount of RR 2,545 million and RR 2,298 million respectively). In 2021 the Group r ecognised an impair ment losses and losses on disposal on pro perty, plant and equipment and other non-financial assets net of reversal in the amount of RR 3,576 millio n (in 2020 in the amount of RR 6,677 million). These losses consist of impairment losses o n property , plant and equipment less recoveries in the amount of RR 2,793 million (in 2020 in the amount of RR 6,871 million) , income from reversal of impai rment on other long-term assets in the amount of R R 111 milli on (in 2020 in th e amount of RR 1,058 million), income from reversal of impairment of inventories in the amount of RR 74 million (in 2020 loss in the amount of RR 88 million) and losses on disposal of pro perty, plant and equipment in the amou nt of RR 9 68 milli on (in 2020 i n the amount of RR 776 mi llion). Decommissioning provisions The followin g table summ arizes changes in t he Group’s dec ommiss ioni ng provision for the year: 2021 2020 Balance at the beginning of period 55,373 50,474 Unwinding of discount 3,582 3 ,377 New obligations 222 2,0 77 Expenses on cu rrent obligatio ns (8) (30 ) Changes in estimates (20,459) (525) Balance at the end of period 38,710 55,373 Less: current portion of decommi ssioning provi sions (Note 1 6) ( 57) ( 1) Long-term balance at the end of pe riod 38,653 55,372 In 2021 and 2020 the Group recorded the change in estimate for oil and gas prope rties de commissioni ng due to th e changes in disco unt rate and est imated future costs of decommis sionin g. Key assumpt ions used for e valuation o f decommissi oning provisi o n were as follows: At 31 December 2021 At 31 December 2020 Discount rate 8.47% 6.46% Discount rate for supervi scous oil 8.39% 5.92% Long-term inflation rate 4.00% 4.00% TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 40 Note 13: Right-of-use assets and lease liabilities Right-of-use assets comprise the following : Service e q ui p ment Other assets Total As at 31 December 2019 10,759 2,899 13,658 Additions 526 613 1,139 Disposals (2) (365 ) ( 367) De p reciation (1,516) ( 619) (2,135) Revaluation a nd modificat ion (53) (57) (110 ) As at 31 December 2020 9,714 2,471 12,185 Service e q ui p ment Other assets Total As at 31 December 2020 9,714 2,471 12,185 Additions 331 689 1,020 Disposals (4) (546 ) ( 550) De p reciation (1,407) ( 326) (1,733) Revaluation a nd modificat ion 568 407 975 As at 31 December 2021 9,202 2,695 11,897 The reconciliation between undis counted lease liabilities and t heir present value present ed in the tabl e below: At 31 December 2021 At 31 December 2020 Lease liabilities Less than one year 2,992 2,891 Between one a nd five years 8,916 8,482 More than fi ve years 8, 621 9,738 Total undiscounted lease liabilities 20,529 21,111 Effect of discounting (7,367) (7,892) Lease liabilities 13,162 13,219 Of which are: Current lease liabilities, presented in Accounts payab le and ac cru ed liabilities (Note 16) 2,838 2,540 Non-current lease liabilities 10,324 10,679 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 41 Note 14: T axes Presented b elow is reco nciliation b etween the provision for in come taxes and taxes determined by ap plying the statutory ta x rate 20% to in come before income taxes: Year ended 31 December 2021 Year ended 31 December 2020 Profit bef ore incom e tax 257,306 137,045 Theoretical income tax expense at statutory rate (51,461) (27,4 09) (Increase)/decrease due to: Non-deductible expenses, net (6,520) (6,160 ) Income t ax withheld at so urce on divide nds for treas ury shares (440 ) (907) Other 1 4 Income tax expense (58,420) (34,472) At 31 December 2021 no deferred tax liabilities have been recog nised for taxable temporary differences of RR 45,537 million (2020: RR 44,529 million) on undistributed ea rnings of certain subsidiaries. These earnings have been and will continue to be reinv ested. These earnings, except for undistributed ear nings of subsi diaries o perating in a tax free jurisdicti ons, could become subject to additional tax of approximately RR 2 ,839 million (2020: RR 2,792 million) if they were remit ted as dividends. Deferred income taxes reflect the impact of temporary differenc es between the amount of assets and liabilities recognised for financial report ing purposes and such amounts re cognised for statutory tax purposes. Deferred tax assets (liabilities) are comprised of the following: At 31 December 2021 At 31 December 2020 Tax loss carry for ward 3 ,899 3 ,202 Decommissioning pr ovision 8 ,469 7 ,808 Prepaid expens es and other cu rrent assets 175 195 Long-term loans and certifica t es of deposits 1,411 1,343 Long-term investments 444 457 Other 249 234 Deferred income tax assets 14,647 13,239 Property, plant and equi pment (46,612) (43,131) Inventorie s (3,688) (1,070) Prepaid exp enses and other cur rent assets (2,007) (163) Long-term debt (1,429) - Other liabilities (651) - Deferred income tax liabilities (54,387) (44,364) Net deferred tax liabilit y (39,740) ( 31,125) Deferred income taxes are reflected in the consolidated statem e nt of financial position as follows: At 31 December 2021 At 31 December 2020 Deferred i ncome tax asset 3,333 2,218 Deferred income tax liability (43,073) (33,343) Net deferred tax liabilit y (39,740) ( 31,125) Tax losses carry forward . At 31 December 2021, the Group had recognised deferred income t ax assets of RR 3,899 million (RR 3,202 million at 3 1 December 2020) in respect of un used tax loss carry forwa rds of RR 19,495 million (RR 16,010 million at 31 Dece mber 202 0). Starting from 1 Januar y 2017 the amendm ents to the Russian tax legislation became effective in respect of tax loss carry forwa r d s . T h e a m e n d m e n t s a f f e c t t a x l o s s e s i n c u r r e d a n d accumulated since 2007 that have not been utilised. The ten yea r expiry period for tax loss carry-forwar ds no longer applies. The amendments als o set limitation on utilisation of tax loss carry forwards that will apply during the period from 2017 t o 2021. T he amount of losses that can be utilised ea ch y e ar du r in g t h at p e r i o d is l i mi te d t o 5 0% o f a n nu al taxable profit. In determining future taxable profits and the a mount of tax benefits that are probabl e in the future manageme nt makes judgments including expectations regarding the Group’s ability to generate sufficien t future taxable incom e and the projec ted time period over which deferre d tax benefits will be real ised. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 42 Note 14: Taxes (continued) The Group does not have any unrecogn ised potential deferr ed tax assets in respect of deductible temporary differences. The Group is subject to a number of taxes other than incom e tax es, which are detailed as fo llows: Year ended 31 December 2021 Year ended 31 December 2020 (restated) Mineral extract ion tax 516,598 175,636 Tax on additional in come from hydrocarbon extraction 2 ,299 - Excise (30,492) 50,162 incl. reverse excise (81,547) 7,285 Property tax 7,400 7 ,742 Other 2,338 2,16 1 Total taxes ot her than inco me taxes 498,143 235,701 For the year ended 31 December 2021 actual expenses on MET per tonne of oil produced amounted to RR 19,206 per tonne (in 2020: RR 6,585 per tonne), which is RR 67 per ton ne (in 2020: RR 2,135 per tonne) below the average rate established b y law. This d eviation is due to the applicati on of the coefficients stipulated b y the tax legislation to the generally established MET rate for oil, as well as application of a reduced MET rate for oil production , which was transferred to the tax o n additional income reg ime. Taxes other than income taxes exclude the export duties paid on the sale of crude oil and refined products, which are present ed in t he cons olidated st atement of profi t or l oss a nd other c omprehensive incom e as a sepa rate line i tem within expenses (Note 3). Taxes payable, other than inc o me taxes were as follows: At 31 December 2021 At 31 December 2020 Mineral extraction tax 52,298 17,500 Tax on additional in come from hydrocarbon extraction 1,174 - Value Added Tax 24,723 4,983 Excise 5,493 3,198 Export duties 647 245 Property tax 2,131 1,826 Other 3,239 2,649 Total taxes payable other t h an income taxes 89,705 30,401 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 43 Note 15: Debt At 31 December 2021 At 31 December 2020 Short-term debt Bonds issued 3,404 3,881 Subordinated debt 21 2 1 Debt securities issued 562 500 Russian Rubles credit facility - 1,300 Other debt 935 2,28 6 Total short-t erm debt 4,922 7,988 Сurrent portion of long-term debt 17,619 2,973 Total short-term debt, inclu ding current portion of long-term debt 22,541 10,961 Long-term debt Bonds issued 17,008 18,198 Debt securities issued 6 112 US $75 million 2011 cred it facility - 495 US $144.5 million 20 11 credit facility 1,254 1,871 EUR 55 million 2013 credit facility 916 1,441 EUR 39.2 million 2020 cr edit tranche 3,2 96 2,848 RR 4,320 million 2020 cr ed it tranche 2,612 - Other debt 2,158 1, 660 Total long-term debt 27,250 26,625 Less: current portion (17,619) (2,973 ) Total long-term debt, net of current portion 9,631 23,652 Fair value of debt is presented in Note 29 . Maturity and curren cy analysis of debt is p resented in Note 29. Debt issued to related parties is presented in Note 25. Credit facilities. In Novem ber 2011, TANECO entered int o a US $75 m illion credit f acility with equal semi-annual repayments during ten years. The loan was arranged by Nordea Ba nk AB (Publ), So ciété Générale and S umitomo Mitsui Banking Corporatio n Europe Limited. The loan bears interest at LIBOR p lus 1.1% per annum. The loan agreement requires compliance w ith certain f inancial co venants including, but not limited to, m inimum levels of consolidated t angible net worth and int erest covera ge ratios. T he loan was fully repaid in Novem ber 2021. In November 2011, TANECO entered into a US $144.5 million credi t facility with equal semi-annual repayments d u r i n g t e n y e a r s w i t h t h e f i r s t r e p a y m e n t d a t e o n 1 5 M a y 2 0 1 4 . The loan was arranged by Société Générale, Sumitomo Mitsu i Banking Corporation Europe Limited an d the Bank of Tokyo-Mi tsubishi UFJ LTD. The loan bears interest at LIBOR plus 1.25% per a nnum. The loan agreem ent requ ires com pliance with certa in financial covenants including, but not li mited t o, minim um levels of cons olidated t an gible net wo rth and intere st coverage rati os. In May 2013, TANECO entered into a Euro 55 million credit facil ity with equal semi-annual repayment during ten years. The loan was arranged by Th e Ro yal Bank o f Scotland plc and Sumi tomo Mitsui Banking Corpor ation Europe Limited. The loan bears i nterest at LIBOR plus 1.5% per annum. In accordance with cre dit facility terms repayment of the debt is performed in USD. The loan agreement requires co mpliance with certain finan cial coven ants inc luding, but not limited to, minim um levels o f co nsolidated tangi ble net w orth a nd i nterest c overage ratios. In May 2016 this credit facility was assigned to Citibank Europe plc, UK Branch with credit facility details remaining. In November 2020, OOO "NZGSh" entered into a two-tranche syndic ated loan : RR 5,40 0 million and EUR 49 million (RR 4,320 million and EUR 39.2 million excluding interc ompany amount) with quarterly repayments during ten years with t he first repayme nt date on 2 8 March 2022. The l oan was arranged by Bank ZENIT, Bank VBRR and Credit Bank of Moscow . Contract i nterest rate is preferential a nd for the tranche in rubles i s key interest rate minus 4.5% per annum, for the tranche in Euro is EURIBOR per annum. T he governm ent subsidises the rate of 4.5% per annum if the borrower meets th e conditions for the s ubsidy gran ting. Th e loan agreement requires compliance with certain financial covenants in cluding, but not limited to, mini mum levels of conso lidated tangible net worth and interest coverage ratios. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 44 Note 15: Debt (continued) During 2021 the Group received short-term loans under the credi t facilitie s with the Russian banks in total a mount of RR 3,500 million at rates rang i ng from 4.26% to 6.72%. The d ebt was fully repaid at 31 Decem ber 2021. During 2020 the Group received short-term loans under the credi t facilitie s with the Russian banks in total a mount of RR 210,150 million at rates ranging from 4.39% to 6.74%, mos t of which were repaid earlier before maturity. The debt at 31 December 2020 am ounted to RR 1,300 m illion and w as repaid in January 2021. Bonds issued. In December 2019 the Company issu ed Russian Ruble denominated b onds in the amount of RR 15,000 m illion with the maturity in 3 years at a rate of 6.45% per annum . At 3 1 Decem ber 2021 and at 31 Decem ber 2020 bonds issued inclu de bonds denominated in Russian Rubles issued by Bank ZENIT amounted RR 5,412 million and RR 7,079 million r espectively, that mature between 2022 and 2025. At 31 December 2021 and at 31 December 2020 the annual co upon rates on these securities range from 5 .66% to 9.5% and 6.65% to 7.65%. The majority of bonds, issue d by Ba nk ZENIT, allow early repurchase at the request of the bond h older as set in t he respective offeri ng document s. As a result , bonds maturi ng from 2022 , which allo w repurchase, are presen ted as a t 31 De cember 2 020 within short-t erm loans and borrowings. As at 3 1 D ecember 2021, these bonds are presented as short-term loans and borrowings in accordance with the m aturity terms in 2022. Subordinated debt. Informati on on subordinated loans received Bank ZENIT from the D I A w i t h i n t h e R u s s i a n Federation Government programme for addition al capitalisation o f Russian banks presented in Note 29. Debt securities issued. At 31 December 2021 and 2020 deb t securities are promissory n o tes issued by Bank ZENIT at a d iscount to nominal value and interest bearing promissory notes denominated in Russi an R ubles. Maturity dates of these prom issory notes vary from 202 2 to 2028. At 31 December 2021 and 2020 non- interest-bearing promissory no tes of the aggre gate nominal value of RR 294 million and of RR 101 million respectively were issued by Bank ZENIT for settlement purposes and mature primaril y on dem and. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 45 Note 16: Accounts payable and a ccrued liabilities At 31 December 2021 At 31 December 2020 Trade payables 54,113 55,028 Current portion of lease liab ilities (No te 13) 2 ,838 2,540 Other pay ables 2,528 2,623 Total financial liabilitie s within trade and o ther payables 59,479 60,191 Salaries and wages payable 10,393 8,414 Advances received from buyers and customers 25,340 11,175 Current p ortion of dec ommissioni ng provisi ons (Not e 12) 57 1 Other accounts payable and accru ed liabilities 6,001 4,112 Total non-financial liabilities 41,791 23,702 Accounts payable and a ccrued liabilities 101,270 83,893 For the cu rrent repo rting peri od revenue of RR 11,1 75 milli on w as recognised in respect of contract liabilities as of 1 January 2021 related to advances received. For the previou s reporting period revenue of RR 7,82 8 million w as recognised in respect of contract liabilities as of 1 January 2020 related to advances received. The increase in contract liabilities in form of advances from c ustomers as at 31 December 2021 is due to an increase in sales under contracts with c ustomers with agreed prepayment term s. As at 31 Decembe r 2021 adva nces received include an advance payment under the oil supply agreement in the amount of RR 12,850 million. The prepayment is repaid by del ivery of oil. The fair value of each class of financial liabilities included in short-term trade and other payables is presented in Note 29. As at 31 December 2021 and 2020 o ther financial payables includ e an obligation to repurchase of 2,179,34 7,288 shares of Bank ZENIT at a price of RR 0.75 per share, requested for the redemption by minority shareholders and not paid by the Bank in the amount of the liability is RR 1,63 5 million and RR 1,618 m illion respectiv ely. Disposal of the carrying value of the non-controlling interest (in the a mount o f RR 1,624 million) and t he difference between the accrued liability and the dis posed non-controlling interest ( i n t h e a m o u n t o f R R 55 mi l l i o n ) r e c o g n i s e d a s a r e s u l t of the transaction are reflected in the line “Subsidiary's shar es r equested f or the redemption” of the consolidated statement of change in e quity. Note 17: Banki ng: Due to banks and the Bank of Russia At 31 December 2021 At 31 December 2020 Term deposi ts from other banks 2,077 3,110 Term deposit s from the Bank of Russia 4,486 2,121 REPO 20,743 9,704 Correspondent accounts and other banks ’ overnight deposits 273 275 Total due to banks and th e Bank of Russia 27,579 15,210 Less: long term due to banks an d the Bank of Russia (4,026) (1, 551 ) Total short term of due to ba nks and the Bank of R ussia 23,553 13,659 Within due to banks and the Bank of Russia at 31 December 2021 and 2020 there are RR 27 ,087 million and RR 13,52 6 million respectively of REPO corresponde nt accounts a nd term deposits, borrowed from the Bank of Russia and fro m four and from three Russian banks, whic h indivi dually exceeded 5% of t he Bank ZENIT equity. As at 31 December 2021 and 31 December 2020 financial liabilit i es which are subject o а offsetting include RR 20,743 million and RR 9,704 million of du e to bank s collaterali sed by securities, fair value of which is RR 23,4 28 million an d RR 10,657 million r espectively. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 46 Note 18: Bank ing: Customer accounts At 31 December 2021 At 31 December 2020 State and public organizations Current / settlement accounts 1,196 1,276 Term deposits 156 95 Other legal entities Current / settlement accounts 20,141 24,674 Term deposits 33,322 19,240 Individuals Current / settlement accounts 25,500 22,891 Term deposits 71,114 80,449 Total custom er accounts 151,429 148,625 Less: long-term customer accounts (1,288 ) (1,872) Total short-term customer a ccounts 150,141 146,753 Within customer accounts at 31 D ecember 2021 and 2020 there are RR 48,864 million and RR 58,607 million of current/settlement accounts and term deposi ts from 19 and 23 c u stomers respectively, whi ch indivi dually exceeded 5% of the Bank ZENIT e quity. Risk concentrations by customer industry within custom er accoun ts are as follows: At 31 December 2021 At 31 December 2020 Carrying value Share in custo mer loan portfolio, % Carrying value Share in custo mer loan portfolio, % Individua ls 9 6,614 63.80% 103,340 6 9.53% Finance 1 7,336 11.45% 11,812 7.95% Oil and gas 9,859 6.51% 3,26 1 2.19% Trade 6,273 4.14% 6,142 4.13% Services 10,325 6.82% 14,922 1 0.04% Manufacturi ng 3,408 2.25 % 2,067 1.39% Constructi on 4,434 2. 93% 3,422 2.30% Other 3, 180 2.10% 3,659 2.47% Total custom er accounts 151,429 100% 148,625 100% TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 47 Note 19: Other long-term liabilities Other long-term liabilities are as follows: At 31 December 2021 At 31 December 2020 Pension and other long-term li abilities to employees and retire es 4,140 4,335 Government grants 24,124 8,327 Share based compensation 1,186 976 Other long-term liabilities 355 233 Total other long-term liabilities 29,805 13,871 Pension and other long-term liab ilities to employees and retire es. The Group has vari ous pension pl ans offered to all employees. Starting from 1 March 2021 the amount of cont ributions, freque ncy of benefit payments and ot her conditions of these plan s are regulated by the new “Statemen t o f Organization of Corporate Non-Governm ental Pension Benefits f or P JSC Tatneft Employees”, similar provision s of controlled subsidiaries and agreements arranged between the Company and the JSC “National Non-Governm e ntal Pension Fund”. In accordance with the terms of th e agreements the Group is committed to make certain con tributions on favor of its employees, the aggregated amount of savings guarantees the payment of a non-st ate pension in an amount not lower than the minim um amount provided by pensio n a greement s. T he amount of co ntributi ons and n on-state pensions depends on the amount of contribut ions chosen by the em ployee and the achi evement of t he target indicato rs of the compani es. In accordance with the provisi ons of collective agreements conc lude d on an annual basis between the Company or its subsidiaries and thei r e mployees, the Gr oup is obl iged t o p ay other certain post-employment benefits to employees upon completion of their employment with the Company or its con trolled subsidiaries. Government grants. During 2019-2021, the Group received grants from the Republic o f Tatarstan for the creation, modernization and reconstructio n of energy facilities and infra structure. In addition, as at 31 December 2021, government grants include the difference between the initial ca rrying v alue of the loa n determined at the corresponding market rate and th e proceeds received unde r the l oan agreement for the construction of a tire plan t in Republic o f Kazakhst an in the am ount RR 2, 812 mil lion. Share based compensation. The Com pany has approved the Tat neft Gr oup long-t erm em ployee i ncentives program. The program provides for empl oyees benefits based on t he change in the share price during a five-year cycle. In accorda nce with the term s of the program, 13 million shares are “conditionally” assigned t o the management and directors of the Company, based on which, at the end of the cycle, remuneration is paid on the amount of the positive difference in t he average annual price o f an ordinary s hare o f PJSC Tatneft for the fifth year of the five-year cycle and the y ear adopted as a base. Payments are made in cash. The fair value of the Program wa s calculated at the reporting d ate by applying the option pricing model, taking into account the conditions for the inc rease in the value of shares and the volume of services p rovided by employees before t he end of the reportin g period. The fair value of t he P rogram estimated as RR 103 per share ( in 2020 as RR 120 per share) was determined in accorda nce with the Blac k-Scho les option pricing model at the reporting date and is subject to further review until it is redeemed. The fair val ue was calc ulated usin g the sp ot price of the Com pany's shares at the reporting date in the amount of RR 498. 6 (in 2020 in the amount of RR 514.4), the exercise price of the option in the amount of RR 400.27, an expected dividend yie ld of 7.63% per annum (in 2020 of 7.77% per annum) , the r isk-f ree interes t r ate equal to 7.86 % per annum ( in 2 020 of 4.36 % per annum), th e term until the maturity of the p rogram, and the volatility of the return on th e underlying asset equal to 25% ( in 2020 equal to 34.7%). The expected v olatility was determined b ased on the his torical volatility of the Com pany's shares. Receiving payments depends on the compl etion of the r equired period of se rvice provision, certain p erform ance indicators and an increase in the value of shares. The Group plans to recognize the costs of the Program on a straight-li ne basis over the period of its validity. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 48 Note 20: Shar eholders’ equity Author ised share cap ital. At 31 December 2021 and 2020 the authorised, issued and paid sh are capital o f PJSC Tatneft consists of 2,178,690 ,700 voting comm on shares and 147, 5 08,500 n on-voting preferred sha res; bot h classes of shares have a nom inal value o f RR 1.00 p er share. The nom ina l value of authorised share capital differs from its carrying value due to e ffect of the hy perinflat ion on capit al c ontributions made befo re 2003. Golden share. Tatarstan holds a “Golde n Share” – a special governm ental right – in the PJSC Tatneft company . The exercise of its powers under the Golden Share enables the T atarstan government to ap point one representative to the B oard of Direct ors and R evision Com mission of the Com pan y and to veto certain maj or decisions, incl uding those relati ng to cha nges in the share capital , amendm ents to t he Charter, l iquidation or reorganization and “major” and “interested party” transactions as defi ned under Russian la w. The Golden Share currently has an indefinit e term. Rights attributable to preferred shares. Unless a differe nt amount is a pproved at the annual sharehol der s meeting, preferred shares earn dividends equal to their nominal value. The amount of a d ividend for a preferre d share may not be less t han the amount of a dividen d for a com mon share. P referred sharehold ers may vote at meetings only on the following decisions :  the am endment of the di vidends payable per preferred s hare;  the issuance of additional shares with rights greater tha n the current ri ghts of preferred shareholders; and  the l iquidation or reorgani zation of the C ompany. The decisions listed above can be m ade only if ap proved by 75% of preferred s hareholders. Holders of preferred shares acquire the same voting rights as h older s of commo n sh ares in the e vent tha t pref erred dividends are either not declared , or declared but not paid. On liqu idation, the shareholders are entitled to receive a distribution of net assets. Under Russian Joint Stock Companies L a w a n d t h e C o m p a n y ’ s c h a r t e r i n c a s e o f liquidatio n, preferred shareholders have priority over sharehol de rs holding common shares to be paid declared but unpaid divi dends on pre ferred shares and t he liquidati on value of preferred shares, if any. Amounts available for distribution to shareholders. The source of payment of dividends is the Company's net profit for the reporti ng peri od, determ ined bas ed on the Com pan y’s non-consolidated statutory accounts prepared in accordance with RAR, which diffe r significantly from IFRS (see Note 2). When determining the dividend amount (per share) recommended to the General Meeting of Shareholders, the decision of PJSC Tatneft’s Board of Directors is based on the a mount of net profit under RAR or IFRS, dependi ng on the availability of p ublished financial statements for the r elevant period, and assuming that the target level the total funds allocated for dividen ds payment accounts for least 50% of the net profit amount determi ned by RAR or IFRS, whichever is higher. In December 2021, the sharehold ers of the Company approved the payment of interim dividends for the nine mont hs ended 30 September 2021, in the amount of RR 26.5 per preferenc e and ordinary share, including previously paid interim dividends for the six months ended 30 June 2021, in the amount of RR 16.52 per prefe rence and ordinary share. Divide nds were paid i n the beginni ng of 2022. In September 2021, the shareholders of the Company approved int erim dividends for the six month ended 30 June 2021 in the amount of RR 16.52 per each preference and ordinary share. These dividen ds were p aid in the fourth quarter of 2021. In June 2021, the sharehol ders of the Company app roved dividend s for the year ended 31 December 2020 in the amount of RR 22.24 per each preference and ordinary share, incl uding the previ ously approved interim dividends for the six months ended 30 June 2020 the amount of RR 9.94 per each preference and ordinary share. These dividends were paid in t he third qua rter of 20 21. In Septem ber 2020, the share holders of the Company appr oved int erim dividends fo r the six months e nded 30 Jun e 2020 in t he amount of RR 9.94 per prefere nce and or dinary share . Divide nds were paid in the fo urth quar ter of 2020. In June 2020, the sharehol ders of the Company app roved dividend s for the year ended 31 December 2019 in the amount o f RR 1 per each preference share, excluding the previou sl y ap p r ov e d i n te r i m d i v id e n d s fo r t h e s i x a nd n i n e months of 2019 in the amount of RR 64.47 per one preference sha re. Divide nds were paid in t he third quarter of 2020. In December 2019, the sharehold ers of the Company approved the payment of interim dividends for the nine mont hs ended 30 Sep tember 2019, in the amount of RR 64 .47 per pr eferen ce and ordinary share, inclu ding previousl y paid interim dividends for the six months ended 30 June 2019, in the amount of RR 40.11 per prefe rence and ordinary share. The 9 months 2019 Div idends are rep orted as dividends pa yable as at 31 December 2019 and were paid in the beginning of 202 0. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 49 Note 20: Shareholders ’ equity (continued) Earnings per share. Preference shares are not redeemab le and are considered to be p articip ating shares. Basic and diluted earnings per share are calculated by dividing profit or loss attributable to ordinary a nd prefe rence shareholde rs by the wei ghted average n umber of ordi nary a nd pre ferred shares outstanding during the period. Profit or loss attri buted to equity holders is reduced by the amount o f dividen ds declared in the current period for each class of shares. The remaining prof it or loss is allocated ordinary and preferre d shares to the extent that each class may have share in earnings if all the earnings f or the period had been distrib ute d. Treasury shares are excluded from calculations. The total earnings allocated to each class of shares are determ ined by adding together the amount allocated for dividends a nd the amount al located for a participation feat ure. Year ended 31 December 2021 Year ended 31 December 2020 Profit attributable to Group sharehold ers 198,412 103,490 Ordinary s hare dividen ds (81, 599) (20,904) Preferred sha re divi dends (5,723) (1,614) Income available to ordinary and preferr ed shareholders, net of dividends 111,090 8 0,972 Basic and diluted: Weighted ave rage num ber of share s outstandi ng (milli ons of shares): Ordinary 2,103 2,103 Preferred 148 148 Combined wei ghted average number of o rdinary and preferred shares outstandin g 2,251 2,251 Basic and diluted earn ings per share (RR) Ordinary 88.16 45.92 Preferred 88.16 46.92 Non-controlling interest. Non-control ling interest is adjusted by dividends declared and paid by th e G roup’s subsidiaries amounting to RR 47 million and RR 1 million at 31 December 2021 and 20 20 respectively. The result of the intercompany transaction on the re purchase of loans fro m the Bank ZENIT under cession agreements is reflected in the l ine “Intercompany transactions on th e purchase and sale of loans” of the consolidated statement of change in e quity. Note 21: Employee benefit expenses Year ended 31 December 2021 Year ended 31 December 2020 Wages and salaries 52,272 4 5,239 Statutory insurance con tributions 14,782 12,657 Share based compensation s (Note 19) 210 976 Pension costs – defined be nefit plans 1,627 263 Other em ployee benefits 1,571 1,545 Total employee benefit expense 70,462 60,680 Employee benefit expenses are included in operating expenses, s elling, general and admin istrative expenses and maintenance of social infrastructure and transfer of social ass ets, other expenses and operat ing e xpenses on ba nking activities in the consolidated statement of profit or loss and other compreh ensive inc ome. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 50 Note 22: Interest income and int erest e xpense on non-banking ac tivities Interest income on non-banking activities comprises the fo llowi ng: Year ended 31 December 2021 Year ended 31 December 2020 Interest income fr om financial assets m ea sur ed at am ort is ed c os t 3,903 4,368 Unwinding of the pr esent value discoun t of long-term financial assets 59 60 Total interest income on non-banking activities 3,962 4,428 Interest expense on non-b ankin g activities comprises the follow ing: Year ended 31 December 2021 Year ended 31 December 2020 Bank loa ns (178) (1,033) Bonds issued (967) (970) Unwinding of the present value discou nt of decomm issioning provision (3,582) ( 3,377) Interest expense on lease liab ilities (1,228) (1,374) Unwinding of the pr esent value discoun t of long-term financial liabilities - (17 ) Discount of long-term financi al liabilities (240) (613) Other expe nses (10 9) - Total interest expens es on non-banking act ivities (6,304) (7,3 84) Note 23: Interest and commission inc ome and expense on banking acti vities Year ended 31 December: 2021 2020 Interest income 1 3,501 14,262 Loans to customers 9,956 11,136 Other 3,545 3,126 Fee and commission income 2,94 7 3,824 Settlement transactions 1,73 7 2,429 Other 1,210 1,395 Total interest and commission inc ome on banking activity 16,448 18,086 Interest expense (6,869) (7,964) Term deposits (4,839) (5,988) Other (2,030) (1,976) Fee and commi ssion expense (1,360) (1,647) Settlement transactions (1,265) (1,558) Other (95) (89) Total interest and commission exp e nse on banking activity (8,22 9) (9,611) TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 51 Note 24: Segmen t information Operating segments are compo nents that engage in business activ ities that may earn revenu es or incur exp enses, whose operating results are regularly reviewed by the Board of Directors and the Management Committee and for which discrete financial info rmation is available. Segments who se revenue, result o r assets are 10% or m ore of all the segments are reported sepa rately. The Group’s business activities are con ducted predominantly thr ough four main ope rating segm ents:  Expl oration and production consists of exploration, development , extraction and sale of own crude oil. Intersegment sales consist of tr ansfer of crude oil to refinery and other goods and services provided to oth er operating se gments;  Refining and marketing comprises purchases and sales of crude o il an d refined products from third parties, own refining activities and retailing operations;  Tires business include product ion and sales of t ires;  Ba nking segme nt includes o perations of B anking Gr oup ZENIT. Other sales i nclude revenues fro m ancillary services provided b y the sp ecialised subdivisions and subsidiaries of the Group, such as sales of oilfield equipment, revenues from the s ale of auxiliary p etrochemical related services and materials as well as other bus iness activities, which do not constitute reportable bu siness segments. The Group eval uates performa nce of its reportable operating seg ments and allocates resources based on segment earnings, defined as profit before income tax not including int erest inco me, expens e on non-banking activities, an d gains from equity investments, other income (expenses) and fore ign exchange loss or gain. Intersegment sales are at prices that a pproxima te market . T he Group uses an export net bac k calculated based on average Ural s quotes less export duty, freight and transportation co sts to calculate the cost of its own o il for refining . Group financ ing (including interest expense and interest income on non-ban king activities) an d income taxes are managed on a Group basis and are not allocated to operat ing segments. For the year ended 31 December 2021, revenues of RR 187,9 01 mil lion or 15% of the Group’s total sales and operating re venues are derived fr om one external customer. For the year ended 31 December 202 0, revenues of RR 96,663 mill ion or 12% of the Group’s total sales and operating re venues are derived fr om one external customer. These revenues represe nt sales o f crude oil and are attributabl e to the exploration a nd producti on segment. Group ma nagement doe s not belie ve the Group i s depende nt on any particular customer. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 52 Note 24: Segment info rmation (continued) Segmen t sale s Year ended 31 December 2021 Year ended 31 December 2020 Exploration and pr oduction Domesti c own crude oil 287,656 119,095 CIS own c rude oil (1) 9,379 16,264 Own crude oil sales in foreign countries (2) 250,196 171,680 Other 4,259 4,224 Intersegment sales 322,534 150,367 Total explor ation and pr oduction 874,024 461,630 Refining and marketing Domestic sales Refined products 338,820 256,780 Total Domestic sales 338,820 256,780 CIS sales Refined products 13,514 14,660 Total CIS sales (1) 13,514 14,660 Non - CIS sale s Crude oil pur chased for r esale 9,262 6,049 Refined products 215,320 108,268 Total non-CIS sales (2) 224,582 114,317 Other 18,667 9 ,114 Intersegment sales 1,895 2,489 Total refining an d mar keting 597,478 397,360 Tires business 44,129 34,953 Tires – domestic sales Tires – CIS sales 11,452 11,087 Tires – non-C IS sales 4,420 4,364 Other 1,256 3,660 Intersegment sales 9 29 491 Total tires business 62,186 54,555 Banking Interest income 13,501 14,262 Fee and commission income 2,947 3,824 Total banking 16,448 18,086 Total segmen t sales 1,550,136 931, 631 Corporate and o ther sales 57,050 35,617 Elimination of in tersegment sales (325,358) (153,347 ) Total sales 1,281 ,828 813,901 (1) - CIS is an abbr eviation for Co mmonwealth of Independent S tates (excluding the Russian Federation). (2) - Own crude oil and refined products sales in foreign countri e s means sales mainly to the larg est international traders, refi neries in Europe and through electronic trading platform s to end consum ers from Euro pe, Asia and other jurisdic tions outside the EurAsE C. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 53 Note 24: Segment info rmation (continued) Segm ent earn ings Year ended 31 December 2021 Year ended 31 December 2020 Segm ent earnin gs Exploration and product ion 213,340 161,879 Refining and mar keting 73,119 16,796 Tires business 8,840 1,830 Banking 248 (3,964) Total segment earnin gs 295,547 176,541 Corporate and o ther (38,385) ( 41,879) Other income, net 144 2,383 Profit before i ncome tax 2 57,306 137,045 "Corporate and other" line includes Head Office admini strative expenses, im pairment losses on financi al assets net of reversal, impairment losses an d losses on disposal on proper ty, plant and equipm ent and other non-fina ncial assets, non-refundable transfers to regional funds, charity exp enses, maintenance of social i nfrastructure and tra nsfer of social assets, fai r value ga in/losses of financial assets at fair value through pro fit or loss. Segment asset s At 31 December 2021 At 31 December 2020 Assets Exploration and product ion 383,873 364,843 Refining a nd marketi ng 583,611 507,860 Tires business 50,844 35,230 Banking 245,188 209,273 Corporate a nd other 238,773 146,235 Total assets 1,502,289 1,263,441 A s at 3 1 D ec e m be r 2 0 21 c o r po r a t e a n d o th e r as se t s i n c l ud e s R R 7 7,113 million of pr operty, plant and equipment, RR 24,317 million o f securities measured at fair v alue through other comprehensi ve income , RR 5,307 million loans receivable, RR 65,508 million of bank deposits measured at a mor tised cost, RR 33,46 5 mill ion of bank deposits measured at fair value through profit or loss, RR 1,347 million of cash, RR 13,701 million of inventories, RR 1,678 million of a dvances issue d. As at 31 December 2020 corporate and other includes RR 63,495 m illion of property, plant and equipment, RR 24,389 million of securities measured at fair v alue through other comprehensive income, RR 3,091 million of securities measured at amortised c ost, RR 12,453 million loans receivable, RR 16,027 million of bank deposits measured at am ortised cost, RR 181 million of cash, RR 7,314 mi ll ion of in ventories, RR 1,629 mi llion of a dvances issued. The Group’s assets and op erations are primarily located and con ducted in the R ussian Federat ion. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 54 Note 24: Segment info rmation (continued) Segment depreciation, deple tion a nd amortisation and additions to property, plant and equipme nt Year ended 31 December 2021 Year ended 31 December 2020 Depreciation, depleti on and amortization Exploration and prod uction 23,027 24,483 Refining and mar keting 14,472 11,727 Tires business 940 1,152 Banking 366 359 Corporate a nd other 3,858 3,144 Total depreciation, depletion and amortizati on 4 2,663 40,865 Additions to proper ty, plant and equipme nt Exploration and prod uction 29,089 26,670 Refining and mar keting 64,544 63,366 Tires business 14,141 7,567 Banking 268 175 Corporate and o ther 16,082 7,522 Total additi ons to propert y, plant and equ ipment 124,124 105, 30 0 Additions to property, plan t and equipment of exploration an d p roduction segment are presented net of changes in estimated decommissioning provisions. For the year ended 31 Dec ember 2021 additions to property, plant and equipment of exploration and production segment and corporate a nd other assets took int o account changes in Group structure (Note 28). Note 25: Rela ted party transacti ons Parties are generally considered to be related if the parties a re under common control or if one party has the ability to control the other party or can exercise significant influe nc e or joint control over the other party in making financial and operational decisions. In cons idering each possible related party relationship, attention is directed to the substance of th e relationshi p, not merely the legal form . Transactions are ente red into in the normal course of business with associates, jo int ventures, gov ernment related companies, key management personnel and other related parties. These transactions include sales and purchases of refined products, p urchases of electricity, tran sportation serv ices and banking transactions. Th e Group enters into transactions wi th related pa rties based o n market or re gulated prices. Associates, joint ventures a nd other related parties The amounts of transactions for each pe riod with associates, jo int ventures and oth er related parties are as follows: Year ended 31 December 2021 Year ended 31 December 2020 Revenues and income Sales of refined produ cts 31 28 Other sales 60 84 Interest income 47 26 Costs and e xpenses Other serv ices 2 1 852 Other purcha ses 586 400 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 55 Note 25: Rela ted party transacti ons (conti nued) The outstanding balances with ass o ciates, joint ventures and ot her related parties were as follows: At 31 December 2021 At 31 December 2020 Assets Accounts receivable, net 102 132 Banking: L oans to c ustomers 20 73 Other financi al assets Securities measured at fair val ue through profit or loss - 2 9 Other loans 526 357 Prepaid expens es and other curre nt assets 1 204 Total short-term ass ets 649 795 Long-term accounts receivable 62 71 Other financi al assets Securities measured at fa ir value throug h other comprehensi ve income 4,159 3,890 Other loa ns 1,009 1,002 Total long-t erm assets 5,230 4,963 Liabilities Accounts payable and accru ed liabilities (74) (69) Banking: Custom er accounts (1,223) (779) Total short-term liab ilities (1,297) (848) Banking: Cust omer accounts (70) - Total long-term liabilities (70) - Government related companies The amounts of transactions for each pe riod with Government rel ated com panies are as follows: Year ended 31 December 2021 Year ended 31 December 2020 Sales of crude oil 49,676 - Sales of refined produc ts 19,602 18,060 Other sales 9,165 4,764 Interest i ncome 2,917 2,804 Income from changes in the f air value of financial assets 3,702 - Interest expense 209 656 Purchases of c rude oil 631 - Purchases of refined p roducts and natur al gas 24,367 24,661 Purchases of electricity 20,783 1 6,014 Purchases of transpor tation and compoun ding services 26,800 21, 934 Other serv ices 6,779 4,994 Other purcha ses 489 686 Other services and ot her p urchas es from organizations related t o the state include c ontributions to t he State Housing Fund under the President of the Republic of Tatarstan under the program of housing construction on social mortga ges in the Republic of Tatarstan, the purchase of pet rochemical pro ducts, as well as some other services. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 56 Note 25: Rela ted party transacti ons (conti nued) The outstanding balances with Gove rnment related com panies were as foll ows At 31 December 2021 At 31 December 2020 Assets Cash and cash equivalen ts 28,794 14,007 Banking: M andatory rese rve deposits with the Ba nk of Russia 1,429 1,528 Accounts receivable 2,591 2,102 Banking: L oans to c ustomers 230 - Other financi al assets Bank deposi ts measured at a mortised cost 8,399 - Bank deposits measured at fair value thr ough profit or loss 33,465 - Securities measured at fair value throug h other comprehensi ve income 919 3, 023 Securities measured at amortised cost 5,616 7 ,480 Securities measured at fair val ue through profit or loss 2,87 8 4,095 Other loans measured at am ortised cost 42 41 Prepaid expens es and other cu rrent assets 4,712 4,441 Total short-term ass ets 8 9,075 36,717 Banking: L oans to c ustomers 3,355 5,228 Other financi al assets Securities measured at fair value throug h other comprehensive inco me 38,809 22,294 Securities measured at amortised cost 11,116 8,803 Other loans measured at am ortised cost 60 104 Advances for c onstruction 1 16 Total long-te rm assets 53,341 36,445 Liabilities Accounts payable and accru ed liabilities (14 ,581) (1,744 ) Banking: Due to banks and the Ban k of Russia (3,436) (570) Banking: Custom er accounts (3,809) (161) Debt Debt securities issued (253 ) (46) Other deb t (494) (1,835) Total short-term liabilities ( 22,573) (4,356) Banking: Due to banks and the Ban k of Russia (4,026) (1,551) Other debt (80) (102) Governm ent grants (N ote 19) (21,312) (8,327) Total long-term liabilities (25,418) ( 9,980) Key management personnel The key management personnel of the Group includes members of t he Board of Directors and the Management Board of PJSC Tatneft. For the years end ed 31 December 2021 and 2020 total remuneratio n, including pension cost, for key managem ent personnel was RR 1,072 million and RR 1,084 million, resp ective ly. At 31 December 2021 and 2020 key m anagement personnel customer accounts in Bank ZENIT a mounte d to RR 25,433 million and RR 29,32 8 million, respectively. For the years ended 31 December 2021 and 2020 the liability for t he servi ces provide d was recognized in respect of the key management p ersonnel of the Group in accordance with th e long-term incentive p rogram for executive employees in the amount of RR 75 million and RR 387 million res pectively. Infor mation about the program is presented in Note 19. In a ddition, in 2021, a provi sion for sho rt-term remuneration unde r the incentive program for executive employees in the am ount of RR 242 million was accrued for key management personnel. (in 2020: nill). TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 57 Note 26: Contingenc ies and commi tments Operating Environmen t of the Group The economy of the Russian Fed era tion displays certain characte ristics of an emerging market. It is particularly sensitive to oil and gas pr ices a nd subject to significan t nega tive impact of con tinuous decrease in c rude oil prices. In March 2 020 the World Health Organization announc ed a p andemi c due to the rapid spread of COVID- 19. The measures taken around the world to combat the spread of COVID-1 9 resulted in limitation of business activity, which caused significant decrease in world demand for energy re sources. The expirat ion of prior arrangement of OPEC+ on 1 April 202 0 raised the risks of substantial ov ersuppl y of crude oil and refined products in the market. These even ts led to significant drop in stock markets, fall in crude oil prices, the Russian Ruble weakened against the US dollar and t he Euro. In April 2020, the OPEC + countries reached a new agreement, under which the Russian Federation assumed obligations to reduce o il production in the period from May 1, 2020 to April 30, 2022. In accordance with the a greements reached, the Group began to ful f ill its obligations to reduce oil production. In April 2021, t he OPEC + countries a greed t o remove some of t he restric tions and gradually increase oil production, in July 2021 - on the ex tension of the agreement until the en d of 2022 and a gradual increase in o il production. Despite the new product ion restrict ions agreed by OPEC+, the recovery in oi l prices may take a long tim e. These events ca n have a significant impact on the operations, financial position a n d fi n a n c i a l r e s u l t s o f t h e G r o u p i n t h e f u t u re , t h e consequences of which are difficult to predict. Management created provisions for impairment considering the economic situation and prospect s at t he end of the rep orting pe riod (Note 12). In 2021 the Russian eco nomy demons trated positiv e dynamics in r ecovery from the pandemic. This trend was also supported by t he global econom ic recovery and hi gher prices on global commodity markets. However, higher pri ces on certain markets in Russia and globally also contribute to th e growth of inflation in Russia. The future effects of the current economic situation and the above measures are diffi cult to predict and managem ent’s current expectations and estimates coul d differ from actual results. In 2021 ongoing political tensio n in the region escalated as a result of further develop ments of the situation with Ukraine which have negatively impacted commodity and financial markets, and increased volatility, particularly with regard to foreign exchange rates. Since December 2021, the circumstances have been deteriorating and the situation remains highly u nstable. There is increased v olatilit y in the fina ncial and c omm odity m arkets . Ther e is a n expectation of further sanctions and limitations on business ac tivity of companies operating in the region, as well as consequences on the econom y in g eneral, but the full n ature and possib le effects of these are un known (Note 3 0). Management believes it is taking all necessary measures to supp ort the sustain ability and development of the Group’s busi ness in the c urrent business an d economic envi ronme nt. Tax, currency and customs legislation are sometim es subject to v arying interpretations and contributes to the challenges faced by companies operating in the Russian Federati on. The Russian economy continues to be negatively impacted by ongoing politica l tension in the region and in terna tional sanctions against certain Russian companies and individuals. The future economic development of the Russian Federation depends on external factors and internal measures taken by the governm ent and chan ges in the ta x, legal and regul atory framework. Capital commitments . As at 31 Decem ber 2021 and at 31 December 2020 the Group has a pp roximate outst anding capital commitments of RR 88,016 million and RR 71,829 mil lion, respectively, mainly for the construction of the TANECO refinery complex, construction of wells, oil fields facilities con struction and t ires business development project, modernization of Nizhne kamskaya TEC. These commi tments are expe cted to be paid b etween 2022 and 2026. Management believ es the Group’s current and long-term capital e xpenditures program can be funded through cash flows generat ed from existing operations as well as lines of cr edit available to the Company. The TANECO refinery project has been funded fro m th e Co mpa ny’ s cash flow with the support of th e bank facilities (Note 15). Management also believes the Company has the ability to obtain syndicated loans and other financings as needed to continue funding the own projects, refinance any maturing debts as well as finance business acq uisitions and other transactions that may arise in the future. Credit related commitments. T he credit related commitments comprise loan commitments, lett ers of credit and guarantees. The cont ractual commitments represent the value at risk should the contract be fully drawn upon, the client defaults, and the value of any existing collateral b ecom es worthless. In g ene ral, certain part of Group 's letters of credit are collateralised with cash d eposits or co llateral p ledged to t he Group and accordingl y the Group normally assumes minim al risk. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 58 Note 26: Contingencies and commitments (continued) Outstanding credit related commit ments are as follows: At 31 December 2021 At 31 December 2020 Undrawn credit lines that are irrevocable or are revocable only in response to a materia l adverse ch ange 26,373 34,249 Unused limits on the issuance of bank gu arantees 13,581 11,269 Guarantees issu ed 1 4,111 12,928 Letters of cred it 424 185 Less: allowance for credit rela ted commitment (236) (406) Less: commitments collateralised by cash deposits under guarantees issu ed (20) (6) Less: commitments collateralised by cash deposits under Letters of cred it (424 ) (182 ) Total credit related com mitments 53,809 58,037 Taxation. The Russian tax legislation is subject to va rying interpretatio ns and cha nges whic h can occu r freque ntly. Management ’s interpretation of the legislation, as applied to t he transactions and activities, may be challenged by the tax authorities. The tax authorities may tak e a different position in th eir in te rpretation o f th e legislation, and it is possible that transactions and activities th at have not been challen ged in th e past may be challenged. The Russian transfer pricin g legislation is generally aligned w ith the intern ational transfer pricing principles developed by the Organisation for Econ omic Cooperatio n and Deve lopm ent (OEC D), with certain specific features. This legislation allows tax authorities to assess add itional ta xes for controllable transact ions (transactions between related p arties and certain tran sactions between unrelated part i e s ) i f s u c h t r a n s a c t i o n s a r e n o t o n a n a r m ' s l e n g t h basis. Tax liabilities arisin g fro m inter company transactions are dete rmined using actual transac tion prices. It is possible, with the evolution of the interpretation of the transfer pricin g rules, that su ch pr ices cou ld be challen ged. Gr oup management believes that its pricing policy is arm’s length and it has implemented internal processes to be in compliance with the n ew transfer pricing legislatio n. The Group management believes that its interpretation of the new legislati on is appropria te and the Group’s tax p osition wil l be sustained. Environmental contingencies. The Group, through its predeces sor entities, has operated in T atarstan for many years without developed environm ental laws, regulations and the Group’s policies. Environmenta l regulations and their enforcement are cu r r en t l y b e i ng c o n s id e r e d in t h e R u s si a n Federation and the Group is monitoring it s potential obligations r elated thereto. The outcome o f environmental liabi lities under proposed or any future enviro nmental legislation cannot reasonably be estimated at present, but coul d be m aterial. The Group has analyzed its exposure to climatic and other emerging business risks, but has not identif ied any risks that could affect th e finan cial results or the position of the Group at the reporting date. Under exis ting legislat ion, howe ver, Group management believes that there are no p robable liabilities, which would have a mate rial adverse effect on the operating results or financial position of the Group. In addition, the Grou p is introducing an d applying best health, safety and environm ental protection practices and standards which might go beyond any ex isting and poten tial leg al requ irements in the Russian Federation. Legal c ontingencies. The G roup is subject to various lawsuits and claims arising in the ordinary course of business. The outcomes of such contingencies, lawsuits or other proceedin gs cannot be determined at present. In the case of all known contingen cies the Gro up accrues a liability when th e loss is probable and the amount is reasonably estimable. Based on currently ava ilable information, management believes that it is r emote that f uture costs related to known contingent liability exposures would have a m aterial a dverse impact on the Group’s cons olidated financial statements. Social commitments. The Group contribute s significant ly to the maintenance of l ocal infras tructu re and the welfare of its employees within Tatarstan , which includes contributions tow ards the constru ction, d evelopment and maintenance of h ousing, hosp itals and tr ansport services, recre ation and other social needs. Such funding is periodically determined by the Board o f Directors afte r consult ation with governmental authorities an d recorded as expenditures when incurred . TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 59 Note 26: Contingencies and commitments (continued) Transporta tion of crude oil. The Group transports substan tially all of the crude oil that it se ll s i n e xp ort a nd l ocal markets through trunk pip elines in Russia that are controlled b y PJSC Transneft, the state-own ed monopoly owner and operator of Russia ’s t runk crude oil pipel ines. The Group’s crude oil is blend ed in th e Transneft pip eline system with o ther crude oil of v arying qualities to produ ce an export blend commonly referred to as Urals. There is curren tly no equalization scheme for differences in cru de o il quality wit hin the Transneft pipeline system and the implem entation of any such schem e or the i mpact of it o n the Gr oup’s busine ss is not currently determin able. Note 27: Principa l subsidiaries Set out below are the Group's pri ncipal subsidiaries at 31 Dece mber 2021 and 2020. The joint- stock compan ies as listed below (except for PJSC "Nizhnekamskshina") have share ca pital consisting solely of ord inary shares. The proportion of ownership interests held equa ls to the voting rig hts held by G roup. The country of incorporation or registration is also their princi pal place of business. For all principal subsidiaries the country o f incorporation is the Russian Federation, except f or Ta tneft Europe AG, which is inco rporated in Sw itzerland. At 31 December 2021 At 31 December 2020 Name o f ent ity Principal activity % o f ownership interest held by the Group % o f ownership interest held by the NCI % o f ownership interest held by the Group % o f ownership interest held by the NCI PJSC Bank ZENIT Banking operations 71 29 72 28 Tatneft Europ e AG Export oil sales 100 - 100 - TANECO JSC Oil refinery 100 - 100 - Nizhnekamskshina PJSC Tires productio n 82 18 82 18 Nizhnekamskiy zavod gruzovy kh shin LLC Tires production 1 00 - 100 - Trade House K ama LLC T ires sales 100 - 100 - Tatneft-AZS Centr LLC Oil products sales 100 - 100 - Tatneft-AZS-Zapa d LLC Oil products sales 100 - 100 - Tatneft-AZS-Seve ro- Zapad LLC Oil products sales 100 - 100 - The su mmarised fin ancial information relating to the subsid iari es with material non-controlling interest was as follows: Current assets Non- current assets Current liabilities Non- current liabilities Revenue Profit Year ended 31 December 2021 PJSC Bank ZENIT 82,717 167 ,034 215,828 10,433 17,266 647 Nizhnekams kshina PJSC 1,069 576 4,373 - 7,282 848 Total 83,786 167,610 220,201 1 0,433 24,548 1,495 Year ended 31 December 2020 PJSC Bank ZENIT 82,263 130,898 179,593 12,293 18,605 (3 ,992) Nizhnekamsks hina PJSC 682 389 4,419 - 7,076 (2,993) Total 82,945 131,287 184,012 12,293 25,681 (6,985 ) TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 60 Note 28: Business combinations In 2nd quarter of 2021 the Group acquired 100% of the chart er c apital of L LC BaltTekhProm, LLC TD Ecopolimery and 100% of the share capital of JSC Ecopet from a third party, PJSC National Bank TRUST and obtained control of these entities becoming the sole participant of LLC BaltTekhProm, LLC TD Ecopolimery and through its ability to cast a m ajority of votes in the general meeting of sharehold ers of JSC Ecopet. The acquired companies constitute the enterprise for th e production and sale of p olyethylene tere ph thalate used for the productio n of PET bottles and cans, food containers and packaging, as well as other technical and household products. The acquired subsidiaries contribute t o the furthe r developm ent of the Group's petroc hemi cal busine ss. The purchase price was RR 6,450 million and the cash consideration was fully paid in 2nd quarter 2021. The consideration pa id by the Group was based on th e results of th e evaluation of the business value of the acquire d entity as a whole. Details of asse ssment of the f air value of ac quired assets and liabilities performed by the Group are as follows: Preliminary fair value Cash and cas h equivalents 994 Property, plant and equi pment 2 ,208 Inventori es 3,303 Accounts receivable and a dvances issued 2,1 88 Other assets 353 Trade and oth er payables (1,106) Deferred tax liabilities (1,455) Other liabilities ( 3 5 ) Fair value of i dentifiable net assets of subsidiary 6,450 Total purchase consideration 6,450 Сash and cas h equivalents of subsidiary ac quired (994) Purchase price, net 5,456 For the period from the acquisition date to 31 December 2021 th e acquired business accoun ted for RR 10,516 million i n t he G r ou p' s re ve n u e a nd R R 49 2 m il l io n i n p ro fi t . I f t h e ac q uisition had occurred on 1 January 2021, the Group revenue and profit for the year ended 3 1 December 20 21 would ha ve been RR 1,274,063 million and RR 199,792 million respectively. In additi on in the third quarter of 2021, the Group acquire d a geological and prod uction geop hysical business by purchasing the share in LLC TNG-AlGIS from a thi rd party LLC T N G-Group and obtained control of these entities becoming the sole participant o f LLC TNG- AlGIS. Note 29: Fi nancial risk man agement Financial risk man agement objectives and policies. The Group‘s activities expose it to a variety of financial risk s: market risk (including foreign currency ri sk, interest rate risk), credit risk and liquid ity risk. Th e Group‘s ov erall risk management program focuses on the unpredictability of financial markets and seek s to minimize pot ential adverse effects on the Group‘s financial performa nce. The Group has introduced a risk management system and developed a number of procedures to measure, assess and m onitor risks and select the relevant risk m anagement techni ques. Market risk Market risk is the risk or uncertainty arising from possible ma rket price movements and their impact on the future performance of a b usiness. The Group takes on exposure to market r isks. Market risks arise f rom open p ositions in (a) foreign currencies, (b) interest rate risk and (c) f inancial instruments price risk . a) Currency risk The Group operates intern ationally and is exposed to currency r isk arising from various currency exposures primarily with respect to th e US Dollar. Fo reign ex change risk arises fro m assets, liabilities, commercial transactions and financing denominate d in foreign cur rencies. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 61 Note 29: Fi nancial risk man agement (cont inued) The table bel ow summ arises the Group’s e xposure to foreign curr ency exchange r ate risk as at 31 December 2021. Russian Ruble US Dollar Other Total Financial assets Cash and cash equivalents Cash on hand and in banks 16,038 28,126 4,773 48,937 Term deposits with original maturity of less than thre e months 10,015 - - 10,015 Due from banks 7,072 - 463 7,535 Banking: Mandatory reserves with the Bank of Russia 1,429 - - 1,429 Accounts receivable Trade receivables 49,562 34,496 1,077 85,135 Other financial rece ivables 4,052 582 - 4,634 Banking: Loans to customers 98,129 31,399 5,174 134,702 Other financial assets Bank deposits at amortised cost 52,723 3,769 - 56,492 Bank deposits at fair value through profit or loss - 33,465 - 33,465 Due from banks 2 3,498 1,915 5,415 Loans to emplo yees 940 - - 940 Other loans at AC 2,283 - - 2,283 Other loans at FVTPL 4,251 - - 4,251 Securities at F VTPL 3,281 1,040 247 4,568 Securities at FV OCI 53,937 1,604 3 55,544 Securities at AC 12,748 13,540 - 26,288 Total financial assets 316,462 151,519 13,652 481,633 Financial liabilities Trade and other fi nancial payables Trade payables 53,134 197 782 54,113 Dividends payable 22,984 - - 22,984 Current portion of lease liab ilities 2,838 - - 2,838 Lease obligation s, net of current portion 10,324 - - 10,324 Other payables 2,491 37 - 2,528 Banking: Other finan cial liabilities at FVTPL 6,092 960 11 7,063 Debt Bonds issued 20,412 - - 20,412 Subordinated debt 21 - - 21 Debt securities i ssued 568 - - 568 Credit facilities 2,612 2,170 3,296 8,078 Other debt 1,658 329 1,106 3,093 Banking: Due to banks and the Bank of Russia 14,735 12,753 91 27,579 Banking: Customer accounts 126,036 20,263 5,130 151,429 Total financial liabilities 263,905 36,709 10,416 311,030 Net balance sheet position 52,557 114,810 3,236 170,603 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 62 Note 29: Fi nancial risk man agement (cont inued) The table bel ow summ arises the Group’s e xposure to foreign curr ency exchange r ate risk as at 31 December 2020. Russian Ruble US Dollar Other Total Financial assets Cash and cash equivalents Cash on hand and in banks 21,553 6,401 2,781 30,735 Term deposits with original maturity of less than thre e months 7,242 - - 7,242 Due from banks 29 - 2,099 2,128 Banking: Mandatory reserves with the Bank of Russia 1,528 - - 1,528 Accounts receivable Trade receivables 47,736 32,017 119 79,872 Other financial rece ivables 4,798 385 - 5,183 Banking: Loans to customers 73,712 20,401 7,542 101,655 Other financial assets Bank deposits 10,000 - - 10,000 Due from banks 1 2,390 - 2,391 REPO with banks 608 943 - 1,551 Loans to emplo yees 981 - - 981 Other loans at AC 8,346 218 - 8,564 Other loans at FVTPL 5,079 - - 5,079 Securities at F VTPL 4,915 425 763 6,103 Securities at FV OCI 40,659 1,460 4,223 46,342 Securities at AC 19,023 14,885 - 33,908 Total financial assets 246,210 79,525 17,527 343,262 Financial liabilities Trade and other fi nancial payables Trade payables 52,828 1,486 714 55,028 Dividends payable 823 - - 823 Current portion of lease liab ilities 2,540 - - 2,540 Lease obligation s, net of current portion 10,679 - - 10,679 Other payables 2,583 40 - 2,623 Banking: Other finan cial liabilities at FVTPL 1,690 - 74 1,764 Debt Bonds issued 22,079 - - 22 079 Subordinated debt - 21 - 21 Debt securities i ssued 612 - - 612 Credit facilities 1,300 3,807 2,848 7,955 Other debt 3,006 427 513 3,946 Banking: Due to banks and the Bank of Russia 6,494 6,862 1,854 15,210 Banking: Customer accounts 110,330 29,291 9,004 148,625 Total financial liabilities 214,964 41,934 15,007 271,905 Net balance sheet position 31,246 37,591 2,520 71,357 For th e year ended 31 December 2021 the Group recognised RR 14, 295 million and RR 11,820 milli on foreign exchange gains and losses respec tively in the consolid ated stat ement of profit or loss and other comprehensive income (for the year ended 31 December 2020: RR 15,234 million and RR 9,637, respectively). Foreign exchange gains and losses are d erived primarily from operating activitie s from the export sales of crude oil and refined products. The following table presents sen sitivities of profit and loss a nd equity to changes in US Dollar exchange rates applied at the end of the reporting period relativ e to Russian Ruble: Year ended 31 December 2021 Year ended 31 December 2020 Impact on profit before tax Impact on equity Impact on profit before tax Impact on equity US Dollar strengthening by 20% 15,515 12,412 7,518 6,015 US Dollar weakening by 20% (15,515) (12 ,412) (7,518) ( 6,015) TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 63 Note 29: Fi nancial risk man agement (cont inued) b) Interest rate risk. The Group takes on expo sure to th e effects of fluctuation s in t he prevailing levels of mark et interest rates on its financial position and cash flows. Interest margins may increas e as a result of such changes, but may reduce or create losses in the event that unexpect ed movements arise. Management monitors on a d aily basis and sets li mits on the level of mismatch of interest ra te repricing that may be under t aken. Non-banking operatio ns interest rate risk managemen t The majority of th e Group’s borr owing s is at variable interest rates (linked to the LIBOR r ate). To mitigate the risk of si gnificant changes in the LIBOR rate, the Group’s treasury fun ction performs periodic analysis of the interest rate environm ent. The Group does not have a formal policy of de termining how much of th e Group’s exposure s h o u l d b e t o f i x e d o r v a r i a b l e r a t e s . H o w e v e r , t h e G r o u p p e r f o r ms periodic analysis of the current interest rate environm ent and dependin g on that analysis at the time of raisi ng new debts managem ent makes decisions whether to obtain financing on fixed-rate or variable-rate basis would be more beneficial to the Group over the exp ected period until maturity. Banking oper ations interest r ate risk management The majority of the Group’s interest rate sensitiv e banking fin ancial assets a nd liabilities are at f ixed rates. Therefore, the Group’s int erest rate risk a rises prim arily from unm atched positions on maturities of assets and liabilities carried at fixed rates. Management of interest rate risk is perform ed through analysis of the structure of assets and liabilities b y repricing dates. Interest rates that are cont ractually fixed on both asse ts and liabilities may be renego tiated before any new credit tranche is issued to reflect c urrent market conditions. All new credit products and transactions a re assessed in respect of interest rate risk upf ront, prior to starting these transactions . Additionally, as disclosed in the maturity analysis below, the maturity dates applicab le to the majority of the Bank ZENIT's assets an d liabilities are relatively short-term and th a t p r o v i d e s t h e B a n k Z E N I T w i t h a c e r t a i n l e v e l o f flexibility to react to chang ing market conditions. The G roup’s overall interest rate risk is monitore d by Assets a nd liabilities committee (“ALCO”) w hich reviews the structure of assets and liabilities, curren t and projected inte rest rates. Financial departments of Bank ZENIT are responsible for day-to-day manag ement of the interest rate mism atch, preliminary approv al of interest r ates on projected transactions, preparation and submission for approval suggestions on acceptable interest rate levels by instrument an d duration. Risk ma nagement departments of Bank ZE NIT review current interest rate gaps and assess resulting effects of interest rate risk on the Group's interest margin a nd econom ic capital. The interest rate risk measurement system provides the ability to evaluate a risk profile from two different, but complem entary points of view. From the ec onomic value poi nt of v ie w th e e ff e c t of c h an g e s in i n te r e s t r a te s a nd t h e associated volatility of the pres ent v alue of all future cash f lows is considered and is calcu lated as t he change in the sensitivity of fair value u sing a sho ck effect on the interest rate curve. From the p rofit point of view the effect generated by m easuring interest rates on net profit in the form of interest and, therefore, on the associated effect on net interest incom e on a 1-year horizon i s anal ysed. Interest r ate risk re porting i s com piled and reported to t he Bank ZENIT’s Management Board on a quarterl y basis. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 64 Note 29: Fi nancial risk man agement (cont inued) Interest rate risk analysis on banking and non-banking operations of th e Group The table below summarises the Group’s exposure to interest rat e risks. The table presents the aggregated amounts of the Gro up’s finan cial assets and liabilities at carrying amo unts, categorised by the earli er of contractual interest repricing or maturity dates: Demand and less than 1 month From 1 to 6 months From 6 to 12 months From 1 to 5 years More than 5 years Non-sensitive Total 31 December 2021 Total financial assets 55,583 67,899 54,568 96,232 59,022 148,329 481,633 Total financial liabilities 55,542 36,144 61,448 71,231 6,696 79,969 311,030 Net interest sensitivity gap 41 31,755 (6,880) 25,001 52,326 68,360 170,603 31 December 2020 Total financial assets 40,496 25,504 25,320 70,309 62,057 119,576 343,262 Total financial liabilities 45,961 48,852 35,811 77,621 5,017 58,643 271,905 Net interest sensitivity gap (5,465) (23,348) (10,491) (7,312) 57,040 60,933 71,357 The table below summarises the ef fective average year end inter est rates, by major currencies (US Dollars, Russian Rubles), for financial instruments. The analysis has bee n prepa red on t he basis of weighted average effective interest rates for the various fina ncial instruments using y ear-end cont ractual term s and co nditions. At 31 December 2021 At 31 December 2020 Russian Ruble US Dollar Russian Ruble US Dollar Financial assets Cash and cash equivalents Cash on hand and in banks - - - - Term deposits 8.3% - 4.36% - Due from banks - - - - Banking: Loans to customers 10.4% 3.11 % 9.98% 2.84% Other financial assets Bank deposits at amortised cost 9.12% 0.55 % 5.08% - Bank deposits at fair value through profit or loss - 0.5 5% - - Due from banks 7.53% 1.87 % 4.40% 0.02% REPO with banks - - 4.25 % 0.19% Notes receivable - - 0.1 0% - Loans to emplo yees 3.19% - 3.19% - Other loans 4.85% - 7.05% - Securities at F VTPL 6.13% 5.03 % 6.53% 4.74% Securities at FV OCI 7.6% 6.41% 6 .04% 5.25% Securities at AC 7.77% 4.42 % 6.93% 4.95% Financial liabilities Debt Bonds issued 6.82% - 6.90% - Subordinated debt 8.50% - 8.50% - Debt securities i ssued 5.64% - 5.48% - Credit facilities 4.00% 1.61% 5.00% 0.76% Other debt 5.42% 0.01% 4.10% 0.01% Banking: Other financ ial liabilities at f air value through profit or loss 5.25% 7.70% 5.25% 7.70% Banking: Due to banks and the Bank of Russia 5.97% 0.72% 4.15% 0.36% Banking: Customer accounts 7.04% 0.32% 3.62% 0.52% TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 65 Note 29: Fi nancial risk man agement (cont inued) The following table presents a sensitivity analysis of interest rate risk on banking and non-banking financi al assets and liabilities: Year ended 31 December 2021 Year ended 31 December 2020 Impact on profit before tax Impact on equity Impact on profit before tax Impact on equity Increase by 200 basis points 2,045 1 ,636 208 166 Decrea se by 200 basi s point s (2,045) (1,636) (208) (166) c) Financial instruments pri ce risk Financial instrum ents price risk is the risk that movements in market prices resulting from factors associated with an issuer of financial instrumen ts (specific risk) and general changes in the m arket prices of financial instruments (general risk) will affect the fair value or future cash flows o f a f i n a n c i a l i n s t r u m e n t a n d , a s a r e s u l t , t h e G r o u p ’ s profitability. Financial instruments price risk for financial instruments h eld within the Group’s financial assets at fair value through profit or loss is managed: (a) throug h maintaining a diversified structure of portfo lios; and (b) by setting position limits ( i.e. limits restricting the total amount of an inv estment or maximum mismatch between resp ective assets a nd liabilit ies) as well as stop-loss and call-leve l lim its, in add ition to these, the Group sets limits on a maximum duration of debt financial instrument s. When necessary the Group establishes margin and collateral requirements. Financial instrume nts price risk is m anaged primarily through d aily mark-to-market procedures, sensitivity analysis and control of limit s established for various t ypes of fina ncia l instruments. Sensitivity to chang es in other prices is esti mated using the V a l u e a t R i s k ( V a R ) m e t h o d o l o g y . T h i s i s a w a y t o assess potential losses that may o ccur at a risk position as a result of changes i n market rate s and price s in a certai n period of time with a given lev el of confidence. VaR estimates in respect of financial assets at fair value thro ugh profit or loss and available-for-sale financial assets are as follows: Year ended 31 December 2021 Y ear ended 31 December 2020 Impact on profit before tax Impact on equity Impact on profit before tax Impact on equity Fixed income secur ities price ris k 741 593 499 399 Equity securities price risk - - 1 1 Total price risk 741 593 500 400 Credit risk The Group exposes itself to cred it risk, which is the risk that o ne party to a fina ncial instrument will cause a financial loss for the ot her party by failing to m eet an obligat ion. E x p o s u r e t o c r e d i t r i s k a r i s e s a s a re s u l t o f t he G r o u p ’ s l e n di ng and other trans actions with counterp arties, giving rise to financial assets and off-balance sh eet credit-related c ommitmen ts. The Group’s maximum exposure to credit risk is reflected in the carrying amounts of fin ancial assets in the consolidated statement of fin ancial positio n. For f inancial gua rantees issued, commi tments to extend credi t, undrawn credit lines and export/import letters of credit, the maximum e xposure to credit risk is the amount of the com mitment. The estimat ion of credit risk for risk management purposes is c omplex and involves the use of models, as the risk varies depending on market conditions, expected cash flows and the passage of time. The assessment of credit risk for a portfo lio of assets entails further estimation s of th e li kelihood of d efaults occurr ing, the associated loss ratios and default correlations b etwe en counterparties. Expected credit loss (ECL) measureme nt. ECL is a probability-weighted estim ate of the p resent value of future cash shortfalls (i.e., th e weighted average of credit losses, with t he respective risks of default occurring in a given time period used as weights). An ECL measurement is unbiased and is determined by evaluatin g a r ange of po ssible outcome s. ECL measurement is based on four components used by t he Group : Probability of Default (“PD”), Exposure at D efault (“EAD”), L oss Given D efault (“LGD”) an d Dis count Rate. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 66 Note 29: Fi nancial risk man agement (cont inued) EAD is an estimate of expo sure at a future default date, takin g into account expected changes in the exposure after the reporting period, including repayments of principal and int erest, and expected drawdowns on committed facilities. Th e EAD on credit rela ted co mmitments is estimated using Credit Conversion Factor (“CCF”). CCF is a coefficient that sho ws th e prob ability o f conv ersion of the com mitted amounts to an on-balance sheet exposure within a defined period. PD an estimate of the likelihood of defau lt to occur over a giv en time period. LGD is an estimate of the loss arising on default. It is based on the difference between the contractu al cash flows due and those that the lender would expect to receive, including from any collateral. It is usually expressed as a p ercentage of the EAD. The expected losses are discounted to present va l u e at t h e en d o f th e r e po r t ing period. The discount rate represents the effective interest rate (“EIR”) for t he financial instrument or an ap prox imation thereof. Expected credit losses are m ode lled over instrument’s lifetime period. The lifetim e period is equal to th e remaining contractual period to maturity of debt instrument s, adjusted fo r e x p e c t e d p re p a y m e n t s , i f a n y. Fo r lo a n c o m mi tm e n t s and financial guarantee contracts, it is the contractual period over which an entity has a present contractual obligation to extend credit. Management models Lifetime ECL, th at is, losses that result fro m all possible default events over the remaining lifetime period of the financial instrument. The 12-month ECL, represents a portion of lifetime ECLs that result from defau lt events on a financial instrument that are possible within 12 months after the reporting period, or remaining lifetime period of the financial in strument if it is less than a year. The ECLs that are estimated by managem ent for the purposes of t hese financial statements are point-in-time estimates, rather than through-the-cycle estimates that are com monly used for regulatory purposes. The estimates consider forward-l ooking inform ation, that is, ECLs reflect pro bability weighted dev elopment o f key macroeconomic variables that h ave an impact on credit risk. The ECL modell ing does not differ for Purchased or Originated C redit Impaired (“POCI”) financial assets, excep t that (a) gross ca rrying val ue and discount rate are base d on ca sh flows that were recoverab le at initial recognition of the asset, rather than based on contractual cash f lows, and (b) t h e E C L i s a l wa y s a l i f e t i m e E C L . P O C I a s s e t s a r e financial assets that are credit-impaired upon initial reco gnit ion, such as impaired loans acquired in a past business combination. Credit risk management. Credit risk is the single largest risk for the Group's busines s; management therefore carefully manages its exp os ure to credit risk. An assessment is performed at each reporting date to identify a significant increase in credit risk since ini tial recognition of a financial instrument. Such assessm ent is performed on the basis of quali tative and quantitative information:  Quantitative assessment is performed on the basis of a change i n risk of default arising over the expected lifetime of a financial asset .  Qualitative assessment implies that a number of factors are imp ortant for assessing significant increase in credit risk (restructuring indicative of pro blems, establishing f avoura ble schedule for repaying loan interest and principal, significant changes in expected results of opera tions an d behav iour of a borrower and other material chang es). Financial assets move from Stage 1 to Stage 2 if there is one o r a com bination of the following factors:  financial assets are over 30 days ov erdue;  credit rating deteriorates;  there are early warning indicator s of an increase in credit ris k; a need to change previously agreed on terms of the agreement to create more favourable envi ronment for a cu stomer due to his inability to meet current liabilities because of the cu stomer’s financial position; full or partial refinanci ng of the current debt which would not be required if the cli ent did not e xperience fi nancia l difficulties;  a customer has no rating at the reporting date;  information on future changes in assets that may result in cred it losses not considered in the rating systems is identified (e.g. military conflicts in the region that may h ave a significant impact on future credit quality). TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 67 Note 29: Fi nancial risk man agement (cont inued) A default is recognised if one or a combi nation of the followin g events occur:  financial assets are over 90 day s overdue (a r ebuttable pres ump tion);  a default rating is assigned ;  restructuring indi cative of problem s is undert aken;  a favourable schedule for repaying interest and principal with payments to be made at the end of the term is granted. Non-banking activities credit risk managemen t Credit risk arises from cash and cash equivalents, bank deposit s, loans and notes receivables, as well as credit exposures to customers i ncluding outst anding tra de and ot her re ceivables. Credit risks related to account s receivable are systematically m onitored takin g int o acc ount t he cust omer’s financial position, past experience and o ther factors. Management systema tically reviews ageing analysis of receivables and uses this information for calcu lation of expected credit losses . A significant portion of the Group’s accounts receivable is due from dom estic a nd export trading com panies. T he G roup does not alway s require co llateral to lim it the exposure to loss; however, in most cases letters o f credit and prepayments are used, especially with respect to accounts receivables from non-CIS sales of crude oil. The Group operates with v arious customers and a substan tial part of its sales relate to major customers. Although co llectio n of accounts receivable could be influenced by economic factors affecting these custom ers, managem ent believes there is no significant risk of loss to the Group beyond the provi sions already rec orded. Credit risk analysis fo r accounts receivable is p resented in Note 7. The Group p erforms an ongoing assessment and monitoring of the risk of default . In additi on, as part of its cash manageme nt and credit risk function, the Group regularly evalua tes the creditworthiness of financial and banking institutions where it d eposits cash. The Group deposits availab le cash mostly w ith fin ancial institu tions in the Russian Federat ion. To ma nage this credit ris k, the Group al loc ates its available cash to a variety of Russian banks. Management periodically revi ews the credi t worthi ness of the ba nks in which it deposits cash . Banking activities credit risk management The Group’s credit risk policies prescribe its acceptance only through for malized procedur es and on ly based on decisions of the authorized collegial body. The Bank ZENIT has a system of credit committees responsible for making credit decisions, the main objective of which is to crea te a high-qu ality loa n portfolio that ensures the implementation of the st rategy, credit po licies and risk manage ment policies. The credit committees of Bank ZENIT, authorized to make credit decisions, have a clear segmentation according to business lines, lending segm ents and the amount of authority . Credit committees and their level of respo nsibility in respect of approval of maxim um ex posures on a borrower or group of related b orrowers are as follows: Name o f co mmitte e Maximum exposure allowed to be approved, RR million Assets and liabilities management committe e No t limited Credit committee Not limited Credit comm ittee on smal l and medium -sized busi ness borrowers 400 Credit committee on retail lending 100 Project managem ent committee Not limited Small project man agement committee 25 * Within the limits of standards N 6 and N25 The Group structures the level o f credit risk it undertak es by placing the appropriate limits. Limits are set b y the Group on an individual (for example, for specific customers and counterparties), group and portfolio basis (fo r example, ind ustry and re gional lim its, limit s on types of o pera tions, etc.). Internal regulati ons o n fi nancial analysis and risk assessment are c reated a nd a pplied t o ea ch se gment of t he le nding activity, includin g lending to legal entities, individuals, sma ll and m edium -sized business es and other ca tegories of borrowers. To reduce the level of risk, the G roup accepts collateral in th e form of pledges, sureties and guarantees . In case of acceptance of a surety, the Group performs a financial analysis of the guarantor. Th e assessment of collateral is performed internally by special division respon sible for collat eral assessm ent and control. They use several methodologies developed fo r each type of collateral. Valuations p erform ed by third partie s, incl uding independe nt ap praisal firms authorized by the Group, may serve as additional data for such assessment. The Group u sually req uires collateral to be insured by insurance companies authorized b y the Group. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 68 Note 29: Fi nancial risk man agement (cont inued) Credit risk for o ff-balance sheet financial instruments is defi ned as the possibility of su staining a loss as the result of another party to a financial instrument failing to perform i n accordance with the term s o f the contract. The Group uses the same cred it policies in assuming conditional obligatio ns as it does for on balance sheet financial instruments, through established cred it appr ovals, risk control limits and m onitoring procedures. Risk management departments mon itor compliance with the require ments of external and internal polices of risk assessment, credit decision mak i ng, authori ty to make cred it de cisions, and work with collaterals. To quantify the credit risk, the Group uses internal models (ra ting systems). In the absence of a model, the assessment can be carrie d out in one o f the alternative ways:  based on t he average values obtained o n the internal statistics ;  using external ratin gs of international rating agencies (S&P, F itch, Moody`s). The system of internal ratings is continuously updated and deve loped. The i nformat ion accumul ated over this period provides a sound ground for assessment of rating s migration and allows the Group to calibrate correspondi ng parameters of default probability. The Group u pdates and validates i nternal models and approache s on a periodic basis, but at least once a year. For the purpose of information disclosure, assets are grouped in on e of the 6 credit quality rating categories in ord er of credit quality deterioration (cre dit risk increase) in accordan ce with the approaches outlined below: Rating group PD interval Corresponding ratings of S&P Description I <0.36% «AAA»… «BB+» Minimal credit risk II [0.36%; 1.51%) «BB»…«BB-» Low credit risk III [1.51%; 7.51%) «B+»… «B-» Medium credit risk IV [7.51%; 20%) «CCC+» Potentially high credit risk V [20%; 100%) «CCC»… «C» High credit risk VI 100.00% «D» Default assets Credit ris k monit oring has an im portant r ole in m aintaining the quality of loans at least as good as at th e moment of credit limits approval, in preven ting losses on the form ed port folio in excess of planned norms and consists in:  structure d and conti nuous moni toring of t he impl ementation of f inancial and non-financial cove nants;  carrying out, with an established frequ ency, regu lar inspectio n s of th e volume, type an d co nditions of maintenance of the p ledged items, its validity and insurance;  conducting a quarter ly analysis of the financial and economic activities of the bo rrower and monitoring its financial position;  carrying out a full annual risk review according to the establi shed limits with a full-scale, comprehen sive reassessment of the key risk s of the counterparty/issuer/compan y/grou p of companies (holding) that includes the borrower, its finan cial stability and solvency, ta king into acco unt the market situation;  monit oring of pro blematic signal s in orde r to prom ptly respon d and minimize risks at a n early stage;  monitori ng of proper l oan maintenanc e and repaym ent (tranches);  analysis of actual exposures versus estab lished limits;  control over compliance with internal policies, procedures, ins tructions and o rders issu ed by resp ective manageme nt bodies;  monitori ng of macroecon omic param eters in order to check the ad equacy of risk assessment and forecast. In order to ensure financial stability, forecast expected losse s, plan capital requirements, calcu late risk- appetite limits, the Group performs perio dic stress-testing of credit ri sk. The stress-testing tool includes regression models based on macroeconomic factors. A mandatory condition for th e a pplication of r egression mode ls is their high quality, confirmed by th e results of validation. The Group’s di visions carry out loan m aturity analy sis and foll ow- up control o ver overdue balances . For more detailed analyses pleas e refer to: https://www.zenit.r u/en/#investor en TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 69 Note 29: Fi nancial risk man agement (cont inued) Credit risk analysis on banking and non-bankin g operations of the Group The Group uses the fo llowing r a ting categories for th e analysis of credit qu ality of assets o ther than loans to customers and accounts receivable:  investme nt grade ratings classificati on referred to as Aaa to Baa3 for Moody’s Investment Services, as AAA to BBB- for Fitch Rating and as AAA to BBB- for Stand ard an d Poor’s Rating, respectively;  non-investm ent grade ratings classification r eferred to as B a1 to C for Moody’s Investm ent Services, as BB+ to D for Fitch Rating and as BB+ to D fo r Standard and Poor ’s Rating, respectively. The following table contains an analysis of the credit risk exp osure of cash and cash equivalents includin g mandatory reserve deposits with the Bank of Russi a. The carryi ng amount a lso represents the Group's maximum exposure to credit risk on these financial assets. At 31 December 2021 Stage 1 (12-months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) POCI Total Cash on han d and cash in banks - Investment grade rating 46,750 - - - 46,750 - Non-investmen t grade rating 859 - - - 859 - Unrated 1,328 - - - 1,328 Gross carrying amount 48,937 - - - 48,937 Credit loss allowance - - - - - Carrying amount 48,937 - - - 48,937 Term deposits with original maturity of le ss than three months - Investment grade rating 562 - - - 562 - Non-investmen t grade rating 9,150 - - - 9,150 - Unrated 303 - - - 303 Gross carrying amount 10,015 - - - 10,015 Credit loss allowance - - - - - Carrying am ount 10,015 - - - 10,015 Due from banks - Investment grade rating 7,535 - - - 7,535 - Non-investm ent grade rating - - - - - - U n r a t e d - - - - - Gross carrying amount 7,535 - - - 7,535 Credit loss allowance - - - - - Carrying am ount 7,535 - - - 7,535 Banking: Mand atory rese rve deposit s with the Bank of Russia - Investment grade rating 1,429 - - - 1,429 - Non-investm ent grade rating - - - - - - U n r a t e d - - - - - Gross carrying amount 1,429 - - - 1,429 Credit loss allowance - - - - - Carrying am ount 1,429 - - - 1,429 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 70 Note 29: Fi nancial risk man agement (cont inued) At 31 December 2020 Stage 1 (12-months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) POCI Total Cash on han d and cash in banks - Investment grade rating 29,237 - - - 29,237 - Non-investmen t grade rating 226 - - - 226 - Unrated 1,272 - - - 1,272 Gross carrying amount 30,735 - - - 30,735 Credit loss allowance - - - - - Carrying amount 30,735 - - - 30,735 Term deposits with original maturity of le ss than three months - Investment grade rating 911 - - - 911 - Non-investmen t grade rating 6,073 - - - 6,073 - Unrated 258 - - - 258 Gross carrying amount 7,242 - - - 7,242 Credit loss allowance - - - - - Carrying am ount 7,242 - - - 7,242 Due from banks - Investment grade rating 2,128 - - - 2,128 - Non-investm ent grade rating - - - - - - U n r a t e d - - - - - Gross carrying amount 2,128 - - - 2,128 Credit loss allowance - - - - - Carrying am ount 2,128 - - - 2,128 Banking: Mand atory rese rve deposit s with the Bank of Russia - Investment grade rating 1,528 - - - 1,528 - Non-investm ent grade rating - - - - - - U n r a t e d - - - - - Gross carrying amount 1,528 - - - 1,528 Credit loss allowance - - - - - Carrying am ount 1,528 - - - 1,528 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 71 Note 29: Fi nancial risk man agement (cont inued) The following table contain s an analysis of the credit risk exp osure of other financial assets m ea sur ed at am ort ise d cost and measured at fair value through other comprehensive inc ome for which ECL allowance is recognised other than cash and cash equivalen ts including mandat ory reserve depo sits with the Bank of Russia, loans to custom ers and accounts receivable. The carry ing amount also represents th e Group’s maximum exposure to credit risk on these financial assets. At 31 December 2021 Stage 1 (12-months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) POCI Total Notes receivable - Investment grade rating - - - - - - Non-investmen t grade rating - - - - - - Unrated - - 318 - 318 Gross carrying amount - - 318 - 318 Credit loss allowance - - (318) - (318) C a r r y i n g a m o u n t - - - - - Other loans - Investment grade rating - - - - - - Non-investmen t grade rating - - - - - - Unrated - 1,474 24,262 - 25,736 Gross carrying amount - 1,474 24,262 - 25,736 Credit loss allowance - (92) (23,361) - (23,45 3) Carrying amount - 1,382 901 - 2,283 Loans to employees - Investment grade rating - - - - - - Non-investmen t grade rating - - - - - - Unrated - - 2,716 - 2,716 Gross carrying amount - - 2,716 - 2,716 Credit loss allowance - - (1,776) - (1,776) Carrying am ount - - 940 - 940 Bank deposits - Investment grade rating 3,777 - - - 3,777 - Non-investment grade rating 52,715 - - - 52,715 - Unrated - - 5,547 - 5,547 Gross carrying amount 56,492 - 5,547 - 62,039 Credit loss allowance - - (5,547) - (5,547) Carrying am ount 56,492 - - - 56,492 Due from banks - Investment grade rating 653 - - - 653 - Non-investment grade rating 4,762 - - - 4,762 - Unrated - - 39 - 39 Gross carrying amount 5,415 - 39 - 5,454 Credit loss allowance - - (39) - (39) Carrying am ount 5,415 - - - 5,415 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 72 Note 29: Fi nancial risk man agement (cont inued) At 31 December 2021 Stage 1 (12-months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) POCI Total Debt securities measured at am ortised cost - Investment grade rating 9,292 - - - 9,292 - Non-investmen t grade rating 17,055 - - - 17,055 - Unrated - - - - - Gross carrying amount 26,347 - - - 26,347 Credit loss allowance (59) - - - (59) Carrying am ount 26,288 - - - 26,288 Debt securities measured at fai r value through other comprehensive income - Investment grade rating 1,866 - - - 1,866 - Non-investment grade rating 27,734 - - - 27,734 - Unrated 359 - - - 359 Gross carrying amount 29,959 - - - 29,959 Credit loss allowance (90) - - - (90) Carrying am ount 29,869 - - - 29,869 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 73 Note 29: Fi nancial risk man agement (cont inued) At 31 December 2020 Stage 1 (12-months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) POCI Total Notes receivable - Investment grade rating - - - - - - Non-investmen t grade rating - - - - - - Unrated - - 318 - 318 Gross carrying amount - - 318 - 318 Credit loss allowance - - (318) - (318) C a r r y i n g a m o u n t - - - - - Other loans - Investment grade rating - - - - - - Non-investmen t grade rating - - - - - - Unrated 73 1,315 31,739 - 33,127 Gross carrying amount 73 1,315 31,739 - 33,127 Credit loss allowance - (92) (24,471) - (24,563) Carrying amount 73 1,223 7,268 - 8,564 Loans to employees - Investment grade rating - - - - - - Non-investmen t grade rating - - - - - - Unrated - - 2,698 - 2,698 Gross carrying amount - - 2,698 - 2,698 Credit loss allowance - - (1,717) - (1,717) Carrying am ount - - 981 - 981 Bank deposits - Investment grade rating - - - - - - Non-investment grade rating 10,000 - - - 10,000 - Unrated - - 5,547 - 5,547 Gross carrying amount 10,000 - 5,547 - 15,547 Credit loss allowance - - (5,547) - (5,547) Carrying am ount 10,000 - - - 10,000 Due from banks - Investment grade rating 208 - - - 208 - Non-investment grade rating 2,201 - - - 2,201 - Unrated - - 39 - 39 Gross carrying amount 2,409 - 39 - 2,448 Credit loss allowance (18) - (39) - (57) Carrying am ount 2,391 - - - 2,391 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 74 Note 29: Fi nancial risk man agement (cont inued) At 31 December 2020 Stage 1 (12-months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit im- paired) POCI Total REPO with banks - Investment grade rating 1,551 - - - 1,551 - Non-investmen t grade rating - - - - - - Unrated - - - - - Gross carrying amount 1,551 - - - 1,551 Credit loss allowance - - - - - Carrying amount 1,551 - - - 1,551 Debt securities measured at am ortised cost - Investment grade rating 26,929 - - - 26,929 - Non-investmen t grade rating 6,863 - - - 6,863 - Unrated 244 - - - 244 Gross carrying amount 34,036 - - - 34,036 Credit loss allowance (128) - - - (128) Carrying am ount 33,908 - - - 33,908 Debt securities measured at fai r value through other comprehensive income - Investment grade rating 18,595 - - - 18,595 - Non-investment grade rating 1,723 - - - 1,723 - Unrated 474 - - - 474 Gross carrying amount 20,792 - - - 20,792 Credit loss allowance (32) - - - (32) Carrying am ount 20,760 - - - 20,760 Within short term bank deposits there are RR 5,547 million of d eposits placed with Tatfo ndbank. In March 2017, by the orde r of the Bank of Russia t he license t o conduct banki ng operatio ns was withdrawn f rom Tatfondba nk. At 31 December 2021 and 2020 the Gr oup created a provision f or imp airment of deposi ts placed with Tatfond bank in the amount of RR 5,547 million. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 75 Note 29: Fi nancial risk man agement (cont inued) Liquidity risk Liquidity risk is the risk that the Group will not b e able to m eet its financial obliga tions as th ey fall due. Non-banking operations l iquidity risk m anagement The Group’s approach to managing liquidit y is to ensure that it will always hav e sufficient liquid ity to meet its liabilities wh en due, under bo th normal and stressed condition s , without incurring unacceptable losses or risking damage to the Group‘s reputati on. In managi ng its liqui dity ris k, the Group maintains adequate cash reserve s and debt facilities, con tinuously monitors for ecast and actual cash flows and matches th e maturity pro files of fin ancial assets and liabilities on non-banking activities. The Group prepares various financial plans (monthly, quarterly and annually) which ensures that the Group has sufficient cash on demand to meet expected operational expenses , financ ial obligations and investing activities for a period of 30 days or more. To fund cash requirement s of a mor e permanent nature, the Group will normally raise long-term debt in availab le inte rnational and domestic markets. Banking operat ions liquidity risk man agement The obj ective of liquidity risk management is to ensure the sta ble operations of all banks of the G roup, the p ossibility of uninterrupted operations in accordance with the Group's busi ness plans, includ ing the timely fulfilment of all obligations to cu stomers and counterparties related to making p ayments, as well as minimising the negative impact on financial results, own funds (capital), the Gr oup's r eputati on for a possible liquidity deficit. Also, the priority objective of liquidit y risk m anagement i s to ensure t hat all b a nks of the Gr oup com ply with the mandat ory liqui dity ratios established by the Central Bank of Russia. The Gr oup’s approach to b anking op erations liquidity management is to ens ure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due under bot h ordinary and stressed conditions, without in curring unacceptable losses or damagi ng t he Group’s reputation. In respect to t he banking segment The Group endeav ors to maint ain a stable and diversified funding bas e including core corporate and individual c ustomer accounts; short-, medium - and long-term loans from other banks; promissory notes and bonds issued. On the other hand, the Group tends to k eep dive rsified portfolios of liquid and highly liquid assets in order to be able to settle unfo reseen liquidity requi rements in an efficient and timely manner. Key parame ters in liquidity risk managem ent such as the struct u re of assets and liabilities, compos ition of liqu id assets and acceptable liquidity risks are established by Assets and Liabilities Management Committee (ALCO). ALCO sets and reviews limits on liquidity gaps which are assess ed on the basis of liq uidity stress-tests in regard to the available resource base. T hese tests are perform ed using th e follo wing inform ation:  current structure of assets and liabilities includ ing any known renewal arrangem ents as at the date of the respective test;  amounts , maturity and liquidi ty profiles of transactio ns projec ted by business units;  current and projected characterist ics of liquid assets which in clude, apart from cash and cash equivalents, amounts d ue from other ba nks and certain fi nancial assets held- for-trading; and  relevant ext ernal factors. The resulting models a llow for the assessment of future expecte d cash flows due to projected future business and different crisis scenarios. While managing liquidity risk finan cial departments of the Group distinguish liqu idity required within a current business day and term liquidity. For managing c urrent l iquidity ( with a 1-day horizon) the following m ethods are u sed:  reallocation of cash between accounts with other banks;  collection of information from business and other supporting un its o n large transactions (bo th proprietary and customer based);  purchase and sale of certain financial assets in l iquid portf ol ios;  accelerating closure of trade positions;  estimati on of minim um expected cas h inflow duri ng a business da y; and  daily control over the balan ce o f cash and estimated liabiliti e s to be settled on d emand. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 76 Note 29: Fi nancial risk man agement (cont inued) The monitoring of the current and forecasted state of urgent li quidity is carried out by the financia l department of Bank daily on the basis of calculating the sufficiency of h ighl y liquid assets to cover planned and unplanned outflows and meeting re source require ments for a period of up to 30 days . In the normal course of busin ess, liquidity reports reflecting the current and projected structure of assets and li abilities, taking in to accoun t the model of d aily minimum balance on current accounts by currency based on an analysis of historical dynamics, as well as expected future cash flows are regularly reported to A LCO. Liquidity m anagement deci sions made by the ALCO are im plemented by financial de partment as part of their duti es. The share of liquid assets is main tained at a level sufficient to meet obligations to customers and counterparties of Bank ZENIT, which can si gnifican tly reduce liquidity risks and non-market funding rates. To m aintain instant li quidity, limits are open on Bank ZENIT by a significant number of Russian b anks. In ad dition, the liquidity r isk is minimized by the Ban k ZENIT’s ability to raise funds from the Bank of Russia within the framework of the refinancing system and state support for the f inancial sector, as well as established liquidity management policies and tec hnologies that provide for st ress approaches in estimati ng future cash flows. In accordance with the Group's L iquidity Management Policy, the basic principle of liquidity management is risk limiting, in particular, using the required liquid assets limit . I f n e c e s s a r y ( c h a n g i n g t h e f i n a n c i a l s i t u a t i o n i n t h e markets or at Bank ZENIT), other limits (for counterparties, fi nancial instruments, etc.) included in the Bank ZENIT’s limit structure can be used to m anage liquidity. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 77 Note 29: Fi nancial risk man agement (cont inued) Liquidity analysis for ban king and non-banking op erations of the Group The following tables summarise the maturity profile o f the Grou p’s fi nancial liabilities b ased on contractual undiscount ed payment s, including inte rest paym ents: At 31 December 2021 Less than 1 year Between 1 and 5 years Over 5 years Total Financial liabilities Trade and other fina ncial payables Trade payables 54,113 - - 54,113 Dividend payable 22,984 - - 22,984 Current portion of lease liability 2,992 - - 2,992 Lease obligation s, net of current portion - 8,916 8,621 17,537 Other payables 2,334 190 4 2,528 Banking: Other financial liabilities at f air value through profit or loss 7,063 - - 7,063 Debt Bonds issued 19,662 2,077 - 21,739 Subordinated debt 21 - - 21 Debt securities i ssued 563 5 2 570 Credit facilities 1,352 3,449 3,277 8,078 Other debt 2,202 333 558 3,093 Banking: Due to banks and the Bank of Russia 24,063 3,975 - 28,038 Banking: Customer accounts 138,915 15,958 6 154,879 Credit related co mmitments (Note 26) 28,864 22,808 2,817 54,489 Total 305,128 57,711 15,285 378,124 At 31 December 2020 Less than 1 year Between 1 and 5 years Over 5 years Total Financial liabilities Trade and other fina ncial payables Trade payables 55,028 - - 55,028 Dividend payable 823 - - 823 Current portion of lease liability 2,891 - - 2,891 Lease obligation s, net of current portion - 8,482 9,738 18,220 Other payables 2,183 433 7 2,623 Banking: Other financial liabilities at f air value through profit o loss 1,764 - - 1,764 Debt Bonds issued 1,470 23,490 - 24,960 Subordinated debt 21 - - 21 Debt securities i ssued 502 120 2 624 Credit facilities 3,008 2,708 2,239 7,955 Other debt 3,551 386 9 3,946 Banking: Due to banks and the Bank of Russia 14,400 1,777 275 16,452 Banking: Customer accounts 146,149 20,810 2,334 169,293 Credit related co mmitments (Note 26) 52,662 5,969 - 58,631 Total 284,452 64,175 14,604 363,231 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 78 Note 29: Fi nancial risk man agement (cont inued) Fair values Fair value is the price that would b e received to sell an asset or paid to transfer a liability in an ordin ary transaction between m arket participants at th e measurement date. The estima ted fair values of fin ancial instruments are determined wi th reference to various m arket inform ation and ot h er valuati on techniques as considered app ropriate. The different levels o f fair val ue hierarchy have been defined as follows: Level 1 – Quoted p rices in activ e m arkets for identical assets or liabilities that Grou p has the ability to assess at the measurement date. Level 2 - In puts other than quoted prices included wit hin Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – Unobservable inputs for the asset or liability. These inputs reflect the Gr oup‘s ow n assum ptions a bout t he assumptions a market parti cipant would use in pricing t he asset or liability. Recurring fair value measurements The levels in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows: At 31 December 2021 Fair value Level 1 Level 2 Level 3 Carrying value Securities meas ured at fair valu e through profit or loss 3,731 8 37 - 4,568 Other loans measured at fair value through profit or loss - - 4,251 4,251 Bank deposits at fair value through profit or loss - 33,465 - 33,465 Securities measur ed through other comprehensive income 20,789 2 1,545 13,210 55,544 Investment property - - 691 691 Banking: Other finan cial liabilities measured at fair v alue through profit or loss (7,013) (50) - (7,063) Total 17,507 5 5,797 18,152 91,456 At 31 December 2020 Fair value Level 1 Level 2 Level 3 Carrying value Banking: Loans to customers measured at fair v alue through profit or loss - - 2,044 2,044 Securities meas ured at fair valu e through profit or loss 4,064 1,793 2 46 6,103 Other loans measured at fair value through profit or loss - - 5,079 5,079 Securities meas ured at fair valu e through other comprehensive income 20,304 9,865 1 6,173 46,342 Investment property - - 1,229 1,229 Banking: Other finan cial liabilities measured at fair v alue through profit or loss (1,691) (73) - (1,764) Total 22,677 1 1,585 24,771 59,033 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 79 Note 29: Fi nancial risk man agement (cont inued) The descript ion of valuation technique and d escription of input s used in the fair value m easurement for Level 2 and Level 3 measurements a t 31 December 2021 и 2020: Fair value hierarchy Valuation technique and key inp ut data Banking: L oans to custom ers at FVTPL Level 3 D iscounted ca sh flow model s adjusted at credit risk Securities at FVOCI Level 2, Level 3 Quoted prices for similar investments in active markets, net assets val uation, comparative (market) approach / Publicly available information, comparable market pr ices/ discounted cash flow models adju sted at credit risk Other loans m easured at FVT PL Level 3 Discounted cash flo w models adjust ed at credit risk Deposits measured at FVTPL Level 2 D iscounted ca sh flow model s adjusted at market risk at floating rates Securities at FVTPL Level 2, Level 3 Quoted prices for similar investments in active markets, net assets val uation, comparative (market) approach / Publicly available information, comparable market pr ices / dis counted cash flow models adju sted at credit risk Investment property Level 3 Market data on comparable objects adjusted in case of d ifferences from similar objects Banking: Other financial liabilities at FVTPL Level 2 D iscounted ca sh flow model s adjusted at credit risk There were no changes in valuatio n technique for Level 2 and Le vel 3 recurring fair value measurements during the years ended 31 December 2021 a nd 2 020.There have b een no transf ers between Level 1, Level 2 and Level 3 during 2021 and 2020 year. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 80 Note 29: Fi nancial risk man agement (cont inued) Assets and liabilities not measu red at fair va lue but for which fair value is disclosed Fair values analysed by lev el in the fair value hierarchy and c arrying value of assets and liabilities not measured at fair value are as follows: At 31 December 2021 A t 31 December 2020 Fair value Carrying value Fair value Carrying value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets Cash and cash eq uivalents Cash on hand and in banks 4,595 44,342 - 48,937 5,141 25,594 - 30,735 Term deposits - 10,015 - 10,015 - 7,242 - 7,242 Due from banks - 7,535 - 7,535 - 2,128 - 2,128 Banking: Mandatory reserve deposits with the Bank of Russia 1,429 - - 1,429 1,528 - - 1,528 Accounts receivable Trade receivables - - 85,135 85,135 - - 79,872 79,872 Other financial receivables - 1,202 3,432 4,634 - 681 4,502 5,183 Banking: Loans to customers measured at amortised cost - - 133,384 134,702 - - 100,230 99,611 Other financial assets Bank deposits - 56,492 - 56,492 - 10,000 - 10,000 Due from banks - 5,486 - 5,415 - 2,460 - 2,391 REPO with banks - - - - - 1,551 - 1,551 Loans to employees - - 940 940 - - 981 981 Other loans measured at amortised cost - - 2,283 2,283 - - 8,564 8,564 Securities measured at amortised cost 20,266 5,791 - 26,288 25,675 9,455 - 33,908 Total financial assets 26,290 130,863 225,174 383,805 32,344 59 ,111 194,149 283,694 Liabilities Trade and other financial payables Trade payables - - 54,113 54,113 - - 55,028 55,028 Dividend payable - - 22,984 22,984 - - 823 823 Current portion of lease liabilities - - 2,838 2,838 - - 2,540 2,540 Other payables - - 2,528 2,528 - - 2,623 2,623 Non-current lease liabilities - - 10,324 10,324 - - 10,679 10,679 D e b t Bonds issued 15,000 5,333 - 20,412 15,000 7,189 - 22,079 Subordinated debt - 21 - 21 - 21 - 21 Debt securities issued - 557 - 568 - 610 - 612 Credit facilities - - 8,078 8,078 - - 7,955 7,955 Other debt - - 3,093 3,093 - - 3,946 3,946 Banking: Due to banks and the Bank of Russia 270 27,055 - 27,579 273 14,802 - 15,210 Banking: Customer accounts - 46,373 104,447 151,429 - 148,307 - 148,625 Total financial liabilities 15,270 79,339 208,405 303,967 15,273 170,929 83,594 270,141 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 81 Note 29: Fi nancial risk man agement (cont inued) The fair values in Level 2 fair value hierarchy were estimated using the discounted contractual cash flows and observable inte rest rates for ide ntical instrumen ts. The fair v alues in Level 3 fair value hierarchy were estimated using the discounted cash flows and observable interest rates f or similar instrument s with adjustment to credit risk and maturity. Reconciliation of liabilities aris ing from financing activities The table below sets out an analysis of the movements in the Gr oup’s liab ilities from financing activities for each of the periods presented. The items of these liabilities are th ose that are reported as financing in the consolidated statement of cash flows: Liabilities arising as a res ult of financing activities Short-term and long- term debt Bonds issued Subordinated debt Lease liabilities Total At 31 December 2019 17,182 21,857 1,287 14,191 54,517 Cash flow movement, including: Proceeds from issu ance of debt 218,758 - - - 218,758 Repayment of debt (225,083 ) - - - ( 225,083) Issuance of bonds - 3 ,198 - - 3,198 Redemption of bonds, subordinated debts - (3,029) (1,545) - (4,574) Repayment of principal portion of lease liabilities - - - (1,419) (1,419) Interest paid (1,009) (1,518 ) (240 ) (1,374) (4,141) Foreign exchange adjustments 1,017 - 276 - 1,293 Interest accrual 1,033 1,594 243 1 ,374 4,244 Other non-cash flows 3 ( 23) - 447 4 27 At 31 December 2020 11,901 22,079 2 1 13,219 47,220 Cash flow movement, including: Proceeds from issu ance of debt 9,338 - - - 9,338 Repayment of debt (9,689) - - - (9,689) Issuance of bonds, obtaining subordinated debts - 50 - - 50 Redemption of bonds, subordinated debts - (1,713) - - (1,713) Repayment of principal portion of lease liabilities - - - (1,440) (1,440) Interest paid (235) (1,478) (99) (1,228) (3,040) Foreign exchange adjustments (268) - - - (268) Interest accrual 219 1,471 99 1,228 3,017 Other non-cash flows (95) 3 - 1,383 1,291 At 31 December 2021 11,171 20,412 21 13,162 44,766 TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 82 Note 29: Fi nancial risk man agement (cont inued) Management of Capital The primary objective of the Gro up’s capital management is to e nsure that it maintains a strong credit rating and healthy capital ratios in ord er t o support its bus iness an d inc rease shareholder value. The Grou p manages it s capital structure and makes adjustme nts to it, in li ght of changes in e conomic conditions . The Group defines capital under manageme nt as th e total Gro up s hareholders’ equity as shown in the consolidated statement of financial position. The amount of capital that the Group managed as at 31 December 2021 was RR 938,388 million (2020 : RR 827,672 million). The Group manage s capital fo r ban king and no n-banking operations separately. Non-banking operations ca pital manage ment The Group considers equity and deb t to be th e principal element s of capital management. In order to maintain or adjust the capital structure, th e Group may adjust the dividend payment to sharehol ders, revise its investment program, attract new or settle existing debt or sell certain no n-core assets. The Group monitors capital on th e basis of its gearing ratio. Year ended 31 December 2021 Year ended 31 December 2020 Consolidated total borro wings excluding b orrowings of Bank ZENIT: 26,171 26,901 - Bonds issued 15,000 15,000 - Credit facilities 8,078 7,955 - Other debt 3,093 3,946 Consolidated sharehold ers’ equity 938,388 827,672 Debt to capital employe d ratio, % (Consolidated total borrowings / Consolidated shareholders’ equ ity) 2,8% 3.3% Banking oper ations capit al management The Bank ZENIT’s objectives when managing capital are (i) to co mply with the capital requirements set by the Central Bank of the Russian Federation, (ii) to safeguard the G roup’s ability to continue as a going concern and (iii) to maintain a sufficient capital base to achieve a cap ital adeq uacy ratio based on the Basel Accord of at least 8%. Compliance with capital ad equacy ratios set by th e Central Bank of the Russian Federation is monitore d by the Management of Bank ZENIT on a daily basis. Other objectives of cap ital man agement ar e evalu ated annually. Under the current capital requirements set by the Central Bank of Rus sia, banks have to maintain a ratio of regulatory capital to risk weighted a ssets (“statutory capital ratio”) abo ve a prescribed minim um level. Bank ZENIT is also subject to minimum capital requirements established by loan cov enants, including capital adequacy level of 8% calculated i n accorda nce with Bas e l I a n d I F R S, a n d Ti e r 1 c ap i tal ade quacy ratio of 6%. B ank ZENIT has com plied with all externally imposed capital requirements throughout 2 02 1 and 2020. In September 2015 Bank ZENIT received five subordinated loans t otalling RR 9,933 million from DIA with in the Russian Federa tion Governm ent programm e fo r a dditional capitali sation of Russian b anks. Under the term s of these subordinated loan agreements DIA paid these loans by securities (OFZ of five series), tha t should be returned upon maturity of the subordinated loans. These subordinat ed loans ma ture from January 2025 to Novem ber 2034 and bear interest equal to OFZ coupon rate p lus 1 %. In accordance with I FRS 9 if s ecurities are loaned under an agreement to return them to the transferor , they are not derecognised bec ause the transferor retains substantially all the risks and rewards of ow nership. Ac cordingly, t he obligation t o return the securit ies should not be recognise d. Therefore, OFZ and the subordinated l oan r eceived from D IA are n ot recogni sed within assets and liabilities in the consolidated statement of financial position. Th es e s ub or d i na te d l oa ns a re a ccounted for in capital adequacy ratio calculation in accordance with Bank of Russi a’s Regulation No. 646-P. TATNEFT Notes to the Consolidated Financial Statements (In million of Russian Rubles) 83 Note 30: Subsequent e vents In February-March 2022 , due to the ag gravation of the geopoliti cal situation related to Ukraine, a sign ificant expansion of US, EU, UK and other sanctions against Russia, com panies and citizens associated with Russia, decisions of a number of int ernational c ompanies to su spend or abandon their activities in Russia or cooperate with clients in Russia, the operating co nditions of the Group have d eteriorated at the time of publication of this report. The Russian authorities are taking steps to pr event capital out flows an d stab ilize markets. At the moment, it is impossible to d etermine to what extent the current conditions w ill affect the Group's operating and financial performance, how lon g the incr eased volatility will persist, an d at what level econom ic and other indic ators may stabilize. Further expansion of sanctions, including against the financial an d e n e r g y s e c t o r s o f t h e R u s s i a n e c o n o m y , which may affect the Group's operations, cannot be ruled out. T he Russian authorities have introdu ced restrictio ns on payments to a number of foreign creditors and sha reholders, which may last for a certain time. In the current environm ent, Russia's GDP i s expected to cont ract in 2022, t he size and im pact of which remain uncer tain. The C ompany's management constantly monitors t he development of the situation and takes all necessary actions to reduce and lev el emergin g risks, ensure uninterru pted operat ion s and maintain the financial stability o f the Group. The Group is characterized by a low level of d ebt and, although t h e cu r r e n t u n c er ta in ty m a y a f f e c t t h e G r o up 's fu t ur e profitability and cash flows in the near future, management bel ieves this will not affect the Group's ability to continu e as a going con cern and meet its obligations for the foreseeable future.

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