Annual Financial Report

"Sovereign Wealth Fund "Samruk-Kazyna" JSC

Consolidated financial statements

For the year ended December 31, 2021

with independent auditor's report

Independent auditor's report

Consolidated financial statements

Consolidated statement of financial position............................................................................................................................... 1-2

Consolidated statement of comprehensive income..................................................................................................................... 3-4

Consolidated statement of changes in equity............................................................................................................................... 5-6

Consolidated statement of cash flows........................................................................................................................................... 7-8

Notes to the consolidated financial statements

1....... General information

2....... Basis of preparation

3....... Summary of significant accounting policies

4....... Significant accounting estimates and judgements

5....... Disposals and assets classified as held for sale or distribution to the shareholder

6....... Property, plant and equipment

7....... Intangible assets.

8....... Exploration and evaluation assets

9....... Investments in joint ventures and associates

10...... Loans issued and Finance lease receivables

11...... Amounts due from credit institutions

12...... Other financial assets

13...... Other non-current assets

14...... Inventories

15...... Trade accounts receivable and other current assets

16...... Cash and cash equivalents

17...... Equity

18...... Borrowings

19...... Loans from the government of the Republic of Kazakhstan

20...... Prepayment on oil supply agreement

21...... Lease liabilities

22...... Provisions

23...... Other non-current liabilities

24...... Trade and other payables, and other current liabilities

25...... Revenue

26...... Cost of sales

27...... General and administrative expenses

28...... Transportation and selling expenses

29...... Impairment loss

30...... Finance costs

31...... Finance income

32...... Share in profit of joint ventures and associates, net

33...... Income tax expenses.

34...... Consolidation

35...... Related party disclosures

36...... Financial instruments and financial risk management objectives and policies

37...... Commitments and contingencies

38...... Segment reporting

39...... Subsequent events

* Certain numbers shown here do not correspond to the consolidated financial statements for the year ended December 31, 2020 and reflect adjustments made, refer to Note 2.

1. General information

Corporate information

"Sovereign Wealth Fund "Samruk-Kazyna" JSC (the "Fund" or "Samruk-Kazyna") was established on November 3, 2008 in accordance with the Decree of the President of the Republic of Kazakhstan dated October 13, 2008 and the Resolution of the Government of the Republic of Kazakhstan dated October 17, 2008. The formation was enacted by the merger of "Sustainable Development Fund "Kazyna" JSC ("Kazyna") and "Kazakhstan Holding Company for State Assets Management "Samruk" JSC ("Samruk") and the additional transfer to the Fund of interests in certain entities owned by the Government of the Republic of Kazakhstan (the "State" or the "Government"). The Government is the sole shareholder of the Fund (the "Shareholder" or the "Parent").

During this process the Government's overall objective was to increase management efficiency and to optimise organisational structures for them to successfully achieve their strategic objectives as set in the respective Government programs.

The Fund is a holding company combining companies listed in Note 34 (the "Group"). Prior to February 1, 2012, the Fund's activities were governed by the Law of the Republic of Kazakhstan On National Welfare Fund No. 134-4 dated February 13, 2009 and were aimed to assist in provision of stable development of the state economy, modernization and diversification of economy, and improvement of the Group companies' efficiency. According to the Law of the Republic of Kazakhstan enacted on February 1, 2012 On Sovereign Wealth Fund No. 550-4, the Fund's activity is focused on improving sovereign wealth of the Republic of Kazakhstan by increasing the long-term value of the Group companies and by effective management of the Group assets.

For management purposes, the Group is organized into organizational business units based on their products and services, and has 8 (eight) reportable operating segments as follows (Note 38):

· Oil and gas segment includes operations related to exploration and production of oil and gas, transportation of oil and gas and refining and trading of crude oil, gas and refined products.

· Transportation segment includes operations related to railway and air transportation of cargo and passengers.

· Communication segment includes operation of fixed line communication, including local, long-distance intercity and international telecommunication services (including CIS and non-CIS countries); and also renting out of lines, data transfer services and wireless communication services.

· Energy segment includes operations related to production and distribution of electricity, the function of oversight over the input of electricity into the energy system and consumption of imported electricity, the function of centralized operation and dispatch of facilities in the Unified Energy System of Kazakhstan.

· Mining segment includes exploration, mining, processing, sales of mineral resources and geological exploration.

· Industrial segment includes industry enterprises and projects of chemical industry.

· Corporate center segment covers Fund's investing and financing activities, including provision of loans to related and third parties.

· Other segment includes operations related to assisting the Government in increasing housing availability by investing into residential development and other operations.

The address of the Fund's registered office is 17/10 Syganak str., Nur-Sultan, the Republic of Kazakhstan.

These consolidated financial statements were authorised for issue by the Managing Director for Economy and Finance − Member of the Management Board and Chief accountant of the Fund on April 22, 2022 and preliminary approved by the Audit Committee of the Board of Directors of the Fund. These consolidated financial statements should be further approved by the Board of Directors and the Sole Shareholder.

1. GENERAL INFORMATION (continued)

Privatization plan

On April 30, 2014 the Government approved the initial Privatization Plan for 2014-2016. On December 30, 2015 the Government approved the new 2016-2020 Complex Privatization Plan (replacing previous 2014-2016 Privatization Plan) and the list of all state owned assets to be privatized, including certain Fund subsidiaries.

On December 29, 2020, by the Resolution of the Government of the Republic of Kazakhstan No. 908 On Some Issues of Privatization for 2021-2025, a new comprehensive Privatization Plan for 2021-2025 was approved (hereinafter − the "Privatization Plan"), which includes a new list of state owned organizations and assets of the Fund's group to be privatized and transferred to a competitive environment.

2. Basis of preparation

These consolidated financial statements have been prepared on a historical cost basis, except as described in the accounting policies and the notes to these consolidated financial statements.

These consolidated financial statements are presented in Kazakhstan tenge ("tenge") and all monetary amounts are rounded to the nearest million tenge except where otherwise indicated.

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by International Accounting Standard Board ("IASB").

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

In course of preparation of these consolidated financial statements the Group management considered the current international economic environment including complex of uncertainties due to COVID-19 pandemic. The consolidated financial statements were prepared on a going concern basis.

Restatement affecting comparative information

Changes in presentation of the consolidated statement of cash flows

Certain amounts in the consolidated statement of cash flows for the year 2020 have been presented in separate lines in accordance with the presentation adopted in consolidated financial statements for the year 2021. The Group changed the presentation of its consolidated financial statements as the new presentation provides information that is more relevant to users of the consolidated financial statements.

Effect of reclassifications on the consolidated statement of cash flows for 2020:

2. BASIS OF PREPARATION (continued)

Foreign currency translation

Functional and presentation currency

Items included in these consolidated financial statements of each of the Group's entities are measured using the currency of primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in tenge, which is the Group's presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the reporting date exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit and loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

Group entities

Gains, losses and financial position of all of the Group's subsidiaries, joint ventures and associates (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

· Assets and liabilities for each statement of financial position presented are translated at the closing rate at that reporting date;

· Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates; in which case income and expenses are translated at the rate on the dates of the transactions); and

· All resulting exchange differences are recognized as a separate component of other comprehensive income.

Exchange rates

Weighted average currency exchange rates established by the Kazakhstan Stock Exchange ("KASE") are used as official currency exchange rates in the Republic of Kazakhstan.

The following table presents currency exchange rates to tenge:

3. Summary of significant accounting policies

New and amended standards and interpretations

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended December 31, 2020, except for the adoption of new standards and interpretations effective as of January 1, 2021.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

New and amended standards and interpretations (continued)

The following amendments were applied for the first time in 2021:

· Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments include the following practical expedients:

· A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest;

· Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued;

· Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component.

These amendments had no impact on the consolidated financial statements of the Group:

· Amendments to IFRS 16 Leases in regards of COVID-19-related rent concessions. The amendments provide relief to lessees from assessment whether a COVID-19-related rent concession is a lease modification. The amendments did not have a material impact on the consolidated financial statements, as the Group has not received significant rent concessions related to pandemic.

Standards that have been issued but not yet effective

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

These amendments and interpretations did not have an impact on the consolidated financial statements of the Group:

· IFRS 17 Insurance Contracts;

· Amendments to IAS 1 Presentation of Financial Statements named Classification of Liabilities as Current or Non-current;

· Amendments to IFRS 3 Business Combinations named Reference to the Conceptual Framework;

· Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use;

· Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts − Costs of Fulfilling a Contract;

· Amendments to IAS 12 Income Taxes named Deferred Tax Related to Assets and Liabilities arising from a Single Transaction;

· Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards − Subsidiary as a first-time adopter;

· Amendments to IFRS 9 Financial Instruments − Fees in the '10 per cent' test for derecognition of financial liabilities;

· Amendments to IFRS 16 Leases named Lease Incentives;

· Amendments to IAS 41 Agriculture named Taxation in Fair Value Measurements;

· Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements;

· Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Standards that have been issued but not yet effective (continued)

The amendments to IAS 1 and IAS 8 will be effective for annual reporting periods beginning on or after January 1, 2024, with early application permitted.

The Group does not plan for early adoption in respect of above-mentioned new standards and amendments to existing standards to which this option is available.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

Basis of consolidation

These consolidated financial statements comprise the financial statements of the Fund and its controlled subsidiaries (Note 34).

Subsidiaries

Subsidiaries are the entities controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

· Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

· Exposure, or rights, to variable returns from its involvement with the investee;

· The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

· The contractual arrangement with the other vote holders of the investee;

· Rights arising from other contractual arrangements;

· The Group's voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control over the subsidiary.

Assets, liabilities, revenue and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income and consolidated statement of financial position from the date the Group gains control until the date the Group ceases to control the subsidiary.

Except for acquisition in transactions between entities under common control, subsidiaries are consolidated from the date when control is obtained by the Group and are de-consolidated from the date when control ceases. At the acquisition of the subsidiary, acquisition cost is distributed between assets and liabilities based on their fair value as at the date of acquisition. Financial statements of the subsidiaries are prepared for the same reporting period as those of the Fund, using consistent accounting policies.

All intra-group balances and transactions, including unrealized gains resulting from intra-group transactions are eliminated in full. Unrealized losses are eliminated in the same manner as unrealized gains, except that they are eliminated to the extent that there is no evidence of impairment.

Non-controlling interest represents a portion of equity in subsidiaries, which is not owned by the Group, and is recorded separately in equity in the consolidated statement of financial position separately from the equity attributable to the Parent. Losses within a subsidiary are attributed to the non-controlling interest even if that results in its deficit balance.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation (continued)

Subsidiaries (continued)

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

· Derecognises the assets (including goodwill) and liabilities of the subsidiary;

· Derecognises the carrying amount of any non-controlling interest;

· Derecognises the cumulative translation differences recorded in equity;

· Recognises the fair value of the consideration received;

· Recognises the fair value of any investment retained;

· Recognises any surplus or deficit in profit or loss;

· Reclassifies the Parent's share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as an aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non‑controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred are expensed and included in general and administrative expenses.

When the Group acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes an analysis of the need of separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, equity interest previously held by the Group in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised in the statement of profit or loss in accordance with IFRS 9. If the contingent consideration is not within the scope of IFRS 9, it is measured at fair value through profit and loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, the goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date of an entity by the Group, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operations disposed off is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed off in this circumstance is measured on the basis of the relative values of the operation disposed off and the portion of the cash-generating unit retained.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation (continued)

Business combinations achieved in stages

The acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

In a business combination achieved in stages the acquirer recognises goodwill as of the acquisition date measured as the excess of (a) over (b) below:

(a) The aggregate of:

(i) The consideration transferred measured in accordance with this IFRS 3 Business Combinations, which generally requires acquisition-date fair value;

(ii) The amount of any non-controlling interest in the acquiree measured in accordance with IFRS 3; and

(iii) The acquisition-date fair value of the acquirer's previously held equity interest in the acquire;

(b) The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Acquisition of subsidiaries from parties under common control

Acquisition of subsidiaries from parties under common control (entities under the Government's control) is accounted for using the pooling of interest method.

Assets and liabilities of the subsidiary transferred under common control are recorded in these consolidated financial statements at the carrying amounts of the transferring entity (the "Predecessor") at the date of the transfer. Related goodwill, if any, inherent in the Predecessor's original acquisition is also recorded in these consolidated financial statements. Any difference between the total book value of net assets, including the Predecessor's goodwill, and the consideration paid is accounted for in these consolidated financial statements as an adjustment to equity.

These consolidated financial statements are presented as if the subsidiary had been acquired by the Group on the date it was originally acquired by the Predecessor.

Change in ownership interests in subsidiaries

In transactions where part of the interest in existing subsidiary is either sold or acquired, but control is retained, the differences between the carrying amounts of net assets attributable to interests in subsidiaries acquired or disposed and the consideration given or received for such increases or decreases are charged or credited to retained earnings.

Joint operations

A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. In relation to its interests in joint operations, the Group recognizes its: Assets, including its share of any assets held jointly; Liabilities, including its share of any liabilities incurred jointly; Revenue from the sale of its share of the output arising from the joint operation; Share of the revenue from the sale of the output by the joint operation; Expenses, including its share of any expenses incurred jointly.

Investment in joint ventures and associates

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but which does not comprise control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation (continued)

Investment in joint ventures and associates (continued)

The Group has interests in joint ventures which are jointly controlled entities, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entities. Also, the Group has interests in associates, in which it exercises significant influence over the economic activities of the entities. The Group's investment in its joint ventures and associates are accounted for using the equity method.

Under the equity method, investment in joint venture / associate is carried in the consolidated statement of financial position at cost plus post acquisition changes in the Group's share of net assets of the joint venture / associate. Goodwill relating to a joint venture / associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The consolidated statement of comprehensive income reflects the share of the results of operations of the joint venture / associate. Where there has been a change in net assets recognized directly in the equity of the joint venture / associate, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and joint venture / associate are eliminated to the extent of the Group's interest in the joint venture / associate.

The share in profit of joint ventures / associates is shown on the face of the consolidated statement of comprehensive income. This is the profit attributable to equity holders of the joint venture / associate and therefore is profit after tax and non-controlling interest in the subsidiaries of the joint ventures / associates.

Financial statements of the joint venture / associate are prepared for the same reporting period as those of the Parent. Where necessary, adjustments are made to bring their accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group's investment in its joint ventures / associates. The Group determines at each reporting date whether there is any objective evidence that the investment in the joint venture / associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of investment in the joint venture / associate and its carrying amount and recognises impairment loss in the consolidated statement of comprehensive income.

Upon loss of joint control over the joint venture and significant influence over associate, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the investment in the joint venture / associate upon loss of joint control / significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.

Current versus non-current classification

The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. An asset is classified as current when it is:

· Expected to be realized or intended to be sold or consumed in normal operating cycle;

· Held primarily for the purpose of trading;

· Expected to be realized within 12 (twelve) months after the reporting period; or

· Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 (twelve) months after the reporting period.

All other assets are classified as non-current.

A liability is current when:

· It is expected to be settled in normal operating cycle;

· It is held primarily for the purpose of trading;

· It is due to be settled within 12 (twelve) months after the reporting period; or

· There is no unconditional right to defer the settlement of the liability for at least 12 (twelve) months after the reporting period.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Current versus non-current classification (continued)

The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are always classified as non‑current assets and liabilities.

Assets classified as held for sale and discontinued operations

Assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through the continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within 1 (one) year from the date of classification.

In the consolidated statement of comprehensive income for the reporting period, and for the prior year comparable period, incomes and expenses from discontinued operations are reported separately from normal income and expenses, even when the Group retains a non-controlling interest in the subsidiary after sale. The resulting profit or loss (net of tax) is reported separately in the consolidated statement of comprehensive income.

Property, plant and equipment and intangible assets once classified as held for sale are not depreciated.

Oil and natural gas exploration, evaluation and development expenditure

Costs incurred before obtaining subsoil use rights (licenses)

Costs incurred before obtaining full subsoil use rights (licenses) are expensed in the period in which they are incurred, except when costs are incurred after signing preliminary agreements with the Government of the Republic of Kazakhstan, in such cases costs incurred after this date are capitalized.

Expenditures for acquisition of subsurface use rights

Expenditures for acquisition of subsurface use rights (exploration and production) comprise signature bonuses, historical costs, obligatory expenditures for ecological and social programs and are capitalized within intangible assets as subsurface use rights at exploration and evaluation phase.

Expenditures for acquisition of subsurface use rights are accounted for on a field-by-field basis. Each field is tested for impairment on an annual basis. If no future activity is planned, the remaining balance of the acquisition costs is written off. Starting from the commercial production on fields subsurface use rights (remaining costs) shall be transferred to the property, plant and equipment and shall be amortized using unit-of-production method on actual production based on total proved reserves.

Exploration and evaluation expenditures (construction in progress)

Exploration and evaluation expenditures include geological and geophysical costs; costs directly related to exploration drilling; stripping activities; overhead and other expenses on exploration and evaluation, which could be related to a certain field. These costs include employee remuneration, materials and fuel used, rig costs and payments made to contractors. Except for geological and geophysical costs, exploration and evaluation expenditures are capitalized within exploration and evaluation assets, accounted for by subsurface use contracts and are not amortized. If mineral or hydrocarbon resources are not found, this could be an indication of impairment. All capitalized costs are subject to technical, commercial and management review at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off. If mineral or hydrocarbon resources are determined and development is sanctioned, relevant costs are then transferred to oil and gas or mining assets subclasses.

Development and production expenditures (oil and gas and mining assets)

Development and production expenditures comprise previously capitalized (and reclassified in commencement of production) expenditures for acquisition of subsurface use rights and exploration and evaluation costs; drilling of producing wells regardless of the drilling results; construction of landfills; development of surface technological facilities required for production, collection and preparation of hydrocarbons and mineral resources at fields; other costs incurred in the process of organization of commercial production at fields; capitalized discounted costs for wells and mines abandonment and site restoration.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Oil and natural gas exploration, evaluation and development expenditure (continued)

Development and production expenditures (oil and gas and mining assets) (continued)

Development and production expenditures are capitalized within property, plant and equipment (oil and gas and mining assets), and are accounted for on a field-by-field basis.

Oil and gas and mining assets are depreciated using a unit-of-production method based on actual production from commencement of commercial production at fields. Certain oil and gas and mining assets (surface facilities and equipment) with useful lives significantly differing from those of the fields are depreciated on a straight-line basis over their useful lives. The cost of acquisition of subsurface use rights including discounted decommissioning costs are depreciated over total proved reserves. The other field development costs are amortized over proved developed reserves.

Property, plant and equipment (other than oil and gas and mining assets)

On initial recognition, property, plant and equipment is measured at cost. Subsequently, property, plant and equipment are stated at cost less accumulated depreciation, depletion and impairment. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads.

Property, plant and equipment, other than oil and gas and mining assets, principally comprise the following classes of assets, which are depreciated on a straight-line basis over the expected useful lives:

In cases when items of property, plant and equipment are subject to major inspection, the cost is recognized in the carrying amount of property, plant and equipment as a replacement of component if the recognition criteria set out in IAS 16 are satisfied.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of an asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the reporting period the asset is derecognised.

Residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end.

Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment loss. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the intangible asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.

The amortisation expense on intangible assets with finite lives is recognized in the consolidated statement of comprehensive income in the expense category consistent with the function of the intangible asset.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible assets (continued)

Intangible assets with the finite useful life principally comprise the following classes of assets which are amortised on a straight-line basis over the expected useful lives:

Indefinite lives intangible assets are not amortized, but tested for impairment annually or whenever there are indications of impairment and, if necessary, written down to the recoverable amount.

Investment properties

Investment property is initially measured at cost, including transaction costs.

Since the Group adopted cost model, after initial recognition, investment property is accounted for in accordance with the cost model as set out in IAS 16 Property, Plant and Equipment, that is, at cost less accumulated depreciation and less accumulated impairment losses.

The depreciation is calculated based on straight line method basis over the expected remaining useful average life of2-100 years.

Investment property is derecognised (eliminated from the consolidated statement of financial position) on its disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected in the future. The difference between the net inflows arisen from the disposal and carrying amount of the asset is recognised in the consolidated statement of comprehensive income for the period in which it was derecognized.

Impairment of non-financial assets

The Group assesses non-financial assets or groups of assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash inflows that are largely independent of the cash inflows of other groups of assets. If any such indication of impairment exists or when annual impairment testing for an asset group is required, the Group makes an estimate of its recoverable amount.

An asset's or cash generating unit's (CGU's) recoverable amount is higher of its fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is considered impaired and an allowance is made to reduce the asset to its recoverable amount. In assessing value in use, the estimated future cash flows are adjusted for the risks specific to the asset or CGU and are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money. An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment provision may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated.

A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment allowance was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount.

That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation/ amortisation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profits and losses.

After such a reversal, the depreciation/amortisation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

The following process is applied in assessing impairment of goodwill:

· Goodwill is tested for impairment annually as at December 31, and when circumstances indicate that its carrying amount may be impaired;

· Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating units is less than their carrying amount an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of exploration and evaluation assets

Exploration and evaluation assets are tested for impairment when reclassified to oil and gas development tangible or intangible assets or whenever facts and circumstances indicate impairment. One or more of the following facts and circumstances indicate that the Group should test exploration and evaluation assets for impairment (the list is not exhaustive):

· The period for which the Group entity has the right to explore and appraise in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;

· Substantive expenditure on the further exploration for and evaluation of hydrocarbon resources in the specific area is neither budgeted nor planned;

· Exploration for and evaluation of hydrocarbon resources in the specific area have not led to the discovery of commercial viable quantities of hydrocarbon resources and the Group entity has decided to discontinue such activities in the specific area;

· Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

Financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVPL).

The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.

In order for a financial asset to be classified and measured at amortised cost or FVOCI, it needs to give rise to cash flows that are "solely payments of principal and interest (SPPI)" on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in three categories:

· Financial assets at amortised cost (debt instruments);

· Financial assets at fair value through other comprehensive income;

· Financial assets at fair value through profit or loss.

Financial assets at amortised cost (debt instruments)

The Group measures financial assets at amortised cost if both of the following conditions are met:

· The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

· The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets (continued)

Subsequent measurement (continued)

Financial assets at amortised cost (debt instruments) (continued)

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

The Group's financial assets at amortised cost include trade and other receivables, loans due from third and related parties, debt securities of third and related parties and bank deposits.

Financial assets at fair value through other comprehensive income

The Group measures financial assets at FVOCI if both of the following conditions are met:

· The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

· The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest consists of consideration for the time value of money, and for the credit risk associated with the principal amount outstanding during a particular period of time.

The Group's financial assets at FVOCI include mainly debt securities of third and related parties.

Financial assets at fair value through profit or loss

Financial assets at FVPL include certain loans due from related parties, which contain embedded derivative financial instruments, and coupon bonds included in other financial assets mandatorily required to be measured at fair value. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at FVPL, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at FVOCI, as described above, debt instruments may be designated at FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at FVPL are carried in the consolidated statement of financial position at fair value with net changes in fair value recognised in the consolidated statement of comprehensive income.

The Group's financial assets at FVPL include mainly loans issued, debt and equity securities of third and related parties.

Derecognition

A financial asset is primarily derecognised (removed from the consolidated statement of financial position) when:

· The rights to receive cash flows from the asset have expired; or

· The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset; or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets (continued)

Impairment of financial assets

The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss.

ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.

The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade and other receivables the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted forforward-looking factors specific to the debtors and the economic environment.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Hedge accounting

The Group designates certain hedging instruments in respect of foreign currency risk, as either hedges of net investments in foreign operations or cash flow hedges.

At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values of foreign operations or cash flows of the hedged item attributable to the hedged risk.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognized hedged item.

Hedge accounting is discontinued:

a) When the Group revokes the hedging relationship;

b) When the hedging instrument expires or is sold, terminated, or exercised; or

c) When it no longer qualifies for hedge accounting.

Any gain or loss recognized in other comprehensive income and accumulated in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

Investments in foreign operations hedge

Foreign currency gain or loss arising on items that are designated as part of the hedge of the Group's net investment in foreign operations are recognized in consolidated statement of comprehensive income within currency translation reserve.

Cash flow hedges

Foreign currency gain or loss arising from financial instruments that are designated and qualify as cash flow hedges is recognized in consolidated statement of comprehensive income within hedge reserve.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories

Inventories are valued at cost or net realisable value, whichever is lower. Costs comprise charges incurred in bringing inventory to its present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated costs necessary to sell.

The same cost formula is used for all inventories having a similar nature and use. Inventories of oil and gas and energy operating segments are valued on a first-in first-out ("FIFO") basis. All other inventories are valued on the weighted-average cost basis.

Cash and cash equivalents

Cash and cash equivalents are defined as cash on hand, demand deposits, short-term and highly liquid investments with original maturity of not more than 3 (three) months readily convertible to known amounts of cash and subject to insignificant risk of change in value.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL, loans borrowings and payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognized initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

The Group's financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at FVPL includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognized in profit or loss.

The Group has not designated any financial liabilities upon initial recognition as at FVPL.

Trade and other payables

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate (EIR).

Loans and borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the EIR. Gains and losses are recognized in the consolidated statement of comprehensive income when the liabilities are derecognized as well as through the EIR amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortization is included in finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 (twelve) months after the reporting date. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. Other borrowing costs are recognized as an expense when incurred.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial liabilities (continued)

Subsequent measurement (continued)

Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the financial guarantee contracts after initial recognition at the higher of the amount initially recognized less, when appropriate, the cumulative amount of income/amortization in accordance with the principles of IFRS 15 Revenue from Contracts with Customers and the amount of the estimated allowance for expected credit losses.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

· Using recent arm's length market transactions;

· Reference to the current fair value of another instrument that is substantially the same;

· A discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 38.

Leases

Determining whether the agreement is a lease or whether it contains evidence of a lease is based on an analysis of the content of the agreement at the date of the commencement of the lease. The agreement is a lease or contains signs of a lease if the implementation of the agreement depends on the use of a particular asset (or assets), and the right to use the asset or assets as a result of this agreement is transferred from one party to the other, even if this asset (or these assets) is not indicated (not specified) in the agreement explicitly.

The Group as lessee

For the lease contracts (or separate components of the contracts), under which the Group is granted the right to control the use of an identified asset (as defined by IFRS 16 Leases) for a certain period of time in exchange for consideration, the Group recognizes a right-of-use asset and a corresponding lease liability at the inception of the contract. Non-lease components of the contracts are accounted for in accordance with other relevant standards.

In accordance with IFRS 16 Leases, the Group applies practical expedient for not recognising the lease for the lease contracts with lease term of less than 12 months at lease inception and without purchase option, for the leases with variable lease rates that do not depend on an index or rate and for the leases of low value assets.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Leases (continued)

The Group as lessee (continued)

The Group recognizes short-term leases and leases of low value assets as expense on a straight-line basis over the term of the lease.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. Lease payments are discounted by using the Group incremental borrowing rate, except when the rate is implicit in the lease and can be readily determined.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

· The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

· The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

· A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

At the commencement date, the Group measures the right-of-use asset at cost that includes the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date less any lease incentives received, any initial direct costs incurred by the lessee. The right-of-use asset is subsequently measured according to the accounting policy that is applied for own assets, including for depreciation and amortization and impairment measurement.

The recognised right-of-use asset is depreciated over the shorter period of expected useful life of the underlying asset or lease term.

The Group presents lease liabilities in the consolidated statement of financial position as a separate line (Note 21), while right-of-use assets are presented within the same line item as that within which the corresponding underlying assets would be presented if they were owned, i.e. within property, plant and equipment (Note 6).

In accordance with the requirements of IFRS 16, the Group classifies repayment of principal in cash flows from financial activities. In accordance with the Group's accounting policy, interest paid is classified as part of the cash flows from operating activities. Payments on short-term leases, leases of low value assets and variable rental payments not included in the valuation of the lease liability are presented as part of operating activities.

The Group as lessor

The Group enters into lease agreements as a lessor with respect to some of its property, plant and equipment items.

Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

Provisions

Asset retirement obligation (decommissioning)

Provision for decommissioning is recognized in full, on a discounted cash flow basis, when the Group has an obligation to dismantle and remove a facility or an item of property, plant and equipment and to restore the site on which it is located, and when a reasonable estimate of that provision can be made.

The amount recognized is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding addition to the carrying amount of the related item of property, plant and equipment in the amount equivalent to the provision is also recognized. This amount is subsequently depreciated as part of the capital costs of the production and transportation facilities in accordance with respective depreciation method.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Provisions (continued)

Asset retirement obligation (decommissioning) (continued)

Changes in the measurement of an existing decommissioning provision that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation, or change in the discount rate, is accounted for so that:

a) Changes in the provision are added to, or deducted from, the carrying amount of the related asset in the current period;

b) The amount deducted from the cost of the asset shall not exceed its carrying amount. If a decrease in the provision exceeds the carrying amount of the asset, the excess is recognized immediately in the consolidated statement of comprehensive income; and

c) If the adjustment results in an addition to the cost of an asset, the Group considers whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the Group tests the asset for impairment by estimating its recoverable amount, and accounts for any impairment loss, in accordance with IAS 36.

Other provisions

Provisions are recognized in the consolidated financial statements when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

Employee benefits

Contributions to pension funds

The Group withholds 10% from the salary of its employees limited to certain annual amounts as the employees' contribution to their designated pension funds. Under the legislation, employees are responsible for their retirement benefits payable by that pension funds and the Group has no present or future obligation to further compensate its employees upon their retirement in relation to these arrangements.

Social tax

The Group pays social tax on salaries payable to employees according to the current statutory requirements of the Republic of Kazakhstan. Social tax is expensed as incurred.

Defined benefit plan

In accordance with the Collective Agreements signed with trade unions and other benefit regulations, some subsidiaries of the Group provide certain benefits to its employees upon their retirement ("Defined Benefit Plan").

The Group recognises actuarial gains and losses arising from the reassessment of the employee benefit liability in the period they are identified in OCI and profits and losses, and recognises benefit costs and obligations based on estimates determined in accordance with IAS 19 Employee Benefits.

The obligation and cost of benefits under the defined benefit plan are determined using the projected unit credit method. This method considers each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

The cost of providing benefits is charged to profit and loss, so as to attribute the total benefit cost over the service lives of employees in accordance with the benefit formula of the defined benefit plan. This obligation is measured at the present value of estimated future cash flows using a discount rate that is similar to the interest on government bonds where the currency and terms of these bonds are consistent with the currency and estimated terms of the defined benefit plan obligation. The defined benefit plans of Group's subsidiaries are unfunded.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Equity

Share capital

Common shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction from the proceeds in equity. Any excess or deficiency of the fair value of consideration received over the par value of shares issued is recognized as an increase or decrease in the retained earnings.

Non-controlling interests

Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from the equity attributable to the equity holders of the Parent. Losses of subsidiaries are attributed to the non-controlling interest even if this results in a deficit balance.

Dividends

Dividends are recognized as a liability and deducted from equity at the reporting date only if they are declared before or on the reporting date. Dividends are disclosed in the consolidated financial statements when they are proposed before the reporting date or proposed or declared after the reporting date but before the consolidated financial statements are authorised for issue.

Other distributions to the Shareholder

Other distributions to the Shareholder recognized as deductions from retained earnings are represented by expenses incurred or asset distribution made at the discretion of the Shareholder, including property, plant and equipment, interest in another entities, other disposal groups, cash and other assets in accordance with accounting policy of the Group.

Revenue recognition

Revenue is recognized when it is probable that the economic benefits will flow to the Group and the amount of revenue can be reliably measured.

Sale of goods

Revenues are recognized when (or as) the Group satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset, which usually occurs when the title is passed, provided that the contract price is fixed or determinable and collectability of the receivable is reasonably assured. For export sales, title generally passes at the border of the Republic of Kazakhstan. Revenue is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts, volume rebates and reimbursable taxes.

Sales of support services are recognized as services are performed provided that the service price can be determined and no significant uncertainties regarding the receipt of revenues exist.

Rendering of services

Revenue from rendering of services is recognized when the services have been performed.

In respect of services related to transportation, revenue is recognized with reference to the stage of completion of the transportation at the reporting date provided that the stage of completion of transportation and the amount of revenue can be measured reliably. Prepayments received from customers relating to transportation services that have not been started yet are recognized upon receipt as "advances received from customers". Deferred income is credited to current revenue, as the service is provided.

The Group's revenue in the energy, communications and transportation segments is primarily recognized over a period of time, while the rest of the Group's revenue is primarily recognized at a point in time.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

Sale and lease back transactions

The Group accounts for a transfer of an asset in a sale and leaseback transaction as a sale only if the transfer meets the requirements of IFRS 15 Revenue from Contracts with Customers.

If, under IFRS 15, a sale is to be recognised by the seller-lessee, then the right-of-use asset leased back is measured at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the seller-lessee. The seller-lessee recognises only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor.

If the transfer of an asset by the seller-lessee does not satisfy the requirements of IFRS 15 to be accounted for as a sale of the asset, the seller-lessee continues to recognize the transferred asset and recognizes a financial liability equal to proceeds for the transfer by applying IFRS 9 Financial Instruments.

Interest income

For all financial instruments measured at amortised cost and interest-bearing financial assets classified as investments held at FVOCI, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability.

Trade receivables

Accounts receivable represent the Group's right to the consideration amount, which is unconditional (i.e., only the passage of time is required before payment of the consideration is due).

Contract liabilities from contracts with customers

A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before the Group transfers the related goods or services. Contract liabilities are recognised as revenue when the Group performs under the contract (i.e., transfers control of the related goods or services to the customer).

Costs to obtain a contract

The Group pays commission to sales agents for new connected subscribers in the communication segment. The commission to sales agents is capitalized within other non-current assets in the consolidated statements of financial position. Costs to obtain a contract are amortized over the period the service is provided to the customer.

Establishment of tariffs

A number of subsidiaries of the Group are subject to regulation by the Committee for regulation of natural monopolies of the Republic of Kazakhstan ("CRNM"). This Сommittee is responsible for approval of the methodology for tariff calculation and tariff rates, under which the subsidiaries derive a significant portion of their revenues.

Government grants

Due to the fact that the Government of the Republic of Kazakhstan is the sole shareholder of the Fund, the Group analyses all transactions with the Government to assess its role: where the Government acts primarily in its capacity of the Shareholder or where it acts as a regulator.

If it is determined that in a specific transaction the Government acts in capacity of the Shareholder any gains or losses incurred by the Group as a result of such transaction are reflected directly in equity as either a contribution or withdrawal of equity by the Shareholder.

If it is determined that in a specific transaction the Government does not act in capacity of the Shareholder such transactions are accounted for using provisions of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. In such circumstances, government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the consolidated statement of comprehensive income over the expected useful life of the relevant asset by equal annual instalments. Grants related to income are presented separately in the consolidated statement of comprehensive income within revenues from operating activities.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Expense recognition

Expenses are recognized as incurred and are reported in the consolidated statement of comprehensive income in the period to which they relate on the accrual basis.

Income tax

Income tax for the year comprises current and deferred tax. Income tax is recognized in the profits and losses, except to the extent that it relates to items charged or credited to other comprehensive income or equity, in which case it is recognized in other comprehensive income. Current tax expense is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years.

Excess profit tax ("EPT") is treated as an income tax and forms part of income tax expense. In accordance with the subsurface use contracts, the Group accrues and pays EPT, at specified rates of after tax profit which has been adjusted for specific deductions in accordance with the applicable subsurface use contracts, when certain internal rates of return are exceeded.

Deferred tax is calculated with respect to both corporate income tax ("CIT") and EPT. Deferred EPT is calculated on temporary differences for assets allocated to subsurface use contracts at the expected rate of EPT to be paid under the contract.

Deferred tax is provided using the statement of financial position method, in relation to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The temporary differences arising due to the following are not provided for:

· The initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and

· In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Value added tax ("VAT")

Tax authorities permit the settlement of sales and purchases VAT on a net basis. VAT reсeivable represents VAT on domestic purchases net of VAT on domestic sales. Export sales are zero rated.

Related parties

Related parties include the Group's Shareholder, key management personnel, associates, joint ventures and entities in which a substantial interest in the voting power is owned, directly or indirectly, by the Group's shareholders or key management personnel.

Contingent liabilities and contingent assets

Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed in the notes to the consolidated financial statements (Note 37) unless the possibility of an outflow of resources embodying economic benefits is remote.

Contingent assets are not recognized in the consolidated financial statements. Where an inflow of economic benefits is probable, they are disclosed in the notes.

Subsequent events

Post-year-end events that provide evidence of conditions that existed at the reporting date (adjusting events) are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.

4. Significant accounting estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent assets and liabilities at the reporting date and reported amounts of assets, liabilities, revenues, expenses and contingent assets and liabilities during the reporting period. Actual outcomes could differ from these estimates.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Considerations in respect of COVID-19 pandemic and hydrocarbon economy in 2021

The impact of COVID-19 and unfavorable trend in the global hydrocarbons market on the basis of preparation of this consolidated financial statements has been considered as part of the going concern assessment. To support this assertion liquidity forecast has been assessed under several stressed scenarios. And as a result, impairment tests were performed.

Recoverability of oil and gas assets, downstream, refining and other assets

The Group assesses assets or CGU for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term oil prices, discount rates, future capital requirements, operating performance (including production and sales volumes) that are subject to risk and uncertainty. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset/CGU is considered to be impaired and is written down to its recoverable amount. In assessing recoverable values, the estimated future cash flows are adjusted for the risks specific to the asset group and are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value less costs to sell is identified as the price that would be received to sell the asset in an orderly transaction between market participants and does not reflect the effects of factors that may be specific to the entity and not applicable to entities in general.

Under IAS 36, one of the possible impairment indicators is the presence of significant changes that had negative consequences for the Group that occurred during the year or are expected in the near future in the technological, market, economic or legal environment in which the Group operates or in the market for which the asset is used.

Impairment testing assumptions

The Group's long-term assumptions for Brent oil prices, KZT/USD exchange rate and inflation projections have been revised and are based on externally sourced forecasts and rates of the independent research organizations considering long-tern market expectations. Production volumes estimates are based on proved developed and undeveloped reserves for subsidiaries, and on proved and probable reserves for significant investments in joint ventures and associates.

Production period is either based on subsoil use contracts' expiration date or on extended license period, to which the Group has strong intention to extend its licenses. Estimated production volumes are based on the Group's production plans that are mostly used for the purposes of application filing for extension of subsoil use contracts.

Discount rates were estimated on the weighted average cost of capital of the individual cash generating unit and ranged between 10.70%-16.30% depending on the functional currency, production period, size, equity risk premium, beta and gearing ratio of the relevant CGU.

The long-term price assumptions applied were derived from Bloomberg consensus, so did the near-term commodity price assumptions, a summary of which, in real 2021 terms, is provided below:

In "Oil and gas" segment impairment charges of 12,751 million tenge were recognized. Impairment charges mainly relate to partial impairment of refining assets of KMG International N.V. (further KMGI) of 8,298 million tenge (Note 29) and barges of KazMorTransFlot LLP of 4,453 million tenge (Note 29). The recoverable amounts of the barges were based on value-in-use calculations and recoverable amount of KMGI assets for impairment testing purposes was determined based on fair value less cost to disposal.

Headroom of the majority of oil and refining assets are sensitive to changes in price or other assumptions. The changes within next financial periods may result in recoverable amount of these assets above or below the current carrying amounts and therefore there is a risk of impairment reversals or charges in those periods.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Oil and gas reserves

Oil and gas reserves are a material factor in the Group's computation of depreciation, depletion and amortization expenses. The Group estimates its oil and gas reserves in accordance with the methodology of the Society of Petroleum Engineers (SPE). In estimating its reserves under SPE methodology, the Group uses long-term planning prices. Using planning prices for estimating proved reserves removes the impact of the volatility inherent in using year-end spot prices. Management believes that long-term planning price assumptions, which are also used by management for their business planning and investment decisions are more consistent with the long-term nature of the upstream business and provide the most appropriate basis for estimating oil and gas reserves.

All reserve estimates involve some degree of uncertainty. The uncertainty depends mainly on the amount of reliable geological and engineering data available at the time of the estimate and the interpretation of this data.

The relative degree of uncertainty can be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Proved reserves are more certain to be recovered than unproved reserves and may be further sub‑classified as developed and undeveloped to denote progressively increasing uncertainty in their recoverability.

Estimates are reviewed and revised annually. Revisions occur due to the evaluation or re-evaluation of already available geological, reservoir or production data, availability of new data, or changes to underlying price assumptions. Reserve estimates may also be revised due to improved recovery projects, changes in production capacity or changes in development strategy. Proved developed reserves are used to calculate the unit of production rates for depreciation, depletion and amortization in relation to oil and gas production assets. The Group has included in proved reserves only those quantities that are expected to be produced during the initial subsoil use contract period. This is due to the uncertainties surrounding the outcome of such renewal procedures, since the renewal is ultimately at the discretion of the Government. An increase in the Group's subsoil use contract periods and corresponding increase in reported reserves would generally lead to lower depreciation, depletion and amortization expense and could materially affect earnings. A reduction in proved developed reserves will increase depreciation, depletion and amortization expense (assuming constant production), reduce income and could also result in an immediate write-down of the property's book value. Given the relatively small number of producing fields, it is possible that any changes in reserve estimates year on year could significantly affect prospective charges for depreciation, depletion and amortization.

Please refer Note 29 for details on annual impairment test results.

Mining reserves

Mining reserves are a critical component of the projected cash flow estimates that are used to assess the recoverable values of assets and to determine depreciation and amortisation expense in mining segment.

Group entities usually estimate reserves based on results of detailed mine exploration, which is evaluated and approved by State Reserves Commission (SRC) of Kazakhstan Geology Committee. Normally upon stripping during production actual reserves of each area are greater or lesser than geological reserves approved by SRC.

Uranium reserves (estimate)

Uranium reserves are a critical component of the Group's projected cash flow estimates that are used to assess the recoverable values of relevant assets as well as depreciation and amortisation expense. Estimates of uranium reserves also determine the life of mines, which in turn affect asset retirement obligation calculations.

In 2021 and 2020, the Group engaged an independent consultant to assess the Group's ore reserves and mineral resources in accordance with the Australasian Code for reporting on geological exploration works, mineral resources and ore reserves (hereinafter JORC Code). Independent assessments of reserves and resources was carried out as of December 31, 2021 and December 31, 2020. The consultant reviewed all key information upon which the reported mineral resource and ore reserve statements for the mining assets of the Group are based.

The consultant's reports contain an assessment of the tons of uranium contained in ore which has the potential to be extracted by the existing and planned mining operations (the mineral resource), and also the tons of uranium contained in ore currently planned to be extracted as envisaged by the respective life-of-mine plans (the ore reserve). The Group used the ore reserves data for calculation of impairment of long-term assets, unit of production depreciation for each of the Group's mines as well as asset retirement obligation calculations.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Goodwill

KMGI CGU, including goodwill

As at December 31, 2021 and 2020, the Group performed its annual impairment tests for goodwill and downstream, refining and other assets due to existence of impairment indicators at the CGUs of KMGI. As the result of the impairment analysis, recoverable amount of KMGI CGUs exceeded their carrying values.

Pavlodar refinery, goodwill

As of December 31, 2021 and 2020 the Group has goodwill of 88,553 million tenge related to acquisition of Pavlodar oil chemistry refinery LLP (further Pavlodar refinery). The Group performed annual impairment test for the Pavlodar refinery goodwill using the current tolling business scheme employed by Pavlodar refinery in December 2021 and 2020. The Group considered the forecast for oil tolling volumes, oil tolling tariffs, capital expenditures, among other factors, when reviewing for indicators of impairment. The recoverable amount is calculated using a discounted cash flow model. In 2021, the discount rate of 12.06% was calculated based on the pre-tax weighted average cost of capital. Forecasted cash flows till to 2029 were based on five-years business plan of Pavlodar refinery 2022-2026, which assumes current management estimates on potential changes in operating and capital costs. As at December 31, 2021 and 2020 the recoverable amount of goodwill, which was determined based on value-in-use, exceeded its book value, as such no impairment of Pavlodar refinery goodwill was recognized.

Sensitivity to changes in assumptions

Results of the assessment of recoverable amount of Pavlodar refinery goodwill are sensitive to changes in key assumptions, in particular, assumptions related to changes in discount rate and target EBITDA in terminal period. Increase in discount rates by 1.0% to 13.06% and decrease of target EBITDA in terminal period by 1% would not result decrease of the recoverable amount of CGU Pavlodar refinery to its carrying value.

Other CGUs

Revision to the Group's commodity price and other assumptions have not resulted in impairment charges in any other CGUs of the Oil and gas segment.

National Company "Kazakhstan Temir Zholy" JSC ("NC KTZh")

The management assesses the recoverability of goodwill annually as of December 31 or every time when impairment indicators of the single CGU appear.

For the analysis of goodwill impairment, the management has used the detailed calculation of value in use of the single cash-generating unit performed in the prior period as of December 31, 2020, considering the below criteria is met:

· The assets and liabilities making up the Group CGU;

· Prior year detailed calculation of value in use resulted in substantial margin and the management ensured that there are no circumstances that result in decrease of the headroom as of December 31, 2021;

· Based on the analysis of events occurred since the most recent calculation of value in use and circumstances changed, the likelihood that a current recoverable amount determination would be less than the current carrying amount of the unit is remote.

To analyze the above factors, the management ensured that the key operating indicators for 2021 exceed budget and analyzed the impact of the most sensitive assumptions, such as:

· Transit freight transportation volume − the market demonstrates a favorable environment for the growth of transit; and

· Discount rate (WACC) − there have been no significant changes in the inputs used to calculate discount rate.

Management concluded that the recoverable amount of the goodwill exceeds its carrying amount as of December 31, 2021.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Goodwill (continued)

National Company "Kazakhstan Temir Zholy" JSC ("NC KTZh") (continued)

The Group performed a sensitivity analysis and concluded that when using the following justifiably possible changes in the key assumptions on an individual basis, while keeping other parameters constant, the fair value of property, plant and equipment, intangible assets and goodwill will be equal to its carrying value:

· Transit freight transportation volumes − a decrease of the volumes by 9.84% compared to calculation;

· Discount rate (WACC) − an increase of the discount rate from 11.46% to 12.65%.

With more significant changes in external or internal impairment indicators or simultaneous adverse impact of several factors, the analysis of external or internal indicators may result in the need to recognise impairment in the future.

DP Ortalyk LLP, JV Akbastau JSC and Karatau LLP

Goodwill relates to business combinations in prior periods being: 5,166 million tenge relates to subsurface use operations of DP Ortalyk LLP at the area Central on Mynkuduk mine, 24,808 million tenge relates to Karatau LLP and 18,520 million tenge relates to JV Akbastau JSC, which independently perform subsurface use operations at the Budenovskoye mine. At least annually, goodwill is tested for impairment. The carrying value of goodwill applicable to each of these entities is allocated to their respective cash generating units and the recoverable amount was determined on a value in use basis from forecast cash flows over the term of subsurface use contracts. Forecast cash flows are based on the approved volume of proven reserves, estimated volumes of production and sales over a life of mine plan approved by management, using a discount rate of 12.97% for 2021 year (2020: 12.35%). Production volumes are consistent with those agreed with the competent authority and independent consultant's report and are based on the production capacity of the cash-generating units.

Key assumptions used in calculations include forecast sales prices, production costs and capital expenditures. Sales prices used in developing forecast cash flows were determined using an independent official source Ux Consulting LLC published in the fourth quarter of 2021. Production costs and capital expenditures are based on approved budgets for 2022-2026 and growth of 5.12% which approximates long-term average inflation rates. The estimated values in use significantly exceed the carrying amounts of the non-current assets of the three cash-generating units, including goodwill, and therefore even reasonably possible changes in key assumptions would not lead to impairment losses being recognised.

Khan Tengri Holding B.V., Kcell JSC and IP TV

For impairment testing, goodwill related to Communication segment acquired through business combinations was allocated to three cash-generating units ("CGUs") ("IP TV", "Kcell JSC" and "Khan Tengri Holding B.V.").

The carrying amount of goodwill allocated to each of CGUs was as follows:

The Group performed its annual impairment test in December 2021 and 2020:

· The recoverable amount of the Khan Tengri Holding B.V. and Kcell JSC CGUs has been determined based on the calculation of fair value less costs of disposal as it was deemed to produce a more reliable result. This valuation technique was based on unobservable inputs (discounted cash flows) that represent Level 3 of the fair value hierarchy.

· The pre-tax discount rate applied to projected cash flows of Khan Tengri Holding B.V. was 21.09% (2020: 18.63%), and cash flows beyond the five-year period were extrapolated taking into account a growth rate of 1.5% (2020: 1.5%). The pre-tax discount rate applied to projected cash flows of Kcell JSC was 19.56% (2020: 17.88%), and cash flows beyond the five-year period were extrapolated taking into account a growth rate of 1.5% (2020: 1.5%).

· The recoverable amount of IP TV CGU has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to the cash flow projections is 16.94% (2020: 15.02%), and cash flows beyond the five‑year period are extrapolated using a 1.5% growth rate (2020: 1.5%).

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Goodwill (continued)

Khan Tengri Holding B.V., Kcell JSC and IP TV (continued)

The calculation of value-in-use for IPTV and fair value less costs of disposal for Khan Tengri Holding B.V. and Kcell JSC CGUs is most sensitive to the following assumptions:

· Customer base over the forecast period and average revenue per customer with direct impact on revenue growth rates;

· The level of capital investments included in the financial plan;

· EBITDA margin included in the financial plan;

· Growth rate for cash flow extrapolation beyond the forecast period;

· Discount rate.

As a result of this analysis, the Group has not identified an impairment of goodwill related to these CGUs as at December 31, 2021.

Sensitivity to changes in assumptions − Khan Tengri Holding B.V., Kcell JSC

Although management expects that the market share owned by the Group will not grow over the forecast period, according to the financial plan, slowing growth of customer base or a decrease in the average revenue per customer, leading to a decrease in revenue from current business plan by more than 6.67% (2020: 6.30%), would result in a loss from impairment in Khan Tengri Holding B.V. CGU for 389 million tenge (2020: 721 million tenge) and by more than 11.87% (2020: 5.06%), would result in a loss from impairment in Kcell JSC: CGU for 177 million tenge (2020: 84 million tenge).

Increase in capital investments by more than 45% (2020: 85%) would result in loss from impairment in Khan Tengri Holding B.V. CGU for 3,481 million tenge (2020: 1,415 million tenge) and more than 154% (2020: 91.5%) would result in loss from impairment in Kcell JSC CGU for 249 million tenge (2020: 189 million tenge).

Decrease in EBITDA margin by more than 8% (2020: 14%) would result in loss from impairment in Khan Tengri Holding B.V. CGU for 2,211 million tenge (2020: 980 million tenge) and more than 15% (2020: 11.2%) would result in loss from impairment in Kcell JSC CGU for 247 million tenge (2020: 204 million tenge).

Management recognises that the speed of technological change and the possibility of new entrants can have a significant impact on growth rate assumptions. A reduction to more than 17% (2020: 54.3% per annum in the long-term growth rate in Khan Tengri Holding B.V CGU would result in impairment loss for 208 million tenge (2020: 41 million tenge) and more than 11.15% (2020: 30.21% per annum in the long-term growth rate in Kcell JSC would result in impairment loss for 99 million tenge (2020: 261 million tenge).

An increase in pre-tax discount rate to 31% (2020: 33%) would result in impairment loss in Khan Tengri Holding B.V. CGU for 35 million tenge (2020: 2,399 million tenge) and to 38.8% (2020: 28.85%) would result in impairment loss in Kcell JSC CGU for 445 million tenge (2020: 271 million tenge).

Sensitivity to changes in assumptions − IP TV

Although the management expects that the market share owned by the Group would not grow over the forecast period, according to the financial plan, slowing growth of customer base or decrease in the average revenue per customer, leading to a decrease in revenue from current business plan by more than 8.08% (2020: 3.65%), would result in a loss from impairment in IP TV CGU for 59 million tenge (2020: 0.03 million tenge).

Increase in capital investments by more than 240% (2020: 95%) would result in loss from impairment in IP TV CGU for 3 million tenge (2020: 0.2 million tenge).

Management recognizes that the speed of technological change and the potential for new companies in the same industry to emerge can have a significant impact on its growth assumptions. A slower long-term growth rate for the IP TV business will not result in an impairment loss.

An increase in pre-tax discount rate to 27% (2020: 23.56%) would result in impairment loss in IP TV CGU for 48 million tenge (2020: 0.03 million tenge).

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Power generating assets

Impairment of non-financial assets

At each reporting date management assesses whether there is any indication of impairment of separate assets or groups of assets, and whether there is any indication that an impairment loss recognised in prior periods for separate assets or groups of assets other than goodwill may no longer exist or may have decreased.

Based on the results of the analysis carried out as of the end of 2021, management identified indicators of impairment of property, plant and equipment of the subsidiary − Almaty Electric Power Stations JSC ("ALES").

The Group engaged independent experts to perform an impairment test on ALES assets, which was conducted in accordance with IAS 36 Impairment of Assets.

The recoverable amount of property, plant and equipment and intangible assets determined based on estimates of estimated future cash inflows and outflows from the use of the assets, the discount rate and other indicators. Management classifies property, plant and equipment and intangible assets of each subsidiary as a single cash‑generating unit as it is the smallest identifiable group of assets that generates cash inflows that are substantially independent of cash flows from other assets and the lowest level at which each the subsidiary controls the recovery of the value of the assets. Management estimated the recoverable amount of property, plant and equipment based on value in use, defined as the sum of the estimated discounted future cash flows that the Group expects to receive from their use.

Please refer Note 29 for details on impairment test results.

Modernisation of Almaty CHP-2 with the minimization of the environmental impact

For the execution of the instructions of the President of the Republic of Kazakhstan on taking actions to minimize emissions to atmosphere, four modernization options for CHP-2 with the minimization of the environmental impact have been considered: transition of the existing boilers to gas flaring, reconstruction of the existing boilers with the installation of gas-handling equipment, extension of CHP-2 with the construction of CCGT plants and installation of additional gas-handling equipment without transition to natural gas and construction of a new gas-based plant.

On May 31, 2021, the Government of the Republic of Kazakhstan approved a proposal for the construction of a CCGT plant with a capacity of 600 MW at the site of Almaty CHP-2.

During the meeting, the Prime Minister of the Republic of Kazakhstan instructed the Ministry of Energy, together with interested state bodies, Samruk-Kazyna JSC, in accordance with the procedure established by law, to work out the issue of introducing amendments and additions to the Law of the Republic of Kazakhstan On Electricity in terms of providing the opportunity to implement projects to existing energy producers aimed at solving the environmental situation through the mechanism of the electric power market.

The Prime Minister of the Republic of Kazakhstan also instructed Samruk-Energy JSC, together with the Ministry of Energy, to continue, in the prescribed manner, to attract a bank loan to finance the project of transferring CHP-2 to gas, including the installation of gas infrastructure. As part of this instruction, the Company is working to organize project financing through loan raising.

In order to implement the project to upgrade the Almaty CHP-2, draft amendments to the Law of the Republic of Kazakhstan On Electric Power Industry have been prepared, stipulating the provision of an individual capacity tariff to energy producers implementing investment projects for modernization, reconstruction and/or expansion with the construction of generating plants using gas as alternative fuel type to reduce emissions. The conclusion on the draft amendments to the Law of the Republic of Kazakhstan On Electric Power Industry was agreed by the Government of the Republic of Kazakhstan and sent to the Majilis of the Parliament of the Republic of Kazakhstan. The amendments are expected to be adopted in April 2022.

The introduction of these amendments to the Law of the Republic of Kazakhstan On Electric Power Industry will provide the Group with a return on borrowed funds and a return on investment in the future due to the mechanism of the electric power market.

On December 30, 2021, a positive conclusion was received from RSE "Gosexpertiza" No. 02-0210/21 on the feasibility study project of modernization of CHP-2 with minimization of environmental impact with an option of construction of a new gas station with a capacity of up to 600 MW at the site of Almaty CHP-2.

The project for the modernization of CHPP-2 provides for the conservation of the existing capacities of CHP-2 after commissioning new gas station. The Group's management plans to complete the project of converting CHP-2 to gas by December 31, 2026.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Power generating assets (continued)

Modernisation of Almaty CHP-2 with the minimization of the environmental impact (continued)

Estimation of the recoverable amount of property, plant and equipment of CHP-2

At December 31, 2021, the Group's management considered that obtaining a positive opinion from RSE "Gosexpertiza" on the feasibility study of the CHP-2 modernization project with minimization of environmental impact with the option of building a new gas station with a capacity of up to 600 MW at the site of Almaty CHP-2 (the "project of conversion of CHPP-2 to gas") and the mothballing of the existing capacities of CHP-2 were an indicator of asset impairment and decided to assess the recoverable amount of property, plant and equipment.

Management engaged an independent expert, Grant Thornton Appraisal LLP, to perform an impairment test in accordance with IAS 36 Impairment of Assets.

Management has estimated the recoverable amount of the property, plant and equipment based on estimated future cash inflows and outflows from the use of the assets, the discount rate and other indicators.

The Group's management classifies all property, plant and equipment as a single cash-generating unit as it is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash flows generated by other assets and the lowest level at which the Group exercises control over recovery of the assets' value. Management has estimated the recoverable amount of property, plant and equipment based on value in use, which is the sum of the estimated discounted future cash flows that the Group expects to receive from their use.

The key assumptions used by management in determining value in use are:

Projected volumes and tariffs for the sale of electricity and heat and the service of maintaining the readiness of electric power

In accordance with the Law of the Republic of Kazakhstan On the Electricity Industry, the energy producer independently sets the selling price for electricity, but not higher than the cap tariff for electricity of the corresponding group of energy producers selling electricity and, if necessary, the price is adjusted. The cap tariff is approved by the Ministry of Energy of the Republic of Kazakhstan for groups of energy producers, formed by the type of power plants, installed capacity, type of fuel used, distance from the location of the fuel.

By Order of the Minister of Energy of the Republic of Kazakhstan dated December 5, 2018 No. 475 On Approval of a Group of Energy Producers Selling Electricity Samruk-Energy JSC is defined as a separate 26th group of energy producers. By Order of the Ministry of Energy of the Republic of Kazakhstan dated June 24, 2021 No. 211 On Amendments to the Order of the Minister of Energy of the Republic of Kazakhstan dated December 14, 2018 No. 514 On Approval of Cap Tariffs for Electricity the Group's electricity tariff is 10.23 tenge/kWh (excluding VAT) from July 1, 2021 for a period of five years, broken down by years. At the same time, in accordance with the Law of the Republic of Kazakhstan On Supporting the Use of RES, from July 1, 2021, a surcharge was introduced to support the use of renewable energy sources for conditional consumers in 1 electric energy consumption zone for 2021 in the amount of 1.57 tenge/kWh (excluding VAT) and for 2022 in the amount of 1.58 tenge/kWh (excluding VAT). Thus, the selling tariff for the Group's electricity for 2021 is 11.80 tenge/kWh (excluding VAT) and for 2022 11.81 tenge/kWh (excluding VAT).

In reference to the instruction of the Head of State, a moratorium was introduced on raising tariffs for regulated utilities, namely water supply, sewerage, heat supply, gas supply and electricity supply until July 1, 2022, the forecast for the cap tariff for electricity per unit kWh. in the first half of 2022 is based on the tariff approved by Order of the Minister of Energy of the Republic of Kazakhstan No. 211 dated June 24, 2021. Starting from the second half of 2022, the projected tariff was calculated using the rules for approving the cap tariff for electricity.

In accordance with the Group's plans to complete the project of converting CHP-2 to gas by December 31, 2026, cash flows after 2026 were calculated without taking into account the cash flows of CHP-2. The tariff for electricity in 2027 was also calculated taking into account the disposal of CHP-2 assets.

After the introduction of amendments to the Law of the Republic of Kazakhstan On the Electricity Industry it is expected that investments in the construction of a new plant will be fully reimbursed through the electric power market.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Power generating assets (continued)

Modernisation of Almaty CHP-2 with the minimization of the environmental impact (continued)

Estimation of the recoverable amount of property, plant and equipment of CHP-2 (continued)

Projected volumes and tariffs for the sale of electricity and heat and the service of maintaining the readiness of electric power (continued)

The sales volume forecast was made based on information from previous years and management's expectations in accordance with the Group's Development Plan for 2022-2026. The volume of electricity sales is projected to be approximately at the level of 2022.

The individual capacity tariff is determined in accordance with an individual investment agreement with the Ministry of Energy of the Republic of Kazakhstan and is aimed at covering the annual principal repayments on refinanced loans raised to finance the project "Reconstruction and expansion of Almaty CHP-2. III tranche. Boiler unit No. 8", until the maturity of the loans in 2024.

If the selling tariff for electricity remains at the level of 11.81 tenge/kWh in the period 2022-2026, the replacement value of property, plant and equipment will decrease by 22,665 million tenge.

Projected volumes of sales of heat energy and chemically treated water and forecast of the level of tariffs

The heat sales forecast was made based on information for previous years and management's expectations in accordance with the Group's Development Plan for 2022-2026. The volume of sales of heat energy and chemically treated water is projected at the level of 2022. The decrease in sales in 2027 is due to the disposal of the existing assets of CHP-2.

The tariff for heat generation per Gcal unit in the first half of 2022 is based on the approved tariff. From the second half of 2022 to 2026, the tariff is calculated at the level of approved tariffs, adjusted for the forecast fuel cost as an emergency regulatory measure. Starting from 2027, with the disposal of the operating assets of CHP-2, the heat tariff is expected to maintain a break-even level of profitability from heat in the long term for terminal cost calculation.

The tariff for the production of chemically treated water per ton in 2022-2026 is based on the approved tariffs. From 2027, the tariff is predicted taking into account the disposal of the existing assets of CHP-2.

In the event of a decrease/increase in sales of electricity, heat and chemically treated water by 10%, the replacement value of property, plant and equipment would decrease by 31,189 million tenge / increase by 31,236 million tenge.

In the event of a 10% decrease/increase in the cap tariffs for the sale of electricity, heat and chemically treated water, the replacement value of property, plant and equipment would decrease by 25,370 million tenge /increase by 25,397 million tenge.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Power generating assets (continued)

Modernisation of Almaty CHP-2 with the minimization of the environmental impact (continued)

Discount rate

The cash flows were discounted using an after-tax interest rate of 12.68% per annum, which was determined based on the Samruk-Energy's weighted average cost of capital. Should the discount increase/decrease by 1%, the replacement value of property, plant and equipment would decrease by 4,854 million tenge/increase by 5,916 million tenge.

Long-term inflation rate

The long-term inflation rate used to calculate the terminal value is 3.24% per annum.

Volume of capital expenditures

As a result of the test, the value in use of property, plant and equipment and intangible assets at December 31, 2021 was determined to be 61,243 million tenge, which is higher than their carrying amount. The Group recognized an impairment loss on property, plant and equipment and intangible assets in the amount of 20,737 million tenge.

At December 31, 2020, there were no indications of impairment.

Analysis of the impairment indicators of power generating property, plant and equipment

The Group's management performed the analysis of the impairment indicators of property, plant and equipment of subsidiaries Ekibastuz GRES-1 named after Bulat Nurzhanov LLP ("EGRES-1"), Alatau Zharyk Company JSC ("AZhK"), "Tegis Munai" LLP, "Mangyshlak Munai" LLP (hereinafter "Tegis Munai") and "Station Ekibastuzskaya GRES-2" JSC (hereinafter "EGRES-2") in accordance with IAS 36 Impairment of Assets.

The principal facts and assumptions used in the analysis of the impairment indicators are:

· Lack of negative changes in the economic efficiency of subsidiaries for the reporting period;

· Changes in interest rates on loans and long-term inflation rate are not significant;

· Lack of significant changes having adverse consequences for subsidiaries, which occurred during the period or may presumably occur in the nearest future;

· Projected growth in the medium term in demand for electricity in the northern and southern zones of the Republic of Kazakhstan;

· Increase in marginal electricity tariffs for energy producing organisations (hereinafter referred to as "EPO") from July 1, 2021 in accordance with the Order of the Minister of Energy of the Republic of Kazakhstan No. 211 dated June 24, 2021, taking into account the rate of return determined in accordance with the Methodology for determining the rate of return;

· Changes in the Legislation in the field of electric power industry, in terms of the introduction from July 1, 2021 of the mechanism of a "through" surcharge to support the use of renewable energy sources (hereinafter "RES"). These changes were introduced in order to improve the cost accounting mechanism for the purchase of electricity by traditional EPOs and according to which, a surcharge for supporting the use of renewable energy sources is added to the maximum tariff of traditional EPOs, which eliminates losses incurred when purchasing electricity from renewable energy sources.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Power generating assets (continued)

Analysis of the impairment indicators of power generating property, plant and equipment (continued)

Additional facts and assumptions used in the analysis of impairment indicators for EGRES-1:

· Over fulfilment of the plan in terms of key operational and financial performance indicators as of December 31, 2021;

· Projected increase in electricity sales volumes due to the commissioning of power unit No. 1 from 2026;

· Receipt of an individual tariff for services to maintain the readiness of electric power, ensuring a return on investment under the project "Restoration of power unit No. 1 with the installation of new electrostatic precipitators" with commissioning in 2024 (investment agreement with the Ministry of Energy of the Republic of Kazakhstan dated February 22, 2021).

Additional facts and assumptions used in the analysis of indicators of impairment for EGRES-2:

· Over fulfilment of the plan in terms of key operational and financial performance indicators as of December 31, 2021;

· Projected increase in electricity sales volumes due to the commissioning of power unit No. 3 from 2026;

· A significant increase in the electricity tariff − from 9.13 tenge/kWh to 9.69 tenge/kWh from April 1, 2021, and an increase to 10.16 tenge/kWh from July 1, 2021.

Additional facts and assumptions used in the analysis of indicators of impairment for AZhK:

· Over fulfilment of the plan in terms of key operational and financial performance indicators as of December 31, 2021;

· Projected growth in the medium term in demand for electricity in Almaty and the Almaty region.

Based on analysis performed with respect to internal and external impairment indicators, the Group's management concluded that there are no impairment indicators as of the analysis date. Therefore, the Group's management decided not to perform the impairment test of property, plant and equipment and intangible assets of these subsidiaries as of December 31, 2021.

Start date of gas production by Tegis Munai LLP

It is forecasted that natural gas production will commence in 2024, and it is assumed that 65% of gas production will be exported starting from 2024.

The gas production commencement is postponed because the contract territory is included in the territory of South-Kazakhstan state conservation area, where it is prohibited to perform field facilities construction and development prior to territory separation from the protected areas.

The Group's management is working to coordinate the expansion of the boundaries of the protected area, taking into account the withdrawal of the contract area, together with authorised state institutions. Management believes that there is a high probability of a favorable decision in favor of the Group, based on the experience of other companies that are part of the Group, whose contract areas were also located on the territory of the South Kazakhstan State Reserve Zone, but subsequently received permits to conduct mining.

Therefore, Tegis Munai contacted the Ministry of Energy of RK ("ME RK") with the question of the relevance of production period commencement extension, field facilities construction for gas production, postponement of deadline for the implementation of working program and contract's validity period since the issue of contract territory separation is not settled yet. In September 2020, the subsurface use expert commission of ME RK decided to postpone the following financing liabilities: education; R&D; social and economic development of the region, and an abandonment was given in terms of working program amendment on investment liabilities under subsurface use contract.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Power generating assets (continued)

Start date of gas production by Tegis Munai LLP (continued)

On December 3, 2020, Tegis Munai has sent an application to the Supreme Court of the Republic of Kazakhstan on invalidation of the ME RK abandonment in terms of working program amendment on investment liabilities under subsurface use contract. On December 30, 2020, Tegis Munai received force-majeure certificate from the Chamber of Commerce of Kazakhstan LLP comprising Atameken NCE confirming that Tegis Munai is not able to perform subsurface use contract commitments prior to the contract territory separation from the protected areas and is not able to perform subsurface use operations. Force-majeure circumstances are in force until the contract territory separation from the protected areas.

On September 15, 2021, due to the ongoing process to withdraw the contract area from the protected area, the Group received a new certificate regarding the duration of circumstances of undetermined force from the Foreign Trade Chamber of Kazakhstan LLP.

Assets related to uranium production

Assets related to uranium mines include property, plant and equipment, mine development assets, mineral rights, exploration and evaluation assets, investments in associates, investments in joint ventures, and other investments.

For the purpose of impairment testing assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (termed as'cash-generating units'). The Group has identified each mine (contract territory) as a separate cash-generating unit unless several mines are technologically connected with single processing plant in which case the Group considers such mines as one cash-generating unit.

As at December 31, 2021, management conducted an analysis and did not find any impairment indicators of assets (generating units) associated with the production of uranium products.

Assets retirement obligations

Oil and gas production facilities

Under the terms of certain subsoil use contracts, legislation and regulations the Group has legal obligations to dismantle and remove tangible assets and restore the land at each production site. Specifically, the Group's obligation relates to the ongoing closure of all non-producing wells and final closure activities such as removal of pipes, buildings and recultivation of the contract territories, and also obligations to dismantle and remove tangible assets and restore territory at each production site. Since the subsoil use contract terms cannot be extended at the discretion of the Group, the settlement date of the final closure obligations has been assumed to be the end of each subsoil use contract period. The extent of the Group's obligations to finance the abandonment of wells and for final closure costs depends on the terms of the respective subsoil use contracts and current legislation.

Where neither subsoil use contracts nor legislation include an unambiguous obligation to undertake or finance such final abandonment and closure costs at the end of the subsoil use contract term, no liability has been recognized. There is some uncertainty and significant judgment involved in making such a determination. Management's assessment of the presence or absence of such obligations could change with shifts in policies and practices of the Government or in the local industry practice.

The Group calculates asset retirement obligations separately for each contract. The amount of the obligation is the present value of the estimated expenditures expected to be required to settle the obligation adjusted for expected inflation and discounted using average long-term risk-free interest rates for emerging market sovereign debt adjusted for risks specific to the Kazakhstan market.

At each reporting date the Group reviews site restoration provisions, and adjusts them to reflect the current best estimate in accordance with IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities.

Estimating the future closure costs involves significant estimates and judgments by management. Most of these obligations are many years in the future and, in addition to ambiguities in the legal requirements, the Group's estimate can be affected by changes in asset removal technologies, costs and industry practice. The Group estimates future well abandonment cost using current year prices and the average long-term inflation rate.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Assets retirement obligations (continued)

Oil and gas production facilities (continued)

The long-term inflation and discount rates used to determine the obligation in the consolidated statement of financial position across the Group entities at December 31, 2021 were in the range from 2.23% to 8.10% and from 3.80% to 10.25%, respectively (December 31, 2020: from 2.00% to 7.3% and from 3.68% to 11.00%, respectively). As at December 31, 2021 the carrying amounts of the Group's asset retirement obligations relating to decommissioning of oil and gas facilities were 174,913 million tenge (December 31, 2020: 156,671 million tenge) (Note 22).

Major oil and gas pipelines

According to the Law of the RK On Major Pipelines which was made effective on July 4, 2012 KazTransOil JSC (further − "KTO") has legal obligation to decommission its major oil pipelines at the end of their operating life and to restore the land to its original condition. Asset retirement obligation is calculated based on estimate of the work to decommission and rehabilitate. As at December 31, 2021, the carrying values of the Group's asset retirement obligations relating to decommissioning of pipelines and land were 34,547 million tenge (December 31, 2020: 113,558 million tenge) (Note 22).

Assets related to uranium production

In accordance with environmental legislation and the subsurface use contracts, the Group has a legal obligation to remediate damage caused to the environment from its operations and to decommission its mining assets and landfills and restore landfill sites after closure of mining activities. Provision is made based upon the net present values of estimated site restoration and retirement costs as soon as the obligation arises from past mining activities.

The provision for asset retirement obligations is estimated based upon the Group's interpretation of current environmental legislation in the Republic of Kazakhstan and the Group's related programme for liquidation of subsurface use consequences on the contracted territory and other operations supported by the feasibility study and engineering research in accordance with the applicable restoration and retirement standards and techniques.

Provisions for asset retirement obligations are subject to potential changes in environmental regulatory requirements and the interpretation of the legislation. Provisions for mining assets and landfills retirement obligations are recognised when there is a certainty of incurring of such liabilities and when it is possible to measure the amounts reliably.

The calculation of the provision for production assets retirement as at December 31, 2021 was performed by the Group based upon assessments performed by independent and internal consultants. The scope of work stipulated by the legislation and included in the calculations included the dismantling of facilities and infrastructure (pumping, injection and observation wells, technological units for acidification and distribution of solutions, pipelines, access roads, technological sites, landfills, buildings and other facilities) and subsequent restoration of land.

Principal assumptions used in such estimations include the estimate of discount rate and the amount and timing of future cash flows. The discount rate is applied to the nominal costs that management expects to spend on mining site restoration in the future.

Management's estimates based on current prices are inflated using the expected long-term inflation rate of 5.12% in 2021 (2020: 5.17%), and subsequently discounted using a rate that reflects the current market estimates of the time value of money and those risks specific to the liability not reflected in the best estimate of the costs. The discount rate is based on a risk-free rate determined as interest rates on government bonds with the maturity as the average of Group subsoil use contracts. The discount rate used by the Group's companies for calculation of the provision as at December 31, 2021 is 9.85% (2020: 9.87%).

At December 31, 2021, the carrying value of the site restoration provision was 31,431 million tenge (2020: 23,841 million tenge) (Note 22). The increase is mainly attributable to the estimated cost of reclamation at RU-6 LLP (a wholly owned entity) as its mining allotment includes arable lands, pastures and the Kargaly state nature reserve.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Assets retirement obligations (continued)

Decommissioning of the Ulba plant facility

Management has assessed whether the Group has an obligation for decommissioning and dismantling of the production facility of Ulba Metallurgical Plant JSC and concluded that the Group has no legal obligation to decommission this facility at the end of its useful life as of December 31, 2021 and 2020.

In addition, management considered the extent to which the Group's policies and statements may have created a constructive obligation to decommission this production facility and concluded that no liability should be recorded as:

· Radiation contamination of the facility is limited and the costs involved in remediation are not significant.

· In the event of discontinuance of production activities, the Group will not have an obligation to liquidate buildings and other infrastructure. In addition, the possibility exists of redeployment of the production facilities to alternative uses.

· Timely inspections, surveys, repair work to reduce physical damage and maintain the normal level of performance of structures and engineering equipment can extend the useful life of the facility for an indefinite period. These factors together with the extended periods over which the Group's uranium reserves are available to be mined mean that it is not practical to estimate a reliable closure date for the UMP production facility.

In the event of future changes in environmental legislation and in the field of the use of atomic energy or its interpretation, as well as the Group's policy, obligations may arise which could require recognition as liabilities in the financial statements.

Provision for environmental remediation

The Group also makes judgments and estimates in establishing provisions for environmental remediation obligations. Environmental expenditures are capitalized or expensed depending upon their future economic benefit. Expenditures that relate to an existing condition caused by past operations and do not have a future economic benefit are expensed.

Liabilities are determined based on current information about costs and expected plans for remediation and are recorded on discounted basis. The Group's environmental remediation provision represents management best estimate based on an independent assessment of the anticipated expenditure necessary for the Group to remain in compliance with the current regulatory regime in Kazakhstan and Europe. The Group has classified this obligation as non-current except for the portion of costs, included in the annual budget for 2022. For environmental remediation provisions, actual costs can differ from estimates because of changes in laws and regulations, public expectations, discovery and analysis of site conditions and changes in clean-up technology. Movements in the provision for environmental remediation obligations are disclosed in Note 22.

Provision for taxes

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of the Group's international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable profits and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates.

The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group company's domicile.

In assessing tax risks, management considers to be probable obligations the known areas of non-compliance with tax legislation, which the Group would not appeal or does not believe it could successfully appeal, if additional taxes are charged. Such determinations inherently involve significant judgment and are subject to change as a result of changes in tax laws and regulations, amendments to the taxation terms of the Group's subsurface use contracts, the determination of expected outcomes from pending tax proceedings and current outcome of ongoing compliance audits by tax authorities. The provision for taxes disclosed in Note 22 relates mainly to the Group's application of Kazakhstan transfer pricing legislation. Further uncertainties related to taxation are disclosed in Note 37.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Provision for construction of social objects

The Government assigns various sponsorship and financing obligations to the Group. Management of the Group believes that such Government's assignments represent constructive obligations of the Group and require recognition on the basis of respective resolution of the Government of the Republic of Kazakhstan. Furthermore, as the Government is the ultimate controlling party of the Group, the expenditures on these assignments are recognized as "other distributions to the Shareholder" directly in the equity.

Useful lives of items of property, plant and equipment

The Group assesses remaining useful lives of items of property, plant and equipment at least at each financial year-end. If expectations differ from previous estimates, the changes are accounted for prospectively as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Deferred tax assets

Deferred tax assets are recognized for all allowances and unused tax losses to the extent that it is probable that taxable temporary differences and business nature of such expenses will be proved. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The carrying amount of recognized deferred tax assets as at December 31, 2021 was equal to 69,148 million tenge (December 31, 2020: 79,267 million tenge). Further details are contained in Note 33.

Fair value of financial instruments

Where the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.

The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the fair value of financial instruments reported in the consolidated financial statements. Further details are disclosed in Note 36.

Employee benefit liability

The Group uses actuarial valuation method for measurement of the present value of defined employee benefit liability and related current service cost. This involves use of demographic assumptions about the future characteristics of current and former employees who are eligible for benefits (mortality, both during and after employment, rates of employee turnover, etc.) as well as financial assumptions (discount rate, future annual financial assistance, future annual minimum salary and future average railway ticket price).

Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

Estimation of expected credit losses

The measurement of impairment losses under IFRS 9 across all categories of financial assets requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances.

The Group's ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgements and estimates include:

· The Group's credit grading model, which assigns PDs to the individual grades;

· The segmentation of financial assets when their ECL is assessed on a collective basis;

· Development of ECL models, including the various formulae and the choice of inputs;

· Determination of associations between macroeconomic scenarios and, economic inputs, such as oil price withone year lag, and the effect on PDs, EADs and LGDs.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Accounting treatment of financing arrangements with Industrial Development Fund JSC

The Group, represented by Passenger Transportation JSC and Tulpar Wagon Construction Plant LLP, entered into a number of trilateral purchase-sale and finance lease agreements with Industrial Development Fund JSC, which is under the common control of the Shareholder, to renew its passenger carriage fleet. Under the agreements, Industrial Development Fund JSC finances Tulpar Wagon Construction Plant LLP's construction of passenger carriages on a 100% prepayment basis for ownership with a further finance lease to Passenger Transportation JSC.

Management of the Group concluded that the transaction between Tulpar Wagon Construction Plant LLP and Industrial Development Fund JSC does not meet the requirements of IFRS 15 Revenue from Contracts with Customers to account for the asset sale at the Group level, as control over passenger carriages is not transferred to Industrial Development Fund JSC, but left with the Group.

Industrial Development Fund JSC finances the construction of the carriages, but is limited in its ability to direct the subsequent use of and obtain all of the remaining benefits from the asset. Accordingly, the Group recognises the obligation to Industrial Development Fund JSC as a financial liability (borrowing) according to IFRS 9 Financial Instruments and recognises passenger carriages and work-in-progress as property, plant and equipment items and construction in progress in accordance with IFRS 16.103 Leases.

Since financing was provided at preferential interest rates and the terms were provided exclusively to finance the upgrade of the Passenger Transportation JSC passenger carriage fleet based on a Kazakhstan Government Resolution, the Group considers these transactions as transactions with the Shareholder and recognises fair value adjustments of the loans received at below market rate through equity within retained earnings as other transactions with the Shareholder (Note 17).

Swap transactions

The Group sells part of its uranium products under swap transactions with separate agreements with the same counterparty, being for sales and purchase of the same volume of uranium for the same price at different delivery points or different timeframes. Effectively, this results in the exchange of own uranium (produced or purchased from the Group's entities) with purchased uranium.

Normally, under a swap transaction, the Group delivers physical uranium to one destination point, and purchases the same volume of uranium at a third party converter for sale to end customers. Swap transactions are entered into primarily to reduce transportation costs for uranium delivery from Kazakhstan to end customers.

Despite the fact that swap agreements are not formally related to each other, management concluded that these transactions are in substance linked and would not have occurred on an isolated basis, driven by the existing market demand and supply forces. In management's view, supply of the same volume of homogeneous product (uranium) for the same price represents an exchange of products, which should be presented on a net basis in the consolidated financial statements, reflecting the economic substance of the transaction. Interpretation of terms and approach to the accounting for swap transactions requires judgement.

In 2021, the Group did not recognise sales revenue from swap transactions of 146,910 million tenge and cost of sales of 135,158 million tenge. In 2020, the Group did not recognise sales revenue from swap transactions of 71,331 million tenge, cost of sales of 65,713 million tenge.

Control over DP Ortalyk LLP

On July 22, 2021 the Group completed the sale of a 49% interest in DP Ortalyk LLP (Note 17). The Group retains a 51% ownership interest and majority voting rights in the Supervisory Board. Sales activities of DP Ortalyk LLP are governed by the Marketing agreement, any amendments to which would require consent by both owners. The Group governs production activity within the 20% limit permitted by law through its power to approve the entity's budget by simple majority vote. Decisions about financing of DP Ortalyk LLP are made by unanimous consent of both owners. Сurrently, DP Ortalyk LLP does not rely on shareholders' or external financing. Given that all production volumes are committed to be purchased by the Group and CGNPC based upon market prices, production volumes and costs have the most significant impact on financial results and therefore are considered to be relevant activities for the purpose of the control assessment. Based on these facts, the Group management has concluded that the Group retains control over DP Ortalyk LLP.

5. Disposals and assets classified as held for sale or distribution to the shareholder

Disposals in 2021

Financial Settlement Center of Renewable Energy LLP

In December 2021, in accordance with the Resolution of the Government of the Republic of Kazakhstan dated November 30, 2021, the Group transferred shares of Financial Settlement Center of Renewable Energy LLP to the State property and privatization committee of the Ministry of Finance of Republic of Kazakhstan with the net assets of 37,122 million tenge free of charge (Note 17). This transaction was recognized as transfer of assets to the Shareholder in consolidated statement of changes in equity.

Net assets of Financial Settlement Center of Renewable Energy LLP as at the transfer date are as follows:

Vostokmashzavod JSC

On December 30, 2020 the Group, represented by its subsidiary Repair Corporation Kamkor LLP, entered into a sale agreement with a third party to sell shares of Vostokmashzavod JSC.

The Group classified the assets and liabilities of Vostokmashzavod JSC as at December 31, 2020 as assets held for sale measured at the lower of carrying amount and fair value less costs to sell. On January 8, 2021 the Group completed sale transaction of the shares of Vostokmashzavod JSC, and, as a result, lost control over the subsidiary.

Assets and liabilities in the separate statements of Vostokmashzavod JSC at the date of disposal amounted 6,656 million tenge and 9,980 million tenge, respectively.

The result of disposal of the subsidiary is as follows:

As at the date of disposal Vostokmashzavod JSC had loans and trade payables due to the Group with a carrying value of 5,529 million tenge and 938 million tenge, respectively. Under the transaction for the acquisition of share in Vostokmashzavod JSC, the buyer guaranteed the repayment of this debt. Therefore, as a result of disposal, the Group recognized loans receivable and receivables at their fair value of 3,251 million tenge and 641 million tenge, respectively, reflecting the adjustment to fair value in the reconciliation above.

As a result, the disposal of Vostokmashzavod JSC in 2021 did not have an impact on the financial result.

5. DISPOSALS AND ASSETS CLASSIFIED AS HELD FOR SALE OR DISTRIBUTION TO THE SHAREHOLDER (continued)

Disposals in 2021 (continued)

Shokpar-Gagarinskoye LLP

At December 31, 2020, assets and liabilities of a subsidiary Shokpar-Gagarinskoye LLP were classified as an assets held for sale and liabilities directly associated with the assets held for sale and were equal to 2,056 million tenge and 1 million tenge.

On July 9, 2021, the Group completed the sale of 100% shares of Shokpar-Gagarinskoye LLP to a third party for 4,185 million tenge.

Net assets of Shokpar-Gagarinskoye LLP as at the disposal date are as follows:

Net cash inflow from disposal of a subsidiary was as follows:

The resulting gain on disposal of Shokpar-Gagarinskoye LLP amounted to 2,140 million tenge.

KT Cloud Lab LLP

On June 17, 2019, the Group concluded an agreement on sale of KT Cloud Lab LLP. At December 31, 2020, assets and liabilities of KT Cloud Lab LLP were classified as an assets held for sale and liabilities directly associated with the assets held for sale and were equal to 1,872 million tenge and 895 million tenge.

In accordance with the agreement, payments shall be made in 3 tranches (the first tranche in the amount of 30% of the purchase price within 30 days after agreement signing date, the second tranche in the amount of 35% of the purchase price within 12 months after signing date and the third tranche in the amount of 35% of the purchase price within 24 months after signing date).

On July 14, 2021, the buyer made the first tranche under the purchase agreement in the amount of 30% of the purchase price. The buyer's intention to exercise his right to early repurchase the remaining stake in KT Cloud Lab LLP allowed the Group to recognize the disposal of KT Cloud Lab LLP from the moment of receipt of the first tranche and to recognize the payment arrears from the winner of the tender in full.

On October 20, 2021, the buyer repaid the remaining part of the purchase price ahead of the repayment schedule.

5. DISPOSALS AND ASSETS CLASSIFIED AS HELD FOR SALE OR DISTRIBUTION TO THE SHAREHOLDER (continued)

Disposals in 2021 (continued)

KT Cloud Lab LLP (continued)

Net assets of KT Cloud Lab LL as at the disposal date are as follows:

Following is a schedule of consideration received from the disposal of KT Cloud Lab LLP:

As a result of disposal the Group has recognized loss from disposal of the subsidiary of 426 million tenge.

Sales of 100% interests in subsidiaries − KazPV project

On June 10, 2021 the Group signed an agreement for the sale of the Group's entire interest in Kazakhstan Solar Silicon LLP. The sale was completed on July 12, 2021 upon receipt of full payment of 323 million tenge. At the date of loss of control net assets of Kazakhstan Solar Silicon LLP amounted to 85 million tenge.

On July 16, 2021 the Group signed an agreement for the sale of the Group's entire interest in Astana Solar LLP and on August 23, 2021 signed the act of acceptance after receiving full payment under the contract. The payment received amounted to 380 million tenge. At the date of loss of control net assets of Astana Solar LLP amounted to 115 million tenge.

On October 26, 2021, an agreement for the sale of the Group's entire interest in MK Kazsilicon LLP was signed. On November 19, 2021 after receiving full payment under the contract the Group signed an act of acceptance certificate. The payment received amounted to 652 million tenge. At the date of loss of control net liabilities of MK Kazsilicon LLP amounted to 136 million tenge.

Total proceeds from sales of KazPV entities was 1,355 million tenge less 16 million tenge cash and cash equivalents of disposed entities at the disposal date. Net income from disposal of KazPV subsidiaries amounted 1,291 million tenge.

5. DISPOSALS AND ASSETS CLASSIFIED AS HELD FOR SALE OR DISTRIBUTION TO THE SHAREHOLDER (continued)

Disposals in 2020

Transtelecom JSC

In April 2018, a purchase and sale agreement was concluded on the sale of 26% minus 1 (one) share of Transtelecom JSC. On January 24, 2020 the remaining balance of the purchase price was paid by the buyer for 26% minus 1 (one) share of Transtelecom JSC. On January 29, 2020 shares of Transtelecom JSC were disposed, as a result, the Group lost control over the subsidiary and recognised residual interest of 25% at fair value of 9,086 millon tenge as investment in associate and disposal of non-controlling interest in Transtelecom JSC of 14,040 million tenge in consolidated statement of changes in equity.

At the date of loss of control net assets of Transtelecom JSC were as follows: