Provisions for onerous contracts primarily relate to multi-year agreements for the purchase or sale of energy and services:
Provisions for onerous contracts are mainly attributable to the Group’s LNG activities (long-term LNG purchase contracts and a long-term regasification contract with Dunkerque LNG).
The revenues and margin on Framatome’s long-term contracts are recorded under the percentage-of-completion method. When the estimated result upon completion is negative, the loss is immediately recorded in profit and loss, after deducting the loss already recognised under the percentage-of-completion method, and a provision is booked.
Provisions related to environmental schemes include provisions to cover shortfalls in greenhouse gas emission rights, renewable energy certificates and energy savings certificates, based on the assigned obligations (see notes 5.4.3, 10.2, 20.1and 20.2.1).
Through the renewable energy certificates scheme, the EDF group has an obligation to surrender renewable energy certificates, particularly in the UnitedKingdom and Belgium.
At 31 December 2020, a provision of €932 million was booked in connection with the obligation to surrender renewable energy certificates at that date, essentially concerning EDF Energy (United Kingdom) and Luminus (Belgium). A large portion of these obligations is covered by purchases of certificates included in intangible assets.
One of the main features of the third phase of the European Union greenhouse gas emission quota system, running from 2013 to 2020, is the discontinuation of free allocation of emission rights to electricity producers in certain countries, including France and United Kingdom.
In the EDF group, the entities concerned by this system are EDF, EDF Energy, Edison, Dalkia, PEI and Luminus.
In 2020, the Group surrendered, according the best estimate 21 million tonnes in respect of emissions generated in 2019. In 2019, the Group surrendered 26 million tonnes in respect of emissions generated in 2018.
The Group’s total emission rights allocation for 2020 recorded in the national registers is 0 million tonnes (1 million tonnes for 2019).
The volume of emissions at 31 December 2020 stood at 19 million tonnes (21 million tonnes for 2019).
At 31 December 2020, a provision of €260 million was recognised for over-quota greenhouse gas emissions by the Group (€414 million at 31 December 2019).
These provisions cover various contingencies and expenses related to operations(employers’ matching contributions to employee profit sharing, restructuring operations, contractual maintenance obligations, etc.). No individual provision is significant.
In extremely rare cases, description of a specific litigation covered by a provision maybe omitted from the notes to the financial statements if such disclosure could cause serious prejudice to the Group.
17.3 Contingent liabilities
A contingent liability is:
The principal contingent liabilities at 31 December 2020 are the following:
For the period 2008 to 2017, EDF was notified of proposed tax adjustments, notably concerning the tax-deductibility of certain long-term liabilities. As stated in the 2019financial statements, this recurrent reassessment, which is applied for each year, represented a cumulative financial risk of some €556 million in income taxes at 31 December 2019. In two rulings made in 2017 and one in 2019, MontreuilAdministrative Court recognised the tax-deductibility of these liabilities and validated the position taken by the Company. The Minister appealed against two of these rulings. In January 2020, the Versailles Administrative Court upheld EDF’s position for the year 2008, but the Minister appealed. In a decision of11 December 2020 the Council of State overturned the Versailles court’s decision and sent the case back before the same court (see note 15.1.1.4). In application ofIFRIC 23, EDF has recognised a net tax liability of €510 million in its 2020 financial statements.
For the years 2012 to 2017, the French tax authorities notified the Company of certain recurrent tax reassessments concerning the cotisation sur la valeur ajoutée des entreprises (tax on corporate value added) and questioned the deductibility of long-term provisions.
Following the tax inspections of EDF International for the years 2009 to 2014, theFrench tax authorities questioned the valuation of the bond convertible into shares issued to refinance the acquisition of British Energy. The total amount concerned was approximately €310 million. EDF International contested this reassessment.
In judgements of 2 July 2019 for the period 2009-2013 and 30 January 2020 for the year 2014, Montreuil Administrative Court confirmed the tax reassessments. EDFInternational has therefore paid the tax in execution of these decisions, which it hasalso appealed.
EDF and its subsidiaries are party to a number of labour lawsuits. The Group considers that none of these lawsuits, individually, is likely to have a significant impact on its financial results or financial position. However, because they relate to situations that could concern a large number of EDF’s employees in France, any increase in such litigations could have a potentially negative impact on the Group’sfinancial position.
