12.1 Related party transactions

in PLN millions, unless otherwise stated

The accounting policies and significant estimates and assumptions presented in Part 2 and 10 are applicable to transactions entered into with related parties.

The transactions between the Group and related parties include transactions with:

• the joint venture Sierra Gorda S.C.M.,
• entities controlled or jointly controlled by the State Treasury or over which it has significant influence, and
• the management board and the supervisory board (remuneration) – Note 12.

The State Treasury is an entity controlling KGHM Polska Miedź S.A. at the highest level. The Company makes use of the exemption to disclose a detailed scope of information on transactions with the Polish Government and entities controlled or jointly controlled by the Polish Government, or over which the Polish Government has significant influence (IAS 24.25).

Pursuant to the scope of IAS 24.26, as at 31 December 2020, the Group concluded the following transactions with the Polish Government and entities controlled or jointly controlled by the Polish Government, unusual due to their nature or amount:

• due to an agreement on setting mining usufruct for the extraction of mineral resources – fixed fees and setting  mining usufructs for exploration for and evaluation of mineral resources – total payables amounted to PLN 172 million (as at 31 December 2019: PLN 174 million), setting mining usufruct – variable fee (recognised in costs) –  payables in the amount of PLN 30 million (as at 31 December 2019: PLN 29 million),
• due to a reverse factoring agreement with the company PEKAO FAKTORING SP. Z O.O. – payables in the amount of PLN 974 million, interest costs paid in the reporting period in the amount of PLN 11 million (as at 31 December 2019, payables in the amount of PLN 596 million and paid interest costs for 2019 in the amount of PLN 1 million),
• banks related to the State Treasury executed the following transactions and economic operations on the Group’s behalf: spot currency exchange, depositing cash, granting bank loans, guarantees, and letters of credit (including documentary letters of credit), running bank accounts and servicing of special purpose funds.

Apart from the aforementioned transactions entered into by the Group with the Polish Government and with entities controlled or jointly controlled by the Polish Government, or over which the government has significant influence, which were significant due to their nature and the amount, there also occurred transactions arising from extraordinary administrative orders based on art. 11 of the act dated 2 March 2020 on particular solutions related to preventing and counteracting COVID-19, other infectious diseases and the crisis-related situations caused thereby (Journal of laws from 2020, item 374 with subsequent amendments), involving the sale of personal protective equipment in the amount of PLN 193 million. The unsettled balance of receivables due to these transactions as at 31 December 2020 amounted to PLN 2 million.

State Treasury companies may purchase bonds issued by KGHM Polska Miedź S.A.

The remaining transactions between the Group and the Polish Government and with entities controlled or jointly controlled by the Polish Government, or over which the government has significant influence, were within the scope of normal, daily economic operations. These transactions concerned the following:

• the purchase of goods to meet the needs of current operating activities. In the period from 1 January to 31 December 2020, the turnover from these transactions amounted to PLN 1 263 million (from 1 January to 31 December 2019: PLN 1 156 million), and, as at 31 December 2020, the unsettled balance of liabilities from these transactions amounted to PLN 203 million (as at 31 December 2019: PLN 187 million),
• sales to Polish State Treasury Companies. In the period from 1 January to 31 December 2020, the turnover from these sales amounted to PLN 119 million (from 1 January to 31 December 2019: PLN 104 million), and, as at 31 December 2020, the unsettled balance of receivables from these transactions amounted to PLN 18 million (as at 31 December 2019: PLN 12 million).