Download 2004 Annual Report - Polymetal

dependent upon the effective−ness of economic, financial andmonetary measures undertakenby the Government, together withtax, legal, regulatory, and politicaldevelopments.Environmental contingenciesThe enforcement of environ−mental regulation in the RussianFederation is evolving and theenforcement posture of govern−ment authorities is continually be−ing reconsidered. The Group pe−riodically evaluates its obligationsunder environmental regulations.As obligations are determined,they are recognised immediately.Potential liabilities, which mightarise as a result of changes in ex−isting regulations, civil litigation orlegislation, cannot be estimatedbut could be material. In the cur−rent enforcement climate underexisting legislation, managementbelieves that there are no signifi−cant liabilities for environmentaldamage.Legal contingenciesDuring the year, the Group wasinvolved in a number of court pro−ceedings (both as a plaintiff and adefendant) arising in the ordinarycourse of business. In the opinionof management, there are no cur−rent legal proceedings or otherclaims outstanding, which couldhave a material effect on the re−sult of operations or financial posi−tion of the Group and which havenot been accrued or disclosed inthese consolidated financial state−ments.Insurance policiesThe Group holds no insurancepolicies in relation to its assets,operations, or in respect of publicliability or other insurable risks, ex−cept for insurance for property intotal amount of U.S. Dollar 22 474(including insurance for assetsunder capital lease in amount U.S.Dollar 9 419)Sales commitments.In accordance with the loan agree−ment of ZAO Zoloto SevernogoUrala with Nomos−Bank, Nomos−Bank has a priority right to buygold produced in 2005 from Zo−loto Severnogo Urala. The price isnot specified in the agreement.Taxation.Russian tax, currency and cus−toms legislation is subject to vary−ing interpretations, and changes,which can occur frequently. Man−agement’s interpretation of suchlegislation as applied to the trans−actions and activity of the Groupmay be challenged by the relevantregional and federal authorities.Recent events within the RussianFederation suggest that the taxauthorities may be taking a moreassertive position in their inter−pretation of the legislation andassessments, and it is possiblethat transactions and activitiesthat have not been challenged inthe past may be challenged. As aresult, significant additional taxes,penalties and interest may be as−sessed. Fiscal periods remainopen to review by the authoritiesin respect of taxes for three cal−endar years preceding the yearof review. Under certain circum−stances reviews may cover lon−ger periods.As at 31 December 2004 man−agement believes that its inter−pretation of the relevant legisla−tion is appropriate and that it isprobable that the Group’s tax,currency and customs positionswill be sustained. Where manage−ment believes it is probable thata position cannot be sustained, anappropriate amount has been ac−crued for in these financial state−ments.Political environment.The operations and earnings ofthe Company are affected by po−litical, legislative, fiscal and regu−latory developments, includingthose related to environmentalprotection. Because of the capi−tal−intensive nature of the indus−try, the Company is also subjectto physical risks of various kinds.The nature and frequency ofthese developments and eventsassociated with these risks, whichgenerally are not covered by in−surance, as well as their effect onfuture operations and earnings,are not predictable.70 Polymetal annual report 2004