Open - Ina

The effective interest method is a method of calculatingthe amortised cost of a financial liability and of allocatinginterest expense over the relevant period. The effectiveinterest rate is the rate that exactly discounts estimatedfuture cash payments through the expected life of thefinancial liability, or, where appropriate, a shorter period.The Group derecognises financial liabilities when, and onlywhen, the Group’s obligations are discharged or cancelledor they expire.Embedded derivativesDerivatives embedded in other financial instruments orother host contracts are treated as separate derivativeswhen their risks and characteristics are not closely relatedto those of the host contracts and the host contracts arenot measured at fair value with changes in fair valuerecognised in profit or loss.In the ordinary course of business, the Company andGroup has entered into certain long-term, foreigncurrency supply and sales contracts which, under IAS 39,include embedded derivatives. An embedded derivativeis a component of a contract which has the effect thatthe cash flows arising under the contract vary, in part, ina similar way to a standalone derivative. IAS 39 requiresthat such embedded derivatives are separated from thehost contracts and accounted for as derivatives carriedat fair value, with changes in fair value being charged orcredited to the income statement, as applicable.The fair value of embedded forward foreign exchangecontracts is determined by reference to spot marketforeign currency rates at the balance sheet date, becausethere is no active forward market in the countries involvedin contracts. The fair value of an embedded inflation indexswap is determined by the reference to the cumulativeinflation index differential between the contractedinflation escalator and inflation in the country wherethe contract is executed. The long-term effects of theseembedded derivatives are discounted using a discountrate similar to the interest rate on government bonds.Segmental disclosuresFor management reporting purposes, the Group isorganized into four major operating business units. Thebusiness units are the basis upon which the Group reportsits primary segment information.Provisions for decommissioning andother obligationsProvisions are recognised when the Group has a presentobligation (legal or constructive) as a result of a past eventand it is probable (i.e. more likely than not) that an outflowof resources will be required to settle the obligation, anda reliable estimate can be made of the amount of theobligation. Provisions are reviewed at each balance sheetdate and adjusted to reflect the current best estimate.Where the effect of discounting is material, the amountof the provision is the present value of the expendituresexpected to be required to settle the obligation,determined using the estimated risk free interest rateas the discount rate. Where discounting is used, thereversal of such discounting in each year is recognised as afinancial expense and the carrying amount of the provisionincreases in each year to reflect the passage of time.Where the provision relates to the decommissioning andremoval of assets, such as an oil and gas production facility,the initial recognition of the decommissioning provision istreated as part of the cost of the related property, plantand equipment. Subsequent adjustments to the provisionarising from changes in estimates are also treated as anadjustment to the cost of property, plant and equipmentand thus dealt with prospectively in the income statementthrough future depreciation of the asset.Use of estimates in the preparation offinancial statementsThe preparation of financial statements in conformitywith International Reporting Financial Standards, aspublished by the International Accounting StandardsBoard requires management to make estimates andassumptions that affect the reported amounts ofassets, liabilities, income and expenses and disclosureof contingencies. The significant areas of estimationused in the preparation of the accompanying financialAnnual report 2007103