IAS 37, decommissioning, processing and storage provisions, nuclear power generation, sensitivities

ENGIE SA – Annual report – 31 December 2021

Industry: utilities


Accounting standards

General principles related to the recognition of a provision

The Group recognizes a provision where it has a present obligation (legal or constructive) towards a third party arising from past events and where it is probable that an outflow of resources will be necessary to settle the obligation with no expected consideration in return.

A provision for restructuring costs is recognized when the general criteria for setting up a provision are met, i.e. when the Group has a detailed formal plan relating to the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

Provisions with a maturity of over 12 months are discounted when the effect of discounting is material. The Group’s main long-term provisions are provisions for the back-end of the nuclear fuel cycle, provisions for dismantling facilities, provisions for site restoration costs, and provisions for post-employment and other long-term benefits. The discount rates used reflect current market assessments of the time value of money and the risks specific to the liability concerned. Expenses with respect to unwinding the discount on the provision are recognized as other financial income and expenses.

Estimates of provisions

Factors having a significant influence on the amount of provisions, and particularly, but not solely, those relating to the back-end of the nuclear fuel cycle, to the dismantling of nuclear facilities and of gas infrastructures in France, include:

  • cost estimates (notably the retained scenario for managing radioactive nuclear fuel consumed) (see Note 20.2);
  • the timing of expenditure (notably, for nuclear power generation activities, the timetable for reprocessing radioactive nuclear fuel consumed and for dismantling facilities as well as the timetable for the end of gas operations regarding the main gas infrastructure businesses in France) (see Notes 20.2 and 20.3); and
  • the discount rate applied to cash flows.

These factors are based on information and estimates deemed by the Group to be the most appropriate as of today.

Modifications to certain factors could lead to a significant adjustment in these provisions.

(1) Net additions to provisions relating to EQUANS’ activities are recognized in “Net income/(loss) relating to discontinued operations” in the income statement for €23 million at December 31, 2021.

(2) Including €666 million in provisions for EQUANS activities, which are classified under “Discontinued operations” (see Note 5 “Main changes in Group structure”).

The impact of unwinding discount adjustments in respect of post-employment and other long-term benefits relates to the interest expense on the benefit obligation, net of interest income on plan assets.

The “Other” line mainly comprises actuarial gains and losses arising on post-employment benefit obligations in 2021, which are recorded in “Other comprehensive income” as well as provisions recorded against a dismantling or site rehabilitation asset.

Additions, utilizations, reversals and the impact of unwinding discount adjustments are presented as follows in the consolidated income statement:

The different types of provisions and the calculation principles applied are described below.

20.1 Post-employment benefits and other long-term benefits

See Note 21 “Post-employment benefits and other long-term benefits”.

20.2 Obligations relating to nuclear power generation activities

In the context of its nuclear power generation activities, the Group assumes obligations related to the management of the back-end of the nuclear fuel cycle and the dismantling of nuclear facilities.

20.2.1 Legal framework

The Belgian law of April 11, 2003 granted Group subsidiary Synatom responsibility for managing provisions set aside to cover the costs of dismantling nuclear power plants and managing spent nuclear fuel in those plants. The tasks of the Commission for Nuclear Provisions (CNP) set up pursuant to the above-mentioned law is to oversee the process of computing and managing these provisions.

To enable the CNP to carry out its work in accordance with the above-mentioned law, Synatom is required to submit a report every three years describing the core inputs used to measure these provisions. If any changes are observed from one triennial report to another that could materially impact the financial inputs used, i.e., the industrial scenario, estimated costs and timing, the CNP may revise its opinion, and the Group makes the necessary adjustments, if any, in the income statement.

Synatom submitted its triennial report to the CNP on September 12, 2019 and the CNP issued its opinion on December 12, 2019, which was taken into account in preparing the financial statements for the year ended December 31, 2019. The provisions recognized by the Group were determined taking into account the prevailing contractual and legal framework, which sets the operating life of the Tihange 1 reactor and the Doel 1 and 2 reactors at 50 years, and the other reactors at 40 years. These provisions have not changed significantly since that date, besides the impact of recurring factors such as the passage of time (unwinding) and utilizations of and additions to provisions for fuel spent during the year. They will be reviewed again at the end of 2022, in accordance with the applicable regulations.

The provisions include in their assumptions all existing or planned environmental regulatory requirements on a European, national and regional level. If new legislation were to be introduced in the future, the cost estimates used as a basis for the calculations could vary.

The estimated provision amounts include margins for contingencies and other risks that may arise in connection with dismantling and radioactive spent fuel management procedures. Contingency margins relating to the disposal of waste are determined by ONDRAF and built into its fees. The Group also estimates appropriate margins for each cost category.

The Group believes that the latest assumptions reviewed and approved by the CNP are the most appropriate for establishing these provisions. However, in its opinion issued on December 12, 2019, the CNP pointed out uncertainty over some costs, which in principle are covered by the contingency margins, but for which it set up a further work and analysis program as of 2020, and which may be covered by the review in 2022. The provisions may be subsequently adjusted in line with changes in the inputs set out below.

The breakdown of dismantling provisions between Synatom and Electrabel is shown below:

20.2.2 Provisions for the back-end of the nuclear fuel cycle

Accounting standards

Allocations to provisions for the back-end of the nuclear fuel cycle are computed based on the average unit cost of the quantities expected to be used up to the end of the operating life of the plants, applied to quantities used at the closing date. An annual allocation is also recognized with respect to unwinding the discount on the provisions.

When spent nuclear fuel is removed from a reactor and temporarily stored on-site, it requires conditioning, potentially after reprocessing (1), before being consigned to long-term storage.

ONDRAF proposed on February 9, 2018 that geological storage be adopted as the national policy for managing high-level and/or long-lived radioactive waste. The proposal is subject to the approval of the Belgian government after obtaining the opinion of the Federal Agency for Nuclear Control (Agence Fédérale de Contrôle Nucléaire – AFCN).

In addition, ENGIE considers that the “mixed” scenario adopted by the CNP, whereby a portion of the fuel is reprocessed, and the rest is disposed of directly without reprocessing, continues to apply.

(1) Operation that separates uranium, plutonium and fission products.  

The provisions booked by the Group for nuclear fuel processing and storage cover all of the costs linked to the “mixed” scenario, including on-site storage, transportation, reprocessing, conditioning, off-site storage and geological disposal. They are calculated based on the following principles and inputs:

  • storage costs primarily comprise the costs of building and operating additional dry storage facilities and operating existing facilities, along with the costs of purchasing containers;
  • part of the radioactive spent fuel is transferred for reprocessing. . The reprocessed plutonium and uranium will be sold to a third party for a cost that must be reviewed on a regular basis;
  • radioactive spent fuel that has not been reprocessed is to be conditioned, which requires conditioning facilities to be built according to ONDRAF’s approved criteria. ONDRAF’s recommendations as regards the cost of these facilities have been fully taken into account;
  • the reprocessing residues and conditioned spent fuel are transferred to ONDRAF;
  • the cost of burying fuel in deep geological repositories is estimated using the royalty rate established by ONDRAF based on a total disposal facility cost of €10.7 billion2017. The estimated cost of implementing the preliminary recommendation of the AFCN concerning an additional well has also been added, based on ONDRAF’s recommendations. Other adjustments to the operational safety of the evacuation site are being discussed with ONDRAF and may give rise to a revision of the costs if they exceed the amounts covered by the contingency margins already included in ONDRAF’s assessment;
  • the long-term obligation is calculated using estimated internal costs and external costs assessed based on offers received from third parties;
  • the baseline scenario includes ONDRAF’s latest scenario, with geological storage starting in around 2070 and ending in around 2135;
  • the discount rate used is 3.25%. It takes into account (i) an analysis of trends in long-term benchmark rates and their historical and forecast averages, as well as (ii) the long life of the liabilities given the conditioning and evacuation of spent fuel, which has been delayed until 2070.

The costs effectively incurred in the future may differ from the estimates in terms of their nature and timing of payment. Belgium’s current legal framework does not permit reprocessing and has not yet confirmed the adoption of geological storage as the policy for managing medium- and high-level nuclear waste.

As regards the partial reprocessing scenario, following a resolution adopted by the House of Representatives in 1993, reprocessing contracts that had not already begun were suspended and then terminated in 1998. The scenario adopted is based on the assumption that the Belgian government will allow Synatom to reprocess spent fuel and that an agreement will be reached between Belgium and France designating Orano (formerly Areva) as responsible for these reprocessing operations. A scenario assuming the direct disposal of waste without reprocessing would lead to a decrease in the provision compared to the provision resulting from the “mixed” scenario currently used and approved by the CNP.

The Belgian government has not yet taken a decision as to whether the waste should be buried in a deep geological repository or stored over the long term. On November 27, 2019, the European Commission sent a reasoned opinion to Belgium under the breach procedure provided for in Article 258 of the Treaty on the Functioning of the European Union, on the grounds that Belgium had not adopted a national program for managing radioactive waste in compliance with various requirements set out in the directive on spent fuel and radioactive waste (Council Directive 2011/70/Euratom). Therefore, at this stage, there is only one national program for the safe storage of spent fuel pending reprocessing or long-term storage. The scenario adopted by the CNP is based on the assumption that the waste will be buried in a deep geological repository at a site yet to be identified and classified in Belgium.


Provisions for the back-end of the nuclear fuel cycle remain sensitive to assumptions regarding costs, the timing of operations and expenditure, as well as to discount rates:

  • a 10% increase in ONDRAF’s fees above the royalty rate for the removal of high-level and/or long-lived waste would lead to an increase in provisions of approximately €175 million based on unchanged contingency margins;
  • a five-year advance in ONDRAF’s expenditure on temporary storage, conditioning and long-term storage for high level and/or long-lived radioactive waste would lead to an increase in provisions of approximately €170 million. A five-year delay in the payment schedule for these various expenses would lead to a decrease of less than that amount;
  • a change of 10 basis points in the discount rate used could lead to an adjustment of approximately €260 million in provisions for the back-end of the nuclear fuel cycle. A fall in discount rates would lead to an increase in outstanding provisions, while a rise in discount rates would reduce the provision amount.

These sensitivities are calculated on a purely financial basis and should therefore be interpreted with appropriate caution in view of the variety of other inputs – some of which may be interdependent – included in the evaluation.

20.2.3 Provisions for dismantling nuclear facilities

Accounting standards

A provision is recognized when the Group has a present legal or constructive obligation to dismantle facilities or to restore a site. The present value of the obligation at the time of commissioning represents the initial amount of the provision for dismantling with, as the counterpart, an asset for the same amount, which is included in the carrying amount of the facilities concerned. This asset is depreciated over the operating life of the facilities and is included in the scope of assets subject to impairment tests. Adjustments to the provision due to subsequent changes in (i) the expected outflow of resources, (ii) the timing of dismantling expenses or (iii) the discount rate, are deducted from or subject to specific conditions, added to the cost of the corresponding asset. The impacts of unwinding the discount are recognized in expenses for the period.

A provision is also recorded for nuclear units for which the Group holds a capacity right up to its share of the expected dismantling costs to be borne by the Group.

Nuclear power plants have to be dismantled at the end of their operating life. Provisions are set aside in the Group’s financial statements to cover all costs relating to (i) the shutdown phase, which involves removing radioactive spent fuel from the site and (ii) the dismantling phase, which consists of decommissioning and cleaning up the site.

The dismantling strategy is based on the facilities being dismantled (i) immediately after the reactor is shut down, (ii) on a mass basis rather than on a site-by-site basis, and (iii) completely, the land being subsequently returned to greenfield status.

Provisions for dismantling nuclear facilities are calculated based on the following principles and inputs:

  • the operating life is 50 years for Tihange 1 and Doel 1 and 2, and 40 years for the other facilities;
  • the start of the technical shutdown procedures depends on the facility concerned and on the timing of operations for the nuclear reactor as a whole. The shutdown procedures are immediately followed by dismantling operations;
  • the scenario adopted is based on a dismantling program and on timetables that have to be approved by the nuclear safety authorities. A dialogue on the safety conditions for the decommissioning and dismantling phases of the power plants has been initiated with the AFCN. The costs may change depending on the outcome of these discussions and the detailed schedule for the implementation of these phases which is currently being defined;
  • costs payable over the long term are calculated by reference to the estimated costs for each nuclear facility, based on a study conducted by independent experts under the assumption that the facilities will be dismantled on a mass basis. The costs effectively incurred in the future may differ from the estimates in terms of their nature and timing of payment;
  • fees for handling Class A – low or medium activity and short-lived – and B – low or medium activity and long-lived dismantling waste are determined using the royalty rate established by ONDRAF and include the margins recommended by ONDRAF for waste reclassification risk given the uncertainty over the definition of the criteria for classification in those classes; the difficulty in obtaining operating permits for class A waste storage has led ONDRAF to redefine a technical solution for storage and set a new assessment for 2022;
  • for the different phases, the inclusion of normal contingency margins, reviewed by ONDRAF and the CNP, is taken into account; another study of the uncertainties and contingencies to be covered by these margins is set to be carried out during the next revision;
  • an inflation rate of 2.0% is applied until the dismantling obligations expire in order to determine the value of the future obligation;
  • a discount rate of 2.5% (including inflation of 2.0%) is applied to determine the present value (NPV) of the obligation. It takes into account (i) an analysis of trends in consistent benchmark rates and their historical and forecast averages, as well as (ii) the duration of the dismantling program scheduled to end by 2040.


Based on currently applied inputs for estimating costs and the timing of payments, a change of 10 basis points in the discount rate used could lead to an adjustment of approximately €62 million in dismantling provisions. A fall in discount rates would lead to an increase in outstanding provisions.

A 10% increase in decommissioning and dismantling costs could lead to a change in the balance of the dismantling provisions of around €635 million.

This sensitivity is calculated on a purely financial basis and should therefore be interpreted with appropriate caution in view of the variety of other inputs – some of which may be interdependent – included in the evaluation.

20.2.4 Financial assets set aside to cover the future costs of dismantling nuclear facilities and managing radioactive fissile material Principles, objectives and governance

As indicated above, the Belgian law of April 11, 2003 granted the Group’s wholly-owned subsidiary Synatom responsibility for managing and investing funds received from operators of nuclear power plants in Belgium and intended to cover the costs of dismantling nuclear power plants and managing radioactive fissile material. Pursuant to the law, Synatom may lend up to 75% of these funds to nuclear power plant operators provided that certain credit quality criteria are met. The percentage of the provisions not subject to loans to nuclear operators is invested by Synatom either in external financial assets or in loans to legal entities meeting the “credit quality” criteria imposed by law.

Since October 2019, Electrabel has not taken out any further loans in respect of provisions for the back-end of the nuclear fuel cycle and has undertaken to repay all of the loans taken out for that purpose by 2025. In 2021, Synatom therefore invested nearly €1.3 billion in external financial assets to cover the future costs of managing radioactive fissile material.

Synatom’s objective in terms of investment in these assets is to offer, in the long term and for an acceptable level of risk, a sufficient return, in order to cover dismantling costs and the management of radioactive fissile material, under the constraints of diversification, risk minimization and availability as defined by the law of April 11, 2003.

The Synatom Board of Directors and its Investment Committee are responsible for defining Synatom’s investment policy after consultation with the CNP, in accordance with the law of April 11, 2003. Based on a rigorous risk control policy, the Investment Committee oversees investment decisions, which are managed by a team headed by an investment director. Strategic allocation and composition of financial assets

The strategic allocation of financial assets is determined on the basis of a periodic asset-liability analysis, which consists of determining the asset categories and their respective weighting in order to meet the return objective while respecting the risk framework identified for each type of liability.

This allocation varies according to the type of liability and the different investment horizons and discount rates. Separate risk profiles are considered for:

  • Assets in relation to provisions for dismantling of nuclear power plants,
  • Assets in relation to provisions for managing radioactive fissile material.

The target allocation of plan assets based on the two aforementioned risk profiles is as follows:

Listed equities consist of international securities. Listed bonds consist of international sovereign bonds and international corporate bonds. Unlisted assets consist of securities representing funds or real estate, private equity, infrastructure or private debt investment vehicles. Investments are managed by specialized asset management companies.

Synatom believes that the inclusion of Environmental, Social and Governance (ESG) principles in investment decisions allows for better management of non-financial risks in order to generate long-term sustainable returns. The integration of ESG principles implies a broader consideration of the risks and opportunities that can influence financial performance. The selection process for external managers also incorporates ESG principles.

To implement this investment policy, Synatom has a money market fund (SICAV) under Luxembourg law, a Nuclear Investment Fund, and a newly created money market fund under Belgian law, the Belgian Nuclear Liabilities Fund (“BNLF”). Changes in financial assets in 2021

The value of financial assets dedicated to covering nuclear provisions amounted to €5,501 million at December 31, 2021, and their return was 7.63% for the year. The main drivers of performance were equities, with global stock markets benefiting from a strong economic outlook and better-than-expected corporate earnings. Bonds performed sluggishly, however, amid rising returns at the long-term end of the yield curve Valuation of financial assets in 2021

Loans to entities outside the Group and other cash investments are shown in the table below:

(1) Not including €414 millions in uranium inventories at December 31,2021 (€540 million at December 31, 2020).

Loans to legal entities outside the Group and the cash held by money market funds (OPCVM) are presented in the statement of financial position under “Loans and receivables at amortized cost”. Money market bonds and associated hedging instruments held by Synatom are presented under equity or debt instruments (see Note 17.1 “Financial assets”).

The breakdown in the change in the cumulative fair value of Synatom’s assets is presented as follows:

Net income for the period generated by these assets amounted to €228 million in 2021 (negative €31 million in 2020).

20.3 Dismantling of non-nuclear plant and equipment and site rehabilitation

20.3.1 Dismantling obligations arising on non-nuclear plant and equipment

Certain items of plant and equipment, including conventional power stations, transmission and distribution pipelines, storage facilities and LNG terminals, have to be dismantled at the end of their operational lives or at least safely shut down. These obligations are the result of prevailing environmental regulations in the countries concerned, contractual agreements, or an implicit Group commitment. The most important issue for the Group concerns gas infrastructures in France.

France’s political and societal guidelines for the energy transition aim to achieve carbon neutrality by 2050, by reducing greenhouse gas emissions and promoting renewable or so-called “green” energies, particularly biomethane and hydrogen. The various scenarios that make it possible to achieve carbon neutrality, in particular the National Low Carbon Strategy in France or the “Energy Futures” study by the electricity transmission system operator, RTE, all lead to a significant decrease in the quantities of gas consumed. The Group is closely analyzing this prospect, particularly for the purpose of defining its strategy and assessing the useful life of gas infrastructures and evaluating provisions for their dismantling.

In line with the objective of carbon neutrality by 2050, the long-term scenario adopted by the Group, which governs the implementation of its strategy, is one that combines reasonable electrification, i.e. just under 50% of final demand in 2050, with the ambitious development of a diversified range of green gases (biomethane, synthesized e-CH4, natural gas with the Carbon-Capture and Storage process, and pure hydrogen). Due to the importance of these green gases in the French energy mix scheduled for 2050 and beyond, gas infrastructures will remain largely necessary and will be essential to provide flexibility to the energy system. The adaptation and conversion of these infrastructures to green gas means that they can be used in the very distant future, which means that the present value of provisions for their dismantling is almost zero, except in the specific cases of LNG terminals and non-regulated storage sites. Provisions for dismantling LNG terminals and storage sites totaled €402 million at December 31, 2021, compared to €367 million at December 31, 2020.

Given its time horizon and the many underlying inputs (in particular, better knowledge of the compatibility of gas infrastructures with hydrogen, and changes in French and European public policies), the Group will continue to assess the long-term scenario that will enable it to achieve carbon neutrality by 2050 on a regular basis. These assessments will be accompanied by a review of the valuation of dismantling provisions.

20.3.2 Hazelwood Power Station & Mine (Australia)

The Group and its partner Mitsui announced in November 2016 their decision to close the coal-fired Hazelwood Power Station, and cease coal extraction operations from the adjoining mine from late March 2017. The Group holds a 72% interest in the former 1,600 MW power station and adjoining coal mine, which has been consolidated as a joint operation.

At December 31, 2021, the Group’s share (72%) of the provision covering the obligation to dismantle and rehabilitate the mine amounted to €251 million.

Dismantling and site rehabilitation work commenced in 2017 and focused on: managing site contamination; planning site wide environmental clean-up; the demolition and dismantling of all of the site’s industrial facilities, including the former power station; and ongoing aquifer pumping and designated earthworks within the mine to ensure mine floor and batter stability with a view to long-term rehabilitation into a pit lake.

Several policies and laws that have a direct or indirect impact on mine rehabilitation and on the agencies that administer them have recently been reformed. Consequently, the ultimate regulatory obligations are likely to be revised during the life of the project and could therefore have an impact on provisions.

The average discount rate used to determine the amount of the provisions is 2.04%.

The amount of the provision recognized is based on the Group’s best current estimate of the demolition and rehabilitation costs that Hazelwood is expected to incur. However, the amount of this provision may be adjusted in the future to take into account any changes in the key inputs.

20.4 Other contingencies

This caption essentially includes provisions for commercial litigation, tax claims and disputes (except income tax, pursuant to IFRIC 23) as well as provisions for onerous contracts relating to storage and transport capacity reservation contracts.