With independent auditor’s report

JSC “Uzbekneftegaz”
Consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
24
4. 
Critical estimates and judgements (continued)
Assets retirement obligations (continued)
The Group calculates asset retirement obligations separately for each field. The amount of the obligation is
the present value of the estimated expenditures expected to be required to settle the obligation adjusted for
expected inflation and discounted using average long-term risk-free interest rates for emerging market
sovereign debt adjusted for risks specific to the Uzbekistan market.
At each reporting date the Group reviews site restoration provisions and adjusts them to reflect the current
best estimate in accordance with IFRIC 1
Changes in Existing Decommissioning, Restoration and Similar
Liabilities
.
Estimating the future closure costs involves significant estimates and judgments by management. Most of
these obligations are many years in the future and, in addition to ambiguities in the legal requirements, the
Group’s estimate can be affected by changes in asset removal technologies, costs and industry practice.
Uncertainties related to the final closure costs are mitigated by the effects of discounting the expected cash
flows. The Group estimates future well abandonment cost using current year prices and the average long-term
inflation rate.
The long-term inflation and discount rates used to determine the obligation in the consolidated statement of
financial position across the Group entities at 31 December 2020 were equal to 7% and 12%, respectively
(2019: 7% and 16%, 2018: 7% and 16%). Movements in the provision for asset retirement obligations are
disclosed in
Note 20
.
Employee benefits
Employee-benefit obligations include post-employment benefits and other long-term benefits. Other long-term
benefits include financial aid for employees’ disability, anniversaries, funeral and other benefits. The cost of
defined long-term employee benefits before, on and after retirement and the present value of the obligation
are determined using actuarial valuations. An actuarial valuation involves making various assumptions that
may differ from actual developments in the future. These include the determination of the discount rate, future
salary increases, mortality rates and future pension increases.
Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit
obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting
date.