With independent auditor’s report

Capitalized interest
Interest expense on borrowed funds used for capital construction projects and the acquisition of property, plant
and equipment is capitalized provided that the interest expense could have been avoided if the Group had not
made capital investments. Interest is capitalized only during the period when construction activities are actually
in progress and until the resulting properties are put into operation.
Capitalized borrowing costs include exchange differences arising from foreign currency borrowings to the
extent that they are regarded as an adjustment to interest costs.

---

JSC “Uzbekneftegaz”
Consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
19
3. 
Significant accounting policies (continued)
Government grants
Grants from the Government are recognized at their fair value where there is a reasonable assurance that the
grant will be received, and the Group will comply with all attached conditions. Government grants relating to
the purchase of property, plant and equipment are included in non-current liabilities as deferred income and
are credited to profit or loss on a straight-line basis over the expected lives of the related assets.
When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods
that the related costs, for which it is intended to compensate, are expensed.
Provisions for liabilities and charges
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects a
provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain.
If the effect of the time value of money is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision
due to the passage of time is recognized as a finance cost.