Credit risk with respect to trade receivables is understood as a settlement risk that may expose the Group to losses or adverse changes in its financial position as a result of default by a counterparty, including concentration risk arising from excessive exposure to one entity.

Some of the Group’s gas sales transactions are effected via the Polish Power Exchange (“PPX”). Transactions made at the PPX do not generate exposure to credit risk, as the system of guaranteed settlements operated by the Commodity Exchange Clearing House protects Clearing House members against insolvency of individual market participants. As at the reporting date, outstanding balances from settlement of transactions effected via the PPX were not material.

In order to minimise the risk of uncollectible receivables arising from sale transactions outside of the PPX, uniform rules designed to secure trade receivables are in place.

In 2019, the parent implemented a uniform credit risk management model for its trading partners, designed to ensure appropriate standards of creditworthiness assessment, application of contractual collateral, and process security across the Group

These uniform rules are designed to control the process of granting credit limits to counterparties (including joint counterparties) and to ensure effective collection of trade receivables. The entire process was also covered by the internal system for reporting credit risk exposures and past due receivables. The Group limits its exposure to credit risk related to trade receivables by regularly assessing the creditworthiness of its trading partners, setting credit limits, using appropriate security instruments, and continuously monitoring the financial condition of its customers.

With respect to private customers, the Group’s debt collection teams continuously monitor the balance of a customer’s past-due receivables from the day when such arrears first arise. As part of the internal pre-litigation process, standard debt collection steps are taken: notification of overdue payments (by SMS, email or phone call), call for payment, notification and suspension of gas supply pursuant to Art. 6b.1.2) of the Energy Law. As a last resort, the Group terminates contracts due to non-payment, and the case is referred to court and subject to enforcement proceedings. Any debt that has not been recovered by the Group as part of its internal procedures is sold.

There is no credit risk concentration within the Group. As at December 31st 2019, trade receivables from the Group’s three largest customers accounted for 7.0%, 3.5%, and 2.3% of total balance of trade, respectively (December 31st 2018: 6.3%, 5.0%, and 3.7%, respectively).