Grupa LOTOS S.A. - Annual Report 2010

PLN '000	Dec 31 2010	Dec 31 2009
Finished products	1,171,917	776,413
Semi-finished products and work in progress	449,497	310,380
Goods for resale	251,531	177,779
Materials	2,633,846	1,758,572
Net inventories	4,506,791	3,023,144

As at December 31st 2010, the carrying value of inventories measured at cost stood at PLN 4,492,232 thousand. The value of inventories measured at net realisable value was PLN 14,559 thousand (as at December 31st 2009 respectively PLN 3,011,463 thousand and PLN 11,681 thousand).

As at December 31st 2010, the value of inventories serving as collateral for the Group's liabilities amounted to PLN 3,896,635 thousand (as at December 31st 2009: PLN 2,758,999 thousand).

Impairment Losses on Inventories

PLN '000	Dec 31 2010	Dec 31 2009
Finished products	1,120	2,259
Semi-finished products and work in progress	19	173
Goods for resale	43	29
Materials	6,404	6,790
Total impairment losses on inventories	7,586	9,251

During the year ended December 31st 2010, the Group recognised an impairment loss on inventories in the amount of PLN 935 thousand (December 31st 2009: PLN 2,624 thousand), used an impairment loss on inventories in the amount of PLN 529 thousand and reversed an impairment loss on inventories in the amount of PLN 2,071 thousand (December 31st 2009: PLN 210,438 thousand).

Mandatory Stocks of Liquid Fuels

In 2009 – 2010, Grupa LOTOS S.A. complied with the new regulations applicable to mandatory stocks which were introduced by virtue of the Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, as well as on the Rules to be Followed in the Event of a Threat to National Fuel Security or a Disruption on the Petroleum Market, dated February 16th 2007 (Dz.U. of 2007, No. 52, item 343, dated March 23rd 2007), as amended.

The new regulations became effective on April 7th 2007. The mandatory stocks include crude oil, petroleum products (liquid fuels) and LPG. The Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, as well as on the Rules to be Followed in the Event of a Threat to National Fuel Security or a Disruption on the Petroleum Market, dated February 16th 2007 (Dz. U. of 2007, No. 52, item 343, dated March 23rd 2007), as amended, has defined the basis for calculation of the required amount of mandatory stocks as well as for identification of the entities subject to the requirement to increase mandatory stocks to 73 days in 2007 and to 76 days from 2008 onwards (does not apply to LPG).

Detailed rules are set forth in the following regulations of the Minister of Economy, effective as of May 25th 2007:

• Regulation concerning the detailed list of commodities and petroleum products included in the intervention stocks, dated April 24th 2007 (Dz. U. No. 81 item 546), as amended,
• Regulation concerning the detailed procedure for creation and maintenance of mandatory stocks of crude oil or fuels and determining their amount, dated April 24th 2007 (Dz. U. No. 81 item 547), as amended,
• Regulation concerning the register of producers and traders obliged to create and maintain mandatory stocks of crude oil or fuels, dated April 24th 2007 (Dz. U. No. 81 item 548),
• Regulation concerning the detailed procedure for the reduction of the amount of mandatory stocks of crude oil or fuels, dated April 24th 2007 (Dz. U. No. 81 item 549).

The gross value of mandatory stocks created on the basis of the above regulations is as follows:

PLN '000	Dec 31 2010	Dec 31 2009
Mandatory stocks	2,980,241	2,196,965