6. Property, plant and equipment

The net book value of property, plant and equipment as at December 31, 2011, 2010 and 2009 was as follows:


  Buildings and
site services
Cable and
transmission
devices
Other Construction in
progress
Total
Cost/Deemed cost          
           
At January 1, 2009 192,215 284,988 66,669 18,801 562,673
Additions 235 29 252 35,493 36,009
Acquisition through business combination 160 72 8 8 248
Disposals (1,832) (14,802) (3,513) (1,091) (21,238)
Transfer 10,118 22,808 6,950 (39,876) -
Reclassification 427 (1,046) 702 (83) -
At December 31, 2009 201,323 292,049 71,068 13,252 577,692
           
At January 1, 2010 201,323 292,049 71,068 13,252 577,692
Additions 247 136 385 53,987 54,755
Acquisition through business combination 1,521 814 98 54 2,487
Disposals (2,282) (11,238) (3,200) (646) (17,366)
Transfer 15,358 25,758 8,632 (49,748) -
Reclassification 446 (1,688) 1,194 2 (46)
At December 31, 2010 216,613 305,831 78,177 16,901 617,522
           
At January 1, 2011 216,613 305,831 78,177 16,901 617,522
Additions 201 1,103 3,105 64,559 68,968
Reclassification from investment
property and assets held for sale
262 121 - - 383
Acquisition through business combination 1,270 8,079 525 902 10,776
Disposals (3,826) (7,551) (4,806) (483) (16,666)
Transfer 16,905 36,615 6,405 (59,925) -
Reclassification (12,240) 20,313 (8,204) 131 -
At December 31, 2011 219,185 364,511 75,202 22,085 680,983

  Buildings and
site services
Cable and
transmission
devices
Other Construction in
progress
Total
Accumulated depreciation and
impairment losses
         
           
At January 1, 2009 (72,379) (140,958) (41,839) (419) (255,595)
Depreciation expense (11,200) (26,058) (10,084) - (47,342)
Impairment losses 253 (33) 19 (28) 211
Disposals 1,268 14,035 3,228 - 18,531
Reclassification (73) 609 (611) 75 -
At December 31, 2009 (82,131) (152,405) (49,287) (372) (284,195)
           
At January 1, 2010 (82,131) (152,405) (49,287) (372) (284,195)
Depreciation expense (11,352) (25,957) (9,576) - (46,885)
Impairment losses (233) (22) 3 38 (214)
Disposals 1,825 10,006 3,009 - 14,840
Reclassification (186) (145) 179 152 -
At December 31, 2010 (92,077) (168,523) (55,672) (182) (316,454)
           
At January 1, 2011 (92,077) (168,523) (55,672) (182) (316,454)
Depreciation expense (9,654) (30,953) (9,779) - (50,386)
Reclassification from investment
property and assets held for sale
(119) (61) - - (180)
Impairment losses (1) (111) (1) (150) (263)
Disposals 2,882 6,702 4,687 - 14,271
Reclassification (9,274) 3,260 6,014 - -
At December 31, 2011 (108,243) (189,686) (54,751) (332) (353,012)
           
Net book value
At December 31, 2009 119,192 139,644 21,781 12,880 293,497
At December 31, 2010 124,536 137,308 22,505 16,719 301,068
At December 31, 2011 110,942 174,825 20,451 21,753 327,971

For the purposes of consistent classification of similar item of property, plant and equipment the Group made reclassification as at December 31, 2011.

At December 31, 2011, 2010 and 2009, cost of fully depreciated property, plant and equipment was 133,698, 120,414 and 111,439, respectively.

Interest capitalization

Interest amounting to 948, 563 and 769 was capitalized in property, plant and equipment for the years ended December 31, 2011, 2010 and 2009, respectively. The capitalization rate used to determine the amount of borrowing costs eligible for capitalization is 7.50%, 9.48% and 10.54% for the years ended December 31, 2011, 2010 and 2009, respectively.

Pledged property, plant and equipment

Property, plant and equipment with a carrying value of 2,360, 9,949 and 30,245 was pledged in relation to loan agreements entered into by the Group as at December 31, 2011,2010 and 2009, respectively.

Leased property, plant and equipment

As at December 31, 2011,2010 and 2009 net book value of leased property, plant and equipment comprised:


  December 31,
2011
December 31,
2010
December 31,
2009
Buildings and constructions 1,107 1,629 969
Switches and transmission devices 2,735 5,482 10,224
Vehicles and other property, plant and equipment 657 1,348 3,022
Construction in progress 13 17 19
Total net book value of leased property, plant and equipment 4,512 8,476 14,234

Impairment of property, plant and equipment

As at December 31, 2011 the Group conducted impairment testing of its property, plant, equipment, to identify possible irrecoverability of the assets. The Group assessed the recoverable amount of the assets for which estimation on individual basis is impossible within respective CGU. The Group defines CGUs as regional branches (in case of Rostelecom), legal entities or group of legal entities (in case of subsidiaries).

The recoverable amount of each CGU is determined by estimating its value in use. Value in use calculation uses cash-flow projections based on actual and budgeted financial information approved by management and a discount rate which reflects time value of money and risks associated with each individual CGU. Key assumptions management used in the calculation of value in use are as follows:

  • for all CGUs cash flow projections cover the period of five years, cash flows beyond five-year period are extrapolated using growth rate of 2%;
  • discount rates are estimated in nominal terms as the weighted average cost of capital on pre tax basis and varies from 11.6% to 16.26% per CGU

For individual items of construction in progress for which the Group has not intention to complete and use or sell them impairment loss recognised in the amount of their carrying value.

2011 impairment testing

Impairment loss of property, plant and equipment in the amount of 113 (CGU regional branch Ural) and construction in progress of 150 were recognised in 2011 as a result of impairment testing. Impairment losses are included in the line Depreciation, amortisation and impairment losses in the statement of comprehensive income

2010 impairment testing

As a result of the impairment testing performed as at December 31, 2010, for certain CGUs the Group recognized an impairment loss of property, plant and equipment: Sibirtelecom (64), Uralsvyazinform (293), and reversal of impairment loss of property, plant and equipment: Rostelecom (93) and Southern Telecommunications Company (50).

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