17. Borrowings

Borrowings as at December 31, 2011, 2010 and 2009 were as follows:


  December 31, 2011 December 31, 2010 December 31, 2009
Long-term Borrowings      
Non-current portion of long-term borrowings      
Bank and corporate loans 79,232 81,441 47,166
Bonds 4,604 4,365 13,894
Promissory notes 9 9 604
Vendor financing 69 135 499
Finance lease liabilities 572 1,901 4,563
Interest payable 13 77 270
Restructured customer payments 28 13 96
Total non-current portion of long-term borrowings 84,527 87,941 67,092
Current portion of long-term borrowings      
Bank and corporate loans 44,379 22,652 16,503
Bonds 4,285 18,335 19,735
Promissory notes - 597 1,927
Vendor financing 2,362 2,424 2,803
Finance lease liabilities 1,491 2,474 3,880
Restructured customer payments 77 79 57
Total non-current portion of long-term borrowings 52,594 46,561 44,905
Total long-term borrowings 137,121 134,502 111,997
       
Short-term Borrowings      
Bank and corporate loans 25,893 2,269 2,017
Interest payable 452 1,266 1,786
Other short-term borrowings - - 396
Total short-term borrowings 26,345 3,535 4,199
Current portion of long-term borrowings 52,594 46,561 44,905
Total current borrowings 78,939 50,096 49,104
Total borrowings 163,466 138,037 116,196

Included in current portion of long-term loans is an amount of 537 on a credit agreement between Rostelecom and Vnesheconombank (VEB) entered into in December 2005. The loan is repayable annually up to the end of 2012. Under the existing credit agreement with Vnesheconombank and CSFB, the Group is required to meet at the end of each quarter various financial covenants applied to the statutory financial statements of the Company, including maintaining certain levels of debt to equity and debt to income ratios. As at December 31, 2011 the Group was not in compliance with some of the covenants and at the time these financial statements were authorized for issue no waiver had been obtained by the Group from the bank. As at December 31, 2011 the Group was not in compliance with some of the covenants and at the time these financial statements were authorized for issue no waiver had been obtained by the Group from the bank. Consequently, the entire amount of the loan is included in the current portion of long-term borrowings as at December 31, 2011. As at December 31, 2010 the Group was not in compliance with some of the covenants and at that date no waiver had been obtained by the Group from the bank. Consequently, the entire amount of the loan is included in the current portion of longterm borrowings as at December 31, 2010. As at December 31, 2009 the Group was in compliance with all of the covenants, but as at June 30, 2009 and September 30, 2009 the Group was not in compliance with some of the covenants and as at December 31, 2009 no waiver had been obtained by the Group from the bank, so the entire amount of the loan is included in the current portion of long-term borrowings as at December 31, 2009.

In connection with the US$ 100 million loan from Vnesheconombank and CSFB, on June 28, 2006, the Group entered into an interest rate swap agreement with CSFB. In accordance with the interest rate swap agreement, twice a year on June 28 and December 28, commencing on December 28, 2006 and ending on December 28, 2012, the Group undertakes an obligation to CSFB calculated at a fixed interest rate and CSFB undertakes an obligation to the Group in the amount calculated at floating rate payable by the Group on its loan. The Group did not designate the above interest rate swap derivative as hedging instrument. Therefore, this financial instrument was classified as financial liability at fair value through profit and loss amounted to 24 (2010: 70, 2009: 109). Fair value of the derivative is calculated by discounting future cash flows determined by condition and payments schedule of the agreement using forward rates of similar instruments at the reporting date. The net gain of 45 related to the change in the fair value of the interest rate swap contract was included in other investing and financial gain in the consolidated statement of comprehensive income for 2011 year (2010: 39; 2009: 67).

There is 359 outstanding on a credit agreement between CJSC GlobalTel and Loral Space and Communications Corporation (\x93Loral\x94) as at December 31, 2011, (2010: 329, 2009: 317). CJSC GlobalTel is in default in respect of this loan. A penalty in the amount of 136 is included in the outstanding balance. As no waiver has been obtained from Loral, these loans are classified as current in the consolidated statement of financial position as at December 31, 2011. The loan does not provide for any collateral. In 2006, Loral brought an action against CJSC GlobalTel claiming immediate repayment of the full amount of the debt. In 2009, the Supreme Court of Arbitration ordered CJSC GlobalTel to repay the loan and penalty to Loral.

Finance lease liabilities

In April 2005, the Group entered into a finance lease agreement for use of terrestrial optical fiber cables. The lease agreement is non-cancellable for the period of 15 years, which approximates the remaining useful life of the optical fibers. Effective interest rate of the lease is 7.21% p.a. Lease payments are denominated in US Dollars.

Also, the Group is involved in a finance lease agreement for use of a digital telecommunication station over its estimated remaining useful life of 7 years. Effective interest rate of the lease is 11.7% p.a. Lease payments are denominated in Russian Roubles.

The Group has two lease tranches of optical fibers with OJSC FSK EES until year 2030. The effective interest rate of these leases are 15% and 17% p.a. Lease payments are denominated in Russian Roubles.

Future minimum lease payments together with the present value of the net minimum lease payments as at December 31, 2011, 2010 and 2009 are as follows:


  December 31, 2011 December 31, 2010 December 31, 2009
  Minimum
lease
payments
Present value
of minimum
lease
payments
Minimum
lease
payments
Present value
of minimum
lease
payments
Minimum
lease
payments
Present value
of minimum
lease
payments
Current portion (less than 1 year) 1,734 1,491 2,817 2,474 5,160 3,880
More than 1 to 5 years 572 472 2,110 1,798 5,447 4,285
Over 5 years 218 100 238 103 334 278
Total 2,524 2,063 5,165 4,375 10,941 8,443

Depreciation of property, plant and equipment under the finance lease contracts for 2011, 2010 and 2009 amounted to 1,397, 1,961 and 2,542, respectively. FFinance charges for the year ended December 31, 2011, 2010 and 2009 amounted to 653, 1,048 and 1,879, respectively, and are included in finance costs in these consolidated statements of comprehensive income.

Vendor financing

Vendor financing payable includes the following as at December 31, 2011, 2010 and 2009:


  December 31, 2011 December 31, 2010 December 31, 2009
Government of Dagestan Republic 69 79 87
Sisko Capital CIS - 43 376
Huawei Technologies Co. Ltd. - - 3
CJSC Envision Group - 5 14
Other - 8 19
Vendor financing payable - long-term 69 135 499
Globalstar L.P. 2,159 1,919 1,780
Metrosvyaz Ltd 99 99 99
Sisko Capital CIS 47 342 371
Huawei Technologies Co. Ltd. 45 45 68
Government of Dagestan Republic 10 - -
USP Kompyulink - - 257
CJSC Envision Group - 8 64
Other 2 11 164
Vendor financing payable - current portion 2,362 2,424 2,803
Total vendor financing payable 2,431 2,559 3,302

As at December 31, 2011, the Group had the following outstanding vendor financing payable:

2,159 (US$ 67 million) payable by CJSC GlobalTel to Globalstar L.P., which is the non-controlling shareholder of CJSC GlobalTel, for the purchase of three gateways and associated equipment and services. Globalstar L.P. has a lien over this equipment until the liability is fully paid. CJSC GlobalTel is in default in respect of payments in 2004 - 2011 and has not obtained a waiver from Globalstar L.P. AAs a result, the entire balance of 1,323 (2010: 1,252, 2009: 1,242) (US$ 41 million) is classified as current in the consolidated statements of financial position as at December 31, 2011, 2010 and 2009. Penalty interest in the amount of 836, 667 and 538, accrued for each day of delay at the rate of 10% p.a., is included in the vendor financing payable in the consolidated statements of financial position as at December 31, 2011, 2010 and 2009, respectively. In 2006, Loral, which is the legal successor of Globalstar L.P., brought an action against CJSC GlobalTel claiming immediate repayment of the full amount of the vendor financing payable. Management believes that immediate repayment of the defaulted vendor financing and loans would not have a material adverse effect on the Group's results of operations, financial position and operating plans.

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