BP 2005 Annual Report Download - page 28

26 Making energy more
banks. It co-ordinates relationships with banks, borrowing
requirements, foreign exchange requirements and cash
management centrally. The group believes it has access
to sufficient funding and also has undrawn committed
borrowing facilities to meet currently foreseeable
borrowing requirements.
At 31 December 2005, the group had substantial
amounts of undrawn borrowing facilities available,
including committed facilities of $4,500 million expiring
in 2006 (2004 $4,500 million expiring in 2005 and 2003
$3,700 million expiring in 2004). These facilities are with a
number of international banks and borrowings under them
would be at pre-agreed rates. The group expects to renew
these facilities on an annual basis. Certain of these facilities
support the group’s commercial paper programme.
INSURANCE
The group generally restricts its purchase of insurance to
situations where this is required for legal or contractual
reasons. This is because external insurance is not considered
an economic means of financing losses for the group. Losses
will therefore be borne as they arise rather than being spread
over time through insurance premiums with attendant
transaction costs. This position will be reviewed periodically.
ENVIRONMENTAL EXPENDITURE
Operating and capital expenditure on the prevention,
control, abatement or elimination of air, water and solid
waste pollution is often not incurred as a separately
identifiable transaction. Instead, it forms part of a larger
transaction that includes, for example, normal maintenance
expenditure. The figures for environmental operating
and capital expenditure in the table below are therefore
estimates, based on the definitions and guidelines of
the American Petroleum Institute.
$ million
2005 2004 2003
Operating expenditure 494 526 498
Clean-ups 43 25 45
Capital expenditure 789 524 546
New provisions for environmental
remediation 565 587 599
New provisions for decommissioning 1,023 286 1,159
Environmental operating expenditures for 2005 were
broadly in line with 2004. The increase in capital expenditure
is largely related to clean fuels investment. Similar levels
of operating and capital expenditures are expected in
the foreseeable future. In addition to operating and
capital expenditures, we also create provisions for
future environmental remediation. Expenditure against such
provisions is normally in subsequent periods and is not
included in environmental operating expenditure reported
for such periods. The charge for environmental remediation
provisions in 2005 includes $512 million resulting from a
reassessment of existing site obligations and $53 million
in respect of provisions for new sites.
Provisions for environmental remediation are made
when a clean-up is probable and the amount reasonably
determinable. Generally, their timing coincides with
commitment to a formal plan of action or, if earlier, on
divestment or on closure of inactive sites.
The extent and cost of future remediation programmes
are inherently difficult to estimate. They depend on the scale
of any possible contamination, the timing and extent of
corrective actions and also the group’s share of liability.
Although the cost of any future remediation could be
significant and may be material to the result of operations
in the period in which it is recognized, we do not expect
that such costs will have a material effect on the group’s
financial position or liquidity. We believe our provisions are
sufficient for known requirements; and we do not believe
that our costs will differ significantly from those of other
companies engaged in similar industries, or that our
competitive position will be adversely affected as a result.
In addition, we make provisions on installation of
our oil- and gas-producing assets and related pipelines
to meet the cost of eventual decommissioning.
Provisions for environmental remediation and
decommissioning are usually set up on a discounted basis,
as required by IFRS 37 ‘Provisions, Contingent Liabilities
and Contingent Assets’.
Further details of our environmental and
decommissioning provisions appear in Note 41 on financial
statements, Provisions, on page 86. New provisions for
decommissioning in 2005 include increases in respect of
reassessment of existing provisions and new provisions for
certain fields on installation of facilities.
CREDITOR PAYMENT POLICY AND PRACTICE
Statutory regulations issued under the UK Companies Act
1985 require companies to make a statement of their policy
and practice in respect of the payment of trade creditors.
In view of the international nature of the group’s
operations there is no specific group-wide policy in respect
of payments to suppliers. Relationships with suppliers are,
however, governed by the group’s policy commitment
to long-term relationships founded on trust and mutual
advantage. Within this overall policy, individual operating
companies are responsible for agreeing terms and
conditions for their business transactions and ensuring that
suppliers are aware of the terms of payment. These terms
are adhered to when payments are made, subject to terms
and conditions being met by the supplier.
BP p.l.c. is a holding company with no business activity
other than the holding of investments in the group and
therefore had no trade creditors at 31 December 2005.