BASF Report 2021 Consoli dated Financial Statements – Notes 263 25 Other financial obligations Obligations arising from purchase contracts 26 Supplementary information on financial instruments The figures listed below are stated at nominal value: Obligations from purchase contracts resulted primarily from long-term purchase obligations for raw materials as well as supply 26.1 Accounting policies Other financial obligations agreements for renewable energy. The increase is mainly due to Million € long-term energy supply agreements concluded in 2021, including Financial assets and financial liabilities are recognized in the Dec. 31, Dec. 31, about €3.5 billion for green energy from the Hollandse Kust Zuid consolidated balance sheet when the BASF Group becomes a 2021 2020 Bills of exchange 3 2 wind farm. party to a financial instrument. Financial assets are derecognized For more information on long-term energy supply agreements, see the chapter on Energy and climate when BASF no longer has a contractual right to the cash flows from Guarantees 383 347 protection in the Management’s Report from page 126 onward the financial asset or when the financial asset is transferred together Warranties 58 79 Firm purchase obligations as of December 31, 2021, were as with all material risks and rewards of ownership and BASF does not Collateral granted on behalf of third-party liabilities 1 – follows: have control of the financial asset after it has been transferred. For Initiated investment projects 4,761 3,921 example, receivables are derecognized when they are definitively of which purchase commitments 1,481 1,052 Obligations arising from purchase contracts found to be uncollectible such as in the event of concluded Million € insolvency proceedings. Financial liabilities are derecognized when for the purchase of intangible assets 10 15 Dec. 31, Dec. 31, the contractual obligations expire, are discharged or cancelled. Payment and loan commitments and other financial 2021 2020 obligations 263 75 Following year 1 9,686 8,003 Regular-way purchases and sales of financial instruments are accounted for using the settlement date; in precious metal trading, Following year 2 4,963 5,347 the trade date is used. BASF SE provides a guarantee to Abu Dhabi National Oil Corpora- Following year 3 1,832 3,419 tion covering all obligations of Wintershall Dea Middle East GmbH Following year 4 1,716 1,317 The fair value of a financial instrument is the price that would be related to the Ghasha concession in the United Arab Emirates. Following year 5 1,720 1,238 received to sell an asset or paid to transfer a liability in an orderly Furthermore, BASF SE assumed guarantees to the Danish Energy Following year 6 and maturities beyond this year 11,823 4,165 transaction between market participants at the measurement date. Agency covering all obligations of Wintershall Dea Inter- Total 31,741 23,489 If pricing on an active market is available, for example in the form of national GmbH and Wintershall Noordzee B.V. related to licenses for exchange prices, these are used as the basis for the measurement. exploration and production of hydrocarbons in the Danish Otherwise, the measurement is based on either internal measure- concession area. The guarantees do not stipulate a maximum ment models using current market parameters or external measure- amount. The risk of a claim being exercised against the guarantees ments, for example, from banks. These internal measurements rely is classified as low. In addition, guarantees by BASF SE existed until predominantly on the net present value method and option pricing January 12, 2022, for restoration obligations of Wintershall Dea models. These models incorporate, for example, expected future Norge AS for various oil and gas facilities acquired from Equinor. cash flows as well as discount factors adjusted for term and, potentially, risk. Depending on the availability of market parameters, The rise in obligations from initiated investment projects is mainly BASF assigns financial instruments’ market values one of the three attributable to large-scale projects which began in 2021. levels of the fair value hierarchy pursuant to IFRS 13. Reassignment to a different level during a fiscal year is only carried out if the availability of observable market parameters for identical or similar items changes.