Borrowings

Borrowings as at 31 December 2012, 2011 and 2010 were as follows:


  31 December 2012 31 December 2011 31 December 2010
Long-term Borrowings      
Non-current portion of long-term borrowings      
Bank and corporate loans 140,651 86,338 83,751
Bonds 10,000 4,604 4,365
Promissory notes 9 48 1,567
Vendor financing 65 69 135
Finance lease liabilities 133 751 2,489
Interest payable 14 13 85
Restructured customer payments 35 28 13
Total non-current portion of long-term borrowings 150,907 91,851 92,405
Current portion of long-term borrowings      
Bank and corporate loans 44,093 45,035 24,340
Bonds 1,613 4,285 18,335
Promissory notes - 23 597
Vendor financing 2,665 2,717 2,822
Finance lease liabilities 810 2,033 3,143
Restructured customer payments 70 77 79
Total current portion of long-term borrowings 49,251 54,170 49,316
Total  long-term borrowings 200,158 146,021 141,721
Short-term Borrowings      
Bank and corporate loans 13,492 25,998 3,096
Promissory notes 151 149 1,455
Interest payable 605 655 1,398
Total short-term borrowings 14,248 26,802 5,949
Current portion of long-term borrowings 49,251 54,170 49,316
Total current borrowings 63,499 80,972 55,265
Total borrowings 214,406 172,823 147,670

An amount of 537 on a credit agreement between Rostelecom and Vnesheconombank (VEB) entered into in December 2005 was included in current portion of long-term loans as at 31 December 2011 and 2010. The loan was repayable annually up to the end of 2012. The loan was totally repaid in the year 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 31 December 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 31 December 2011. As at 31 December 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 long-term borrowings as at 31 December 2010.

In connection with the USD 100 million loan from Vnesheconombank and CSFB, on 28 June 2006, the Group entered into an interest rate swap agreement with CSFB. In accordance with the interest rate swap agreement, twice a year on 28 June and 28 December, commencing on 28 December 2006 and ending on 28 December 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 nil in the year 2012, 24 in the year 2011 and 70 in the year 2010. Fair value of the derivative was 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 related to the change in the fair value of the interest rate swap contract in the amount of 24, 45 and 39 was included in other investing and financial gain in the consolidated statement of comprehensive income for 2012, 2011 and 2010 year respectfully.

There is 342 outstanding on a credit agreement between CJSC GlobalTel and Loral Space and Communications Corporation (“Loral”) as at 31 December 2012, (2011: 359, 2010: 329). 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 31 December 2012. 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 liabilitie

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 rates 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 31 December 2012, 2011 and 2010 are as follows:


  31 December 2012 31 December 2011 31 December 2010
  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) 903 810 2,342 2,033 3,531 3,143
More than 1 to 5 years 118 40 789 651 2,845 2,386
Over 5 years 182 93 218 100 238 103
Total 1,203 943 3,349 2,784 6,614 5,632

Depreciation of property, plant and equipment under the finance lease contracts for 2012, 2011 and 2010 amounted to 1,115, 1,655 and 2,068, respectively. Finance charges for the year ended 31 December 2012, 2011 and 2010 amounted to 388, 680 and 1,048, respectively, and are included in finance costs in these consolidated statements of comprehensive income.

Vendor financing

Vendor financing payable includes the following as at 31 December 2012, 2011 and 2010:


  31 December 2012 31 December 2011 31 December 2010
Government of Dagestan Republic 62 69 79
Cisko Capital CIS -   43
Other 3 - 13
Vendor financing payable – long-term 65 69 135
Globalstar L.P. 2,162 2,159 1,919
Metrosvyaz Ltd 99 99 99
Сisko Capital CIS - 47 342
Huawei Technologies Co. Ltd. 391 389 401
Government of Dagestan Republic 9 10 -
Other 4 13 61
Vendor financing payable – current portion 2,665 2,717 2,822
Total vendor financing payable 2,730 2,786 2,957

As at 31 December 2012, the Group had the following outstanding vendor financing payable:

2,162 (USD 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 - 2012 and has not obtained a waiver from Globalstar L.P. As a result, the entire balance of 1,248 (2011: 1,323, 2010: 1,252) (USD 41 million) is classified as current in the consolidated statements of financial position as at 31 December 2012, 2011 and 2010. Penalty interest in the amount of 914, 836 and 667, 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 31 December 2012, 2011 and 2010, 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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