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LEASE LIABILITIES

12 Months Ended

Dec. 31, 2023

15. LEASE LIABILITIES

Lease liabilities are shown below:

Schedule of lease liabilities
		Consolidated
	12/31/2023	12/31/2022
Leases	2,044,694	1,916,636
Present value adjustment - Leases	(1,310,933)	(1,222,790)
Leases	733,761	693,846
Classified:
Current	137,638	177,010
Non-current	596,123	516,836
Leases	733,761	693,846

The Company has lease agreements for port terminals in Itaguaí, the Solid Bulk Terminal - TECAR, used for loading and unloading iron ores and others and the Container Terminal - TECON, with remaining terms of 24 and 28 years, respectively, and lease agreement for railway operation using the Northeast network with a remaining term of 4 years.

Additionally, the Company has operating equipment lease agreements, used mainly in the mining and steel operations, and real estate, used as operating facilities and administrative and sales offices, in several locations where the Company operates, with remaining terms of 1 to 12 years.

The present value of the future obligations was measured using the implicit rate observed in the contracts and for the contracts that did not have a rate, the Company applied the incremental borrowing rate - IBR, both in nominal terms.

The average incremental rate used in measuring lease and right-of-use liabilities in the agreements entered into during the year ended December 31, 2023 is 13.75% p.a. for contracts with a term of 5 years and 12.50% p.a.for contracts with a term of 3 years.

The movement of lease liabilities is shown in the table below:


		Consolidated
	12/31/2023	12/31/2022
Opening balance	693,846	611,551
New leases	189,855	29,633
Present Value Adjustments - New leases	(116,640)	(3,300)
Contract review	124,310	99,419
Write-off		(781)
Payments	(239,909)	(155,995)
Interest appropriated	82,521	69,510
Acquisition of companies		45,352
Exchange variation	(222)	(1,543)
Net balance	733,761	693,846

The estimated future minimum payments for the lease agreements include determinable variable payments, which are certain to occur, based on minimum performance and contractually fixed rates.

As of December 31, 2023, the expected minimum payments are the following:

Schedule of expected minimum payments
				Consolidated
	Less than one year	Between one and five years	Over five years	Total
Leases	148,553	484,680	1,411,461	2,044,694
Present value adjustment - Leases	(10,915)	(138,229)	(1,161,789)	(1,310,933)
Total lease liabilities	137,638	346,451	249,672	733,761

Recoverable PIS / COFINS

Lease liabilities were measured at the amount of consideration with suppliers, that is, without considering the tax credits incurred after payment. The potential right of PIS and COFINS embedded in the lease liability is shown below.

Schedule of recoverable PIS and COFINS
		Consolidated
	12/31/2023	12/31/2022
Leases	1,755,060	1,835,101
Present value adjustment - Leases	(1,195,780)	(1,221,378)
Potencial PIS and COFINS credit	162,343	169,747
Present value adjustment – Potential PIS and COFINS credit	(110,610)	(112,977)

Lease payments not recognized as a liability:

The Company chose not to recognize lease liabilities in contracts with a term of less than 12 months and for low value assets. Payments made for these contracts are recognized as expenses when incurred.

The Company has contracts for the right to use ports (TECAR) and railways (FTL) which, even if they establish minimum performance, it is not possible to determine its cash flow since these payments are fully variable and will only be known when they occur. In such cases, payments will be recognized as expenses when incurred.

The expenses related to payments not included in the measurement of the lease liability during the year are:


			Consolidated
	12/31/2023	12/31/2022	12/31/2021
Contract less than 12 months	3,746	995	339
Lower Assets value	14,986	5,859	4,975
Variable lease payments	411,996	325,913	498,529
Total	430,728	332,767	503,843

Accounting Policy

When entering into a contract, the Company assesses whether the contract is, or contains, a lease. The lease is characterized by a lease or transfer of the right to use for a fixed period in exchange for monthly payments. The leased asset must be clearly specified.

The Company determines in the initial recognition, the lease term or non-cancellable term, which will be used in the measurement of the right-of-use assets and the lease liability. The lease term will be reevaluated by the Company when a significant event or significant change occurs in the circumstances that are under the control of the lessee and affects the non-cancellable term. The Company adopts exemption from recognition, as provided for in the standard, for the lessee of contracts with terms of less than 12 (twelve) months, or whose underlying asset object of the contract is of low value.

At inception, the Company recognizes the right to use the asset and the lease liability at present value. The right-of-use asset should be measured at cost. The cost includes the lease liability, upfront costs, advance payments, and estimated costs to disassemble, remove or restore. The lease liability is measured at the present value of the lease payments expected to be made during the life of the agreement, discounted at the implicit interest rate of the lease or, if the rate is not determinable, an incremental rate will be used to determine the present value.

For contracts that the Company determines the business rate, it is understood that this rate is the rate implied in nominal terms and to which it is applied in discounting the flow of future payments. In contracts with no rate definition, the Company applied the incremental loan rate, obtaining it through consultations with banks where it has a relationship, adjusted for the inflation forecast for the coming years.

For the subsequent measurement, the cost method to the right-of-use asset is used and, in depreciation the requirements of IAS 16 – Property, Plant and Equipment are applied. However, for the purpose of depreciation, the Company determines the use of the straight-line method based on the remaining useful life of the assets or the term of the contract, whichever is the shorter.

The effects of PIS and COFINS recoverable generated after the effective payment of the obligations will be recorded as a reduction of the depreciation expenses of the right of use and of the financial expenses recognized monthly.

The IAS 36 - Impairment of Assets will also be applied in order to determine whether the right-of-use asset is impaired and to account for any impairment loss identified.

In accordance with the guidelines of IFRS 16, the Company used the discounted cash flow technique to measure and remeasure liabilities, without considering the projected inflation in the flows to be discounted.