code of corporate governanceportal.badaklng.co.id/dam/jcr:2bff4109-ec82-4d39... · pt badak ngl is...

Code of Corporate Governance – Tatakelola Perusahaan

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MESSAGE FROM THE BOARD OF DIRECTORS

Distinguished Management and all employees of PT Badak NGL, nowadays we are in the

era that requires a better business management practice through responsible and

prudence governance to provide added value to Shareholders, Stakeholders and other

interested parties.

It is expected for us, all Management and Employees, to fully aware that the success and

performance of the Company is strongly driven by the attitudes, behavior and

performance throughout organization, either individually or institutionally. It certainly

demands full awareness and efforts of all levels of Management and Employees.

This Code of Good Corporate Governance has been improved with the intention to provide clearer comprehension in order to consistently implement Good Corporate Governance in the Company and becoming good Corporate Culture. Let us together build our commitment wishfully to manage PT Badak NGL with much

better governance and comply with the provision as stipulated for all the level of

organization. We strongly believe that every single effort, no matter how small, would

give more meaning for the Company and finally gain benefits in the future.

Jakarta, November 2016 Salis S. Aprilian President Director & CEO


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MESSAGE FROM THE PRESIDENT OF COMMISSIONER

We are fully aware that good corporate governance is not a one time achieved effort, in

fact it is a sustainable process towards the best outcome in long-term that will positively

affect throughout the performance. Moreover, those implementations should be

enhanced in line with the dynamic and change within the Company.

With respect to the above matter, we are very welcome the launching of Good Corporate Governance Code as a commitment of the management of PT Badak NGL to implement the principles of good corporate governance with reference to the existing best practices. We sincerely hope these guidelines which covering various aspects not only become the target activity, but it is truly becoming a prominent reference for the Company activities and it is implemented consistently to make a good culture in the Good Corporate Governance implementation either inside or outside the Company.

Jakarta, November 2016 Tanudji Darmasakti

President Commissioner


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STATEMENT OF COMMITMENT

COMMITMENT OF IMPLEMENTATION GOOD CORPORATE GOVERNANCE PT BADAK NGL

We, the undersigned, hereby with the utmost commitment declare that: 1. Good corporate governance in the management of the PT Badak NGL is not an option

but rather something that is absolute and can not be negotiable for successful achievement of the Company in the current and future period.

2. We are committed to implement good corporate governance in carrying out the mandate consistently as Shareholders, Board of Commissioners and Board of Directors, which is stipulated in this Guidelines of Good Corporate Governance (the Code of Corporate Governance).

3. Practices regarding management of PT Badak NGL which have not been regulated by the regulation, as long as it is not contrary to the laws and regulations as well as for the sake of Company's continuous improvement, we are committed to implement such best practices.

Jakarta, November 2016


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TABLE OF CONTENT

CHAPTER I INTRODUCTION ............................................................................................... 1

A. BACKGROUND .............................................................................................. 1

B. DEFINITION OF GOOD CORPORATE GOVERNANCE...................................... 3

C. COMMITMENT TO THE IMPLEMENTATION OF GOOD CORPORATE GOVERNANCE ............................................................................................... 3

D. OBJECTIVES, TARGET AND BENEFITS OF GOOD CORPORATE GOVERNANCE IMPLEMENTATION ........................................................................................ 3

E. LEGAL BASIS .................................................................................................. 4

F. VISION, MISSION, WORK ATTITUDE, MOTTO AND CORPORATE VALUES .... 5

G. IMPORTANT TERMS ...................................................................................... 7

CHAPTER II PRINCIPLES OF GOOD CORPORATE GOVERNANCE ..........................................10

A. TRANSPARENCY .......................................................................................... 10

B. ACCOUNTABILITY ........................................................................................ 10

C. RESPONSIBILITY .......................................................................................... 11

D. INDEPENDENCY .......................................................................................... 11

E. FAIRNESS (EQUITY) ..................................................................................... 12

CHAPTER III STRUCTURE OF CORPORATE GOVERNANCE ORGAN .....................................13

A. GENERAL MEETING OF SHAREHOLDERS (GMS) ......................................... 13

B. BOARD OF COMMISSIONERS...................................................................... 16

C. AUDIT COMMITTEE .................................................................................... 18

D. SECRETARY OF THE BOARD OF COMMISSIONERS...................................... 20

E. BOARD OF DIRECTORS ................................................................................ 20

F. CORPORATE SECRETARY ............................................................................. 23

G. INTERNAL AUDIT ......................................................................................... 24

H. GOOD CORPORATE GOVERNANCE COMMITTEE........................................ 25

I. COMMITTEE/BOARD OF DIRECTORS TEAM ............................................... 26

J. EXTERNAL GOVERNANCE STRUCTURE ....................................................... 26

CHAPTER IV CORPORATE GOVERNANCE PROCESS ...........................................................27

A. APPOINTMENT AND DISMISSAL OF MEMBERS OF THE BOARD OF COMMISSIONERS AND BOARD OF DIRECTORS .......................................... 27

B. INDUCTION AND KNOWLEDGE DEVELOPMENT PROGRAM FOR MEMBERS OF THE BOARD OF COMMISSIONERS AND DIRECTORS ............................. 27

C. GENERAL MEETING OF SHAREHOLDERS, BOARD OF COMMISSIONERS AND BOARD OF DIRECTORS ................................................................................ 28

D. CORPORATE BUDGET.................................................................................. 28

E. HUMAN RESOURCE MANAGEMENT........................................................... 29

F. CONFLICT OF INTEREST .............................................................................. 31

G. THE MANAGEMENT OF COMPANY OPERATIONAL ACTIVITIES .................. 32

H. RISK MANAGEMENT ................................................................................... 33

I. INFORMATION TECHNOLOGY GOVERNANCE ............................................ 35

J. FINANCIAL MANAGEMENT ......................................................................... 36

K. PROCUREMENT OF GOODS AND SERVICES ................................................ 38

L. QUALITY MANAGEMENT ............................................................................ 40


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M. PERFORMANCE APPRAISAL SYSTEM AND REMUNERATION ...................... 41

N. INTERNAL CONTROL SYSTEMS AND AUDIT ................................................ 43

O. RESEARCH AND DEVELOPMENT ................................................................. 46

P. REPORTING ................................................................................................. 47

Q. TRANSPARENCY AND DISCLOSURE ............................................................. 48

R. CORPORATE SOCIAL RESPONSIBILITY ......................................................... 49

S. SAFETY, HEALTH, ENVIRONMENTAL & QUALITY ....................................... 50

T. ASSET MANAGEMENT ................................................................................ 52

U. MANAGEMENT OF COMPANY’S DOCUMENTS/ARCHIVE........................... 53

V. CODE OF CONDUCT .................................................................................... 55

CHAPTER V RELATIONSHIP MANAGEMENT WITH STAKEHOLDERS ...................................56

A. GENERAL POLICY......................................................................................... 56

B. RIGHTS AND PARTICIPATION OF STAKEHOLDERS ...................................... 56

C. LIAISON OF THE COMPANY WITH STAKEHOLDERS .................................... 56

D. SHAREHOLDERS .......................................................................................... 56

E. EMPLOYEE................................................................................................... 57

F. CUSTOMERS ................................................................................................ 57

G. PRODUCERS ................................................................................................ 58

H. GOVERNMENT ............................................................................................ 58

I. GOODS AND SERVICES SUPPLIER............................................................... 59

J. WORKING PARTNERS .................................................................................. 59

K. SOCIETY AND THE ENVIRONMENT ............................................................. 59

CHAPTER VI CODE OF CORPORATE GOVERNANCE IMPLEMENTATION .............................60

A. TOP DOWN COMMITMENT ........................................................................ 60

B. CONSISTENT IMPLEMENTATION ................................................................ 60

C. ROLE MODEL ............................................................................................... 60

D. DISSEMINATION AND EVALUATION THE IMPLEMENTATION OF GCG ....... 60

E. GCG OFFICER .............................................................................................. 61

F. ASSESSMENT OF GCG IMPLEMENTATION .................................................. 61

G. REPORTING ................................................................................................. 61

CHAPTER VII CLOSING ......................................................................................................62


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CHAPTER I INTRODUCTION

A. BACKGROUND PT Badak NGL was established on 26 November 1974 under Pertamina and Huffco Inc., to operate the refinery of LNG (Liquid Natural Gas) and LPG (Liquid Petroleum Gas) in Bontang. The first production of PT Badak NGL was on July 5, 1977. LNG Badak plant is located in Bontang, East Kalimantan and the Head Office is located in Jakarta.

Shareholders of PT Badak NGL for the first time of establishment, were :

PERTAMINA 55% Huffco 30%

JILCO 15%

During its development, in 1990 joined another Producer: Total Indonesie followed by the change in the Company name of Huffco into Virginia Indonesia Company (VICO), then the shareholders of PT Badak NGL currently is as follows:

PERTAMINA 55% VICO 20%

Total Indonesie 10%

JILCO 15%

Feed of natural gas to the LNG Badak plant, supplied/send from VICO gas field, Total Indonesie and Unocal Indonesia (Chevron). The operation of LNG Badak plant is conducted by coordination between the PT Badak NGL and PRODUCERS which consist of:

PERTAMINA

Virginia Indonesia Company (VICO)

Total E&P Indonesie

Unocal (Chevron)

All the activities of PT Badak NGL, authority and responsibility, essentially determined by two agreements of the PRODUCERS, namely:

Badak LNG Processing Agreement, which contains an agreement on the utilization of natural gas which is produced into LNG & LPG.

Plant & Use Agreement between PERTAMINA (as the owner of the LNG & LPG Plant) with PT Badak NGL (as the operator of the plant), which contains a provision for how the plant is to be managed and operated.


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Thus Stakeholders of PT Badak NGL include:

Producers

Buyers

Shareholders

Employees of PT Badak NGL

The Government of the Republic of Indonesia

Government of East Kalimantan

Bontang Government

Bontang Community

PT Badak NGL is LNG & LPG Plant operator (Operating Company) located in Bontang, East Kalimantan. Plant of LNG Badak is entirely owned by the Government which it’s supervision in accordance with KMK No. 92 Year 2008 is conducted by PT PERTAMINA (PERSERO). As an operating Company, PT Badak NGL does not record LNG and LPG sales (in terms of monitory value) and depreciation on fixed and movable assets.

PT Badak NGL's operational funding comes from sales (revenue) LNG & LPG. Operating expenses include operating and capital expenditures.

To adjust with the regulations of RI No. 40 Year 2007 regarding Limited Company and the Principle of Agreement which is a contract agreement between PT Badak NGL with gas producer, then PT Badak NGL prepares financial statements consisting of:

Statement of Assets, Liabilities, and Capital (Income tax basis)

Statement of Expenditures

Statement of Increases and Decreases in Fund

LNG produced from PT Badak NGL Plant, exported pursuant to the agreement of the buyers from Japan, Taiwan and Korea. LNG sales revenue after deduction for the cost of production of gas producer and LNG plant as well as cost of marketing and transportation, is shared between the Government of Indonesia and the Gas Producer (65:35). As operator of LNG and LPG, PT Badak NGL has stipulated vision and mission as well as ensuring that the Company has been managed professionally with the best good corporate governance consistently and continuously throughout the Company’s operation activities. PT Badak NGL is committed to formulate the implementation of GCG in its business processes as guidance for the day-to-day activities. To ensure that the implementation of GCG principles is consistently applied, the Company sees the need for a Code of Good Corporate Governance (GCG Code) as a guidance in the implementation of GCG. GCG guidelines is used as a reference in determining the policies and objectives of the Company.


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B. DEFINITION OF GOOD CORPORATE GOVERNANCE

Good Corporate Governance (GCG) is a system and structure to manage the Company with the goal to enhance shareholder value and to accommodate various interested parties with the Company (stakeholders) such as producers, shareholders, suppliers, business associations, consumers, employees, government and the wide community.

C. COMMITMENT TO THE IMPLEMENTATION OF GOOD CORPORATE GOVERNANCE

Commitment to conduct the implementation of Good Corporate Governance (GCG) in each business process to support the achievement of Company’s Objectives has been manifested in the following: 1) Stipulating Vision, Mission and Corporate’s Values. 2) Corporate Governance Policy as outlined in the Code of Corporate Governance

and the Code of Conduct (Ethics and Business Conduct), Board Manual, Stipulation of Giving/Receiving Gifts & Sponsors, Whistleblowing System Policy, Road Map of GCG.

3) Policies and Work Procedures. 4) Collective Labor Agreement. 5) Signing of the conflict of interest statements. 6) Financial Statements and Operational Reports. 7) Establishment of KPIs, for corporate, function and all employees. 8) Company programs such as OHSAS 18001, ISO 9001 & ISO 14001, BSMART, ISRS,

Quality Improvement Program, Safety and Occupational Health. 9) Audit by the Independent Auditor on Financial Statements, Company’s

Operations, and other Company programs. 10) Installation of plaque, Pin, Stickers, Banners, Bulletins, Billboards, newsletters,

Short Movie, programs on LNG TV and others associated with the Company's activities.

D. OBJECTIVES, TARGET AND BENEFITS OF GOOD CORPORATE GOVERNANCE

IMPLEMENTATION 1) Objective

The main objective of the Good Corporate Governance (GCG) implementation is to improve the performance both operational and non-operational. Therefore, the activities include: a) Optimize Corporate value for the interest of Shareholders while maintaining

the interest of the other Stakeholders and to encourage the continuity and sustainability of the Corporate by implementing the principles of GCG namely transparency, accountability, responsibility, independent as well as fairness.

b) Encourage to manage the Corporate to be more professional, transparent and efficient as well as empowering function and enhancing the independency of Corporate Organ.


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c) Provide guidelines to all components of the Company in performing the functions and activities in accordance to the authority and responsibility that exist in the organizational structure so the output has a high quality.

d) Optimizing Employee Value through delivery of appropriate and continuous training.

2) Target

The targets to be achieved by the Company in the implementation of GCG are: a) Giving value that meet Shareholders expectation without ignoring the

interests of Stakeholders. b) Increase employee satisfaction by providing clear guidelines, the system

concerning employees welfare and distribution of authority and responsibility fairly and transparently.

c) Maintain business processes effectively and efficiently through continuous improvement efforts as a high sense of responsibility of all levels of employees.

d) Minimize deviation through the improvement of business processes, increase control/evaluation, and improve employee value.

e) Materialize a clean Company, where the Company always adhere to the norms and regulations in conducting all activities in a responsible manner.

3) Benefits

The expected benefits by the Company through the implementation of GCG are: a) To make common understanding in the implementation of the rules/policies

that serve as guidelines for all levels of employees in performing the roles and each function.

b) To create conducive working environment arising from a common understanding of the functions, roles and responsibilities of each organ of the Company

E. LEGAL BASIS

Legal basis of the implementation of Good Corporate Governance (GCG) in the Company are: 1) House of Representatives (MPR) Decree No. XI/MPR/1998, dated 13 November

1998, regarding clean Government and free from Corruption, Collusion and Nepotism (KKN)

2) Act/Constitution No. 28 year 1999, dated 16 August, 1999, concerning clean Government and free from Corruption, Collusion and Nepotism (KKN)

3) Act/Constitution No. 22 year 2001 on Oil and Gas

4) Act/Constitution No. 40 year 2007 on Limited Company

5) Act/Constitution No. 11 year 2008 on Electronic Information Transactions

6) Act/Constitution No. 14 year 2008 on Public Information Openness


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7) Regulation of the Minister of State Owned Enterprise No. PER-05/MBU/2006 on Audit Committee For State-Owned Company

8) Regulation of the Minister of State-Owned Enterprise No. PER-01/MBU/2011 on the Implementation of Good Corporate Governance at the State-Owned Company and amended in 2012, with No.PER-09/MBU/2012 on the implementation of Good Corporate Governance Practice at State Owned Company

9) Regulation of the Minister of State Owned Enterprise No. Per-12/MBU/2012 on Supporting Organ for Board of Commissioners/Oversight Boards for State-Owned Enterprise

10) Decree of the Minister of State-Owned Enterprise No. KEP-101/MBU/2002 on Work Program and Budget of State-Owned Company

11) Decree of the Minister of State-Owned Enterprise No. KEP-102/MBU/2002 on Long Term Work Program of State-Owned Company

12) Decree of the Minister of State-Owned Enterprise No. KEP-103/MBU/2002 on Audit Committee Establishment for State-Owned Company

13) Decree of the Minister Secretary of State-Owned Enterprise No. SK16/S.MBU/2012 on Indicator/Parameter of Assessment and Evaluation for the Implementation of Good Corporate Governance (GCG) at the State-Owned Company

14) Code of Good Corporate Governance of Indonesia Year 2006

15) PT Badak NGL’s Articles of Association as amended and the last Deed of Amendment No. 5 dated 19 May, 2014, which was made in front of Ade Irvanni, S.H., Notary in Jakarta and has been approved by the Minister of Justice and Human Rights of Republic of Indonesia dated 8 January, 2003, No. C-03.HT.03.02-TH 2003

F. VISION, MISSION, WORK ATTITUDE, MOTTO AND CORPORATE VALUES

Vision, Mission, Work Attitude, Motto and Corporate Values are as follows:

1) Company Vision To be a world-class energy Company that leads innovation

2) Company Mission To produce clean energy with the best performance standards in order to yield maximum return for stakeholders


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Principles a) Strive to achieve safety excellence by implementing Process Safety

Management (PSM) b) Environmentally friendly in all operations activities through the

implementation and certification of Environment Management System (EMS) ISO 14001

c) Produce product that meets all customer requirements through the application of Quality Management System (QMS) and maintain the ISO 9001-2000 certificate

d) Professional Excellence through competency-based human resource development

e) Managing a business which conducts the "Best Industrial Practices and Good Corporate Governance"

3) Work Attitude

a) Professionalism to enhance the competitive advantage b) Always strive to be the best c) Harmonious life

4) Motto Strive to be the best

5) Corporate Values

PT Badak NGL values are reflected in the core values that include: a) Professionalism

Delivering the best quality, reliable and competitive results through personal commitment, focus, as well as continuous and sustainable improvement. Expected Behavior

Delivering the best quality performance every time (Best Quality)

Acting prudently and avoiding rework (Reliability)

Setting the best standards as the rule of thumb (Competitiveness)

Being responsible for all tasks (Commitment)

Establishing a scale of priority in executing the jobs (Focused)

Conducting continuous improvement to enhance the work results (Continuous Improvement)

b) Integrity Walk the talk through honesty, transparency, and putting corporate above personal interests. Expected Behavior

Walk the talk

Being honest (truthful)

Providing accurate and correct data (Transparency)

Putting the Company business above personal or business unit interests


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Putting the obligations above the rights

c) Dignity Building and maintaining positive corporate image and showing equal respects to mankind.

Expected Behavior

Being proud of own job and duties

Showing high self-confidence

Being courteous

Positive thinking and showing equal respects to others

d) Innovative Seeking for superiorities and consistently learning even from failures in order to step ahead.

Expected Behavior

Seeking for opportunities to gain superiorities (strive to be the best)

Learning from failures and mistakes (learn from the experience)

Proactively responding to the changes

Improving competency to keep up with the job requirements

e) Safety, Health, and Environment (SHE) Referring to the aspects of safety, health, and environment in performing all work and business activities.

Expected Behavior

Put safety, health, and environment for workers in the main priority

Performing HIRA (Hazard Identification and Risk Assessment) in any activity

Performing tasks in accordance with the Standard Operating Procedures

G. IMPORTANT TERMS

1) Assessment is the activities of identification, appraisal, review, evaluation, assessment and recommendation.

2) Asset is a resource controlled by the Company as a result of a past event which deliver the future economic benefits are expected to be obtained by the Company

3) Asset management covers the activities of procurement/replenishment, utilization, maintenance and security, dispute resolution, release and removal, development either by internal of the Company or with investors, administration, and control.

4) Audit Committee is a supporting organ of the Board of Commissioners that works collectively and assisting the Board of Commissioners in carrying out their duties.


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5) Board of Commissioners is the organ of the Company, including the overall commissioners of the Company and act as a unit of the Council (Board) with the task to supervise and provide advice to the Board of Directors in carrying out the Company’s activities.

6) Board of Commissioner’s Meeting is a meeting conducted by the Board of Commissioner and chaired by the President Commissioner or member of the Board of Commissioners by proxy.

7) Board of Directors is the organ of the Company, including the overall director of the Company and act as a unit of the Council (Board) that is responsible for management of the Company for the purposes and objectives of the Company and represents the Company either in or out of the court.

8) Board of Director’s meeting is a meeting conducted by the Board of Directors and chaired by the President Director.

9) Commissioner is a member of the Company’s Board of Commissioners refers to individual.

10) Company is PT Badak NGL, except in the context of a particular sentence has a meaning as a Company in general.

11) Company budget is the Company‘s plan regarding revenues and operating expenses and investment for a certain period/year running.

12) Conflict of interest is a situation/condition that allows the main organ of the Company by utilizing its position and authority within the Company for the interest of personal, family, or class/group, so that the mandatory tasks can not be conducted objectively.

13) Corporate Governance is the structures and processes used by the Company’s organ to increase the success and accountability of business in order to realize the value of the shareholders in the long term by taking into account the interests of other stakeholders.

14) Corporate Secretary is the liaison officer between the Company and stakeholders. 15) Director is a member of the Board of Directors of the Company refers to individual. 16) Documents/archives of the Company is data, records and/or statements made

and/or received by the Company in the implementation of the Company's activities, whether written on paper or other means, or recorded in any media that can be seen, read, or heard .

17) Ethics is a set of norms or values that are not written but believed by a group of people (society) as the standard of conduct pursuant to the pertinent laws and regulations and business ethics.

18) External Audits are independent parties who audit operational/financial statements of the Company.

19) General Meeting of Shareholders, hereinafter called GMS, is the Company’s organ which holds the ultimate power in the Company and having all the authority which is not authorized to the Board of Directors or the Board of Commissioners.

20) Good Corporate Governance Committee is a committee established by and responsible to the President Directors to assist the tasks in conducting coaching and supervision on the implementation of good corporate governance principles in the Company.


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21) Information Technology Governance is a structure and process that are interconnected as well as directing and controlling the Company in achieving its vision and mission to get added value and balance between risks and benefits of the information technology and its processes.

22) Insan LNG Badak is the Board of Directors and employees of PT Badak NGL 23) Internal Audit is the Company's internal control apparatus which is responsible for

assessing the adequacy and effectiveness of internal control systems in all business activities in the Company.

24) Key Performance Indicator (KPI) is a measurable targets to be achieved in business management, both financial and non-financial for a period of one year.

25) Main Organ is GMS, Board of Commissioners, and Board of Directors. 26) Management of documents/archive of the Company includes the activity to

manage documents effectively and efficiently since it was created, received, submitted, used, stored, and maintained until depreciated.

27) Performance is a description of the achievement level of the implementation of activities/tasks compared to its action plan at a particular time in order to achieve the Company's mission.

28) Procurement of goods and services is the procurement activities of goods/services required by the Company for the procurement of plant and non-plant goods/materials, lumpsum contract services, consulting services and other services.

29) Producer is a Company pursuant to the Processing Agreement and Principles of Agreement feeds natural gas for the LNG Badak plant, that consists of PERTAMINA, VICO, TOTAL INDONESIE and CHEVRON.

30) Reporting is a written accountability for the implementation of an activity at a certain period either routine or non-routine which includes the important events.

31) Research is an activity to obtain and process as well as analyze the data or information which the results can be used as a reference for business development and enhancing added value and competitive advantage of the Company.

32) Risk is the uncertainty of the environment (internal and external) that could potentially have an adverse effect on the Company in general and can hinder the achievement of the Company’s goal.

33) Risk Management is a methodology to manage the risks arising from the activities of the Company management.

34) Shareholders are PERTAMINA, VICO, TOTAL INDONESIE and JILCO. 35) Stakeholder is the parties either directly or indirectly receiving the benefits or

bearing the burden and affected by the existence of the Company or may have an effect in terms of decisions, policy and operation of the Company caused by business activities.

36) Supporting Organ is Corporate Management, Corporate Secretary, Internal Audit and other Committees.


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CHAPTER II PRINCIPLES OF GOOD CORPORATE GOVERNANCE

PT Badak NGL conducts Good Corporate Governance (GCG) implementation pursuant to the principles of Transparency, Accountability, Responsibility, Independency and Fairness (TARIF) which can be broadly described as follows:

A. TRANSPARENCY

Basic Principles To maintain objectivity in running the business, the Company provides material and relevant information which is easily accessible and understood by Stakeholders. The Company takes the initiative to reveal not only the issue/problem that required by regulation, but also the important matter for decision-making by Shareholders and Stakeholders. Basic Guidelines for Implementation a) Company provides information in timely, adequate, clear, accurate and

comparable, as well as easily accessible to Stakeholders in accordance with their rights.

b) The disclosure of information includes (but is not limited to) the vision, mission, business objectives and corporate strategy, financial condition, composition and compensation of management, shareholders, stock ownership, risk management systems, internal control systems and monitoring, system and implementation of Good Corporate Governance and the compliance level, and the significant events that may affect the condition of the Company.

c) The transparency principle which is adopted by the Company is not to reduce the obligation to comply to Company’s confidentiality rules in accordance to regulations, confidential of position, and personal rights.

d) The Company policy is made in writing and proportional as well as communicated to Stakeholders.

B. ACCOUNTABILITY

Basic Principles The Company is responsible for its performance transparently and fairly. Therefore, the Company's business management is conducted correctly, measurable and in accordance to the Company's interests while taking into account the interests of shareholders and other stakeholders. Accountability is a necessary prerequisite for achieving sustainable performance.

Basic Guidelines for Implementation a) The Company stipulates details of the duties and responsibilities for each organ of

the Company and all employee’s clearly and in line with the vision, mission, business objectives and strategy of the Company.


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b) The Company believes that all the organs of the Company and all employees have competency in accordance to the duties, responsibilities, and roles in the implementation of good corporate governance.

c) The Company ensures an effective internal control system in the management of the Company.

d) The Company has a performance measures for all employees in accordance with corporate values, the main objectives and strategy, and has a reward and punishment system.

e) In performing its duties and responsibilities, every organ of the Company and all employees are consistently committed to the business ethics and code of conduct as agreed.

C. RESPONSIBILITY

Basic Principles The Company complies to regulations and implementing responsibilities towards society and the environment in order to maintain sustainability of the business for long term and recognized as a good corporate citizen.

Basic Guidelines for Implementation a) The Company’s organ always upholds the principle of prudence and ensure

compliance to the prevailing laws and regulations, article of associations and Company regulations (by-laws).

b) The Company conducts social responsibility by caring to the community and environment preservation especially in areas surrounding the Companies, with proper planning and execution.

D. INDEPENDENCY

Basic Principles To accelerate the implementation of corporate governance principles, the Company is managed independently so that every Company's organ does not dominate each other and may not be intervened by other parties.

Basic Guidelines for Implementation a) Each organ of the Company always avoid domination by any party, not affected

by particular interests, free from conflicts of interest and any influence or pressure, so that the decision making can be made objectively.

b) Each organ of the Company in performing its functions and duties in accordance to the Articles of Association and regulations, not to dominate and or shifting the responsibility of each other to create an effective internal control system.


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E. FAIRNESS (EQUITY)

Basic Principles In conducting its activities, the Company always pay attention to the interests of Shareholders and other Stakeholders pursuant to the principles of equality and fairness.

Basic Guidelines for Implementation a) The Company give opportunity to stakeholders to provide input and submit

opinions in the interest of the Company as well as opening the access to information in accordance to the principles of transparency within the scope of their respective positions in a responsible manner.

b) Company give fair and equitable treatment to stakeholders in accordance to the benefits and contributions that given to the Company.

c) Company gives equal opportunities in open recruitment for employmet, career and perform their duties in a professional manner regardless of ethnic, religion, race, class, gender and physical condition.


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CHAPTER III STRUCTURE OF CORPORATE GOVERNANCE ORGAN

A. GENERAL MEETING OF SHAREHOLDERS (GMS)

1) Definition of the General Meeting of Shareholders (GMS) a) General Meeting of Shareholders (GMS) is:

GMS as referred to in paragraph 2.

Other GMS as stated in the Articles of Association, Extraordinary GMS, namely GMS which is conducted at any time based on need.

b) The term of GMS means both of Annual GMS and Extraordinary GMS except expressly stated otherwise.

2) Annual General Meeting of Shareholders (GMS) a) Annual General Meeting of Shareholders is conducted every year, no later than

6 (six) months after the Company's fiscal year is closed b) In Annual GMS:

Board of Directors deliver annual accounts (financial statements) from the relevant financial year and explanation for the documents for getting approval from the meeting.

Board of Directors submit annual reports on the circumstances and operations of the Company, the outcome, estimate regarding the development of the Company in the future, the main activities of the Company and amendments during the financial year as well as the details of issues that arise during the fiscal year that affect the activities of the Company to get approval of the meeting.

It may be decided other matters that have been proposed without prejudice to the provisions of the Articles of Association.

c) Validation of the annual calculation by the Annual GMS, is to release and discharge of responsibility (volledig acquit de charge) to the members of Board of Directors and Commissioners for the management and supervision that have been conducted during the last fiscal year and, as so far those actions are reflected in the annual calculation.

d) When the Board of Directors neglect to conduct Annual GMS as stipulated, then the Shareholders entitled to conduct Annual GMS by themselves at the expense of the Company after getting permission from the Chairman of the District Court whose judicial territory covers the domicile of the Company.

3) Extraordinary General Meeting of Shareholders (GMS) a) Extraordinary GMS may be conducted at any time when it is considered

necessary by the Commissioner, the Extraordinary GMS must be conducted upon request with a letter by one or more shareholders who have at least 1/10 (one tenth) from the fund in the Company. The letter should mention the issues that will be discussed in the meeting.


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b) When the Board of Directors neglect to conduct Extraordinary GMS as referred to above, within a period of 30 (thirty) days after the date of the request is received, then shareholders are entitled to conduct their own meetings at the expense of the Company after obtaining permission from the Chairman of the District Court whose judicial territory covers the domicile of the Company.

c) Implementation of the meeting as referred to the above matter, should notice to the stipulation of the District Court’s Chairman that give such permission.

4) Place and Invitation of the GMS a) GMS is conducted at the domicile of the Company or in the location of

Company's operations. b) GMS invitation has to be carried out by registered letter that should be sent at

the latest 30 (thirty) days before the date of the meeting. c) GMS invitation must state about the day, date, hour, location and agenda of

the meeting, accompanied by notification that the materials will be discussed at the meeting is available at the Company's office from the day of invitation until the date of the meeting was held. Invitation of GMS shall also specify that the annual report is available on the Company.

d) When all of shareholders with the voting rights are legally present, or represented at the meeting, the invitation is not to be referred to the terms and it can take a binding and legal decision on the matters that will be discussed, while the GMS can be held anywhere in territory of the Republic of Indonesia.

5) Chairman and the Minutes of GMS

a) If in the Articles of Association is not specified, then the GMS led by the President Director in case the President Director can not be present or absent for any reason, which does not need to be proved to a third party, then the meeting will be led by a Director. And if all of the Directors can not be present or absent for any reason, which does not need to be proved to a third party, then the meeting will be led by a member of the Commissioner and, if all Board of Commissioner members can not be present or absent for any reason, which does not need to be proved to a third party, then meeting will be led by a person selected from among those present at the meeting.

b) From everything discussed in the GMS, Minutes of the Meeting is made which for the endorsement signed by the Chairman of the meeting and a shareholder or shareholder proxies who is appointed by and from among those present at the meeting. Minutes of the Meeting becomes a valid evidence against all the shareholders and third parties in terms of the decision and everything that occurs in the meeting and bind the Company and all shareholders which are not present at the meeting.

c) The signing of the above is not required if the Minutes of Meeting was made in the form of notarial deed.


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6) Quorum, Voting Rights and Decisions a) GMS may be conducted if more than 1/2 (one-half) of the total shares with the

voting rights are present or represented, unless the Laws and/or the articles of association determine the number of larger quorum.

b) In case a quorum as referred to above can not be achieved then it can be conducted an invitation for second meeting.

c) In the second GMS invitation should be mentioned that the first GMS has been conducted and did not reach quorum.

d) The second GMS is valid and entitled to make decisions if the GMS at least 1/3 (one-third) of the total shares with the voting rights is present or represented, unless the articles of association determine number of larger quorum.

e) In terms of the second GMS quorum is not reached, the Company may request to the chairman of the district court whose jurisdiction covers the domicile of the Company at the request of the Company in order to set the quorum for the third GMS.

f) In the invitation of the third GMS should mention that the second GMS has been conducted and did not meet quorum and third GMS will be conducted with quorum which has been established by the chairman of the state court.

g) The stipulation of the Chairman of state court about the quorum of GMS is final and has permanent legal force.

h) The invitation of second and third GMS are conducted at least 7 (seven) days before the second and third GMS was conducted.

i) The second and third GMS are conducted on the fastest period of 10 (ten) days and at the latest 21 (twenty one) days after the first of GMS.

j) Shareholder may be represented by another shareholder or other person with power of attorney.

k) The Chairman of the meeting may request a power of attorney to represent the shareholder which is shown to him at the meeting.

l) In the meeting, each share entitling to the owner to issue one (1) vote. m) Member of the Board of Directors, the Board of Commissioners and employees

may not act as the proxy in the meeting, and their right of vote as proxy at the meeting are not counted in the vote.

n) Vote for specific personality is conducted by a sealed letter which is not signed and regarding other matters verbally, unless the chairman of the meeting decides otherwise without any objection from the shareholders who are present at the meeting.

o) For abstention and invalid votes are not considered and not be counted in determining the number of votes issued at the meeting.

p) All the decision are taken by consensus. In case of consensus is not reached, then the decision is taken based on the approval of a majority vote of the total ordinary issued with a legitimate voice in the meeting, unless provided otherwise in the articles of association. If the number of votes are equal for agreeing and disagreeing then the proposal would be rejected.

q) Shareholders may take legal decisions without conducting GMS, with the stipulation if all Shareholders have been notified in writing and all the shareholders approve the proposal submitted in writing and signed the


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agreement. Decisions taken in this way has the same power as legitimate decisions which taken in the GMS.

B. BOARD OF COMMISSIONERS

1) Membership and Appointment of the Board of Commissioners a) Board of Commissioners consists of 6 (six) persons, one of them is appointed

as the President Commissioner and one of five Commissioners is appointed as Independent Commissioner who both are nominated and proposed by PT Pertamina (Persero) and four Commissioners, each of them are nominated and proposed by PT Pertamina (Persero), VICO, JILCO dan TOTAL.

b) The Board of Commissioners is appointed by the GMS for a period of 3 (three) years with the possibility of re-appointed.

c) Nomination of Board of Commissioners is conducted by fit and proper test which has been stipulated and carried out transparently in accordance with expertise and experience.

d) Members of the Board of Commissioners can be given salaries and/or allowances which is stipulated in the GMS.

e) When a position of member of the Board of Commissioners is vacant, then in a period of 30 (thirty) days after the occurrence of vacancy must be conducted GMS to fill the vacancy.

f) A member of the Board of Commissioners has the right to resign from their position by sending a written notice to the Company at least 30 (thirty) days prior to their resignation.

g) The appointment of any of the Board of Commissioners ends should they:

Resign in accordance with the provisions of the letter (f) above;

No longer meet the requirements of the prevailing regulations

Passed away

Are dismissed by the GMS

2) Duties and Authorities of the Board of Commissioners a) Board of Commissioners supervise the discretion of the Board of Directors in

running the Company and provide advice to the Board of Directors. b) Board of Commissioners is required to carry out their duties with fully

responsibly and in good faith for the interest of the Company's business. c) On behalf of the Company, shareholder who represents at least 1/10 (one-

tenth) of the total shares with valid voting rights may file a suit to the District Court against the Board of Commissioners for any mistakes or omissions, which causing losses to the Company.

d) Board of Commissioners either jointly or individually at any time during office hours may enter into any buildings and premises or other places that are used or controlled by the Company and entitled to check all financial accounts, documents and other evidences, check and match the condition of cash and others as well as entitled to know all the activity that have been conducted by the Board of Directors.


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e) Board of Directors and each member of the Board of Directors are obliged to provide explanation concerning all matters inquired by the Board of Commissioners

f) Board of Commissioners has the right at any time to temporarily dismiss one or more members of the Board of Directors if the Board of Directors members act against with the prevailing Articles of Association and regulations.

g) The temporary notification must be delivered to the relevant member of the Board of Directors with the reasons regarding the temporary dismissal.

h) In a period of 30 (thirty) days at the latest after the temporary dismissal, Board of Commissioners is obligated to conduct GMS which will decide whether he/she will be terminated or returned to initial position and he/she will be given the opportunity to attend the Meeting in order to defend him/herself.

i) When the GMS is not conducted within 30 (thirty) days after the temporary dismissal, it will be annulled by law, and he/she is entitled to occupy his/her position back.

j) If all members of the Board of Directors are temporarily terminated without any Director left, the Board of Commissioners is obligated to manage the Company for a while. In such case, Board of Commissioners has the right to provide temporary authority to one or more of them at the expense of themselves collectively. For the Board of Commissioners who conduct management of the Company as described in this paragraph, is entitled to all provisions regarding the rights, authority and duties of the Director to the Company and third parties.

k) If there is only one Board of Commissioner member, then all the duties and authorities mandated to the President Commissioner or member of the Board of Commissioners as stated in the Articles of Association also apply to him/her.

3) Meeting of Board of Commissioners a) Meeting of the Board of Commissioners may be conducted at any time if

considered necessary by one or more members of the Board of Commissioners or at the written request from one or more members of the Board of Commissioners or upon written request of one (1) or more shareholder who are together represent 1/10 (one-tenth) of the total shares with legal voting rights.

b) Meeting invitation to the Board of Commissioners should be by President Commissioner.

c) Meeting Invitation of the Board of Commissioners must be submitted to the Board of Commissioners directly, or by registered letter with decent receipt, at least 30 (thirty) days before the meeting is conducted, excluding the date of invitation and the meeting.

d) Invitation of the meeting should include the agenda, date, time and place of the meeting.

e) Meeting of the Board of Commissioners is conducted at the domicile of the Company or where the location of Company's operations. If all the Board of Commissioners are present or represented, the first invitation is not required


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and the Meeting of the Board of Commissioners may be conducted anywhere and has the right to take legally binding decisions.

f) The meeting of the Board of Commissioners led by President Commissioner and when the Chairman is absent or unavailable which it is not necessary to prove to the third party, then the Meeting of the Board of Commissioners will be led by a Board of Commissioner member elected by and from members of the Board of Commissioners who are present.

g) Each member of the Board of Commissioners who can attend the Meeting of the Board of Commissioners, by written notice to the Substitute Commissioners as his attorney to attend the meeting and to vote on his behalf. The substitution of the Board of Commissioners shall be nominated in advance, and appointed by the shareholders who nominate the Commissioners.

h) Meeting of the Board of Commissioners is valid and entitled to take binding decision if more from ½ (one-half) of the total the Board of Commissioners are present or represented at the meeting.

i) Meeting Decision of the Board of Commissioners shall be taken by consensus. If by consensus is not meet, then the decision is taken by voting based on the affirmative vote at least more from ½ (one-half) of the total votes issued at the meeting.

j) The voting process is as follows:

Each member of the Board of Commissioners who is present entitled to cast one (1) vote and an additional one (1) vote for each member of the Board of Commissioners which is represented.

Voting regarding personality is conducted by a closed ballot without a signature, while voting regarding other matter is conducted orally unless chairman of the meeting decides otherwise without any objections from those present.

Abstention in voting and invalid votes are not considered validly issued and considered not exist and not counted in determining the votes cast.

k) Board of Commissioners may take legal decisions without conducting Meeting of the Board Commissioners in terms of all of Commissioners members have been notified in writing and all the Board of Commissioners members give approval regarding proposal which is submitted in writing and signed the agreement. The decision taken has the same power as legitimate decisions taken by the Meeting of the Board Commissioners.

l) Minutes of Meeting should be made from each Meeting of the Board of Commissioners to record all matters about the proceedings and decisions, whether accepted or rejected.

C. AUDIT COMMITTEE

1) Composition and the Membership a) Audit Committee is chaired by a member of the Board of Commissioners with

the members who are appointed from independent parties for a period of


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time. Membership of the Audit Committee is appointed by Decree of the Board of Commissioners.

b) Members of the Committee do not have a conflict of interest with the Company in carrying out their duties.

2) Audit Committee Duties

Audit Committee has the following duties: a) Assess the implementation and the results of the audit conducted by Internal

Control Unit/Internal Audit and External Auditors in order to prevent the reporting and implementation which do not meet the standards

b) Evaluating the Internal Financial Report, and the External Audit Report and the follow up on the recommendation of the audit findings.

c) Provide recommendations about improvement of the Company's internal control system and the implementation.

d) Ensure that there has been a satisfying review procedures on the information released by the Company, including brochures, periodic financial statements, projections/forecasts and other financial information which is submitted to the Shareholders.

e) Ensure that the Company's activities carried out in accordance to the prevailing laws and regulations.

f) Identifying matters which requires attention of Board of Commissioners. g) Carry out other duties assigned by Board of Commissioners throughout within

the scope of the duties and obligations of Board of Commissioners pursuant to the prevailing laws and regulations.

h) Develop Audit Committee’s charter and work programs to be proposed to the Board of Commissioners.

3) Audit Committee Obligation

Audit Committee has the following obligations: a) Committee members should have a commitment and high integrity as well as

knowledge, experiences and technical skills in performing their duties. b) The Audit Committee is required to report to the Board of Commissioners for:

The results of the evaluation conducted by the Audit Committee.

Periodic report, which contains main points of work result of the Audit Committee, submitted periodically, at least every semester.

If necessary and urgent, Audit Committee may make a special report which contains findings of which are expected to disrupt the activities of the Company, reported no later than 2x24 hours.

c) In order to coordinate with the Board of Commissioners, Member of Audit Committee conducts a meeting periodically, at least every 2 weeks.

d) Audit Committee members shall maintain the confidentiality of all information during stints at PT Badak NGL.


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D. SECRETARY OF THE BOARD OF COMMISSIONERS

To assist the performance of their duties, Board of Commissioners on the expense of the Company is entitled to aid from Secretary of the Board of Commissioners in order to facilitate the duties of the Board of Commissioners in carrying out their responsibilities, which include: 1) Carrying out activities in the field of secretariat of the Board of Commissioners. 2) Provide information for the Board of Commissioners as needed in the decision-

making. 3) Preparing the necessary materials for meetings of the Board of Commissioners. 4) Preparing for necessary materials related to all matters which should get a

decision or recommendation from the Board of Commissioners such as a short-term loan revenue plan from banks or other financial institutions, held a joint operation or management contracts as well as issues that need to have attention from the Board of Commissioners.

5) Conducting meetings of the Board of Commissioners, including but not limited to preparing the invitation, sending invitations and meeting materials as well as the making of minutes of meetings.

6) Administer the minutes of meetings and other Board of Commissioners documents.

In relation to the scope and activities of PT Badak NGL, the function of the Secretary of Board of Commissioners in the meantime, in accordance to provisions of President Commissioner, is conducted by Audit Committee.

E. BOARD OF DIRECTORS

1) Membership and Appointment of Directors a) Company is managed by 2 (two) Directors which appointed from candidates

proposed by PT Pertamina (Persero). One of them is appointed as President Director and appointed as the person in charge of GCG implementation.

b) Board of Directors is selected based on the nomination from the majority Shareholders through fit and proper test which has been stipulated and carried out transparently by considering competency, experience, attitude as well as their track record and getting approval from Shareholders and legitimated by General Meeting of Shareholders (GMS).

c) Member of the Board of Directors appointed by GMS, each for a period of 3 (three) years and without prejudice to the right of GMS to terminate them at any time.

d) The members of Board of Directors may be given salaries and/or allowances which is stipulated by the GMS and the authority may be delegated to the Board of Commissioners.

e) If for any reason, the position of Board of Directors is vacant, then within a period of 30 (thirty) days since the position has been vacant, a GMS should be conducted to fill the vacancy.


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f) If for any reason, all position of members of the Board of Directors are vacant, then within a period of 30 (thirty) days from the position has been vacant, GMS should be held to appoint a new Board of Directors, and the Company is temporary managed by Board of Commissioners.

g) A member of the Board of Directors is entitled to resign from his position by sending written notification to the Company at least 30 (thirty) days prior to the date of his resignation.

h) Board of Directors may be terminated by GMS at any time, if proved they conduct conflict of interest activities which is contrary to the purposes and objectives of the Company, or the amendment of Articles of Association or based on the important and lawful reasons.

2) Board of Directors Duties, Authorities and Responsibility

a) Position of the Board of Directors ends should they:

Resign in accordance with the provisions (g) above

No longer meets the requirements of the prevailing regulations

Passed away

Are dismissed by GMS b) Board of Directors is fully responsible in carrying out their duties for the

interest of the Company in achieving its goals and objectives. c) Each member of the Board of Directors is required to fully responsible in

carrying out their duties with good faith for the interests of the Company with regard to the prevailing laws and regulations.

d) Each member of the Board of Directors is personally fully responsible if found guilty or neglect in carrying out their duties in accordance with the provisions of point b above.

e) On behalf of the Company, Shareholders who represent at least 1/10 (one-tenth) from total shares with legal voting rights may file a suit to the District Court against any Director who due to his mistakes or omissions result in losses to the Company.

f) Board of Directors either jointly or individually are entitled to represent Company in the limits which is determined by the Company's objectives, both inside and outside the court regarding all matters and in any event binding the Company to other party and the other party with the Company, and to implement all actions, both regarding the management and ownership, but with restrictions that:

Borrowing or lending money on behalf of the Company (excluding taking Company’s money from banks)

Establish a new business or participate in other companies both inside and outside the country

Making peace inside or outside the court. It must be conducted with the approval from or the pertinent letters to be alse signed by Commissioners.

g) Legal actions for transfer, dispose of the rights or pledge, as a debt guarantee of all or most of the Company’s assets during the fiscal year, either in one transaction or several transactions which stand alone or which related to one another should be approved by GMS which attended or represented by


22

shareholders which own at least ¾ (three-quarters) of the total shares with legal voting rights and approved by at least ¾ (three-quarters) of the total valid votes cast in the meeting.

h) Legal actions for divert or make a debt collateral or relinquish rights to the assets of the Company as referred in point f shall also be published in 2 (two) Indonesian daily newspapers circulating in the domicile of the Company not later than 30 (thirty) days since the legal action was conducted.

i) Board of Directors is entitled, for certain acts, to appoint one or more employees of the Company as a representative or his attorney by giving him authorotoes which is stipulated in letter of power of attorney.

j) The division of duties and responsibilities of the Board of Directors are stipulated by the GMS and the authority, by GMS, may be delegated to the Board of Commissioners.

k) In case of the Company has the interests which against with personal interests of one of the Board of Directors member, then Company will be represented by other members of Board of Directors and when the Company has a conflict interest with all members of Board of Directors interest, then the Company will be represented by the Board of Commissioners.

3) Meeting of the Board of Directors a) Board of Directors Meeting is conducted regularly, at least once in every

month, and Board of Directors may invite the Board of Commissioners. b) Board of Directors stipulate the rules of Board of Directors meeting. c) The Board of Directors Meeting may be conducted at any time if considered

necessary by one or more members of the Board of Directors or upon written request of one or more members of the Board of Commissioners or upon written request by one (1) or more shareholders who are together represent 1/10 (one-tenth) of the total shares with valid voting rights.

d) Meeting invitation is made by members of the Board of Directors who are entitled to represent the Board of Directors in accordance with the provisions of (Duties and Authority of the Board of Directors) above.

e) Meeting invitation of the Board of Directors must be submitted by registered mail or by letter which is delivered directly to each member of the Board of Directors with receive the receipt no later than 14 (fourteen) days before the meeting is conducted, excluding the date of summons and the meeting.

f) Meeting invitation shall include the agenda, date, time and place of the meeting.

g) Board of Directors meeting is conducted at the domicile of the Company or the location of the Company's operations. If all the Directors are present or represented, the first summon is not required and Meeting of the Board of Directors can be conducted at any where and entitled to take any lawful and binding decisions.

h) Board of Directors meeting is chaired by the President Director and if the President Director is absent or unavailable where it is not necessary to prove to the third party, then the Board of Directors meeting will be chaired by a


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member of the Board of Directors who is elected by and from the members of the Board of Directors who attended.

i) A member of the Board of Directors may be represented at the meeting of the Board of Directors only by member of the Board of Directors based on a power of attorney.

j) Meeting of the Board of Directors is valid and entitled to take binding decisions if more than ½ (one half) of the members of the Board of Directors are present/represented at the meeting.

k) The decision of the Board of Directors Meeting must be taken based on consensus. If the decision based on consensus is not meet, then the decision taken with the affirmative vote of voting more than ½ (one half) of the total valid votes issued in the meeting.

l) When the affirmative vote and dissenting vote are balanced then the Chairman of the Board of Directors will stipulate.

m) Each member of the Board of Directors who attend entitled to cast one (1) vote and an additional one (1) vote for each of other Board of Directors members whom he/she represents.

n) Vote for a personality is conducted with a closed ballot without a signature, while voting on other matter is conducted orally unless the chairman of the meeting decides otherwise without any objections from those present.

o) Abstention and invalid votes are not considered validly issued and are not considered exist as well as not counted in determining of the votes cast.

p) Board of Directors may take legitimate decisions without conducting Board of Directors Meeting with stipulation that all members of the Board of Directors have been notified in writing and all the members of Board of Directors approve the proposal that submitted in writing and signed the agreement. This decision making has the same power as legitimate decisions which taken by the Board of Directors Meeting.

q) Minutes of Meeting of the Board of Directors should be made for each Board of Directors Meeting which includes all matters discussed and decided in the meeting, including but not limited to the dynamic opinions in the meeting, either affirmative or dissenting opinion, and also the reason for the absence of the Board of Directors member, if any.

r) Each member of the Board of Directors are entitled to receive a copy of the Board of Directors Minutes of Meeting, either the concern member is present or absence at the Board of Directors Meeting.

F. CORPORATE SECRETARY

1) Position and Qualifications a) Corporate Secretary are appointed, terminated, and directly responsible to the

President Director. b) Corporate Secretary should have academic qualifications, adequate

competence in order to carry out the duties and responsibilities.


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2) Corporate Secretary Duties and Responsibilities Corporate Secretary has the following duties and responsibilities: a) Prepare for conducting the GMS. b) Attend to the Board of Directors meeting, Commissioners meeting and GMS. c) Manage and keep the documents related to the Company's activities include

the GMS documents, minutes of meetings of the Board of Directors, the minutes of joint meeting between Board of Directors with Board of Commissioner, and other important Company’s documents, such as List of Shareholders, Special List.

d) Report the performance of the duties and responsibilities to the President Director periodically.

e) Collect all the important information concerning the Company from each business unit.

f) Stipulate the criteria regarding the type and information material that can be submitted to the Stakeholders, including information that can be disclosed as a public document.

g) Ensure that the Company's Annual Report has included the implementation of good corporate governance within the Company.

G. INTERNAL AUDIT

1) Position and Qualifications a) Internal Audit has a position directly under the President Director for

guarantee their independence from the activities or business unit that being audited

b) Manager of Internal Audit should have academic qualifications and adequate competence to implement the duties and responsibilities

c) Manager of Internal Audit is appointed and dismissed by the President Director.

2) Internal Audit Duties and Responsibilities

Internal Audit has the duties and responsibilities as follows: a) Create a strategy, policies, and monitoring activity plans b) Monitor the achievement of objectives and strategy of overall supervision and

conduct review periodically c) Ensure the function of the Company's internal control system run effectively,

including activities to prevent the occurrence of irregularities and conduct an assessment to the systems periodically

d) Implement supervision functions to all areas of the Company, including, among others: accounting/finance, human resources and operational

e) Conduct audit to encourage the creation of compliance either employee or management of the Company to the prevailing laws and regulations

f) Conduct special audit (investigation) to disclose the cases that have indications of authority abuse, embezzlement, misappropriation, and fraud


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g) Provide suggestions for improvement which needed and objective information about the activities that being audited to all levels of management

h) Provide consultation to all levels of management regarding the effectiveness of improvement efforts to internal controls, efficiency improvement, risk management, and other activities related to performance improvements

i) Support the implementation of Good Corporate Governance in the Company j) Setting up supporting data, information and analysis requested by the Board

of Directors related to submission of the Board of Directors report to the Board of Commissioners, Shareholders, Producers, so forth

k) Report all the results of supervisory activities directly to the President Director and provide a copy to the Board of Commissioners cq Audit Committee.

3) Internal Audit Charter

Position, duties, authorities and responsibilities of Internal Audit and the institutional relationship between Internal Audit with Audit Committee and External Auditors are stated in Internal Audit Charter which is signed by the President Director.

H. GOOD CORPORATE GOVERNANCE COMMITTEE

1) Composition and Membership a) Committee of Good Corporate Governance consists of a Chairman and at least

two members with the following composition:

Chairman of the GCG Committee is Corporate Secretary

Member of GCG Committee is Senior Manager of Internal Audit and Senior Manager of Corporate Communications and may be added other members who appointed.

b) Members of GCG Committee must fulfill the following requirements:

Have high integrity and dedication, skills, knowledge and experience, which needed for implementation of their duties.

Have a commitment to work utmost and spend time and effort for implementation of their duties.

Have adequate knowledge and comprehension within laws and regulations related to the Company and the field of energy/oil and gas.

Able to communicate with fellow members and build a network with the Company's organizational units related to the implementation of GCG practices.

Have no interest/personal relationship which may have a negative impact and conflict of interest against the Company.

Provide a written statement to work in accordance with GCG principles in carrying out his duties as a Member of GCG Committee.


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2) Duties and Responsibilities Duties and responsibilities of the GCG Committee are as follows: a) Supervise the implementation and evaluate the results of periodic

assessments on implementation of GCG to ensure the effectiveness of implementation of GCG in the Company.

b) Provide recommendations regarding improvement of the system and the completeness of the Company's GCG as well as monitoring the implementation, especially with respect to:

Code of Corporate Governance

Code of Conduct c) Conduct studies on GCG best practices to be implemented in the Company. d) Make an annual report on the implementation of GCG in the Company. e) Conduct other duties related to the development and implementation of GCG.

3) Charter of GCG Committe Position, duties and responsibilities of the GCG Committee and the institutional relationship between the Committee of GCG with the Responsibility Function of Company’s GCG Implementation are stated in GCG Committee Charter and signed by the President Director.

I. COMMITTEE/BOARD OF DIRECTORS TEAM

While carrying out their duties and functions, Board of Directors may establish a Committee/Team in accordance with the needs of the Company. The existence of the Committee/Team established by Board of Directors which assigned to assist Board of Directors for certain duties.

J. EXTERNAL GOVERNANCE STRUCTURE

In conducting its business activities, Company should: 1) Give attention to arrangements aspects that come from external party and its

implications on the implementation of Company business activities. 2) Comply with policies/regulations/laws by the pertinent Government Agencies. 3) Comply with policies/regulations/laws of PT Pertamina (Persero) especially related

with processing of liquefied natural gas, in relation with MoF decree No. 92 year 2008, which appointed PT Pertamina (Persero) as the asset manager of LNG Badak plant.


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CHAPTER IV CORPORATE GOVERNANCE PROCESS

A. APPOINTMENT AND DISMISSAL OF MEMBERS OF THE BOARD OF COMMISSIONERS

AND BOARD OF DIRECTORS

1) Appointment and Dismissal of Members of the Board of Commissioners See Chapter III, page 17

2) Appointment and Dismissal of Members of the Board of Directors See Chapter III, page 22

B. INDUCTION AND KNOWLEDGE DEVELOPMENT PROGRAM FOR MEMBERS OF THE

BOARD OF COMMISSIONERS AND DIRECTORS

1) Board of Commissioners and Board of Directors who are appointed for the first time must be given the induction program regarding the Company as soon as possible after their appointment.

2) The responsibility to conduct an induction program for members of the Board of Commissioners and the Board of Directors for the first time of appointment is on Corporate Secretary or whoever is running the function as Corporate Secretary.

3) The Induction Program for the new Board of Commissioners and Board of Directors include the following: a) The implementation of good corporate governance principles by the

Company; b) A description of the Company related to the vision and mission, values and

corporate culture, objectives, nature, and scope of activity, financial performance and operations, strategy, short-term and long-term business plans, competitive positioning, application of information technology, risk management , conditions of business competition, and other strategic issues;

c) Information related to delegated authority, internal and external audit, internal control systems and policies, including the Audit Committee;

d) Description of the duties and responsibilities of the Board of Commissioners and Directors as well as all matters that are not allowed.

e) A description of the main Stakeholders of the Company and the Company's social responsibility.

4) The induction program can be conducted in the form of presentations, meetings, visits to the Company and reviewing documents or other programs which considered appropriate by the Company as implemented.

5) In order to the Board of Commissioners and Directors are able to carry out tasks for supervision and good management, it is necessary to add and update knowledge regularly that the implementation can be conducted in the form of self-study, participation in special education, training, workshops, seminars, or conferences which can be useful in improving the effectiveness of the functions and responsibilities of the Board of Commissioners and Board of Directors.


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Continuing education can be conducted both in Indonesia and abroad at the expense of the Company.

C. GENERAL MEETING OF SHAREHOLDERS, BOARD OF COMMISSIONERS AND BOARD OF DIRECTORS

1) General Meeting of Shareholders See Chapter III, page 13 2) Board of Commissioners Meeting See Chapter III, page 17 3) Board of Directors Meeting, See Chapter III, page 22

D. CORPORATE BUDGET

1) Content of the Corporate Budget at least consist of: a) Actual Budget of the Company for two (2) previous years b) The work plan of the Company in the proposed budget c) The Company's proposed budget. d) Other matters that require a decision by the shareholders/Producers.

2) Preparation and Legalization of Corporate Budget a) Corporate Budgeting is based on the annual work program and five years

business plan. b) Corporate Budgeting is conducted by Directors and all level of Company

management by combining top-down and bottom-up, by taking into account comments / guidance / input of Shareholders / Board of Commissioners / Producers.

c) Board of Directors submit budget proposals (capital operating budget) to the Producers at the latest six (6) months prior to the fiscal year for review/approval process.

d) Board of Directors submit budget proposals to the Board of Commissioners at the latest five (5) months prior to the fiscal year for review/approval process.

e) Board of Directors submit budget proposals to the Shareholders at the latest 4 (four) months prior to the fiscal year for review/approval process.

f) Approval of Shareholders’s on the original budget at the latest 2 (two) months before the fiscal year begins.

3) Implementation and Monitoring of the Corporate Budget

a) Each Business Unit conveys the report of Company’s Work Plan and Budget implementation to the Board of Directors monthly/annually.

b) The Report of Work Plan and Company Budget implementation evaluation is made by the Board of Directors and submitted to the Producers/Board of Commissioners/Shareholders monthly/annually.


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c) The implementation and achievement of the Company Budget is supervised by the Board of Commissioners/Producers. Monitoring result is presented at the GMS as part of the Board of Directors’s performance assessment.

d) If necessary revision of Company Budget may be performed after the fiscal year run for 3 (three) months with accountable justification. The revision of Company Budget shall obtain approval from Producers/Board of Commissioners/Shareholders just as approval for the original budget.

E. HUMAN RESOURCE MANAGEMENT

Human Resources Management (HRM) involves the process of planning, fulfillment of needs, selection and orientation program, placement, development and mutation as well as termination of employees. HR management is intended to ensure that the Company always has an excel human resources and can be directed and driven to achieve Company goals. 1) Manpower Planning

a) Manpower planning is to anticipate the needs of the supply of employees for the Company.

b) Manpower planning is based on analysis of the organization (job design, job, job formation, job evaluation, competency, employee turnover) and the analysis of office requirements in accordance with the Company's business strategy and development.

c) In conducting the analysis should consider the organization's vision, mission, objectives and strategies, if necessary, benchmarks to similar companies can be conducted.

d) In conducting job analysis needs to be aware of the result of analysis for organizational, workload, Company’s budget and employee strength data.

2) Manpower Fulfillment

a) Employee recruitment is conducted based on the needs of the Company in accordance with the criteria and competencies required of the Company.

b) Sources of manpower can be derived from the Company (the active employees, contractors, partners and pre-retired employees extension) and from outside the Company. Fulfillment of structural positions is preferred to employees come from within the Company. While fulfillment of position and the requirements of new positions from outside the Company is conducted by taking into account the applicable regulations in the employment field.

c) The need for manpower is disclosed transparently through announcements in the mass media, website, and / or other media.

d) The Company may be associated with universities or other educational institutions, the parties which are engaged in the provision of employment services, as well as resources and other workforce providers to get the best candidates for employment in accordance to the needs of the Company.


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3) Selection and Orientation Program a) Recruitment is conducted through the selection process transparently and

objectively. b) The selection process is carried out at least through the selection of

administration, written test, interview and medical examination and involving agencies/government agency in charge of employment and universities or other competent institutions.

c) To the new workers a general orientation about the Company are provided and the particular orientation related to the field of work and prior to be hired as an employee they must follow on the job training for period of 3 (three) months and/or following the specific guidance program.

d) Employees are workers who have a working relationship for an indefinite time who are hired after completing on the job training for period of 3 (three) months.

e) The Company and employees shall prepare employment agreements prior to the commencement of employment in accordance to the prevailing regulations and laws.

4) Employee Placement

a) Placement of employees is in accordance to the requirements of the Company under the employment agreement pursuant to the principles of the right man at the right place and equal pay for equal job.

b) Placement of employees for certain positions is conducted through a fit and proper test mechanism or assessment.

c) Every employee must be willing to be placed in all Company business units in accordance to the Company's needs.

d) Workers who refuse to be placed by the Company can be given a sanction in accordance to the applicable rules in the field of labor.

5) Development of Employee

a) Development of employee is intended to increase the knowledge and competence of the employee through education and training as well as special assignments to achieve goals and improving the Company's performance, the fulfillment of competencies, and career development of the employee.

b) Career development is conducted to fill positions in the Company based on job competency and competency profiles of employee and the forecast of career path.

c) Development of career covers managerial/structural levels following the Company's organizational structure and lines of experts/specialists by supporting of Professional Development Program.

d) The Company shall establish a team/board/coaching agency assigned to perform election of officers of the Company for the level of manager and above.

e) To a certain position, succession planning of the Company’s officials is aligned with the employee career development planning and Company's needs, as well


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as reported to the Board of Commissioners/Shareholders by the Board of Directors.

6) Development and Termination

a) Development of employee can be promotion, rotation, and demotion. b) Promotion and rotation should be implemented with considering the career

development and the Company needs. c) Demotion should be implemented by considering the elements of coaching or

firmness in punishment pursuant to the principle of justice. d) Each employee is given an equal opportunity to be nominated and chosen to

fill the position (promotion) as long as that person meets all the requirements which has been stipulated.

e) The Company gives a firsr opportunity to the local employees to fill certain level positions.

f) The Company will be considerable to conduct rotation/mutation for employee in order to develop his career. The employee who can not increased his position within a certain period will receive compensation which the amount pursuant to the Collective Labor Agreement (CLA).

g) Termination of employment causes rights and obligations which should be completed in accordance to the Collective Labor Agreement (CLA) and the prevailing laws and regulations.

7) Dispute Resolution

a) Settlement of disputes among employees and between employee and the Company will be solved amicably with involving the labor union or other Company’s mediator internally.

b) If the above steps are not achieved, the dispute shall be resolved in accordance to the prevailing stipulation/the existing labor laws.

F. CONFLICT OF INTEREST

1) Conflict of interest occurs when the employee: a) Conduct the transaction and/or using the Company property for the personal,

family, or class/group interest. b) Receive and/or giving gifts/benefits in any kind related to his/her position in

the Company. c) Take advantage of confidential information and Company’s business data not

for the benefit of the Company. d) Involve directly or indirectly in the management of the competitors’s Company

and/or business partner’s corporate or other prospective partners. e) Have family relationship by blood or marriage and up to the third degree with

the member of the Board of Directors.


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2) Disclosure of conflict of interest Disclosure/Indication Reports conflict of interest/fraud can be reported through an online mechanism in computers, namely: a) Every employee of PT Badak NGL/Colleague/Business Partners (Vendors)/its

families who find indications of the existence of a conflict of interest/fraud must report it through the intranet/website/other facilities provided by the Company.

b) The Company will guarantee the confidentiality of the complainants identity. c) The Reports which have an evidence/data will be followed up immediately by

the appointed function/team d) While the report which does not have an evidence/preliminary data will be

recorded/or followed up on the next priority. e) The Company will give rewards to the complainants if the report is proven and

correct while the Company still keeps the confidentiality of the complainants (unless the related person do not mind to be announced in terms of campaign for the enforcement of discipline).

f) The procedures of reporting in terms of conflict of interest/fraud indications will be determined separately.

G. THE MANAGEMENT OF COMPANY OPERATIONAL ACTIVITIES

Business activities of LNG Processing Plant 1) Planning

The Company provides strategic planning which includes: a) Performance Optimization and plant reliability b) Continuous quality improvement program through the development and

application of new technology. c) The development of environmentally sound business and presented in the

form of a master plan. d) Develop an annual performance measurement system i.e. Key Performance

Indicator (KPI).

2) Implementation a) Implement strategic plan of LNG plant management in accordance to the

vision, mission, goals and objectives of the Company with respect to the safety aspects and other aspects.

b) Coordinate the activities of the business processing to obtain optimal results. c) Implement the policy of plant performance optimization. d) Conduct studies and analysis of investment feasibility technically and

economically. e) Improve the work effectiveness and cost efficiency.


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3) Control Control and supervise the activities of business processing from beginning to end in order to be in line with the related Company's internal regulations and rules/ other provisions.

H. RISK MANAGEMENT

1) Classification, purpose, scope, and benefits a) Risk classification

Corporate Risk classification can be classified as:

Strategic risks, including the risk of failure to achieve long/short term plan, risk of business competition, risk of loss of strategic cooperation and risks caused by the policy/government regulations and others.

Operational risks, including the risk of plant operational failure, risk of gas supply shortage, the risk of equipment/technology reliability, risk of process error, risk of non-compliance to procedures/fraud, risk of labor strikes, risk of shortage of quantity/quality of human resources, risk of environmental management failures, risks of health and environmental safety/the refinery process safety and risk of business competition.

Financial risks, including the risk of over/under budget, risk of foreign currency transaction, risk of delay in cash call, risk of changes in value of the interest rate, risk of non-collection receivables, and risk of a change in financial policy from producer/shareholders.

Other risks, is in addition to those mentioned above, i.e. risk of situation changes of social, politics and security, risk of natural disasters, risk of riots, the risk of war and others.

b) Objectives of Risk Management Objectives of Risk management aims to minimize the risk of loss.

c) The scope of Risk Management Risk Management at least includes:

Identification of potential internal risks in every function/business unit and potential external risks that could affect the Company's performance.

Development of treatment strategy of risk management.

Implementation of management programs to reduce the risk.

Evaluation of the success of risk management. d) The Benefits of Risk Management

Benefit of risk management is to reduce the impact of losses due uncertainty in business..

2) General Policy

In the risk management implementation, the Company refers to the Minister of State Owned Enterprise (SOE) No.PER - 01/MBU/2011, August 1st, 2011, as follows: a) Taking into account the harmony between strategy, business processes,

human resources, finance, technology, and environment, with the Company's objectives.


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b) Establish a system and procedures of risk management standards. c) Setting up a competent Risk Assesssor. d) Implementation of the risk management program can be conducted by setting

up a separate business unit under the Board of Directors, or assign to an existing business unit that relevant to implement the function of risk management.

e) The Board of Directors is obligated to submit a report of risk management profile and its handling altogether in the Company's periodic reports.

3) Related Items Implementation of risk management basically involves the elements of Company with the following responsibilities: a) Board of Directors and all employees are responsible to use a risk management

approach in conducting their activities in accordance to the limits of authority and job description respectively.

b) The organs who are responsible for risk management i.e.:

Board of Directors Board of Directors are responsible for: i. Implementing the risk management process in the related functions

(risk owner). ii. Reporting to the Board of Commissioner about the risks faced and

handled. iii. Enhancing the risk management system.

SHEQ Committee/Risk Assessment Committee SHEQ Committee/Risk Assessment Committee are responsible for: i. Formulating the risk management system. ii. Formulating the basic policy related to the risk management. iii. Identifying and handling the risks and to make risk mapping. iv. Implementing and striving to implement the effective risk management

within the limits of responsibility and authority. v. Monitoring and evaluating risk progress and report it to the Board of

Directors. c) Internal Audit Department is responsible for:

Ensuring that the policy and risk management system have been implemented and evaluated periodically.

Evaluating and giving suggestion of adequacy and effectiveness of internal control in order to mitigate the risk.

Evaluate and giving suggestion about the appropriate strategy with the policy of risk management.

4) Risk Management Process

The risk management process includes at least: a) Risk identification b) Measurement and analysis of the risk c) Selection of risk management method


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d) Implementation of risk management method e) Evaluation of the implementation of risk management method f) Reporting of risk management

I. INFORMATION TECHNOLOGY GOVERNANCE

1) General Policy a) Information Technology Governance is developed to have a strategic value in

supporting the Company to produce better-quality and competitive products or services.

b) Information technology investment should consider the advantage of reduced costs and the ease to obtain information.

c) The Board of Directors set the information technology function which:

Has responsibility to realize design becoming a detailed construction.

Act as a consultant by conducting regular communication with the users.

Facilitate trainings of information technology.

Exempt from the procurement activities of goods and services related to information technology activities pursuant to the partinent stipulation.

d) The function of information technology implements the quality assurance mechanisms to ensure that the devices and systems used in information technology has been in line with the level of expected quality and service.

e) The function of user implements the quality assurance to ensure that the data/information generated by the information system has been in accordance to the expected quality, quantity and time.

f) To obtain a safe and optimal utilization, information technology function must implement controls related to the information technology activities.

g) The Board of Directors shall submit a report on the implementation of information technology governance periodically to the Board of Commissioners.

h) The Board of Directors shall maintain and evaluate the quality of information technology governance function in the Company.

2) Stages

The Company should optimize the use of information technology through the stages at least as follows: a) Stage of Pre-Implementation, including:

The launching of the vision and mission in the field of information technology.

Development of a strategic plan in the field of information technology in line with the Company's business strategy.

Preparation of design and technical design.

Reflection of design and technical design of information technology into the construction of the physical and functional system.

b) Stage of Implementation, including:

Planning is mature


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Training and human resource development

Standardization of service quality

Evaluation and control system

Implementation of disaster recovery centre c) Stage of Development

Development of information technology should be implemented in the corridor of the integrated and reliable information technology implementation through:

Preparation of master plan for information technology establishment and development.

Implementation of Executive Information System and/or Decision Support System.

Use of the Enterprise Resource Planning (ERP) as a back office system, and other extension applications.

3) Control

Function of Information Technology (IT) Control : a) Have a proper procedures and indicators to measure the effectiveness of IT

management. b) Have a standard procedure in dealing with information technology issues. c) Conduct periodic monitoring. d) Prepare periodic report to the Board of Directors regarding the performance

of information technology. e) Jointly with the user function set the agreed service level agreement and to be

reviewed regularly.

J. FINANCIAL MANAGEMENT

1) General Policy a) The Board of Directors stipulates general policy in Company’s financial

management which includes at least the principles of accounting, mechanism of budgeting and financial statement.

b) Financial of the Company shall be managed in a professional, open, and based on prudence and conservative principles.

c) Procedure, policy, and regulation which are related to the financial management are prepared and evaluated periodically by taking into account with the standard of accounting and the prevailing laws and regulations.

d) The Company develops a good internal control system for the creation of optimal financial management.

e) Financial management is intended to maximize the Company's value through the implementation of work program pursuant to the principle of cost consciousness.

f) The Company conducts an analysis of all the possible risks and take necessary actions to anticipate the risks.


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2) Planning a) Financial planning either short-term or long-term is conducted integratedly

with respect to the interests of all business units. b) Budget preparation is based on work program and through the coordination

of business unit to synergize budget proposal of each business unit with the principle of bottom-up and top-down.

c) Board of Directors stipulates realistic cost targets that will be achieved by the Company for the preparation of budget in the business units of the Company.

d) Budget of the Company consists of Operation and Capital Expenditure.

3) Organizing Financial management is conducted by taking into account the segregation of duties between the function of verification, recording and reporting, saving/collecting and remittance of funds as well as authorization.

4) Implementation a) Financial management is conducted by implementing budgetary discipline in

accordance to the work plan. b) Board of Directors create rules on transactions excluded as stipulated in the

Articles of Association. c) Board of Directors obey every decision that has been made. d) Operation and Capital Expenditure can be realized after having approval from

the Shareholders. e) Diversion/revision of work plan and budget should be in line with the

procedures/provisions that have been established and conducted with accountable justification.

f) The Company provides an appreciation to the business units which achieve its targets.

g) The risks which may arise should be anticipated since the beginning of the process of decision making through the system and procedures that have been established.

5) Control a) Each Business Unit must account for the financial management to the leader

of the Company. b) Head of Business Unit should monitor, evaluate, and make effective realization

of the budget that has been stipulated in the business units that he/she led. c) Evaluation of budget implementation and analysis of the deviations are

conducted by each business units and/or throughout the Company. d) The Company’s financial management in overall is monitored by finance

department and reported to the Board of Directors. e) Board of Directors submit the report of financial management to the

Shareholders periodically.


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6) Reporting a) Board of Directors are responsible for the preparation of financial statements

in accordance to the prevailing accounting standards in Indonesia. b) Board of Directors stipulate the accounting policy in accordance to the

Company's operation and not for the purpose of financial statement manipulation.

c) Accounting policy should be consistently applied, and Corporate Finance Department must ensure that the accounting policy and procedure have been implemented by all business units in accordance to the prevailing provisions.

d) The preparation of financial statements is conducted by consolidating budget report (cost vs. budget) of all business units in the Company.

e) Financial Statements should be prepared monthly. K. PROCUREMENT OF GOODS AND SERVICES

1) General Policy a) The Board of Directors stipulate the general policy in the procurement of

goods/services with respect to the prevailing provisions which include at least the principles of procurement of goods/services policy and ethics. The policy should be reviewed periodically with considering business environment changes.

b) Board of Directors set thresholds and policy regarding to the procurement of goods/services that is implemented by self-managed, direct purchase, sole source or through an open bid.

c) The Company’s objective in conducting the procurement of goods/services is to obtain goods/services as required in the appropriate amount, quality, price, time and sources, efficiently and effectively, the contract terms and condition is clear and detailed as well as accountable.

d) Procedures/Technical Implementation Guidelines for the Procurement of Goods and Services will be determined separately.

2) Planning a) Each business unit/function must establish the need for goods/services

annually by considering to the scale of priority, economic and time. b) Plan of the needs for goods/services of the business unit/function that has

been approved should be included in the Company’s Work Plan and Budget. c) Planning of procurement of goods/services must involve related functions.

3) Organizing Bid/tender Committee shall be competent, technically qualified and have been trained in the procurement process in accordance to the prevailing regulations, with a maximum assignment period of 1 (one) year and may be reappointed.


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4) Implementation a) The procurement of goods/services must be based on the Company’s Work

Plan and Budget. When the goods/services required by the business unit is not included in the Company’s Work Plan and Budget, that business unit must ask the approval from the competent authority in accordance to the applicable regulations.

b) Process of procurement of goods/services must be based on the principle of cost consciousness and intended to be independent of a particular party.

c) The Company must manage the database of providers of goods/services that exist and integrated to determine the track records from each provider of goods/services.

d) The performance of each provider of goods/services is regularly evaluated and the results are used as the basis for updating the data base of provider of goods/services as well as used as inputs in the next process of procurement of goods/services.

e) Within the limits of a certain value, the procurement of goods/services is conducted through the electronic procurement (e-procurement).

f) The Company must have an Owner Estimated price which is calculated based on the expertise and market price data and/or other references that can be accounted for.

g) Any procurement of goods/services that will be conducted should be tied by the Letter of Agreement (Contract), Letter of Purchase Order or Work Order by stating the rights and obligations of each party.

5) Control

a) The Company has a control mechanism to ensure that the goods/services which are procured in accordance to the Company’s Work Plan and Budget, has been approved by the competent authority, and not to be divided into smaller procurement value with the intention to avoid a bid/tender procedure.

b) Each member of the bid/tender committee, providers of goods/ services and an authorized officer must sign the integrity pact, which is a statement that contains the commitment to carry out the procurement cleanly, honestly, and transparently.

c) Violation of the integrity pact will be penalized in accordance to applicable regulations.

6) Reporting

Periodically, the function of procurement/bid committee of goods/services make a report to the assignor which contains, i.e. information about the letter of order and the contracts that have been completed and the information about the failure to deliver of business partners/contractors.


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L. QUALITY MANAGEMENT

1) General Policy a) The Company must implement a consistent and integrated quality

management system in all functions and levels with respect to the effectiveness of business processes and overall Company performance in order to improve productivity and competitiveness.

b) Scope of the quality management implementation should include:

Design of products and services pursuant to the internal and external requirements and with regard to the current and future environment.

Management and control of processes as well as the indicator refers to the customer and stakeholders satisfaction.

Increasing/improving delivery of services and products through continuous quality improvement in all areas.

Implementation of the quality as a work culture in every activity.

Enhance the reliability of field operations with respect to safety, occupational health and environmental protection aspects.

Improving the quality of human resources through training, on the job training (OJT) and benchmarking to meet the competencies in accordance to their position.

c) Board of Commissioners, Board of Directors and all employees are fully engaged and committed to implement the quality management system.

2) Infrastructure of Quality Management

a) The implementation of quality management is supported by infrastructure that can ensure continuity and quality of the quality management system.

b) To achieve optimal results, the Company establishes a quality management function that conduct their duties effectively and supported by quality assessors (e.g. ISO 9001).

3) Implementation of Quality Management

a) Implementation of quality management begins with the mapping stage to get a depiction of quality management practices.

b) The quality management system is implemented by all employees at all levels include:

Implementation of the principles that prioritize the interests of the Company, focusing on customer and stakeholders satisfaction, the total involvement of all levels and care for the environment.

Implementation of methods and the relevant quality measurement tools.

Implementation of continuous quality improvement or enhancement. c) The Company can conduct quality competition as effort to provide rewards

and recognition for the business unit with the intention of implementation of quality management techniques.

d) Implementation of good quality management is reflected by the creation of effective and efficient business processes that can improve performance of


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process, performance of units and performance of the Company and able to compete nationally or other competition events.

e) In order to develop a culture of quality, implementation of quality is included in the performance evaluation/appraisal.

4) Evaluation, Assessment of Results, and Follow-up

a) Evaluation of quality management can be conducted with the criteria in accordance to the international standards, with the aim to:

Know the position/level of performance achievement compared to the targets and benchmarks.

Get the opportunities that can still be improved (Opportunities for Improvement).

Obtain feedback to improve performance.

Encourage the improvement of the Company’s performance. b) Evaluation is conducted by assessor through on desk reviews and on site visit

to get an assessment as outlined in the Feedback Report. c) To achieve a good level of effectiveness in order to improve the performance,

it needs to conduct a mechanism of continuous follow-up from the Board of Directors and the management on the Feedback Report.

5) Optimizing of the Assessor Role

To optimize the role and quality of the assessor, the Company should: a) Conduct continuous regeneration of Assessor by taking into account the

commitment, dedication and competence. b) Include the performance of the Assessor in the individual performance

appraisal. c) Engage assessor in seminars, trainings, forums or related associations to

increase the competence. d) Involves the Assessor in conducting benchmark to similar companies.

M. PERFORMANCE APPRAISAL SYSTEM AND REMUNERATION

1) General Policy a) Performance management is an attempt to create a shared understanding of

work objectives to be achieved, efforts to achieve and rules related to the implementation process.

b) Performance management objective is to obtain a basis for decision-making for promotion, rotation, demotion, corrective action and awarding of merit increase as well as the criteria for the validity of the coaching implementation program.

c) Performance may include performance of the Board of Directors, and employees.

d) Remuneration/compensation includes remuneration/compensation of Board of Commissioners, Board of Directors and employees.


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e) Planning of performance appraisal for the Board of Directors includes the process of the goal determination and targets that have been agreed by the Shareholders.

f) Planning for employee performance appraisal includes the determination of the working objective, control of working target achievement or coaching and reviewing work objectives.

g) Corporate Secretary is appointed/assigned to formulate and propose the remuneration and allowance system for the Board of Directors.

2) Performance Appraisal System and Remuneration of the Board of Directors

a) Shareholders assess the overall performance of the Board of Directors and each member of the Board of Directors through the mechanism of the GMS.

b) Individual appraisal for each member of the Board of Directors is made by the President Director and reported to the Shareholders.

c) Performance appraisal results of the Board of Director become the basis for calculating the remuneration of Directors.

3) Performance Appraisal System and Employee Remuneration

a) The Company must formulate an objective and recorded performance appraisal system that can be used as a basis for granting awards, coaching and calculation of remuneration for employees.

b) The main factor which is considered in the appraisal of employee performance is a working performance result based on the competence of employee.

c) Competencies which are used to performance appraisal, the gist is as follows:

For Staff Employee:

Communication

Relationships with others

Responsibility and maturity

Making decisions

Leadership

Planning and setting

Coaching/motivate

Comply to the provisions

For Non Staff Employee:

Knowledge of the job

Cooperation

Safety/hygiene

Attendance

Communication

Responsibility and stability

Creativity

Comply to the provisions

d) Performance target is made for one period of calendar in current year in line with the work plan and budget of the Company, is described by the Board of Directors becoming the performance target of business units and eventually becoming individual performance goals. The performance targets can only be re-evaluated if any matters happen beyond the control of unit/officials concerned.

e) To evaluate the Company's performance using the "Key Performance Indicator (KPI)".

f) To evaluate the individual performance using the Company's Report of Individual Performance Evaluation (EKI) which is a process to create shared


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understanding between employees and their superiors about what is to be achieved and how to achieve it.

g) KPI and EKI should be correlated and evaluated regularly. h) Performance appraisal should be followed by the implementation of reward

and punishment which are firm and consistent. i) The Company provides remuneration to the employee pursuant to the

performance achieved by the employee in the form of wages, allowance, and other benefits required by the Company's regulation and the prevailing regulations and laws.

j) The Company should develop and evaluate performance appraisal system and remuneration system in order to up to date.

N. INTERNAL CONTROL SYSTEMS AND AUDIT

1) Internal Control Board of Directors should establish an effective system of internal control to safeguard investments and assets of the Company. The Board of Commissioners gives attention to the internal control structure implemented by the management and monitoring the compliance of management in following the prevailing laws and regulations. Effective Internal Control System aims: a) Guarantee the accuracy of data and financial information b) Secure the data, information, and assets of the Company c) Improve the effectiveness and efficiency of the activity process of the

Company d) Keeping the compliance to the prevailing regulations and laws and obidience

of the Company’s the management policy e) Prevent irregularities including fraud.

2) Audit System

Audit System includes an audit on the fairness of the presentation for financial statements (general audit), the compliance audit on the prevailing regulations, operational audits, and special audits.

3) The Basic of The Audit Implementation

a) The Implementation of Audit is pursuant to the policy, objective and work program which approved by President Director.

b) The audit implementation by the Internal Audit department is pursuant to the policies, objectives and work program set out in the Master Plan of Examination (Audit Universe) and Annual Work Programme of Examination (Annual Audit Plan) which are approved by the President Director.

c) Audit implementation of the Financial Statements is conducted by the External Auditor.


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4) Audit Method and Ethics a) Internal Auditor should comply to the code of conduct, norms of audit, Internal

Audit Charter, other regulations related to the Internal Audit and always upholds the principles of objectivity, confidentiality, accuracy, and carefulness.

b) The methodology which is developed and implemented must include risk based audit on the Company's business processes as well as compliance to the prevailing regulations, laws and standards.

c) Internal Audit with the related functions conduct risk-based assessment of internal control to be used as a basis in determining business process improvement plan, methodology, and audit procedures.

d) The audit committee conduct review of plan, methodology and results of audits conducted by the Internal Auditor and External Auditor to ensure the efficiency and effectiveness of the audit implementation.

5) Development of Internal Auditor

a) President Director formulates clearly qualification of Internal Audit Department Manager.

b) President Director requires that all internal auditors to attend certified professional trainings in order to meet the required professional standards of the Company.

c) Manager of Internal Audit Department, Chief Auditor and Auditor must be trained adequately in the professional and managerial field including conferences in order to be able to manage the unit which he/she led well.

6) External Auditor External auditors are parties outside the Company who examine the operational/financial statements, such as: Public Accountant, Producer Auditor & BPKP/BPK. a) Public Accounting Firm

The Selection of Public Accounting Firm is conducted by Shareholders in accordance to the applicable Company’s policies. Public Accounting Firm which has been selected by Shareholders should be tied by a contract/agreement that contains the rights and obligations of each party.

b) Producer Audit Audit conducted by the Auditor from Producer based on Principle of

Agreement, aims to review the operating expense which has been spent in the period of the fiscal year. Producer audit consists of Pertamina, Virginia Indonesia Company (VICO), Total E & P Indonesia and Chevron.

c) Duties and responsibilities of the External Auditor Conducting audit of the financial statements of the Company and all accounting records and other supporting data to ensure compliance, fairness, and conformity with Indonesian accounting standards and provide an opinion on the financial statements. Delivering on a regular basis and/or at any time of the progress report/progress of the audit including information regarding significant deviations to the Internal Audit/Board of Directors/Audit


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Committee. Publishing audit report in a timely manner in accordance to the contract/agreement.

7) Audit Implementation

a) The implementation of organs duty related to:

The audit is carried out by the Internal Auditor and the External Auditor.

Basically an external auditor audits the financial statements of the Company, but if it is considered necessary to carry out a special audit in accordance to the assignment given by the Shareholders/Producer/Board of Commissioners/Board of Directors.

Internal Auditor ensures that the existing internal control has been conducted well, carrying out special audits, management services and provide other professional services to the Company.

Board of Directors conducts a reliable internal controls and making accurate financial statements and ensure that the Internal Auditor and the External Auditor can access all the data and Company information relevant to their task.

The Audit Committee encourages audit findings can be resolved.

b) Relationship patterns

The Relationship Patterns of Audit Committee with Internal Audit Department a. Relationship pattern of Audit Committee with Internal Audit is outlined

in the Audit Committee Charter and Internal Audit Charter. b. Audit Committee and Internal Audit periodically conduct a

coordination meeting to discuss, such as: the effectiveness of internal control, financial statements, accounting policy, audit reports, audit work program, and constraint of the audit implementation.

c. Submitting the report of activities/result of the examination by the Internal Audit to the Audit Committee is set out in the Internal Audit Charter and Audit Committee Charter.

d. The Audit Committee reviews the effectiveness of internal audit assignments.

Relationship of Audit Committee with External Auditor The External Auditor conducts communication with the Audit Committee, such as regarding the scope of the audit, audit progress periodically, constraint of the implementation of the audit, significant audit adjustments, and differences of opinion with management.

Relationship of Internal Audit Department with External Auditor a. Internal Audit Department conducts coordination and facilitate the

implementation of External Audit assignments for a smooth implementation.

b. Internal Audit Department along with Audit Committee conduct a discussion of the objectives and scope of the audit that will be conducted by External Audit to ensure all significant risks have been considered.


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c. Internal Audit Department along with the Audit Committee conduct monitoring of the implementation of External Audit assignments.

8) Monitoring Audit Result

a) Audited business unit (Auditee) is responsible for following up the recommendations of the results of the audit which has been agreed between the auditor and the auditee.

b) Internal Audit/Audit Committee conduct intensive monitoring of the implementation of the follow-up of the findings of the Internal Audit and External Auditor and reported to the President Director regularly.

c) The follow-up implementation is to be one of the factors that may affect the appraisal of the performance of the business unit concerned.

d) Board of Directors is committed to supporting the completion of the follow-up of audit recommendations.

e) Board of Directors takes action and the steps required in case of any business unit that has not followed up the audit recommendations.

f) Board of assessment Directors imposes sanctions consistently to the business unit leader/employee who are negligent in following up audit recommendations.

O. RESEARCH AND DEVELOPMENT

1) General Policy a) Research and Development is intended to maintain, support, and grow the

business in order to provide added value for the Company. b) Research and Development is conducted creatively with regard to productivity

and efficiency, in order to produce a better-quality product. 2) Planning

Planning of research and development must be aligned with the Company's strategic plan and policies as well as set forth in the Work Plan and Budget.

3) Organizing

Board of Directors stipulate a part/function that is responsible for conducting research and development.

4) Implementation

a) Research activity is carried out in a systematic, planned, continuous, and follow scientific concepts with appropriate methodology and accountable as well as the results can be registered as an Intellectual Property Rights (IPR) of the Company.

b) Development activities are focused on the prospective business activities, innovative, feasible and provide added value and competitiveness of the Company by taking into account the principle of cost-conscious and priority.


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c) Company can conduct synergy and developing partnerships in the field of research and development with other companies or other parties with healthy manner to accelerate the process of value creation.

d) Mechanism of selection and stipulation of the other party to be a partner pursuant to the applicable provisions.

e) Company conduct research for business development, improving the quality of products/services that already exist, technology improvement, etc.

f) Result of the Research is documented.

5) Monitoring, Evaluation and Reporting a) Research and development functions periodically make an accountability

report to the Board of Directors. b) Reports of the research and development results can only be accessed on a

limited basis by authorized parties. c) In conducting the business development, the Company pays attention to

changes in business environment and the prevailing regulations and laws. P. REPORTING

1) General Reporting a) Reporting system must be supported by reliable information system so it can

produce a quality report that is easy to understand, relevant, accurate, timely, auditable and accountable .

b) The report must be published on time, and present relevant information, accurate and reliable as a basis for decision-making and feedback.

c) The format of report must follow the standards as determined by taking into account the level and structure of the organization.

2) Annual Report

a) At the latest six (6) months after the closing period of the fiscal year, the Board of Directors submit an annual report to the Shareholders.

b) Shareholders evaluates annual report prepared by the Board of Directors at GMS.

c) The annual report signed by members of the Board of Directors and the Board of Commissioners.

d) GMS provides decision and approval of the annual report. e) The annual report shall contain at least:

Financial Highlights summary

Report of the Board of Commissioners and the Board of Directors

Company profile on detail (complete)

Management's Discussion and Analysis of the Company Performance

Disclosure of Good Corporate Governance (GCG) implementation.

Financial Statements


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3) Other Reporting a) Periodic management report on the achievement of performance targets and

internal audit assignment, and submit it to the Shareholders. b) Report to third parties either government agencies and other institutions can

only be granted by the Board of Directors and leaders who owns an authority in the area (for the level of unit) for all routine operational matters.

c) Reporting is essentially carried out in stages. Q. TRANSPARENCY AND DISCLOSURE

1) General Policy a) Shareholders are entitled to get any information related to the activities of the

Company from Board of Directors/Board of Commissioners. b) The Board of Commissioners have the right to get an access of information

about the Company’s activities timely, completely and in accordance to the applicable procedures

c) The Board of Commissioners/Directors ensure that both the External Auditor, Internal Audit Department and Audit Committee have access to information concerning the Company as required to conduct their duties.

d) The Company provides information to the related Government agencies in accordance to the prevailing regulations and laws.

e) The Company provides information that is relevant and material to the related stakeholders through the media: websites, bulletin, and other media.

2) Media and Communication Patterns

a) Communication media is a means of communication, both one-way and two-ways which are very necessary to inform all matters related to the Company's activities.

b) Communication which is conducted between superiors and subordinates in the Company is a two-ways communication from top to bottom and vice versa.

c) Communication can be conducted formally as in meeting, or in non-formal such as mailing lists, coffee morning, gathering and others to discuss various problems faced by the Company.

d) Corporate Secretary establishes effective communication between the Company and the Shareholders and other stakeholders.

3) Confidentiality of Information

a) Policies on confidentiality of Company information is compiled to ensure the security of information which classified confidential.

b) Board of Directors, External Auditor, Audit Committee and the existing Committee as well as all employees shall maintain the confidentiality of information in accordance to the regulations of the Company, the provision of the applicable laws and regulations and the Code of Conduct. A violation of this may be penalized in accordance to the applicable provisions.


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c) Submission of confidential information can be only provided through a special authority by the Board of Directors.

d) The spokesman on behalf of the Company is the Board of Directors and the Corporate Secretary or a person who is given the delegation of a special task from the related officials.

R. CORPORATE SOCIAL RESPONSIBILITY

1) General Policy a) Company realizes the social care and contribute to the development and

empowerment of people, especially around the center of operations activities and supporting.

b) Corporate social responsibility (CSR) is part of the Company's vision to provide added value to stakeholders in order to create a good synergy, forward, and grow together.

c) Company has an obligation and legal, social, morale and ethical responsibility to respect the interests of local communities given the success of the Company can’t be separated from the harmonious, dynamic, and mutually beneficial relationship with the surrounding community.

d) Community Development is focused on the field of Education, Infrastructure Development, People Empowerment, Youth, Sports, Arts and Culture, Health, Religious and Government/Community Relations.

2) The Purpose of the Corporate Social Care

a) Maintain and improve the harmonious relationship between the Company and local society in order to create conducive conditions to support business development and growth of the Company.

b) Give contribution that touches the life of society in order to aid to overcome or reduce social problems occured in the environment surrounding the Company.

c) Foster the positive image for the Company in the local community and other stakeholder point of view.

d) Contribute to create a good social conditions so it can foster a participative and independent society attitude.

e) Realize the application of the responsibility principle.

3) Corporate Social Responsibility (CSR) Programs a) Planning of CSR program must be made in accordance to the real needs of the

surrounding community with considering the ability of Company. b) CSR program is conducted with the community, and coordinated with the Local

Government (LG), local NGO, mass organizations and universities as well as other related institutions, taking into account the socio-cultural of local society geographical condition and the interests of Company’s operation.

c) The Company participates in maintaining the social conditions which are quiet, safe, stable, and conducive in the location of the Company.


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d) The Company maintains and develops good relationships by conducting continual coaching and socialization.

e) The Company runs the Partnership and Community Development Programs as regulated by the Government.

f) The Company has measures to assess the effectiveness of CSR programs implementation.

g) The Company conducts continual evaluation of programs that have been conducted to improve both higher quality relationships with the surrounding community.

S. SAFETY, HEALTH, ENVIRONMENTAL & QUALITY

1) General Policy a) Company applies in every aspect of SHEQ in its activities consistently to

prevent or reduce the incidents (accidents, explosions, fires, occupational diseases, and environmental pollution).

b) Company implements the policy in the field of SHEQ, including the implementation of Safety, Health, Environmental & Quality Management System (BSMART).

c) The Company has committed to reduce the potential negative impact as small as possible from neglecting the SHEQ aspects by implementing SHEQ culture consistently and continually.

d) SHEQ culture is socialized and implemented by all employees and working partners.

e) Every decision making should always consider aspect of SHEQ. f) The Company allocates adequate resources and fund to support the

implementation of the SHEQ program. g) The Company conducts development of employees and working partners in

areas of SHEQ handling.

2) Occupational Safety To create occupational safety, the Company: a) Obey all laws and regulations and/or safety standards. b) Provide and ensure the use of all safety equipment in accordance to safety

standards within the Company. c) Make adjustments and continuous improvement of the safety technology

development. d) Prioritize preventive and promotional actions to anticipate emergency

situations (emergency response plan). e) Conduct prevention on the accident, explosion, and fires in accordance to the

applicable standards and procedures. f) Conduct inquiry and investigation to the incidents including near misses and

accidents in order to find the facts and identify the cause of the accident to prevent similar accidents.


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g) Make a report on every incidents and accidents to the head of each unit and the related authorities as the stipulation of time limit.

h) Conduct examination, inspection, and evaluation regularly of all facilities including the resources, equipment and detection systems to achieve optimum readiness.

i) Conduct emergency response training periodically. j) Conduct review and evaluation of SHEQ Management System implementation

and improve the required competencies for employees including working partners.

3) Occupational Health

To realize high health working environment, the Company increases aspects which interact/synergy, for instance aspects of employee’s health and environmental working conditions.

4) Environmental Protection

Company pays attention to the environmental sustainability in every the business location and surrounding environment of the Company by: a) Keeping the environment preservation b) Obeying the laws and regulations as well as standards of environmental

management c) Providing and assuring all equipment of environmental management d) Making adjustments and continuous environmental improvement e) Conducting promotional and preventive actions to anticipate emergency

condition f) Conducting inquiry and investigation of the environmental contamination

/pollution g) Creating reports of any environmental contamination/pollution h) Conducting examination, inspection and evaluation periodically to all existing

facilities in the Company i) Conducting the training of environmental pollution prevention

5) Measurement

a) The Company has a standard of success in the SHEQ implementation pursuant to the applicable standard.

b) The Company defines that the successful of SHEQ implementation as an indicator of performance appraisal in each Unit/Function.


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T. ASSET MANAGEMENT

1) General Policy Asset management is conducted pursuant to the principle of highest and best uses (optimization) on any assets of the Company.

2) Asset management objectives

a) Asset management must be addressed for the benefit of the Company and its stakeholders optimally, i.e. to:

Maintain, preserve and enhance the value.

Gain some advantages.

Increase the return on assets (ROA). b) Purpose of data management or asset information system is to:

Provide accurate and orderly information about the condition of assets, either physical aspects, values, legal, tax, insurance or other asset attributes as a basis for the preparation of an optimal asset utilization strategy.

Make it easy for the decision-making process, especially in the utilization and optimization of assets.

Plan the pattern of asset optimization both to support business activities and operational utilization.

3) Person in charge

a) Board of Directors sets general policies and regulations concerning the asset management pursuant to the Company's standard.

b) Board of Directors appoint an officer in charge of the management of each asset.

4) Utilization

a) Board of Directors shall stipulate policies regulating the mechanism of the asset utilization.

b) Assets in the terms of infrastucture and facilities the Company may be utilized/managed by other party with consideration of supporting the Company's operation.

5) Maintenance and Safeguarding

a) The Company plans asset maintenance as scheduled. b) The implementation of the maintenance plan is prepared professionally, well

documented and consistently implemented. c) The Company has a business plan and asset maintenance mechanism to

maintain the security, reliability and asset administration order d) Security includes all the assets of the Company, either physical and non-

physical security of the strategic and high economic value assets. e) The Company conducts protective action against the existing assets f) The asset protection through insurance is only for high-risk assets in

accordance to the priorities.


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g) The Company establishes a mechanism to regulate the authority and level of ease of access physically to the assets of the Company.

6) Problem Solving

a) Against the Company's assets which is in dispute with the other party to be solved by transparent, fairness and always prioritizing the interest of the Company.

b) If considered necessary, the Company may use legal assistance/professionals attorneys to meet legal procedures in solving the dispute of assets.

7) Release and Disposal a) Assets management functions or appointed officials periodically conduct an

analysis on the economic benefits of the assets based on the physical conditions, technological developments, and development of the Company's business.

b) Assets that do not add value (non-productive) may be proposed to be abolished in accordance to the prevailing provisions.

8) Administration and Control a) Each Company's assets must be supported by valid documents/legal. b) In terms of assets which do not have supporting documents, they must be

traced of its origin, so that official reports involving related functions (legal) can be made to process the legal documents required.

c) Function of law (legal officer) is responsible for ensuring the level of validity of the Company's assets document. Finance function is responsible for managing the document filling.

d) Assets administration system that includes procurement, revision, depreciation, recognition, recording, coding, removal, and reporting of assets conducted by information technology-based.

9) Reporting

a) Reporting includes the aspects of existence, location, condition of assets, and accountability.

b) The officer in charge of supervising the assets should report the Company's assets periodically to the person in charge of asset.

U. MANAGEMENT OF COMPANY’S DOCUMENTS/ARCHIVE

1) General Policy Management of Company’s document/archive is based on the principles of the most effective storage and maintenance of documents on the basis of function values and retention period of a document.


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2) The Objective of Document /Archive Management of The Company a) Presenting correct, rapid, precise and accurate information/data through

orderly administration and well-planned as well as accountable. b) Provide convenience in the decision making process for the management of

the Company. c) Documents/archives of the Company are well-organized, neat and in orderly

manner.

3) Person in Charge Board of Directors appoint an official who is responsible for the management of Company’s documents/archive.

4) Maintenance and Safeguarding of the Company’s Document/Archive a) Implementation of maintenance of documents/archives with active and

dynamic value-is conducted well by the function of document creator. b) Each function/business unit within the Company has a plan and mechanism of

maintenance of documents/archives to maintain the security and administration order in the Company.

c) Security of documents/archives include all documents/archives of the Company with the priority of physical security for documents/archives that are more strategic i.e. the vital important and confidential archives.

d) The Company conducts protection action against the whole document /archive owned by Company’s by considering cost and benefit and value of risk aspects.

5) Depreciation and Disposal of Company Document/Archive

a) Documents/archives are stored according to benefit value and retention period in accordance to the applicable provisions.

b) The Company makes policy regarding documents/archives of the Company that can be depreciated and destroyed.

c) The Company‘s documents/archives can be depreciated and destroyed based on The Archives Retention Schedule (JRA).

d) Officials, employees and functions within the Company should conduct a periodic re-assessment to the documents/archives exist in their work place.

6) Distribution of documents/archive in-active

a) Function of manager/unit of document creator or official/designated employee regularly conducts benefit value analysis and retention period of the documents in each business unit.

b) Board of Directors assign a building to store documents/archives of the Company that are still active.


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V. CODE OF CONDUCT

GCG implementation is necessary to be established by high integrity. Therefore it needs the Code of Conduct as the reference for every employee of the Company. Code of Conduct is the compilation of commitment which consist of Company business ethics and behavior of every employee which is set to influence, build, regulate and making adjustments of behavior in order to reach consistent speech, attitude and action in accordance to Corporate Values in achieving the vision and mission. The ethical guidance is described in detail in the Code of Ethics of PT Badak NGL separately.


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CHAPTER V RELATIONSHIP MANAGEMENT WITH STAKEHOLDERS

A. GENERAL POLICY

1) Stakeholder management is directed to the Company's business interests with respect to corporate social responsibility, health and safety, and the environment as well as the scale of priority and mutual respect in order to reach a balance and harmony between: a) Dimension of business which is oriented to value creation and customer

satisfaction, b) Social dimension which is related to the business ethics and corporate social

responsibility, health and safety condition, as well as employee’s welfare and society social aspects.

c) Dimension of environment that directs the Company to pay attention to the aspects of preservation and the balance of environment around operations unit/business activities.

2) Stakeholder management pursuant to the principles of Good Corporate Governance, namely transparency, accountability, responsibility, independence, and fairness.

B. RIGHTS AND PARTICIPATION OF STAKEHOLDERS

1) Stakeholder rights can emerge legally due to the implementation of regulations and laws, agreements/contracts, or because of the ethical value/morale and social responsibility of the Company that are not contradict with the Company policy and the prevailing laws and regulation.

2) Stakeholder rights are respected, protected and fulfilled by the Company, by giving the related and important information transparently, accurately and timely and through the healthy and ethical mechanism of communication.

3) The Company creates the conditions that enable the stakeholders to participate in obeying the prevailing laws and regulations.

4) The Company has an adequate mechanism to accommodate and follow up the suggestions/complaints from Stakeholders.

C. LIAISON OF THE COMPANY WITH STAKEHOLDERS

Liaison between the Company and stakeholders is the Corporate Secretary or any other officer who is appointed pursuant to the prevailing provisions.

D. SHAREHOLDERS Shareholders as the owner of capital have the right and responsibility for the continuation of the Company which is carried out in accordance to the provisions of


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the Articles of Association and the applicable laws and regulations. Therefore, the Company must guarantee the fulfillment of the rights and responsibilities of Shareholders on the basis of the principle of fairness and equality as well as having a reasonable treatment, and can use their rights in accordance to the provisions of the Articles of Association and the applicable laws and regulations. Shareholders are not allowed to interfere in the operational activities of the Company which is the responsibility of the Board of Directors in accordance to the Articles of Association and the applicable laws and regulations.

E. EMPLOYEE The Company considers that the employee is a strategic asset of the Company. Therefore, the Company continues to create safe and comfortable atmosphere and working environment for employee. The Company will protect employees from any possibility of endangering their health and safety. The Company is committed to provide a work environment which is free from any kind of harassment and guarantee the absence of threats or acts of violence in the workplace. The Company guarantees the right of employee to establish Labour Union in accordance to the stipulation laws and regulations. The Company considers that the Labour Union is a partner of Management as well as the communication link between Employee with Management in contend, defend and protect the rights and interests of Employee. Collective Labour Agreement (CLA) prepared through a process of negotiation between Labor Union and Management which regulate the rights and obligations of Employee in order to guarantee a lasting harmonious industrial relations between Management and Employee. In managing human resources, the Company adhered to values of transparency, fair, and free from discrimination due to race, ethnic, tribe, religion, gender, age, disability that belongs to someone or any other circumstances protected by laws and regulations. The Company set the remuneration, providing training, determining career path and salary, engaging the employees to participate in training and stipulating other work requirements objectively, without any discrimination. Employee performance appraisal system is established and implemented fairly and transparently. The Company ensures the availability of information which is necessary to be known by Employee in accordance to the stipulation through well implemented and timely communication system.

F. CUSTOMERS The Company will always prioritize customer satisfaction and trust. It is conducted by providing services with quality excellence, high quality and innovative solutions to customers based on their needs. The Company is responsible for the quality of the generated products and services to customers.


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The Company continues to maintain effective and continuous communication by healthy manner, fair, and honest to the customers. It is conducted to know the desire and expectations of Customers that will be used as one of the reference in formulating strategies and policies of the Company related to the management of the Customers. Every complaint comes from the Customers will be followed up professionally through a standard and transparent mechanism. Each working agreement with the Customer will be poured into a working contract which is agreed mutually including of rights and obligations of the parties clearly. Every working contract is made by taking into account the principle of balance of rights and obligations between the parties so it is not detrimental to one party and benefited others.

G. PRODUCERS

The Company will always put upfront the interests of business and increase added value in establishing relations with Producers. The Company recognizes that the presence of producers is an important capital in order to strengthen and enhance the Company’s value. Therefore, the Company continues to provide actual, accurate and prospective information, as well as providing easy access for producers to obtain information regarding the Company in accordance to applicable regulations and through an agreed mechanism. Its implementation is reflected by respecting every agreement that has been agreed upon between the Company and Producers professionally and mutually benefits. The Company continues to maintain its commitment on the agreements that have been made.

H. GOVERNMENT The Company makes a sound, harmonious and constructive relationships on the basis of honesty and mutual respect with Government Officials either central or local government. Every relationship with government officials is made objectively and fairly in accordance to the legal corridor and does not contradict with the pertinent laws and regulations. The Company avoids practices of corruption, collusion and nepotism (KKN) as well as Gratification in the relationship with the Government. The Company always complies to the applicable laws and regulations and the rules stipulated by Government either central or local.


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I. GOODS AND SERVICES SUPPLIER

The Company continues to maintain a professional working relationship and mutual benefits with supplier of goods and services. The Company will provide equal opportunities to all prospective supplier of goods and services in obtaining relevant information fairly related to procurement activities of goods and services conducted by the Company. All the provisions and information regarding the procurement of goods and services will be delivered to prospective supplier of goods and services in a transparent manner through the Company’s media. The Company encourages the procurement of goods and services through sound competition. The Company will provide equal treatment to all prospective supplier of goods and services that have met the requirements and criteria determined by the Company. The procurement process is conducted fairly and non-discriminatory by giving equal treatment to all prospective suppliers of goods and services proportionally and do not lead to benefit a particular party in any manner.

J. WORKING PARTNERS

The Company considers that the Partners have a strategic role in supporting the Company's operations. Accordingly, the Company make a relationship to prospective Partners and Partners in professional, equal, mutual trust respect and mutual benefit way in accordance to the applicable business rules. Relationship with Partners is conducted by giving priority to the achievement of optimal results with the best standards, free from collusion, making a balanced agreement and mutual benefit, as well as fulfill the rights and obligations of each other pursuant to the agreement. The Company always keeps good relations and avoiding cooperation with unethical Partners. Therefore, the Company continues to build an intensive communication with Partners to find the best solution in order to improve performance.

K. SOCIETY AND THE ENVIRONMENT

The Company is committed to play a role in the development of local communities and environmental preservation through the CSR program (Corporate Social Responsibility) in accordance to the established policy. The Company considers that the public and the environment is an integral part of the long-term success of the Company. Wherever the Company operates, the Company will continue to establish good relations and respect the cultural values of the local community and participate in local community development efforts. The Company will continue to engage local communities to grow and develop together with the Company. Conflicts which may arise between the Company and the surrounding community will be settled amicably based on good faith in an effort to find a solution that benefits both parties.


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CHAPTER VI CODE OF CORPORATE GOVERNANCE IMPLEMENTATION

A. TOP DOWN COMMITMENT

Top Down Commitment from the Board of Directors / Management can be seen in the day-to-day implementation of good corporate governance, as in every decision-making process and in every interaction with all Stakeholders. To obtain a strong commitment, the Company has set the vision, mission, goals, strategies and values explicitly as a guideline for all employees and the management in conducting the business of the Company.

B. CONSISTENT IMPLEMENTATION

To support the implementation of GCG consistently, the Company established systems, namely: Reward and Punishment System, Assessment including benchmarking about the best practices in several Companies that have implemented GCG well.

C. ROLE MODEL

The Company is committed to create a Role Model to all employees. A Leader will be a Role Model for the subordinates in each work area and every employee would be a Role Model for each family. Thus, each employee will automatically be Role Models which are expected to always carry out the mandate as GCG officer/function with full responsibility and act as a role model for the surrounding environment that will create a conducive working atmosphere in the Company’s GCG implementation.

D. DISSEMINATION AND EVALUATION THE IMPLEMENTATION OF GCG

The Company conducts dissemination, implementation, evaluation, and reporting regarding the implementation of GCG in the Company. Dissemination is an effort to introduce and spread out information regarding Code of Corporate Governance (COCG) to all Employee and external parties which aims to make every person is aware and understand and should implement it. The Company is committed to conduct effective and thorough dissemination pursuant to the provisions as the following matters: a. To disseminate COCG to all employee of the Company, Customers, Suppliers,

Vendors and Business Partners as well as implement refresher programs (repetition in various ways to remind) periodically.

b. To evaluate the achievement or understanding of the Company Employee either during orientation/on the job training or during working period.


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c. Periodically review COCG in order to improve it and if necessary it may be further elaborated in various policies and regulations of the Company.

E. GCG OFFICER

The Company appoints GCG Officers/designated function who are responsible for setting up infrastructure for the smooth GCG implementation, including GCG dissemination, coordinating for GCG implementation and conduct evaluation for improvement. At this early stage, the Company formed a GCG implementation team for one year and can be extended if necessary. At the end of its term, this team makes an evaluation report on the implementation of GCG including determine which position is the most appropriate as the GCG Coordinator pursuant to the condition and the Company’s need.

F. ASSESSMENT OF GCG IMPLEMENTATION

To facilitate monitoring, the Company must periodically conduct a review of the implementation of good corporate governance to provide assurance that the management and supervision of the Company has been conducted in accordance to the principles of transparency, accountability, responsibility, independence and fairness as well as the sound business practices to meet the obligation that have been mandated to the Board of Directors and the Board of Commissioners. Assessment is conducted by self/internal assessment and by independent parties that the result is submitted to the interested parties, such as Shareholders and the Board of Commissioners. The critical aspects that are assessed including: 1) The existing GCG implementation practice. 2) The conditions can not be met or not complied within the GCG implementation. 3) The steps of required improvement.

G. REPORTING

Each Personnel of the Company may submit an input and report regarding alleged violations of the Code of Corporate Governance to:

Mail to : Ethics Committee of PT Badak NGL Main Office 2nd Floor (Internal Audit Department) PT Badak NGL Bontang

Email to : [email protected]


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CHAPTER VII CLOSING

GCG is a system to guarantee that the Company is managed properly to determine and achieve the objectives of the Company, so it should be implemented consistently and continuously. The evaluation of the COCG is conducted by the Company to know and measure how appropriate the COCG to the needs of the Company and the effectiveness of the implementation program of COCG. Based on the results of the evaluation conducted, the development of COCG and improvement of implementation program will be carried out continually. COCG is expected to lead the Company to run its business activities in accordance to an ethical standards and the principles of GCG. COCG is a living document, so it can be adjusted with the applicable laws and regulations, the social life, customs, norms, as well as the changes and development of the Company's business. Input from various parties on the development of this COCG is needed by the Company to synergy and in line with the existing values of the Company. The commitment and support of all the Company's personnel and other stakeholders is the key to successful implementation of this COCG. Therefore various inputs, criticism and constructive suggestions for improvement can also be submitted through the media mentioned above in Chapter VI regarding the Implementation of the Code of Corporate Governance. By implementing GCG consistently, it is expected for the Company to improve efficiency and effectiveness in day to day activities, and always having an ability to achieve and maintain a leading position in the tight competition climate in the future.

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