ANNUAL REPORT When is a Pipeline Not Just a Pipeline?

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When is a Pipeline Not Just a Pipeline?

PT Perusahaan Gas Negara (Persero) Tbk

ANNUAL REPORT

Our infrastructure expertise, innovative leadership team, and deep industry experience all along the natural gas value chain make us the nation’s top choice for natural gas.

In short, no one knows how to source, distribute and deliver natural gas better than PGN.

1

PERFORMACE OVERVIEW 20

20

20 22

22

2 3

CONTENTS

OVERVIEW 4-15 NOT JUST A PIPELINE

22 22

Financial Highlights

20 Consolidated Statements of Comprehensive Income

33

40

21 Consolidated Statements of Financial Position 21 Financial Ratios Financial Ratios



20 EBITDA Margin



21 Current Ratio



21 Price to Earning Per Share Ratio



21 Liability to Equity Ratio Per Share



2015-2016 Stock Price Movement



Operational Highlights

93

22 Number of Customer



22 Gas Distribution Value



22 Length of Pipeline



Stock Highlights



22 2016 PGAS Share Price Information

95

22 2015 PGAS Share Price Information

Bond Highlights



48 Business Activities



48 PGN Synergy, Integrated Solution

48

54

98

4

The Company’s Logo Line Of Businesses

48 The Generated Products Or Services

100 104

50 One Pgn Synergy



Organization Structure

90 PT PGAS Solution

90 PT Permata Graha Nusantara 91 PT Nusantara Regas

92 PT Kalimantan Jawa Gas Stock Listing Chronology

93 Management And Employee Stock Option Plan (MSOP/ESOP) 93 Stock Split

93 Shares Buyback

94 The History of The Number of PGN’s Shares

The Chronology Of Other Securities Listing And Securities Rating

Names And Addresses Of Capital Market Supporting Institutions Or Professionals 97 Public Accountant Firm

97 Indonesia Stock Exchange

97 Indonesian Central Securities Depository Awards And Certifications

Names And Office Addresses Of Sales Area, Subsidiary And Affiliated Companies Important Events

114 Transmission/Transportation Business Segment

115 Operating Performance Of Transmission / Transportation Business Segment

117 Transmission / Transportation Business Segment Revenue



117 Distribution / Trading Business Segment



119 Distribution/Trading Business Segment Operating Performance



52 Gas Sources And Natural Gas Infrastructures

89 PT Transportasi Gas Indonesia

MANAGEMENT ANALYSIS AND DISCUSSION 113 Business Segments Operating Overview



49 Business Units

88 PT PGAS Telekomunikasi Nusantara

97 Securities Administration Bureau



Statement Letter Members Of The Board Of Commissioners And The Board Of Directors Regarding Responsibility For The Content Of The Annual Report 2016

87 PT PGN LNG Indonesia



Report From The Board Of Directors

86 PT Gagas Energi Indonesia

95 Pgn’s Credit Rating



Report From The Board Of Commissioners

84 PGN Group Structure



96

PGN Bond Price and YTM (Yield to Maturity) Movement 2015-2016

The Company’s Milestones

85 PT Saka Energi Indonesia



20 Net Revenue

46



COMPANY PROFILE 43 Name And Address 44

Information Of Subsidiary And Affiliated Companies



REPORT TO THE SHAREHOLDERS 27

78



118 Gas Distribution / Commerce Customers

56

Vision And Mission





121 Customer Profile

62

The Implementation of The Company’s Cultures





122 Natural Gas Price Adjustment

58

64

Corporate Cultures



Profile Of The Members Of The Board Of Commissioners



66 Profile Of The Secretary Of The Board Of Commissioners





67

Profile Of The Members Of The Board Of Directors



69 Profile Of The Head Of Internal Audit Division



70 Profile And Numbers Of Pgn’s Employees

130



70

125 Revenue Of Oil And Gas Business Segment

Human Capital





126 Operating Performance Of Other Business Segment

71 The Number Of Employees Based On The Employment Status



71 The Number Of Employees Based On The Organization Level Group

71 The Number Of Employees Based On Educational Background







77 Shareholders Information





77 List Of Top 20 Shareholders





78 The 5% Or More Shares Ownership Aws Per 31 December 2016







124 Operating Performance Of Oil And Gas Business Segment





76 Expenses



The Shareholders Composition



78 Major Shareholder Information



78 Shares Ownership By The Members Of The Board Of Commissioners And The Board Of Directors As Per 31 December 2016







123 Revenue Of Distribution/Trading Business Segment

124 Oil And Gas Business Segment



71 The Competency Development

77





121 Number Of Customers

69 Profile Of The Corporate Secretary







125 Other Business Segments

Description Of The Financial Performance 130 Net Revenues

131 Cost Of Revenues 133 Gross Profit

133 Distribution And Transmission Expenses 133 General And Administrative Expenses 133 Other Income

133 Other Expenses

134 Impairment Of Oil And Gas Properties 134 Operating Profit 135 Finance Income 135 Finance Cost

135 Bargain Purchase

135 Loss On Foreign Exchange-Net

135 Loss On Change In Fair Value Of Derivativesnet 135 Share In Profit Of The Joint Ventures





136 Profit Before Income Tax Benefit (Expense) Income Tax



162 Investments To Subsidiaries



136 Other Comprehensive Income After Tax

165

Changes In Accounting Policies



147

163

136 Tax Expense-Net

136 Profit For The Year Attributable

To Owners Of The Parent Entity



To Noncontrolling Interests

137 Profit For The Year Attributable

137 Total Comprehensive Income For The Year

Attributable To Owners Of The Parent Entity

137 Total Comprehensive Income For The Year Attributable To Non-Controlling Interests

138 Asset

138 Current Assets

140 Short Term Investments 141 Trade Receivables

141 Other Receivables

141 Current Maturity Of Advances

143 Trade Receivables (Long Term) 143 Other Long Term Receivables

143 Investments In Shares Of Stock 143 Fixed Assets

143 Exploration And Evaluation Assets 143 Oil And Gas Properties

143 Estimated Claims For Tax Refund

143 Goodwill And Other Intangible Assets

144 Liabilities

144 The Composition Of Short Term Liability



145 Short-Term Bank Loan





145 Trade Payables

145 Accrued Expenses 145 Other Payables

145 The Composition Of Long-Term Liabilities

5

169



177 The Objective of Good Corporate Governance



186 Recommendation On Assessment Result &



191



201 Training Program In Order To Improve Board Of Commissioners Competency

201 Board Of Commissioner’s Tasks Implementation 202 Independent Commissioner



202 Independent Commissioner’s Determination Criteria



206 Board Of Commissioners Kpi Assessment



203 Independency Of Independent Commissioner

203 Board Of Commissioners Meeting And Board Of Commissioners And Director’s Joint Meetings 207 Board Of Commissioner’s Performance Assessment Result

209 Board Of Director’s Composition

146 Equity

147 Cash Flow

209

207 Board Of Commissioner’s Remunuration Stipulation Procedure Board Of Directors

209 Board Of Director’s Scope Of Work And Responsibilities



147 Cash Flows From Operating Activities





210 President Director



147 Cash Flows From Financing Activities





210 Director Of Commere



147 Cash Flows From Investing Activities



Debt Service Ratio



Capital Structure



149 The Basic of Management Policy of Capital Structure Realization Of Capital Investment



Target Achievement In 2016



Material Information After The Reporting Year



154 LNG Mini/Medium Scale

154 Compressed Natural Gas (CNG)

154 Powerplant & Petrochemical Plant (Value Creation) 155 Integrated Industrial Zone Marketing Aspect

161

Dividend Distribution Policy

156 Marketing Strategy

Employee Stock Ownership Program And/Or Management Stock Ownership Program (Esop/Msop)

162

Use Of Public Offering Proceeds



162 Grant Of Loans To Subsidiaries



200 Dual Position And Conflict Of Interest



155 Market Share

161

200 Board Of Commissioner’s Guideline And Code Of Conduct

208 Board Of Commissioner’s Remuneration Stucture



199 Board Of Commissioner’s Responsibility



146 Assets Abondenment And Restoration Obligations And Other Provisions

Business Development

155

199 Board Of Commissioner’s Composition

146 Bonds Payables

154



194 Gms Decision Result



146 Long Term Loans

151 Target Achievement In 2017





146 Deferred Tax Liabilities





191 Shareholders Rights





Material Commitments For Capital Investments



191 Shareholders Composition



149

152

General Meeting Of Shareholders (Gms)

Board Of Commissioners



150

Rationale For Non Implementation

188 Strengthening The Implementation of GCG In PGN

199



149 Sei’s Syndicated Loan

149



192 Information Access To Shareholders



178 Assessment Result On Good Corporate Governance





148

Business Sustainability Information

GOOD CORPORATE GOVERNANCE 176 The Implementation Of Good Corporate Governance

Receivables Collectibility

148

Changes In Legislative Regulations

162 Information On Material Transaction Involving Conflict Of Interest And Transaction With Affiliates







210 Direktur Of Infrastruture And Technology 211 Direktur Of Finance

211 Director Of Human Capital And General Services

211 Director Of Strategy And Business Development

212 Assessment On The Performance Of Committee Under The Board Of Directors 212 Board Of Director’s Guidelines And Conduct

212 Board Of Director’s Dual Position And Conflicts Of Interest 213 Training Program In Order To Improve The Competence Of Directors 214 Board Of Director’s Meeting And Decision

218 Board Of Director And Corporate Performance Assesment



219 Board Of Director’s Remuneration



223 Affiliate Relations Between Members Of The Board Of Directors, Board Of Commissioners, And Major Shareholders And / Or Controlling





222 Diversity On Board Of Commissioners And Board Of Directors Composition

224 Assessment On Board Of Commissioners And Board Of Directors

224 Board Of Commissioners And Board Of Director’s Performance Assessment Process

224 Board Of Commissioners And Board Of Director’s Performance Assessment Criteria And Indicator

224 Gcg Assessment Result For Board Of Commissioners And Board Of Directors

226

Committees



246 Corporate Risk Management





227 Composition Of Audit Committee



247 Risk Management Policy



229 Independence Of Audit Committee



230 Audit Committee’s Authority



230 Audit Committee Meeting Frequency

254





227 Audit Committee





228 Profiles Of The Committee Members



229 Tasks And Responsibilities Of The Audit



230 Implementation Of Audit Committee Activities







241

233 Nomination, Remuneration, And Gcg Committee Independency





262 Deployment Of Code Of Ethics

263

Whistleblowing System

231 Profiles Of Members Of Nomination, Remuneration, And Gcg Committee



233 Nomination, Remuneration, And Gcg Committee Tasks And Responsibilities





233 Nomination, Remuneration, And Gcg Committee Authorities

234 Nomination, Remuneration, And Gcg Duties

234 Nomination, Remuneration, And Gcg Meeting Frequency



235 Director Succession Policy

235 Risk Management And Business Development Committee















267

268









240 Functions And Responsibilities Of Corporate Secretary





240 Corporate Secretary 2016 Tasks Implementation



241 Corporate Secretary Profile



241 Corporate Secretary Training Program



Internal Audit Division



242 Profile Of Internal Audit Division Head

242 The Position Of Internal Audit Division Within The Company’s Structure







243 Authority Of Internal Audit Division



243 Responsibilities Of Internal Audit Division



243 Tasks Of Internal Audit Division

245

Internal Control System



245 Evaluation Towards Effectiveness Of Internal Control System



245



245 Compatibility Of Internal Control System With Coso

Risk Management

246 Vision, Mission 246 Role

Preparation Of Financial Statements External Auditor

7 8





269 Other Services





240 Appointment Legal Basis And Service Period

244 Implementation Of Audit Division Internal Activities During 2016

267 Reporting Through Whistleblowing System In 2016







267 Result Of Report Handling

276 Environment





Corporate Secretary

244 Internal Audit Division Human Resources Competency Development And Audit Professional Certification

266 Parties Managing Violation Report







266 Report Handling

CORPORATE SOCIAL RESPONSIBILITY 274 Contribution To The Society

239 Tasks Of Secretary Of The Board Of Commissioners

243 Personnel Number Of Internal Audit Division

265 Protection For Whistleblower



239 Appointment Legal Basis Of And Service Period



264 Reporting Violation Report

Access To Company’s Information And Data

6





263 Code Of Ethics Implementation And Enforcement Form

269







262 Code Of Ethics Application To Entire Organization Level





243 Internal Audit Division Charter



Company Code Of Ethics

268 External Auditor Appointment Process

Board Of Commissioners Secretary



Information On Administrative Sanctions



238 Tasks And Activities Implementation Of Risk Management And Business Development Monitoring Committee 239 Risk Management And Business Development Monitoring Committee Meeting Frequency

258



Major Legal Cases Faced By Pgn

258 Fundamentals Of Code Of Ethics





253 Implementation Of Risk Management Program



238 Authority Of Risk Management And Business Development Monitoring Committee



250 Company’s Risks And Its Management



238 Tasks And Responsibilities Of Risk Management And Business Development Monitoring Committee

240

249 Corporate Top Risk

231 Training Program For Members Of The Nomination, Remuneration And Gcg Committee

237 Independency Of Risk Management And Business Development Monitoring Committee



248 Risk Management Framework Scheme

257

236 Members Of Risk Management Monitoring And Business Development Committee Profiles



248 Risk Management Governance Structure



231 Nomination, Remuneration And Good Corporate Governance Commitee

235 Training Program For Risk Management Monitoring And Business Development Committee

239

246 The Development Of Risk Management



276 Policies



283 Environmental Certification And Awards



278 The Undertaken Activities Program 283 Activities Expenses

284 Labor Practices

284 Policies



291 Activities Expenses



284 The Undertaken Activities Program

292 Occupational Health And Safety

292 Policies



302 Certifications And Awards Of K3 In 2016



300 Employees Health Program 303 Activity Expenses

304 Social And Community Development

304 Policies



306 Partnership Program



306 The Undertaken Activities Program 306 Environmental Development Program 308 Activities Expenses

310 Product Liability And Consumer

310 Policies



316 Activities Expenses



310 Activities Program In 2016

CONSOLIDATED FINANCIAL STATEMENTS 321 Directors Statement Letter Relating to The Responsibility On The Consolidated Financial Statements 322

324

Independent Auditor’s Report To The Shareholder

Consolidated Financial Statements

REGULATORY CROSS REFERENCE 510 Cross Reference of OJK NO 29/POJK.04/2016 dan SEOJK NO 30/SEOJK.04/2016 522

Glossary

When is

When it’s

Energy

clean

not Just

burning

energy?

natural gas. Indonesia’s National Energy Policy is focused on making natural gas the nation’s primary energy source. And with good reason. Natural gas is more energy efficient than coal, oil or diesel. It’s also the cleanest burning fossil fuel— producing half the carbon emissions of coal or oil. Along with virtually no sulfur oxides, mercury or ash. Without question, Indonesia has the natural gas reserves to ensure our energy future.

As the nation’s experts in transporting and natural gas trading, PGN is playing a leadership role in making it happen.

When is a Promise more than just a promise? When it’s made to a PGN customer.

Of the five values that guide PGN’s corporate culture, perhaps “integrity” and “service excellence” are the ones most aligned

with customer satisfaction. For PGN, customers are respected business partners who also play an important role in developing Indonesia’s energy future. So, building good relationships with them is a top priority. Our focus is

on meeting customers’ needs and expectations—whether it’s keeping our contact center open 24/7, helping our customers be more energy efficient or handling a problem in less than 24 hours. At PGN, every employee acts with integrity. Here, a customer promise is a promise kept.

When is a city more than just a city? When it’s a rapidly expanding market.

Indonesia’s cities are growing. Rapidly. According to The World Bank, Indonesia is undergoing a historic transformation from a rural to an urban economy. The country’s cities are growing faster than in other Asian countries

at a rate of 4.1% per year. By 2025

for electricity and stimulating

(less than 10 years), Indonesia

growth for business and industry.

can expect to have 68% of its

It’s a tremendous opportunity for

population living in urban areas.

PGN. Already, we’re developing new

And much of that population

infrastructure in 11 growing cities,

will be young and middle

including Dumai, Gresik, Lamongan,

class—increasing the demand

Tuban and others.

PGN has a presence on virtually every link of the natural gas value chain. For us, it begins with supply. Our upstream subsidiary PT Saka Energi Indonesia continues to explore and discover new gas reserves that will help us meet future demand. Most our revenues, however, are derived from our midstream and downstream

transmission and distribution networks. In all, PGN distributed natural gas through its pipeline networks to more than 1.500 commercial customers and 2.081 power generation and heavy industry customers in the segments, a 1% and 9%

increase respectively over 2015. Additionally, in support of the government’s mandate to increase household consumption of natural gas, we distributed gas to 165.392% household customers, a 54% increase over 2015.

When is Downstream more than just downstream? When it’s connected to PGN’s Natural Gas value chain.

When is an Energy Company more than just an energy company?

When it’s a vital part of Indonesia’s future. PGN does more than just

supporting the Indonesian

government’s choice of

natural gas to fuel of the

nation’s growth—we help make

it happen. With our expanding

infrastructure, engineering

expertise, deep industry

experience and proven capabilities

in the upstream, midstream and

downstream sectors, PGN is best

qualified to energize Indonesia’s future.

The Story ofSection PGN Title > Current Topic Head> Specific Identifier 232 Potential For Second Line If Needed

THIRD LARGEST MIDDLE CLASS POPULATION IN ASIA Third largest Middle class population in Asia Pic 4. Middle-Class Population in Asia > 25 standard population million

> 25 standard % change

India

Cambodia

China People Republic of

India

Indonesia

Vietnam

Pakistan

Georgia

Bangladesh

xxxx

Philipine

China, People’s Republic of

Vietnam

Bangladesh

Thailand

Usbekhistan

Malaysia

Indonesia

Nepal

Tajikistan

Usbekhistan

Sri Lanka

Cambodia

Pakistan

Sri Lanka

Sri Lanka

Kazakhstan

Timor Leste

xxxxx

Mongolia

Aljazair

Nepal

Papua New Guinea

Philipines

Tajikistan

Papua New Guinea

Georgia

xxxxx

Mongolia

Thailand

Armenia

Malaysia

Timor Leste

Armenia

0

200

400

600

2010

800

1.000

2010 - 2020

1.200

0

10

20

2020 - 2010

30

40

2010 - 2020

50 2020 - 2010

Source: ADB 2010 Source: Alvara Research Center, Asian Development Bank

Exhibit 2. Indonesia’s Population is Growing and Becoming More Affluent INDONESIA’S POPULATION IS GROWING AND BECOMING MORE AFFLUENT Indonesia population, 2012 (millions)

Monthly household expenditure (IDR millions)

Indonesia population 2020 (millions)

Elite

7.5 and more

6.9

6.6

Affluent

5.0-less than 7.5

16.5

23.2

Upper middle

3.0-less than 5.0

49.3

41.6

Middle

2.0-less than 3.0

68.2

44.4

Emerging middle

1.5-less than 2.0

50.5

65.4

Aspirant

1.0-less than 1.5

47.9

64.5

Poor

less than 7.5

28.3

2.5

74 million MACs in 2012

142 million MACs in 2020

MAC population includes middle, upper middle, affluent and elite consumers Source: Alvara Research Center, Boston Consulting Group Analysis

The Well-Off Are Now aARE Big Part of Asia’s THE WELL-OFF NOW A Population BIG PART CHINA

INDONESIA

INDIA

OF ASIA’S POPULATION THAILAND

MALAYSIA

VIETNAM

Upper middle class, in millions (bars) and as a share of the total population (ovals) 53

102

44

73

22

32

17

21

8

11

5

10

2015

2020

2015

2020

2015

2020

2015

2020

2015

2020

2015

2020

11%

20%

17%

27%

8%

12%

25%

31%

27%

32%

6%

11%

165

201

52

68

38

48

25

28

15

16

15

23

2015

2020

2015

2020

2015

2020

2015

2020

2015

2020

2015

2020

35%

40%

20%

25%

14%

17%

36%

41%

48%

49%

16%

23%

Middle class, in millions (bars) and as a share of the total population (ovals)

Source: BCG’s Center for Customer Insight; The Economist Intelligence Unit; BCG analysis. Note: See the sidebar, “Where ‘Upper Middle Class’ Begins in Different Part of Asia.” for definitions of middle and upper middle class in the countries shown. Data for 2020 are estimates

60

Section Title > Current Topic Head> Specific Identifier Potential For Second Line If Needed

232

ALL OF INDONESIA’S MAC POPULATION IS GROWING, YET JAVA AND SUMATRA DOMINATE AND WILL CONTINUE TO DO SO Exhibit 3. All of Indonesia’s MAC Population is Growing, yet Java and Sumatra Dominate and Will Coninue to Do So MAC population, 2012 (millions)

MAC population growth 2012-2020 (millions)

Greater Jakarta

+69%

Rest of Java

+96%

Sumatra

MAC population 2020 (millions)

+100%

Kalimantan

+87%

Sulawesi

+109%

Rest of Indonesia

+99%

Total = 74 million

Total increase = 67 million

Total = 141 million

Source: BCG Population and Household Expenditure Database 2012; BCG Analysis. Source: Boston Consulting Group Analysis

FINAL ENERGY COMPSUMTION BY SECTOR Figure 2.3 Final energy consumption by sector Others Transportation

962

1000 866

900 782

800 700 556

564 561 596

514 510 511

545

Commercial Household

910

Industrial Total

815

558 589 Others 2%

Juta SBM/Million BOE

600

Industrial 48%

500 400

2014

300 200

Household 12%

100

Commercial 4%

Source: Badan Pengkajian dan Penerapan Teknologi (BPPT) Outlook Energy Indonesia 2016

2004

2003

2002

2001

2000

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Transportation 32%

PERFORMANCE OVERVIEW

01

01

PERFORMANCE OVERVIEW

High Technology Measurement PGN’s applied high technology to simplify and improve the accuracy of gas utilization measurement. Regularly PGN’s officers check the safety aspect of distribution pipeline.

20

Highlights of 2016 Performance

FINANCIAL HIGHLIGHTS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 2016

USD (Audited) Net Revenues

2015** USD (Audited)

2014* USD (Audited)

2,934,778,710

3,068,790,845

3,253,388,634

(2,047,838,771)

(2,105,680,228)

(1,967,906,099)

886,939,939

963,110,617

1,285,482,535

62,126,336

94,536,121

48,492,738

Distribution and transmission expenses

(220,401,617)

(201,231,465)

(224,976,796)

General and administration expenses

(208,194,851)

Cost of Revenues Gross Profit Other Income

(234,003,179)

(190,418,733)

Other expenses

(50,419,256)

(108,753,637)

(43,483,142)

Operating Profit

444,242,223

557,242,903

857,320,484

Other Income (Expenses)

(59,257,077)

(119,878,320)

70,845,685

Income before final tax benefits (expenses)

384,985,146

437,364,583

928,166,169

Tax Expense – Net

(76,401,230)

(34,605,679)

(217,142,701)

Profit for the year

308,583,916

402,758,904

711,023,468

Changes in fair value of available for sale financial

3,921,377

(2,297,573)

7,258,618

Remeasurement of post-employment

1,858,302

21,281,308

(4,219,314)

Other comprehensive incomes

Difference in foreign currency translation of Total Other Comprehensive Income Total comprehensive income for the year

885,148

(3,131,231)

(1,118,323)

6,664,827

15,852,504

1,920,981

315,248,743

418,611,408

712,944,449

304,324,421

401,199,880

711,179,798

4,259,495

1,559,024

(156,330)

308,583,916

402,758,904

711,023,468

310,669,477

416,193,057

712,932,890

4,579,266

2,418,351

11,559

315,248,743

418,611,408

712,944,449

807,374,809

951,221,280

1,114,474,001

Profit for the year attributable to: Owner of the parent entity Non-controlling interests Total Total comprehensive income for the year attributable to: Owner of the parent entity Non-controlling interests Total EBITDA *restated **reclassified

FINANCIAL RATIOS NET REVENUES (MILLION USD) 3,500

3,253

3,000

3,069

TOTAL ASSETS (MILLION USD)

EBITDA MARGIN (%)

2,935

2,500

7,000

40

34 30

31

28

6,834

5,000

2,000

4,000

20

1,500 1,000

3,000

10

500 0

6,000

6,495 5,690

2,000

2014*

2015**

0

2016

2014*

2015**

2016

2014*

2015**

2016

2015 – 2016 PGAS SHARES VALUE MOVEMENT Price Per Share (rupiah) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2 -Jan-15

2 -Apr-15

2 -Jul-15

2 -Oct-15

2 -Jan-16

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

21

Highlights of 2016 Performance

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2016

USD (Audited)

Total Assets Total Liabilities Total Equity Capital Expenditure Net Working Capital Total Investments in Associated

6,834,152,968 3,663,959,634 3,170,193,334 433,245,372 1,309,302,342 427,438,815

2015**

2014*

USD (Audited)

USD (Audited)

6,495,022,261 3,472,218,207 3,022,804,054 789,756,429 1,055,210,656 387,948,711

5,689,567,974 2,814,097,930 2,875,470,044 1,891,326,349 1,065,840,731 403,517,140

*restated **reclassified

FINANCIAL RATIOS 2016 30.22 10.37 27.51 1.89 6.10 3.18 260.58 91.56 42.47 11.81 10.62 7.32 15.89 1.56

Gross Profit Ratio (%) Profit (loss) to revenues ratio (%) EBITDA Margin (%) Net Debt/EBITDA (X) EBITDA/Interest Expense (X) EBITDA/Interest Expense + Principal (X) Current Ratio (%) Debt to Equity Ratio (%) Debt to Asset Ratio (%) Profit (Loss) to Asset Ratio (%) Profit (Loss) to Equity Ratio (%) ROCE (%) Price to Net Earning per Share Ratio (X) Price to Book Value Ratio (X)

2015** 31.38 13.07 30.67 1.60 8.81 5.03 258.12 89.61 41.71 14.49 15.30 11.57 12.18 1.62

2014* 39.51 21.86 34.26 0.56 16.03 8.51 259.28 64.44 32.57 19.59 32.86 18.90 16.65 4.12

*restated **reclassified

SHARES DATA 2016

The Weighted Average Number The Outstanding Common Shares (shares) Net profit (loss) per share

2015**

2014*

USD (Audited)

USD (Audited)

USD (Audited)

24,241,168,169 24,241,508,196 0.01

24,239,658,196 24,241,508,196 0.02

24,239,658,196 24,241,508,196 0.03

*restated **reclassified

CURRENT RATIO (%) 300

259.28

258.12

PRICE EARNING PER SHARE

DEBT TO EQUITY RATIO (%)

20

260.58

100

17

16

15 200

89.61

91.56

2015**

2016

64.44

12 10

50

100

5

0

2014*

2015**

0

2016

0

2014*

2015**

2016

2014*

TRANSACTION VOLUME (SHARES) 350,000,000

VOLUME

300,000,000

PGAS

250,000,000

Closing Price Rp2,700

200,000,000 150,000,000 100,000,000 50,000,000

2 -Apr-16

2 -Jul-16

2 -Oct-16

31-Dec-16

IHSG

22

Highlights of 2016 Performance

OPERATIONAL HIGHLIGHTS GAS DISTRIBUTION VOLUME (MMscfd)

NUMBER OF CUSTOMERS 180,000

1,716

1,800

168,973

1,591

LENGTH OF PIPELINE (KM)

1,598

7,500

7,278

7,026

7,000 130,000

96,049

1,200

111,076

80,000

600

30,000

0

6,500

6,067

6,000 5,500

2014*

2015**

2014*

2016

2015**

5,000

2016

2015**

2014*

2016

STOCK HIGHLIGHTS 2016 PGAS SHARE PRICE INFORMATION Q4 Number of Outstanding Shares (shares)

Q3

Q2

Q1

24,241,508,196

24,241,508.196

24,241,508.196

24,241,508,196

65,452,072,129,200

69,573,128,522,520

56,725,129,178,640

63,391,543,932,540

Highest Price (Rp)

2,940.00

3,520.00

2,860.00

2,770.00

Lowest Price (Rp)

2,200.00

2,340.00

2,170.00

2,350.00

Closing Price (Rp)

2,700.00

2,870.00

2,340.00

2,615.00

336,031.00

713,460.76

414,884.49

370,761.87

Market Capitalization (Rp)

Average Trading Volume (Lot)

2015 PGAS SHARE PRICE INFORMATION Q4 Number of Outstanding Shares (shares)

Q3

Q2

Q1

24,241,508,196

24,241,508,196

24,241,508,196

24,241,508,196

66,542,939,998,020

61,331,015,735,880

104,602,107,865,740

116,359,239,340,800

Highest Price (Rp)

3,160.00

4,350.00

4,890.00

6,050.00

Lowest Price (Rp)

2,310.00

2,150.00

3,855.00

4,600.00

Closing Price (Rp)

2,745.00

2,530.00

4,315.00

4,800.00

316,740.00

382,169.00

301,928.00

317,773.00

Market Capitalization (Rp)

Average Trading Volume (Lot)

PGAS shares movement In 2016 was opened at Rp2,370 level and closed at Rp2,700. PGAS was at its highest point at Rp3,520 level on 2 August 2016 and reached the highest closing price at Rp3,430 level on 1 August 2016. Per 30 December 2016, PGAS was the 15th largest capitalization share on the Indonesia Stock Exchange and the 5th largest capitalization among the SOE in Indonesia with the market capitalization value amounted to Rp65.45 trillion.

BOND HIGHLIGHTS Type of Shares

Value

Interest Rate

Due Date

Guaranteed Notes

USD1,350,000,000

5.125%

16 Mei 2024

2015 & 2016 Ratings Standard & Poor

BB+

Moody’s

Baa3

Fitch

BBB-

PGN BOND PRICE AND YTM (YIELD TO MATURITY) MOVEMENT 2015 - 2016 YTM (%)

MARKET PRICE (%)

7

115

6

110

5

105

4

100

3

95

2

90

1

85

0 6-JAN-2015

16-APR-2015

6-JUL-2015

2-NOV-2015

MARKET PRICE

30-MAR-2016

YTM

10-AUG-2016

REPORT TO THE SHAREHOLDERS

02

24

Highlights of 2016 Performance

02

REPORT TO THE SHAREHOLDERS

FSRU Lampung PGN’s offshore LNG receiving facility, located in the Province of Lampung, Provides Support to our tranding activity by delivering gas from LNG regasification to SSWJ pipeline.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Highlights of 2016 Performance

25

Report to theSection Shareholders Report to Title the>Shareholders Current Topic Head> Specific Identifier 26 232

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Report to the Shareholders

27

REPORT FROM THE BOARD OF COMMISSIONERS

Fajar Harry Sampurno President Commissioner

Dear Shareholders, PGN resisted strong industry headwinds to deliver a robust performance while continuing to invest in the Company’s future as a pivotal player in Indonesia’s energy landscape.

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Report to the Shareholders

Fajar Harry Sampurno

Kiswodarmawan

Tirta Hidayat

Mohamad Ikhsan

IGN Wiratmaja Puja

Paiman Raharjo

ASSESSMENT OF MANAGEMENT PERFORMANCE The slow pace of Indonesia’s recovery from its economic downturn and the ongoing pressure on the price of crude oil continued to pose significant challenges for the Company in 2016. Although some much-needed stability was restored on several macroeconomic indicators, persistent deficit concerns led the government to curtail its infrastructure development spending, including the planned expansion of power generating capacity. For PGN’s key customers in the power and industry sectors, the constrained economic conditions prolonged the weak demand environment for their output, with the result that their demand for natural gas remained stagnant. After plunging to a dramatic low in January 2016, the Indonesia crude oil price recovered steadily, but remained around the $40/ bbl mark for much of the year. Energy customers

therefore perceived a substantial weakening of natural gas’s competitive advantage against oil, and adjusted their price expectations accordingly. Despite these unfavorable operating conditions, the Company achieved solid results, exceeding its sales volume targets in distribution business segment with growth of 0.1% to 803 BBTUD resulting USD 2,539.44 million of revenue in 2016. Although lower transmission volumes contributed to a decline in revenue, a series of breakthroughs on efficiency enabled the Company to maintain its profitability and surpass its net profit target. We appreciate the Board of Directors’ actions to sustain demand during the year. The Company’s access to LNG, the price of which is linked to the Indonesia crude price, gave the Board the flexibility to respond to customers’ expectations of lower-

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

As PGN continues its journey toward becoming an integrated energy group, it continues to strengthen its comparative advantage.

priced gas, despite an aggregate increase in the purchase price of conventional natural gas. Despite a slight scale-back of planned capex plans in response to the subdued macroeconomic environment, the Company continued to invest in infrastructure development and optimization to increase customer connections in existing and emerging economic zones. The government has also continued to entrust PGN to implement its program to expand residential customers’ access to low-cost, safe energy, assigning the Company to develop and operate the infrastructure. This was carried out alongside the Company’s ‘Sayang Ibu’ initiative to connect to households. These to program resulting 57,702 additional residential connection in 2016. The Board of Directors has also ensured continued investment in the Company’s upstream strategy. Although the weak crude prices have adversely affected the revenue performance of PGN’s E&P operator, PT Saka Energi Indonesia, the company has continued to perform efficiently, and we believe that this is an opportune time to invest in further strategic acquisitions.

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29

As PGN continues its journey towards becoming an integrated energy group, it continues to strengthen its comparative advantage: the synergy generated by the deepening capabilities of the Company and its subsidiaries in the upstream and downstream sectors, which give PGN the unique ability to offer existing and potential customers a widely differentiated range of products and services to address their energy needs on a sustainable and cost-efficient basis. SUPERVISION OF THE BOARD OF DIRECTORS The Board of Commissioners has a primary responsibility to exercise oversight over the management actions of the Board of Directors and to provide regular feedback and guidance. The strongly collaborative relationship between PGN’s two Boards facilitates a frequent and open communication that allows for a rapid response to emerging challenges. Much of the supervisory work takes place through our monitoring visits to the field with the Directors, which take place more frequent. Decisions are then taken at the joint meetings with the Board of Directors, which are held at a minimum once a three month. A total of 7 joint meetings were held in 2016, with more than 12 special meetings with Directors to discuss specific concerns of Board of Commissioners. We also exercise supervision through the work of the Audit Committee, Risk Committee and Nomination and Remuneration Committee.

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Report to the Shareholders

ASSESSMENT OF GCG IMPLEMENTATION AND COMMITTEE PERFORMANCE The Company recognizes that doing business responsibly is central to its vision of becoming a world-class gas company. We have overseen a number of improvements in the governance framework that will provide greater assurance to shareholders and stakeholders that their interests are being fully protected. To address the increased exposure to risk as the scope of the business grows, we are taking a more proactive approach to risk management with more frequent meetings of the Risk Management and Business Development Monitoring Committee (Risk Committee). The Committee also made several site visits during the year to monitor the implementation of risk management directly at the operational level. Following a thorough review of the Company’s governance framework, we decided to dissolve the GCG committee and assign its functions to the Risk Committee. This will allow for more coherent and effective scrutiny of governance that will be more responsive to any issues that arise. The Committee is fully independent, comprising three professionals from outside PGN and one of our Independent Commissioners as chair. The Audit Committee has continued to provide valuable support by exercising rigorous and independent supervision over the Company’s financial disclosures and internal controls. We have followed up all their recommendations with the Board of Directors.

We were pleased to note that the Company’s score on its annual external GCG audit has continued to improve and is among the highest of all the state-owned enterprises (score 93.94). We believe that this is a fair reflection of the concerted efforts to strengthen corporate governance over the year. OPINION ON BUSINESS PROSPECTS The economic outlook for Indonesia in 2017 is generally positive, with the recovery expected to continue, albeit at a slow pace. The proceeds from the tax amnesty program in 2016 have given the government some fiscal space to resume its infrastructure spending, and we are now beginning to see some of the delayed projects come online. This will drive demand for electricity, particularly for the new and expanded airports that are scheduled to be built around the country, which offers an opportunity for PGN to continue to increase the role of gas in the power sector. We also expect to see an upturn in industry demand for both electricity and gas as the pace of economic activity picks up. We therefore concur with the Board of Directors’ assessment of PGN’s prospects and believe that they have the right strategy in place to capture the upcoming growth opportunities. In the short term, the priorities will be to continue to drive demand for natural gas by drawing on the

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company’s synergies to meet customers’ needs more effectively; and to grow new markets, particularly in the power generation sector, by leveraging the Company’s capability to supply natural gas to off-pipeline locations. At the same time we urge the Board of Directors to continue to exercise strict financial discipline. We are pleased with the progress PGN has made towards becoming an integrated energy company, but given the Company’s ambition to be a world-class operator in the natural gas sector by 2020, there is still much work to be done. We hope to see more aggressive growth, both upstream and downstream, to enable PGN not only to play a more prominent role in Indonesia’s energy mix but also to take its place among global players. The government is currently considering various options for the implementation of its strategy to consolidate several state-owned enterprises by creating a single holding company in each major economic sector. This could potentially increase synergies and reduce duplication and fragmentation in the sectors concerned, making them more competitive. However, the implications for each of the companies concerned must also be considered. PGN has commissioned an independent assessment of the

Report to the Shareholders

31

potential impact and the results will be presented to the government. We will also continue to engage constructively with the government to ensure that the interests of all the shareholders are equally protected going forward. CHANGES IN THE COMPOSITION OF THE BOARD OF COMMISSIONERS The General Meeting of Shareholders on 8 April 2016 honorably discharged Mr. Iman Sugema and Mr. Muhammad Zamkhani from their positions as Chairman and member of the Board of Commissioners, respectively. In their place, Mr. Kiswodarmawan was appointed as an Independent Commissioner and I was appointed as Chairman. I would like to take this opportunity to express the Board’s appreciation for their contribution to the Company. I would also like to convey my thanks to the Board of Directors and all our employees for their dedication during the year, and to the shareholders, customers and business partners for their continued trust. I am confident that PGN’s strategic direction and underlying strengths have put the Company in a strong position to respond to Indonesia’s energy needs and deliver value to all our shareholders and stakeholders over the coming year.

Fajar Harry Sampurno President Commissioner

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Report to the Shareholders

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Report to the Shareholders

REPORT FROM THE BOARD OF DIRECTORS

Hendi Prio Santoso President Director

Dear Shareholders, Despite an extremely challenging environment for the energy sector, PGN was able to meet its key strategic objectives and deliver growth within the target range by leveraging the strength of its energy portfolio and the synergies within the group.

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Report to the Shareholders

Hendi Prio Santoso

Nusantara Suyono

Dilo Seno Widagdo

Muhammad Wahid Sutopo

Danny Praditya

Hendi Kusnandi

PERFORMANCE IN 2016 For the energy sector, the slight upturn of the global economic condition and particularly in Indonesia which is seen in the GDP growth to 5.01% in 2016 was largely offset by the continued pressure on the crude oil price, which has remained volatile after dropping dramatically from the USD100-120 range some 18 months ago to USD40/barrel in average in 2016. This has significantly eroded the price competitiveness of natural gas. The global economic slowdown also resulting in the hampering the increasing of gas consumption by many industries and other gas users. At the same time, demand for natural gas from the power generation and industry sectors has remained subdued as the slow pace of recovery failed to drive a significant resumption

in their activities. In addition, we were also facing expectation from the customers to deliver a lower cost of gas but in the meantime our cost was not able to decline to follow the proportion of the expectation. These conditions also impact the Company’s revenue. Yet we manage to compensate some of this expectation by utilizing our LNG Facility, since as commonly applicable in oil and gas industry, LNG price is formed based on crude oil price. Through the lens of this unfavorable market backdrop, PGN delivered a relatively solid performance with growth within our target range. The Company continued to demonstrate its resilience, with solid cash flow and an uptick in the rating reflecting its robust fundamentals.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

In response to the growing scope of the business and the uncertainty in the business environment, PGN took steps to strenghten our risk management structure and intensify controls relating to ethical conduct

Addressing the challenges In 2016 the crude oil price sank to its lowest level for the last decade, averaging USD 40 per barrel for much of the year. Despite a slight adjustment to the USD 55 level towards the end of the year, energy prices are still struggling to find a new equilibrium. This has had a profound impact on the gas industry, not least on the expectations of our customers. We were able to minimize the impact of the adverse market conditions on sales volume by driving efficiencies, maintaining a responsive and proactive relationship with our customers and continuing to seek out new opportunities. Our company-wide efficiency programs have already yielded a reduction in operational expenditure and have begun to give us better visibility as well as a more rational allocation of costs. This has been supported by PGN’s transformation as we reorganize our operational activities more efficiently through our subsidiaries. Customer expectations that the lower energy prices would be passed on to them in the form of lower gas prices were not matched by the reality that our production costs did not decline

Report to the Shareholders

35

commensurately. We addressed this by increasing the proportion of LNG, the price of which is linked to the crude price, which enabled us to lower costs to meet some of the expectations. Recognizing the importance of stepping up our responsiveness during this challenging period, we increased the quality of our engagement with customers through gatherings, site visits and our centralized contact center that operates 24/7. We also worked hard to communicate PGN’S proposition more effectively, particularly to the power sector, by highlighting the benefits of capability our network. PGN delivers not only a commodity that is clean, efficient and still relatively cheap, but also the flexibility to adjust to a wide range of customer demands. PGN believes that these attributes deliver a tremendous valueadd for our customers. STRATEGY EXECUTION Optimizing Infrastructure Assets The weak market conditions prompted us to review our infrastructure development strategy in 2016. In response to the contraction in demand, particularly from our major customer, PLN, we sought greater efficiency in our capital expenditure and focused on optimizing existing assets. We therefore developed a series of initiatives, which included reconfiguring existing pipelines to expand sales, and monetizing pipeline-related capabilities to create new revenue streams, to improve the efficiency and profitability of our pipeline networks.

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Report to the Shareholders

We also continued to address the issue of last mile connections, recognizing that bridging the gap between the pipeline and the end user is the key to growing sales. To expand the market for CNG, we introduced our new CNG ‘cradle’ technology, which provides customers with a cheaper, safer and more environmentally friendly alternative to LPG. Encouraged by the response to its limited roll-out in the restaurant sector, we are now developing the systems and infrastructure to support its expansion to a wider market. We also maintained our focus on innovation to accelerate the penetration of natural gas products and services in new markets.

network. In anticipation of this, we continue to explore initiatives and prepare the infrastructure that will further raise the profile of LNG in our portfolio and in the market.

SECURE SUPPLY THROUGH UPSTREAM AND LNG DEVELOPMENT In 2016 PGN continued to participate effectively in the upstream sector through our subsidiary, PT Saka Energi Indonesia. Although Saka’s revenues were negatively impacted by the declining oil price, it achieved its production targets, and an aggressive efficiency program ensured that the company did not make an operating loss. In addition to being one of the few upstream companies to continue exploration drilling in 2016, Saka acquired a new participating interest in the Sanga-Sanga block in Kalimantan.

ADVOCATE FOR MORE SEAMLESS ENERGY POLICY PLANNING In a vast, rapidly-growing archipelagic nation that is still substantially underserved by transport and energy infrastructure, balancing the country’s competing energy demands with the complex issues of supply is a challenge. At present, upstream and downstream planning is done by separate agencies; moreover, infrastructure planning is also done independently. PGN believes that the country would benefit from a more coordinated approach to ensure more seamless policies that are aligned from end to end of the energy value chain. Among other benefits, this would create more certainty for investors and reduce some of the current bottlenecks in energy infrastructure development. The Boards continued to communicate this position to policy makers during the year.

LNG from PGN’s floating storage and receiving units (FSRU) helped to ensure that we had sufficient supply to fulfil demand. In 2016 we delivered eight cargoes of natural gas from LNG Tangguh to the market in West Java through FSRU Lampung. PGN believes that the majority of Indonesia’s gas needs will be supplied by LNG in future as most of the country’s remaining reserves are far from the existing pipeline

REACH MORE HOUSEHOLD CUSTOMERS We continued to expand our natural gas distribution infrastructure to enable households to benefit from cheap, clean energy. In 2016, we have connected 57,702 households through our ‘Sayang Ibu’ program in six cities and through assignment from the government’s residential gas initiative, for which PGN is constructing and operating the infrastructure. In 2016, PGN managed a total of 165,392 residential customers.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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37

PGN’S TRANSFORMATION PGN’s transformation continued in 2017 as the Company made two major changes in the holding structure. Firstly, the Household Gas Network Service Unit was established to manage the construction, operation and maintenance of distribution pipelines, and optimize gas sales of the Distribution Pipeline Network of Households that assigned by the Government. Secondly, PGASCOM was reassigned from the Director of Strategy and Business Development to the Director of Human Capital and General Services in order to facilitate the reorientation of the ICT business management to a group services function.

management program to ensure that the Company has a strong pipeline of future leaders at various levels of management.

The vision for 2020 is for PGN to be an integrated energy solutions provider. By this date, PGN will have transitioned to a full holding company role, performing overall strategic and control functions to coordinate the operational business, which will be carried out entirely by the subsidiaries. Our expectation is that this will create ‘One PGN’, which will unlock more of the potential synergies within the PGN group and result in a more agile, streamlined and responsive business. The current external situation has highlighted the necessity of the transformation and given us a clearer perspective of the way forward as we adjust to the ‘new normal’.

GCG IMPLEMENTATION Earning the trust of our stakeholders by doing business responsibly is crucial to the long-term sustainability of our Company. PGN’s corporate governance framework clearly defines the roles, responsibilities and processes that govern all our operations in order to provide assurance on the accountability and integrity of the business and its management.

HUMAN CAPITAL As the corporate transformation progresses, PGN is realigning the management and development of the workforce to meet the new demands of the business. We have mapped out the critical capabilities and qualities needed to meet PGN’s mid- to long-term strategic objectives and put in place an ambitious succession and talent

To move towards the ‘One PGN’ goal, we have prioritized efforts to embed a unified PGN culture and mindset among the subsidiaries by creating change agent teams in each business unit to engage employees in the fully in the process. Employee engagement is critical to the success of the transformation, and creating regular opportunities for meaningful dialog between management and employees on the purpose and implications of the changes has been high on the agenda.

The implementation and efficacy of this framework is reviewed every year by independent assessors in an audit of the Company’s good corporate governance compliance, based on the indicators set out in Minister of State-Owned Enterprises Regulation SK-16/MBU/2012 dated June 6, 2012. We have registered an improvement each year since the audit was introduced in 2009, raising our score in 2016 to 93.94%, one of the highest scores of all the SOEs that were audited. In response to the growing scope of the business and the uncertainty in the business environment, we took steps to strengthen our risk management

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Report to the Shareholders

structure and intensify controls relating to ethical conduct. We worked with the Indonesian Anti-Corruption Commission to develop and roll out policies on conflict of interest and gratuities, including a rule that makes asset disclosure compulsory at several levels of the organization beyond senior management, and links it to promotion and annual bonuses. We continued the development of comprehensive guidelines for various critical aspects of governance, including PGN’s whistleblower system, and updated the Board manual to reflect the redistribution of responsibilities introduced as part of our ongoing transformation. Over the last few years, PGN has taken a lead among SOEs in embracing its responsibility to make a positive impact on the communities in and around which we operate; PGN’s CSR program was recently commended by Indonesia’s House of Representatives as being one of the best of its kind. Through our comprehensive community development initiatives we seek not only to improve access to quality health and education facilities, but also to promote local economic development through support to small enterprises, such as an initiative in 2016 to develop sustainable tourism in several villages close to Yogyakarta.

BUSINESS PROSPECTS Most economic growth forecasts for 2017 indicate a slight uplift in the economy. The government has projected a GDP growth rate of 5.3%. The anticipated acceleration of infrastructure spending, alongside increasing confidence in the economy on the back of the government’s economic reform packages and the relative stability of 2016, is expected to stimulate investment over the year. This scenario will see a resumption of economic activity and an increase in demand for electricity; however, it will take time for this to filter through the economy, and natural gas demand is expected to remain relatively flat throughout most of 2017. Over the longer term, the outlook is positive: there is still tremendous scope for growth in Indonesia, given the country’s size, its relatively robust economic growth and expanding population. PGN will therefore continue to pursue our key strategic objective of growing demand for natural gas by improving our product and service offer. To do this we will become a more customerfacing business. This will entail forging closer coordination with our customers to understand and address their needs more proactively, and enable them optimize their gas utilization. We will also continue to seek opportunities to increase gas penetration in new geographies, both on and off pipeline, to serve the power generation, palm oil and mineral processing sectors, among others.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

We will also continue to increase the role of LNG in the energy mix. Going forward we will inevitably see a decline in the production of conventional pipeline gas, leaving a gap that should be filled increasingly by LNG. We believe that to ease the transition, a hybrid pricing mechanism should be implemented. We will also continue to invest behind the development and application of CNG and other unconventional gas fuels. A central priority will be to underpin these strategies by optimizing the synergies between our subsidiaries so that we can deliver seamless solutions to all our customers. We will continue to engage with the government on energy policy issues in support of the development and implementation of a coordinated, long-term energy vision aligned with the country’s development objectives. CHANGES IN THE COMPOSITION OF THE BOARD OF DIRECTORS There was a change in the composition of the Board in April 2016 as three of our Directors, Mr. Mochtar Riza Pahlevi Tabrani, Mr. Djoko Saputro and Mr. Jobi Triananda Hasjim, came to the end of their terms. All three have been appointed to CEO positions in other state-owned enterprises, which is a strong endorsement of their capacity

Report to the Shareholders

39

as individuals and reflects the Government’s confidence in the way our business has been managed. We would like to express our sincere thanks to them for their significant contributions to PGN and wish them well for the future. In their place we welcomed Mr. Nusantara Suyono as Director of Finance, Mr. Dilo Seno Widagdo as Director of Infrastructure and Technology and Mr. Danny Praditya as Director of Commerce. All bring with them considerable capabilities and experience, both from within the PGN group and outside, that will benefit the development and implementation of our strategies going forward. This has been a challenging year. On behalf of the Board I would like to extend my thanks to all our employees for their commitment to our vision, which is reflected in the hard work they have put in to address the challenges. Our thanks are also due to all our stakeholders, particularly our customers, business partners and the Government, for their ongoing support. We believe that PGN continues to present a strong proposition in Indonesia’s current and future energy landscape, as an integrated gas company with the end-to-end capabilities and infrastructure to supply clean energy to the nation. We look forward to continuing to create value for our stakeholders by strengthening the role of natural gas in Indonesia’s development over the year ahead.

Hendi Prio Santoso President Director

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Report to the Shareholders

STATEMENT LETTER MEMBERS OF THE BOARD OF COMMISSIONERS AND THE BOARD OF DIRECTORS REGARDING RESPONSIBILITY FOR THE CONTENT OF THE ANNUAL REPORT 2016 PT PERUSAHAAN GAS NEGARA (PERSERO) Tbk We the undersigned declare that all the information included in the Annual Report 2016 of PT Perusahaan Gas Negara (Persero) Tbk has been fully disclosed and we are responsible for the truthfulness of the content of the Company’s Annual Report. This is our declaration, which has been made truthfully.



Jakarta, 10 April 2017

President Director

Director of Finance

President Commisioner

Independent Commisioner

HENDI PRIO SANTOSO

NUSANTARA SUYONO

FAJAR HARRY SAMPURNO

KISWODARMAWAN

Director of Infrastructure and Technology

Director of Strategic and Business Development

Commisioner

Commisioner

DILO SENO WIDAGDO

MUHAMMAD WAHID SUTOPO

TIRTA HIDAYAT

MOHAMAD IKHSAN

Director of Commerce

Director of Human Capital and General Services

Commisioner

Independent Commisioner

DANNY PRADITYA

HENDI KUSNADI

IGN WIRATMAJA PUJA

PAIMAN RAHARJO

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

COMPANY PROFILE

Report to the Shareholders

03

41

03

COMPANY PROFILE

43

Company Profile

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2014

NAME PT Perusahaan Gas Negara (Persero) Tbk

ISSUED AND FULLY PAID-UP CAPITAL Rp2,424,150,819,600

BUSINESS FIELDS Natual gas transmission and trading

LISTING IN STOCK EXCHANGE The shares of the Company have been listed on the Jakarta Stock Exchange and the Surabaya Stock Exchange on 15 December 2003 with Stock Code: PGAS

OWNERSHIP The Republic of Indonesia 56,96% Public 43,04% DATE OF ESTABLISHMENT 13 May 1965 LEGAL BASIS OF ESTABLISHMENT PP No.19/1965 AUTHORIZED CAPITAL Rp7,000,000,000,000

CONTACT CENTER Phone : 1500 645 Email : [email protected]

HEAD OFFICE PT Perusahaan Gas Negara (Persero) Tbk Jl. K.H. Zainul Arifin No. 20, Jakarta 11140, Indonesia T. (62-21) 633 4838, 633 4848, 633 4861 F. (62-21) 633 3080 PO BOX 1119 JKT www.pgn.co.id CORRESPONDENCE ADDRESS: The Manhattan Square Building, Mid Tower, 26th Floor, Jalan T.B Simatupang Kav. 1S, Jakarta 12560, Indonesia T. (62-21) 80641111 F. (62-21) 6333080 E. [email protected] www.pgn.co.id

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Company Profile

THE COMPANY’S LOGO

1859-1965

1965-1994

1994-2003

2003-2011

The logo that was used when the Company was still named the L.J.N. Eindhoven & CO Gravenhage Firm.

A fire flame that represent a dynamic, spirit, and innovation which were the determination of the Company in providing its services. The black circle represents earth and also pipe as the facility to deliver natural gas.

Represent the nature of gas utility service, with earth as its source and the company’s mission in production, instalation, transmission and distribution.

Reflected the globally oriented vision of the company, namely to become the leading public company in the field of the natural gas provider. The writing of “Gas Negara” is an integral part of the logo as it implies the nature of the Company that is dynamic and continue to grow.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

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THE MEANING PGN’s logo symbolizes fire consisted of five elements that represented five main stakeholders, namely consumers, investors, employees, the state and PGN itself. The fire has three dimension nuance that implies a company that is fully integrated which goes beyond natural gas transportation and trading business to provide comprehensive energy solutions for consumers. The blue color represents the clean gas, self-confidence, clarity and stability, as well as its intensity. The degraded blue color represented the movement, growth, and ability to adapt.

PGN’s corporate brand is a symbol that represents PGN to the world. Therefore, it is very important to maintain and establish the value of that corporate brand. The corporate brand also serves as an affirmation so that the use of PGN’s name always consistent, that is called as PGN and not with other names such as PGAS or Perusahaan Gas Negara.

TAGLINE ‘ENERGY’

• Identify the important role of PGN which is not only engaged in the area of gas distribution but also participates in the crucial energy supply.

‘FOR LIFE’

• Signifies the important role run by PGN through the natural gas in moving and improving the quality of life in Indonesia ranging from cooking for daily meals to powering the power plant. • Oriented to the future, confirming the commitment of PGN to the long-term sustainable energy security for consumers, providing the reliable innovative energy solution for long-term planning.

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Company Profile

THE COMPANY’S MILESTONES

1859

1965

PGN is a state-owned company that was initiated on 1859 when it was named L.J.N. Eindhoven & CO Gravenhage Firm.

On 13 May 1965, based on the Government Regulation Number 19 Year 1965, PGN was defined as a State Company and known as “Perusahaan Gas Negara”.

2003

2007

The shares of PGN have been listed in the Jakarta Stock Exchanges and the Surabaya Stock Exchange on 15 December 2003 with the trading transaction code ”PGAS”.

On 25 October 2007, the gas pipeline of SSWJ II

Grissik – Pagardewa segment was inaugurated by the Minister of State for State-Owned

Enterprises (SOE) for PT Krakatau Daya Listrik

from Pertamina field in Pagardewa. In the same year, PGN established a subsidiary company

that engages in the telecommunication industry, namely PT PGAS Telekomunikasi Nusantara

1994 Based on the Government Regulation Number 37 Year 1994, the status of PGN changed followed by the addition of a broader business scope, namely other than in the area of natural gas trading also in the area of transmission, where PGN serves as the transporter.

2008

PGN exercised the split of PGAS shares par value (stock split) with a ratio of 1 (one) share exchanged with 5 (five) shares with a nominal value of Rp100 per share so that the number of shares is 22,967,185,965 shares.

(PGASCOM). PGASCOM manages the operation

and maintenance of fiber optic cable networks.

2010

2011

2012

Conducted the SOE Synergy with Pertamina through the establishment of a joint venture company, PT. Nusantara Regas that operates the Floating Storage & Regasification Unit (FSRU) in West Java with a capacity of 400 MMscfd. This FSRU is the first LNG Receiving Facility in Indonesia.

PGN formed 2 subsidiary companies that respectively engage in the natural gas upstream and downstream businesses. The subsidiary company in the upstream business is PT Saka Energi Indonesia (SEI) while the subsidiary company in the downstream business is PT Gagas Energi Indonesia (GEI).

PGN established a Subsidiary Company PT PGN LNG Indonesia (PLI). The PLI’s scope of business among others engages in the supply of LNG and natural gas, storage activities including regasification to buyers, as well as in other LNG business activities.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

1998 PGN succeeded in completing the Transmission Pipeline of Grissik – Duri which then followed by the establishment a Subsidiary Company in the field of Transmission that is PT Transportasi Gas Indonesia (TGI).

2009 To optimize the power and competence that have been built over the years by utilizing the future business development opportunities, PGN re-established a subsidiary company with a name of PT PGAS Solution that relates with engineering, operation, and maintenance, EPC contractor, as well as trading businesses.

2015

2016

At the end of August 2015, PGN through its affiliated company PT Kalimantan Jawa Gas (KJG) succeeded in completing the construction of the Kalija I Transmission pipelines from Kepodang gas field to Tambak Lorong Gas Power Plant in Semarang for 201 km long and continued with the commercialization of that pipelines.

In accordance with the Government’s assignment, PGN started the construction and management of household natural gas network project in Batam, Surabaya, and Tarakan, after earlier in 2015 PGN was assigned to manage the household natural gas network that was built by the Central Government in 11 regions, i.e among others Jabodetabek, Palembang, and Surabaya.

With the operation of that infrastructure, then PGN becomes the only natural gas downstream Company that serves to all Customer sectors (Household. Commercial, Industry, and Power Plant) in Central Java.

PGN had an organization transformation to adjust the company’s development and encounter the business competition in oil and gas sector. Together with its subsidiaries and affiliations in the form of ONE PGN, established its stride to the next level towards the world-class company in the gas industry.

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Company Profile

LINE OF BUSINESSES BUSINESS ACTIVITIES Pursuant to the PGN’s Articles of Association as lastly amended by the Deed No. 23 dated 6 April 2015, made before Notary Fathiah Helmi, SH., Notary in Jakarta, the business activities of PGN are as follows: 1. Planning, construction, and development of the natural gas downstream business that covers the activities of processing, transportation, storage, and commerce. 2. Planning, construction, development of the artificial gas (hydrocarbons gas) production, supply, and distribution. 3. Other than the main business activities, PGN may conduct other supporting business activities that directly related and or support the main business activities in accordance with the prevailing laws and regulations.

THE GENERATED PRODUCTS OR SERVICES As a State-Owned Enterprise that engages in the natural gas downstream business, PGN conducts its business activities in the areas of natural gas transportation and trading. In the business of natural gas transportation, PGN has pipeline networks in North Sumatera, Southern part of Sumatera, Riau Islands, and Java Sea to connect the natural gas sources location with the natural gas end user location through the transmission pipelines mode. In the business of natural gas trading, PGN bought the natural gas from various natural gas Producers and then sold it to various natural gas end user segments, for instance Household Customers, Commercial Segment Customers, Industrial-Manufacture Customers, Power Plants and Transportation Sectors, either distributed through pipelines, CNG or LNG.

PGN provide an integrated natural gas infrastructures to support natural gas trading and ensure the quality of the natural gas (natural gas composition, pressure, temperature) and the service (customers contacts, disruption handling) that PGN serve for our end customer. PGN divided its business activities into 4 (four) principal business segments, which are: 1. Natural gas transmission businesses 2. Natural gas trading business 3. Natural gas and oil business 4. Other businesses, i.e telecommunication, services, constructions and maintenance of pipeline networks, building management, and financial lease align with the company’s business strategy. In 2011, the Company developed its capability in the activities of natural gas and oil upstream, and based on the PSAK No. 5 (as revised in 2009) concerning the operational business segments and for the purpose of management appraisal as well as reporting, in 2013, the Company also reported the natural gas and oil upstream business activities as the company’s business segment. PGN SYNERGY, AN INTEGRATED SOLUTION PGN has grown into a natural gas provider with an integrated infrastructures that provides the most complete solution in the market. The establishment of Subsidiaries was intended for supporting the core business and strengthening the Company’s position in the efforts to increase the domestic natural gas utilization.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

BUSINESS UNITS GTA (Gas Transportation Agreement) GTA (Gas Transportation Agreement) PGN and TGI role as the gas carrier through transmission pipelines by charging toll fees

Transmission Pipelines 2,283 km

Off-Taker

Pipeline gas supply sources

Compressor Station

LNG

LNG supply sources

GSA (Gas Sales Agreement) GSA (Gas Sales Agreement) In the trading busines, PGN bought natural gas from various natural gas Producers which then sold to various natural gas end user segments, for instance Household Customers, Commercial Segment Customers, Industrial-Manufacture Customers, Power Plants to Transportation Sector, either via modes of gas distribution pipelines, CNG, or LNG.

Distribution Pipelines 4,994 km

HOTEL

Power Plant, Industry, Commercial, Residential, Gas Filling Station (SPBG)

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Company Profile

ONE PGN SYNERGY UPSTREAM Gas Station Natural gas reserves in Indonesia in sizeably bigger than oil reserves. Saka Energi is PGN’s subsidiary has business in Upstream sector

Compressor Station Increasing gas pressure in delivering natural gas. Compressor Station located in Sumatera Island.

Power Plant Power plant which is powered by natural gas can operate more efficiently and environmentally more friendly than fuel and coal. HOTEL

Floating Storage Regasification Unit (FSRU) FSRU convert the LNG to high quality natural gas. FSRU Lampung is located on offshore of South Sumatera PGN has 2 LNG regassification facilities, that is FSRU Lampung and FSRU Jawa Barat.

Commercial Customers Efficiency and reliability is important factors on delivering energy to commercial customer. PGN natural gas could provide it.

SPBG

Gas Filling Station (SPBG) and Mobile Refueling Unit (MRU) PGN operating 15 SPBG and MRU to customer in transportation sector in 8 big city thorough out Indonesia.

DOWNSTREAM DOWNSTREAM

Residential Customers PGN served more than 160.000 residential customer in Indonesia which make PGN the biggest natural gas operator.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

In order to meet the customers’ expectations and improve the customers’ satisfaction, PGN provide an integrated services to customers that supported by the expertise from each Subsidiary Company. Our subsidiary Company’s expertises are natural gas distribution through transmission pipelines, ICT Solution supply, network / gas equipment maintenance supplies and services, assets and building management, as well as energy solutions through CNG.

SUPPORTING

Gas Transmission Business

Gas Source

Information, Communication, and Technology Solution

Telecommunication Companies

PGN Contact Center (1500 645) Engineering, Procurement, Construction

Gaslink

Operation & Maintenance

Oil and Gas Companies

Gas Transport Module (Gas Link) Gas Link is the solution for delivering natural gas to location that not connected to natural gas pipelines.

Mobile Refueling Unit (MRU) MRU is the solution for gas filling station for transportation with CNG technology. Asset Management

Supporting

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Company Profile

GAS SOURCES AND NATURAL GAS INFRASTRUCTURES

PGN integrates the natural gas infrastructure in Indonesia and sought the utilization domestic natural gas by promote natural gas access to the whole society and users. Currently, PGN has operated in 18 cities, 10 provinces in Indonesia by serving power plant customers, industrial customers, commercial sector customers, household customers, and transportation segment.

Pertamina EP Asset 1 P. Susu Field

PT Pertagas Niaga LNG Arun Pertamina

Premier oil Natuna Sea Singapore

MEDAN

Panaran Station, Batam Pertamina EP Asset 1 Benggala-1 Well

DURI

470 Km

Transmission Pipeline Grissik - Singapore

Inti Daya Latu Prima (Gas ex - Jambi Merang)

536 Km Transmission Pipeline Grissik - Duri

Conoco Phillips Coridor PSC

GRISSIK STATION

165 Km Transmission Pipeline Labuhan Maringgai - Muara Bekasi

Pertamina EP Asset 2

196 Km Transmission Pipeline Grissik - Pagardewa FSRU Lampung Pagardewa Station 267 Km Transmission Pipeline Pagardewa - Labuhan Maringgai Labuan Maringgai Station 105 Km Transmission Pipeline Labuan Maringgai - Bojonegara

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

Transmission Pipeline Natural Gas Resources 1 MMScf = 1,000 MMBTU @ GHV=1,000 BTU/SCF

Distribution Pipeline

FSRU Jawa Barat

Muara Bekasi Station

201 Km Kalija I Pipe Kepodang - Tambak Lorok Pertamina EP Asset

BBG & WNE, IKD SNR (Gas Ex-TSB)

Santos Madura Offshore PSC Bojonegara Station

Lapindo Brantas Brantas PSC

Husky CNOOC Madura Strait PSC

Gagas Energi Indonesia (Gas-ex WMO PSC) PHE WMO West Madura Offshore PSC

Gas Station

Gas Refueling Station

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Company Profile

ORGANIZATION STRUCTURE PRESIDENT DIRECTOR Hendi Prio Santoso

CORPORATE SECRETARY Heri Yusup

LEGAL

GOVERNMENT RELATIONS

Rachmat Hutama

Santiaji Gunawan

CORPORATE COMMUNICATION Irwan Andri Atmanto

DIRECTOR OF STRATEGIC AND BUSINESS DEVELOPMENT

DIRECTOR OF INFRASTRUCTURE AND TECHNOLOGY

Muhammad Wahid Sutopo

Dilo Seno Widagdo

STRATEGIC PLANNING

CENTER OF TECHNICAL EXCELLENCE

Hertyasmawan Ery Fitriadi Raka Haryo Indro

CORPORATE SUPPORT AND SERVICES Desima E. Siahaan

DIRECTOR OF COMMERCE Danny Praditya

GAS SUPPLY Ivanna Laksmini Devi

BUSINESS AND TECHNOLOGY DEVELOPMENT

MARKETING AND PRODUCT DEVELOPMENT

Sri Nanda Parwati

Adi Munandir

PORTOFOLIO AND PERFORMANCE MANAGEMENT Amanarita

HOLDING COMPANY BUSINESS UNITS

BUSINESS UNIT INFRASTRUCTURE OPERATIONS

BUSINESS UNIT GAS PRODUCT Wahyudi Anas

Antonius Aris Sujatmiko PROGRAM MANAGEMENT OFFICE INFRASTRUCTURE Danu Prijambodo UNIT LAYANAN JARINGAN GAS RUMAH TANGGA Manangap Napiptulu

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

INTERNAL AUDIT Pramono Harjanto

STRATEGIC MANAGEMENT AND TRANSFORMATION Suseno

RISK MANAGEMENT AND GCG Willy Roswaldi

DIRECTOR OF HUMAN CAPITAL AND GENERAL SERVICES

DIRECTOR OF FINANCE Nusantara Suyono

Hendi Kusnadi

HUMAN CAPITAL MANAGEMENT Wing Antariksa

INFORMATION COMMUNICATION TECHNOLOGY

HEALTH, SAFETY, SECURITY AND ENVIRONMENT Feronica Yula Wardhani

FINANCIAL CONTROL AND BUDGET Siti Yanti Mulyanti

TREASURY Joko Heru Sutopo

ACCOUNTING

CORPORATE FINANCE

Sahat P. Simarmata

Shirley Sinta

REVENUE ASSURANCE

INVESTOR RELATIONS

Rozani Ismail

Nisi Setyobudi

Roedy Purwanto

LOGISTIC AND GENERAL AFFAIRS Suprijanti

CORPORATE SOSIAL RESPONSIBILITY Enik Indriastuti

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Company Profile

VISION AND MISSION

VISION To Become The World-Class Energy Company in Gas Business in 2020

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

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MISSION To increase the Company’s added values for stakeholders through: • Customers: Energy needs fulfillment solution that is safe, value-added, economic, and increase the competitiveness; • Society: The improvement of welfare and sustainable economic growth through energy independence and environmental conservation efforts; • Shareholders /Investors: The creation of the optimal and sustainable Company’s values through internal and external synergies.

The vision and mission of PGN have been updated that stipulated based on the Resolutions of PGN’s Board of Directors Number: 000303/KHM.03/UT/2015 dated 8 January 2015

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Company Profile

COMPANY’S CULTURE

THE COMPANY’S CULTURE The Company’s culture is a combination of the corporate values and beliefs principles in behave, act, and make decisions during running the business and organization to achieve common goals. Along with the growth of PGN, the Company has transformed to strengthen its position as the leading energy company in Indonesia and with regard to the achievement of the Company’s Vision and Mission. The transformation was not only in the form of organization but strengthened by values that are believed can be implemented by each member of PGN or all members in the Subsidiary and Affiliated Companies, which included in the PGN Group. ONE PGN for a better future (“ONE PGN”) is a tagline that reflected the spirits of unity and togetherness of PGN Group to synergize. One PGN was born from the spirit of change in the diversity of PGN Group’s characters and potentials, synergy in achieving the common goal to become the world-class company.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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THE MEANING OF ONE PGN FOR A BETTER FUTURE LOGO The Circe shape describes the determination and spirit of PGN Group. The Number One describes the unity, equality, and the same purpose of “One PGN for a better future” describes the one purpose of PGN Group, namely to become a company which always provide good energy so that the future of the company and Indonesian people be better. CULTURAL VALUES AND CODE OF CONDUCT OF PGN GROUP MEMBERS Professionalism, Continuous Improvement, Integrity, Safety, Excellent Service (ProCISE) have become the cultures for the behavior of each PGN’s Member. The Guidelines for PGN’s Corporate Cultures was stipulated based on the Resolutions of the Board of Directors Number: 010705.K/SM.02.02/ UT/2009 dated 12 May 2009 concerning the Guidelines for Corporate Cultures.

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Company Profile

5 PGN’S CULTURES

I II The PGN’s Code of Conduct that is based on the corporate culture values and the good corporate governance principles, PGN has prepared the Guidelines for Business Ethics and Work Ethics (Code of Conduct) of PGN’s Members. The Guidelines for Business Ethics and Work Ethics outline contain the PGN’s code of conduct in daily work activities and procedures for dealing with stakeholders. This guideline is also intended to provide practical guidance that stipulates the conflict of interests, corruption, briberies, gratifications, information management, and others. The Guidelines for Business Ethics and Work Ethics has been published and must be obeyed by all members of PGN.

III IV V

PROFESSIONALISM

CONTINUOUS IMPROVEMENT

INTEGRITY

OCCUPATIONAL SAFETY

EXCELLENT SERVICE

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Always provide the best results by improving the competence in its field and be responsible for every action and decision were taken.

Committed to conducting continuous improvement.

Honest with ourselves or others. Consistent with thoughts, words, and deeds based on noble ethical standards.

Constantly prioritize the occupational safety and health, both for ourselves and the surrounding environment.

Prioritize the satisfaction of internal or external customers by providing best services

Company Profile

1

3

5

7

9

2

Responsible

4

Adaptive to changes

Honest, open, and positive thinking

6

Discipline and consistent

Prioritize the occupational safety and health

8

Care for the social and natural environment

Prioritize the satisfaction of internal and external customers

10

Pro-active, quick, and accurate response

Competent at its Field

Creative, innovative, and implementative

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Company Profile

THE IMPLEMENTATION OF THE COMPANY’S CULTURES ROADMAP COMPANY’S CULTURES

2016 INITIALIZATION

• Stipulation and socialization of “One PGN for a better future” and “ProCISE”

2017 INTEGRATION

• Culture and Performance Management System • Integration of ProCISE cultural values with each of Cultural Values in each Entity

2018 ACCELERATION

• Increase the impact of culture on performance • The achievement of Corporate Value than the breakup value

2019

2020

REINFORCEMENT

REINFORCEMENT

• ProCISE

• ProCISE

• Continuous Improvement

• Continuous Improvement

ProCISE as the company’s cultures will be implemented up to the Subsidiaries and Affiliations, which the end goal in 2020 is the ProCISE has been applied as the Company’s Cultures in PGN and Subsidiary Companies as well as Affiliated Companies and become the basis for behavior of every member of PGN, so as ONE PGN is achieved. Since several Subsidiaries and Affiliations have had the Company’s Cultures, then the implementation process of this Corporate Cultures was starting from the undertaken of Corporate Values calibration to the respective of Subsidiaries and Affiliations, that include the Priority Level and Assignment Level of Corporate Values. That corporate values calibration will determine the culture maturity level that is applied in PGN as the Holding Company, or the respective Subsidiaries and Affiliations.

1. PROGRAM PGN - 5R This 5R (Ringkas/Concise, Rapi/Neat, Resik/Clean, Rawat/Care, Rajin/Diligent) Program aims to create the comfort of working in an organization environment, thus increase the productivity and quality in providing services. 2.PGN PROGRAM – EXPERT This program aims to improve the awareness and spirit to renew as well as optimize information, insight, competence, or knowledge required in innovating, make decisions, as well as improve the quality of business management for the organization betterment. The PGN Program – EXPERT is in the form of: 1. Knowledge Sharing Session / ProCISE Talk 2. English Day

3. PGN PROGRAM – BESTFRIEND ONE PGN Coffee Morning (Morning Briefing) between the BOD and employees 4. PGN PROGRAM – PRODUCTIVITIY In the form of: 1. Management Review Activity (integration of functions) 2. Optimization of the existing technologies 5. PGN PROGRAM – EFFICIENCY “Effective Meeting” campaign 6. PGN PROGRAM – WORKLIFE BALANCE In the form of: 1. Weekly religious activity, Timely Shalat campaign 2. Watch movies together (foreign culture movies, Indie Movie)

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THE ACTIVITIES OF CORPORATE CULTURES IMPLEMENTATION

PGN’S CULTURES PROGRAM With regard to the implementation of PGN’s ProCISE cultures, then activities such as PGN Group gathering, sharing on Occupational Safety and Health activities, social services, and community activities were routinely conducted.

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Company Profile

PROFILE OF THE MEMBERS OF THE BOARD OF COMMISSIONERS An Indonesian citizen, Born in Blitar 18 April 1966, aged 50 years in 2016. He has a Bachelor degree from Brawijaya University, Master of Technology Management degree from Monash University, and Doctoral of Strategic Industries degree from Iowa University. His recent work experience is as the Deputy of Mining, Strategic Industries, and Media Businesses, the Ministry of State-Owned Enterprises until now. Appointed the first time as the President Commissioner of PGN in the PGN’s Annual General Meeting of Shareholders on 8 April 2016.

FAJAR HARRY SAMPURNO President Commissioner

There is no affiliation with the members of the Board of Directors and other members of the Board of Commissioners, or the majority and/or controlling shareholder.

An Indonesian citizen, born in Surabaya, 28 December 1957, aged 59 years in 2016. He has a Bachelor of Civil Engineering from Surabaya Technology Institute. His recent work experience is as the President Director of PT Adhi Karya (Persero) Tbk. Appointed the first time as the Independent Commissioner of PGN in the PGN’s Annual General Meeting of Shareholders on 8 April 2016. There is no affiliation with the members of the Board of Directors and other members of the Board of Commissioners, or the majority and/or controlling shareholder.

KISWODARMAWAN Independent Commissioner

An Indonesian citizen, born in Banda Aceh, 9 March 1959, aged 57 years in 2016. He has a Bachelor of Economics in Development Studies from the University of Indonesia, Master and Doctoral degrees in Economy Regional from Cornell University. His recent work experience is as the Deputy of Vice President’s Secretariat Official in Economics until now. Appointed the first time as the Commissioner of PGN in the Annual General Meeting of Shareholders on 6 April 2015. There is no affiliation with the members of the Board of Directors and other members of the Board of Commissioners, or the majority and/or controlling shareholder.

TIRTA HIDAYAT Commissioner

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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An Indonesian citizen, born in Sigli, 7 November 1964, aged 52 years in 2016. He has Bachelor of Economics degree from the University of Indonesia, Master of Economics degree from Vanderbilt University, and Ph.D. in Economics degree from Illinois University. His recent work experience is the Advisor of the Vice President of the Republic of Indonesia until now. Appointed the first time as the Commissioner of PGN in the Annual General Meeting of Shareholders on 6 April 2015.

MOHAMAD IKHSAN Commissioner

There is no affiliation with the members of the Board of Directors and other members of the Board of Commissioners, or the majority and/or controlling shareholder.

An Indonesian citizen, born on 21 December 1963, aged 53 years in 2016. He has a Bachelor of Mechanical Engineering degree from Bandung Technology Institute (ITB), Master and Ph.D. of Mechanical Engineering degree from Kentucky University, USA. His recent work experience is as the Director General of Oil and Gas, the Ministry of Energy and Mineral Resources, until now. Appointed the first time as the Commissioner of PGN in the Annual General Meeting of Shareholders on 6 April 2015.

IGN WIRATMAJA PUJA Commissioner

There is no affiliation with the members of the Board of Directors and other members of the Board of Commissioners, or the majority and/or controlling shareholder.

An Indonesian citizen, born in Klaten, 15 Juni 1964, aged 52 years in 2016. He has a Bachelor of Economics degree from the University of Indonesia, Master of Economics Administrative Sciences degree from University of Prof. Dr. Moestopo, and Doctoral of Administrative Sciences degree from the University of Padjajaran. His recent work experience is as the Commissioner of PT Food Station Tjipinang Jaya until now. Appointed the first time as the Commissioner of PGN in the Annual General Meeting of Shareholders on 6 April 2015.

PAIMAN RAHARJO Independent Commissioner

There is no affiliation with the members of the Board of Directors and other members of the Board of Commissioners, or the majority and/or controlling shareholder.

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Company Profile

PROFILE OF THE SECRETARY OF THE BOARD OF COMMISSIONERS An Indonesian citizen, born in Semarang on 26 September 1959 and appointed as the Secretary of the Board of Commissioners since 1 January 2016. Graduated from University of Diponegoro with a Bachelor degree in Economics Management in 1986. Once served as the Head of Treasury Division, Head of Finance Division of PT PGN (Persero) Tbk, and Director of Finance of PT PGAS Telekomunikasi Nusantara, as well as the Director of Finance of PT PGN LNG Indonesia.

THOHIR NUR ILHAMI

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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PROFILE OF THE MEMBERS OF THE BOARD OF DIRECTORS An Indonesia citizen, born in Jakarta on 5 February 1967, aged 49 years in 2016. Graduated from University of Houston, Texas with a Bachelor degree in Finance and Economics, and from the University of Texas Austin-USA with a Bachelor degree in Economics. Serves as the President Director for the second period on 22 May 2012, after serving as the President Director since 13 June 2008 in the first period. Previously served as the Director of Finance since 31 May 2007. Prior to joining PGN, served as the Director of Investment Banking in PT JP Morgan Securities Indonesia (2004–2007). Started his career in Niaga Bank (1990–1991) and continued in Citibank NA, Indonesia (1991– 1996). In 1996 was appointed as the Vice President of PT Perdana Multi Finance, then as the Director of Development of PT Perdana Inti Investama (1996-1998). In 1998–2001, served as the Associate Director of PT Bahana Securities, which then served as the Director of PT Anugra Cipta Investa (2001–2004).

HENDI PRIO SANTOSO President Director

The legal basis for the first time appointment as the Director of Finance is the Resolutions of the 2007 Annual General Meeting of Shareholders on 31 May 2007 and as the President Director is the 2008 Annual and Extraordinary General Meetings of Shareholders on 13 June 2008. Re-appointed as the President Director by the 2012 Annual General Meeting of Shareholders on 22 May 2012. Assigned as the Commissioner of PT Saka Energi Indonesia since 1 March 2014 until now. There is no affiliation with the other members of the Board of Directors and the members of the Board of Commissioners, or with the majority and/or controlling shareholder. An Indonesian citizen, born in Rome on 11 December 1963, aged 53 years in 2016. Graduated from University of Houston, Texas with a Bachelor degree in 1986. Serves as a Director since 8 April 2016. Previously served as the Group Head Executive Officer PGN since 2015, Senior Executive Officer of Investor Relations of PGN in 2014-2015, and as the Head of Investor Relations Department of PGN in 20122014. The legal basis for the first time appointment as the Director is the Resolutions of the Annual General Meeting of Shareholders on 8 April 2016. Assigned as the President Commissioner of PT Transportasi Gas Indonesia since 1 May 2016 until now and as the Commissioner of PT Saka Energi Indonesia since 1 November 2012 until now. There is no affiliation with the other members of the Board of Directors and the members of the Board of Commissioners, or with the majority and/or controlling shareholder.

NUSANTARA SUYONO Director of Finance An Indonesian citizen, born in Jakarta on 3 April 1969, aged 47 years in 2016. Graduated from University of Trisakti with a Bachelor degree in Mechanical Engineering in 1991 and from University of Prasetiya Mulya with a Master degree in International Management in 2001. Serves as a Director since 8 April 2016. Previously served as the President Director at the Subsidiary of PGN PT PGAS Solution since 2013, the Chief Operating Officer of PT Sarana Global Indonesia in 2011-2013, the Project Director of PT Ketrosden Triasmitra in 2008-2011, the Chief Executive Officer of PT Guna Arti in 2004-2008 and in 2001 - 2004 served as the Marketing and Business Development Director of PT Anyar Katon. The legal basis for the first time appointment as the Director is the Resolutions of 2012 Annual General Meeting of Shareholders on 8 April 2016. Assigned as the President Commissioner of PT Gagas Energi Indonesia since 1 May 2016 until now.

DILO SENO WIDAGDO Director of Infrastructure and Technology

There is no affiliation with the other members of the Board of Directors and the members of the Board of Commissioners, or with the majority and/or controlling shareholder.

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Company Profile

An Indonesian citizen, born in Jakarta on 17 June 1969, aged 47 years in 2016. Graduated from Bandung Technology Institute with a Bachelor degree in Electrical Engineering in 1993 and from IPMI Business School Jakarta with a Master Degree in Management (Executive Program) for International Business in 2002. Serves as a Director since 6 April 2011. Previously served as the Corporate Secretary since January 2009, the Group Head of Corporate Planning and Control since October 2010, the Head of Investor Relations Division since November 2008. Started his career as the Director of Carrier Sales and International Relations in USA Global Link in 1996-1999, as well as the International Marketing Manager in 1999-2001, the Head of Investor Relations in 2001-2006, and the Group Head – Revenue Assurance in 2006-2008 in PT Indosat Tbk.

M. WAHID SUTOPO Director of Strategy and Business Development

The legal basis for the first time appointment as the Director of Investment Planning and Risk Management is the Resolutions of 2011 Extraordinary General Meeting of Shareholders on 6 April 2011. Assigned as the President Commissioner of PT PGN LNG Indonesia since 2015 until now and as the President Commissioner of PT PGAS Telekomunikasi Nusantara since 2011 until now. There is no affiliation with the other members of the Board of Directors and the members of the Board of Commissioners, or with the majority and/or controlling shareholder. An Indonesian citizen, born in Jakarta on 13 September 1978, aged 38 years in 2016. Graduated from University of Indonesia with a Bachelor degree in 2001 and from Karlsruhe University of Applied Science, German, with a Master degree in 2004. Serves as a Director since 8 April 2016. Previously served as the President Director at the Subsidiary PT Gagas Energi Indonesia since 2013 and the President Director of PT Citra Nusantara Gemilang in 2006 – 2013. The legal basis for the first time appointment as the Director is the Resolutions of the 2016 Annual General Meeting of Shareholders on 8 April 2016. Assigned as the President Commissioner of PT PGN LNG Indonesia since 1 May 2016 until now. There is no affiliation with the other members of the Board of Directors and the members of the Board of Commissioners, or with the majority and/or controlling shareholder.

DANNY PRADITYA Director of Commerce An Indonesian citizen, born in Bandung on 26 February 1962, aged 54 years in 2016. Graduated from Bandung Institute Technology with a Bachelor degree in Civil Engineering in 1987. Serves as a Director since 22 May 2012. His career with PGN started since 1989, among others as the Head of Marketing Division in 2009, the Act of Head of Operation Division in 2010 and the General Manager of SBU Distribution of Region I Western part of Java in 2010. The legal basis for the first time appointment as the Director of Human Capital and General Services is the Resolutions of 2012 Annual General Meeting of Shareholders on 22 May 2012. Assigned as the President Commissioner of PT PGAS Solution since 1 January 2014 until now. There is no affiliation with the other members of the Board of Directors and the members of the Board of Commissioners, or with the majority and/or controlling shareholder.

HENDI KUSNADI Director of Human Capital and General Services

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PROFILE OF THE CORPORATE SECRETARY An Indonesia citizen, born in Bandung on 8 February 1963 (53 years old). Currently, domiciled in Jakarta. Graduated from the University of Padjajaran Bandung with a Bachelor degree in Law in 1987, from Widener University School of Law, USA with a Master degree in 1999, and Advance Management Program from Wharton School University of Pennsylvania, USA in 2006. Serves as the Corporate Secretary since December 2011. Started his career in PGN as the Second Assistant of Laws and Control Administration in 1991, the Legal Coordinator in 2005, the Corporate Secretary and also as the Legal Coordinator in 2008, as well as the Head of Corporate Legal Department in 2009. Assigned as the President Commissioner of PT Permata Graha Nusantara since December 2014 until May 2016, and as the Commissioner of PT Transportasi Gas Indonesia since November 2012 until now.

HERI YUSUP

PROFILE OF THE HEAD OF INTERNAL AUDIT DIVISION An Indonesia citizen, born in Yogyakarta on 14 August 1970 (46 years old). Graduated from the University of Gadjah Mada Yogyakarta with a Bachelor degree in Accounting in 1996, obtained the State Accounting Registration D-17464. Started his career in the field of Supervision as the External Auditor in Hans Tuanakota & Mustofa (HTM) Public Accountant / Deloitte Touche Tohmatsu International as the Senior Auditor in 1997 until 2001, then continued his career as the Internal Audit Supervisor in Petrochina International Companies since 2001 until 2005, as the Senior Manager Internal Audit in PT Transportasi Gas Indonesia since 2005 until 2013. Besides the structural positions, he also actively participated in the Internal Control Unit Communication Forum (FKSPI) activities as the Chairman IV of Organization in the Central FKSPI since 2013.

PRAMONO HARJANTO

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Company Profile

HUMAN CAPITAL In facing business environment changes challenges, PGN has set series of transformation stages that were started from the Active Advisor stage to the main transformation purpose namely the Strategic Leader. The transformation process being implemented requires the Change Management which roles are to ensure the readiness, availability, and ability of the organization to operate in the new condition. PGN involves its employees to become the Change Agents, with the main activities include anticipation and accommodation for resistance to changes, creating Change Agents that are capable of working in the new condition, as well as monitoring and guiding the implementation of changes. Furthermore, in the process of employees fulfillment, PGN has implemented the employees’ placement based on the competencies and requirement in of the new organization.

PROFILE AND NUMBERS OF PGN’S EMPLOYEES PGN’s employees in 2016 is was1,426 people, decrease to 3,45% from 2015 amounting to 1,477 people. The decrease of number of employees was in line with the PGN’s efforts in implementing the business transformation and improving the company’s productivity in order to become the world-class energy company in the gas sector. PGN’s effort to create the conducive work environment delivers real results, reflected in the low employees turnover rate. The low turnover rate would make the costs of employees competencies development and recruitment become more efficient, therefore

it would have a positive influence company’s performance During the reporting year of 2016, there were 60 (sixty) employees who stopped working for PGN. The cause of the cessation of such employees generally was a natural since they were entering the retirement period or passed away. There were only 7 (seven) employees that stopped working due to resignation on their own request for personal reasons. Along with the external condition changes, the business targets and strategic development continue to develop dynamically. Hence, the Human Capital Management was constantly adjusted to the PGN’s strategic framework and position in order to realizing the long-term goals that are reviewed periodically. According to the development stage in the Company’s Long-Term Plan (RJPP), the Human Capital management has now entered the second stage, namely the “Capability Development to New Business Area” which is was marked by the realization of business development investment to for upstream and downstream business. In accordance with to that stage, the Human Capital management orientation has been transformed, namely from the “Strengthening the Fundamentals of Human Capital Management” into the “Competence Enhancement for Entering New Business”.

MODEL OF THE HOLDING MANAGEMENT STRUCTURE

Key Manager

Active Advisor

Strategic Leader

Portfolio Coordinator

We will work with you to do so

We determine on what and how to do it

We determine on what you do

What is important to you is the result

WHO ARE WE

We are the Managers of all Business Units

We are the active consultants and advisers from a group of management

We are the Strategic Leaders from a group of management

We are the Investment Company

THE DIVISION OF

The main function is to responsible for financial and operating performances

Main function and Business Units are sharing big responsibilities in financial and operating targets

MOTO

AUTHORITY

The main function is to determine the financial targets, operational and values, The Business Units are responsible for achieving targets.

The main function is to determine the financial targets, operational and values, The Business Units are responsible for achieving targets.

MODEL OF PGN HOLDING

The existing

hort-term

Final Condition

The involvement and operating control that continue dwindling

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

THE NUMBER OF EMPLOYEES BASED ON THE EMPLOYMENT STATUS Employment Status Permanent

2016

Total

THE NUMBER OF EMPLOYEES BASED ON THE ORGANIZATION LEVEL GROUP

2015

1,426

1,477

-

-

1,426

1,477

Contract

71

Company Profile

2016

2015

Top Management

Position Group

74

78

Middle Management

158

168

Basic Management

682

552

Executor

512

679

1,426

1,477

Total

THE NUMBER OF EMPLOYEES BASED ON EDUCATIONAL BACKGROUND Pendidikan

2016

2015

Strata 3 (S3)

1

1

Strata 2 (S2)

132

126

Strata 1 (S1)

640

649

Diploma

434

457

SLTA

219

244

Total

1,426

1,479

THE COMPETENCY DEVELOPMENT PGN has had the competency development program that is was planned, systematic, and focused in accordance to company’s business development. One of the main competency development programs which have had been implemented consistently was is the Educational and Training Program (Diklat) that supported processes of human capital preserverence and quality improvement. Each of PGN employee is required to have a good competency in accordance with his position during 2016. PGN allocated average of 6 man-days training for every employee to support the development or fulfillment of the employee’s competency gaps. A. Education and Training No. 1

2

Categories Education among others: a.

Diploma of PT KAPGN STEM gas-Cepu as much as 2 Programs followed by 19 Participants

b.

Master degree from Abroad (Scholarship) as much as 10 study programs followed by 10 participants

c.

Master degree from Abroad (Self-management) as much as 4 study programs followed by 4 participants

d.

Bachelor degree from Domestic (Self-management) as much as 2 study programs followed by 2 participants

Inhouse Training a.

Managerial Competencies as much as 27 programs attended by 701 participants Among Others: Executive Development Program Feedback Giver Management Development Program (MDP), Leadership for First-line Development Program (Session 1 Induction Program), Leadership for First-line Development Program (Session 2 First-line Development Program), Leadership for Middle Manager, Emerging Leaders Program Enhancing Government Relations Through B2G Approach

b.

Area Competencies (Inhouse) as much as 105 programs attended by 2,441 participants

72

Company Profile

No.

Categories Among Others: Technical, Operational, and Commercial Areas Fire Handling Level D Certification from the Minister of Labor of the Republic of Indonesia, Gas Talk #1 Book Review Introduction to World Class Gas System Management, Safety Profesional, Pengawas Konstruksi Pipa PE Batch 1 GAS Talk #2 Brings Energy to You, Penyambungan Pipa Galvanis, Calon Asesor Kompetensi, Gas Talk #3 Book Review Introduction to The World Class GSM, Effective Selling Skills, LIFO High Performance Selling, Gas Talk #4 Book Review of GSM & Financial Planning, Energy Management, Workshop PraCEPAt, Internal Audit of Security System and SMK3 Integration, Proses Safety Information, Business Knowledge of PGN Group, Basic and Technical LNG Training, The Technical Development for Sales and Customer Management, Insiden Investigasi, Peer Educator the Prevention and Treatment of Tuberculosis/HIV & Aids and Drug Abuse at Work, Investment Technic Security Basic Safety c.

Financial Area 2016 PSAK Update, Oracle Hyperion, The Secret of Managing Accounts Receivable, Tax Planning Vs Crative Accounting, PGN’s Financial Risk Management, Business Simulations of Apple and Oranges Business Finance for Everyone, Tax Amnesty Workshop

d.

Administration & General Areas Professional Protocols, Strength Revolution, Retired Planning Program, Learning Week-Creative and Innovative Thinking, Training for Trainer, Awareness of ISO 14001:2014 and Introduction of ISO 14001:2015, Workshop International Position Evaluation (IPE), Management System Internal Audit of ISO 14001 and OHSAS 18001, Workshops on the Strategic Workforce Planning, General Affair Professional, Integrated Marketing Communication, Interpretations of Understanding and Deepening of the KPKU-based Performance System of the State-Owned Enterprises, Good Corporate Governance (GCG), Awareness of ISO 9001:2015, Strategic Workforce Planning (Workshop 2), LIFO® Method for Problem Solving and Decision Making Skills, Personal Branding With Social Media, Assesor of KPKU of the State-Owned Enterprises, ONE PGN & ProCISE for World Class PGN Group, Management Service Skills for General Affair, Enhancing Government Relations Through B2G Approach, Amazing Slide Presentation, PGN Group Actuarial Valuation Workshop, Corporate Event Management, Training and Certification on the Government’s Products and Services Supply, E-Tendering Workshop with SPSE 4.0 Application

3

Public Training as much as 97 programs attended by 254 employees a.

Domestic KPI and Excellent Performance-Based Management Contract & Malcolm Baldrigde, Advance Level of Internal Audit, Two-days Workshop on the Implementation of Environmental Management RPP and National Energy Policy RPP, International Conference Business Economics Social Science and Humanities (BESSH), PDrafting the Umbrella Agreement of Procurement and E-Catalog of the Procurement of Products/Services, 1st Indonesia Human Capital Summit 2016, Certified PSAK Review, Pipeline Security Management, Radiographic Interpreter Level II Training & Certification Course, Financial Modelling in Excel, General Occupational Safety and Health Expert, Gas Indonesia Summit 2016, IndoHSSE 2016, Oracle Database 11g : Program with PL/SQL, 2016 Mediation, Welding Inspector, Workshop on the Land Licensing Mechanism, Basic Education for Assessment I in the Property Area, Effective IR in Practice, CSWIP - Welding Level 2 International Certification, Advance Level II of Internal Audit, Training & Certification of Advance Flow – X, One-Day Workshop on Digital Forensic, Indonesian Seminar of Marketeers Festival: Selling Yourself, Win in the Era of ASEAN Economic Community, Holding Company Management “Leading and Driving the Right Way”, Workshop “The Next Level of HR Champion”, Basic Understanding of Arbitration and APS, Basic Sea Survival, Workshop Legal English, FATCA and CRS Seminar, Internal Audit National Seminar, Certificate of Business Management (CBM Program): Financial Management, Workshop on the Law of Bankruptcy, a Threat to Debtors and Creditors, Certificate of Proficiency in Performance Measurement and Valuation, 2016 StateOwned Enterprises Seminar,

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

No.

Company Profile

Categories Masterclass Series XVI Assessing the Maturity Level of the Implementation of Organization Risk Management, IFRS International Conference 2016, Legal Auditor, Corrosion Engineer, Financial Accounting & Accounting Computer, Contract Drafting and Negotiating of EPC Project, Mini MBA in Power Generation & Electricity in Indonesia, Human Capital Development Program, Integrated Brevet A-B, Certification of Project Management Young Expert, Project Management Program Certification (PMP Combo), Workshop Comprehensive Project Management, Marketing Battle Plan 2017 : Step by Step Strategy to Tactic to Budgeting, HR Summit 2016, T Bosiet, Certification of Project Management Young Expert, Project Finance Cashflow Analysis and Risk Mitigation, CERTIFIED INTERNAL AUDITOR REVIEW COURSE, Indonesia Human Capital Summit, Certificate of Strategic Financial Management, Financial Management, General Busiiness Management, Marketing Asean Summit, TRAINING ON THE PROCEDURES FOR THE PREPARATION OF TRANSFER PRICING DOCUMENTATION, The 8th Indonesia HR Summit 2016, High Performance Culture, Managing Multiple Project, Risk Management, Basic Financial Management for Non Finance Manager, Project Management Preparation (PMP Combo Program), Technical Guidance on the Superintendent Expertise Qualification of Conduit , ISO 31000 : Risk Assesment Technique, Calculating Project Owners Estimate (OE/ HPS) With Microsoft Project Application, 2016 Disclosure of Assets and Implementation of Tax Amnesty, Practical Aspect of Value Added Tax, e-Invoice and Value Added Tax Examination, Contract Administration & Negotiation Training & Certification of Coating Inspector Level 1, 1st Manager Leader Summit 2016 4th International Congress on Assessment Center Methods, Coating Summit Oktober 2016, 3rd Indonesia Industrial Relations Conference 2016, Competency Guidance for the Supervisor of Occupational Safety and Health in Oil and Gas, Arbitration Workshop, Certified Planning Engineer, Assesor Preparation Course KPKU BUMN Series VII, Contract Management, Effective IR in Practice, Electric Installation in Hazardous Area, Manajemen Piutang (Receivables Management), Marketing Intelligence Competitive, First Aid at Work, Management of Audit Tasks, SCADA Platform Wonderware b.

Abroad Among Others: Merger & Acquisition, ATD International Conference & Exposition 2016, Finnon 1 "Understanding Financial Statement", ERM Training & Benchmark.

73

74

Company Profile

B. Scholarships in Cooperation with High Schools Taruna Nusantara and AKAMIGAS STEM Cepu In order to have the qualified candidates of manpower, PGN organized a Scholarship Program for the Selection of the Pre-Candidates of Employees (PBPSPCP) in cooperation with Taruna Nusantara High School in Magelang and AKAMIGAS STEM - Cepu to select scholarship recipient students who can be prepared as the candidates of employees that have capabilities in the Natural Gas industry. In 2016, PGN implemented scholarships for Diploma II & III of Gas Technology in AKAMIGAS STEM – Cepu for 19 participants with the investment amounted to Rp2,369,275,000. C. Internship and Bachelor / Master Program for Domestic and Foreign Studies Master Program for Domestic and Foreign Studies With regard for employees improvement quality and competence as well as the addition of a more global insight and the company’s progress, as well as to support the vision to become the worldclass company, PGN despatched 10 participants of Master Study Abroad Program to prominent universities in the United States of America, this program was is focused on the majors that relevant with PGN’s business.

D. Program STAR (Talent Development Program)

Apart from that, to prepare the succession able to in answering business challenges in the future, PGN tried to prepare potential of future corporate leaders who are more mature through a comprehensive and integrated program. In 2014 and still continues up to 2016, PGN has started to launch the talent management program called as STAR Program, that is a combination of succession and talent management programs for PGN’s future leaders. The talent management program is divided into 3 programs, namely EDP (Executive Development Program), MDP (Management Development Program), and FLDP (First Line Development Program). 1. Executive Development Program (EDP). EDP is a leadership program for Band F – H employees that focused on the preparation of PGN’s leaders in the future and the competency enhancement in the form of interpersonal, leadership, and business skills. The development method is not only conducted through the training sessions in class, but also through the experimental learning where the participant made were required to develop a project that must be completed at the end of the program (project assignment). The Top Management has major involvement

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

for this program, also very it could be seen by with the appointment of the Board of Directors as mentors for projects undertaken by the EDP participants. The Executive Development Program (EDP) participants are also given the opportunity to participate in the graduate program in one of prominent business education institutions, which currently attended by 13 people who will have the Master of Management (MM) degree. 2. Management Development Program (MDP). To prepare the sustainable leadership succession in PGN Group, then PGN developed the STAR Program that has been undertaken for the Band C – E employees which is called as the Management Development Program (MDP). This program is designed integrated with E-MBA program, therefore PGN cooperated with one of the prominent business education institutions in Indonesia for its implementation. The development program is implemented integrally, namely the Blended In-class program, online English training, leader camp, project assignment, coaching and mentoring from the relevant SME, and leadership sharing session from CEOs, both from domestic and abroad. In the first year, there were 4 study modules that must be completed, namely Module I (Managing Self and Others), Module 2 (Managing Business), Module 3 (Managing With Strategy) and Module 4 (Managing Human Resources). Further, the Management Development Program (MDP) participants attended the Executive program – MBA as

Company Profile

75

much as 55 people who will have the Master of Business Administration (MBA) degree. 3. First Line Development Program (FLDP). In preparing the sustainable leadership succession in PGN Group, then PGN developed the STAR Program for the Band A – B employees which is called as the First Line Development Program (FLDP). This program is designed to improve the leadership skills and to provide the managerial competence debriefing to the next level of careers. This development program is started in 2016, by requiring the participants to fulfill some of the talent program criteria. To prepare the talent development program, PGN has also appointed the HC committee and the Talent committee whose task is to determine the talent readiness, monitor, analyze and evaluate the talent development program regularly as well as to propose the talent program improvement. E. Learning Management System In order to improve the services in the implementation of Education and Training program, PGN developed a web-based online application. The purpose of this facility implementation is to accelerate the process, both from administrative side and education and training implementation as well as to enabling employees as the user to access content and information of education and training such as the Corporate Annual Education and Training Program Plan, Education and Training Syllabus and Module, as well as the Employees’ Learning Schedule.

76

Company Profile

F. English Program In order to improve the Employees’ communication skills in English, the Company provided English training facility to all employees independently. Where the employees could choose their own provider (list as determined by the company) and the flexible training schedules adjusted with the employees’ time. The Company will reimburse the costs incurred by the employees to participate in this program after the Employee completed each level of the program attended. The Company requires the employees at the level of Assistant Vice President and Vice President to participate in the English Proficiency Test (EPT) as one of the requirements in the talent program.

G. Ambassador of SOE The Ambassador of SOE is a place for the SOE employees to form a strong unity between the SOEs in order to achieve the vision towards The World Class SOE. Formed by the SOE Public Relations Forum (FHBUMN) and obtained direct support from the Ministry of SOE. In 2016, PGN sent delegations as the participants of the Ambassador of SOE. PGN sent its 2 representatives to participate in the selection process and quarantine then selected as Wakil II Putri. The task of the Ambassador of SOE is as the ambassador as well as the youth representative of SOE in every activity of the Ministry of SOE.

EXPENSES During 2016, PGN has organized 20,688 man-days to realize the education and training program for employees with total expenses amounted to Rp. 39,114,062,860.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

SHAREHOLDERS INFORMATION

THE SHAREHOLDERS COMPOSITION

THE REPUBLIC OF INDONESIA

56.96%

PUBLIC

43.04%

The percentage of the total issued and fully paid-up shares that is 24,241,508,196 shares. The Republic of

INDIVIDUAL

2.63%

40.41%

ENTITY

Indonesia is the majority shareholder that has 56.96% shares of PGAS and 1 share series A Dwiwarna that has special voting rights.

INTERNATIONAL

2.59%

0.04%

DOMESTIC

INTERNATIONAL

10.38%

30.03%

DOMESTIC

The group of public shareholders none of which have shares above 5%. List of Top 20 Shareholders* No.

Investor

1

Negara Republik Indonesia

2

Ownership %

No.

Investor

56.97

11

Lion Global Investors (Singapura)

Ownership % 1.14

BPJS Ketenagakerjaan (Indonesia)

3.37

12

GIC (Singapura)

0.66

3

Petronas (Malaysia)

2.80

13

Invesco (US)

0.64

4

Eastspring Inv. (Singapura)

2.62

14

Blackrock Inv. Mgt. – Index (Hong Kong)

0.62

5

Matthews Int’l Cap. Mgt. (US)

2.22

15

Manulife Asset Mgt. Ind. (Indonesia)

0.62

6

Vanguard Group (US)

1.42

16

Value Partners (Hong Kong)

0.60

7

Blackrock Inv. Mgt. – Index (US)

1.39

17

Abu Dhabi Investment (UAE)

0.50

8

Eastspring Inv. (Hong Kong)

1.29

18

Mandiri Investasi (Indonesia)

0.47

9

Eastspring Inv. (Indonesia)

1.27

19

Saudi Arabian Monetary Agency (Arab Saudi)

0.47

10

Blackrock Inv. Mgt. – Index (UK)

1.14

20

Westwood International Advisors (Kanada)

0.44

*Based on the shareholders position as per 31 December 2016. The Shareholder Names in this list may change according to the dynamics of stock transactions at the Indonesian Stock Exchange.

Percentage of the total number of shares issued and fully paid shares (24,241,508,196 shares). The Republic of Indonesia is the majority shareholder that owns 56.96% of shares and one series A Dwiwarna share which has special voting rights.

77

78

Company Profile

MAJOR SHAREHOLDER INFORMATION THE 5% OR MORE SHARES OWNERSHIP AWS PER 31 DECEMBER 2016 Name

Owner’s Status

Number of Shares

Percentage

The Republic of Indonesia

Indonesia

13,809,038,756

56.96%

There is no shareholder which has share ownership above 5% other than the Republic of Indonesia On 31 December 2015, the Republic of Indonesia has 13,809,038,756 shares of Ordinary Share and one share of Dwiwarna Share which has the special voting rights. The Dwiwarna Share can not be transferred, has special rights in terms of capital changes, appointment and termination of the members of the Board of Directors and the Board of Commissioners, Articles of Association, merger, consolidation, and acquisition, as well as dissolution and liquidation of the Company.

SHARES OWNERSHIP BY THE MEMBERS OF THE BOARD OF COMMISSIONERS AND THE BOARD OF DIRECTORS AS PER 31 DECEMBER 2016 Name

Position

Number of Shares

Shares Percentage

Fajar Harry Sampurno

President Commissioner

-

0%

Kiswodarmawan

Independent Commissioner

-

0%

Tirta Hidayat

Commissioner

-

0%

Mohamad Ikhsan

Commissioner

-

0%

IGN Wiratmaja Puja

Commissioner

-

0%

Paiman Raharjo

Independent Commissioner

-

0%

Hendi Prio Santoso

President Director

-

0%

Danny Praditya

Director of Commerce

Hendi Kusnadi

Director of Human Capital and General Services

Dilo Seno Widagdo Muhammad Wahid Sutopo Nusantara Suyono

-

0%

140,500

0.0005796%

Director of Infrastructure and Technology

-

0%

Director of Strategy and Business Development

-

0%

Director of Finance

-

0%

INFORMATION OF SUBSIDIARY AND AFFILIATED COMPANIES Company

Company’s Address

Subsidiary / Afilliated Company

Ownership

Line of Business

Company’s Profile

Status Operating

PT Saka Energi

The Energy Building

Subsidiary

--Company – 99.997%

Upstream

SEI was established on 27 June

Indonesia (SEI)

11th - 12th Floor

Company

--PT PGAS Solution –

Business

2011. The purpose and objectives

Jl. Jend.Sudirman Kav.52-

0.003%

of SEI is to engage business and

53, SCBD, Jakarta 12190

investment in the oil and gas

Telp. +62 21 2995 1000

upstream business, that covers the

Fax. +62 21 2995 1001

activities of exploration, exploitation,

Email: [email protected]

business development in the oil and

sakaenergi.com

gas sector, coal bed methane, and

Web: www.sakaenergi.com

other energy sources. Currently, SEI manages 9 blocks in Indonesia and 1 block of shale gas in the United States of America. SEI as the operator with ownership of 100% in Pangkah PSC, South Sesulu PSC, and Wokam II PSC.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company

Company’s Address

79

Company Profile

Subsidiary / Afilliated Company

Ownership

Line of Business

Company’s Profile

PT Transportasi Gas

Jl. Kebon Sirih Raya No. 1

Subsidiary

--Company– 59.87%

Gas

TGI was established on 1 February

Indonesia (TGI)

Jakarta 10340

Company

--Transasia Pipeline

Transportation

2002. Currently, TGI has and operates

Telp. +62 21 315 8939

Company Pvt. Ltd.

pipeline network for more than 1,000

Fax. +62 21 310 3757

– 40%

km long which extending outward

--PGN’s Employees

Email: [email protected]

Status Operating

from Grissik to Duri and Grissik

tgi.co.id

Welfare Foundation

to Batam, then to Singapore with

Web: www.tgi.co.id

– 0.13%

Grissik-Duri distribution capacity in the amount of 427 MMscfd and Grissik-Singapore in the amount of 465 MMscfd.

PT PGN LNG

Kompleks PGN

Subsidiary

--Company – 99.999%

LNG

PPLI was established on 26 June 2012

Indonesia (PLI)

Graha PGAS, Lantai 2

Company

--PT Gagas Energi

Regassification

and engaged in the Liquified Natural

Jl. K.H. Zainul Arifin No. 20

Indonesia – 0.001%

Operating

Gas (LNG) business, including but not

Jakarta 11140

limited to processing, transportation,

Telp. +62 21 2907 3266

storage, commerce.

Fax. +62 21 2907 1133 Web: www.pgnlng.co.id

Since 2014, PLI has been operating FSRU Lampung which located in Labuhan Maringgai, with a capacity of 1,5 - 2 MTPA and the delivery limit reached to 240 MMscfd. FSRU Lampung is integrated with SSWJ pipeline facility that connects the gas sources in Sumatera with the biggest potential customers in Indonesia in West Java.

PT Gagas Energi

Kompleks PGN

Subsidiary

--Company– 99.88%

Downstream

GEI was established on 27 June 2011

Indonesia (GEI)

Gedung B, Lantai 9 - 10

Company

--PT PGAS Solution –

Business

and currently engages in the natural

(PGN Complex,

0.12%

gas and CNG trading businesses.

Tower B, 9-10th Floor) Jl. K.H. Zainul Arifin No. 20

GEI provides the natural gas

Jakarta 11140

commodity which comes from

Telp. +62 21 2907 1415

the Company and secondary

Fax. +62 21 2907 1138

market for the needs of electricity,

Email: contact.

industry, commercial, household,

[email protected]

and transportation. The natural gas

Web: www.gagas.co.id

needs for household, commercial, and industrial sectors served with transportation modes of gas pipeline, CNG and mini LNG. While for serving the transportation sector, GEI provides the Gas Refueling Stations (SPBG) and Mobile Refueling Unit (MRU), as the form of support from PGN to the conversion program of oil fuel to gas fuel.

Operating

80

Company Profile

Company

Company’s Address

Subsidiary / Afilliated Company

Ownership

Line of Business

Company’s Profile

Status

GEI operates 6 (six) MRUs, namely MRU IRTI Monas, MRU Pluit, MRU Bogor, MRU Bandung, MRU Grogol and MRU Gresik. Other than that, GEI also operates 7 (seven) Gas Refueling Stations (SPBG), namely SPBG Pondok Ungu, SPBG PGN Head Office, SPBG Batam, SPBG Bogor, SPBG Purwakarta, SPBG Ngagel and SPBG Sukabumi. PT PGAS Solution

Kompleks PGN

Subsidiary

-Company – 99.91%

(PGAS Solution)

Gedung C, Lantai 4

Company

- Yayasan Kesejahteraan

Engineering

PGAS Solution was established on 6 August 2009 and currently engages

Jl. K.H. Zainul Arifin No. 20

Pegawai Perusahaan

in 4 (four) line of businesses, namely

Jakarta 11140

Umum Gas Negara –

Operation & Maintenance Services

Telp. +62 21 6385 4572

0.09%

(the Operation and Maintenance

/ 4506

Services of Distribution Gas

Fax. +62 21 6385 4572

Pipeline Network, the Operation

/4506

and Maintenance Services of

Email: [email protected]

Transmission Gas Pipeline Network,

co.id

and Provision of Information and

Web: www.pgn-solution.

Integrated Data Control), Engineering

co.id

services, Engineering Procurement, and Construction services, as well as Trading services. Apart from doing the development of gas pipeline infrastructure network and be fully responsible for end-to-end on the operation and maintenance of the pipeline network reliability or PGN’s facilities, PGAS Solution has been working on the construction of offshore-onshore Kalimantan Java Gas Project Stage I for ±200 km from Kepodang Field to Tambak Lorok. PGAS Solution also serves to build Gas Refueling Station owned by GEI and trusted by the Regional Government of Bekasi for the fiber optic cable network deployment project for 120 km long.

Operating

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company

Company’s Address

81

Company Profile

Subsidiary / Afilliated Company

Ownership

Line of Business

Company’s Profile

PT PGAS

Kompleks PGN

Subsidiary

-Company – 99.93%

Information &

PGASCOM was established on 10

Telekomunikasi

Gedung B, Lantai 4

Company

- Yayasan Kesejahteraan

Communication

January 2007 and engaged in the

Nusantara

Jl. K.H. Zainul Arifin No. 20

Pegawai Perusahaan

Technology

provision of telecommunication

(PGASCOM)

Jakarta 11140

Umum Gas Negara –

services. Through the coverage of

Telp. +62 21 633 1345

0.07%

fiber optic cable network available

Fax. +62 21 633 1381

throughout Jakarta - Sumatera -

Web: www.pgascom.co.id

Batam - Singapura, PGASCOM has

Status Operating

provided services throughout that backbone for operator customers, corporate customers, and PGN. As the ICT (Information, Communication, Technology) provider, PGASCOM serves telecommunication (connectivity, the internet), business solution and managed service. With the Local Fixed Network (JARTAPLOK) license has been gained, PGASCOM able to channel the internet from international to corporate customers to households in Indonesia, so that enables PGASCOM to develop multiple services. To improve services to customers, PGASCOM built a network with high reliability through the Dense Wavelength Division Multiplexing and Metro Carrier Ethernet-based Next Generation Network devices. PT Permata

Kompleks PGN

Subsidiary

-Company – 99.989%

Property

Permata was established on 24 April

Graha Nusantara

Gedung B, Lantai 8

Company

-PGAS Solution – 0.011%

& facility

2014 and run 3 (three) business

(Permata)

Jl. K.H. Zainul Arifin No. 20

management,

activities, among others facility

Jakarta 11140

workforce

management services, assets

Telp. +62 21 634 0030

provider,

management, and real estate

Fax. +62 21 634 0031

resources & asset

entrepreneurial. The Company

Web: www.pgnmas.co.id

Profitization

contributes to support the growing

Operating

PGN’s business activities especially in the assets management as well as to contribute to the provisions and management of property in order the support the PGN’s infrastructure development efficiently and professionally. PT Nusantara Regas

Wisma Nusantara,

Joint Venture

-PT Pertamina (Persero)

LNG

NR was established on 14 April 2010

(NR)

Lantai 19

Company

– 60%

Regassification

and as the joint venture company

-Company – 40%

Through FSRU

between PT Pertamina (Persero)

Jl. M.H. Thamrin No. 59 Jakarta 10350

and the Company. The NR’s main

Telp. +62 21 315 9543

business activities are developing and

Fax. +62 21 315 9525

managing the Floating Storage and

Web: www.

Regasification Terminal (FSRT), LNG

nusantararegas.com

procurement and LNG regasification gas sales.

Operating

82

Company Profile

Company

Company’s Address

Subsidiary / Afilliated Company

Ownership

Line of Business

Company’s Profile

Status

Since 2012, NR has been operating FSRU Nusantara Regas Satu as the first LNG Receiving Terminal in Indonesia with the regasification capacity of 500 MMscfd. The NR existence specifically intended to provide gas supplies to the centers of power plants owned by PLN and a number of industry players in West Java. The gas distribution process to the center of power plant includes the FSRU, under the sea transmission pipelines, and Onshore Receiving Facilities. To optimize the available FSRU capacity, NR also provides LNG regasification services to meet PLN’s needs. PT Kalimantan Jawa

Kompleks PGN

Gas (KJG)

Gedung B, Lantai 2

Associated

Jl. K.H. Zainul Arifin No. 20

-Permata – 80%

Gas

KKJG was established on 23 July 2013

-PT Bakrie & Brothers

Transportation

to run natural gas transportation

Tbk – 20%

Operating

business through pipelines from

Jakarta 11140

natural gas sources to customers’

Telp. +62 21 6385 4534

location and operate the natural

Fax. +62 21 633 1632

gas distribution facilities. Since the

Web: www.kalijagas.co.id

groundbreaking on 14 March 2014, KJG has completed the construction of natural gas transmission pipelines from Kepodang field belong to Petronas Carigali Muriah Limited to power plant unit belong to PLN in Tambak Lorok for ±200 km long which is known as the transmission pipelines of Kalimantan Java Stage I lane Kepodang-Tambak Lorok.

PT Permata Karya

Kompleks PGN

Jasa (Perkasa)

Gedung A, Lantai 4 Jl. K.H. Zainul Arifin No. 20 Jakarta 11140

Associated

-Permata – 75%

Supporting

Perkasa was established on 29 April

-PGN’s Employees

Services for Oil

2015 and engaged in the business

and Gas

activities which cover the equipment

Welfare Foundation – 25%

provider services and the manpower

Telp. +62 21 6385 0047

provider services that support the

Fax. +62 21 6385 0047

smooth operation of business in

Web: www.pgn-perkasa.

oil and natural gas sector. Perkasa

co.id

has the role in supporting the PGN’s growing rapidly business activities through the provisions of supporting services to oil and natural gas sector, as well as has the commitment to provide the best services to its customers through the human resources solution and chiller specialist business activities.

Operating

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company

Company’s Address

PT Solusi Energi

Kompleks PGN

Nusantara (SENA)

Gedung C, Lantai 3

83

Company Profile

Subsidiary / Afilliated Company Associated

Ownership -PGAS Solution – 99.9%

Line of Business Engineering

-Permata 0.1%

Company’s Profile SENA was established on 20 April

Status Operating

2015 to provide engineering services

Jl. K.H. Zainul Arifin No. 20

in the oil and natural gas industry

Jakarta 11140

that include the pipeline, mechanical,

Telp. +62 21 6385 4557

electrical, geodetic, civil, process

Fax. +62 21 6386 8805

and telemetry businesses. The

Web: www.pt-sena.co.id

services provided by SENA include the survey, technical research, Front End Engineering Design (FEED), and Detail Engineering Design (DED), Project Management consultancy, inspection and technical testing, commissioning, as well as other post-operating works.

PT Widar Mandripa

Kompleks PGN

Nusantara (WIDAR)

Gedung A, Lantai 4

Associated

Jl. K.H. Zainul Arifin No. 20

-GEI – 99.996%

Power Plant and

WIDAR was established on 29 July

-Permata Karya Jasa –

Trading

2015. Engage in the services related to

0.004%

Operating

the power plant and trading, WIDAR

Jakarta 11140

handles planning, construction,

Telp. +62 21 2984 5050

testing, and operating as well

Fax. +62 21 2984 5140

as maintenance of power plant

Web: www.wmnusantara.

including its infrastructures, starting

co.id

from gas supply pipelines and all equipment required to support the power plant until the energy supplied to customers.

PT Gas Energi Jambi

Jl. Jend. A. Yani No. 17

Joint Venture

-Perseroan – 40%

Trading,

GEJ engages in the trading,

(GEJ)

Telanaipura, Jambi

Company

-PT Wahana Catur Mas

Construction,

construction, and services businesses

and Services

through gas fuel distribution,

Telp. +62 741 670 207

– 40%

Fax. +62 741 670 207

-PT Jambi Indoguna

Yet in Operation

chartering in the gas mining, and

Internasional – 10%

business in the supporting facilities

-PT Bukaka Corporindo

of mining and gas construction

– 10%

companies, and other supporting devices.

PT Banten Gas

Kantor Taman E3.3 Unit D6

Joint Venture

Synergi (BaGS)

Kawasan Mega Kuningan

Company

Lot 8.6-8.7

-PT Andiracitra Grahawira (68.43%) -PT Banten Global

Setiabudi, Jakarta 12950

Synergi (14.14%)

Telp. +62 21 5794 8870/71

-PT Banten Global

Fax. +62 21 5794 8870/71

Development (8.57%) -Izma Agyano Bursman (8.71%) -Perseroan (0.14%)

Services,

BaGS engages in the services,

Transportation,

transportation, trading, and mining

Trading, and

businesses.

Mining

Operating

84

Company Profile

PGN GROUP STRUCTURE

SES

SKP

SIS

SEMB

SBK

SEML

SEBB

SIPL

SEW

SEFLLC

SESSL

WIDAR PT. SAKA ENERGI INDONESIA

PT. PGN LNG INDONESIA

99.99%

99.99%

PT. TRANSPORTASI GAS INDONESIA

PT. GAGAS ENERGI INDONESIA

59.87%

99.88%

PT. PGAS

PT. PGAS

Telekomunikasi Nusantara

Solution

99.93%

PT. NUSANTARA REGAS

99.91%

PT. Permata Graha Nusantara

99.98%

40% SENA Shareholders Structure Subsidiary Company

TDS

PTI

Joint Venture Company Affiliated

KJG

Perkasa

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

85

Company Profile

PT SAKA ENERGI INDONESIA PT Saka Energi Indonesia (SEI) is the PGN’s subsidiary, established on 27 June 2011. Currently, SEI is having its office in The Energy Building, 11-12th Floor, SCBD Lot 11A, Jl. Jend. Sudirman Kav. 52-53 Jakarta 12190. In accordance with the SEI’s Articles of Association, the purpose and objectives of SEI are to engage in the business and investment in oil and gas upstream sector, that covers the exploration, exploitation, business development in oil and gas sector, coal bed methane (CBM) and other energy sources. As the company that engages in the upstream business, SEI has a number of oil and gas upstream assets as follows: On 31 December 2016, the compositions of the Board of Commissioners and the Board of Directors of SEI were as follows:

BOARD OF COMMISSIONERS Susilo Siswoutomo

President Commissioner

Hendi Prio Santoso

Commissioner

Nusantara Suyono

Commissioner

BOARD OF DIRECTORS Tumbur Parlindungan

President Director

Devi Pradnya Paramitha

Director of Finance and Administration

SEI has some oil and gas work region assets as follows: Blocks Name Ketapang PSC South Sesulu PSC Bangkanai PSC West Bangkanai PSC Pangkah PSC Muriah PSC Fasken South East Sumatra PSC Muara Bakau PSC Wokam II PSC Sanga Sanga

Blocks Name Ketapang PSC South Sesulu PSC Bangkanai PSC West Bangkanai PSC Pangkah PSC Muriah PSC Fasken South East Sumatra PSC Muara Bakau PSC Wokam II PSC Sanga Sanga

PERCENTAGE OF OWNERSHIP

Operator

Status

2016

2015

20% 100% 30% 30%

20% 100% 30% 30%

Petronas Carigali Ketapang II Ltd. PT Saka Indonesia Sesulu Ophir Energy (Bangkanai) Ltd Salamander Energy

Production Exploration Production Exploration

100% 20% 36% 8,91% 11,6% 100% 37.8125%

100% 20% 36% 8.91% 11.6% 0 0

Saka Indonesia Pangkah Ltd. Petronas Carigali Muriah Ltd. Swift Energy Operating LLC. CNOC SES Ltd. ENI Muara Bakau BV PT Saka Energi Wokam Virginia Indonesia Co. LLC

Production Production Production Production Development Exploration Production

Entitas Anak SEI Pemegang PI PT Saka Ketapang Perdana (SKP) PT Saka Indonesia Sesulu (SIS) PT Saka Bangkanai Klemantan (SBK) PT Saka Energi Bangkanai Barat (SEBB) Saka Indonesia Pangkah Ltd (SIPL) Saka Energi Muriah Ltd (SEML) Saka Energi Fasken LLC (SEFLLC) PT Saka Energi Sumatera (SES) Pata Saka Energi Muara Bakau (SEMB) PT Saka Energi Wokam (SEN) Saka Energi Sanga Sanga Ltd (SESSL)

86

Company Profile

PT GAGAS ENERGI INDONESIA PT Gagas Energi Indonesia (GEI) is the subsidiary of PT Perusahaan Gas Negara (PGN) that engages in the businesses of processing, transportation, storage, and trading of oil and natural gas as well as other energy. GEI provides natural gas for power plants, industries, commercials, households, and transportations, with the customers segment targets are small and medium industries, commercial, as well as transportation. The development strategy of GEI among others is the gas distribution through non-pipe transportation mode such as CNG or LNG trucking/retail, development of Household gas networks, as well as the power plants. GEI has also step into potential business in power plant sector to add value from natural gas development activities through subsidiary PT Widar Mandripa Nusantara (WIDAR). Shareholders of WIDAR are GEI of 99.99% and PT Permata Karya Jasa of 0.004% In order to support the Government’s program and to broaden the gas distribution and utilization for the transportation sector, GEI built Gas Refueling Stations and Mobile Refueling Unit (MRU) in several places in Indonesia. Until 2016, GEI has and manages the CNG station (SPBG) and Mobile Refueling Unit (MRU) facilities in 15 locations which are in Jakarta, Lampung, Bogor, Surabaya, Batam, Purwakarta, Bekasi, Sukabumi, Bandung, and Gresik. On 31 December 2016, the compositions of the Board of Commissioners and the Board of Directors of GEI were as follows:

BOARD OF COMMISSIONERS Dilo Seno Widagdo

President Commissioner

Makhdum Priyatno

Commissioner

Hufron

Commissioner

BOARD OF DIRECTORS Ahmad Cahyadi

President Director

Ariadi

Director

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

87

PT PGN LNG INDONESIA PT PGN LNG Indonesia (PLI) is the subsidiary company of PGN, established on 26 June 2012 that has the objective to develop LNG business in PGN Group. The scope of PLI’s business activities cover the procurement of LNG supply sources, natural gas liquefaction into LNG; LNG and natural gas distribution and transportation, storage and LNG regasification, other relevant business activities that support the business activities of PGN LNG. Currently, PLI operates a Floating Storage Regasification Unit (FSRU) which located 21 km at the offshore of Labuan Maringgai (Lampung), with an LNG storage capacity of 170,000 m3 and send out capacity of 240 MMscfd. The FSRU Lampung that connected with yoke mooring tower, offshore pipelines for 24 km long, and Onshore Receiving Facility (ORF) in Labuhan Maringgai has the important role in supporting the reliability of supplies for the PGN’s South Sumatera West Java (SSWJ) transmission network. The PGN LNG’s market development strategy is focused on the market segment target with dominant gas consumption, which are power plants, industrial region, and smelters. One of the initiatives of PGN LNG’s market development, that is by targeting the small scale of LNG business with the break bulking supply of FSRU Lampung. The break bulking initiative will become the supply solutions for the center needs with locations spread out in West Indonesia and improve the utilization of FSRU Lampung. Going forward, PGN LNG is committed to build and operate the LNG facilities and infrastructure in the eastern part of Indonesia in order to support the Government’s program to accelerate the economic development in the eastern of Indonesia region. On 31 December 2016, the compositions of the Board of Commissioners and the Board of Directors of PLI were as follows:

BOARD OF COMMISSIONERS Danny Praditya

President Commissioner

Djoko Siswanto

Commissioner

Hambra

Commissioner

BOARD OF DIRECTORS Mugiono

President Director

Joko P Gunawan

Director of Technic and Operation

Eri Surya Kelana

Director of Finance and Administration

88

Company Profile

PT PGAS TELEKOMUNIKASI NUSANTARA PT PGAS Telekomunikasi Nusantara (PGASCOM) is the Subsidiary Company of PGN that engages in the telecommunication network business, established in 2007. The main business activity of PGASCOM is ICT Solution that covers the Data Communication & Internet Solutions, Business Solutions, and Managed Services. PGASCOM has the exclusive rights from PGN to manage and operate PGN’s fiber optic networks for 1,300 km long from Jakarta to the border of Singapore with capacity up to 160GBps and use 24 up to 96 cores optic cables. As the provider of the reliable backbone, PGASCOM that its 99.93% shares owned by PGN and the 0.07% owned by PGN Retirement and Employee Welfare Foundation (YKPP PGN), has a subsidiary namely PT Telemedia Dinamika Sarana (“TDS”) and PGAS Telecommunication International Pte Ltd (“PTI”) domiciled in Singapore. PGASCOM has licenses to support its businesses, which are the Closed Fixed Network License, the Principle License of a Packet Switched-based Local Fixed Network (JARTAPLOK) Implementation, Landing Right License, Network Access Provider License and through its subsidiary, TDS that has the Internet Service Provider License and PTI that has the Service Based Operator (“SBO”) License issued by the Infocomm Development Authority (“IDA”) of Singapore. Currently, PGASCOM has been operating in 13 cities in various regions of Sumatera and Java. On 31 December 2016, the compositions of the Board of Commissioners and the Board of Directors of PGASCOM were as follows:

BOARD OF COMMISSIONERS Muhammad Wahid Sutopo

President Commissioner

Roedy Poerwanto

Commissioner

Anak Agung Gde Ngurah Ari

Commissioner

Dwipayana

BOARD OF DIRECTORS Sri Budi Mayaningsih

President Director

Bambang Ismartono

Director of Technic and Operation

Noor Diana Prasetyawati

Director of Finance and Administration

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

89

PT TRANSPORTASI GAS INDONESIA PT Transportasi Gas Indonesia (TGI) is the owner as well as the operator of a leading natural gas pipeline in Indonesia. The Shareholders of Transgasindo are PGN, Transasia Pipeline Company Pvt. Ltd. and Yayasan Kesejahteraan Pegawai Perusahaan Umum Gas Negara (PGN’s Employees Welfare Foundation) with the respective shares ownership of 59.87%, 40% dan 0.13%. Transgasindo is the first Indonesian Company that focuses its business in the natural gas transportation, either for domestic markets in Sumatera and Batam or international market in Singapore. With an experience of more than 10 years in the natural gas transportation business and the zero-down time commitment as well as the operational that is environmentally sound, Transgasindo is one of the trustable transporters with pipelines network more than 1.000 km both in land and sea. Transgasindo operates Grissik – Singapura pipelines for 470 km long and Grissik – Duri, Riau for 536 km long. Transgasindo also operates several compressor stations in Sakernan, Belilas and Jabung (Sumatera), also meter stations in Duri – Riau, Panaran, Batam, and Pemping, Riau Islands. All pipeline networks and stations are monitored for 24 hours, 7 days a week by special facilities. On 31 December 2016, the compositions of the Board of Commissioners and the Board of Directors of Transgasindo were as follows:

BOARD OF COMMISSIONERS Nusantara Suyono

President Commissioner

Abdul Razak Saim

Vice President Commissioner

Heri Yusup

Commissioner

Andrew Thompson

Commissioner

Tumbur H.P Nainggolan

Commissioner

BOARD OF DIRECTORS Irawati

President Director

Doddy Adianto

Director of Technic

Zuryati Simbolon

Director of Finance and Administration

Abdul Rashid bin Mukri

Director of Operation

Gadang Marpaung

Director of Business Development

90

Company Profile

PT PGAS SOLUTION PT PGAS Solution (PGAS Solution) is the Subsidiary Company of PGN that was established on 6 August 2009 with 4 main focusses, namely: Operation & Maintenance, Engineering, EPC, Trading. The Shareholders of PGASSOL are PGN and Yayasan Kesejahteraan Pegawai dan Pensiunan Gas Negara (PGN’s Retirement and Employees Welfare Foundation) with the respective shares ownership of 99.91% and 0.09%. In order to be more competent in the technical area, PGAS Solution established a subsidiary in the technical and engineering business that is PT Solusi Energi Nusantara (SENA). SENA was established on 20 April 2015 and has the main business activity that is providing engineering services in the oil and gas industry which covers the pipeline, mechanical, electrical, geodetic, civil, process dan telemetry sectors. The Shareholders of SENA are PGAS Solution and PERMATA with the respective shares ownership of 99.9% and 0.1%. On 31 December 2016, the compositions of the Board of Commissioners and the Board of Directors of PGASSOL were as follows:

BOARD OF COMMISSIONERS Hendi Kusnadi

President Commissioner

Edi Purnomo

Commissioner

Fahmi Harsandono

Commissioner

Susyanto

Commissioner

BOARD OF DIRECTORS Sulistyo Elly Hariyanto

President Director

Chaedar

Director

Yosviandri

Director

Yoga Trihono

Director

PT PERMATA GRAHA NUSANTARA PT Permata Graha Nusantara (PERMATA) is the Subsidiary Company of PGN that engages in the business of Facility Management services, including the provisions of manpower, Asset Management, Entrepreneurial Real Estate, Archival Management, Real Estate/Developer, and other businesses. The Shareholders of Permata are PGN and PGAS Solution with the respective shares ownership of 99.95% and 0.05%. To support the provisions of manpower services business, Permata established PT Permata Karya Jasa (“PERKASA”). The shares ownerships of PERKASA are PERMATA by 75% and Yayasan Kesejahteraan Pegawai dan Pensiunan Gas Negara (PGN’s Retirement and Employees Welfare Foundation) by 25%. At the end of 2016, the compositions of the Board of Commissioners and the Board of Directors of Permata were as follows:

BOARD OF COMMISSIONERS Hendi Kusnadi

President Commissioner

Suprijanti

Commissioner

BOARD OF DIRECTORS Adrian Priohutomo

Direktur Utama

Supriyadi

Director of Finance and Administration

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

91

PT NUSANTARA REGAS PT Nusantara Regas (NR), is a joint venture company between PT Pertamina (Persero) and PGN that was established on 14 April 2010 which has scope of business activity that covers the natural gas trading business, among others the procurement of Floating Storage Regasification Unit (FSRU) facilities, procurement of storage and floating regasification facilities, including but not limited to gas transportation facilities and the relevant facilities/infrastructure. Not only expected to be able to handle the gas supply needs to power plants belong to PLN and some industrial players in West Java. The NR’s establishment is also intended to support the diversification of gas supply in Indonesia and at the end provides a contribution to the development of national energy that is reflected especially in the optimization of capacity utilization of FSRU infrastructure and regasification terminal services. The compositions of the Board of Commissioners and the Board of Directors of NR at 31 December 2016 were as follows:

BOARD OF COMMISSIONERS Yenni Andayani

President Commissioner

Tanudji Darmasakti

Commissioner

Mugiono

Commissioner

Ferry Andrianto

Commissioner

BOARD OF DIRECTORS Tammy Meidharma

President Director

Bara Frontasia

Director of Operation and Commercial

Dadang Gandara

Director of Finance and General Services

92

Company Profile

PT KALIMANTAN JAWA GAS PT Kalimantan Jawa Gas (“KJG”) is a limited liability company that was established on 23 July 2013. KJG engages in the natural gas transportation business, with the composition of KJG’s shares ownerships is PT Permata Graha Nusantara by 80% and PT Bakrie & Brothers, Tbk by 20%. In 2016, KJG undertook natural gas transportation through Kalija I natural gas transmission pipelines for ± 200 km long extending from Kepodang Field owned by Petronas Carigali Muriah Limited (“PCML”) to PT Indonesia Power (PT Perusahaan Listrik Negara (Persero))’s power plant unit in Tambak Lorok. That gas transportation has been started since 22 August 2015 and has been transporting since January 2016 until December 2016 as much as 33,396.25 MMscf. On 31 December 2016, the compositions of the Board of Commissioners and the Board of Directors of KJG were as follows:

BOARD OF COMMISSIONERS Dilo Seno Widagdo

President Commissioner

Ade Erlangga Djarwo

Vice President Commissioner

Montty Girianna

Commissioner

Surat Indrijarso

Commissioner

BOARD OF DIRECTORS Ismet S.A. Pane

President Director

Bambang Banyudoyo

Vice President Director

Cahyo Triyogo

Director of Technic and Operation

Rigo Supratman

Director of Finance and Administration

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

93

STOCK LISTING CHRONOLOGY On 5 December 2003, the Company obtained an effective statement from the Capital Market Supervisory Agency to conduct an Initial Public Offering to the public amounted to of 1,296,296,000 shares, which consisted of 475,309,000 shares from shares divestment of the Government of the Republic of Indonesia, the Company’s shareholders, and 820,987,000 new shares, with total shares, amounted to 4,320,987,000 shares. The Company’s shares were listed on the Indonesia Stock Exchange on 15 December 2003 with the trading transaction code ”PGAS”.

STOCK SPLIT Based on the Extraordinary General Meeting of Shareholders of PT Perusahaan Gas Negara (Persero) Tbk which was held in Jakarta on 13 June 2008, the PGAS stock split with a ratio of 1 (one) share with nominal of Rp500 (five hundred rupiah) per share exchanged with 5 (five) shares with nominal of Rp100 (one hundred rupiah) per share, so that the number of shares which originally was 4,593,437,193 shares to 22,967,185,965 shares. The fractions of new shares were effective on the Indonesia Stock Exchange on 4 August 2008.

MANAGEMENT AND EMPLOYEE STOCK OPTION PLAN (MSOP/ESOP) By the end of 2007, the amount of the Company’s shares was increase 218,898,805 shares to 4,539,885,805 shares as a result of Government’s loan conversion to Company and the Management Stock Option Plan (MSOP). On 15 January until 14 February 2008, from exercise window of the Employee Stock Option Plan (ESOP) it was recorded 54,012,338 stock option rights were distributed. From such amount, it was recorded 53,551,388 stock options were executed and generated new Series B shares amounting to 53,551,388 shares. Hence, the total number of the Company’s shares increased to 4,593,437,193 shares. Other than that, after the expiry of ESOP, in 2008 a stock split was also undertaken which change the number of the Company’s shares.

SHARES BUYBACK Based on the Extraordinary General Meeting of Shareholders of PT Perusahaan Gas Negara (Persero) Tbk which was held in Jakarta on 22 December 2008, the Company repurchase the outstanding shares amounted to 1,850,000 shares on 24 October 2008. With this shares buyback, then at the end of 2008, the Company has 1,850,000 shares as Treasury Stocks and the total number of outstanding shares amounted to 22,967,185,965 shares. Bythe end of 2009, the number of the Company’s shares increased by 1,274,.322,231 shares, as the resultof the Government’s loan conversion to the Company in April and October 2009 therefore the total number of the Company’s shares to 24,241,508,196 shares. The number of shares at the end of the 2010 fiscal year by the end of 2015 was 24,241,508,196 shares with the Government of the Republic of Indonesia’s ownership amounted to 13,809,038,756 shares (56.96%), public amounted to 10,432,469,440 shares (43.04%) which consist of 10,430,619,440 free float shares and 1,850,000 treasury stocks .

94

Company Profile

THE HISTORY OF THE NUMBER OF PGN’S SHARES

No

Remarks

1 Before IPO 2

The State of the Republic of Indonesia (shares) 3,500,000,000

(864,198,000)

The issuance of new shares without pre-emptive rights

5

DPP 1 Conversion (2004)

1,685,185,000

100%

4,320,987,000

61.00%

4,539,885,805

59.31%

4,539,885,805

55.22%

56,943,305 108,024,675

MSOP 2 (2006-2007)

53,930,825

Divestment (December 2006)

2,692,745,305

1,847,140,500

(185,802,000)

185,802,000

2,506,943,305

2,032,942,500

2,506,943,305

2,086,493,888

4,593,437,193

54.58%

12,534,716,525

10,432,469,440

22,967,185,965

54.58%

MSOP 3 (2007-2008)

Stock Split 5:1 (August 2008)

7

Buy Back (October 2008)

53,551,388

(1,850,000)

1,850,000

10,430,619,440

1,850,000

22,967,185,965

54.58%

10,430,619,440

1,850,000

23,959,910,137

56.46%

13,809,038,756

10,430,619,440

1,850,000

24,241,508,196

56.96%

13,809,038,756

10,430,619,440

1,850,000

24,241,508,196

56.96%

12,534,716,525 Stage 1 DPP 2 Conversion (April 2009)

992,724,172 13,527,440,697

9

3,500,000,000

864,198,000

MSOP 1 (2005-2006)

6

8

Total (shares)

820,987,000 2,635,802,000

4

Treasury (shares)

Ownership Percentage of the State of the Republic of Indonesia

IPO (15 December 2003) listed in the JSX* and SSX* Divestment

3

Public (shares)

Stage 2 DPP 2 Conversion (October 2009)

10 The number of shares at the end of 2016 fiscal year

281,598,059

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

95

THE CHRONOLOGY OF OTHER SECURITIES LISTING AND SECURITIES RATING On 23 April 2014, the Company had obtained the Approval in-principal from Singapore Exchange Securities Trading Limited (SGX-ST) to listing its Senior Notes with a principal aggregate value up to USD1,400,000,000 and tenor of 10 years with the Singapore Exchange (SGX). That Senior Notes was offered and sold to the qualified institution buyers, based on Rule 144A from US Securities Act in the United States of America territory and Regulation S of US Securities Act for transactions outside the United States of America territory. The Company issued a Senior Notes prospectus on 12 May 2014, with the aggregate offering principal value amounted to USD1,350,000,000, 10 years tenor, acoupon rate of 5.125% per annum with offering price 99.037% of the nominal value (Senior Notes due 2024). The interest of Senior Notesdue 2024 was paid on 16 November and 16 May each year, with the first interest payment on 16 November 2014. Senior Notes due 2024 will expire on 16 May 2024. Senior Notes due 2024 received a “Baa3” rating from Moody’s Investors Service, Inc., “BB+” rating from Standard & Poor’s Rating Group and “BBB-“ rating from Fitch Ratings Ltd. Senior Notes due 2024 wasofficially listed and traded in SGX on 19 May 2014. The Company is required to provide buyback entire outstanding Senior Notes due 2024 at a price of 101% from principal aggregate value in case of events that can be categorized as the Change of Control Triggering Event. Currently, no changes occurred in the number of outstanding Senior Notes due 2024 since from the beginning of listing until the end of 2016 fiscal year.

PGN’s Credit Rating

In 2016, an increase i on PGN’scredit ratings outlook occurred. This provides a positive perception on the company’s ability to meet its long-term liabilities.

2015-2016 CREDIT RATINGS COMPARISSON 2016 Rating Agencies

2015

Rating

Outlook

Rating

Outlook

Moodys

Baa3

Stable

Baa3

Stable

Fitch Ratings

BBB-

Positive

BBB-

Stable

BB+

Positive

BB+

Stable

idAAA

Stable

idAAA

Stable

S&P Pefindo

96

Company Profile

NAMES AND ADDRESSES OF CAPITAL MARKET SUPPORTING INSTITUTIONS OR PROFESSIONALS SHARE REGISTRAR PT Datindo Entrycom Puri Datindo-Wisma Sudirman Jl. Jend. Sudirman Kav. 34–35 Jakarta Pusat 10220 T. (62-21) 5709009 F. (62-21) 5709020 PT KUSTODIAN SENTRAL EFEK INDONESIA (KSEI) Gedung Bursa Efek Indonesia Tower 1 Lt.5 Jl. Jend. Sudirman kav. 52-53, Jakarta 12190 Indonesia T. (62-21) 515 2855 F. (62-21) 5299 1199 SECURITIES ADMINISTRATION BUREAU The first time appointed as the sSecurities Administration Bureau is based on the Agreement of Shares Administration Management with regard to PGN’s Initial Public Offering (IPO) PGN with contract No. 030.KK/92/UT/2003 made and signed on 10 October 2003. KANTOR AKUNTAN PUBLIK TANUDIREDJA, WIBISANA, RINTIS & REKAN PT Prima Wahana Caraka PT PricewaterhouseCoopers Indonesia Advisory PT PricewaterhouseCoopers Consulting Indonesia Plaza 89 Jl. H.R. Rasuna Said Kav. X-7 No. 6 Jakarta 12940 - INDONESIA P.O. Box 2473 JKP 10001 T: +62 21 5212901 F: +62 21 52905555 / 52905050 www.pwc.com/id

STANDARD & POOR’S RATING SERVICES 12 Marina Boulevard #23-01 MBFC Tower 3 Singapore 018982 T. (65) 6530 6521 F. (65) 6438 2320 PT PEMERINGKAT EFEK INDONESIA (PEFINDO) Panin Tower Senayan City Lantai 17 Jl. Asia Afrika Kav. 19 Jakarta 10270 Indonesia T. (62-21) 7278 2380 F. (62-21) 7278 7370 MOODY’S INVESTORS SERVICES SINGAPORE PTE. LTD. SDF 50Raffles Place #23-06 Singapore Land Tower Singapore 048623 T. (65) 6398 8300 FITCH RATINGS SINGAPORE PTE LTD 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 T.(65) 6796 7200 F.(65) 6336 6802

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

SECURITIES ADMINISTRATION BUREAU PT Datindo Entrycom provides the secondary market administration services whereby PT Datindo Entrycom responsible for the preserverence of the shareholders’ list and recorded changes on the shareholders’ list on behalf of the issuer. The Company issued an annual fee on the secondary administrative services for 2015 amounted to Rp44,000,000,- (including VAT). PUBLIC ACCOUNTANT FIRM Based on the recommendation of the Board of Commissioners, the Company has appointed an external auditor in accordance with the PGN’s Annual General Meeting of Shareholders on 8 April 2016, which one of the agenda is to approve the Public Accountant Firm(PAF) of Tanudiredja, Wibisana, Rintis & Partners (PricewaterhouseCoopers Indonesia), which is a PAF registered in the Capital Market Supervisory Agency to conduct General audit services on the PGN Consolidated Financial Statement for 2016 Fiscal Year, General audit on the Company’s financial statement of Partnership and Environmental Development Programs for 2016 Fiscal Year, Audit on the compliance to regulatory and internal control of 2016, and Evaluation on the Company’s performance for 2016 fiscal year that ended on 31 December 2016 and Key Performance Indicator (KPI) as determined by the Board of Commissioners. Total fees incurred for this services implementation in 2016 amounted to Rp4,273,000,000 (including OPE and PPN).

Company Profile

97

The PAF of Tanudiredja, Wibisana, Rintis & Partners (Pricewaterhouse Coopers Indonesia) became the Company’s auditor since the 2016 fiscal year. That PAF has completed its tasks independently according to public accountant professional standards, work agreement, and the audit scope that has been set. The PAF of Tanudiredja, Wibisana, Rintis & Partners provided no other consultation services to PGN. The accountant who signed the Independent Auditor Report for 2016 Fiscal Year is Yusron, S.E., Ak., CPA. INDONESIA STOCK EXCHANGE The Indonesia Stock Exchange is an institution that engages and provides a system and or facilities to unite the sales offer and buy demand of the other parties effects with the objective of securities trading. Therefore, PGN as the Public Company shall submit reports, events, material information or facts that relate to the Company to the Indonesia Stock Exchange. PGN was registered on the Indonesia Stock Exchanges on 15 December 2003. The annual fee for 2015 amounted to Rp247,500,000 (including VAT). INDONESIAN CENTRAL SECURITIES DEPOSITORY The Company that its effects registered in KSEI use KSEI services to administer the issued effects, among others to obtain data of parties who hold the effects and as part of distribution process of the corporate actions, the Company issued an annual fee for membership for 2015 amounted to Rp11,000,000 (including VAT).

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Company Profile

AWARDS AND CERTIFICATIONS 01

02

05

06

09

13

03

04

07

10

08

11

14

12

15

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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99

AWARDS FOR 2016

01 BEST SUSTAINABILITY AWARD REPORT 2015 Category Best Overall awarded by The National Center For Sustainability Reporting (NCSR)

04 TOP INFRASTRUCTURE 2016

Awarded by Business News on the category of Top Infrastructure on Energy Sector 2016.

07 INDONESIA GREEN AWARD 2016

On the Category of Flora and Fauna Conservation and energy conservation, development of new energy and renewable energy from The La Tofi School of CSR.

02 BEST GCG

Achieve very good (A) for Energi category from Indonesia Good Governance Award II 2016 Economic Review.

05 THE BEST ROLE OF STAKEHOLDERS

Awarded by Indonesia Institute for Corporate Directorship.

08 MINISTER OF EMPLOYMENT AWARD

Award as the implementation of P2-HIV and AIDS Education.

03 THE WINNER OF BEST SUSTAINABILITY REPORT 2015 Sustainability Report Award 2016, category Energy awarded by The National Center For Sustainability Reporting (NCSR).

06 PATRA NIRBHAYA KARYA UTAMA

Awarded by The Minister of Energy and Mineral Resources.

09 ASEAN OSHNET

Awarded as the representative of Indonesia on ASEAN Occupational Safety and Health Network.

CERTIFICATION OWNED BY PGN

10 CERTIFICATION OF AUDIT

Certification on Occupational Safety and Health Management System.

13 WINNER SUSTAINABLE FINANCE AWARD

Awarded by Otoritas Jasa Keuangan.

11 CERTIFICATION OF ISO 14001:2004 CERTIFICATION Certification on Implementing the Environment Management System.

14 MINISTER OF EMPLOYMENT AWARD Awarded for safety work environment.

12 CERTIFICATION OF OHSAS 18001:2007 Certification OHSAS on Implementing Safety and Health on Work Environment Management System.

15 MINISTER OF ENVIRONMENT AND FORESTRY AWARD

Awarded as Proper Blue Class on 2015 2016.

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Company Profile

NAMES AND OFFICE ADDRESSES OF SALES AREA, SUBSIDIARY AND AFFILIATED COMPANIES SALES AREA OFFICE Jakarta Sales Area Jl. Anyer No. 11 Menteng Jakarta 10310, Indonesia T. (62-21) 392 4910 F. (62-21) 315 0361 Bogor Sales Area Jl. MA Salmun No 41 Bogor 16114, Indonesia T. (62-251) 8314 506 (62-251) 8316 600 F. (62-251) 8320 168 Tangerang Sales Area Jl. Pahlawan Seribu Kavling Komersil Blok AH No. 2 Sektor IIB BSD Tangerang, Indonesia T. (62-21) 538 4414 F. (62-21) 538 0035 (61-21) 537 9271 Cilegon Sales Area Jl. Raya Merak Km. 115 Kel. Rawa Arum Kec. Grogol, Cilegon Banten 42436, Indonesia T. (62-254) 574 964 (62-254) 574 968 F. (62-254) 574 988

Karawang Sales Area Jl. Ahmad Yani No.54 Karang Pawitan Karawang 41315, Indonesia T. (62-267) 8454 081 (62-267) 8454 084 F. (62-267) 8454 085 Bekasi Sales Area Jl. Boulevard Selatan Ruko Sinpansa Blok SA 11 – SA 12 Sumarecon Bekasi 17142, Indonesia T. (65-21) 2957 2216 F. (62-21) 2927 5515 Lampung Sales Area Gedung Sucofindo Lt. 3 Jl. Gatot Subroto No. 161 Pecoh Raya Tahoman Bandar Lampung, Indonesia T. (62-721) 8018 356 F. (62-721) 8018 042 Cirebon Sales Area Jl. Veteran No.2 Cirebon 45124, Indonesia T. (62-231) 203 323 (62-231) 204 486 F. (62-231) 205 046

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Palembang Sales Area Jl. Rimba Kemuning Lorong Ogan No. 26 – 28 RT 09 RW 05 Kel. Ario Kemuning, Kec. Kemuning Palembang 30128, Indonesia Palembang 30135, Indonesia T. (62-711) 5611 645 F. (62-711) 5611 162 Surabaya Sales Area Jl. Raya Ngagel 129-131 Surabaya 60271, Indonesia T. (62-31) 5028 565 F. (62-31) 5018 127 Sidoarjo Sales Area Jl. Jaksa Agung Suprapto No. 17 Sidoarjo 61218, Indonesia T. (62-343) 8050 999 F. (62-343) 8956 782 Pasuruan Sales Area Jl. Raya Rembang Industri Raya No. 3Kompleks PIER Rembang Pasuruan 67152, Indonesia T. (62-343) 744 440 F. (62-343) 728 293 Semarang Sales Area Jl. Diponegoro No. 35 Semarang 50133, Indonesia T. (62-24) 8644 9100 F. (62-24) 8644 9099

Company Profile

Medan Sales Area Jl. Imam Bonjol No. 15 D Medan 20112, Indonesia T. (62-61) 453 8655 F. (62-61) 415 2396 Batam Sales Area Gedung Batam Centre Jl. Engku Putri Batam Centre Batam 29641, Indonesia T. (62-778) 467 299 F. (62-778) 467 399 Pekanbaru Sales Area Komplek Sudirman City Square Blok C No. 12 Jl. Jend Sudirman Pekanbaru 28282, Indonesia T. (62-761) 839 822 (62-761) 789 1533 (62-761) 789 1812 F. (62-761) 839 811

101

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Company Profile

BUSINESS UNIT

SUBSIDIARY COMPANIES

Business Unit Infrastructure and Operations Gedung Graha PGAS Lantai 4,6 & 8 Jl. K.H. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 6386 6667 (62-21) 6386 6669 F. (62-21) 6386 6770 (62-21) 6386 6760

PT Transportasi Gas Indonesia (Transgasindo) Jl. Kebon Sirih Raya No. 1 Jakarta 10340, Indonesia T. (62-21) 315 8929 (62-21) 315 8939 F. (62-21) 310 3757 (62-21) 310 3545

Business Unit Gas Product Gedung Graha PGAS Lantai 9 Jl. K.H. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 6386 6667 (62-21) 6386 6669 F. (62-21) 6386 6770 (62-21) 6386 6760 Program Management Office Infrastructure Gedung Graha PGAS Lantai 8 Jl. K.H. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 6386 6667 (62-21) 6386 6669 F. (62-21) 6386 6770 (62-21) 6386 6760 Unit Layanan Jaringan gas Rumah Tangga Gedung Graha PGAS Lantai 5 Jl. K.H. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 6386 6667 (62-21) 6386 6669 F. (62-21) 6386 6770 (62-21) 6386 6760

PT PGAS Telekomunikasi Nusantara (PGASCOM) Kompleks Gedung PGN Gedung B Lt. 4 Jl. KH. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 633 1345 (62-21) 3000 7645 (62-21) 3000 7427 F. (62-21) 633 1381 PT PGAS Solution (PGASSOL) Kompleks Gedung PGN, Gedung C, Lt. 4 Jl. K.H. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 6385 4557 (62-21) 6385 4572 (62-21) 6385 4506 F. (62-21) 6385 4534 PT Saka Energi Indonesia (SEI) The Energy Building Lantai 11-12, SCBD, Lot 11a Jl. Jend. Sudirman Kav. 52-53, Jakarta 12190, Indonesia T. (62 21) 2995 1000 F. (62 21) 2995 1001

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Company Profile

AFFILIATED COMPANIES PT Gagas Energi Indonesia (GEI) Kompleks Gedung PGN Gedung B Lt. 9 - 10 Jl. KH. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 29071415 F. (62-21) 29071138 / 1140

PT Kalimantan Jawa Gas (KJG) Kompleks Gedung PGN Gedung B Lt. 2 Jl. KH. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 6385 4534 F. (62-21) 633 1632

PT PGN LNG Indonesia (PLI) Kompleks Gedung PGN Graha PGAS Lt. 2 Jl. KH. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 2907 3266 / 2907 3267 F. (62-21) 2907 1133 / 2907 1132

PT Nusantara Regas (NR) Wisma Nusantara Lt. 19 Jl. M.H. Thamrin No. 59 Jakarta 10350, Indonesia T. (62-21) 315 9543 (62-21) 315 9544 F. (62-21) 315 9525

PT Permata Graha Nusantara (PERMATA) Kompleks Gedung PGN Gedung B Lt. 8 Jl. KH. Zainul Arifin No. 20 Jakarta 11140, Indonesia T. (62-21) 633 1180 F. (62-21) 634 0031

PT Gas Energi Jambi (GEJ) Jl. Jend. A. Yani No. 17 Telanaipura, Jambi T. (62-741) 670 207 F. (62-741) 670 207 PT Banten Gas Synergi (BaGS) Kantor Taman E3.3 Unit D6 Kawasan Mega Kuningan Lot 8.6-8.7 Setiabudi, Jakarta 12950 T. (62-21) 5794 8870 (62-21) 5794 8871 F. (62-21) 5794 8870 (62-21) 5794 8871

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104

Company Profile

IMPORTANT EVENTS

01

02

05

07

10

03

08

11

09

12

15

10 13

16

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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105

01

02

03

JANUARY 2016

MARCH 2016 The PGN’s natural gas for Household Customers segment had began consumed in Cilegon, West Java. This development to Cilegon was a form of PGN’s commitment to improve the natural gas accessibility to various segment of customers in area where PGN has been operated.

04

MARCH 2016 The implementation of Innovation of Natural Gas Distribution Modes through CNG Cradle in Surabaya and Jakarta. With the CNG Cradle, Customers of commercial sector nowdays is able to register as customer even though there is no gas network available around the location.

MARCH 2016 PGN implemented the operation of City Gas Network Assignment from the Ministry of Energy and Mineral Resources in Semarang. The Government assigned PGN to managed 3,898 Housing Connections in Sorong.

05

06

07

08

APRIL 2016 PGN found gas reserves of 500 BCF in South Sesulu work area, off-shore of East Kalimantan through its subsidiary company PT. Saka Energi Indonesia.

APRIL 2016 PGN received an ASEAN OSHNET award (an award in the occupational safety and health area).

MAY 2016 PGN’s 51st anniversary.

10

11

PGN implemented the operation of City Gas Network Assignment from the Ministry of Energy and Mineral Resources in Tarakan . The Government assigned PGN to managed 3,366 Housing Connections in Tarakan .

APRIL 2016 The PGN’s General Meeting of Shareholders have agreed to the changes of BOC and BOD as well as dividends distribution amounted to Rp. 2.2 trillion.

09 JUNI 2016 SPBG di Kota Batam siap dioperasikan. SPBG ini memiliki kapasitas 30.000 LSP per-hari.

JUNE 2016 PGN completed the expansion of distribution pipeline development in East Java which covers Mojokerto, Jombang up to Pasuruan areas. This distribution network could distribute gas up to more than 50 MMscfd.

JUNE 2016 The operation of Mobile Refueling Unit (MRU) in Antapani Terminal, Bandung to serves public transportation and personal vehicles.This MRU has a capacity of 9.000 LSP per-day..

12 JULY 2016 PGN implemented the operation of City Gas Network Assignment from the Ministry of Energy and Mineral Resources in Blora District. The Government assigned PGN to managed 4,000 HousingConnections in Blora District. With the operation of such gas network, then PGN has operated Gas Networks in 19 Cities – 10 Provinces in Indonesia.

13

14

15

16

JULY 2016 The Gas Refueling Station in Bandar Lampung City was ready for operation. This Gas Refueling Station has a capacity of 30,000 LSP per-day.

JULY 2016 The subsidiary company PT. Gagas Energi Indonesia (“Gagas”), reached 1,000,000 safe work hours in the operation of Gas Refueling Stations and other supporting operational activities.

AUGUST 2016 PGN implemented various social activities at the SOE Hadir Untuk Negeri Program in West Nusa Tenggara with regard to the Independence Day of the Republic of Indonesia.

AUGUST 2016 PGN was assigned to undertake the construction and operation of the natural gas pipelines project of WNTS from Pemping Island to Batam by the Government. This pipeline will deliver the gas from Natuna to PGN’s integrated infrastructures..

106

Company Profile

18

22

17

17

18

AGUSTUS 2016 PGN gas network are expanded to customer in Sidoarjo, Neglasari. Starting from residential to industrial customer.

SEPTEMBER 2016 PGN found a new oil source in the Sidayu Empat Field, Pangkah Block East Java through its subsidiary company PT. Saka Energi Indonesia. Such reserves is estimated to have oil reserves amounting to 300 MBOE and expected to produce in 2019.

21

22

DECEMBER 2016 PGN became the Winner of 2016 Sustainability Report in the Energy Category and also received an award as the General Champion or Best Overall RA 2016 from the National Center for Sustainability Reporting.

DECEMBER 2016 PGN received the Best GCG award with criteria “A” from the Economic Review.

19

20

SEPTEMBER 2016 PGN achieved the Best Human Capital Index Effectiveness for the category of Energy and Mining Sector from Indonesia Human Capital Study.

SEPTEMBER 2016 PGN received an IDX Top Ten Blue 2016 award from the Indonesia Stock Exchange. The IDX Top Ten Blue is an award for the company whose shares registered as the most liquid traded by investors.

23 DECEMBER 2016 PGN received the Sustainable Finance Award for Public Listed Company category from the Financial Services Authority (“FSA”).

PT Perusahaan Gas Negara (Persero) Tbk Annual Report Laporan Tahunan 2016 2016

MANAGEMENT’S DISCUSSIONS AND ANALYSIS

Company Profile

04

107

04

MANAGEMENT’S DISCUSSIONS AND ANALYSIS

109

Analisis Profil Perusahaan dan Pembahasan Manajemen

PT Perusahaan Gas Negara (Persero) Tbk Laporan Tahunan 2015 2016

03

110

Management’s Discussion and Analysis and Analysis Management’s Discussions

PT Perusahaan Gas Negara (Persero) Tbk Annual Report Laporan Tahunan 2014 2014

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

111

Management’s Discussions and Analysis

MANAGEMENT’S DISCUSSION AND ANALYSIS

Hendi Prio Santoso

Nusantara Suyono

Dilo Seno Widagdo

Muhammad Wahid Sutopo

Danny Praditya

Hendi Kusnandi

To be World Class Energy Company in Gas Sector in 2020 PGN has transformed and strengthen its Group Synergy in facing global economic challange in order to improve its value added to entire natural gas value chain from upstream to downstream

112

Management’s Discussions and Analysis

This Annual Report contains statements that are characterized as “forward-looking statements” concerning the future events within the meaning set out in foreign investment law. Future event information typically contains statements using sentences began with or containing meanings of “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “propose,” or equivalent words suggesting future outcomes or statements regarding an outlook. Every statement, other than statements of historical facts contained within this annual report, including but not limited to matters regarding future financial position and results of operations and strategy, plan and objective, goal and target, with respect to matters related to development or expansion, dividend payment, as well statements preceeded by, followed by, or that contain words “believe,” “expect,” “aim,” “intend,” “will,” “may,” “project,” “estimate,” “target,” “anticipate,” “predict,” “seek,” “shall” or equivalent words with statements related to future events. Future events using forward-looking statements include known and unknown risks, uncertainties and other factors that are beyond the control of the Company, which may bring upon the actual result, performance or achievement, where they are materially different from the Company’s future plan, performance, or achievement as expressed by these forwardlooking statements within this annual report. Forward-looking statements contained within this annual report are stated based on various assumptions in regards to the present and future business strategy and also the environment where the Company will be operating in the future. Readers of this annual report are reminded that forward-looking statements are not and shall never be the kind of statements that provide guarantee of the Company’s work performance in the future for the actual result of the Company’s work performance and condition in the future may differ materially from what are stated, projected or assumed within those forward-looking statements. Important factors that may cause actual conditions, performance or achievement of the Company to differ materially from those stated in the prospective statement include but are not limited to the following: • Changes in regulations in Indonesia, both those that directly as well as indirectly affect the operations of the Company. • Changes in government policies in the area of oil and gas areas. • The economic, national, regional or global conditions that affect the economic activities or disturbance of the market due to global factors. • Changes due to inflation, due to interest rate differential, or due to difference in currency convertability. • Others (if there are other matters related to PGN’s businesses that may influence forwardlooking statements within this annual report). The following management and discussion analysis is intended as an explanation of Company’s performance and refers to PGN’s Consolidated Financial Report of PGN dated December 31, 2016 which are audited by Public Accounting Firm (KAP) Tanudiredja, Wibisana, Rintis & Partners (PricewaterhouseCoopers Indonesia).

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

113

Management’s Discussions and Analysis

BUSINESS SEGMENTS OPERATING OVERVIEW

As a State Owned Enterprise engaged in the transmission and distribution of natural gas, PGN’s business refers to the Oil and Gas Law No. 22 of 2001. It requires the separation of entities engaged in the upstream and downstream, as well as for the benefit of management in running its operations. Therefore, PGN splits the business into 4 (four) segments, namely (1) Transmission / Transportation Business Segment, (2) Distribution / Commerce Business Segment, (3) Oil and Gas Businee Segment, and (4) Other Business Segment including: telecommunication, LNG, buildings and equipment management and leasing, and financial lease. 2016 was the implementation year of second phase of PGN transformation (2016-2020), namely optimizing the full potential to become a world-class leading energy company in Indonesia. In the business of transmission/ transportation and distribution/commerce, transformation marked by restructuring the organization in more effective and strategic ways as well as being active advisor. PGN’s activities, as a Holding Company, became decrease in operational engagement and transferred into strenghtening operational activities in Subsidiaries. At this phase, the organization restructuring carried out by forming two business units to manage operational activities for the achievement of the company’s operations target more effective and efficient. PGN formed two business units, namely Business Unit Infrastructure and Operations (BUIO) as the manager of infrastructure and Gas Business Unit Product (BUGP) as the manager of the commodity. Each business unit will pursue activities to optimize the achievement of the operational targets, both on the growth and the utilization of the infrastructure as well as on the growth of sales volume and customer satisfaction. The restructuring had no impact on the services to PGN’s customers and prospective customers.

PROFITIBILITY PER BUSINESS SEGMENT: Business Segment (in million USD) Revenue Net

Transmission/ Transportation 2016 8.10

2015

Distribution/ Trading

Oil and Gas

2016

2015

7.03

2,539.44

2,612.80

2016 314.11

263.70

2015

Others 2016 73.12

Consolidated 2015

2016

2015

185.26

2,934.78

3,068.79

Segment Expense

(87.06)

(63.15)

(1,655.78)

(1,723.41)

(313.52)

(258.65)

(322.93)

(328.24)

(2,379.29)

(2,373.45)

Profit

(78.96)

(56.12)

883.66

889.39

0.59

5.05

(249.80)

(142.98)

555.49

695.34

114

Management’s Discussions and Analysis

TRANSMISSION/TRANSPORTATION BUSINESS SEGMENT Gas transmission / transportation is the activity of transporting natural gas owned by shipper from recieving points in the form of a gas field or other source to the delivery point through a high-pressure transmission pipelines. In this business segment, PGN operates of transmission pipelines to deliver gas owned by shipper and get benefits in the form of toll fees, in which the amount was stipulated by the Downstream Oil and Gas Regulatory Agency (BPH Migas). The following overviews show the information of the transmission pipelines operated by PGN in transmission / transportation business activities. No.

Transmission Pipeline

Lenghth (Km)

Shipper

1

Wampu – Belawan

37

PLN

2

SSWJ Phase I

378

-

3

SSWJ Phase II

626

Total

PLN

Offtaker

Operator

PLN

PGN

PGN – Distribusi Jawa Bagian Barat

PGN

PGN – Distribusi Jawa Bagian Barat PLN – Muara Tawar

PGN

1.041

In addition to PGN as the operator of the transmission pipelines, there were subsidiaries namely TGI and KJG, which act as the operators of the transmission pipelines with the following overview: No.

Transmission Pipeline

1

Grissik – Duri

2

3

Grissik - Batam Singapura

Kepodang – Tambak Lorok (Kalimantan Jawa I) Total

Lenghth (Km) 536

470

201 1,207

Shipper

Offtaker

ConocoPhillips (Grissik) Ltd.

PT Chevron Pacific Indonesia

PT Energasindo Heksa Karya

PLN - Payo Selincah

PGN

PGN (for RAPP, IKPP, Pertamina Lirik, and Ukui)

PT Pertamina Hulu Jambi Merang Talisman (Jambi Merang) Limited Pacific Oil & Gas (Jambi Merang) Ltd.

PT Chevron Pacific Indonesia

PLN

PLN - Payo Selincah PLN - Rengat PLN - Duri

GEI

PT IKPP

Pertamina

Jargas Kota Jambi

ConocoPhillips (Grissik) Ltd

Gas Supply Pvt Ltd.

ConocoPhillips (South Jambi) Ltd

Gas Supply Pvt Ltd.

PetroChina International Jabung Ltd.

Gas Supply Pvt Ltd.

PGN

PGN – Distribusi Batam PLN Batam

Perusahaan Daerah Pertambangan dan Energi Sumatera Selatan (PDPDE South Sumatera)

PT Lontar Papirus Pulp & Paper Industry (LPPPI)

PT Inti Daya Latu Prima

PGN – Distribusi Batam PLN Batam

PLN Batam

Tanjung Ucang Powerplant

PLN

PLN - Tambak Lorok

Operator TGI

TGI

KJG

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

115

Management’s Discussions and Analysis

Besides transporting natural gas activities through transmission pipelines, as a support for the Government’s CNG fuel convertion program for the transportation sector, PGN also delivered natural gas to several SPBGs appointed by the government as part of the program. In 2016, PGN had delivered gas to seven units of SPBGs located in the Greater Jakarta area. In this activity, PGN obtains compensation for the cost of gas supply to SPBGs, in which the amount was stipulated by the Government.

Operating Performance of Transmission / Transportation Business Segment In 2016, transmission / transportation business segment managed by PGN transported natural gas of 18 MMscfd from 17 MMscfd in 2015. It was influenced by the increase in volume of PGN transmission to Muara Tawar power plants. The Overview on Performance Transmission / Transportation Business Segment operated by PGN as follows:

Transportation

2016 MMscfd

2015 (%)

MMscfd

(%)

∆ (%)

PGN : To SPBG Jakarta To PLN Muara Tawar Total

3

16.7

4

23.5

(25.0)

15

83.3

13

76.5

15.4

18

100.0

17

100.0

5.9

116

Management’s Discussions and Analysis

In 2016, TGI and KJG transported 778 MMscfd of natural gas, from 772 MMscfd in 2015. The increase of 0.8% in this business segment due to higher volume of KJG’s transmission which was already fully operated in 2016. However, there was a decrease in the gas transportation in transmission pipeline operated by TGI which was mainly caused by the decrease of gas supply for oil lifting sector by one of the shippers.

Transportation

2016

2015

∆ (%)

MMscfd

(%)

MMscfd

(%)

TGI

686

88.2

741

95.9

(7.4)

KJG

92

11.8

31

4.0

196.8

778

100.0

772

100.0

0.8

Total

In August 2015, PGN began operating transmission pipeline segment of Kepodang - Tambak Lorok through KJG. This transmission pipeline was used to transport natural gas owned by PLN from the Kepodang Field in Muriah block to PLN’s power plant in Tambak Lorok, Semarang, Central Java. BPH Migas through BPH Migas Regulation No. 10/ 2015 had stipulated the toll fee from Kepodang transmission pipeline segments - Tambak Lorok amounted to USD2.326 / Mscf and effectively applied from the flow of gas to offtaker in August 2015. The pipe section had also received special permission for the determination of BPH Migas according to Decree of the Head of BPH Migas No. 28 / KT / BPH Migas / KOM / 2015. Based on the determination of special rights of transmission pipeline system and determination of toll fees through transmission pipelines by BPH Migas, the following table shows the toll fee of transmission pipelines managed by PGN and its subsidiaries (in USD / Mscf). No 1

Transmission Pipeline Wampu – Belawan

Operator

2016

2015

PGN

0.400

0.400

2

SSWJ Phase I

PGN

1.550

1.550

3

SSWJ Phase II

PGN

1.470

1.470

4

Grissik – Duri

TGI

0.466

0.466

5

Grissik – Batam – Singapura

TGI

0.740

0.740

6

Kepodang – Tambak Lorok

KJG

2.326

2.326

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

117

Management’s Discussions and Analysis

Transmission / Transportation Business Segment Revenue In 2016, the transmission / transportation business segment revenues amounted to USD 8.10 million, from USD 7.03 million in 2015. An increase of 15.2% from this segment was due to higher transmission revenues of PGN on natural gas transportation to PLN Muara Tawar Power Plant. In 2016, TGI contributed revenues amounted to USD158.72 million, from USD165.27 million in 2015. The decrease was due to declining volume of natural gas transported by TGI, which mainly caused by the decline in oil lifting of one of the shippers. In 2016, KJG became fully operated and contributed revenues amounted to USD62.65 million, from USD22.82 million in 2015 for the operation from August to December 2015.

Revenue

2016 Juta USD

2015 %

Juta USD

%

∆ (%)

PGN

8,10

3.5

7,03

3.6

15.2

TGI*

158,72

69.2

165,27

84.7

(4.0)

KJG** Jumlah

62,65

27.3

22,90

11.7

174.5

229,47

100.0

195,12

100.0

17.6

*TGI’s revenues presented in consolidated financial report as share in profit of associatied entities and joint ventures. **KJG revenues presented as other income: financial lease.

DISTRIBUTION / TRADING BUSINESS SEGMENT Distribution / Commerce business segment was the activity of distribution and sale of natural gas to end users for Industries, Power Plants, Commercials and Households by using variety of modes, both pipeline and nonpipeline. This business segment was managed by PGN and its subsidiary, GEI. The distribution and commercial business activities region of PGN scattered in several cities in Indonesia. Distribution and commercial business activities were managed by the Sales Area in each city. Nowdays PGN has 19 existing Sales Areas that carry out distribution and commercial business. For the purposes of discussion in this Annual Report, The 19 Sales Areas were grouped into three Regional Distributions (RD), namely: a. RD I: Covering The Sales Area of Jakarta, Bogor, Bekasi, Karawang, Tangerang, Cilegon, Lampung, Palembang, and Cirebon. b. RD II: Covering The Sales Area of Surabaya, Sidoarjo, Pasuruan, Semarang, Tarakan, and Sorong. c. RD III: Covering The Sales Area of Medan, Batam, Pekanbaru, and Dumai.

118

Management’s Discussions and Analysis

Gas Distribution / Commerce Customers PGN serving various customer segments and devided its customer types into four segments, namely: 1. Household Customers Includes housing, flats managed by the government or private, condominiums, and apartments. 2. SPBGs Customers Customers that use natural gas for gas refueling activities for vehicles. For the purposes of discussion in this Annual Report, The customers categorized as SPBGs Customers were SPBGs and Mobile refueling Unit (MRU) owned by GEI. 3. Commercial Customers Includes Micro, Small, and Medium Enterprises (SMEs), health centers, hospitals, orphanages, education institutions, government offices, private offices, shopping malls, hotels, restaurants and other commercial businesses. 4. Industrial Customers. Includes manufacturing industries and power generation using natural gas as a fuel and / or raw materials in the activities in the chemical, ceramics, basic metals, fabricated metal, paper, glass, wood, cement, food, textile, oil lifting, power plant and other manufacturing industries. Period contracts with industrial customers and the applicable five-year automatic extension applies for the next five years.

DISTRIBUTION PIPELINES (IN KILOMETERS)

641

2012

752

Region III

2.413

Region II

684

Region I

770

2013

2.513

724

2014

768

Year

2.528 751 1.007

2015

2.984 758

2016 0

1.172

500

Regional Distribution (RD)

1000

3.063

1500

Kilometer

2000

2500

3000

3500

2016

2015

2014

2013

2012

RD I

3,063

2,984

2,528

2,513

2,413

RD II

1,172

1,007

768

770

752

RD III

758

751

724

684

641

Total

4,994

4,742

4,020

3,967

3,806

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

119

Management’s Discussions and Analysis

Distribution/Trading Business Segment Operating Performance In 2016, distribution / trading business activities distributed natural gas amounted to 803 MMscfd, from 802 MMscfd in 2015.

Region

2016 MMscfd

2015 %

MMscfd

%

∆ (%)

RD I

583

72.5

585

72.9

(0.5)

RD II

130

16.2

130

16.3

(0.2)

RD III

91

11.3

87

10.8

4.7

Total

803

100.0

802

100.0

0.1

Generally, the condition of natural gas distributions in all PGN operational areas were influenced by the economic condition in 2016. Global and regional economic conditions affected the level of demand for products in some industry sectors and also had an impact on the natural gas consumption of PGN customers. Some conditions related to sales in 2016 as follows: • The decline in demand for product of manufacturing / processing industries were caused by the weakening of customers purchasing power and the regulatory policies that not supported industrial sector, such as the regulation of plastic packaging (chemical sector), as well as competition with imported product from People’s Republic of China (chemicals and ceramics sector).

• The steel prices in 2016 were decreased due to a slowdown in global demand and an excess production in People’s Republic of China boosted their metal exports (base metals sector). • The high exchange rate of USD to IDR also caused an increase in COGS of imported raw materials for certain industries (ceramics and base metals sector). • The decline in economic performance such as real estate development, construction and automotive industries as the main customers of the processing industries (glass and ceramics sectors). • The decline in the oil price reaching USD30/bbl in early 2016 caused the price of industrial fuel became more competitive than the price of natural gas. The decline in natural gas price in Sales Area of Medan per January 1, 2016 contributed to the increasing volume of natural gas distribution Sales Area of Medan during 2016 compared to 2015.

120

Management’s Discussions and Analysis

SALES VOLUME PER CUSTOMER SEGMENTS in MMscfd 900

778

800

25

781

23 20

20 15 10 5

2

2

0

Households

Commersials

Industries

2

23

778

2015

2

20

781

2016

PGN NATURAL GAS SALES PERCENTAGE PER INDUSTRY SECTORS 2016 45%

41%

40% 35% 30% 25% 20% 15% 10% 5% 0

14% 10%

10% 6%

4%

4%

3%

3%

d ls an ics nts ses ted ica am oods ages brica als Glas Pla m r r e e t F ver Fa e h C e C w M Po Be

ers

Pap

se Ba

s

tal

Me

ers

Oth

2%

les

ti Tex

1%

1%

G

CN

ts

en

Cem

0%

Oil

gs

in lift

0%

ds

o Wo

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

121

Management’s Discussions and Analysis

Customer Profile The number of customers of PGN were dominated by households customers of 97% of the total natural gas customers of PGN. However, based on natural gas distribution volume, the industial customers had the largest portion. The industrial customers consumed 97% of the PGN’s natural gas distribution. Natural gas demands in each customers were affected by the type and capacity of customer production equipment.

CUSTOMER PROFILE 1,3%

1,5% 97,2%

NUMBER OF CUSTOMERS

2,5%

0,3% 97,2%

CONSUMPTION VOLUME

1,7%

0,2% 98,1%

REVENUE

0%

20%

40% HOUSEHOLDS

60% INDUSTRIES

80%

100%

COMMERCIALS

Number of Customers By 2016, the number of PGN’s customers amounted to 168,973, increased to 111,076 customers in 2015 which amounted. Increasing in the number of customers was equally in all PGN’s regional distribution, both in RD I, RD II, and RD III. The composition of customers as follows: Regional Distribution

2016 Customer

2015 %

Customer

∆ (%)

%

RD I

77,761

46.0

71,201

64.1

9.2

RD II

69,945

41.4

19,873

17.9

252.0

RD III

21,267

12.6

20,002

18.0

6.3

Total

168,973

100.0

111,076

100.0

52.1

In terms of customer segments, the number of households customers in 2016 had increased significantly with the commencement of the distribution of natural gas to natural gas distribution network project for households assigned by the Government. 

Customer

2016 Customer

2015 %

Customer

∆ (%)

%

165,392

97.88

107,690

96.9

53.6

Commercials

1,929

1.14

1,857

1.7

3.9

Industries

1,652

0.98

1,529

1.4

8.0

168,973

100.0

111,076

100.0

52.1

Households

Total

122

Management’s Discussions and Analysis

CUSTOMERS GROWTH

77,761

80,000

71,201

70,000

Total Customer

60,000

56,789

61,861

58,621

58,097

56,961

50,000 40,000

12,085

30,000

12,497

19,260

20,000

12,615

19,596

13,096

14,065

20,002

20,123

19,873

19,652

19,873

30,848 21,219

10,000 0 2010

2011

2012

2013

2014

2015

2016

Year RD I

RD II

RD III

Natural Gas Price Adjustment Since the end of 2014, there were a decline in world crude oil prices which continued until 2016. In fact, crude oil price reached its lowest point in mid-February 2016 by touching a level below USD 30/bbl. The decline in crude oil prices affected the decrease in selling prices of non-subsidized fuel oil in Indonesia. Despite of the decrease in the selling price of non-subsidized fuel oil, the selling price of PGN natural gas was still more competitive. Furthermore, as the effort of PGN to continuously contribute in supplying natural gas, especially for the power sectors, in 2016, PGN adjusted the natural gas selling price to PLN mainly for power plants in West Java. This was to support the Government in implementing efficient and improved quality of services in the electricity sector. In 2016, PGN also made adjustments to the sale price of natural gas in Medan Sales Area. This adjustment was made so that the selling price of natural gas in Medan Sales Area becomes more competitive. PGN adjusted the gas selling price in line with the adjustment of gas price from suppliers. When oil prices reached below USD 40/bbl, the price of fuel oil (Marine Fuel Oil/MFO 180) became more competitive than the PGN’s natural gas selling price. However, when the world’s crude oil prices increased above USD 50/bbl, PGN natural gas prices became more competitive than the price of fuel, especially diesel prices (High Speed Diesel / HSD) and fuel oil (Marine Fuel Oil / MFO 180). Furthermore, the price of natural gas tends to be stable, while the prices of HSD and MFO were fluctuated according to the conditions of global oil prices. The stability of natural gas prices made easier for customers to conduct production planning and to calculate operating costs.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

123

Management’s Discussions and Analysis

SELLING PRICE PGN NATURAL GAS VS OTHER FUELS 2016 20.00 18.00 16.00

USD/MMbtu

14.00 12.00 10.00 8.00

PGN’S NATURAL GAS SELLING PRICE

6.00 4.00 2.00

PERIOD M ay 114 Ju n 15 -3 0 Ju n 114 Ju l 15 -3 1J ul 114 A 15 ug -3 1A ug 114 Se p 15 -3 0 Se p 114 Oc t 15 -3 1O ct 114 No 15 p -3 0 No p 114 De c 15 -3 1D ec

-3 1

r

ay M

113

14

r

Ap

-3 0 15

ar

Ap

M

114

-3 1 15

b

b

ar M

114

Fe

-2 8 15

n

Fe

Ja

114

15

-3 1

114

Ja

n

0

LPG - 3 KG (SUBSIDIZE)

LPG - 12 Kg

PREMIUM

KEROSENE

HSD (DIESEL)

MDF/IDO (diesel)

MFO

PGN AVERAGE PRICE

* Based on the price of fuel in Depo Pertamina

Revenue of Distribution/Trading Business Segment In 2016, distribution / trading business segment of PGN contributed revenue amounted to USD2,539.44 million. The revenue decreased by 2.8% compared to revenue in 2015 amounted to USD2,612.80 million. This was caused by the decrease in revenues from the industries segment mainly due to the adjustment in the natural gas selling price to support the electricity.

Customer Segment Industries Commercials SPBG’s Households Total

2016 Million USD

2015 %

Million USD

% 98.0

∆ (%)

2,490.87

98.1

2,562.76

(2.8)

41.51

1.6

43,65

1.7

(4.9)

1.47

0.1

2,22

0.1

(33.7)

5.59

0.2

4,17

0.2

34.0

2,539.44

100.0

2.612,80

100.0

(2.8)

124

Management’s Discussions and Analysis

OIL AND GAS BUSINESS SEGMENT Oil and gas business segment was the PGN’s business activities and investments in oil and gas upstream sector including exploration, exploitation, and business development in the oil and gas sector. This business activity was the PGN’s effort to expand its portfolio in the energy value chain through its subsidiaries namely SEI. In this business segment, SEI earned revenues from the lifting of crude oil, natural gas, LPG, and LNG. The cost of revenues required in this business activities included production and lifting costs, depreciation costs of oil and gas assets and the allocation of costs associated with the exploration and exploitation.

Operating Performance of Oil and Gas Business Segment In November 2016, PGN, through SEI, invested in the upstream sector by acquiring 37.8% interest in the Sanga Sanga block, East Kalimantan from BP East Kalimantan ltd. (26.3%) and Unimar llc. (11.5%). By the end of 2016, SEI owned and managed participating interest in several oil and gas blocks in Indonesia and abroad, namely: No

Block

Ownership (%)

Operator

Status

SEI

Production

1

Pangkah PSC

100.0

2

South Sesulu PSC

100.0

SEI

Exploration

3

Fasken

36.0

Swift Energy

Production

4

South East Sumatera PSC

8.9

CNOOC

Production

5

Ketapang PSC

20.0

Petronas

Production

6

Bangkanai PSC

30.0

Salamander

Production

7

Muriah PSC

20.0

Petronas

Production

8

West Bangkanai PSC

30.0

Salamander

Exploration

9

Muara Bakau PSC

11.7

ENI

Development

10

Wokam II PSC

100

SEI

Exploration

11

Sanga Sanga PSC

37.8

VICO

Production

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

125

The following table shows the lifting volume of crude oil, natural gas, LPG, and LNG Lifting Crude oil (in bbls) Natural gas (in MMbtu)

2016

∆ (%)

3,254,973

2,609,407

25

40,422,514

33,673,024

20

50,834

43,321

17

4,416,768

o

~

LPG (in MT) LNG (in MMbtu)

2015

The increase of oil and gas lifting was mainly obtained from Ketapang PSC and Muriah PSC which had been fully operated in 2016 compared to 5 months operation in 2015 and also from Sanga Sanga block acquisited in November 2016. Meanwhile, LNG sales derived from investments in the upstream sector in the end of 2016 at Sanga Sanga block in East Kalimantan which was in production status.

Revenue of Oil and Gas Business Segment In 2016, the oil and gas business segment through SEI contributed revenue amounted to USD 314.11 Million. These revenues increased by 19.1% compared to revenues in 2015 amounted to USD263,70 million. This was due to the increase in gas lifting of Pangkah PSC and Muriah PSC which became fully operated in 2016, increase in oil lifting of Ketapang PSC which became fully operated in 2016, and also from Sanga Sanga block acquisited in November 2016. The revenues of LNG sales derived from investments in upstream sector by the end of 2016 at Sanga Sanga block in East Kalimantan which was in production status. 2016 Lifting

Million USD

2015 %

Million USD

%

∆ (%)

Crude Oil

132,73

42.3

125,55

47.6

5.7

Natural Gas

155,97

49.7

119,78

45.4

30.2

LPG

17,40

5.5

18,37

7.0

(5.3)

LNG

8,01

2.6

0,0

0.0

100.0

314,11

100.0

263,70

100.0

19.1

Total *As of October 2016

OTHER BUSINESS SEGMENTS Other business segments were the other businesses which directly related to or supported the PGN main business in accordance with the law and regulations through its subsidiaries and affiliates. Other business activities include: 1. Telecommunications PT PGAS Telekomunikasi Nusantara (PGASCOM), established in January 2007 and started operating in March 2008, Jakarta-Singapore bandwidth provider, fiber optic networks, internet service providers, application, SCADA and ICT services.

2. Construction, Operation and Maintenance of Pipelines PT PGAS Solution (PGASSOL), established in August 2009 and has been operating since 2010, provides engineering, construction, and maintenance services. 3. LNG PT PGN LNG Indonesia (PLI), established in June 2012, has been commercially operating an LNG Floating Storage and Regasification Unit (FSRU) in Lampung since November 2014.

126

Management’s Discussions and Analysis

4. The management and leasing of buildings and equipment PT Permata Graha Nusantara (Permata), established in June 2014, had been commercially operating since 2014. Permata engaged in the property and other services, include providing facilities to support customers’s business operations such as building management, office services, transport services, assets utilization and optimization, commercial and residential property products and other services.

5. Financial Lease PT Kalimantan Jawa Gas (KJG), established in July 2013 through the ownership by Permata in August 2015, has been already commercially operating the transmission pipeline of Kepodang - Tambak Lorok to transport natural gas to the PLN Tambak Lorok Power Plant. KJG’s main business was natural gas transmission, but the impact of the implementation of PSAK No. 30 pertaining to the Lease and the Interpretation of Financial Accounting Standards (ISAK) No. 8 of Interpretation of the transactions with lease resulting the revenue of KJG treated as financial lease on the other business segment.

Operating Performance of Other Business Segment Telecommunication In 2016, PGASCOM had several licenses to support its business such as Fixed Closed Network License, Principle Implementation of Local Fixed Network Based Packet Switched (JARTAPLOK) lisence, Landing Right Permit, Interconnection Services (Network Access Provider) lisence and through its subsidiaries namely PT Telemedia Dinamika Sarana (TDS) that were licensed Service Based Operator (SBO) issued by the Infocomm Development Authority of Singapore (IDA) in Singapore. In 2016, the operational activities had been accomplished in accordance with the Service Level Agreement (“SLA”). The operational activities included maintenance of the network backbone of Jakarta-BatamSingapore, the network access dan lastmile on several regions / areas including: Batam, Jambi, Palembang, Lampung, Cilegon, Serang, Jakarta, Bandung, and Surabaya through Fiber Optic, Radio, and VSAT with backbone network reliability SLA achieved 99.96% and lastmile network SLA achieved 99.88 %.

PGASCOM operating performance is shown as follows:

Business Segment

2016

2015

Mbps

%

Mbps

Operator

760,965

50.3

136,020

24.5

NAP / ISP

690,831

45.7

350,661

63.2

Corporate

49,430

3.3

49,296

8.9

PGN Group

10,764

0.7

18,929

3.4

1,511,990

100

554,906

100.0

Total

%

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

127

Construction, Operation and Maintenance of Pipelines In 2016, PGASSOL had completed the following activities: a. Construction of Kalisogo - Waru pipeline for PGN distribution pipeline network reliability. b. Construction of Ajinomoto - Chiel Jedang pipeline for market development in Eastern Java area. c. Construction of Tandes - Perak pipeline for market development in Eastern Java area. d. Construction of Batu Ampar pipeline for market development in Batam area. e. Construction of customer connection pipe used to deliver natural gas from existing pipeline to PGN’s new customers. f. Operation and maintenance activities for all transmission pipelines and distribution network pipelines including the supporting facilities. PGASSOL operating performance is shown as follows: 2016

Business Segment

2015

No. of Project

%

No. of Project

23

13.0

27

12.1

147

83.1

177

79.0

Trading

4

2.3

18

8.0

Consultant

3

1.7

2

0.9

177

100.0

224

100.0

Operation and Maintenance Engineering and Engineering Procurement Construction (EPC)

Total

%

128

Management’s Discussions and Analysis

LNG LNG business was managed by PGN’s subsidiary, namely PLI and PGN’s affiliate, namely NR. In 2016, PLI had delivered natural gas from regasification as much as eight cargoes to PGN. NR delivered as much 28 cargoes to PLN. PLI operated a Floating Storage and Regasification Terminal (FSRT), which consist of a Floating Storage and Regasification Unit (FSRU), Mooring System, offshore pipeline and Onshore Receiving Facility (ORF) located in Labuhan Maringgai, Lampung in cooperation with Hoegh LNG Lampung as the owner of FSRU in operating the FSRU. FSRU was able to regasify the LNG up to 240 MMscfd. Regasified gas then transported through offshore pipeline along 21 Km that connecting FSRU to ORF Labuhan Maringgai to be supplied to the customer in Java. PLI operating performance can be seen as follows: Delivery* Natural Gas (in MMbtu)

2016

2015

∆ (%)

24,006,301

3,943,799

508.7

*MMbtu = million British Thermal Unit, 1 MMbtu equals to 28.3205m3

NR operates facilities for Floating Storage and Regasification Unit (FSRU), transmission pipelines offshore and Onshore Receiving Facility (ORF) located in the Bay of Jakarta in collaboration with Golar Energy Ltd. as the owner of the FSRU in operating the FSRU. NR operating performance can be seen as follows: Delivery* Gas Sales (in MMbtu) Regasification fee (in MMbtu)

2016

2015

∆ (%)

78,638,262

73,371,250

7.2

191,435

3,152,060

(93.9)

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

129

Management’s Discussions and Analysis

Buildings and Equipments Management and Leasing Buildings and equipments management and leasing has been conducted by Permata since 2015. In 2016, Permata performance is shown as follows: 2016 Business Segment

2015 Revenue (Billion IDR)

∆ (%)

Revenue (Billion IDR)

%

Oil and Gas Support

155,28

31.7

35,19

11.5

341,2

Building Management

136,56

27.9

95,62

31.3

42,8

Office Support

61,90

12.7

57,20

18.8

8,2

Offtake Station Management

51,65

10.6

40,00

13.1

29,1

Transportation Service

29,41

6.0

28,62

9.4

2,8

Warehouse Management

17,94

3.7

13,46

4.4

33,2

Temporary facilities

17,56

3.6

10,26

3.4

71,2

Archive Service

13,38

2.7

11,40

3.9

14,0

Others

5,46

1.1

12,98

4.3

(57,9)

489,15

100.00

305,07

100.00

60,3

Total

%

Financial Lease In August 2016, PGN through its affiliates, KJG, started to operate Kalimantan - Java I Transmission Pipeline (Kepodang - Tambak Lorok section). As the the impact of the implementation of Indonesia’s Accounting Standards No. 30 pertaining to the Lease and the Interpretation of Financial Accounting Standards (ISAK) no. 8 of Interpretation of the transactions with lease, the revenue of KJG treated as financial lease on the other business segment 2016 Delivery

MMscfd

2015 (%)

MMscfd

(%)

∆ (%)

KJG Operator: To PLN Tambak Lorok Total

91

100.0

31

100.0

193,5

91

100.0

31

100.0

193,5

130

Management’s Discussions and Analysis

DESCRIPTION OF THE FINANCIAL PERFORMANCE NET REVENUES Net revenues was derived from four business segments which are transmission / transport business segments, distribution / trade business segments, oil and gas business segment, and other business segments that include (1) telecommunication, (2) construction, (3) the lease (financial lease), and (4) others include: management, rental of buildings and equipment.

TOTAL ASSET DEVELOPMENT (IN MILLION USD)

REVENUES CONTRIBUTION (IN MILLION USD)

7,000

7,000

6,000

6,000

5,000

5,000

4,000

4,000

3,000

3,000

2,000

2,000

1,000

1,000

0

2012

2013

2014

PGN STAND ALONE

2015

0

2016

2012

SUBSIDIARY

2013

2014

PGN STAND ALONE

2015

2016

SUBSIDIARY

The contribution of each segment to operating income in 2016 is as follows: 2016 Business Segment Transmission/Transportation Distribution/Trade Oil and Gas

Million USD

2015 %

Million USD

%

∆ (%)

8.10

0.3

7,03

0.2

15.2

2,539.44

86.6

2.612,80

85.1

(2.8)

314.11

10.7

263,70

8.6

19.1

9.87

0.3

6,38

0.2

54.6

Others: Telecommunication

0.00

0.0

151,71

4.9

(100.0)

Lease revenues

62.65

2.1

22,90

0.8

173.6

Miscellaneous

0.60

0.0

4,26

0.2

(85.9)

3.068,78

100.0

(4.4)

Construction

Total

2,934.78

100.0

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

131

Management’s Discussions and Analysis

During 2016, PGN recorded net revenues of USD2,934.78 million from USD3,068.78 million in 2015. The decline in revenues of 4.4% was influenced by the reduction in income distribution/commercial business. Moreover, there were no construction revenues in 2016 as it did in 2015. The distribution business which contributed 86.6% to consolidated revenues have the greatest influence on the decrease in net revenues of the Company. The decline in the distribution business revenue in 2016 amounted to USD73,36 million or only 97.2% of the revenue in 2015 primarily due to a decrease in average prices caused by the adjustment of the selling price to PLN since April 2016. The volume of natural gas sales during 2016 reached 803 Bbtud whereas during 2015 amounted to 802 Bbtud. Sales of blended price decreased from USD8.93 per MMbtu for 2015 amounted to USD8.66 per MMbtu for 2016. In 2016, KJG was fully operational, so that PGN recorded finance income from financial lease through KJG for USD62,65 million. Of the total consolidated net revenues, 27.5% is the result of sales transactions to entities related to the Government for the year ended December 31, 2016 and 34.1% for the year ended December 31, 2015.

COST OF REVENUES Cost of revenues of PGN in 2016 consisted of the purchases of gas from the suppliers, the cost for production activities of oil and gas, as well as the purchase and operation of LNG FSRU with total USD2,047.84 million. The cost of revenues fell by 2.7% or USD57.82 million of USD2,105.68 million in 2015. The decrease in cost of revenues due to the impairment of natural gas purchases from suppliers amounted to USD66.03 million. As subsidiary PGASSOL did not do construction of asset for external PGN group, there was no cost of revenues on construction recorded in 2016. On the other hand, there was a rise in oil and gas production expenses amounted to USD50.87 million primarily due to the rising cost of oil and gas production that consists of production and lifting cost as well as depreciation, depletion and amortization. While the increase in cost of revenues on the purchase LNG and operation of FSRU mainly due to the increase of USD76.91 million for the purchase of the cargoes and cost of LNG regasification process for eight cargoes. 2016 Cost of Revenue

Million USD

2015 %

Million USD

%

∆ (%)

Natural Gas Purchase

1,553.11

75.8

1,619.14

76.9

Operating Expenses for Oil and gas

302.70

14.8

251.83

11.9

20.2

LNG Purchase and FSRU Operation

192.02

9.4

115.11

5.5

66.8

0.00

0.0

119.58

5.7

(100.0)

2,047.84

100.0

2,105.68

100.0

(2.7)

Construction Expense Total

(4.1)

132

Management’s Discussions and Analysis

Cost of revenues of natural gas for USD1,553.11 million comes from several suppliers such as ConocoPhillips, Pertamina and other suppliers. Decreasing in natural gas purchases due to the reduced portfolio of conventional natural gas consumption by using LNG. 2016 Supplier

Million USD

2015 %

Million USD

834.43

53.7

Pertamina

381.50

24.6

384.17

23.7

(0.7)

337.18

21.7

360.71

22.3

(6.5)

1,553.11

100.0

1,619.14

100.0

(4.1)

Total

54.0

∆ (%)

ConocoPhilips Other

874.26

%

(4.6)

Cost of revenues of oil and gas amounted USD302.70 million, an increase of 20.2% from 2015 amounted to USD251.85 million derived from the block already in production at the SEI subsidiary. The increase in cost of goods sold was primarily due to the activity of lifting of Muriah PSC which has been fully operational in 2016,. 2016 Expense

Million USD

2015 %

Million USD

%

∆ (%)

Production and lifting expenses

120,62

39.8

101,49

40.3

18.9

Depreciation, Depletion and Amortization

182,08

60.2

150,36

59.7

21.1

Total

302,70

100.0

251,85

100.0

20.2

In 2016, cost of revenues LNG amounted to USD192.02 million from the purchase of LNG and the cost of LNG regasification process. The increase in cost of revenues was mainly due to an increase in cargo purchase. There were eight cargoes in 2016, while in 2015 only one cargo. 2016 Expense

Million USD

2015 %

Million USD

%

∆ (%)

Purchase and LNG regasification process

192,02

100.0

115,11

100.0

66.8

Total

192,02

100.0

115,11

100.0

66.8

In 2016, there were no cost of revenues in the form of construction expense paid by subsidiary PGASSOL to contractor on the construction of a transmission pipeline activities of Kepodang - Tambak Lorok as recognized in 2015 amounted to USD119.58 million

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

2016 Expense

133

Management’s Discussions and Analysis

Million USD

2015 %

Million USD

%

∆ (%)

Construction Expense

0,00

0.0

119,58

100.0

(100.0)

Total

0,00

0.0

119,58

100.0

(100.0)

GROSS PROFIT

GENERAL AND ADMINISTRATIVE EXPENSES

In 2016, PGN’s gross profit decreased 7.9% to USD886.94 million from USD963.11 million in 2015. The decrease amounted to USD76.16 million due to the decrease income of distribution business particulary by adjustment on cost of natural gas for electricity sector and the absence of construction income in 2016. In addition, gross profit was also affected by the rising cost of oil and gas production that consists of production and lifting cost and depreciation, depletion and amortization cost. Further more, FSRU operating cost also increased which led a decline in gross profit.

In 2016, General and Administrative Expenses rose 22.9% to USD234.00 million compared with USD190.42 million in 2015. This is mainly due to increase in general services USD19.68 million, increase in cost of impairment losses amounted to USD12.85 million,and the increase in rent expense of USD11.71 million and the increase in insurance expense amounted to USD3.58 million. On the other hand there is a decrease in depreciation expense of USD2.16 million, a decrease in promotional expenses amounted to USD2.05 million, a decrease in equipment and spare parts for USD1.58 million and a decrease in CSR USD1.56 million.

DISTRIBUTION AND TRANSMISSION EXPENSES In 2016, Distribution and Transmission expenses increased 9.5% to USD220.40 million compared with USD201.23 million in 2015. This is mainly due to the increase in cost of repairs and maintenance of USD18.96 million, an increase in rent expense of USD4.97 million and an increase in depreciation expense of USD1.14 million. On the other hand, general services decreased USD6.84 million, and the decrease in fuel and chemicals for USD1.77 million.

OTHER INCOME In 2016, other income decreased 34.3% to USD62.13 million from USD94.54 million in 2015. The decrease was mainly due to the recognition of insurance claims that were lower compared in 2015.

OTHER EXPENSES In 2016, other expenses rose 19.1% to USD13.22 million from USD11.10 million in 2015. The increase was mainly due to the receivable correction to SEI.

134

Management’s Discussions and Analysis

IMPAIRMENT OF OIL AND GAS PROPERTIES In 2016, the impairment of oil and gas properties amounted to USD37.20 million. An amount of USD21.91 million was a portion of impairment in 2015. Impairment of oil and gas properties recorded in 2015 amounted to USD97.65 million. The decline was related to the global reduction in oil prices since end of 2015. The property consists of Oil and Gas Exploration and Evaluation Assets and Properties of Oil and Gas. At the end of each period / year of report, the company assesses whether there are indications that the asset may be impaired. If the indication exists or when testing for impairment of assets, the company makes a formal estimate of recoverable amount. The recoverable amount is determined for an individual asset is the higher between the fair value of an asset or CGU reduce with costs to sell and its value in use, unless the asset does not generate cash inflows that are largely independent from other assets or groups of assets. If the record value of asset or CGU is greater than its recoverable amount, the asset is considered to have impairment and the record value of assets lowered to its recoverable amount. In calculating the value of use, the approximate estimation of future net cash flows discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific of the asset. In determining fair value less costs to sell, it used recent market transactions if available. If there was no transaction, the company uses an appropriate valuation model to determine the fair value of the asset. These calculations are verified by multiple valuation or other available fair value indicators.

Assessment is made at each reporting date whether there is any indication that an impairment loss has been recognized in the period / year before may no longer exist or may have decreased. If there was indication exists, the entity estimated the amount of recoverable assest or CGU. Impairment losses are recognized in the period / year before for an asset other than goodwill is reversed only if there are changes in the assumptions used to determine the asset’s recoverable amount since the last impairment loss is recognized. In this case, the carrying amount of the asset is increased to its recoverable amount. The reversal is limited so that the recorded amount of the asset does not exceed its recoverable amount and the carrying amount, net of depreciation, had no impairment loss been recognized for the asset in the period / year before. Reversal of impairment loss is recognized in profit or loss. After such a reversal, the depreciation of these assets is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

OPERATING PROFIT In 2016, PGN recorded Operating Profit amounted USD444.25 million decreased 20.28% to USD557.24 million in 2015. The decrease was mainly due to the adjustment of natural gas price to electricity sector and the absence of construction revenue in 2016. In addition, operating profit was also affected by the increase in gas purchase prices, the rising cost of oil and gas production in particular the cost of depreciation, depletion and amortization as well as operating costs of FSRU. The increase in general and administrative expenses amounted to USD43.58 million and charges for impairment of oil and gas properties amounted USD37.20 million also affected to operating profit decline in 2016.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

135

FINANCE INCOME

LOSS ON FOREIGN EXCHANGE-NET

In 2016, finance income increased 10.0% to USD17.84 million from USD16.22 million in 2015. This was mainly due to increase in trade receivables carried by SEI for USD3.59 million and increased interest current accounts amounted to USD1.12 million. On the other hand, interest on time deposit decreased by USD3.20 million. The interest rate on time deposit for 2016 was at 7.65% - 9.75% for time deposit in rupiah and 0.75% 1.5% for time deposit in USD.

In 2016, there were losses-net of USD5.12 million, while in 2015 there were net foreign exchange gain-USD14.30 million. The position of the US Dollar against the Japanese Yen on December 31, 2015 was JPY120,46/USD strengthened to JPY116.43/USD on December 31, 2016 and the position of the US Dollar against Rupiah on December 31, 2015 was Rp13,795/USD strengthened to Rp13,436/USD on December 31, 2016.

FINANCE COST Finance cost in 2016 amounted to USD132.40 Million from USD119.16 million in 2015, the rose of 11.1% mainly due to higher interest expense recognition of a syndicated loan of USD18.45 million. PGN syndicated loan drawdown of USD320 million in February 2015, amounted to USD330 million in July 2015 and the withdrawal of SEI syndicated loan of USD300 million in December 2015. In 2016, SEI withdrew a loan of USD50 million. SEI has withdrew revolving credit facility amounted to USD100 million.

BARGAIN PURCHASE In 2016 there were revenue recognition in the form of a purchase discount of USD7.24 million for the acquisition of Sanga-Sanga block by SEI

LOSS ON CHANGE IN FAIR VALUE OF DERIVATIVESNET In 2016, there was a loss on change in fair value of derivatives-net of USD4.53 million while in 2015 loss on change in fair value of derivatives-net of USD6.66 million in 2015. With these derivative financial instruments, PGN hedge the change in value reasonable obligation of the risk of exchange rate fluctuations of USD / JPY in connection with longterm loans denominated in Japanese Yen obtained from JBIC.

SHARE IN PROFIT OF THE JOINT VENTURES The share in profit of joint venture consists of Transgasindo, NR and SEI through investment in Sanga-Sanga. In 2016, there was an increase in share of profits of associates and joint ventures amounted to USD57,71 million which was contributed by Transgasindo amounting to USD26.36 million, NR amounting to USD22.01 million and SEI amounting to USD9.35 million.

136

Management’s Discussions and Analysis

PROFIT BEFORE INCOME TAX BENEFIT (EXPENSE) INCOME TAX In 2016, profit before income tax dropped by 11.98% to USD384.99 million from USD437.36 million in 2015. The decrease was mainly due to lower operating profit and an increase in financial expenses.

TAX EXPENSE-NET In 2016, tax expense-net increased to USD76.40 million from USD34.61 million in 2015. Current Tax calculated at 2016 decreased by 22.4% to USD97.28 million from USD125.31 million in 2015 in line with the decline in profit before tax. However, the decline in the Current Tax, was not inline with the recognition of deferred tax benefits. The deferred tax benefit recorded in 2016 declined by 77.0% to USD20.88 million from USD90.71 million in 2015. As a result, tax expense-net in 2016 increased by 120.8% from that in 2015.

OTHER COMPREHENSIVE INCOME AFTER TAX Presentation of Other Comprehensive Income After Tax was based on the Indonesia Accounting Standard No.1 (Revised 2009) regarding Presentation of Financial Statements, which became effective as of January 1, 2011. On January 1, 2016, Indonesia Accounting Standard No. 1 (Revised 2013) regarding Presentation of Financial Statements was adopted. This revised divides the presentation of items in the group of Other Comprehensive Income that will be reclassified to profit or loss is presented separately from items that will not be reclassified to profit or loss. Other comprehensive income after tax consisting of:

1. Assets Available for Sale In 2016, Other Comprehensive Income After Tax on Assets Available for Sale profit of USD3.92 million from a loss of USD2.29 million in 2015. This was an increase in value of unrealized changes in the fair value of assets available for sale. 2. Difference in Foreign Currency Translation of Financial Statements In 2016, Gain on Difference in foreign currency arising from translation of subsidiaries’ financial statements amounted to USD0.88 million from a loss of USD3.13 million in 2015. This was caused by the weakening exchange rate of the US dollar against the rupiah. 3. Actuarial losses-Net In 2016, net actuarial gains amounted USD1.86 million in 2015 while net actuarial gains amounted USD21.28. Other Comprehensive Income After Taxes on losses are the result of the actuarial calculation for employee benefits company.

PROFIT FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT ENTITY In 2016, PGN generated profit for the year attributable to owners of the parent amounted to USD304.32 million, a decrease of 24.1% from USD401.20 million in 2015. This decrease was mainly due to the adjustment of natural gas price to electricity sector and the absence of construction revenue in 2016. The increase in administration and general costs as well as charges for impairment of oil and gas properties also caused a decrease in profit for the year attributable to owners of the parent entity. On the other hand, there was an increase in the tax expense to USD76.40 million due to a decrease in the recording of deferred tax income amounted to USD20.88 million in 2016.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

137

Management’s Discussions and Analysis

PROFIT FOR THE YEAR ATTRIBUTABLE TO NONCONTROLLING INTERESTS

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

In 2016, the Current Year Profit Attributable to Non-controlling Interests was USD4.3 million while in 2015 the Current Year Profit Attributable to Noncontrolling Interests was USD1.56 million. Profit or Loss was due to the increase and decrease in net profit of the subsidiaries.

Total comprehensive income for the year attributable to non-controlling interests in 2016 amounted to USD4.58 million compared with USD2.42 million in 2015. This increase was a result of KJG’s performance that was partly owned by the entity non-controlling interests.

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT ENTITY In 2016, PGN generated the total comprehensive income for the year attributable to parent entity owners amounted USD310.67 million, a decrease of 25.3% from USD416.19 million in 2015.

Ratio of Profitability

2016

2015



Margin of Net Profit (%)

10.4

13.1

(2.7)

Return on Assets (%)

11.8

14.5

(2.7)

Return on Equity (%)

10.6

15.3

(4.7)

138

Management’s Discussions and Analysis

ASSET By 2016, PGN’s total assets amounted to USD6.83 billion consists of 31.1% Current Assets and 68.9% of NonCurrent Assets. Values of total assets increased 5.2% compared to 2015 amounted to USD6.50 billion. The increase in assets was mainly derived from the increase in the balance of cash and cash equivalents amounted to USD168.54 million, increase in Other Receivables amounted to USD133.38 million, the increase in Oil and Gas Property of USD72.24 million and the increase of Subscription Shares of 39.50 million. On the other hand there is a decrease in Advances amounted to USD38.72 million and Estimated Tax Collection of USD12.24 million. 2016 Asset Current Assets

Million USD

2015 Million USD

%

2,124.67

31.1

∆ (%)

%

1,722.53

26.5

23.4

Non-Current Assets

4,709.48

68.9

4,772.49

73.5

(1.3)

Total

6,834.15

100.00

6,495.02

100.0

5.2

Current Assets PGN Current Assets increased by 23.4% from USD 1.72 billion in 2015 to USD 2.12 billion in 2016. This was mainly due to the increase in Cash and Cash Equivalents, increase in Other Receivables and rise in Trade Receivables. 2016 Description Cash and cash equivalents

Million USD

2015

Contribution %

Million USD

Contribution %

∆%

1,304.04

61.4

1,135.50

65.9

14.8

Short-term Investments

68.83

3.2

64.67

3.8

6.4

Trade receivables

321.16

15.1

286.59

16.6

12.1

Other receivables

234.04

11.0

100.66

5.8

132.5

Stock

65.29

3.1

43.45

2.5

50.3

Advances Maturity In Time One Year

97.03

4.6

78.28

4.6

24.0

Prepaid Expenses

34.26

1.6

13.37

0.8

156.3

2,124.67

100.0

1,722.52

100.0

23.3

Total

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

139

THE COMPOSITION OF CASH AND CASH EQUIVALENTS 2016 Description Cash

Million USD

2015 Contribution %

Million USD

Contribution %

∆%

0,08

0.0

0,29

0.1

(73.6)

87,65

9.2

90,73

17.5

(3.4)

Bank Rupiah

860,10

90.3

421,71

81.4

104.0

Yen

3,80

0.4

5,49

1.1

(30.8)

SGD

0,76

0.1

0,07

0.0

978.9

Total Bank

952,28

100.0

517,99

100.0

83.8

Cash and Bank

952,36

73.0

518,28

45.6

83.8

USD

Deposit Rupiah USD Total Deposit Total Cash and Cash Equivalents

46,45

13.3

74,95

12.1

(37.8)

305,00

86.7

542,26

87.9

(43.8)

351,65

27.0

617,21

54.4

(43.0)

1.304,04

100.0

1.135,50

100.0

14.8

THE COMPOSITION OF CURRENCY IN CASH AND CASH EQUIVALENTS 2016 Description Rupiah

Million USD

2015 Contribution %

Million USD

Contribution %

∆%

134,38

10.3

165,97

14.6

(19.00)

USD

1.165,10

89.3

963,97

84.9

20.9

Yen

3,80

0.3

5,49

0.5

(30.8)

SGD

0,76

0.1

0,07

0.0

978.9

1.304,04

100.0

1.135,50

100.0

14.8

Total

140

Management’s Discussions and Analysis

In 2016, the position of Cash and Cash Equivalents amounted to USD1.30 billion from USD1.14 billion in 2015, up 14.8%. The balance was mainly due to SEI withdrawal of a syndicated loan of USD50 million in April 2016 amounted to USD50 million in June 2016, amounted to USD50 million in July 2016 and amounted to USD50 million in November2016. In July 2016, SEI also withdrew short-term loans amounted to USD50 million from DBS and USD50 million in November 2016 from SMBC. Composition of Cash and Cash Equivalents consist of cash and bank amounted to USD952.39 million and Cash Equivalents USD351,65 million in the form of time deposits are not restricted for use, with a composition of 9.4% in Rupiah, 90.30% in USD, 0,29% in yen and 0.06% in SGD. Cash Equivalents in the form of time deposits were placed in several domestic and foreign banks where 90.3% was denominated in USD and 9.7% in Rupiah. Average interest rates on USD time deposits was 0.75% - 1.5% and Rupiah time deposits in the amount of 7.65% - 9.75%.

Short Term Investments In 2016, the value of short-term investments amounted to USD68.83 million decreased by 6.4% from USD64.67 million in 2015. The increase was due to the impact of foreign exchange during the translation of financial statements in USD.

Original Transaction Description

2016

2015

Million USD

Million USD

Million Rupiah

Million USD

-

45,54

45,54

45,54

Antam

25.000

1,86

1,81

Perum Pegadaian

20.000

-

1,49

1,45

-

4,00

4,00

4,00

9,88

9,88

9,88

50.000

-

3,72

3,62

66,48

66,30

2,35

(1,63)

68,83

64,67

Pertamina

SBSN INDON Indonesian Export Financing Agency Sub Total Changes in Fair Value and Discounts Total

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

141

Trade Receivables In 2016, Trade Receivables-Net of USD321.16 million increased by 12.1% from USD286.59 million in 2015. This increase was primarily due to an increase in gas distribution receivable of USD 16.81 million and receivables of oil and gas amounted to USD28.90 million. Composition of Trade Receivables - Net this year consist of 73.40% of the gas distribution activities, 0.9% of gas transmission, 16.9% of the oil and gas, 7.3% of the lease (financial lease) and 1.5 % of fiber optic rent and others. While the number of Trade Receivables-Net in USD for the activity of distribution, transmission, oil and gas, rent and lease of optical fiber respectively USD259.92 million; USD3.08 million; USD59.95 million; USD26.02 million and USD5.13 million. PGN provided allowance of USD32.94 million for impairment of receivables. Such allowance to cover possible losses on uncollectible accounts. Allowance for impairment losses rose 85.18% of USD17.79 million in 2015 mailny due to impairment for PLN’s receivables of USD15.41 million.

Other Receivables Other Receivables increased by 132.51% from USD100.66 in 2015 to USD234.04 million in 2016. This increase was mainly due to the increase in trade receivables along with oil and gas operations amounted to USD166.79 million. On the other hand there was a decrease in Hoegh LNG accounts receivable amounted USD5.77 million.

Current Maturity of Advances Current Maturity of Advances in one year increased by 24% from USD78.28 million in 2015 to USD97.03 million in 2016. This was mainly due to bookkeeping advance Refundable security deposit for acquisition of Sangasanga USD 30 million and an increase in building KSO advances amounted to USD16.88 million. On the other hand, there was a reclassification of take or pay advances in 2016 by Walinusa of USD10.05 million, Premier Oil of USD15.54 million, Bayu Buana Gemilang of USD6.52 million and USD6.20 million Indogas.

142

Management’s Discussions and Analysis

COMPOSITION OF NON-CURRENT ASSETS 2016 Description

Million USD

2015 Contribution %

Million USD

Contribution %

∆%

Trade Receivables

222,64

4.7

241,37

5.1

(7.8)

Other Long-Term Receivables

228,01

4.8

275,84

5.8

(17.3)

60,51

1.3

117,98

2.5

(48.7)

427,45

9.1

387,95

8.1

10.2

1.828,63

38.8

1.871,29

39.2

(2.3)

52,59

1.1

49,95

1.0

5.3

1.708,67

36.3

1.636,33

34.3

4.4

4,63

0.1

3,85

0.1

20.2

Estimates of Tax Collection

94,27

2.0

106,50

2.2

(11.5)

Deferred Tax Assets

77,05

1.6

75,60

1.6

1.9

5,03

0.1

5,83

0.1

(13.7)

4.709,48

100.0

4.772,49

100.0

(1.3)

Advances - Net Of Current Maturities In One Year Investments in Shares Fixed Assets Exploration and Evaluation Assets Oil and Gas Property Goodwill and Other Intangible Assets

Others Total

Noncurrent assets decreased by 1.3% from USD4.77 billion in 2015 to USD4.71 billion in 2016. This was mainly caused by a decrease in prepayment of USD57.47 million, a decrease in other long term receivables by USD47.83 million and a decrease in fixed assets amounted to USD44.38 million. On the other hand, there was addition of oil and gas property assets related to investments in the upstream sector through the SEI of USD72.34 million.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

143

Trade Receivables (Long Term)

Exploration and Evaluation Assets

In 2016, there was recognition of financial lease receivables USD222.59 million which presented as the reclassification of fixed assets related to transmission activities of KJG. The reclassification was in accordance with Indonesia Accounting Standard No. 30 on Lease Operations.

Exploration and evaluation assets increased by 5.3% from USD49.95 million in 2015 to USD52.59 million in 2016. This increase was mainly derived from investment in South Sesulu of USD1.75 million.

Other Long Term Receivables In 2016, Other Long-term Receivables decreased by USD47.83 million, primarily due to increase in accounts of carried receivables of GDF Suez (PT SAKA) amounted to USD 68.02 million and receivables VAT to be charged at USD 29.50 million.

Investments in Shares of Stock Investment in shares is an investment and profit recognition from the Joint Ventures namely NR and TGI, Unimar which reflects the Company’s overall investment ownership interest of 40% in NR, 59.87% in Transgasindo anf 11.25% in Unimar. The value of investments in Joint Ventures increased by 10.7% from USD387.95 million to USD427.44 million as a result of investment in Sanga-Sanga block by SEI of USD45.07 million.

Fixed Assets Fixed assets decreased by 2.4% from USD1.87 billion in 2015 to USD1.83 billion in 2016. The decline in fixed assets was mainly due to increases in depreciation of SSWJ pipeline due to arbitrage case on CRW claim.

Oil and Gas Properties Oil and Gas Properties increased by 4.2% from USD1,64 billion in 2015 to USD1.71 billion in 2016. The increase was mainly due to the addition of oil and gas property assets related to investments in the upstream sector through the SEI of USD149.96 million in the Muara Bakau PSC, amounted to USD 56.05 million in Pangkah and acquisitions of USD35.10 million in Sanga Sanga On the other hand, there was an addition of accumulated depreciation, depletion, and amortization of USD182.70 million and impairment losses amounted USD37.20 million in 2016

Estimated Claims for Tax Refund Estimated tax bill of companies fell by 13.94% from USD106.50 million to USD94.26 million due to a decrease in the recognition of overpayment of VAT amounted USD11.89 million of USD28.00 million in 2015.

Goodwill and Other Intangible Assets Recognition of Goodwill and Intangible Assets increased by 20.19% from USD3.85 million to USD4.63 million. This increase was primarily due to the recognition of additional license to the software.

144

Management’s Discussions and Analysis

LIABILITIES At the end of 2016 PGN recorded a Total Liabilities amounted USD3.66 billion comprising 22.25% Short-Term Liabilities and 77.75%Long-Term Liabilities. The total value of these liabilities increased USD191.74 million or 5.52% from USD3.47 billion by the end of 2015 primarily due to an increase of the syndicated loan of USD 200 million, of which SEI drawdown an amount of USD 50 million in April 2016, amounted to USD50 million in June 2016, amounted to USD50 million in July 2016 and amounted to USD 50 million in November 2016. in addition, in 2016 there was another short-term loan of USD100 million committed by SEI. THE COMPOSITION OF SHORT TERM LIABILITY 2016 Description

Trade Payables

Million USD

2015 Contribution %

Million USD

Contribution %

∆%

111,76

13.7

117,00

17.5

(4.5)

100,00

12.3

-

0.0

~

231,20

28.4

269,86

40.4

(14.3)

51,33

6.3

52,70

7.9

(2.6)

Other Payables

107,41

13.2

84,67

12.7

26.9

Tax Payables

42,69

5.2

21,47

3.2

98.8

Long Term Loans Maturity In One Year

170,99

21.0

121,62

18.2

40.6

Total

815,37

100.0

667,32

100.0

22.2

Short-Term Bank Loans Accrued Liabilities Employment Benefit From Short-Term Liabilities

Short-term liabilities rose 22.2% from USD667.32 million in 2015 to USD815.37 million in 2016. This was mainly due to the short-term loans of SEI in 2016 amounted to USD100 million, an increase in long-term loans maturing within one year amounted USD49.37 million and an increase in tax liabilites amounting USD21.22 million. In spite of this, there was a decrease in the liabilities accrued in 2016 amounted to USD34.94 million.

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Management’s Discussions and Analysis

Trade Payables Trade payables decreased by 5.24% from USD117.00 million in 2015 to USD111.76 million in 2016 primarily due to lower gas purchase volume due to decline in sales volume of natural gas resulting from low consumption of industrial and electricity customers as a result of weakening global economy.

Short-Term Bank Loan In 2016, SEI withdrew a short term liabilities amounted USD 100 million consisted of USD 50 million in July 2016 from DBS and USD 50 million in November 2016 from SMBC.

Accrued Expenses Accrued expenses decreased by 14.3% from USD269.86 million in 2015 to USD231.20 million in 2016. This was mainly due to a decrease liabilities to contractors of development projects amounting to USD31.92 million and a decrease in liabilities on oil activity and gas amounted to USD8.83 million

Other Payables Other payables rose by 26.9% from USD84.67 million in 2015 to USD107.41 million in 2016. This was mainly caused by an increase in liabilities to contractors and suppliers amounted to USD 20.44 million. THE COMPOSITION OF LONG-TERM LIABILITIES 2016 Description

Deferred Tax Liabilities

Million USD

2015 Contribution %

Million USD

Contribution %

∆%

84,65

3.0

94,12

3.4

(10.1)

8,83

0.3

11,33

0.4

(22.1)

Long-Term Loans Net of Current Portion Due Within One Year

1.296,32

45.5

1.253,42

44.7

3.4

Bond Payables

1.335,34

46.9

1.333,76

47.6

0.1

Assets and Liabilities for Demolition Site Restoration and Other Provinces

26,31

0.9

31,54

1.1

(16.6)

Long-Term Employee Benefits Liabilities

94,37

3.3

77,84

2.8

21.2

2,78

0.1

2,89

0.1

(3.92)

2.848,59

100.0

2.804,90

100.0

1.6

Derivative Payable

Prepaid Income Total

Long-term liabilities increased by USD43.69 million or 1.6% from USD2.80 billion in 2015 to USD2.85 billion in 2016 primarily due to an increase in the syndicated loan of USD200 million, of which SEI to withdraw a loan of USD50 million in April 2016, amounting to USD50 million in June 2016, amounting to USD 50 million in July 2016 and USD 50 million in November 2016.

146

Management’s Discussions and Analysis

Deferred Tax Liabilities Deferred tax liabilities decreased by 10.95% from USD94.12 million in 2015 to USD84.65 million in 2016. This was mainly due to the acquisition transactions conducted by SEI. Deferred taxes arise from differences in commercial and tax treatment on investment and on the assets of oil and gas properties in the SEI.

Long Term Loans In 2016, long-term loan increased primarily due to an increase in the syndicated loan of USD 200 million, of which SEI loan drawdowns of USD 50 million in April 2016, USD50 million in June 2016, a US USD50 million in July 2016 and amounted to USD50 million in November 2016. On the other hand, some long term syndicate loan were reclassified to short term amounted to USD 48.75 million in 2016.

Bonds Payables On May 12, 2015, PGN issued Senior Unsecured Fixed Rate Notes worth USD1,33 billion, which will mature on May 16, 2024 at an issue price of 99.037%. The bond was listed on the Singapore Stock Exchange, irrevocably and unconditionally guaranteed by the Company. The net proceeds obtained by USD1.33 billion and used for capital expenditure, working capital and other general corporate purposes.

Assets Abondenment and Restoration Obligations and Other Provisions In 2016, Assets Abondenment and Restoration Obligations and Other Provisions decreased by 16.6% from USD31.54 million in 2015 to USD26.31 million. This was related to the operational activities conducted by SEI and PLI. This liability was the latest estimate for the cost of dismantling the asset and restoring the abandoned area.

EQUITY 2016 Description Capital Stock Share Capital is Recovered Other Paid-Up Capital Retain Earning Other Equity Components Non-Controlling Interests Total

Million USD

2015 Contribution %

Million USD

Contribution %

∆%

344,02

10,9

344,02

11,4

(0,0)

0,00

0,0

(0,25)

(0,0)

(100,0)

284,34

9,0

284,34

9,4

(0,0)

2.564,57

80,9

2.428,35

80,3

5,6

(29,76)

(0,9)

(36,10)

(1,2)

(17,6)

7,02

0,2

2,45

0,1

186,5

3.170,19

100,0

3.022,81

100,0

4,9

Equity increased by 4.9% from USD3.02 billion in 2015 to USD3.17 billion in 2016. This increase was mainly due to the accumulation of retained earnings as a result of the achievement of Profit attributable to Parent Company owners in the current year. Other equity components consist of gains or losses and foreign exchange differences from translation of financial statements of the Subsidiary and the fair value of financial assets available for sale.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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Management’s Discussions and Analysis

CASH FLOW Description

2016

Cash flow from operational activity

2015 655,55

528,44

(500,53)

(1.122,06)

Cash flow from Funding activity

5,39

594,88

Effect of exchange rate changes Net of Cash and Cash Equivalents

8,13

3,29

The increase - Net Cash and Cash Equivalents

168,54

4,55

Cash and Cash Equivalents Beginning Period

1.135,50

1.130,95

1.304,04

1.135,50

Cash flow from investing activity

Cash and Cash Equivalents End of Period

Cash and cash equivalents increased by 14.8% from USD1,14 billion in 2015 to USD1.30 billion in 2016. The cash balance was influenced primarily by the drawdown of the syndicated loan amounted to USD200 million and USD100 million by SEI shortterm loan of SEI.

Cash Flows from Operating Activities Cash flows from operating activities rose 24.1% from USD528.44 million in 2015 to USD655.55 million in 2016. The balance primarily due to lower payments for operating expenses and other operating activities and due to a decrease in tax payments.

Cash Flows from Investing Activities Cash flows from investing activities decreased 55.4% from USD1.12 billion in 2015 to USD0.50 billion in 2016. This was mainly due to declining investment in the upstream sector through SEI on the block of oil and gas and a decrease in investment in fixed asset.

Cash Flows from Financing Activities Cash flows from financing activities amounted to USD5.39 million. In 2016, there were withdrawal of the syndicated loan amounted to USD200 million and drawdown of SEI short-term loan amounting to USD100 million.

DEBT SERVICE RATIO On December 31, 2016, debt to equity ratio increased from 0.90 in 2015 to 0.92 in 2016, and the debt service coverage ratio decreased from 5.03 in 2015 to 3.15 in 2016. It was the impact of corporate actions, namely the withdrawal of a syndicated loan amounted to USD200 million and short-term debt of USD100 million by SEI. But overall ability to repay debt of PGN is relatively stable. Rasio

2016

2015

Debt to equality ratio (x)

0,91

0,90

Net debt /EBITDA (x)

1,89

1,60

EBITDA/ Interest expense (x)

6,10

8,81

EBITDA/ Interest expense + principal (x)

3,18

5,03

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Management’s Discussions and Analysis

RECEIVABLES COLLECTIBILITY At the end of 2016, PGN group’s ability to collect receivables (collection period) was 40 days. This calculation is derived from dividing the balance of receivables per December 31, 2016 net income for 2016 and multiplied it by the number of days in a year (366 days). The increase in accounts receivable collection period was affected by the receivables of acquired oil and gas blocks at the end of 2016. Collection period for the Distribution business is 32 days. This indicates that PGN remains effective in managing gas consumption bill to customers. To mitigate the risk of uncollectible receivables, PGN requires customers to provide deposits as guarantee for gas subscription Guarantees can be in the form of Bank Guarantee, SBLC, cash and other forms set out in ordinances of gas subscription. With this guarantee, if customers cannot repay the debt, then the PGN can reimburse the guarantee so that receivables can be repaid.

CAPITAL STRUCTURE In 2016, PGN capital structure was as follows: 2016 Capital Structure

Million USD

2015 Contribution %

Million USD

Contribution %

∆%

Short-term Bank Loan

100,00

1,6

0,00

-

100

Total Long Term Loans

1.467,30

24,2

1.375,04

24,0

6,7

170,99

2,8

121,62

8,8

40,6

Long Term

1.296,32

21,3

1.253,42

91,2

3,4

Bond Payables

1.335,34

22,0

1.333,76

23,3

0,1

Equity

3.170,19

52,2

3.022,80

52,7

4,8

6.072,83

100,0

5.731,60

100,0

5,9

Maturity within one year

Bond Payables

In July 2016, SEI withdrawal of short-term bank loans from PT Bank DBS Indonesia amounted to USD 50 million under the agreement No. 103 / PFP-DBSI / VI / 1-2 / 2016 dated June 14, 2016, PT Bank DBS Indonesia agreed to provide short-term loans to SEI worth USD50 million to support working capital. The term of the credit facility is 12 months from the date of June 14, 2014 until May 13, 2017 and bears an interest rate of threemonth LIBOR plus a margin of 1.6% per year. In November 2016, SEI withdrawal of short-term bank loan from PT SMBC Indonesia amounted to 50 million by agreement No. SMBCI / NS / 2016 dated July 27, 2016, PT Bank Sumitomo Mitsui Indonesia agreed to provide short-term loan worth USD100,000,000 SEI to support working capital. The term of the credit facility is 12 months from the date of July 27, 2016 until July 31, 2017 and bears an interest rate of three-month LIBOR plus a margin of 1.65% per year.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

SEI’S SYNDICATED LOAN On December 2, 2016 SEI signed a syndicated loan facility agreement worth USD600 million by the Mandated Lead Arrangers and Bookrunners (MLAB), namely: The Hongkong and Shanghai Banking Corporation Limited, Mizuho Bank, Ltd., PT Bank BNP Paribas Indonesia, PT Bank Mizuho Indonesia, PT Bank Sumitomo Mitsui Indonesia, PT HSBC Securities Indonesia and Sumitomo Banking Corporation. The loan period of 5 (five) years from the effective period. These loans consist of onshore portion of USD321.37 million with an annual interest of Libor + 1.85% and the portion of Offshore USD278.63 million with an annual interest of Libor + 1.60%. In 2016, SEI raised a loan of USD 50 million in April 2016, amounted to USD50 million in June 2016, amounted to USD 50 million in July 2016 and amounted to USD 50 million in November 2016. This facility was used to finance investment and other general corporate purposes.

MANAGEMENT POLICY OF CAPITAL STRUCTURE PGN sets policy to achieve an optimal capital structure in pursuit of its business objectives, which include maintaining healthy capital ratios and maximizing shareholder value. Some of the debt instruments contain covenants that impose maximum leverage ratios. PGN has complied with creditors imposed capital requirements. Management monitors capital using several financial leverage measurements such as debt to equity ratio and debt service ratio.

THE BASIC OF MANAGEMENT POLICY OF CAPITAL STRUCTURE PGN sets policy by maintaining a capital structure appropriate debt ratios (no more) of the financial covenants in the loan agreement to the creditors PGN 66.67%: 33.33%. Debt to equity ratio is calculated by dividing the portion of long-term debt-to-equity companies.

149

Management’s Discussions and Analysis

MATERIAL COMMITMENTS FOR CAPITAL INVESTMENTS At the end of 2016, no material commitments associated with capital goods investment in PGN.  

REALIZATION OF CAPITAL INVESTMENT 1. Type of Investment Goods In 2016, PGN invested capital as follows: • Construction of pipelines and supporting facilities, natural gas distribution • Development of oil and gas fields • Acquisition of gas field 2. Investment Objective Construction of pipelines and supporting facilities, distribution of natural gas intended for the connection of customers (customer attachment), increasing the reliability of network integrity and increasing the capacity of supporting facilities. This is an attempt PGN to provide excellent service to customers. Investment in oil and gas field development aims to increase the production in the field that it operates. Investments are also made on the field that is in the exploration stage of development and as the Company’s commitment to the Government in the development of oil and gas fields. At the end of 2016 PGN through SEI acquisition Sanga Sanga gas field with the aim to improve reserve replacement ratio and increase the revenue contribution of the oil and gas sector. 3. Investment Value

Description

Investment Value (million USD)

Construction of pipelines and supporting facilities, natural gas distribution: • Operating

79.84

• In the completion stage

45,73

Oil and gas field development Acquisition gas field

245,34 89,45

150

Management’s Discussions and Analysis

TARGET ACHIEVEMENT IN 2016 In 2016, PGN set a target businesses adjusted to the global economic downturn. A summary of the achievement of performance targets in 2016 is as follows:

SUMMARY OF PERFORMANCE TARGET ACHIEVEMENT IN 2016 3,500 3,000 2,500

WP&B 2016

2.000

REALIZATION 2016

1,500 1,000 500 OPERATING PROFIT

COST OF REVENUES

OPERATING EXPENSES

WP&B 2016

3,145.60

2,248.82

461.92

434.86

269.43

REALIZATION 2016

2,934.78

2,047.84

442.70

444.24

304.32

REVENUES

NET INCOME

Profit for the period 2016 amounted to USD302,96 million, or 112.4% of target. PGN net revenues consolidated 2016 amounted to USD2,934.78 million, or 93.3% of the target volume affected by the lifting of oil and gas in the SEI of 10.4 MMBOE, 60% of the target. This is due to differences in the realization of the acquisition transaction completion time oil and gas blocks in 2016. The acquisition plan of the block, started since August, revenue was initially intended to be recognized starting January 2017. However, the completion of acquisition transation took place on November 2016 and consequently the revenue to be recognized start from November 2016. Cost of revenues for USD2,047.84 or 91.1% of target in 2016. Cost of revenue did not reach the target due to lower tariff (compare to budget plan) of gas make up and lower cost of revenue of SEI. Operating profit amounted to 102.2% of the target. This was attributable to the income accrue on Joint Operation assets in Surabaya and Ketapang office, as well as income on insurance claims. The net profit amounted to 112.9% which was attributable to the above target figures of the share of profit of associates, as well as the advantages of purchase discount on acquisition of Sanga Sanga block.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

151

REALIZATION OF SELLING VOLUME

TARGET 2016

REALIZATION 2016

TARGET ACHIEVEMENT IN 2017 Based on the Government’s Draft of the State Budget and Financial Note FY 2017, the global economic growth in 2017 is projected to increase compared to 2016. The growth of the national economy in 2016 which was still below the target, gave an impact on the Company’s performance. The company estimates that the situation will be continued in 2017. The projection was based on condition where customers delay gas subscriptions and request for lower gas prices in order to remain able to produce and maintain competitiveness in the market. Based on the above conditions, projected natural gas demand for 2017 still stagnant, but PGN will undertake various improvement initiatives both of products and services and the expansion of services to new customers to keep gas consumption growth. Considering the Indonesian GDP level compared with other countries in the region, PGN believes that demand could grow and industrial users of natural gas in Indonesia remains attractive in the future. PGN is now preparing to anticipate the development of the LNG industry in Indonesia, among others through integrated infrastructure of LNG receiving terminal, transmission pipeine and gas distribution networks. On the upstream side, oil price is still below expectations thus also affecting the achievement of PGN’s performance. To that end, PGN establishes Strategic Business Priorities to fulfill its mission to encourage the achievement of the vision, namely Sustainable Growth, Performance Achievement, Crisis Management and Diversification. Increased sales of natural gas to retail customers in particular industries are projected to occur in the presence of macro-economic growth and better stability of the rupiah. PLN 2017, the investment plan priority was in accordance with PGN’s Investment Strategy : 1. Investment Priority I; Retain Existing Customers & Acquire New Customers 2. Investment Priority II; Develop New Market 3. Investment Priority III; Develop New Product & Business

152

Management’s Discussions and Analysis

MATERIAL INFORMATION AFTER THE REPORTING YEAR After the reporting date, there are no material events that occurred in PGN and its subsidiaries and affiliates.

BUSINESS PROSPECT In 2017 Ministry of National Development Planning (Bappenas) projected that Indonesia’s GDP for the year will grow by only 5.3%, this increase is not too significant compared to the Country’s third quarter GDP in 2016 which amounted to 5.02%. According to the Bappenas, this estimate was made with economic assumptions that Indonesia will still be dominated by private consumption. Meanwhile, the impact of global economic turmoil to the nation’s economy still can not be well predicted. The main challenge for the Company in the coming years are still on the issue of commodity price of natural gas compared to its substitutes such as coal and petroleum. Coal is a competitive energy alternative to natural gas as its prices are much cheaper than the price of gas. In addition, in early 2016 the price of oil globally revolves around USD 30 / barrel resulting in difficulties of natural gas market to absorb the supply due to less competitive prices. Based on Government Regulation No. 79 of 2014 on National Energy Policy, Indonesia’s largest energy demands until 2030 are coal, renewable energy, and natural gas. Future policy regarding the national energy mix put gas as energy source will always have increase in demands. This made the composition of natural gas in national energy mix remained stable inline with the increase of national energy demand. Until 2020, projected mix of petroleum consumption has decreased to 32% while new renewable energy increased to 17% and natural gas remains the same at 22%.

IMAGE OF ENERGY MIX INDONESIA 2015 - 2050

2016 215 MToe

2020 290 MToe

Sources PP 79 In 2014, the National Energy Board

2025 400 MToe

2050 1000 MToe

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

The company predicts that the business opportunities in natural gas utilization is still quite large. In terms of natural gas supply, Indonesia still has abundant potential reserves and demand for natural gas will continue to increase every year. However, in order to face the global economic downturn that affected the Indonesian economy, the Government issued a number of economic policy package. Through one of the economic policy package, volume III package, the Government launched a variety of regulatory changes to improve the business climate in Indonesia. Such changes include changes in natural gas allocation priorities. Allocation and utilization of natural gas for domestic consumption prioritize on: transportation sector; households and small customers; to increase the

153

production of oil and natural gas; fertilizer industry; gas-based industries; electricity generator and industries that use natural gas as fuel. Given the priority allocation, some users can obtain supplies of natural gas directly from the gas field and transported through transmission pipelines and through LNG transportation modes. This made the Natural Gas Transportation business increased as depicted in the National Gas Balance shown below. Strategies that can be used to capture the business opportunities of natural gas transportation is by approaching industries that has the gas allocation, coordinate with the Government, and prepare the natural gas transportation infrastructure to serve these needs.

MAP OF NATIONAL GAS BALANCE 12,000 10,000

d

b. Uncontracted, Supply of natural gas in Indonesia whose allocations have not owned gas trading business entities including PGN

8,000

c

6,000 4,000

c. Potential supply, supply of natural gas in Indonesia, which is still in the development stage

b

2,000

a

d. Export Project, allocation of natural gas supply for needs outside Indonesia

0 2016

a. Contracted Gas Pipeline, Supply of natural gas in Indonesia allocation had been owned gas trading business entities including PGN

2020

Contracted Gas Pipeline

Sources PGN Long Term Plan

2024

Uncontracted

2028

Potential supply

2032

Export Project

Total Natural Gas Demand Indonesia

154

Management’s Discussions and Analysis

BUSINESS DEVELOPMENT Several steps have been prepared by PGN to capture the business opportunities and expand its business in the whole natural gas business chain in Indonesia. PGN hope the Company’s existence will not only focus on the midstream sector such as infrastructure and distribution of natural gas, but also throughout the business chain, from upstream to downstream business.

LNG Mini/Medium Scale Government’s effort to expand the distribution of natural gas around Indonesia has its own challenge: Indonesia is an archipelago. Typical energy demands that arises consists of relatively small volumes that spread across the country that made it not feasible enough to use conventional modes of transportation through pipelines. PGN through its subsidiaries, PLI and GEI, seek modes of distribution of natural gas using LNG method in small and medium scale. PLI has take part in several Mini LNG supply tender, to meet the demands of under development power plants in Central and Eastern Indonesia, as well as some remote areas in the Western region of Indonesia. Integration of power plants as an anchor to the industrial and commercial demand supports the feasibility of this mode of transportation.

Compressed Natural Gas (CNG) PGN, through its subsidiary GEI, is developing CNG and the transportation infrastructure to meet the demand for industrial gas and Fuel Gas. Fuel conversion to CNG made by the government as an effort to reduce Indonesia’s dependence on imported fuel is an opportunity for PGN to expand its shares in the gas transportation sector. Existing CNG Refueling Stations will be optimized through the integration between the Gas Converter Distribution Project and the CNG Price Restructurisation Program initiated by the Government. In commercial and industrial sectors, GEI is developing Cradle CNG transportation modes to target the demand of natural gas in areas that can not be easily reached by pipelines.

Power Plant and Petrochemical Plant (Value Added Creation) To improve the utilization of natural gas, PGN will expand its business to Natural Gas Utilization. Market opportunities that will be studied further are the use of natural gas as fuel for power plant and as petrochemical raw materials. PGN has established an entity in power generation and electric support services named Widar. Widar began to capture available business opportunities to expand its business in power generation (power plant) by supplying small-scaled electric power (using micro turbines).

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

155

Integrated Industrial Zone Industrial sector is the second largest customer after power plant. Their high volume of consumption made it feasible to develop a business in integrated industrial park. The plan was to integrate the industrial area with variety of facilities and networks owned by PGN. The establishment of PGN’s Subsidiary, Permata, in 2014 was the first step in expanding their business in asset management and services. Permata has conducted surveys, site selections, and feasibility studies for the development of integrated industrial park to increase the added value of the company.

MARKETING ASPECT MARKET SHARE PGN distributes or sells gas to industrial and commercial customers based on Gas Sales Agreement (GSA). GSA between PGN and the customer is a business agreement where the gas prices are determined by several factors such as: gas price, purchasing power of customers, other alternative energy prices, and other factors. If suppliers raise their prices to PGN, PGN will make adjustments to its selling price to customers. For residential and small customers, the selling prices of gas are subject to the regulations of Minister of Energy and Mineral Resources (ESDM) which was determined by BPH Migas. The gas distribution agreements between PGN and Households/ Small-sized Customer are expressed in Gas Subscription Letter. In 2016, natural gas production in Indonesia for domestic consumption reached ± 4,800 MMscfd. From that total production, about 2,900 MMscfd were managed by the upstream sector who channeled the gas directly to the end user while approximately 1,100 MMScfd were managed by fully-facilitated natural gas business entities. PGN as one of these business entities owned around 73% of the market share of pipeline-distributed natural gas trading in Indonesia. This market share of 2016 is increased compared to 2015 by 71%.

MARKET SHARE OF NATURAL GAS TRADING WITH INFRASTRUCTURE 2016

MARKET SHARE OF NATURAL GAS 2016 73%

77%

27%

23% Upstream Trading

PGN

Trading with Infrastructure

Others

For gas transmission segment, in 2016 PGN controls about 34% of the market share in Indonesia gas transmission (including transmission pipelines operated by the Subsidiaries and Affiliates).

156

Management’s Discussions and Analysis

MARKETING STRATEGY PGN as an infrastructure SOE always committed to continue developing infrastructures and improve the utilization of natural gas in Indonesia. PGN also consistently perform its function as an agent of development to deliver gas directly to end users covering all customer segments. The improvement of gas distribution has always kept in line with the increase of quality of service. The development of PGN’s infrastructure is performed by market penetration in existing operational area and development of new markets. Furthermore, PGN has started a new era by moving forward from focusing on products and the benefit of the products to keep in pace with the development of technology and changes in the market, with these in account PGN have to improve their marketing approach. Manually bill customer monthly through couriers, manually record the gas meter, and limitations to obtain information by the customer, are some of many service encounters that need to be addressed and to be improved. While their means to listens, interacts, and view the customers to gather issues that can be resolved later are some ways used by PGN to improve their quality of service to be able to meet the requirements of their customers.

PGN move forward into customer-oriented philosophy to be able to understand their customers better by weighing more their attention to customer experience concepts and experiental marketing. From understanding customer experience concepts PGN will be able to fulfill customer’s needs and expectations through technology utilization as PGN’s innovation in improving customer’s satisfaction and relationship with the company. In 2016, there are some marketing and sales strategies that have been done by PGN to improve sales and maintain its market share. These strategies were implemented by PGN together with its Subsidiaries. a. Market penetration and new market development For 2016, PGN performed market penetration in its existing business region to improve gas sales volume. Those penetrations include “gas ins” in some customer in Karawang Area; (i) PT Asahimas Flat Glass in November 1st, 2016, with 4.8 MMscfd volume; (ii) PT Pelita Cengkareng in September 8th, 2016, with 4 MMscfd volume; (iii) PT Gemilang Mitra Sejahtera in September 22nd, 2016. Other “gas ins” performed are to PT Jakarta Energi Utama (Ancol Gas Refueling Station) in Jakarta Area in March 1st, 2016 with 1.6 MMscfd volume, PT Energi Baharu Lestari in Surabaya Area in September 15th, 2016, and to PT Global Capital Land in December 29th, 2016 in Medan Area.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

PGN continues to develop natural gas fuel by commercialized the product to some Gas Refueling Station in all PGN’s operating area such as Jakarta, Purwakarta, Lampung, Batam, and Sukabumi. These efforts show PGN’s concistency in developing natural gas infrastructure in Indonesia by expanding their pipelines network more than 190 KM in 2016. Furthermore, as their means to support the 35,000 MW electricity program, in 2016 PGN have extend their Gas Sales Agreement with PLN maintain gas supply for PLN’s power plant such as Muara Tawas Power Plant in Bekasi Area, PT Indonesia Power UP Priok in Jakarta Area, Sutami Power Plant, and MPP New Tarahan Power Plant in Lampung Area. In 2016, as assigned by the government as stipulated in Ministry of Energy and Mineral Resources’ (ESDM) regulation No. 4823.K/12/ MEM/2015 dated December 28th, 2015, PGN was assigned to construct and operate Gas Pipelines Network (Jargas) for households in three cities: Surabaya, Tarakan, and Batam. In gas transmission/transportation business, PGN was assigned by the government to construct the Section I WNTS – Pemping pipeline network. This network will become the foundation to optimize the potential of natural gas supply from Natuna field to support domestic demands. PGN is also in negotiation with PLN discussing the utilization of Wampu – Belawan pipeline network that distributes natural gas to PLN’s power plant.

Management’s Discussions and Analysis

157

In the future PGN will continue to expand their infrastructures by market penetration in their operating areas and developing new market. PGN will also expand their distribution network in other cities such as Dumai, Gresik, Lamongan, Tuban, et cetera, either by conventional gas distribution or by gas intermodes (CNG and LNG). PGN with their Subsidiaries and Affiliates will continue to improve gas sales and its derived products, including electricity. b. Surcharge Removal Incentives To balance the supply and sales of natural gas, PGN implemented surcharge to customers who use gas beyond their contract limit. Surcharge was implemented so that every customer may only consume gas within the limits agreed before and to maintain the pressure in the distribution network as it will affect other customers located around the end of the network. In 2016, PGN offered an incentive of surcharge removal in some Sales Area that has higher supply volume compared to their contracted demands. This incentive also has been offered during low seasons, for example during Eid Al-Fitr holidays and in the end of the year. Customer has responded positively to this program as it is being utilized to maintain their product’s competitiveness when they are consuming gas above their contract limit. This positive response helps PGN increase their sales during low sales period.

158

Management’s Discussions and Analysis

c. Centralized Contact Center and 24/7 Service In line with organization transformation that PGN undergo, they also transform their Contact Center. Since 2015, to support “PGN Love Mothers” and Gas Pipeline Network (Jargas) program from the government, we established a centralized Contact Center in our Head Office by transfer our Contact Center agents and system from our Strategic Business Units. Centralization was conducted to improve the service quality of our Contact Center. This Contact Center was officially launched in Januari 18th, 2016. To support the optimization of PGN Contact Center in our Head Office, we also assign agents to perform walk-ins in each Sales Area to be able to quickly respond Customer’s issues and reports, and coordinating the problem with related functions in the area. The agents also handles direct consultation with customer and potential customer in the area.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Management’s Discussions and Analysis

d. Mobile Application Launch

With technological advancement, PGN strive to improve quality of service and accessibility for customer to be able to monitor their consumption accurately by using Mobile Apps. PGN has developed Android and iOS based applications as their adaptation to technology advancement and improving their service quality and accessibility to customer. These applications can be used using these links: i. For Android users: http://play.google.com/store/apps/details?id=id.cameolabs.pgn.mobile ii. For iOS users: http://appsto.re/id/_RQkcb.i

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e. “PGN Sayang Ibu” Program In 2016, PGN sustainably continue “PGN Sayang Ibu” Program that has been launched since March 25th, 2014. This program was aimed to speed-up the gas consumption in households. This program was also launched as a form of PGN’s support for the government in reducing LPG subsidies. The program is a continuing program which targets one million new household installations. During 2016, PGN have expands their services to 57,702 new household customers.

f. Payment Method In order to improve customer satisfaction, PGN continue to maintain partnership with financial intermediaries and service providers to provide user-friendly payment mechanism to customers, mainly households. Other than through ATM, teller, online transfers, PGN also accept payments via Indomaret (minimarket) or Payment Point of Bank (PPOB) system. These systems were offered to improve PGN’s premium services and enables customers to fulfill their payment obligations easily. g. Customer Satisfaction Level Annually, PGN conduct a survey for customer satisfaction regarding PGN’s services. Those surveys were conducted by independent consultant. According to the consultant, the customer satisfaction level for 2016 is 5.37 in

6-point Likert Scale, higher than 2015 which was 5.30. According to PGN’s customer in 2016, they are still loyal to our product because they are satisfied of PGN’s service and the quality of our products. Supply reliability, competitive price, and installation timeliness are the customers’ expectation of PGN’s next performance. PGN will always maintain coordination with the government and regulators to ensure the reliability of gas supply and allocation to comply with the customers’ demands. PGN always participate and support the government’s program regarding optimization of natural gas utilization across the country. We strive to be cost efficient to be able to distribute our product reliably to the customer and ensure competitiveness in our market. Those results motivate PGN to always develop and improve our quality and service to the customers.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

DIVIDEND DISTRIBUTION POLICY In 2016, the Annual General Meeting of Shareholder in April 8th, 2016, has concluded to distribute a cash dividend of Rp 2,213,734,528,459.00 (equivalent to USD 168,101,946.00), or 41.2% of net profit of 2015 or equal to Rp91.32 per shares. While in 2015, the Annual General Meeting of Shareholder in April 6th, 2015 has decided to distribute cash dividend of Rp 3,510,872,093,109.00 (equivalent to USD 271,277,398.00), or 40.8% of net profit of 2014 or equal to Rp 144.84 per shares.

EMPLOYEE STOCK OWNERSHIP PROGRAM AND/ OR MANAGEMENT STOCK OWNERSHIP PROGRAM (ESOP/MSOP) According to the Extraordinary General Meeting of Shareholders on November 3rd, 2003, and as stated in the Deed No. 5 from Fathiah Helmi, SH, the shareholders approved the Emplyee Stock Ownership Program (ESA) and the Management Stock Ownership Program (MSOP), which terms and coditions were determined by the Board of Commisioners. The company then established three programs for ESA participants, as follows: 1. Provide ESA participants with free shares as a form of appreciation for having contributed to the Company, each for an average of two times the amount of monthly income. This program’s shares is not for sale within one year period after the date of the Company’s shares listing on Stock Exchange and is not to be withdrawn in cash by ESA participants.

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2. ESA Participants may also purchase shares using bonus payments in 2003 by as much as three times their monthly salaries. The shares purchased through this method was discounted 18% from offering price. Shares from this program is not for sale within one year period after the date of Company’s shares listing on Stock Exchange and is not to be withdrawn in cash by ESA participants. 3. If ESA participants are willing to use their rights on programs 1 and 2, they are given the opportunity to buy shares in cash using their own funds to obtain a discount of 18% from the offering price. Shares from this program is not for sale within one year period after the date of the Company’s shares listing on the stock exchange and is not to be withdrawn in cash by ESA participants. Based on the Board of Commissioners meeting in November 17th, 2003, those who are eligible for the MSOP program are the Board of Directors, Board of Commissioners and senior management at certain levels. In this program, the number of new shares to be issued must not exceed 5% of the issued shares with a maximum period of shares issuance is 3 years and executed in 3 phases within 5 years with the following details: a. The First Phase The maximum number of shares to be issued is 50% x 5% x the number of issued shares at an exercise price of 110% of the initial public offering price or at Rp1,650. Entitlements held in December 15th, 2003, with a vesting period of 1 year. The implementation period is 1 year starting December 15th, 2004.

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b. The Second Phase The maximum number of shares to be issued is 25% x 5% x the number of issued shares at an exercise price that will be determined by the Board of Commissioners under the provision that the price should not be lower than the average share price over 25 trading days before the announcement of the shareholders general meeting. Entitlements held in February 15th, 2005, with a vesting period of 1 year. The implementation period is 1 starting February 15th, 2006. c. The Third Phase The maximum number of shares to be issued is 25% x 5% x the number of issued shares at an exercise price that will be determined by the Board of Commissioners under the provision that the price should not be lower than the average share price over 25 trading days before the announcement shareholders general meeting. Entitlement held in February 15th, 2006, with a vesting period of 1 year. The implementation period is one year starting February 15th, 2007. In the first phase of MSOP program, as many as 108,024,675 shares have been executed in 2005, while the second phase in 2007 as much as 53,930,825 shares have been executed and 53,551,388 in 2008 during the third phase. In 2016, no stock ownership programs (ESOP/ MSOP) we rolled out in PGN.

USE OF PUBLIC OFFERING PROCEEDS The Company listed its shares on Indonesia Stock Exchange in December 15th, 2003. The net proceeds from the IPO amounted Rp1,163.3 billion was entirely used to finance the construction of the natural gas transmission pipeline project, specifically the South Sumatera-West Java corridor, which was completed in August 2008. In 2016, no IPO has been rolled out by PGN.

INFORMATION ON MATERIAL TRANSACTION INVOLVING CONFLICT OF INTEREST AND TRANSACTION WITH AFFILIATES GRANT OF LOANS TO SUBSIDIARIES In 2016 there was no lending to subsidiaries or affiliates.

INVESTMENTS TO SUBSIDIARIES 1. Name of transaction parties In 2016, PGN made an investment in the Subsidiary namely GEI, PGASCOM and Permata. 2. Fairness in transaction All transactions above was fairly executed in GCG principles and business practice. 3. Reasons of transactions Investment participation was carried out to give Subsidiaries sufficient funding to invest and grow their businesses and make synergies within PGN Group. Participation to the GEI was intended for gas filling station development projects, electricity and other supporting activities. Participation to PGASCOM was given in the form of convertible loan in accordance to Shareholder Loan agreement. Meanwhile,investment participation to Permata is intended to increase Permata’s capital in affiliate KJG.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

4. Realization of transactions during the period of the financial year 2016 Realization of transactions in the period of the financial year 2016, which amounting to USD17,50 million in GEI, IDR142 billion in PGASCOM and IDR378,82 billion in Permata. 5. Policy on transaction review mechanism PGN has a working unit which is responsible to evaluate and review the performance of the Subsidiaries. The performances were reviewed periodically to ensure that the transactions are carried out in accordance with the purpose of these investments. 6. Compliance regulations and related provisions All of the transactions were conducted in accordance with relevant rules and regulations and based on good corporate governance principles. Approval of these investments was made with reference to the Company’s Articles of Association.

CHANGES IN LEGISLATIVE REGULATIONS The weakening global economy had an impact on Indonesia’s economy until 2016 that the government issued a number of economic policy packages. In the third economic policy package, the Government launched a variety of regulatory changes to improve the business climate in Indonesia. In 2016 there was a change of regulations related to the business activities of PGN, namely the issuance of Minister No. 06 of 2016 dated on February 24, 2016 on Provisions and Procedures for Determination and Allocation and Utilization of Natural Gas Prices. The regulation is an amendment of the previous Decree

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of ESDM Minister No. 37/2015 regarding the same rule. Under the new decree, priority of gas allocation for domestic purposes is as follows: a. To support the Government’s program of natural gas for transportation, household and small customers. b. To increase oil and natural gas production. c. To fertilizer industry. d. To gas based industry. e. To electricity sector. f. To industries that use natural gas as fuel. In the implementation, gas supply allocation, is given to SOE, local government entity, as well as business entity which hold gas trading license and assigned by the Government. The entities should use natural gas for their business or they have to sell natural gas directly to end users. The regulation, is expected to eliminate the layeredtrading practice to end users to create efficient supply chain of natural gas business. PGN, as an SOE that serves all customer segments and sell natural gas directly to end users, has been supplying gas to all concerned industries, which obtained the allocation priorities excluding the fertilizer industry. Through the Decree of ESDM Minister No. 06/2016, the Government is aiming at securing natural gas supply for the greater prosperity of the people. The government also issued Presidential Regulation No. 40/2016 regarding Natural Gas Pricing on May 3rd, 2016. The regulation, which is effective retroactively from 1 January 2016 is implemented to set the price of certain natural gas for seven natural gas users that are engaged in: the fertilizer industry, petrochemical industry, oleochemical industry, steel industry, ceramic industry, glass industry and industrial rubber gloves. When the price of natural gas can not meet the economics of the above mentioned industries or higher than USD6/MMbtu, the government set the gas price at the upstream at USD6/MMbtu for the seven industries. Nonetheless, this upstream gas price determination will not affect the revenue of the production sharing contract contractor.

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As the implementing regulation of the Presidential Regulation No. 40/2016, the Government then issued Decree of ESDM Minister No.16/2016 regarding Procedure for Determining the Price for Specific Users on June 16th, 2016. The decree, which is effective retroactively from 1 January 2016, regulates the pricing for specific gas to industries engaged in the fertilizer industry, petrochemical industry, chemical industry, steel industry, ceramic industry, glass industry and rubber gloves industry. The decree regulates the procedure for the industries to obtain the price incentives with recommendation from the Ministry of Industry. The issuance of the ministerial decree can directly impact on the operational business PGN. In addition to the two (2) above regulations, the Government has also published: 1. Adjustment of PGN’s Business License in Natural Gas Trading through the ESDM Minister No. 391.K/10.01/DJM.O/IU/2016 dated December 30th, 2016 concerning The Second Amendment of Natural Gas Trading Licence through PGN’s Dedicated Pipeline. 2. Letter of Minister of Energy and Mineral Resources No. 12302/10/DJM.O/2016 dated October 17th, 2016 concerning Temporary Natural Gas Trading License through Pipeline for West Natuna Transportation System to Pemping Island. With the issuance of the trading license, PGN achieves a positive impact on the legal certainty of doing business in its operational areas and therefore is easier to get gas supply allocation as stipulated in the Decree of ESDM Minister No. 06/2016.

In 2016, the Government through the Decree of ESDM Minister No. 4823.K/12/MEM/2015 gave a mandate to PGN to carry out the construction and operation of Natural Gas Pipeline Network for Household in Batam, Surabaya and Tarakan. Subsequently, through the Decree of ESDM Minister No. 8086.K/12/ MEM/2016, the Government assigned PGN to provide and distribute natural gas through gas distribution network for Domestic Fiscal Year 2017. Meanwhile, Subsidiary, PLI participated in business development of PGN through LNG break bulk scheme, which allows PLI to trade a certain volume of LNG. The Government, through the ESDM Minister Letter No. 3619/10/DJM.O/2016 dated March 22nd, 2016 concerning Temporary Trading Business License for LNG, gave the legal basis which has a positive impact on the legal business certainty for the break bulk scheme of PLI. GEI also expands its business through the operation of gas fuel filling station (SPBGs) in Pondok Ungu (Bekasi), Sukabumi Bogor, Surabaya, Batam and Purwakarta in accordance with the Decree of ESDM Minister No. 380.K/10.01/DJM.O/IU/2016 dated December 23rd, a certain volume 2016.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

CHANGES IN ACCOUNTING POLICIES The accounting policies applied in the 2016 consolidated financial statements are consistent with the accounting policies applied in the consolidated financial statements in 2015. Effective on January 1, 2016, PGN apply standards and new interpretations or revisions of the following, but does not have a material effect on the consolidated financial statements: 1. Indonesia’s Accounting Standards No. 4 (Revised 2015): Separate Financial Statements Amendment to this Standard allows the use of the equity method as a method of recording the investment in subsidiaries, joint ventures and associates in the separate financial statements of the entity. 2. Indonesia’s Accounting Standards No. 5 (Revised 2015): Operating Segments This Standard revision adds a short description of operating segments which has been combined and economic indicators with similar characteristics. 3. Indonesia’s Accounting Standards No. 7 (Revised 2015): Related Party Disclosures This improvement provides additional requirements of related parties definition and provides clarification regarding compensation paid by management. 4. Indonesia’s Accounting Standards No. 13 (Revised 2015): Investment Property This Standard revision provides clarification that Indonesia’s Accounting Standards 13 and Indonesia’s Accounting Standards 22 influences each other. Indonesia’s Accounting Standards 13 provide guidance to distinguish investment property and self-used properties. Indonesia’s Accounting Standards 22 provide guidance to determine whether acquisition of investment property is an business combination.

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5. Indonesia’s Accounting Standards No. 15 (Revised 2015): Investments in Associates and Joint Ventures Amendment to this Standard provides clarification on the consolidation of the exemption for investment entities when certain criteria are met. 6. Indonesia’s Accounting Standards No. 16 (Revised 2015): Fixed Assets a. Amendment to this Standard clarifies that the use of the depreciation method based on income is inappropriate. b. This improvement Standard provide clarification related to the revaluation model, that when an entity uses the revaluation model, the carrying amount of the asset is back to its revalued amount. The split between carrying amount and accumulated depreciation is treated in one of the following ways: (i) The carrying amount is restated in a manner consistent with the revaluation of the carrying amount and the accumulated depreciation is adjusted to equal the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment lossers; or (ii) The accumulated depreciation is eliminated against the gross carrying amount of the asset. 7. Indonesia’s Accounting Standards No. 19 (Revised 2015): Intangible Assets a. Amendment to this Standard provides clarification on the assumption that revenue is not an appropriate basis to measure the economic benefit of intangible assets can be rebutted in certain limited circumstances. b. This improvement Standard provide clarification related to the revaluation model, that when an entity uses the revaluation model, the carrying amount of the asset is back to its revalued amount.

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The split between carrying amount and accumulated depreciation is treated in one of the following ways: (i) The carrying amount is restated in a manner consistent with the revaluation of the carrying amount and the accumulated depreciation is adjusted to equal the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment lossers; or (ii) The accumulated depreciation is eliminated against the gross carrying amount of the asset. 8. Indonesia’s Accounting Standards No. 22 (Revised 2015): Business Combination The Standard is amended to classify that Indonesia’s Accounting Standards 22 does not apply to accounting for the formation of any joint arrangement under Indonesia’s Accounting Standards 66. The amendment also clarifies that the scope exemption applies only to the financial statements of the joint arrangement itself. This Standard revision clarifies the scope and obligation to pay contingent consideration which meets definition of financial instruments recognised as financial liabilities or equity. This Standard also has an impact to improvement of the following Standard: a. Indonesia’s Accounting Standards No. 55: Financial Instruments: Recognition and Measurement. b. Indonesia’s Accounting Standards No. 57: Provisions, Contingent Liabilities and Contingent Assets. 9. Indonesia’s Accounting Standards No. 24 (Revised 2015): Employee Benefits Amendment to this Standard is to clarifiy accounting for dues contributions from employees or third parties that do not depend on the number of years of service, for example, worker contributions are calculated based on a fixed percentage of salary. 10. Indonesia’s Accounting Standards No. 25 (Revised 2015): Accounting Policy, Changes of Accounting Estimates and Error This Standard revision provides editorial corrections to the limitations of retrospective application.

11. Indonesia’s Accounting Standards No. 53 (Revised 2015): Share-based Payments This Standard revision provides clarification for vesting condition, performing condition and service condition. 12. Indonesia’s Accounting Standards No. 65 (Revised 2015): Consolidated Financial Statements Amendment to this Standard clarifies the exemption on consolidation for investment entities when certain criterias are met. 13. Indonesia’s Accounting Standards No. 66 (Revised): Joint Arrangements Amendment to this Standard requires all the principles of business combination in Indonesia’s Accounting Standards No. 22 and other Standard with other disclosure requirements is applied to initial acquisition of interests in joint operations and for additional acquisition of interests in joint operations, as long as they are not conflicted with the existing guidance in Indonesia’s Accounting Standards No. 66. 14. Indonesia’s Accounting Standards No. 67 (Revised 2015): Disclosures of Interests in Other Entities Amendment to this Standard clarifies exemption of consolidation for investment enitites when certain criterias are met. 15. Indonesia’s Accounting Standards No. 68 (Revised 2015): Fair value measurement This Standard revision clarifies that the portfolio exception, which permits entities to measure the fair value of the Group’s financial assets and financial liabilities on a net basis, applied to all contracts (including non-financial contracts) within the scope of Indonesia’s Accounting Standards No. 55. 16. Indonesia’s Accounting Standards No. 70: Accounting for Tax Amnesty Assets and Liabilities This Standard provides accounting policy choices for an entity to apply accounting treatment for the recognition of assets and liabilities in accordance with the provision of the Tax Amnesty Law based on its Declaration Letter for Tax Amnesty.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

The alternative accounting options are: - To use the existing applicable standards under Indonesian Financial Accounting Standard (General Approach) - To use of the specific provision in Indonesia’s Accounting Standards No. 70 (Optional Approach) 17. IFAS No. 30 (Revised 2015): Levies This IFAS represents interpretation of Indonesia’s Accounting Standards No. 57: Provision, Contingent Liabilities and Contingent Assets which clarifies the accounting liability to pay the levy, other than income taxes that are within the scope of Indonesia’s Accounting Standards No. 46: Income tax and other penalties for violations of law, to the Government. New standards, amendments and interpretations issued but not yet effective for the period are as follows: 1. Indonesia’s Accounting Standards No. 1 (Revised 2015): Presentation of Financial Statements Amendments to this Standard provides clarification related to the application of the requirements of materiality, flexibility systematic sequence of notes to the financial statements and the identification of significant accounting policies. Indonesia’s Accounting Standards No. 3: Interim Financial Statements; Indonesia’s Accounting Standards No. 5: Operating Segments; Indonesia’s Accounting Standards No. 60: Financial Instruments: Disclosures; and Indonesia’s Accounting Standards No. 62: Insurance Contracts. 2. Indonesia’s Accounting Standards No. 2 (Revised 2016): Statements of Cash Flows Amendments to this Standard requires the entity to provide disclosures that enable users of the financial statements to evaluate changes in liabilities arising from financing activities, including changes arising from cash flow and non-cash changes.

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3. Indonesia’s Accounting Standards No. 3 (Revised 2016): Interim Financial Statements This Standard clarifies that interim disclosures are required to be included in the interim financial statements or through cross-references of the interim financial statements, such as management commentary or risk report available to users of the interim financial statements. If the users of financial statements can not access the information on the cross-reference with the same requirements on the same period, the interim financial statements of the entity is considered incomplete. 4. Indonesia’s Accounting Standards No. 16 (Revised 2015): Fixed Assets, for the paragraph which relate to agriculture asset Amendment of this Standard clarifies that biological assets that meet definition as bearer plants are within the scope of Indonesia’s Accounting Standards 16. Definition, recognition and measurement of bearer plants follows requirements determined by Indonesia’s Accounting Standards 16. 5. Indonesia’s Accounting Standards No. 24 (Revised 2016): Employee Benefit This Standard clarifies that the market of high quality corporate bonds are determined by currency in which the bonds are denominated and not based on the country in which the bonds are exist. 6. Indonesia’s Accounting Standards No. 46 (Revised 2016): Income Taxes Amendments of this PSAK consist of the following:: a. Provide illustrative examples to clarify that the temporary differences that are deductible arise when the carrying amount of debt instruments assets measured at fair value and the fair value is less than the taxable base, regardless of whether the entity estimates to recover the carrying amount of a debt instrument through sale or use of, for example, to have and receive contractual cash flows, or a combination of both.

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b. Clarified that to determine whether the taxable income will be available so that the deductible temporary differences can be utilized, the valuation deductible temporary differences would be in line with tax regulations. c. Adding that the tax reduction from the reversal of deferred tax assets is excluded from the estimate of future taxable income. Then compare the entity deductible temporary differences to the estimated future taxable income that does not include tax reduction resulting from the reversal of deferred tax assets is to assess whether the entity has a future taxable income sufficient. d. Estimation of the likeliness that taxable income can include recovery of certain assets of the entity exceeds its carrying amount if there is sufficient evidence that it is likely that the entity will achieve it. 7. Indonesia’s Accounting Standards No. 58 (Revised 2016): Non-current Assets Held for Sale and Discontinued Operations. This Standard clarifies that a change from one disposal method to other disposal method are considered as the beginning of a sustainable plan and not as a new disengagement plan. This adjustment also clarified that the change in the disposal method does not change the date of classification as an asset or asset group disposal. 8. Indonesia’s Accounting Standards No. 60 (Revised 2016): Financial Instrument: Disclosures This Standard clarifies that an entity must assess the nature of the contract in exchange for services to determine whether the entity has a continuing involvement in financial assets and whether the disclosure requirements related to continuing involvement are met.

9. Indonesia’s Accounting Standards No. 69: Agriculture Indonesia’s Accounting Standards 69 regulates that biological assets and agriculture products are recognised if meets several criterias, similar with assets recognition criterias. Those assets are measured at the beginning and ending of reporting period at fair value less cost to sell. Difference incurred from the fair value changes are recognised in profit or loss. Exceptions applied if the fair value clearly cannot be measured reliably. Indonesia’s Accounting Standards 69 provides an exception for assets which are excluded from the scope. Accounting treatment applied to productive assets referring to Indonesia’s Accounting Standards 16. Indonesia’s Accounting Standards 69 does not regulate the processing of agricultural products after the harvest. For example, processing grapes into wine and wool into yarn. 10. IFAS No. 31: Interpretation on scope of Indonesia’s Accounting Standards 13: Investment Property IFAS 31 provides an interpretation of the characteristics of the building that is used as part of the definition of investment property in Indonesia’s Accounting Standards 13. The building that referred to in the definition of investment property refers to structures that have physical characteristics that are generally associated with a building which refers to the presence of walls, floors, and roofs are attached to the asset. The above standards are effective for the financial year beginning on or after January, 1 2017 or 2018. As at the authorisation date of these consolidated financial statements, the management is still evaluating the potential impact of these new and revised Standard to the financial statements of the Group.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

BUSINESS SUSTAINABILITY INFORMATION In 2016, information related to business continuity PGN are as follows: 1. Things that significantly influence the company’s sustainability; • The decline in world oil prices Realized oil prices were low throughout 2016 had a significant influence on the company that is a decrease in revenue and volume demand of natural gas distribution customers. The decline in oil prices has an impact on SEI ie revenue decline and the rise of impairment on oil and gas properties that affect financial performance on a consolidated basis PGN. • Low national economy growth Low economic growth lowers the purchasing power. This affects the national industrial production to decline, reduced electricity demand, and reduced commercial activities. As a result of the decline in industrial production, electricity, and commercial, PGN gas consumption by the customers were reduced. • Regulation of the commercial aspects of natural gas (i) Ministerial Regulation No. 06/2016 on Terms and Procedures for Allocation, Utilization, and Price of Natural Gas. The publication of the Ministerial Regulation No. 06/2016 has change the policy of natural gas allocation in Indonesia to eliminate the possibility to give natural gas allocation to entities that do not have natural gas infrastructure directly to end users. PGN as a SOE with natural gas

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infrastructures has a good position in the implementation of the 06/2016 Ministerial Regulation. Thus continuity of PGN’s participation of the natural gas utilization in Indonesia can be optimized. (ii) ESDM Minister Decree No. 4823.K/12/ MEM/2015 on Assignment to PT Perusahaan Gas Negara (Persero) Tbk in Construction and Operation of Natural Gas Distribution Network for Domestic Fiscal Year 2016 and the ESDM Minister Decree No. 8086.K/12/ MEM/2016 on Assignment to PT Perusahaan Gas Negara (Persero) Tbk to Supply and Distribute Gas through Gas Distribution Network for Domestic Fiscal Year 2017. These Ministerial Decrees show PGN as a strategic partner of the Government in ensuring national energy security and accelerating the diversification of energy by accelerating the implementation of oil substitution with gas in the household sector. In addition, through Ministerial Decree No. 8086.K/12/MEM/2016, PGN expand the utilization of natural gas in new areas, Musi Banyuasin. This supports PGN’s commitment to continuously expand their natural gas services across Indonesia.

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(iii) ESDM Minister Decree No. 8103.K/12/ MEM/2016 on Assignment to PT Perusahaan Gas Negara (Persero) Tbk to Supply, Distribute and Install Converter Kit for Office Vehicles and Public Transportation for Fiscal Year 2017. This Ministerial Decree shows PGN as a strategic partner of the Government in implementing energy diversification of fuel to gas for motor vehicles. 2. Management’s assessment of the influence • Management conducts a risk assessment on the things that potentially cause a significant impact on PGN’s business continuity. • Based on the assessment that has been done, PGN undertake mitigation measures to maintain business continuity, such as: - Setting SEI’s production portfolio among oil, natural gas and LPG based on the commodity’s prices in the energy market. - Increased production of SEI by drilling new wells at existing production field. - Increased consumption of existing customers through a surcharge-free mechanism, improving customer service and network reliability - Develop the pipeline network to the end customer to add new customers in existing areas and develop gas markets in new territories

• With the mitigation measures that have been done, PGN was able to maintain sales volume amid the decline in natural gas consumption and maintain SEI’s revenue that contributes to PGN’s performance in the consolidated level. 3. The assumptions used by management in conducting the assessment. • The assessment is based on the assumptions outlined by PGN’s CBP for 2016 that refers to the revised state budget where oil prices were projected at 40 USD/bbl and national economic growth of 5.1%. • At the end of 2016, the average prices of oil are above expectation, where the average realized oil price in the range of 55 USD/bbl and national economic growth of 5.01%.

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GOOD CORPORATE GOVERNANCE

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Good Corporate Governance

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GOOD CORPORATE GOVERNANCE

The Principle of Good Corporate Governance (GCG) was applied to increase performance and value of the Company The application of GCG in the Company inter intended to optimize the value of PGN group so as to have strong competitiveness both national and international to achieve the urpose and objective of the Company

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THE IMPLEMENTATION OF GOOD CORPORATE GOVERNANCE A State-Owned Enterprises (SOE / BUMN) as one of Indonesia’s economy pillars is required to be the pioneer of Good Corporate Governance (GCG) implementation. In order to drive that, the State Minister of SOE has issued the State Ministry of SOE Regulation Number: PER-9/MBU/2012 dated 6th July 2012 on the Amendment on State Ministry of SOE Regulation Number: PER-01/MBU/2011 dated 1st August 2011 on the GCG Implementation in State-Owned Enterprise. GCG is a tool utilized by the Company Organ to improve the success of business and accountability of Company in order to realize the shareholder’s value in a long term by continuously considers other stakeholders ‘needs, based on the law and regulations as well as business ethics, PGN as one of the SOEs always take an active role in the process of national economic development by improving the Company’s performance upon the foundation of GCG principles. PGN implement the Good Corporate Governance (GCG) and principles of Transparency, Accountability, Responsibility, Independence and Reasonableness as the foundation to improve the performance of the Company continuously by updating various Guidelines, Operational Procedure, Manual with applicable law and regulation, transformation program and Company development. The enhancement was strengthened through socialization and its implementation to reremind all Stakeholders on the importance of GCG implementation in each work activity.

THE OBJECTIVE OF GOOD CORPORATE GOVERNANCE As gas transportation and trading’s SOE, PGN had proved its long term experience in developing natural gas infrastructure that were long term investment for future generation. Along with PGN’s

growth, the Company has transformed to strengthen its position as the leading energy company in Indonesia. Transformation is not only on the shape of organization, yet it is also strengthened with values believed to be implementable by every individual of PGN. In order to realize the PGN’s vision “To Be the World-Class Energy Company in Gas by 2020”, the company utilizes its independence and synergy of every entity in the company to be able to increase the competitiveness and always develop the structure and system of good corporate governance according to the GCG principles based on State Ministry of SOE Regulation Number: PER-9/MBU/2012 dated 6thJuly 2012 on the Amendment on State Ministry of SOE Regulation Number: PER-01/MBU/2011 dated 1stAugust 2011 on GCG Implementation in State Owned Enterprise. Based on the BOARD OF DIRECTORS Decision No. 006901.K/OT.01/UT/2012 on the Guideline of Good Corporate Governance, the GCG implementation in PGN aims to: 1. Optimize PGN’s values in order to have strong competitiveness, both in national and international level, hence it will be able to maintain its existence and live sustainably to achieve the Company’s purpose and objective; 2. Drive PGN’s management in professional, efficient, and effective manners as well as empower the function and improve the independence of Company Organ; 3. Drive the Company Organ to make decision and take actions upon high moral values and comply with the law and regulation, as well as the awareness on PGN’s social responsibility to the Stakeholders and environment conservation at the vicinity of PGN; 4. Improve PGN’s contribution in national economy; 5. Improve a conducive climate for national investment development; 6. Improve the Company Image.

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THE STRUCTURE OF GOOD CORPORATE GOVERNANCE According to Law No. 40 of 2007 on Limited Company, Company Organ consists of • General Meeting of Shareholders, or abbreviated as GMS or GMS, is a Company Organ that has the authority that is not given to the BOARD OF DIRECTORS or BOARD OF COMMISSIONERS in the limit stipulated in the Limited Company Law Number 40 of and/or Articles of Association • Board of Commissioners is a Company Organ that is assigned to generally or specifically supervise according to the Articles of Association and advise the BOARD OF DIRECTORS • BOARD OF DIRECTORS is Company Organ that is authorized and fully responsible on the management of company for the company’s interest, according to the purpose and objective of the company, as well as represent a good company both in and out of court according to the stipulations of Articles of Association The Company Organ plays key roles in the success of GCG implementation. Company Organ runs its function with law stipulation, company’s Articles of Association and other stipulations on the foundation of principle that each organ has independence in carrying out its task, function and responsibility for Company’s interest. In running the Company’s management and take all decisions, Company Organ always comply with the law and regulations, uphold the value of business ethics and realize the Company’s responsibility to the stakeholder.

PGN CORPORATE GOVERNANCE STRUCTURE COMPANY ORGAN

Annual GMS

Board of Commissioners

Board of Directors

Corporate Secretary

SUPPORTING FUNCTION

Board of Commissioners Secretary

Internal Audit Audit Commitee Risk Management Investor Relation Corporate Social Responsibility Corporate Governance

Risk Management and Business Development Commitee Nomination, Remuneration and Good Corporate Governance Commitee

178

Good Corporate Governance

THE IMPLEMENTATION OF GOOD CORPORATE GOVERNANCE IN PUBLIC COMPANY The Implementation of Good Corporate Governance in Public Company is conducted based on the Financial Service Authority Regulation Number 21/POJK.04/2015 on the Implementation of Public Company Corporate Governance which on the 16thNovember 2015 and Financial Service Authority Circular Letter Number 34/ SEOJK.04/2015 on the Guideline of Public Company Corporate Governance dated on 17thNovember 2015. The Guideline of Public Company Corporate Governance covers 5 aspects, 8 principles of good corporate governance and 25 recommendations on the implementation of aspect and good corporate governance principles. The five aspects of public company corporate governance covers: a. Public company relationship with shareholders in guaranteeing the rights of shareholders; b. Function and Roles of Board of Commissioners; c. Function and Roles of Board of Directors d. Stakeholders’ participation; and e. Information Transparency. The recommendation of public company corporate governance as mentioned in the Guideline of Public Company Corporate Governance as implemented in PGN is as follows:

Aspect 1. The relationship between Public Company and Shareholders in Guaranteeing the Rights of Shareholders

Principle

Recommendation

Implementation in PGN

1. Improve the value of General Meeting of Shareholders (GMS) implementation

1. Public Company has a method or technical procedure of voting, both openly or closed that prioritize independence and Shareholders’ interest

Technical procedure of voting is regulated in; (1) PGN’s Articles of Association Article 24, regulates the stipulation on the total quorum of attendance and decision quorum as well as the mechanism of voting. (2) The Order of 2016 annual GMS shared to all the attending Shareholders.

2. All members of Board of Directors and members of Board of Commissioners of Public Company attending the Annual GMS

All members of Board of Directors and Board of Commissioners attending the annual GMS, that is proven by the Attendance List signed by all members of Board of Directors and Board of Commissioners.

3. Summary of Minutes of GMS is available in the Public Company’s website for minimum 1 (one) year

In 2016, PGN only conducted one GMS that was Annual GMS on the 8th of April 2016. Until the end of December, the summary of minutes of Annual GMS is still available in the PGN’s website.

4. Public Company has a policy on communication with Shareholders / investor

Communication and information delivery from the company to Shareholders/investor is conducted in the form of information transparency based on the Financial Service Authority Regulation Number 31/POJK.04/2015 on the Transparency on Information or Material Facts by the Public Company or media news coverage through Financial Service Authority and Stock Exchange. In addition to that, the delivery of information to the investors is conducted by Investor Relations Division, among others are through programs, i.e. non-deal road show, one on one meeting, Analyst/ Investor conference, or site visit to PGN’s assets.

2. Improve the communication quality of Public Company with Shareholders or Investor

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Aspect

2. Function and Roles of Board of Commissioners

Principle

3. Strengthen the membership and composition of Board of Commissioners

4. Improve the implementation quality on the task and responsibility of Board of Commissioners

3. Function and roles of Board of Directors

5. Strengthen the membership and composition of Board of Directors

Good Corporate Governance

179

Recommendation

Implementation in PGN

5. Public Company discloses the communication between Public Company and Shareholders/ investor in the website

Every quarter, the presentation material for Shareholders and investor is presented in the company’s website, in order to implement information equality for all Shareholders

6. Determine the total members of Board of Commissioners considers the condition of Public Company

Total members of Board of Commissioners have been in accordance with the company’s condition. Consisted of 6 members and 2 of them are Independent Commissioners in accordance with the stipulation of the Financial Services Authority / OJK Regulation Number 33/POJK.04/2014.

7. Determine the composition of the members of Board of Commissioners considers the variety of expertise, knowledge and experience required

The composition of members of Board of Commissioners has met the aspect of variety of expertise, knowledge and experience required by the Company.

8. Board of Commissioners has the policy of selfassessment to assess the performance of Board of Commissioners

The performance of the members of Board of Commissioners is assessed using the self-assessment method. The assessment criteria is proposed by Board of Commissioners and approved by the Ministry of SOE and then self-assessed by the Board of Commissioners and then reported to the Ministry of SOE.

9. The Self-assessment policy to assess the performance of Board of Commissioners is disclosed through the Annual Report of Public Company

The self-assessment policy is disclosed in this Annual Report in the Board of Commissioners Explanation, Governance Chapter.

10. Board of Commissioners has the policy related to the resignation of the members of Board of Commissioners if they are involved in financial crime

The Company’s Articles of Association and Board Manual have regulated the resignation of Board of Comissioners members that refers to the SOE and OJK regulations.

11. Board of Commissioners or Committee that runs the function of Nomination and Remuneration, drafts the policy of succession in the Nomination process of Board of Directors members

PGN has owned the Committee of Nomination, remuneration, and GCG that drafts the succession policy in the nomination process of Board of Directors members.

12. Determine the total members of Board of Directors considers the Public Company condition and the effectiveness in decision-taking

Total members of PGN Board of Directors consist of 6 people, in accordance to the needs by considering the current Company condition.

13. Determine the composition of Board of Directors members considers the variety of expertise, knowledge, and experience required.

Each member of Board of Directors has the expertise, knowledge, and experience required by the Company

180

Good Corporate Governance

Aspect

Principle

6. Improve the implementation quality of task and roles of the Board of Directors

4. Stakeholders’ participation

7. Improve the aspect of corporate governance through the stakeholders’ participation

Recommendation

Implementation in PGN

14. Members of Board of Directors that oversee accounting or finance that has the expertise and/or knowledge in accounting

Members of Board of Directors that oversee the function of finance, has the experience and knowledge in finance for more or less 24 years.

15. Board of Directors has selfassessment policy to assess the performance of Board of Directors

Board of Directors has determine the measurement of performance based on the Corporate KPI indicators that are assessed in self-assessment manner, unless for KPKU achievement criteria, customer satisfaction, and GCG implementation were assessed by independen assessor.

16. The self-assessment policy to assess the performance of Board of Directors is disclosed through the Annual Report of Public Company.

Board of Directors KPI realization has been published in the 2015 Annual Report on page 155.

17. Board of Directors has the policy related to the resignation of the members of Board of Directors if they are involved in financial crime

The Company’s Articles of Association and Board Manual have regulated the resignation of Board of Directors members that refers to the SOE and OJK regulations.

18. Public Company has the policy to prevent insider trading

The Company has the policy to prevent insider trading, that is related to the management and information, both confidential and public.

19. Public Company has anticorruption and anti-fraud policy

The anti-corruption and anti- fraud policy is listed in the code of conduct policy, policy on conflict of interest and gratification control, and goods and services procurement policy, the Company prevents communication between workers and suppliers by organizing the bidding through e-procurement system.

20. Public Company has the policy on selection and improvement of supplier and vendor capability

PGN has owned the policy on selection and improvement of supplier and vendor capability. Only supplier registered in the List of Appointed Goods and Services Procurement (DPT) that can join the goods and services procurement organized by the company.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Aspect

5. Information Transparency

Principle

8. Improve the Information Transparency implementation

Good Corporate Governance

181

Recommendation

Implementation in PGN

21. Public Company has the policy to fulfill the rights of creditor

PGN has the Guideline on Business Ethic and Work Ethics that regulated the rights of creditor, such as the right to obtain information of fund usage according to the bonding agreement and law stipulation.

22. Public Company has the policy on whistleblowing system

PGN has owned the Guideline on Whistleblowing with the Decision of Board of Directors No.066303.K/ PW.01/UT/2013 dated on 24th December 2013 on the WBS Guideline

23. Public Company has the policy of providing long term incentive to the Board of Directors and Employees

PGN provides long term incentive to Board of Directors in the form of official housing allowance, and car installment for certain level workers, are included in the Annual GMS agenda, while incentive for employees is regulated in the PKB and Board of Directors Decree

24. The usage of Public Company technology leverages information in a wider manner than only website as the media of information transparency

In addition to using the website, PGN also uses information technology that is integrated with the Stock Exchange and OJK in conducting the information transparency.

25. Annual Report of Public Company discloses the end-benefit owner in the Public Company shareownership at least 5%, in addition to the disclosure of end-benefit owner in Public Company Share-ownership through the Main Shareholders and controller

The Company’s 2015 annual Report has mentioned the Share ownership that reaches 5% or more.

182

Good Corporate Governance

In 2016, based on the GCG Assessment result by Citra Solusi Manajemen, PGN has implemented the GCG according to the parameter developed by the Ministry of SOE according to the Decision of Secretary of Minister of SOE Number: SK-16/S.MBU/2012 dated on 6th June 2012 on Assessment and Evaluation Indicator/Parameter on the Good Corporate Governance implementation in State Owned Enterprise. GOOD PRACTICE OF 2016 GOOD CORPORATE GOVERNANCE ASSESSMENT RESULT Aspect of Assessment

Maximum

Achieved

Score

Score

7

6,772

% Achievement

Good Practice that has been conducted by PT PGN (Pty.Ltd.) Tbk

Commitment to the Governance Implementation

96,74 %

The Company has GCG Code and Code of Conduct that have been reviewed and updated regularly.

sustainably The Company conducts the GCG Code and Code of Conduct consistently. The Company coordinates the management and administration on the State Organization Wealth Report (LHKPN) The Company conducts gratification control program according to the applicable stipulation The Company conducts the policy on the system of whistleblowing system reporting Shareholders/ GMS has appointed and discharged the Shareholders and GMS / Capital Owner

9

8,827

98,08 %

Board of Directors including the setting the Board of Directors member composition according to the stipulation referring to the guideline that have been stipulated Shareholders/GMS has appointed and discharged Board of Commissioners including the setting the Board of Commissioners member composition according to the stipulation referring to the guideline that have been stipulated Shareholders/GMS has provided the required decision to maintain the company business interest in long term and short term according to the law and regulation and Articles of Association of the Company. GMS has provided approval, annual report, including ratification, financial statement, and supervision task of the Board of Commissioners according to law and regulations and/or Articles of Association. GMS is taking decision through an open and fair as well as accountable process Shareholders has conducted good corporate governance (GCG) according to the authority and responsibility

Board of Commissioners/ Board of Supervision

Board of Commissioners has joined the introduction 35

31,994

91,41 %

program and conducts sustainable training/development program Board of Commissioners has conducted clear task, authority, and responsibility division and set the required factors to support the task implementation.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Aspect of Assessment

Good Corporate Governance

Maximum

Achieved

Score

Score

% Achievement

183

Good Practice that has been conducted by PT PGN (Pty.Ltd.) Tbk Board of Commissioners has provided approval and ratification on the RJPP plan and RKAP delivered by the Board of Directors Board of Commissioners has provided direction towards Board of Directors on the implementation of plan and company policy Board of Commissioners has implemented the supervision towards Board of Directors on the implementation of plan and company policy Board of Commissioners supervises the subsidiary management Board of Commissioners participates in the nomination of Board of Directors members, assess the performance of Board of Directors and propose the royalty/incentive of performance according to the applicable stipulation and considers the Board of Directors performance Board of Commissioners takes action on the potential conflict of interest that relates itself. Board of Commissioners has monitored and ensured that the good corporate governance has been effectively and sustainably implemented Board of Commissioners organizes the Board of Commissioners meeting that is effective and attend the Board of Commissioners meeting according to the law and regulations Board of Commissioners has Secretary of Board of Commissioners to support the secretarial work of Board of Commissioners Board of Commissioners has Committee of Board of Commissioners that is effective and formed in order to support the implementation of Board of Commissioners task.

Board of Directors

35

32,861

93,89 %

Board of Directors has joined the introduction program and implement sustainable training/development program Board of Directors conducts clear task/function, authority, and responsibility division Board of Directors drafts company plan Board of Directors participates in the fulfillment of company performance target Board of Directors has conducted operational and finance control towards the implementation of plan and company policy Board of Directors implements the company management according to the applicable law and regulations as well as Company Articles of Association Board of Directors has conducted an added-value relationship for the company and stakeholders

184

Good Corporate Governance

Aspect of Assessment

Maximum

Achieved

Score

Score

% Achievement

Good Practice that has been conducted by PT PGN (Pty.Ltd.) Tbk Board of Directors monitors and manages the potential conflict of interest of Board of Directors members and management under the Board of Directors Board of Directors ensures that the Company conducts information transparency and communication according to the applicable law and regulations and deliver information to the Board of Commissioners and Shareholders Board of Directors organizes Board of Directors meeting and attends Board of Commissioners meeting according to the stipulation and law Board of Directors organizes qualified and effective internal supervision Board of Directors organizes the qualified and effective function of Corporate Secretary Board of Directors organizes GMS according to the law and regulations

Information Disclosure and

9

8,484

94,27 %

Transparency

The Company has provided company information to the stakeholders The Company has provided stakeholders with access to company information that is relevant, sufficient and reliable in timely and periodic manner The Company has disclose key information in the annual Report and Financial Statement according to the law and regulations The Company has received various awards in publications and information transparency

Other Aspect

5

5,000

100 %

The Company has become a benchmark for other companies The Company obtained various awards, such as: • Best of CEO Commitment on Human Capital Development to Hendi Prio Santoso from Indonesia Human Capital Study (IHCS) • Best Sustainability Report 2015 SRA 2016 for Category of Best Overall from The National Center For Sustainability Reporting (NCSR) • Winner of Best Sustainability Report 2015 for Category of Energy SRA 2016 awarded by The National Center For Sustainability Reporting (NCSR) • Best GCG with predicate Very Good (A) for energy to the Indonesian Good Corporate Governance Award II 2016 from Economic Review • Indonesia Most Admired CEO Award 2016 for the category of Oil and Gas to Hendi Prio Santoso awarded by Warta Ekonomi • Winner of Sustainable Finance Award for the category of Stock Exchange awarded by Financial Service Authority (OJK)

Overall Score

100

93,938

93,94 %

Ranking on GCG Implementation Quality

Very Good

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

185

Good Corporate Governance

ASSESSMENT RESULT ON GOOD CORPORATE GOVERNANCE The assessment towards GCG is conducted by the Company in 2016 started on 21st of September 2016 until 19th November 2016 byPT Citra Solusi Manajemen. The parameter used in the assessment is in accordance to the Decision of Secretary of Minister of SOE Number: SK-16/S.MBU/2012 dated on 6thJune 2012 on the Assessment and Evaluation Indicator/ Parameter on the Good Corporate Governance Implementation in State Owned Enterprise. The assessment towards Good Corporate Governance assessed 6 (six) aspects, i.e.: 1. Commitment to Sustainable Good Corporate Governance Implementation; 2. Shareholders and GMS/ Capital Owner; 3. Board of Commissioners/ Board of Supervision; 4. Board of Directors; 5. Information Disclosure and Transparency; 6. Other Aspects. GCG assessment is initiated with filling questionnaire on the GCG, filled by all members of Board of Directors and Board of Commissioners, and then continued by reviewing the document in Corporate Secretary and Secretary of Board of Commissioners based on parameter requested in SK-16/S.MBU/2012. The assessment stages are finalized with the interview by independent assessor to the members of Board of Commissioners and Board of Directors of PGN. GCG implementation is actualized continuously by the Corporate by implementing evaluation on GCG implementation in the Company, for 2016 with achieved score of 93.938 or predicated as VERY GOOD and increased from the prior year, which were 92.14. Assessment result details are as follow: 2012-2016 GCG ASSESSMENT RESULT 2016

2015

2014

Aspect on GCG Implementation No.

Aspect

Weightage

(New Parameter)

Achieved Score

Level of Fulfilment (%)

Achieved Score

Level of Fulfilment (%)

2013 Level of

2012 Level of

Level of

Achieved

Fulfilment

Achieved

Fulfilment

Achieved

Fulfilment

Score

(%)

Score

(%)

Score

(%)

Commitment on the Sustainable 1.

Corporate

7

6,772

96,74

6.679

95,42

6,826

97,52

5,566

79,51

5,544

79.20%

9

8,827

98,08

8.462

94,02

8,561

95,12

8,518

94,64

8,468

94.09

35

31,994

91,41

31.902

91,15

30,187

86,25

31,364

89,61

29,858

85.31

35

32,861

93,89

31.798

90,85

32,906

94,02

32,628

93,22

33,289

95.11

9

8,484

94,27

8.477

94,19

8,581

95,35%

8,540

94,89

8,561

95.12

Governance Implementation 2. 3. 4.

Shareholders and GMS Board of Commissioners Board of Directors Information

5.

Disclosure and Transparency

6.

Other Aspect Total

5

5,000

100

4.821

96,00

5,000

100

5,000

100

5,000

100

100

93,938

93,94

92.140

92,14

92,061

92,06

91,616

91,62

90,720

90.72

186

Good Corporate Governance

2012-2016 GCG ASSESSMENT RESULT 100

Very Good

80

68.87

75.64

83.10

90.72

92.061

91.616

92.14

93.938

60 40 20 0

2008-2009

2010

2011

2012

2013

2014

2015

2016

ACHIEVEMENT AND RANKING Level 1

Achievement

Ranking 85 < ≤ 100

Very Good

2

75 < ≤ 85

Good

3

60 < ≤ 75

Fairly Good

4

50 < ≤ 60

Unsatisfactory

5

≤ 50

Poor

RECOMMENDATION ON ASSESSMENT RESULT & RATIONALE FOR NON IMPLEMENTATION

Based on the 2016 GCG assessment result, the assessment result recommendation of respective criteria are as follow:

Rationale For Non Implementation

No

GCG assessment aspect

Recommendation of Assessment

1

Commitment on Sustainable Governance Implementation

1. GCG implementation evaluation in form of program to describe the follow up of GCG assessment result had not yet included in 2015 Annual Report

This assessment was held in the end of 2016 that cannot be applied on that year. Currently it has been included in 2016 Annual Report.

2. The Company has not yet organize dissemination program on Gratification Control to the stakeholders.

This assessment was held in the end of 2016 that cannot be applied on that year. Will be applied in 2017

2

Shareholders and GMS

1. In GMS decision in relation to the termination of members of Board of Directors and Board of Commissioners is not fully describing the reason of resignation.

This assessment was held in the end of 2016 that cannot be applied on that year. Will be applied in 2017

3

Board of Commissioners

1. Stipulation on time standard of the level of immediacy to communicate the decision taken by Board of Commissioners to Board of Directors is not yet fully regulated.

This assessment was held in the end of 2016 that cannot be applied on that year. Will be applied in 2017.

2. The Board Manual has not yet regulated the task and responsibilities of Board of Commissioners to drafts the Board of Commissioners annual work plan and measure as well as assess the Board of Commissioners performance (self assessment).

GCG assessment had been finished before Board Manual approval in 2016.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

No

4

GCG assessment aspect

Board of Directors

Good Corporate Governance

Recommendation of Assessment

187

Rationale For Non Implementation

3. The Board Manual has not yet regulated the stipulation on task and responsibility of Board of Commissioners to supervise several policies and its implementations, such as, IT system policy, HR management policy, accounting policy and financial statement drafting, procurement policy, quality and service policy, subsidiary/joint ventured subsidiary management policy as well as Board of Directors compliance in imposing the applicable law and regulations and agreement with third party.

GCG assessment had been finished before Board Manual approval in 2016.

4. The Board Manual has not yet regulated the policy and criteria of selection for candidate members of Board of Directors to Shareholders and proposal of remuneration for members of Board of Directors.

GCG assessment had been finished before Board Manual approval in 2016.

5. Stipulation on guideline/order of Board of Commissioners meeting available in the Board Manual is not yet fully regulates the ethics of meeting and follow up evaluation of the previous meeting.

GCG assessment had been finished before Board Manual approval in 2016.

6. Committee of Nomination, Remuneration and GCG has not owned a charter of committee and has not yet drafts the annual work plan of the committee that functions as guideline for the Committee of Nomination, Remuneration and GCG in running its task and responsiblity.

This assessment was held in the end of 2016 that cannot be applied on that year.

1. Stipulation on the level of immediacy to communicate the Board of Directors decision to the organization level below Board of Directorsis not yet regulated.

This assessment was held in the end of 2016 that cannot be applied on that year. Will be applied in 2017.

2. The policy on the arrangement of holding company and subsidiary (subsidiary governance) has not yet ratified and not yet included several other stipulations, such as: the appointment mechanism of Board of Commissioners and Board of Directors of Subsidiary, stipulation on performance target and performance assessment system of Subsidiary as well as salary/honorarium, allowance and facility for Subsidiary’s Board of Commissioners and Board of Directors

Policy in regard to holding and its subsidiaries arrangement had been ratified by Board of Director’s Decree in December 1, 2016.

3. Policy related to relations with creditor has not yet fully provided further explanation on liability fulfilment to the creditor according to the agreement, company warranty to conduct or to not conduct anything to protect the interest of creditor, and the existence of company warranty as guarantor (avalist).

Will be implemented in 2017.

4. There is a decrease on employee satisfaction survey result compared to the prior year.

PGN’s HCM has been actively conduct various improvement program for employee in 2017.

5. There is a dispute on bad credit related to the PKBL program implementation that affects the rate of loan fund return collectablity.

In 2017, monitoring and connection will be perform regularly in order to improve collectibility rate from PGN funding.

6. Delivery of performance report to Shareholders has not yet fully in accordance with the stipulations.

Performance report delivery to our shareholder accordance to policy will be implemented in 2017.

7. Stipulation on guideline/order of Board of Directors meeting in Board Manual has not yet fully regulated the ethics of meeting and evaluation of the previous meeting result follow up.

GCG assessment had been finished before Board Manual approval in 2016.

8. Total auditor work force in the existing Internal Audit Division has not yet fully in accordance with the current work load and the Company needs.

In November 2016, one additional auditor joined Internal Audit Division.

188

Good Corporate Governance

No

GCG assessment aspect

5

Information Disclosure and Transparency

Rationale For Non Implementation

Recommendation of Assessment 9. The Head of Internal Audit Division has not yet fully obtained the audit profession audit.

Will be done in 2017.

10. The minutes of Board of Directors meeting has not yet fully included the meeting dynamics to describe the meeting proceeding.

Will be improved in 2017.

1. The Draft of Company Information Management Policy still has not yet ratified.

Information transparency in the Annual Report will be adjusted according to the ARA criteria.

2. The Company has not owned the policy on management and update of Company website. 3. 2015 Annual Report has not yet been awarded as the Winner of Annual Report Award (ARA). 6

Other Aspect

No recommendation

STRENGTHENING THE IMPLEMENTATION OF GCG IN PGN In regards to strengthen GCG implementation in PGN throughout 2016, the Company’s achieved program covers: 1. Socialization and Internalization PGN socialize and internalize the Guideline on Good Corporate Governance to all PGN workers as the foundation of the GCG principles implementation in the company activities. This communication and socialization process aims to define existing understanding the GCG guideline in PGN. The list of socialization and internalization of GCG implementation in the Company that has been implemented in 2016 are: No 1 2

Date

Agenda

24 May – 25 May

Good Corporate Governance

2016

training

30 November 2016

GCG Socialization and ISO 9001:

th

2015 Upgrading, to achieve

-

2. Whistleblowing System Management Whistleblowing system management and evaluation has been conducted internally, starting from the whistleblowing system organ, breaching reporting management and protection towards the reporter. 3. KPKU Measurement In order to increase the company performance, since 2012 the company changes the implementation of excellent performance criteria from Balance Scorecard transferred to be KPKU adopted from Malcolm Baldridge. The implementation is based on the Letter of Ministry of SOE No. S-08/S.MBU/2013 dated 16th January 2013 about the Delivery of Guideline on Determining KPI and Excellent Performance Assessment on SOE. Based on the KPKU 2016 assessment result, the Company achieved 621or at the level of Emerging Industry Leader.

the management of GCG Risk Management and ISO

KPKU Assessment Result 2012-2016

9001:2015 Quality Management System Upgrading 700 600 500 400

68.87

91.616

92.061

2014

2015

93.938

83.10

300 200 100

0

2012

2013

2016

*) 2016 achievement, until the time the annual report is issued it is still in the stage of assessment

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Good Corporate Governance

189

4. ISO and OHS Management System Certification Implementation One of the certificates obtained is the Occupational Health and Safety Management System (OHSMS) according to PP No.50 of 2012 on OHSMS. In addition to national certificate, PGN’s OHS Management System has also been implemented following the 18001:2007 OHSAS international standards which certificate is issued by PT Lloyd Register Indonesia. PGN has also obtained the 14001:2004 ISO certificates in all Operation Area as the realization of SML in the Company and compliance towards Government policy. In addition to that, to assure customer satisfaction, PGN has implement ISO 9001:2008 that is the international standard for quality management. Throughout 2016, PGN activities that are related to ISO 9001 implementation are as follow: NO 1

ACTIVITY

DESCRIPTION

Surveillance Audit /Supervision Audit of ISO 9001:2008 (Certification

Surveillance Audit is an examination activity

Period 2015-2018)

conducted by Certification Body Lloyd’s Register

• The 1st and 2nd Supervision Audit has been conducted on 18-22

Quality Assurance (LRQA) Indonesia to see the

January 2016. • The 3rd and 4th Supervision Audit has been implemented on the

effectiveness of Quality Management System in PT PGN (Pty.Ltd.) Tbk.

16-20 January 2017. PGN has been succeeded to obtain recommendation in order to extend the ISO 9001:2008 certification. 2

Internal Quality Audit

Internal Quality Audit is examination activity

• 2016 AMI has been conducted on25 July – 23 August 2016 with total

implemented by certified Internal Auditor to see

Auditee of 23 Units/Work Units) • The Audit result has no records that are Major or Minor NC, only in

the effectiveness of Quality Management System implementation.

form of observation (RC, Required Correction) and suggestion (SFI, Scope For Improvement) • Based on AMI result, it shows that the implementation of Operational activity still runs according to the stipulated Work Reference Document/DAK (company regulation). However, in regards to the Transformation program, then the existing DAK is in adjustment process mainly DAK related to core process. 3

Conduct upgrading to ISO 9001:2015.

Upgrade is compulsory in the 3 years transition period since 15th September 2015 until 15th September 2018

4

Implement Transformation Program

This activity is part of the change management in regards to make PGN as Strategic Holding and has the capability to support PGN vision and mission.

5

Awareness ISO 9001:2015 training on May 30-June 2, 2016

Internalization of awareness ISO 9001:2015 training on May 30-June 2, 2016.

190

Good Corporate Governance

5. GCG Implementation Measurement Based on the parameter stipulated by Ministry of SOE and assessment conducted by Independent party, the achievement on PGN score in 2016 is 93,938 or predicated as VERY GOOD and increased from the previous that is 92,14. 6. Gratification Control As a commitment to Good Corporate Governance principles implementation, PT Perusahaan Gas Negara (Pty.Ltd.) Tbk stipulated the Conflict of Interest Policy and Gratification Control of PT PGN (Pty.Ltd) Tbk.Board of Directors Number 018401.K/OT.03/UT/2014 dated 1st of October 2014, as a foundation of the gratification control implementation to drive the implementation of business ethics and work ethics, avoiding conflict of interest and avoiding fraud. The gratification control implementation in company environment is conducted by Gratification Unit (UPG) which is an ad hoc team under Internal Audit Division. UPG has task and authority to socialize on the gratification stipulation, conduct antigratification campaign, receive, process, and confirm the gratification report, and report the gratification control report to Board of Directorsand Corruption Eradication Commission (KPK). In implementing its task, UPG can also coordinate and request assistance from KPK. Throughout 2016, there is 1 (one) gratification report in the Company which then reported to KPK, in which there was a decrease on total report compared to the previous year. This is an indicator of awareness increase on business ethics and work ethics that often socialized

to the company’s internal and external parties, in order to avoid gratification in the company environment. 7. The Signing of Integrity Pact for all goods/services provider andgoods/services procurement services function. Company goods and services procurement, regulated in the Goods/services procurement guideline No. 010300.K/LG.01/PDO/2016 dated 1stAugust 2016 which replaced the Goods/services Procurement Guideline based on the Decision on PGN Board of Directors No. 003300.K/LG.01/ UT/2014 dated on 7th March 2014 to accommodate the amendment of PGN structure of organization that can support the implementation of goods/ services procurement in fast, efficient, and effective manner. As a form of Company’s commitment in good corporate governance implementation, then all goods/services providers and goods/services procurement services functionis imposed to sign the Integrity Pact that contains commitment to: • Implement goods/services procurement based on the principles of good will, with high austerity, and in the condition of free, independent, and not under pressure, and influence form other party(independency); • Takes decision with cautiousness (duty of care and loyalty) • Not taking decision for private interest or affiliated party, hence no potential conflict of interest (conflict of interest rule); • Conduct procurement process with sufficient understanding on various regulation and other relevant normative obligation, and meet all the stipualtion and regulation, including considering thebest practice that is deemed necessary, important, and critical in this procurement process (duty abiding the laws).

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

GENERAL MEETING OF SHAREHOLDERS (GMS) General Meeting of Shareholders (GMS) is the highest Company Organ and holds the authority that is not given to the Board of Directors or Board of Commissioners, in the limitation set in the law and regulations or Articles of Association. As a public limited Company, the GMS is a communication forum between Board of Directors and Board of Commissioners with the Company shareholders. According to Law Number 40 of 2007 on Limited Company, consists of annual GMS, organized once in one year, and Extraordinary GMS, that can be conducted at any time upon a request of one of the Company Organs.

SHAREHOLDERS COMPOSITION GMS that consists of Company Shareholders is divided in 2 (two) share classifications, which are: 1. Dwiwarna A-Series Share; owned by the State of Republic of Indonesia, represented by the Government c.q Minister of State Owned Enterprise (SOE) of one sheet of share or at the value of Rp.100,-; 2. B–Series Share, owned by: a. Owned by the State of Republic of Indonesia, represented by the Government c.q Minister of State Owned Enterprise (SOE) of 13.809.038.755 sheets of shares or at the value of Rp.1.380.903.875.500,b. The public of 10.432.469.440 or at the value of Rp.1.043.246.944.000,Detail information on the Shareholders composition can be seen in the Company Profile chapter of this Annual Report.

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SHAREHOLDERS RIGHTS In general, the Shareholders have rights as follow: 1. Right to obtain dividend shared by the Company from the profit set to be shared as dividend in the Annual GMS. 2. Right to maintain total relative share owned through the purchase of new shares published by the Company (or defined as preemptive right). 3. Right to request accountability of the Board of Commissioners and Board of Directors related to the Company management 4. Right to appoint and discharge Board of Directors and Board of Commissioners 5. Right to amend Articles of Association. 6. Right to approve the issuance equity effect or additional Subscribed and Paid Up Capital. 7. Right to approve transaction with conflict of interest and material transaction 8. Right to approve the combination, consolidation, acquisition, separation of Company and dismissal of Company. 9. Other rights are in accordance to the Company’s Articles of Association and law and regulations. Dwiwarna A-Series Share (golden share) provides privilege right to the holders that is not owned by B-Series Shareholders, and can cast a veto during the voting in GMS to call on a decision. The privilege right of Dwiwarna A-Series Shareholders is as follows: 1. Right to nominate Board of Directors and Board of Commissioners, 2. Right to attend and approve the appointment and termination of Board of Commissioners and Board of Directors, 3. Right to amend Articles of Association, including changing the capital, 4. Right to dismiss and liquidate, 5. Right to combine, consolidate and acquire the company.

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INFORMATION ACCESS TO SHAREHOLDERS The information access to Shareholders by the Company is conducted in timely and accurate manner on all material information and information related to company management. The information access is conducted through: 1. Information transparency on the information or material fact. This mechanism of information transparency is conducted based on the Financial Service Authority regulation Number 31/POJK.04/2015 on Transparency on Information air Material Fact by Public Company. 2. Information access to Stock Exchange and OJK on the news on mass media about the Company. 3. Information provided through Investor Relation Division. 4. Information through company website, or 5. Information obtained by Shareholders and investor as well as candidate investor in non-deal road show events, meeting with analyst and etc. Detail of information on the Shareholders composition can be seen on Information Access to Shareholders in this Chapter.

2016 ANNUAL GMS IMPLEMENTATION Throughout 2016, PGN has only conducted one GMS, which was the Annual GMS that was organized on 8th of April 2016, located in Grand Hyatt Hotel – Jakarta. The GMS implementation was conducted in accordance to the Law No. 40 of 2007 on Limited Company and Financial Service Authority (OJK) Regulation No. 32/ POJK.04/2014 on Planning and Organizing General Meeting of Shareholders for Public Company. The GMS implementation processes are as follow: NOTIFICATION ON ANNUAL GMS PLAN TO OJK The Notification for Annual GMS plan is delivered to OJK through Letter Number 00100.S/OT.02.00/PD0/2016 dated on 23rd February 2016

ANNOUNCEMENT OF ANNUAL GMS • Annual GMS announcement is conducted on 2nd March 2016; • The announcement was delivered through 2 national newspapers, which are Bisnis Indonesia and Investor Daily, and through Indonesia Stock Exchange website, OJK website as well as Company website. Annual GMS Announcement through the Company website was conducted in two languages, Indonesian and English, in accordance to the OJK regulation Number 8/POJK.04/2015 on Public Company Website; • The proof of announcement of Annual GMS advertisement was delivered to OJK through Letter Number 005900.S/OT.02.00/COS/2016 dated 2nd March 2016; • According to Article 12 paragraph 2 OJK Regulation Number 32/POJK.04/2014 on Planning and Organizing the General Meeting of Shareholders, Shareholders that has at minimum 1/20 or more of total shares with vote right issued by the Company can propose additional agenda to decide in the Annual GMS at the latest 10th of March 2016; • Until 10th of March 2016, there was no Shareholders delivering proposal or amendment on the Annual GMS agenda to the Company.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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ANNUAL GMS INVITATION • The invitation for Annual GMS was conducted on the 17th March 2016; • The invitation is delivered through 2 national newspapers, which are Bisnis Indonesia and Investor Daily, and through the Indonesia Stock Exchange website, OJK website, and Company website; Annual GMS invitation through the Company website was conducted using two languages, Indonesian and English, in accordance to to the OJK Regulation Number 8/POJK.04/2015 on Public COmpnay Website; • The proof of invitation for Annual GMS advertisement to OJK through Letter Number 008800.S/OT.02.00/OOS/2016 dated 17th March 2016; • Invitation to attend the Annual GMS was delivered to the Shareholders whose names are registered in the List of Shareholders on 16thMarch 2016 at 16.00 local time; • Since the invitation date of the Annual GMS, the Company has provided the meeting agenda material to be taken by the Shareholders at Company Office located at The Manhattan Square, Mid Tower, 26th floor, Jl. TB Simatupang Kav 1S, South Jakarta 12540, phone number +6221 80641111 ext. 7741 or 7784, during Company office hours.

ANNUAL GMS • Annual GMS was conducted on the 8th of April 2016; • The GMS was held at the Grand Ballroom of Grand Hyatt Hotel, Jl. M.H. Thamrin Kav. 28-30, Central Jakarta; • The Stock Exchange Supporting Profession who are present at the Annual GMS are Purwantono, Sungkoro & Surja (a member of Ernst & Young Global Limited) as Public Accountant Office, Hadiputranto, Hadinoto & Partners as Legal Consultant, PT Datindo Entrycom as the Bureau of Stock Exchange Administration. The Drafting of GMS Minutes of Meeting was conducted by Fathiah Helmi S.H. as Notary; • The meeting was led by the Company’s President Commissioner and also as the Independent Commissioner appointed by Board of Commissioners based on the Letter of Appointment Number 18/D-KOM/2016 dated 24thMarch 2016; • The meeting was attended by 20.544.568.796 shares, including A-Series Dwiwarna Shareholders, that have legal voting right, or equal to with 84,756% of all total shares with legal voting right issued by the Company; • To ease the Shareholders to identification the meeting mechanism, the Company has provided pocket book that contains the Order of Meeting, shared to every Shareholders before entering the meeting room; • Shareholders are given the opportunity to ask question in accordance to the Meeting agenda in every agenda discussed in the annual GMS; • Voting was conducted verbally whereas Shareholders that vote to disagree or abstain were requested to submit their vote card. For meeting agenda that is related to particular person, the voting is conducted with unsigned closed letter and all attended Shareholders submitted the voting card; • Notary took note on the total “Disagree” and “Blank” votes, and then calculate overall total votes. The “Blank” votes were considered as the same vote as majority. Notary announced to the attended Shareholders, total “Agree” and ”Disagree” votes for the particular meeting agenda.

ANNUAL GMS RESULT ANNOUNCEMENT • Annual GMS resolution was announced conducted on 12thApril 2016; • Annual GMS result announcement was delivered through 2 national newspapers which are Bisnis Indonesia and Investor Daily, and through the Bursa Efek Indonesia website, OJK website and Company website; Annual GMS resolution through Company website was conducted using 2 languages, Indonesian and English, in accordance to the OJK Regulation Number 8/POJK.04/2015 on Public Company Website; • The proof of Annual GMS resolution advertisement was delivered to OJK through letter number 014400.S/HM.00.01/COS/2016 dated on 12thApril 2016.

DELIVERY OF ANNUAL GMS MINUTES OF MEETING TO OJK • The Annual GMS Minutes of Meeting is stated in the Deed of Company Annual General Meeting of Shareholders Minutes of Meeting of PT Perusahaan Gas Negara, Tbk Number 33 dated 8thApril 2016 that was drafted by Fathiah Helmi, SH., Notary in Jakarta; • Copy of Deed of Annual GMS Minutes of Meeting was delivered to OJK with Letter of Company Number 017100.S/OT.02.00/COS/2016 dated 4th May 2016.

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GMS DECISION RESULT ON 8TH APRIL 2016 AND ITS REALIZATION Annual GMS Result

Decision Taking

Realization of Decision and Rationale

First Agenda: Approval for the Annual Report of the Company for 2015 and the Report of the Partnership and Community Development Program for 2015 as well as the Supervisory Report of Board of Commissioners for 2015. Approved the Annual Report of the Company for 2015 and the Report of the Partnership and Community Development Program for 2015 as well as Supervisory Report of Board of Commissioners for 2015.

Decision Quorum: Decision is approved by more than 1/2 (half) portion of total shares with vote right attending the GMS.

No further action is necessary with regards to this agenda.

Decision Result Agree 20.836.861.387 votes or 99,9076200% Abstain 19.266.900 votes or 0,0923800% Disagree 0 vote Second Agenda: Ratification of the Annual Financial Statements of the Company for 2015, including the Financial Statements of the Partnership and Community Development Program for 2015, and to release and discharge the member of the Board of Directors and the Board of Commissioners of their responsibilities for their action and supervision during 2015. 1. Ratified The consolidated Financial Statements of the Company for ended in December 31st 2015, which had been audited by the Public Accountant Purwantono, Sungkoro and Surja (Ernst & Young), pursuant to the report number RPC-409/PSS/2016 dated on March 11th, 2016, with opinion as follows: “The consolidated financial statements are presented fairly, in all material respects, the consolidated financial position of PT Perusahaan Gas Negara (Persero) Tbk and its subsidiaries date December 31st, 2015, as well as financial performance and its consolidated cash flows in accordance with Accounting Standards Finance in Indonesia”

Decision Quorum Decision is approved by more than 1/2 (half) portion of total shares with vote right attending the GMS.

2. Ratified the Financial Statements of the Partnership and Community Development Program of the Company for Financial Year ended in December 31st, 2015, which had been audited by the Public Accountant Purwantono, Sungkoro, and Surja (Ernst & Young), pursuant to the report number RPC-415/ PSS/2016 dated March 8th, 2016, which present fairly in all material respects: “Fairly, in all material respects, the financial position of the Partnership and Community Development Program of PT Perusahaan Gas Negara (Persero) Tbk dated December 31st, 2015, as well as activities and cash flows in accordance with the standards of the Financial Accounting Entities Without Public Accountability”

Abstain: 20.373.900 votes or 0,0976878%

3. Granted a full release and discharge (volledig acquit et de charge) to all the members of the Board of Directors for the management actions for the Company and to the Board of Commissioners for their supervisory actions to the Company, as well as their management and supervisory actions of the Partnership and Community Development Program, provided that the aforementioned management and supervisory actions are not considered as criminal act or a breach of any prevailing regulations and legal procedures, and it was stated in the Annual Report and Financial Report of the Company for Financial Year 2015 as well as the Financial Statements of the Partnership and Community Development Program of the Company for Financial Year 2015. 4. Approved and authorized the restatement of the Financial Report for Financial Year 2014, which had been audited by Purwantono, Sungkoro & Surja (a member of Ernst & Young Global).

Decision Result Agree: 20.835.754.387 votes or 99,9023122%

Disagree: 0 vote

No further action is necessary with regards to this agenda.

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Realization of Decision and Rationale

Third Agenda: Approval for the use of the Company’s net profit, including the distribution of dividend for 2015. 1. Approved the use of Profit for the Year Attributable to Decision Quorum Cash dividend is distributed on 12th May Owner of the Parent Entity for the financial year 2015 in Decision approved by more 2016. the amount of USD 401,199,880 to be utilized as follows: than 1/2 (half) portion of a. Rp 2.213.734.528,459 of the profit for the year or total shares with vote right Rp91,32 per share, will be distributed in cash as attending the GMS. dividend to the shareholder; b. Rp80.562.941.903 or 1,5% of net profit of the year Decision Result which ended on December 31st, 2015 in which the Agree: funds from the expense of the company to be used 20.772.707.687 votes or as a Community Development Program funds and 99,6000188% the remaining balance of funds PKBL of a series of previous year; Abstain: c. The remaining will be recorded as Retained 70.316.400 votes or Earning to support the Company’s operation and 0,3371498% development activities. 2. Granted the authority and power to board of directors Disagree: to determine schedule and arrange as well as publish 13.104.200 votes or the cash dividend distribution procedure in conformity 0,0628314% with the prevealing laws and regulation. Fourth Agenda: Approval for the tantiem of the Board of Directors and Board of Commissioners for 2015 and the salary as well as facilities and allowances for 2016. Granted the authority and power to the Board of Decision Quorum Through Letter Number S-83/ Commissioners upon prior approval from Dwiwarna Decision approved by more D2.MBU/06/2016 dated on 28thJune 2016, A-Series Shareholders to determine the amount of than 1/2 (half) portion of Minister of SOE as A-Series Dwiwarna tantiems for members of Board of Directors and Board of total shares with vote right Shareholders, approved the stipulation Commissioners for Fiscal Year 2015 and salaries along with attending the GMS.. on salary/honorarium, allowance and facilities and allowance for Fiscal Year 2016. facility for 2016 and tantiem on the Decision Result performance of Fiscal Year 2015 by Agree: noticing the Regulation of Minister 20.225.263.287 votes or of SOE Number PE-04/MBU/2014 on 96,9751577% Guideline on the Stipulation of Income of the Board of Directors, Board of Abstain Commissioners and Board of Supervision 22.632.000 votes or of State Owned Enterprise. 0,1085149% Annual GMS Decision and Letter of Disagree: Minister of SOE are followed up by PGN’s 608.233.000 votes or Board of Commissioners by setting the 2,9163275% salary/honorarium, allowance and facility for 2016 and tantiem on the performance of Fiscal Year 2015 for Board of Directors and Board of Commissioners, through letter oft Board of Commissioners number 29/D-KOM/2016 dated on 29th June 2016.

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Annual GMS Result

Decision Taking

Realization of Decision and Rationale

Fifth Agenda: Approval for the appointment of a Public Accountant to audit the Company’s Financial Statement for 2016 and the financial statement of the Partnership and Community Development Program for 2016. 1. Appointed the Public Accountant Office Tanudiredja, Decision Quorum Follow up is conducted through the Wibisana, Rintis and Partner (a member of Price Decision approved by more Agreement between Public Accounting Waterhouse Coopers) to perform: than 1/2 (half) portion of Office (KAP) Tanudiredja, Wibisana, Rintis a. General Audit for the Consolidated Financial total shares with vote right & Partner with PGN Number: 029700. Statement of the company for Financial Year 2016 attending the GMS.. PK/KU.02/ACC/2016 to implement audit b. General Audit for the financial Statements of the service work as approved in the Annual Partnership and Community Development Program Decision Result GMS. KAP Tanudiredja, Wibisana, Rintis for Financial Year 2016 Agree: & Partner is appointed as auditor that c. Compliance Audit for the Conformity with the 20.090.091.900 votes or examines PGN Financial Statement for 3 Constitutional Regulation and Internal Control. 97,8297092% years period. However, the appointment d. Evaluation for the Company’s Performance for of the concerned KAP, for the 2nd and Financial Year ended at December 31st, 2016 and Key Abstain 3rd year does not bound and based on Performance Indicator (KPI) which had been agreed 83.814.000 votes or annual evaluation result towards KAP by Board of Commissioners. 0,4079618% result of Board of Commissioners and approved by GMS in the Annual GMS. 2. Granted the authority to Board of Commissioners Disagree: to determine the amount of audit service fee and 362.082.896 votes or any other reasonable requirements for the Public 0,17623290% Accountant Office, if for any reason, cannot complete its performance. Sixth Agenda: To change the composition of the Board member and/or the structure of the Board member. Decision Quorum This Articles of Association amendment 1. Confirms the honorary discharge of Sdr. Muhamad The decision is approved is followed up by Board of Directors with Zamkhani as the Company Board of Commissioners by Dwiwarna A-Series the drafting of Deed of Annual General member effective since 11thNovember 2015 with gratitude Shareholders and other legal Meeting of Shareholders Decision on the contributed energy and minds throughout his Statement Number 34 dated 8th April tenure as the Company Board of Commissioners member. Shareholders that together represent more than 1/2 2016 drafted before the Notary Fathiah (half) portion of total shares Helmi, SH., Notary in Jakarta. 2. Honourable discharge of Sdr. Iman Sugema as President with votes attending the This Articles of Association Amendment /Independent Commissioner effective since the closure GMS Deed has been delivered and received of this GMS, with gratitude for his contribution as the by Minister of Law and Human Rights Company’s Board of Commissioners. Decision Result based on the Letter of Minister of Law Agree: and Human Rights Number AHU3. Appointed as Board of Commissioners : 16.337.677.194 votes or AH.01.03-0045585 dated 3rd May 2016. Sdr. Fajar Harry Sampurno : As President Commissioner 78,3351395% Sdr. Kiswodarmawan : as Independent Commissioner Abstain Effective since the closure of this GMS until the closure of 241.900.803 votes or the 5th (fifth) Annual GMS after the date of appointment, 1,1598548% however, without lessening the GMS right to discharge the Board of Commissioners member at any time. Disagree: 4.276.550.290 votes or 4. Therefore, the member of the Board of Commissioners 20,5050057% consists as the following:

Name

Position

1. Sdr. Fajar Harry Sampurno

President Commissioner

2. Sdr. Kiswodarmawan

Independent Commissioner

3. Sdr. Tirta Hidayat

Commissioner

4. Sdr. IGN Wiratmaja Puja

Commissioner

5. Sdr. Mohamad Ikhsan

Commissioner

6. Sdr. Paiman Raharjo

Independent Commissioner

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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Decision Taking

5. Granted power and authority to the Company Board of Directors with substitution right to restate this resolution of Annual GMS in separate Notarial Deed and furthermore deliver the notice to the Ministry of Law and Human Rights of Republic of Indonesia in order to be register in Company List and granted the right to take any necessary action in relation to such notice. 6. Affirm the honorary discharge of Sdr. Mochtar Riza Pahlevi Tabrani as Director of Finance effective since April 7th, 2016 with gratitudes for his contribution as the Company’s Board of Director. 7. Honorably discharge : Sdr. Muhammad Wahid Sutopo : As Director of Planning and Investment and Risk Management Sdr. Jobi Triananda Hasjim : As Director of Business Sdr. Djoko Saputro : As Director of Technology and Development Effective since the closure of this GMS, with gratitudes for his contribution as the Company’s Board of Director. 8. Change the nomenclature of Board of Directors members positions as follow:

Previously

Now

President Director

President Director

Director of Finance

Director

Director of Technology and Development

Director

Director of Business

Director

Director of Planning, Investment and Risk Management

Director

Director of General Affairs and HR

Director

Realization of Decision and Rationale

197

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Decision Taking

9. Appoint: Sdr. Muhammad Wahid Sutopo : As Director Sdr. Dilo Seno Widagdo : As Director Sdr. Danny Praditya : As Director Sdr. Nusantara Suyono : As Director Effective since the closure of this GMS until the closure of the 5th (Fifth) Annual GMS after the date of appointment, without prejudice to the right of the GMS to dismiss them at any time. 10. With the discharge, change on nomenclature, and appointment of Board of Directors members as mentioned above, hence the composition of Company Board of Directors members after the closure of GMS are as follow:

Name

Position

1. Sdr. Hendi Prio Santoso

President Director

2. Sdr. Muhammad Wahid Sutopo

Director

3. Sdr. Dilo Seno Widagdo

Director

4. Sdr. Danny Praditya

Director

5. Sdr. Nusantara Suyono

Director

6. Sdr. Hendi Kusnadi

Director

11. Granted power and authority to the Company Board of Directors with substitution right to restate this resolution of Annual GMS in separate Notarial Deed and furthermore deliver the notice to the Ministry of Law and Human Rights of Republic of Indonesia in order to be register in Company List and granted the right to take any necessary action in relation to such notice.

Realization of Decision and Rationale

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

BOARD OF COMMISSIONERS Board of Commissioners has certain task and responsibility related to the Company. The task and responsibility are conducted for the interest of Company and in accordance to the Company purpose and objective.

BOARD OF COMMISSIONER’S COMPOSITION Composition and Total members of Board of Commissioners in 2016 stipulated in the General Meeting of Shareholders are as follow: 1 January – 8 April 2016 President/Independent Commissioner

: Iman Sugema

Commissioner

: Tirta Hidayat

Commissioner

: Mohamad Ikhsan

Commissioner

: IGN Wiratmaja Puja

Independent Commissioner

: Paiman Raharjo

8 April – 31 December 2016 President Commissioner

: Fajar Harry Sampurno

Commissioner

: Tirta Hidayat

Commissioner

: Mohamad Ikhsan

Commissioner

: IGN Wiratmaja Puja

Independent Commissioner

: Paiman Raharjo

Independent Commissioner

: Kiswodarmawan

In the Annual GMS organized on the 8th of April 2016, GMS confirmed the honorable discharge of Muhamad Zamkhani as Company Board of Commissioners member and honorably discharged Iman Sugema as President/Independent Commissioner. Subsequently, GMS appointed Fajar Harry Sampurno as President Commissioner and Kiswodarmawan as Independent Commissioner effectively since the closure of GMS dated 8thApril 2016 until the closure of the 5th(fifth) Annual GMS after the date of appointment yet does not lessen the GMS right to discharge Board of Commissioners members at any time.

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BOARD OF COMMISSIONER’S RESPONSIBILITY Based on the Board Manual ratified by the Board of Commissioners and Board of Directors on the 8th of August 2016, every member of the Board of Commissioners, with good will, must be responsible to run the task to supervise and advise the Board of Directors for the interest of business and objective of the Company. Every member of Board of Commissioners also personally and jointly responsible on the Company loss if the concerned is guilty or neglected the task. In addition to full responsibility on the Company supervision for the interest and purpose of the Company, the Board of Commissioners also holds the responsibility in monitoring the effectiveness of GCG practice and provides system improvement suggestions and GCG implementation. In implementing its responsibility, the Board of Commissioners has tasks as follow: 1. Supervise and responsible on the supervision towards the management policy, the general management process, both on the company or company business and advise the Board of Directors; 2. Conduct specific task assigned in accordance to the Articles of Association, the applicable law and regulations and/or based on the GMS decision; 3. Conduct task, responsibility, and authority according to the Company Articles of Association stipulations and GMS decision; 4. In order to perform their duties, Board of Commisionners act for company’s welfare and responsible to GMS; 5. Research and analyse annual report prepared by the Board of Directors and sign the annual report.

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In relation to the task implementation, Board of Commissioners must: 1. Supervise the implementation of Company work plan and annual budget; 2. Follow the development of Company activity and in regards of Company showing symptoms of setback, to immediately report to GMS along with the suggestion on improvements stages to take; 3. Propose to GMS, the appointment of Public Accounting that will examine Company books; 4. Conduct other supervision tasks stipulated by GMS; 5. Respond to the Board of Directors periodic report and Company development whenever deemed necessary and report the task implementation result to A-Series Dwiwarna Shareholders on time; 6. Provide opinion and ratification on the Company Work Plan and Annual Budget as well as Company Long Term Plan prepared by Board of Directors; 7. Provide approval on Company work plan and annual budget at the latest on the thirtieth day of the first month after the fiscal year commence; 8. Draft minutes of Board of Commissioners meeting and keep the copy; 9. Report to Company about the share ownership; 10. Provide report on supervision task that has been conducted throughout the previous fiscal year to GMS; 11. Conduct task and responsibility with good will, full of responsibility and cautiousness; 12. Establish Audit Committee and can establish other committee, in regards to support the effectiveness of task and responsibility implementation; 13. Evaluate the committee performance that supports the implementation of task and responsibility at every end of fiscal year.

BOARD OF COMMISSIONER’S GUIDELINE AND CODE OF CONDUCT In regards to run the supervision task and provide advisory to the Board of Directors, the Board of Commissioners refers to the below regulations: 1. Law Number 40 of 2007 on Limited Company; 2. Law Number 19 of 2003 on State Owned Enterprise; 3. Financial Service Authority Regulation Number 33/ POJK.04/2014 on Board of Directors and Board of Commissioners Emitent or Public Company; 4. Company Articles of Association Deed Number 23 dated 6th April 2015; 5. Work Guideline for Board of Commissioners and Board of Directors (Board Manual) ratified on the 8th of August 2016; Work Guideline for Board of Commissioners in Board Manual covers: 1. Main Task of Board of Commissioners; 2. Board of Commissioners Responsibility; 3. Board of Commissioners Tasks; 4. Board of Commissioners Vacant Position; 5. Right and Authority of the Board of Commissioners; 6. Independence and Ethics of Board of Commissioners Positions; 7. Board of Commissioners Meetings; 8. Board of Commissioners Meeting with Board of Directors; 9. Board of Commissioners Committees.

DUAL POSITION AND CONFLICT OF INTEREST Based on Article 14 paragraph 16 of Company Articles of Association Deed No 23 dated on 6thApril 2015, the Board of Commissioners members are prohibited to hold concurrent position as: a. Board of Directors members to State Owned Enterprise, private business entity and other position that can cause conflict of interest; b. Other position according to the applicable law and regulations stipulations. Throughout 2016, no Board of Commissioners members held concurrent position as mentioned in the Company Articles of Association.

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TRAINING PROGRAM IN ORDER TO IMPROVE BOARD OF COMMISSIONERS COMPETENCY In order to improve the competence and to support the implementation of Board of Commissioners tasks, in 2016, members of Board of Commissioners have joined training programs, workshop, conference and seminar, such as: BOARD OF COMMISSIONERS TRAINING Name

Position

Date

Objective

Description

Mohamad Ikhsan

Commissioner

09 – 14 April 2016

New York

Joined “Global Political Risk and Its Impacts on Business” Training

Tirta Hidayat

Commissioner

05 – 07 September 2016

London

Joined “Floating LNG Conference” Conference

Paiman Raharjo

Independent Commissioner

12 – 14 October 2016

Kuala Lumpur

Joined “Exploration and Production Accounting” Training

Fajar Harry Sampurno

President Commissioner

30 November 2016

Jakarta

Tax Amnesty Socialization

BOARD OF COMMISSIONER’S TASKS IMPLEMENTATION Throughout the Fiscal Year of 2016, Board of Commissioners has conducted task and activities as follows: 1. Give approval and ratification on: a. Appointment of PT Towers Watson as remuneration consultant in regards to the Annual GMS of 2015 fiscal year; b. Annual GMS Agenda of PT PGN (Persero) Tbk Fiscal Year of 2015 that will be organized on Friday 8th April 2016; c. The appointment of KAP Tanudiredja, Wibisana, Rintis & Partner, a member Firm of Pricewaterhouse Coopers as the implement or of General Audit on the Company Consolidated Financial Statement for fiscal year of 2016, General Audit on the Partnership and Environmental Development Program Financial Statement Fiscal Year of 2016, Audit of Compliance on Law and regulations as well as Internal Control of 2016, and Company Performance Evaluation Fiscal Year of 2016 that ended on 31st December 2016 and Key Performance Indicator (KPI) that has been stipulated by Board of Commissioners; d. The short term loan conversion of PT PGAS Telekomunikasi Nusantara (”PGASCOM”) that becomes the additional capital inclusion; e. Board Manual Revision that contains adjustment on the amendment of applicable regulation; f. Re-transfer of all Work Room of Board of Commissioners and Supporting Organ of Board of Commissioners at Building A 4th Floor Jl. K.H. Zainul Arifin No. 20 West Jakarta to the Board of Directors, if which can be utilized for PGN Group Office; g. Authorized Capital increase on PT Gagas Energi Indonesia; h. Capital inclusion deposited by PT Gagas Energi Indonesia in 2016; i. Transfer on partial right to claim of PGN in Facility A to PT Permata Graha Nusantara (“Permata”) that will be used by Permata to add the portion of share ownership on KJG remains 80%; j. Addition on PGN capital inclusion to PT Permata Graha Nusantara; k. Revision on 2016 Work Plan and Company Budget (RKAP); l. 2017 Work Plan and Company Budget (RKAP).

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Good Corporate Governance

2. Discuss, give opinions and advice, as well as asking for clarification, among others: a. Strategic issues affecting the course of company’s operations; b. Progress of RKAP 2016 (Company’s Budget & Workplan) along with the issues concerned; c. Key Performance Indicator of the Board of Commissioners and Board of Directors, the Work Program of the Board of Commissiones and Board of Directors in 2016 as well as the division of tasks for the Board of Commissioners; d. Surveillance System of the Board of Commissioners in 2016; e. Professional Institutions for the networking of Candidates to the Board of Directors; f. Procurement of Independent Consultant Services; g. PT PGAS Telekomunikasi Nusantara (PGASCOM) Loan Conversion; h. PT PGN (Persero Tbk Quarterly Financial Statements; i. The Quarterly Corporate Risk Profile of PT PGN (Persero) Tbk; j. LHA Project CP-9 EPC Muara Karang-Muara Bekasi Pipeline Project in 2015; k. Formulation of Internal Procedures of the Board of Commissioners; l. Preparation of Shareholders General Meeting in 2016; m. T he Audit of Financial Statement for 2015 Fiscal Year; n. Remuneration for the Board of Commissioners and Board of Directors; o. Nomination of Board of Directors; p. The establishment of Subsidiary in Infrastructure and Capital Increase at PT Kalimantan Jawa Gas; q. The Assistance of PMO Infrastructure in =2015; r. The Compliance Audit Report of PSA 62; s. The Performance of PT Perusahaan Gas Negara (Persero) Tbk; t. Prognosis of RKAP (company’s workpland and budget) in 2016; u. Follow-up the outcome of audit achieved by both External and Internal Auditor; v. Follow-up the recommendation of audit results gained by BPK RI (Indonesia Supreme Audit Institution) towards PT PGN (Persero) Tbk; w. The funding of PT Gagas Energi Indonesia (Gagas); x. Conversion Phase II PT Kalimantan Jawa Gas (“KJG”);

y. The Revision of RKAP 2016 (Company’s Workplan and Budget in 2016) ; z. The Creation of RKAP 2017 (Company’s Workpland and Budget in 2017) ; 3. Give a response on the periodic reports of the Board of Directors Conveying response to the Company’s Quarterly Financial Statements 2016 to the Shareholders of Series A Dwiwarna 4. Perform the duties of Board of Commissioners related to the implementation of the General Meeting of Shareholders a. Discuss the agenda of Annual General Meeting of Shareholders Fiscal Year 2016 held on April 8th, 2016. b. Discuss and propose Public Accounting Firm (KAP), which will conduct an audit of the Financial Statements for Fiscal Year 2016 and Audit Compliance adherence to Legislation and Internal Control, as well as conducting a Financial Statement Audit on the Partnership Program and Community Social Responsibilities (CSR) for Fiscal Year ended on December 31st, 2016. c. Discuss and propose remuneration for the Board of Directors and the Board of Commissioners. d. Discuss and propose the nomination of Director of the company; e. Follow up on the results of Annual General Meeting decision in Fiscal Year 2015.

INDEPENDENT COMMISSIONER INDEPENDENT COMMISSIONER’S DETERMINATION CRITERIA Independent Commissioner is a member of the Board of Commissioners who come from outside the company and qualify as an Independent Commissioner. Criterias for Independent Commissioner are based on the OJK (The Financial Services Authority/ FSA) Regulation No. 33 / POJK.04 / 2014 concerning the Board of Directors and Board of Commissioners or Public Listed Company, namely: a. Not the people who work or have the authority and responsibilities to plan, lead, control , or oversees the activities of the Company within the last 6 (six) months; b. Has no shares in the Company;

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

c. Have no affiliation with the Company, the Board of Commissioners, members of the Board of Directors or the main shareholders of the Company; d. Have no business relationship pertaining to the business activities of the company. Members of PGN Board of Commissioners amounted to 6 people, two of them are Independent Commissioners.The number of independent Commissioners have met the provisions of OJK (Financial Services Authority) Number: 33/POJK.04/2014 , in which every public company must have Independent Commissioner at least 30 % of the total number of members of board of commissioners.

INDEPENDENCY OF INDEPENDENT COMMISSIONER Due to OJK (FSA) criteria Regulation number 33/ POJK.04 / 2014, the Independent Commissioner of PGN has no shares of the Company, does not have affiliation with the Company, the Board of Commissioners, member of the Board of Directors or the main shareholders of the Company, does not have business relationship which is concerned with the Company’s business activities, and has never worked or served as member of the Board of Directors or Board of Commissioners within the last 6 months prior to his/her appointment by the Annual PGN General Shareholders Meeting held in April 2016.

203

Good Corporate Governance

BOARD OF COMMISSIONERS MEETING AND BOARD OF COMMISSIONERS AND DIRECTOR’S JOINT MEETINGS Based on the OJK (FSA Regulation) Number 33/ POJK.04/2014 concerning the Board of Directors and Board of Commissioners of Public Listed Company and Articles of Association, the Board of Commissioners shall hold meetings at least 1 (one) time in 2 (two) months and a joint meeting with the Board of Directors held periodically at least 1 (one) time in 4 (four) months. In addition, according to the Regulation of the State Minister for State Owned Enterprises No. PER-01/ MBU/2011 dated August 1st, 2011, concerning the Application of Good Corporate Governance Good (GCG) on the State-Owned Enterprises particularly Article no.14, and the provisions of Articles of Association Article no .16, Meeting for the Board of Commissioners should be held regularly at least once in every month, and in the meeting the Board of Commissioners may invite the Board of Directors. During the period of 2016, Board of Commissioners has held meetings with as many as 22 (twenty-two) times including the Joint Meeting with the Board of Directors, with the following details: • Period 1st January – 8th April 2016 : 8 times. • Period 8th April – 31st December 2016 : 14 times.

MEETING OF THE BOARD OF COMMISSIONERS PERIOD 1ST JANUARY – 8TH APRIL 2016

Iman Sugema

Tirta Hidayat

Mohamad Ikhsan

Paiman Raharjo

IGN Wiratmaja Puja

12th January 2016

1. Discussion on the Monitoring System by the Board of Commissioners in 2016; 2. Others.



-





-

12th January 2016

1. Discussion of KPI and Work Programs of the Board of Commissioners in 2016; 2. The Election of Professional Networking for the Prospective Board of Directors; 3. Others.









-

10th February 2016

1. Formulation of Internal Procedures; 2. Others.









-

17th March 2016

1. Discussion on the Remuneration for the Board of Directors and Board of Commissioners; 2. Discussion on the Nomination of the Board of Directors; 3. Others.











Implementation

Meeting Agenda

204

Good Corporate Governance

MEETING OF THE BOARD OF COMMISSIONERS PERIOD 1ST JANUARY – 8TH APRIL 2016

Implementation

Meeting Agenda

24th March 2016

1. The Approval of Short Term Loan Restructuring for Subsidiary; 2. Discussion on the Approval of Establishment for Subsidiary in the field of Infrastructure and Capital Increase; 3. Preparation of General Shareholders Meeting for Fiscal Year 2015; 4. Others. Total Attendance

Iman Sugema

Tirta Hidayat

Mohamad Ikhsan

Paiman Raharjo

IGN Wiratmaja Puja











5 times

4 times

5 times

5 times

2 times

100%

80%

100%

100%

40%

% Total Attendance

MEETING OF THE BOARD OF COMMISSIONERS PERIOD 8TH APRIL – 31ST DECEMBER 2016 Fajar Harry Sampurno

Tirta Hidayat

Mohamad Ikhsan

IGN Wiratmaja Puja

Paiman Raharjo

Kiswodarmawan

1. Introduction BoC; 2. Others.







-





10th May 2016

1. Discussion of the First Quarter Report; 2. Discussion on the Subsidiary Loan Conversion; 3. Discussion of Mentoring/ Assistance for the Working Unit in 2015; 4. The Report of Compliance Audit Results; 5. Others.













14th June 2016

1. Internal Coordination of the Board of Commissioners and Supporting Organ; 2. Breakfasting; 3. Others.













18th July 2016

1. Discussion on the Revision of RKAP (the Company’s Work Plan and Budget) in 2016; 2. Others.













09th August 2016

1. Application for the Approval of Subsidiary Establishment in the field of Infrastructure an Capital Increase; 2. Others.













07th September 2016

1. Discussion on the Performance of PT Perusahaan Gas Negara (Persero) Tbk; 2. Others.



-

-

-





20th September 2016

1. Discussion on the Financial Report of the First Half (Term 1) 2016; 2. Others.













25th October 2016

Postponement in the Meeting Schedule of Board of Commissioners and Joint Meeting between the Board of Commissioners and Board of Directors held on October 25th, 2016 (Circular)













Implementation

Meeting Agenda

27th April 2016

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

205

Good Corporate Governance

MEETING OF THE BOARD OF COMMISSIONERS PERIOD 8TH APRIL – 31ST DECEMBER 2016 Fajar Harry Sampurno

Tirta Hidayat

Mohamad Ikhsan

IGN Wiratmaja Puja

Paiman Raharjo

Kiswodarmawan

08th November 2016

1. The Prognosis of RKAP 2016; 2. The Draft of RKAP 2017; 3. Discussion on the Application of Funding Approval for Subsidiary; 4. Discussion on the Application for Phase II Approval towards Subsidiary; 5. Others.













19th December 2016

1. The Finalization of RKAP 2017; 2. Others.













10 times

9 times

9 times

8 times

10 times

10 times

100%

90%

90%

80%

100%

100%

Implementation

Meeting Agenda

Total Attendance % Total Attendance

The absence of the Board of Commissioners meeting due to the concerned individual fulfilling his duties . JOINT MEETING BETWEEN THE BOARD OF DIRECTORS AND BOARD OF COMMISSIONERS PERIOD 1ST JANUARY – 8TH APRIL 2016 Board of Directors Implementation

Meeting Agenda

Hendi Prio Santoso

Mochtar Riza

Djoko

Pahlevi

Saputro

Tabrani

Jobi Triananda Hasjim

Board of Commissioners Hendi Kusnadi

Muhammad Wahid Sutopo

Iman

Tirta

Mohamad

Paiman

Sugema

Hidayat

Ikhsan

Raharjo

IGN Wiratmaja Puja

1. Preparation for the Discussion of

19th February

Shareholers General

2016













































-





















2 times

3 times

3 times

3 times

3 times

3 times

3 times

3 times

3 times

66,67%

100%

100%

100%

100%

100%

100%

100%

100%

Meeting in 2016; 2. Others. 1.

An Audit of Financial Statements for Fiscal Year 2015;

25th February

2. Discussion on the Remuneration

2016

of Board of Commissioners and Board of Directors; 3. Others. 1.

Approval for the Restructuring of Subsidiary Short-Term Loan;

24 March 2016

2. Discussion on the Approval of Establishment of Subsidiary for the field of Infrastructure and Capital Increase; 3. The Preparation of General Shareholder

24 March 2016

Meeting for Fiscal Year 2015; 4. Others.

Total Attendance % Total Attendance

3 times 100%

3 times 100%

206

Good Corporate Governance

JOINT MEETING BETWEEN THE BOARD OF DIRECTORS AND BOARD OF COMMISSIONERS PERIOD 8TH APRIL – 31ST DECEMBER 2016 Board of Directors Implementation

Meeting Agenda

Hendi

Nusantara

Danny

Suyono

Praditya

-



-





-



Prio Santoso

10th May 2016

1.

Dilo

Board of Commissioners IGN

Hendi

Muhammad

Fajar

Tirta

Mohamad

Kusnadi

Wahid Sutopo

Harry S.

Hidayat

Ikhsan

-

-



















-

-















-









































Seno Widagdo

Wiratmaja Puja

Paiman Raharjo

Kiswodarmawan

Discussion of First Quarter Report;

2. Discussion on the Subsidiary of Loan Conversion; 3. Discussion on the Mentoring/ Assistance of Work Unit in 2015; 4. Compliance Audit Report; 5. Miscellaneous 18th July 2016

1.

Discussion on the Revision of RKAP (CBP) 2016;

2. Miscellaneous. 08th November

1.

2016

The Prognosis of RKAP (CBP) 2016;

2. Draft RKAP (CBP) 2017; 3.

Discussion on the Application for he Approval of Financing Subsidiary;

4. Discussion on the Application for Phase II Subsidiary Approval; 5. Miscellaneous 19th December 2016

1.

The Finalizaton of RKAP (CBP) 2017;

2. Miscellaneous. Total Attendance

2 times

% Total Attendance

50%

4 times 100%

2 times 50%

3 times 75%

2 times 50%

3 times 75%

4

4

times

times

100%

100%

4 times 100%

4

4

times

times

100%

100%

4 times 100%

BOARD OF COMMISSIONERS KPI ASSESSMENT Board of Commissioner’s Performance Assessment Procedure The Board of Commissioners assessment through KPI (Key Performance Indicator) which is established by the Ministry of State Owned Enterprises, wherein the indicators of Key Performance Indicators (KPIs) being used is KPKU (the Featured Performance Assessment Criteria). Following is the procedure of valuation implementation: 1. The Board of Commissioners convey the KPI of Board of Commissioner to the Ministry of State Owned Enterprise; 2. The Board of Commissioners implement and evaluate KPI achievement of the Board of Commissioner; 3. The Board of Commissioner report the Realization of Board of Commissioner KPI to the Ministry of State Owned Enterprise;

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Good Corporate Governance

207

Assessment Criteria of Board of Commissioners Performance The criteria for assessing the performance of Board of Commissioners is the implementation of the Board of Commissioners duties in supervising the policies of the Company’s management of operations and to advise the Board of Directors for the interests and objectives of the Company as well as the implementation of the tasks that are specifically given to him according to the Articles of Association and/or by decision of the Shareholders General Meeting in the corridors of the prevailing laws. The Fundamental Key Performance Indicators of theBoard of Commissioners including: 1. Article 15 paragraph (1) of the Regulation of Minister of State Owned Enterprises number PER-01/BUMN/2011 in conjunction with the Regulation of Minister of State Owned Enterprises number PER-09/BUMN/2012 concerning the Implementation of Good Governance in State Owned Enterprises, states that “General Shareholders Meeting shall establish Key Performance Indicators for the Board of Commissioners / Board of Trustees based on the proposals of the concerned Board of Commissioners / Board of Trustees”. 2. Deputy Minister of State Owned Enterprise No. S-508/MBU/WK/2012 dated 22nd November 2012 concerning the Share Holder Aspiration on the Preparation of RKAP (The Company’s Work Plan and Budget) in 2013, stipulates that the indicators of Key Performance Indicators that are prepared using KPKU (the Featured Performance Assessment Criteria).

Indonesia number: PER-02/MBU/06/2016 regarding of amendment of the date of 20 June 2016 . As the result, procedure of stipulation of Remuneration of The Board of Commissioners as follows: a. Committee of Nomination and Remuneration asks the independent consultant to review the remuneration for Board of Directors and Board of Commissioners. b. Committee of Nomination and Remuneration composes recommendation of remuneration for member of Board of Directors and Board of Commissioners. c. Committee of Nomination and Remuneration proposes remuneration for member of Board of Directors and Board of Commissioners to the Board of Commissioners. d. Board of Commissioners discuss the proposal of Committee of Nomination and Remuneration. e. The Annual General Meeting of Shareholders of the accounting year 2015 which was held on 8 April 2016 delegated the authority to the Board of Commissioners of Company to stipulate salary/ honorarium, facilities and other allowance for member of Board of Directors and Board of Commissioners for the accounting year 2016 after being approved by shareholders of the Seri A Dwiwarna. f. Board of Commissioners propose remuneration for member of Board of Directors and Board of Commissioners of year 2016 to Minister of SOE as the shareholder of Seri A Dwiwarna. g. Minister of SOE as the shareholder of Seri A Dwiwarna stipulated remuneration for member of Board of Directors and Board of Commissioners.

BOARD OF COMMISSIONER’S PERFORMANCE ASSESSMENT RESULT

Based on the Regulation of Minister of SOE, principle of earnings stipulation of Board of Commissioners was stipulated by general meeting of shareholders where the components of earnings of Board of Commissioners consists of: a. Honorarium; b. Allowances, consist of: 1) Feast-day Allowance; 2) Transportation Allowance of transportation; 3) Pension Insurance. c. Facilities, consist of: 1) Health benefits; 2) Legal aid; and d. Bonus/incentive of performance where in the bonus can be added an extra that is Long Term Incentive (LTI).

Assessment result is total quality of each KPI that has been obtained with the Scores Fulfillment Level in 2016 amounted to 97,00 (very satisfying).

BOARD OF COMMISSIONER’S REMUNERATION STIPULATION PROCEDURE Stipulation of remuneration for The Board of Commissioners refers to Regulation of Minister of State Owned Enterprises number: PER-04/MBU/2014 regarding of the stipulation guidance of earnings of Board of Directors, Board of Commissioners, and Board of Supervisors of the State Owned Enterprises as amended in Regulation of Minister of State Owned Enterprises of the Republic of

208

Good Corporate Governance

BOARD OF COMMISSIONER’S REMUNERATION STUCTURE Stipulation of remuneration for Board of Commissioners refers to Regulation of Minister of State Owned Enterprises number: PER-04/MBU/2014 regarding of stipulation guidance of earnings of Board of Directors, Board of Commissioners, and Board of Supervisors of the State Owned Enterprises. Components of earnings of Board of Commissioners consist of: 1. Honorarium; Honorarium of member of Board of Commissioners was stipulated with composition of position factor as follows: • The Main Commissioner is in the amount of 45% of President Director’s salary; • Members of Board of Commissioners are in the amount of 90% of Board of Commissioners. 2. Board of Commissioners allowance a. Religious feast-day allowance Feast-day allowance is given in the amount of one of honorarium. b. Transportation allowance; Transportation allowance is given in the amount of 20% of honorarium for each of the Board of Commissioners. c. Pension Insurance • Pension Insurance is given during working (starts from the appointment to the retirement) • The premium paid by the Company shall be 25% of the honorarium within one year. 3. Facilities a. Health benefits; • Health benefits is given in the form of health insurance or medical reimbursement; • Health benefits is given to member of Board of Commissioners therewith a wife/ husband and maximum of 3 (three) children who is under 25 years old in accordance with the applicable provision; • The given facilities are in the form of outpatient and medicines, inpatient and medicines, and medical check-up.

b. Legal aid facility Legal aid facility is given in case of occurring of action/doing for and on behalf of the office related to the purpose and activities of the company’s business. 4. Performance Bonus/Incentive a. Distribution of bonus/incentive of performance to Board of Commissioners is based on the stipulation of General Meeting of Shareholders/ Minister in the ratification of the annual report in the event that: • Realization of the lowest level of health reaches 70; or • Target of level of health in the Company’s Work Plan and Budget is reached although it is under 70. b. Bonus/Incentive of performance is a cost burden of the related accounting year therefore it should be budgeted specifically in The Company’s Work Plan and Budget of its year so that the distribution of bonus/incentive of performance does not exceed the budget of bonus/incentive of performance which has been stipulated in The Company’s Work Plan and Budget. c. The composition of the amount of bonus/ incentive of performance as follows: • The Main Commissioner is in the amount of 45% of President Director’s bonus; • Members of Board of Commissioners are in the amount of 90% of Board of Commissioners’ bonus. d. An extra of Long Term Incentive can be added to the bonus. The distribution of remuneration to each member of the Board of Commissioners has been carried out based on the decision of Annual General Meeting of Shareholders on 8 April 2016 and Letter of Main Commissioner to President Director of PT PGN (Limited) Tbk No. 29 / D-KOM / 2016 dated 29 June 2016 with reference to the letter of the Minister of SOE No.: S-83/D2.MBU/06/2016 dated June 28th, 2016, concerning the Stipulation of Salary/Honorarium, Allowances and Facilities for 2016 and Bonus on performance in Fiscal Year 2015;

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

209

Good Corporate Governance

As for the structure of remuneration of the Board of Commissioners (within one year) in 2016 as follows: REMUNERATION OF THE BOARD OF COMMISSIONERS PER 2016 No

Componen

1

Honorarium (net)

2

Allowances (net)

Chief Commissioner (Rp)

• Religious holiday allowance • Retirement Insurance • Transportation Allowances TOTAL 3

Royalty (Gross)

4

Other facilities

Commisioner (Combined) (Rp)

Amount (Rp)

884.520.000,-

3.763.632.600,-

4.648.152.600,-

73.710.000,-

331.695.000,-

405.405.000,-

221.130.000,-

940.908.150,-

1.162.038.150,-

176.904.000,-

752.726.520,-

929.630.520,-

1.356.264.000,-

5.788.962.270,-

7.145.226.270,-

4.418.855.334,-

19.329.162.813,40,-

23.748.018.147,40,-

At cost in compliance with PER-04/MBU/2014 jo. PER-02/MBU/2016

Note: 1. The value listed in the column of Commissioners is the combined value of 5 Commissioners each have the same amount of income from each other. 2. For the component of Honorarium, Retirement Insurance, Transport Allowance and performance bonus to be paid proportionately according to tenure

BOARD OF DIRECTORS The Board of Directors have the responsibility to undertake the tasks in good faith and full responsibility. Each member of the Board of Directors is fully responsible either individually and severally liable for the loss of the Company, in case the relevant individual makes fault or negligent in performing his duties in accordance with the statutory provisions. Board of Directors represent as the Company’s Organ that are authorized and fully responsible for the management of the Company for the interest of the Company, in accordance with the purposes and objectives of the Company as well as to represent the Company both in and out of court in accordance with the provisions of the Articles of Association. Board of Directors are appointed and terminated by the Shareholders General Meeting. The Board of Directors is collegially responsible. Each Director may act and take decisions in accordance with the distribution of duties and responsibilities. However, execution of duties by each Director remains a shared responsibility. The position of each member of the Board of Directors including the Managing Director are equivalent. The duty of President Director as primus inter pares is to coordinate the activities of the Board of Directors.

BOARD OF DIRECTOR’S COMPOSITION During 2016, the Composition of PGN Board of Directors are as follows: 1st January – 8th April 2016 President Director

: Hendi Prio Santoso

Investment Planning and Management Director

: Muhammad Wahid Sutopo

Commercial Director

: Jobi Triandanda Hasjim

Technology and Development Director

: Djoko Saputro

Financial Director

: Mochtar Riza Pahlevi Tabrani

General Affairs and Human Resources Director

: Hendi Kusnadi

8th April – 31st December 2016 President Director

: Hendi Prio Santoso

Director

: Muhammad Wahid Sutopo

Director

: Dilo Seno Widagdo

Director

: Danny Praditya

Director

: Nusantara Suyono

Director

: Hendi Kusnadi

BOARD OF DIRECTOR’S SCOPE OF WORK AND RESPONSIBILITIES

The distribution of duties and authoritities of the Board of Directors can be set by the General Shareholders Meeting, but in the event that the General Shareholders Meeting did not stipulate, then the distribution of duties and authorities of the Board of Directors members are set out by the Decree of Directors. In the Annual General Meeting dated 8th April 2016, General Shareholders Meeting does not specify the nomenclature of the position of each Director. In accordance with the provisions of Law No. 40 of 2007 concerning Limited Liability Company, the Board of Directors set out the duties and responsibilities of each Directors through the Decision of the Board of Directors Number 004204.K/OT.00/PDO/2016 dated 11th April 2016.

210

Good Corporate Governance

PRESIDENT DIRECTOR

DIRECTOR OF INFRASTRUCTURE AND TECHNOLOGY

a. Scope of Work: 1. President Director has a scope of work to establish, manage, and control the Company management supervision; 2. In addition to running scope as in the preceding paragraph, President Director has the function of coordinating all development and operational activities of the Company, which in practice is assisted and collaborate with other Director. b. Responsiblity: Based on the scope of its work, President Director has the responsibility of: 1. To Plan, manage, and control: a. The Preparation of Work Plan and Budget of the Company as well as evaluating its achievements; b. The preparation of policies and activities related to the management of communication and relationships with stakeholders ; c. Internal control of the Company; d. Preparation of the policy, coordination of the work program implementation, the preparation of the ISMS, and the achievement report for the work program for Strategic Management and Transformation, Risk Management & GCG, HSSE; e. Management of strategic planning, business development and technology, as well as portfolio and performance; f. Operational asset management, including policies and activities related to engineering, construction and operations, as well as project-based; g. Management of product commercialization of gas and its derivatives, including policies and activities related to the planning and supply of gas, trading, as well as marketing of energy; h. Human resource management, information and communication technology, as well as logistical and general services; i. Budget management, treasury, accounting, corporate finance, and revenue assurance.

a. Scope of Work Director of Infrastructure and Technology has a scope of work to establish, manage, and control the policy of engineering, construction, operation and maintenance; network development and operational facilities that support the utilization of natural gas; manage the Government assignment related to the domestic natural gas network; and implement guidance for Subsidiary in the field of infrastructure b. Responsibility: Based on the scope of work, Director Infrastructure and Technology have the following responsibilities: 1. To plan, manage and control: a. Work Plan and Budgeting for the work unit in the Infrastructure and Technology Directorate as well as evaluating its achievement; b. Strategies, policies and procedures relating to the management of engineering, network construction, operational facilities, as well as operations and maintenance; 2. Controlling the management of network construction and operational facilities; 3. Conduct guidance for the Business Unit Infrastructure Operations, Program Management Office Infrastructure, the Network of Services Unit for Household Gas Pipeline as well as Subsidiary infrastructure.

DIRECTOR OF COMMERCE a. Scope of Work Director of Commerce has a scope of work to establish, manage and control the Company’s policies with respect to the management of the planning and supply of gas / liquefied natural gas (LNG); marketing and sales of gas products and its derivatives products - ; including conduct guidance for Subsidiary in the field of gas commercialization. b. Responsibility: Based on the scope of work, Director of exploitation has the following responsibilities:

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

1. To plan, manage and control: a. The Preparation of Work Plan and Budget of the Work Unit t the Commerc Directorate as well as evaluating its achievements; b. Strategies, policies, procedures, and management activities of gas management planning (supply - demand gas balance gas) and supply of gas / LNG; c. Strategies, policies, procedures, and the management activities of natural gas product sales, LNG, and derivatives products d. Strategies, policies, procedures, and the management activities of natural gas product sales, LNG, and derivatives products 2. Implement guidance for the Business Unit Gas Product and Subsidiary in the field of commercialization of natural gas, LNG and derivatives products.

DIRECTOR OF FINANCE a. Scope of Work Director of Finance has a scope of work to establish, manage and control the Company’s policies and activities related to the budget of the Company; treasury; accounting; financial reporting, taxation, financial management; revenue assurance; investor relations; and Social and Environmental Responsibility. b. Responsibility: Based on the scope of its work, Director of Finance has the responsibility of setting and controlling: 1. Work Plan and Budgeting in the Work Unit of Finance Directorate as well as to evaluate its achievements; 2. The policies and activities of budget preparation, management, and control; 3. The policies and treasury management activities; 4. The policies and activities of accounting, financial reporting and taxation; 5. The policies and long-term financial management activities; 6. The policies and revenue assurance management activities;

Good Corporate Governance

211

7. The policies and investor relations management activities; 8. The policies and management of corporate social responsibility, partnership and environmental programs.

DIRECTOR OF HUMAN CAPITAL AND GENERAL SERVICES a. Scope of Work Director of Human resources and General Affairs have the scope of the work to establish , manage and control the policy of human capital; information and communication technology; as well as logistics and public service b. Responsibility: Director of Human Capital and General Services have the duties of planning, managing and controlling: 1. Work Plan and Budget work units in Human Capital and General Services Directorate as well as evaluating its achievements; 2. Strategies, policies, procedures and management activities of the development of human resources services; 3. Strategies, policies, procedures and management activities of Information and Communication Technology; 4. Strategies, policies, procedures and management activities of the procurement of PGN goods / services (excluding projects procurement), nonnetwork assets, facilities and services

DIRECTOR OF STRATEGY AND BUSINESS DEVELOPMENT a. Scope of Work Director of Strategy and Business Development have the scope of work to establish, managing and controling the Company’s policy in connection with strategic planning; business development and technology; as well as portfolio management and performance control. b. Responsibility: Based on the scope of its work, Director of Strategy and Business Development has the responsibility to plan, manage, and control:

212

Good Corporate Governance

1. Work Plan and Budget for the work units in the Strategy and Business Development Directorate and evaluate its achievement; 2. Strategies, policies, procedures, and activities related to the preparation, evaluation, and control of long-term or annual strategic plans; 3. Strategies, policies, procedures, and activities related to the activities of preparation, evaluation and control of new business development as well as adoption of technologies which support the development of business; 4. Strategies, policies, procedures and activities related to the activities of preparation, evaluation, and control of the business portfolio and the Unit performance of Unit / Work Unit.

ASSESSMENT ON THE PERFORMANCE OF COMMITTEE UNDER THE BOARD OF DIRECTORS The Company currently has no organizational committee under the Board of Directors.

BOARD OF DIRECTOR’S GUIDELINES AND CONDUCT In order to carry out the duties of maintenance and management of the Company, the Board of Directors refers to the Regulation as follows: 1. Law Number 40 Year 2007 concerning Limited Liability Company; 2. Law Number 19 of 2003 concerning State Owned Enterprises; 3. Regulation of OJK (the Financial Services Authority) No. 33 / POJK.04 / 2014 concerning the Board of Directors and Board of Commissioners of Public Company; 4. Articles of Association Deed Number 23 dated 6th April 2015; 5. Work Guidelines for the Board of Commissioners and Board of Directors (Board Manual), which was ratified on August 8th, 2016.

Working Guidelines for the Board of Commissioners and Board of Directors (Board Manual) represent as a set of relationship guidelines for the Board of Commissioners and Directors. PGN Board Manual was firstly conceived in 2006 and last updated on August 8, 2016. The Employment Guidelines and Rules of Conduct Board of Directors in PGN Manual specifically stipulated in Chapter II, which includes: • Main Duty of the Board of Directors; • Duties and Responsibilities of the Board of Directors; • The Rights and Privileges of the Board of Directors; • Delegation of Authority; • Independence and Job Ethics of the Board; • Stipulation on the Liability Management Policy; • Distribution of the Board of Directors Duties; • Vacant Position for for the Board of Directors’ • Meeting of the Board of Directors; • Company secretary; • Internal Control Unit. • Risk Management Function

BOARD OF DIRECTOR’S DUAL POSITION AND CONFLICTS OF INTEREST Pursuant to Article 11 paragraph 22 of the Article of Association of the Company Deed No 23 dated April 6th, 2015, members of the Board of Directors may hold another position as: a. Member of the Board of Directors in StateOwned Enterprises, local owned enterprises, privately owned enterprises as well as other positions that may pose a conflict of interest; b. Structural and functional position at the institutions / agencies c. Other positions in accordance with the provisions of the prevailing legislation. Throughout 2016, there are no members of the Board of Directors holding dual position as stated in the Articles of Association of the Company.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Good Corporate Governance

213

TRAINING PROGRAM IN ORDER TO IMPROVE THE COMPETENCE OF DIRECTORS To improve their competency and to support the duties implementation of the Board of Directors during 2016, members of the Board of Directors have attended training programs, workshops, conferences and seminars, among others:

PERIOD 01ST JANUARY 2016 – 08TH APRIL 2016 Name M. Wahid Sutopo

Date 08 April 2016

Name of Activity Roundtable discussion with Adam Kahane (Bandung Scenario)

Location Campus SBM ITB Graha Irama (Indorama) - Bandung

PERIOD 08TH APRIL 2016 – 31ST DECEMBER 2016 Name

Danny Praditya

Date

Location

Workshop on the Utilization of Gas at Abadi Field at Masela Work Areas for the Fulfillment of Domestic Gas Requirement

Hotel Novotel Bogor Golf Resort Convention Center, Bogor – West Java

26 – 27 Oktober 2016

Gas Asia Summit and Exhibition

Marina Bay Sands – 10 Bayfront Avenue, Singapore

07 – 10 November 2016

Abu Dhabi Petroleum Exhibition and Conference (ADIPEC 2016)

Abu Dhabi National Exhibition Center (ADNEC) Abu Dhabi, UEA

15 November 2016

Workshop on the Exposure of PGN - PLN Synergy Scheme in Supplying Natural Gas for the Electricity Sector

The Four Seasons Hotel – Capital Place, Kuningan Jakarta Selatan.

08 June 2016

Leadership Forum 2016 : Discussion on the Transformation of Holding Energy

Auditorium PGN Office at Ketapang - Jakarta

17 June 2016

Executive Session “Introduction to Leadership Energy”

Hotel Padma - Bandung

15 September 2016

Human Capital PGN Group Synergy Forum

Veranda Hotel at Pakubuwono - Jakarta

19 September 2016

The Great Leaders Workshop, Socialization of Reward System Implementation

Kantor PGN The Manhattan Square - Jakarta

07 October 2016

Workshop on the Company Transformation

Mess PGN - Bandung

27 – 28 October 2016

Indonesia Human Capital Summit 2016

Hotel Ritz Carlton Pacific Place - Jakarta

24 – 25 November 2016

Synergy Forum and Business Development Summit PGN 2016

Bali

30 November 2016

Seminar GCG and Upgrading ISO 9001 : 2015 in 2016

Auditorium PGN Office at Ketapang – Jakarta

25 May 2016

RUPTL and Electrical FGD and Workshop between PLN and the whole State Owned Enterprises

Hotel Grand Sahid jaya - Jakarta

28 June 2016

Executive Session Topic Introduction to Leadership

Hotel Padma - Bandung

29 June 2016

G20 Natural Gas Day | Natural Gas Promoting Sustainable Development organized by Beijing Gas Group Co.,Ltd, China Gas Society and China Gas Association

Beijing – China

13 August 2016

National Seminar organized by the Alumni Association of ITB Geology Engineering with the theme on "Enhancing Indonesian Energy Security through the Optimization of Natural Resources"

ITB Campuss - Bandung

24 August 2016

Panel Discussion of the Resurrection of Energy, the National Industry Awakening to Indonesia Mandiri organized by KEIN

Coordinating Ministry of Economic Affairs Building – Jakarta

07 November 2016

Speakers at the Seminar on Indonesia Naik Kelas (Upgraded) organized by Koran Sindo with the theme "Making State Owned Enterprises as Locomotive Development "

Hotel Kempinski - Jakarta

15 November 2016

Workshop on the Scheme of PGN-PLN Synergy in Supplying Natural Gas to Electricity Sector

Hotel Four Season – Jakarta

17 November 2016

Morgan Stanley AP Summit Conference 2016

Hotel Mandarin Oriental - Jakarta

30 November 2016

Workshop on the Digitalization and Utilization of Big Data Analysis in the Context of State Owned Enterprise Synergy Optimization

PT Bank Mandiri ofice - Jakarta

Hendi Kusnadi

M. Wahid Sutopo

Name of Activity

05 October 2016

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BOARD OF DIRECTOR’S MEETING AND DECISION Based on the OJK (Financial Services Authority) Regulation No. 33 / POJK.04 / 2014 of the Board of Directors and Board of Commissioners of Public Listed Company and Articles of Association, the Board of Commissioners shall hold meetings at least 1 (one) time in 2 (two) months and a periodical joint meeting with the Board of Directors at less than 1 (one) time in 4 (four) months. With regard to the Board of Directors, OJK (FSA) Regulation No. 33 / POJK.04 / 2014 concerning the Board of Directors and Board of Commissioners of Public Listed Company and Articles of Association require the holding of periodic Board of Directors meeting at least 1 (one) time in every month and must convene a period joint meeting between the Board of Commissioner and Directors at least 1 (one) time in 4 months.

PGN BOARD OF DIRECTORS MEETING IN 2016 Implementation of the Board of Directors Meeting is based on the Articles of Association of the Company, the implementation of which consists of two periods refer to the membership of the Board of Directors, namely: • Period of 6 January 2016 - 7 April 2016 • Period of 8 April 2016 - 31 December 2016 Decision making by the Board of Directors is conducted in two forms, namely: Meetings of the Board of Directors held physically and Decision made by the Board of Directors by way of circular.

PERIOD 06 JANUARY – 07 APRIL 2016 No.

Date

1

06 January 2016

2

3

20 January 2016

25 January 2016

Meeting Agenda

1. Data Management 2. Presentation of Gas Distribution to the Customers 3. New Business Development 4. Presentation of Gas Supply 5. Synergy PGN - SOE Subsidiary Synergy PGN - SOE Subsidiary 2. Update on the Development of Transmission Network 3. Update on the Development of Domestic Gas Network 1.

3. 4. 5. 6.

5

02 February 2016

25 February 2016

Djoko Saputro

Jobi Triananda Hasjim

Mochtar Riza Pahlevi Tabrani

Muhammad Wahid Sutopo

Hendi Kusnadi





























































1.

2.

4

Hendi Prio Santoso

Synergy PGN – SEO Subsidiary 2. Regulation Update Gas Governance Update presidential decree on natural gas governance Gas Price for Distribution Area Plan for Gas Distribution in Western Java Assessment Talent Preparation of Annual General Shareholder Meeting

Presentation on the Preparation Material to Stakeholders 1.

Audit of Financial Statements for Fiscal Year 2015 2. Scheme of Gas Distribution to Customers 3. Certification and Licensing project

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

No.

6

7

8

9

10

215

Good Corporate Governance

Hendi Prio Santoso

Djoko Saputro

Jobi Triananda Hasjim

Mochtar Riza Pahlevi Tabrani

Muhammad Wahid Sutopo

Hendi Kusnadi





























































Total Attendance

10 times

10 times

10 times

10 times

10 times

10 times

% Total Attendance

100%

100%

100%

100%

100%

100%

Date

Meeting Agenda

02 March 2016

15 March 2016

30 March 2016

06 April 2016

07 April 2016

1.

Presentation of the Gas Distribution Plan from Manufacturer to Customer 2. Payment Guarantee Policy 3. Simplification of Gas Subscription Procedure 4. Distribution of Gas to PLN 1.

Update on the Audit of Financial Statements 2. Preparation of Annual General Shareholder Meeting 3. Update on the Development and Operation of Jargas (Gas Distribution) 1.

Preparation of Materials for Annual General Shareholder Meeting 2. Extension of Gas Distribution to Customers 3. Presentation of PT PGN LNG Indonesia Subsidiary 1.

Distribution of Gas to PLN in the Provision of Gas Supply for Meeting the Needs of National Electricity 2. Proposed Gas Prices for Western Java Area 3. New Business Development Cooperation 4. Assessment of 2015 Performance Level Vice President 1.

Discussion on the Presentation of Annual GSM 2. Exposure on the Activity of Business Unit Infrastructure and Operations

BOARD OF PGN DIRECTORS MEETING IN 2016 PERIOD 08 APRIL 2016 – 31 DECEMBER 2016 No. 1

2

Hendi Prio Santoso

Muhammad Wahid Sutopo

Dilo Seno Widagdo

Danny Praditya

Hendi Kusnadi

Nusantara Suyono













KPI Recommendations in 2016 2. Funding for Subsidiary 3. Plan Business Unit Jargas (Gas Network) 4. Miscellaneous













Date

Meeting Agenda

11 April 2016

Distribution of Duties and Authority of the Board of Directors

19 April 2016

1.

3

04 May 2016

Discussion on the Revised RKAP (CBP) 2016













4

09 May 2016

Discussion on the Revised RKAP (CBP) 2016













216

No. 5

Good Corporate Governance

Date 17 May 2016

Meeting Agenda 1. 2. 3. 4. 5.

Integrated Solution for Natural Gas Infrastructure Proposed Gas Selling Prices to Customers Presentation by Gas Supply Division Consultant Procurement Update on the Establishment Plan for Oil and Gas Holding

Hendi Prio Santoso

Muhammad Wahid Sutopo

Dilo Seno Widagdo

Danny Praditya

Hendi Kusnadi

Nusantara Suyono













6

25 May 2016

Discussion on the Revised RKAP (CBP) 2016













7

28 May 2016

Discussion on Strategic Projects













8

07 June 2016

1.













Quotation and Payment of the Natural Gas related to the Application of PBI No.17 / 3 / PBI / 2015 Discussion on the Proposed Revision for CBP 2016 Impaired Gas Distribution of Jargas Semarang Presentation of PT PGN LNG Indonesia Distribution of Gas Optimization of Gas Sales to Customers













Approval of Business Development 2. Approval of the PGNMAS Housing Development Project For PGN Group 3. Amendments of PT Permata Graha Nusantara Article of Association













9

14 June 2016

Presentation of Human Capital Management Division 2. Discussion on Prices Gas to the Customers 1.

2.

3. 4. 5. 6. 10

26 June 2016

1.

11

25 July 2016

Discussion on the Draft Bil lof Natural Gas resurnce













12

04 August 2016

1. Gas Distribution Plan 2. Update on the Development of Gas Transmission Pipeline 3. Discussion of Customer Receivables 4. Gas Supply Update 5. Discussion on the Guideline of RKAP (CBP) 2017 6. Discussion on Strategic Plan for Natural Gas Infrastructure 7. Management Initiative Corporate Business Development Strategy 8. Miscelaenous





































13

14

16 August 2016

21 September 2016

1.

Discussion of Financial Performance in the First Half of 2016 2. Presentation of the Directorate of Commerce 3. Presentation of Strategic Planning Division 1.

Discussion on Important Cases 2. Discussion on Gas Supply 3. Discussion on Technical and Commercial Initiatives Project

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

No. 15

Date

Meeting Agenda

10 October 2016

1.

2. 3. 4. 5. 16

17

18

19

18 October 2016

The use of CNG to the Needs of Commercial and Small Sector Customers Proposed Cooperation for Industrial Area SOE Synergy in Energy Supply Gas Transportation Plan Gas Distribution Project

Prognosis RKAP (CBP) 2016 & RKAP (CBP) proposal 2017 2. Ministerial Regulation 19 3. Organizational Structure BU Jargas (Gas Pipeline Business Unit)

Hendi Prio Santoso

Muhammad Wahid Sutopo

Dilo Seno Widagdo

Danny Praditya

Hendi Kusnadi

Nusantara Suyono

























1.

02 November 2016

1.

The Health Benefits of Directors 2. Discussion on Gas Prices 3. Miscellaneous













08 November 2016

Prognosis Discussion on RKAP (CBP) 2016 & Proposed RKAP (CBP) 2017













15 November 2016

1.

Presentation of PT Saka Energi Indonesia 2. Report on Oil and Gas Holding Establishment Pla

















































Total Attendance

22 times

22 times

22 times

22 times

22 times

21 times

% Total Attendance

100%

100%

100%

100%

100%

96%

20

25 November 2016

Presentation on Transformation Division

21

29 November 2016

1.

22

19 December 2016

Update on Gas Transmission Pipeline Project 2. Preparation on the Socialization of Oil and Gas SOE Holding 3. Discussion on Risk Profile 1. 2. 3. 4. 5.

Discussion on Gas Prices for Household Customer Presentation of PT Gagas Energi Indonesia Discussion on Gas Discussion on the Industrial Area Discussion on Customer Contract

Decisions of Board of Directors are conducted circularly as follows: No

217

Good Corporate Governance

Date of Meeting

Subject Matters

1

29 January 2016

Gas prices

2

9 February 2016

The Establishment of Subsidiary

3

29 February 2016

Gas Supply

4

2 March 2016

Gas Price

5

30 March 2016

Gas Sales Agreement

6

18 July 2016

Appointment of Consultants

7

16 November 2016

New Project Development

218

Good Corporate Governance

BOARD OF DIRECTOR AND CORPORATE PERFORMANCE ASSESMENT Board of Director and Corporate Performance Assesment Procedure Board of Director and Corporate performance was assessed by KPI based on SOE’s Kriteria Penilaian Kinerja Unggul (KPKU) which refer to Letter from Ministry of State-Owned Enterprise No. S-08/S.MBU/2013 dated 16 January 2013 concerning the Submission KPI Guideline and Superior Criteria Performance Assessments for SOE which was adapted from Malcolm Baldridge system and evaluated by certified evaluator team which was appointed by the Ministry of SOE. Board of Director and Corporate Performance Assesment Criteria Criteria/ Indicator to assess Board of Directors and Corporate Performance was based on Letter from Ministry of State-Owned Enterprise No. S-08/S.MBU/2013 dated 16 January 2013 concerning the Submission KPI Guideline and Superior Criteria Performance Assessments for SOE which include: 1. Implementation on Board of Director’s task and responsibility based on Company’s Article of Association 2. Realization on AGMS 2016 resolution result 3. Board of Director Key Performance Indicator (KPI) realization in 2016 which is based on Superior Criteria Performance Assessment (KPKU) which include 5 (five) perspective: a. Financial and Market Perspective b. Customer Focus Perspective c. Product and Process Effectiveness Perspective d. Manpower Focus Perspective e. Leadership, Governance, and Social Responsibility Perspective Board Of Director And Corporate Performance Assesment Evaluator Assessment to performance of Board of Directors through KPI KPKU (Featured Performance Assessment Criteria) is performed by a certified evaluator team appointed by Ministry of SOE. Assessment by Certified Evaluator Team. The following is Key Performance Indicator (KPI) of the company which focuses on aspects of the most dominant performance of company in determining the success of company at present and in the future. Realization score of company’s KPI of 2016 was 102.24. KPKU-based Key Performance Indicator

Quality

Target of 2016

% Realization

Score

2

3

4

5=2x4

1

Effectiveness of Product and Process

20

I-1

Volume of Gas Management (Distribution + Transportation of PGN + Transmission (KJG))

11

897.8 mMscfd

101.67

11.18

I-2

Infrastructure Reliability

9

98%

101.99

9.18

Customers

22

II-1

Customer satisfaction Index

10

5.10

II-3

Customer Retention Rate

12

179.598

Focus of Labor

17

III-1

Development of Labor

17

Leadership and Social Responsibility

17

20.36

21.79 105 94.08

10.50 11.29

17.85 100%

147

17.85

17.58

IV-2

Score of KPKU

8

EIL (585.00)

105

8.40

IV-3

Score of GCG

9

Very Good (92.14%)

101.95

9.18

Finance and Market

24

V-1

Profit of Operation

12

USD 434.86 million

102.15

12.26

Development of Infrastructure

12

90%

103.37%

12.40

Total Score

100

V-3

24.66

102.24

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

BOARD OF DIRECTOR’S REMUNERATION Procedure And Stipulation Principle Board Of Directors Remuneration Procedure Stipulation of remuneration for The Board of Commissioners refers to Regulation of Minister of State Owned Enterprises number: PER-04/MBU/2014 regarding of the stipulation guidance of earnings of Board of Directors, Board of Commissioners, and Board of Supervisors of the State Owned Enterprises as amended by Regulation of Minister of State Owned Enterprises of the Republic of Indonesia number: PER-02/MBU/06/2016 dated of 20 June 2016. Based on the Regulation of Minister of SOE, principle of earnings stipulation of Board of Director was stipulated by General Meeting of Shareholders of accounting year of 2015 dated of 8 April 2016 where the components of earnings of Board of Directors consist of: a. Salary/honorarium; b. Allowances consist of: 1) Allowance of religious feast-day; 2) Insurance of pension; 3) Allowance of housing. c. Facilities consist of: 1) Facility of vehicle; 2) Health benefits; 3) Legal aid; and d. Bonus/Incentive of performance, where in the bonus can be added an extra in form of Long Term Incentives (LTI). Board Of Directors Remuneration Structure Based on regulation of Minister of State Owned Enterprises of the Republic of Indonesia number: PER-02/MBU/06/2016 regarding of amendment of regulation of minister of State Owned Enterprises number: PER-04/MBU/2014 regarding of stipulation guidance of earnings of Board of Directors, Board of Commissioners, and Board of Supervisors of the State Owned Enterprises, principle of stipulation of earnings of Board of Directors is stipulated by General Meeting of Shareholders. Components of earnings of Board of Directors consist of: 1. Salary a. Salary of President Director is stipulated by using the internal guidance stipulated by Minister of SOE; b. Salary of other members of Board of Directors is stipulated with composition of Office Factor by 90% of President Director’s salary.

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219

2. Allowance for Board of Directors a. Allowance of religious feast-day Allowance of Feast-day is given in the amount of one of Salary. b. Allowance of housing. Allowance of housing is included for utility costs given monthly by 40% of salary. The allowance is distributed if SOE does not provide facility of official residence for Board of Directors. c. Insurance of pension • Insurance of pension is given during the serving (starts from the appointment to the retirement): • The premium paid by the Company shall be 25% of the Salary within one year. • The selection of program for insurance of pension is stipulated by each member of Board of Directors, Board of Commissioners, and Board of Supervisors of State Owned Enterprises. • The distribution of premium, dues or other relevant terms for insurance of pension is included for premium for insurance of accident and death 3. Facilities a. Facility of vehicle; • Member of Board of Directors has a right only for 1 (one) facility of vehicle from company; • Facility of vehicle is included for cost of maintenance and operation given by taking notice the company’s financial condition. • Specification and standard of vehicle is stipulated by General Meeting of Shareholders/Minister • In case of member of Directors does not serve anymore, that he/she must return his/her service vehicle to related SOE no later than 30 (thirty) days after off position. • in case of member of directors holds concurrent position as a member of Board of Commissioners in a subsidiary/joint venture company, and he/she chooses to use the facility of vehicle/allowance of transportation of the subsidiary/joint venture company (if provided), then he/she does not accept facility of vehicle and allowance of transportation from related SOE anymore.

220

Good Corporate Governance

b. Health benefits; • Health benefits is given in the form of health insurance or medical reimbursement; • Health benefits is given to member of Board of Commissioners therewith a wife/husband and maximum of 3 (three) children who is under 25 years old in accordance with the applicable provision; • The given facilities are in the form of outpatient and medicines, inpatient and medicines, and medical check-up. • Medical Check up is given with the following provision: a. Medical Check up is given 1 (once) in a year b. Medical Check up is conducted only in Indonesia. • In case of Board of Directors holds concurrent position as a member of Board of Commissioners in a subsidiary/joint venture company, then he/she only gets a health benefits that is from SOE. c. Legal aid facility 1. Legal aid facility is given in case of occurring of action/doing for and on behalf of the office related to the purpose and activities of the company’s business. 2. Member of Directors who will use the legal aid facility must make a statement letter at the sufficiently stamped paper which elaborates his/her position in the particular case not as a person and willing to return the legal aid facility to company if evidently his/ her position in that case as a person is proved. 3. Legal aid facility is given in form of financing of services of lawyer’s office/ legal consultant that covers process of investigation as a witness, suspect, and defendant in the judiciary. 4. Services of lawyer’s office/legal consultant in which its financing can be charged to company is only for a lawyer’s office/legal consultant and for a particular case.

5. Appointment of lawyer’s office/legal consultant is performed by company in accordance with the procurement provisions applicable to the respective companies. 6. In case of the concerned person is convicted and sentenced by court with a permanently binding decision, then the cost of lawyer/legal consultant either has been issued or which has not been paid by the company to be a burden of the concerned. 7. In case of the concerned person is acquitted / found not guilty by court with permanently binding decision, then the cost of lawyer’s office / legal consultant became the company’s expense. 8. The cost of lawyer’s office/legal consultant is provided by taking notice the principles of fairness, transparency, and accountability in accordance with the applicable provision and taking notice the company’s financial capability. 9. During the legal issues do not have a permanent legal force, then insurance of pension of the member of Board of Directors is not paid and included into a special account held by the Board of Directors of SOE as security for court fees incurred by the company. Board of Directors members who receive legal aid facilities required to make a statement letter at the sufficiently stamped paper which states that he/she is making his/ her insurance of pension as security for court fees incurred by the company 10. In case of Board of Directors members appoint lawyer/legal consultant by his/her own choice both at the inquiry/investigation, court of first instance, appeal, cassation or judicial review, then the cost of lawyer/legal consultant is not covered/reimbursed by the company. 11. For Board of Directors members in which using lawyer’s office/legal consultant paid by company should make a statement letter to return the costs incurred by company when he/she is convicted by court with permanently binding decision.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

12. Company will not bear the cost of lawyer/legal consultant in case of Board of Directors members become witness, suspect or defendant because of criminal proceedings reported by the concerned SOE, State (State as a legal board or state institutions or government agencies) or other particular party stipulated by General Meeting of Shareholders/Minister. 13. The sued Board of Directors member is prohibited to be involved in decisionmaking regarding the appointment of a lawyer / legal consultant 14. In the case of civil or State Administration (TUN), the court fee is borne by the company, as long as: a) Lawyer / legal consultant who appointed is only one lawyer’s office / consultant for a particular case; b) Appointment of lawyer’s office/legal consultant is performed by company in accordance with the procurement provisions applicable to the respective companies; c) Costs of lawyer/legal consultant are official costs and legally accountable; d) Members of Board of Directors of SOE are sued because the legal issues occurred because of execution of company’s duties in accordance with the applicable provision; e) The plaintiff or the sued are parties other than the concerned SOE, State (State as a legal board or state institutions or government agencies) or other particular party stipulated by General Meeting of Shareholders/Minister. 15. SOE must provide legal aid facility to former members of board of Directors in case of there is legal issues which occurred because the concerned person performed actions/deeds for and on behalf of the his/ her position that related to the intent and purpose as well as the company’s business activities that he/she performed during serving as member of board of Directors.

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221

16. The provisions concerning the provision of legal aid facilities referred to in point 1) up to number 14), applicable to the provision of legal aid facilities for former members of the Board of Directors of SOE as referred to in item 15). The facility of housing accepted by Directors is included for utilities and home maintenance. 4. Bonus/Incentive of performance a. The giving of bonus/incentive of performance to Board of Commissioners is based on the stipulation of General Meeting of Shareholders/ Minister in the ratification of the annual report when: • Realization of the lowest level of health reaches 70; or • Target of level of health in the Company’s Work Plan and Budget is reached although it is under 70. b. Bonus/Incentive of performance is a cost burden of the related accounting year therefore it should be budgeted specifically in The Company’s Work Plan and Budget of its year so that the distribution of bonus/incentive of performance does not exceed the budget of bonus/incentive of performance which has been stipulated in The Company’s Work Plan and Budget. c. The composition of the amount of bonus/ incentive of performance as follows: • President Director 100%; • Member of Director: 90% of President Director d. An extra of Long Term Incentive can be added to the bonus. The distribution of remuneration to each member of the Board of Commissioners has been carried out based on the decision of Annual General Meeting of Shareholders on 8 April 2016 and Letter of Main Commissioner to President Director of PT PGN (Limited) Tbk No. 29 / D-KOM / 2016 dated 29 June 2016 with reference to the letter of the Minister of SOE No.: S-83/D2.MBU/06/2016 dated 28 June 2016 regarding stipulation of salary/honorarium, allowances and facilities for year of 2016 and bonus of performance of accounting year 2015;

222

Good Corporate Governance

The structure of the remuneration of Directors (in one year) 2016 as follows:

REMUNERATION OF BOARD OF DIRECTOR PER YEAR 2016 No

Commponents

1

Salary (net)

2

Allowances (net)

President Director (Rp) 1.965.600.000,-

Director (Compound) (Rp)

Amount (Rp))

8.845.200.000,-

10.810.800.000,-

• Allowance of religious feast-day

163.800.000,-

737.100.000,-

900.900.000,-

• Insurance of pension

491.400.000,-

11.056.500.000,-

11.547.900.000,-

- Allowance of housing. TOTAL 3

Bonus (Gross)

4

Other facilities

330.000.000,-

1.650.000.000,-

1.980.000.000,-

2.950.800.000,-

22.288.800.000,-

25.239.600.000,-

9.819.678.519,-

44.188.553.335,-

54.008.231.854,-

At cost referred to in PER-04/MBU/2014 jo. PER-02/MBU/2016

Notes: 1. Values listed in column of Director are the combined value of 5 Directors who each have the same amount of income for each other. 2. For salary component, Insurance of pension, Housing Allowance and performance bonus are paid proportionately to tenure.

INDICATORS FOR THE DETERMINATION FOR BOARD OF DIRECTORS REMUNERATION In the formulation of indicators of the remuneration of Directors, the Committee of Nomination and Remuneration, and GCG assisted by Independent Consultants PT Mercer Indonesia (“Mercer”) to conduct a study before the results of the study submitted to the Board of Commissioners. Result of discussion of the study will be proposed to the minister of SOE as the Shareholders of Seri A Dwiwarna. The methods used Mercer are: 1. Reviewing the Remuneration of Directors of PGN by comparing it to the state of the market; 2. In determining the market data related to remuneration, Mercer will compares the remuneration system of PGN to the company included in Fortune 500. 3. The parameters used in the selection of the global market that a comparison is viewed from net revenue, the business sector (energy sector), and the state.

DIVERSITY ON BOARD OF COMMISSIONERS AND BOARD OF DIRECTORS COMPOSITION The composition of board of Commissioners and Board of Directors diverse from education side, work experience, age, and type of sex. However, the terms of appointment of the Board of Directors and the Board of Commissioners must observe the following rules: • Regulation of the Minister of SOE no. PER-03/MBU/02/2015 dated 18 February 2015 regarding requirements, procedure of appointment and dismissal of Board of Directors Members of State Owned Enterprises; • Regulation of the Minister of SOE no. PER-02/MBU/02/2015 dated 18 February 2015 regarding requirements, procedure of appointment and dismissal of memeners of Board of Commissioners and Board of Supervisors of State Owned Enterprises; • Regulation of the Financial Services Authority No. 33 / POJK.04 / 2014 regarding the Board of Directors and Board of Commissioners of Public Company, which emphasizes on skill, integrity, leadership, experience, good conduct, legally competent, and high dedication to promote and develop Company

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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AFFILIATE RELATIONS BETWEEN MEMBERS OF THE BOARD OF DIRECTORS, BOARD OF COMMISSIONERS, AND MAJOR SHAREHOLDERS AND / OR CONTROLLING AFFILIATE RELATION OF DIRECTORS PERIOD 1 JANUARY – 8 APRIL 2016 Family Relationship With

Financial Relationship With

Name

Position

Other Commissioner

Board of Directors

Main Shareholder

Other Commissioner

Board of Directors

Main Shareholder

Share Ownership in PGN *)

Hendi Prio Santoso

President Director

X

X

X

X

X

X

X

Mochtar Riza Pahlevi Tabrani

Director of Finance

X

X

X

X

X

X

X

Djoko Saputro

Director of Infrastructure and Technology

X

X

X

X

X

X



Muhammad Wahid Sutopo

Director of Strategy and Business Development

X

X

X

X

X

X

X

Jobi Triananda Hasjim

Director of Commerce

X

X

X

X

X

X

X

Hendi Kusnadi

Director of Human Capital and General Service

X

X

X

X

X

X



BOARD OF DIRECTORS AFFILIATION RELATIONS PERIOD OF 1ST JANUARY – 8TH APRIL 2016 Family Relationship With

Financial Relationship With

Name

Position

Other Commissioner

Board of Directors

Main Shareholder

Other Commissioner

Board of Directors

Main Shareholder

Share Ownership in PGN *)

Hendi Prio Santoso

President Director

X

X

X

X

X

X

X

Nusantara Suyono

Director of Finance

X

X

X

X

X

X

X

Dilo Seno Widagdo

Director of Infrastructure and Technology

X

X

X

X

X

X

X

Muhammad Wahid Sutopo

Director of Strategy and Business Development

X

X

X

X

X

X

X

Danny Praditya

Director of Commerce

X

X

X

X

X

X

X

Hendi Kusnadi

Director of Human Capital and General Servce

X

X

X

X

X

X



*) Share ownership of Board Directors and Family

COMMISSIONER AFFILIATION RELATIONS PERIOD OF 1ST JANUARY – 8TH APRIL 2016 Family Relationship With

Financial Relationship With

Other Commissioner

Board of Directors

Main Shareholder

Other Commissioner

Board of Directors

Main Shareholder

Share Ownership in PGN *)

President/ Independent Commissioner

X

X

X

X

X

X

X

Tirta Hidayat

Commissioner

X

X

X

X

X

X

X

Mohamad Ikhsan

Commissioner

X

X

X

X

X

X

X

IGN Puja

Commissioner

X

X

X

X

X

X

X

X

X

X

X

X

X

X

Name

Position

Imam Sugema

Wiratmaja

Paiman Raharjo

Independent Commissioner

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COMMISSIONER AFFILIATION RELATIONS PERIOD OF 8TH APRIL – 31ST DECEMBER 2016 Family Relationship With

Financial Relationship With

Other Commissioner

Board of Directors

Main Shareholder

Other Commissioner

Board of Directors

Main Shareholder

Share Ownership in PGN *)

President Commissioner

X

X

X

X

X

X

X

Tirta Hidayat

Commissioner

X

X

X

X

X

X

X

Mohamad Ikhsan

Commissioner

X

X

X

X

X

X

X

IGN Wiratmaja Puja

Commissioner

X

X

X

X

X

X

X

Paiman Raharjo

Commissioner Independen

X

X

X

X

X

X

X

Kiswodarmawan

Commissioner Independen

X

X

X

X

X

X

X

Name

Position

Fajar Harry Sampurno

*) Share ownership of Board Directors and Family

ASSESSMENT ON BOARD OF COMMISSIONERS AND BOARD OF DIRECTORS BOARD OF COMMISSIONERS AND BOARD OF DIRECTOR’S PERFORMANCE ASSESSMENT PROCESS In 2016, GCG implementation assessment in the Company has been conducted by PT Citra Solusi Manajemen as independent assessor by using parameter developed by Ministry of SOE according to the Secretary of Minister of SOE Decision Letter Number: SK-16/S.MBU/2012 dated 6th June 2012 on Indicator/Parameter of Assessment and Evaluation on the Good Corporate Governance Implementation to State Owned Enterprise. The Assessment on GCG implementation in 2016 is also part of the sustainable GCG implementation process in PGN, hence, the assessment result is also as the assessment on GCG implementation progress so far.

BOARD OF COMMISSIONERS AND BOARD OF DIRECTOR’S PERFORMANCE ASSESSMENT CRITERIA AND INDICATOR The aspect of assessment in GCG assessment in PGN covers: (1) Commitment Towards Sustainable Good Corporate Governance, (2) Shareholder and GMS/Capital Owner, (3) Board of Commissioners/Board of Supervision, (4) Board of Directors, (5) Pengungkapan Informasi dan Transparansi, dan (6) Aspek Lainnya. Jumlah indikator pengujian sebanyak 43 indikator sedangkan jumlah paramater pengujian sebanyak153 parameter.

GCG ASSESSMENT RESULT FOR BOARD OF COMMISSIONERS AND BOARD OF DIRECTORS In 2016, the assessment result on GCG implementation reached the score of 93,938 with the qualification Very Good. This achievement increased along the years along with PGN’s commitment to increase GCG implementation in the Company and follow up the area of improvement of the assessment result. Form the total, assessment on Board of Commissioners and Board of Directors are 31,994 dan 32,861 The score achieved in the Board of Commissioners/Board of Supervision Aspect is 31,994 from the weightage of 35,000 or equal to achievement percentage of 91,41% which means that in general the GCG implementation for Board of Commissioners/Board of Supervision Aspect has run well, such as: a. Board of Commissioners joins the introduction program and conduct training/development program sustainably. b. Board of Commissioners conducts clear task delegation, authority and responsibility and set the factors required to support the task implementation.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

c. Board of Commissioners provides approval and ratification on RJPP and RKAP plan delivered by Board of Directors. d. Board of Commissioners directs Board of Directors on the implementation of plan and company policy. e. Board of Commissioners supervises Board of Directors on the implementation of plan and company policy. f. Board of Commissioners supervises the management of subsidiary. g. Board of Commissioners participates in nominating members of Board of Directors, assess the performance of Board of Directors and propose performance royalty/incentive according to the applicable stipulation and considers the performance of Board of Directors. h. Board of Commissioners takes action on potential conflict of interest that concerns themselves. i. Board of Commissioners has monitores and ensured that good corporate governance practice has been effectively and sustainably implemented. j. Board of Commissioners organizes efffective Board of Commissioners meeting and attends Board of Commissioners meeting in accordance to the law and reglations. k. Board of Commissioners has Secretary of Board of Commissioners to support the Secretarial task of the Board of Commissioners. l. Board of Commissioners has an effective Committee of Board of Commissioners that is established in terms to support the Board of Commissioners task implementation. While the GCG implementation condition for Board of Commissioners/Board of Supervision Aspect that still requires attention as area of improvement, are: a. Stipulation on standard of time of the level of immediacy to communicate the decision taken by Board of Commissioners to Board of Directors has not yet fully regulated. b. The Board Manual has not yet regulated the stipulation on task and responsibility of the Board of Commissioners to draft the Board of Commissioners annual work plan and measure and assess the performance of Board of Commissioners (self assessment).

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c. The Board Manual has not yet regulated the stipulation on task and responsibility of the Board of Commissioners to supervise several policies and its implementation, such as related to IT system policy, HR management policy, accounting policy and drafting the financial statement, procurement policy, quality and service policy, joint subsidiaty management policy as well as the Board of Directors compliance in implementing the applicable law and regluations and agreement with third party. d. The Board Manual has not yet regulated the policy and criteria of selection for candidate member of Board of Directors, Board of Directors candidate member proposal is submitted to the Shareholders and remuneration proposal for Board of Directors members. e. Stipulation on guideline/order of Board of Commissioners meeting exists in the Board Manual has not yet fully refulates on the meeting ethics and evaluation on the previous meeting follow up. f. Committee of Nomination, Remuneration and GCG has no committee charter and not yet draft the committee annual work plan that becomes the guideline for Committee of Nomination, Remuneration and GCG in implementing the tasks and responsiblity. The score achieved on Board of Directors Aspect is 32,861 from the weightage of 35,000 or equal to the achievement percentage of 93,89% which means that in general, GCG implementation for Board of Directors Aspect has run Very Well. This can be seen from several practices that has run well, such as: a. Board of Directors has joined introduction program and implement training/development program sustainably. b. Board of Directors conducts task/funaction delegation, authority and responsibility clearly. c. Board of Directors drafts complany planning. d. Board of Directors participates in meeting the company performance taregt. e. Board of Directors has done the operational and finance control towards the implementation of plan and company policy.

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f. Board of Directors manages the company in accordance to the applicable law and regulations and Company Articles of Association. g. Board of Directors has managed an added-value relationship for the Company and Stakeholders. h. Board of Directors monitors and manages the potential conflict of interest of Board of Directors members and management below it. i. Board of Directors ensures that the Company conducts informaiton transparency and communication according to the applicable law and regulations and deliver informaiton to Board of Commissioners and Shahreholders. j. Board of Directors organizes the Board of Directors meeting and attends the Board of Commissioners meeting according to the law and regulaitons. k. Board of Directors organizes qualified and effective internal supervision. l. Board of Directors organizes the function of qualified and effective Corporate Secretary. m.Board of Directors organizes GMS according to the law and regulations. Meanwhile, the conditions for the GCG implementation aspect of Directors that require attention and areas of improvement are: a. Non-existing provisions on the level of urgency to communicate the decisions of the Board of Directors to the level of the organization under the Board of Directors. b. Policies regarding the administration of the parent company and subsidiary (subsidiary governance) have not been issued and do not contain several provisions, among others: the mechanism of appointment of the Board of Commissioners and Board of Directors of subsidiaries, establishing performance targets and performance assessment systems and salary / honorarium of subsidiary companies, allowances and facilities for the Board Commissioners and Directors of subsidiaries. c. Policies related to the relationship with creditors do not provide further clarification regarding the fulfillment of obligations to creditors according to the agreement, the company’s guarantee to do or not do something to protect the interests of creditors and the existence of corporate policies as guarantor (avalist).

d. Decrease in employee satisfaction survey results compared to the previous year. e. Their concerns about bad debt related to the implementation of CSR programs that affect the rate of loan payment collectivity. f. Submission of a performance report to shareholders has not been fully complied with requirements. g. Provisions concerning the guidelines/rules existing Board of Directors Meeting in Board Manual do not completely regulate the ethics of the meeting and the implementation of follow-up evaluation of the previous meeting. h. The auditors in the Internal Audit Division are outnumbered to the workload and the current needs of the Company. i. Head of Internal Audit Division does not have the auditing profession certification. j. The Board of Directors Meeting does not include the meeting dynamics in the minutes to reflect the proceedings.

COMMITTEES According to regulations PER-12/MBU/2012 on the Board of Commissioners/Supervisory Board of StateOwned Enterprises supporting organ and in order to implement the provisions of Article 2 of Regulation Financial Services Authority No. 34/POJK.04/2014 on the NRC Public Company, in 2016, three Committees assist the Board of Commissioners, namely: 1. Audit Committee; 2. Risk Management Monitoring and Business Development Committee; 3. Nomination, Remuneration and Good Corporate Governance. In October 2016, GCG functions in the Nomination, Remuneration and Good Corporate Governance were removed. Further GCG functions are included in the Risk Management Monitoring and Business Development Committee.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

AUDIT COMMITTEE The Audit Committee of PT Perusahaan Gas Negara (Persero) Tbk. was formed by Bapepam Number: IX.I.5 on the Establishment and Implementation Guidance of the Audit Committee, which is Attachment of the Decision of the Chairman of Bapepam Number: Kep-29/PM/2004 dated 24 September 2004, as amended and became the Decision of the Chairman of Bapepam LK Attachment No. 643/BL/2012 dated December 7, 2012, in conjunction with Regulation of Bapepam No .: XK6 on Obligation to Submit Annual Report for Issuers or Public Company that is Attachment of the Decision of the Chairman of Bapepam Number: Kep-134 / BL / 2006 dated December 7, 2006, and the Rules of Indonesian Exchange (previously known as Bursa Efek Jakarta) No. IA regarding provisions on General Registration of Equity on the Stock (Annex II Decision of the Board of Directors of Jakarta Stock Exchange Number: Kep-305 / BEJ / 07-2004 dated 19 July 2004). Establishment of Audit Committee also refers to Law No. 19 of 2003 dated June 19, 2003 on SOE article 70 which states that the SOE Commissioners and the Boards of Trustees are required to establish the Audit Committee. Further rules regarding the Audit Committee contained in the Regulation of the State Minister for State Owned Enterprises Number Per-12 / MBU / 2012 on the BOC / Supervisory Board Supporting Organ of the State Owned Enterprises that changed from the Minister for State Owned Enterprises Number Per-10 / MBU / 2012 on BOC / Supervisory Board Supporting Organ of the State Owned Enterprises. The Decision of SOE Ministerial No. KEP-117 / M-MBU / 2002 on the Implementation of Good Corporate Governance in SOEs, there are also some of the provisions governing the Audit Committee, Ministry of Finance of the Republic of Indonesia Number: 88 / PMK.06 / 2015 on the Application of Rules Good Corporate governance At-Owned Company (Persero) Under Development and Supervision of the Ministry of Finance and the Financial Services Authority Regulation No. 55 / POJK.04 / 2015 on the Establishment and Implementation Guidance of the Audit Committee.

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Composition of Audit Committee Members of the Audit Committee throughout 2016 are as follows:

JANUARY 2016 – MARCH 2016 Chairman

:

Paiman Raharjo – Komisaris Independen

Member

:

M. Slamet Wibowo

Member

:

Yovita Lasti Handini

Member

:

Kurnia Sari Dewi

Member

:

Achmad Surya Abadi (sampai dengan 20 Maret 2016)

APRIL 2016 - JUNE 2016 Chairman

:

Paiman Raharjo – Komisaris Independen

Member

:

M. Slamet Wibowo

Member

:

Yovita Lasti Handini

Member

:

Kurnia Sari Dewi

Member

:

Moh. Nasir

JULY 2016 – SEPTEMBER 2016 Chairman

:

Paiman Raharjo – Komisaris Independen

Member

:

M. Slamet Wibowo

Member

:

Yovita Lasti Handini

Member

:

Kurnia Sari Dewi

OCTOBER 2016 – DECEMBER 2016 Chairman

:

Paiman Raharjo – Komisaris Independen

Member

:

Tirta Hidayat – Komisaris

Member

:

Luki Karunia

Member

:

Yovita Lasti Handini

Member

:

Kurnia Sari Dewi

AUDIT COMMITTEE TRAINING PROGRAM During 2016, the Audit Committee members did not attend training programs, workshops, conferences or seminar.

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Profiles of the Committee members

YOVITA LASTI HANDINI

PAIMAN RAHARJO

Member of the Audit Committee (since May 1st, 2015)

Chairman of the Audit Committee since April 6. 2016 until now. Indonesian, born in Klaten, Central Java on 15 June 1967. Received bachelor degree in Public Administration in 1994, Master degree in Financial Management in 1997 and Public Administration in 2003, and PhD in Public Administration in 2012 from the University of Padjadjaran in Bandung. His daily activities as Director of the Graduate Program at the University Prof. DR. Moestopo (Religion). Joined PT. PGN since April 6. 2015 as the Independent Commissioner, as well as Chairman of the Audit Committee.

Member of the Audit Committee since May 1, 2015. She worked as a consultant at CDR Consultants, Seattle, USA, and as a Project Engineer in Sherman Homes, Bellevue, USA. She currently works as the Superintendent at Bhakti Pembangunan Indonesia Foundation until now. She received Bachelor Degree on Construction Management from Colorado State University, and a Master Degree on Construction Management from University of Washington.

KURNIA SARI DEWI Member of the Audit Committee (Since June 1st, 2015)

Member of the Audit Committee since June 1, 2015. Received bachelor degree in 1991 from the Faculty of Agricultural Technology, Bogor Agricultural Institute, and master degree in Strategic Management International Studies, Prasetya Mulya Business School in in 2008. Worked as Head of Marketing and Finance in PT. PNM Venture Capital, PT. Orix Indonesia Finance, and as Finance & Operations Director at PT. Capitalinc Finance (member of Recapital Group) since 2012. Died on March 20, 2016.

He worked as an auditor at KAP Hans Tuanakotta Mustafa (Deloite Touche Tohmatsu) and KAP Tanubrata Sutanto Fahmi & Partners (BDO Indonesia). He once worked as Dept. Head of Internal Control and Evaluation Procedure at PT Metlife Sejahtera. Commissioner Amarta Technical Repair until 2009. Works as a lecturer at the Faculty of Economics, University Professor DR. Moestopo (Religion). She received bachelor degree in Accounting from Department of Economics, University of Brawijaya, Malang. Master degree in Master of Business Administration, University of Birmingham, UK and MSi in Public Administration, University Professor DR. Moestopo (Religion).

M. SLAMET WIBOWO

MOH. NASIR

ACHMAD SURYA ABADI Member of the Audit Committee (since June 1st, 2015)

Member of the Audit Committee (since April 1, 2007) Indonesian citizen, born in Jakarta on October 28, 1964. He worked as an accountant / consultant at the KPMG Hanadi Sudjendro firm, The Flagler Management Group and G. Fraley CPA. Working as lecturer in te Faculty of Economics, University of Indonesia since 1987. Last Education Diplôme Européen de 3ème Cycle Matis of La Conférence Universitaire de Suisse Occidentale et La Conférence Universitaire Rhône-Alpes and Diplôme d’Etudes Approfondies (DEA) of the Université Pierre Mendes - France Grenoble in field management of Information Systems and a Master of Business Administration from the University of Missouri Kansas City.

Member of the Audit Committee (since 1 April 2016) He worked as an auditor at KAP SIE & Co. Jakarta. Herman Juwono & Partners KAP, KAP Saso Mulyo. Besides, he also worked in accounting section at PT Golden Pig Farm and PT. Budi Darma. He was once a Professor at Faculty of Economics, University DR. Moestopo (Religion). He currently works as a supervisor at the Foundation University Prof. DR. Moestopo (Religion). He has a bachelor degree in management from the University of Prof. DR. Moestopo (Religion) and in accounting from University of Indonesia.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

LUKI KARUNIA Member of the Audit Committee (Since October 1st, 2016) He worked as an auditor at KAP Soeharto & Associates. He worked as a lecturer in the Graduate Program in University Prof. DR. Moestopo (Religion) and the Graduate Program in Institute of PERBANAS. As well as pursue in college undergraduate program such as the University of Bakrie, Indonesia Banking School (IBS) and IPMI. He has a bachelor degree in Accounting from Department of Economics, University of Udayana, followed by a degree in Accounting profession (Ak) of the University of Indonesia (UI). He has a Master in Finance from University of Hiroshima, Japan, and PhD from the Institut Pertanian Bogor (IPB) in the field of Development planning.

INDEPENDENCE OF AUDIT COMMITTEE Audit Committee is chaired by Independent Commissioners, one of whom shall be member of the Board of Commissioners and three professional members from outside the Company. It has fulfilled the provisions of the Decision of the Chairman of the Capital Market Supervisory Agency Number Kep-29 / PM / 2004 on the Establishment and Implementation Guidance of the Audit Committee as amended and became the Chairman of Bapepam LK Annex Decision No. 643 / BL / 2012. The Audit Committee carries out its duties and responsibilities in a professional and independent manner.

TASKS AND RESPONSIBILITIES OF THE AUDIT Tasks and Responsibilities of the Audit Committee as stated in the Charter of the Audit Committee of PT Perusahaan Gas Negara (Persero) Tbk stipulated by the Decree of the President Commissioner of PT Perusahaan Gas Negara (Persero) Tbk No: 002/11 / KOM-1/2004 dated March 30, 2004, as amended by the decision of the Board of Commissioners No. Kep-003 / D-KOM / 2009 dated December 15, 2009, which was amended by Decision of the Board of Commissioners No. Kep-010 / D-KOM / 2013 on 14 November 2013 was to give opinions to the Board of Commissioners on reports or matters submitted by the Board of Directors to the Board, to identify issues that require the attention of the Board of

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Commissioners, and carry out other tasks relating to the duties of the Board of Commissioners, among others: • Reviewing the financial information that will be issued by the company such as financial reports, projections, as well as the Long-Term Plan, Work Plan and Budget, management reports and other information; • To review the companies’ compliance with legislation in the field of capital market and legislation related to company activities; • Providing independent opinion in the event of disagreements between management and accounting for services being rendered; • To review the system of internal control by the internal Audit Division , includes to ensure the effectiveness of internal control systems and the effectiveness of the implementation of the tasks and assess the implementation of the activities and the results of audits being performed; • Reviewing, selection and nomination of Certified Public Accountants, including independence and the members on the appointment of a Public Accountant to the Board; • To review the implementation of audit by external auditors including to ensure the effectiveness of internal control systems and the effectiveness of the implementation and assess the implementation of activities and results of the audit conducted in accordance with the applicable standards; • To report to the Board of Commissioners of the various risks faced by the company and the implementation of risk management by the Board of Directors; • To review and report to the Board of Commissioners on complaints relating to the company; • Maintain confidentiality of documents, data and information enterprise; • Provide recommendations regarding the improvement of the management control system and its implementation to the Board; • To ensure the satisfactory review procedures for any information issued by the company; • Reviewing and providing advice to the Board in relation to the potential conflict of interest.

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Audit Committee’s Authority • Full, free and unlimited access to records, employees, funds, assets and other resources related to their duties; • Communicate directly with the employees, including the Board of Directors and the parties running the function of internal audit, risk management and accounting related to the duties and responsibilities of audit committee: • Involve an independent outside audit committee required to assist the implementation of duties (if required); • Perform other authority granted by the Board of Commissioners; • Must cooperate with the Internal audit Division (IAD), among others: • Coordinate the preparation of work plans an annual audit and the audit. • Meetings with the IAD whenever necessary to discuss significant issues, and still within the framework of the tasks and functions of the Commissioner under the legislation in force. • If necessary, with BOC approval and accompanied by the IAD to conduct a review and discussion at the Unit or Work Unit as needed for the deepening of the specific necessary findings. • Able to obtain evidence provides reasonable assurance of the nature, scope, scale and impact of the weaknesses or significant change of control internal as well as the impact on the financial statements. • Based on the approval of the Board of Commissioners, it may request another view from outside parties to help provide technical guidance and other fees on the company. Implementation of Audit Committee Activities in 2016, the Audit Committee has been conducting in order to implement the task of the committee, among other things: • Perform Limited Review of the Consolidated Financial Statements of PT. PGN (Persero) Tbk per March 30, 2016, June 30, 2016, September 30, 2016.

• Coordination with KAP PWC on Discussion Progress Review of Financial Statements First Half Year 2016 • Discussion Audit Report CP 9 Muara Karang, Muara Bekasi, Pipeline Project (Continued). • Perform coordination with the Internal Audit Division (IAD). • Conduct discussions with management about certain things. • Make periodic reports on the implementation of the tasks of the Audit Committee. • To perform other tasks and follow up on disposition given by the Board of Commissioners. • Conduct Working visit to PGN in Batam Area. Results of analyzes, studies, suggestions and recommendations of the Audit Committee related to the execution of duties, powers and responsibilities have been communicated and submitted to the Board of Commissioners to gain attention Audit Committee meeting frequency Based on Bapepam-LK No. IX.I.5 on the Establishment and Guidelines for the implementation of the Audit Committee referred to in the Charter of the Audit Committee, stated that the meeting of the Audit Committee shall carry out at least once within 1 (one) month. During period of 2016, the Committee held 34 (Thirty-four) meetings and three (3) Visits into operational areas of the Company, the level of attendance as follows:

Committee Audit Attendance List Name

Percentage of Attendance *)

Paiman Raharjo

100%

Slamet Wibowo

80%

Yovita Lasti Handini

94%

Kurnia Sari Dewi

100%

Achmad Surya Abadi

27%(Died on March 20, 2016)

Moh. Nasir

100%

Luki Karunia

100%

*) Proportion in accordance with the number of meetings held on each tenure

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

NOMINATION, REMUNERATION AND GOOD CORPORATE GOVERNANCE COMMITEE On 2015, the Nomination and Remuneration Committee was established pursuant to Decree of PT Perusahaan Gas Negara Board of Commissioners with the change of the composition and the name of the period as follows: 1. the Nomination and Remuneration Committee was established by Decree of the Board of Commissioners of PT Perusahaan Gas Negara No. Kep-01 / D-KOM / 2015 dated 29 Januari2015. Decision of the Board of Commissioners regarding Remuneration Team was only valid until 6 April 2015 to coincide with the change of the composition of the Board of Commissioners at the time was held in 2015, then NRC was vacuum and Kep-01 / D-KOM / 2015 was replaced by Decree new about change of name of the committee and arrangement of members. 2. Nomination, Remuneration and GCG established by Decree of the Board of Commissioners of PT Perusahaan Gas Negara No. Kep-16 / D-KOM / 2015 dated November 5, 2015. The Nomination, Remuneration and GCG was formed to assist the Board in monitoring, continuous supervision and make recommendations for the implementation of the governance and nominating and remuneration at the top management level in company. 3. Based on the Minutes of the Board Meeting on 20 September 2016, starting October 1, 2016 the Nomination, Remuneration and GCG was dissolved, while the GCG functions transferred and added to one of the activities to the Monitoring Risk Management and Business Development Committee. 4. The Nomination and Remuneration Committee remain to be implemented by the Board of Commissioners in accordance with the Decree of the Board of Commissioners No. Kep-12 / D-KOM / 2016 dated October 31 2016. Nomination, Remuneration and GCG Committee Composition Below is the Membership Composition of the Nomination, Remuneration and GCG Committee:

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1 January 2016 - 8 April 2016

Chairman and member: Iman Sugema/ Chief/Independent Commissioner Secretary:

Member:

Thohir Nur Ilhami/ Secretary to Board of Commissioner

1. Tirta Hidayat 2. Mohamad Ikhsan 3. Paiman Raharjo 4. IGN Wiratmaja Puja 5. Yudho Prabowo 6. Bambang Wahyudi

8 April 2016 - 31 Desember 2016

Chairman and member: Kiswodarmawan/Independent Commissioner Secretary:

Member:

Thohir Nur Ilhami/ Secretary to Board of Commissioner 1. Fajar Harry Sampurno 2. Tirta Hidayat 3. Mohamad Ikhsan 4. Paiman Raharjo 5. IGN Wiratmaja Puja 6. Yudho Prabowo (until 30 September 2016) 7. Bambang Wahyudi (until 30 September 2016)

Training Program for Members of The Nomination, Remuneration and GCG Committee During 2016, members of the Nomination, Remuneration and GCG Committee did not attend any training programs, workshops, conferences and seminar. Profiles of Members of Nomination, Remuneration, and GCG Committee

IMAN SUGEMA Chairman of Nomination, Remuneration and GCG Committee (from November 5th 2015) An Indonesian citizen, born in Kuningan on 2 May 1964. He has a Bachelor Degree in Agribusiness from Bogor Agricultural Institute (IPB), Master of Economics from the University of New England and a Ph.D. Economy of the Australian National University. Recent work experience as Executive Chairman of EC-Think Indonesia (Economics Think Tank), Corp. until now.

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TIRTA HIDAYAT

IGN WIRATMAJA PUJA

Member of Nomination, Remuneration and GCG Committee (from November 5th 2015)

Member of Nomination, Remuneration and GCG Committee (since Nov. 5 2015 )

An Indonesian citizen, born in Banda Aceh, 9 March 1959. He has a Bachelor Degree in Economics from the University of Indonesia, masters and Doctorate in Regional Economy from Cornell University. Recent work experience was as a Deputy for Economic Affairs Vice Presidential Secretariat until now. Joined the company as the Commissioner based on the decision of Annual General Meeting 2015 on April 6 2015.

An Indonesian citizen, born December 21, 1963. Bachelor of Engineering Engineering from Institut Teknologi Bandung (ITB), Master’s and Ph.D. Mechanical Engineering of the University of Kentucky, USA His work experience most recently was as Director General of Oil and Gas, Ministry of Energy and Mineral Resources, up to now. Joined the company as the Commissioner based on the decision of Annual General Meeting 2015 on April 6 2015.

MOHAMAD IKHSAN Member of Nomination, Remuneration and GCG Committee (since Nov. 5 2015 ) Indonesian citizen, born in Sigli, November 7, 1964. He has a Bachelor Degree in Economics from the University of Indonesia, Master of Economics from Vanderbilt University and a Ph.D. Economics from Illinois University. His recent work experience was as an advisor to the Vice President of the Republic of Indonesia until now. Joining the PGN Commissioner based on the Decisions of Annual General Meeting 2015 on April 6, 2015.

PAIMAN RAHARJO Member of Nomination, Remuneration and GCG Committee (since Nov. 5 2015 ) Indonesian citizens. Born in Klaten, Central Java, on June 15, 1967. He has a Bachelor Degree in Public Administration 1994, Master degree in Financial Management in1997 and Public Administration in 2003, and PhD in Public Administration in 2012 at the University of Padjadjaran in Bandung. Daily activities as Director of the Graduate Program at the University Prof. DR. Moestopo (Religion). He joined PT. PGN since April 6, 2015 as the Independent Commissioner, as well as a Chairman of Audit Committee.

KISWODARMAWAN Chairman and Member of Nomination, Remuneration and GCG Committee (since April 8 2016) Indonesian citizen, born in Surabaya, December 28, 1957. Bachelor degree in Civil Engineering Technology Surabaya Institute. His recent work experience as Director of Adhi Karya (Persero) Tbk until April 8, 2016. The legal basis for the appointment of the first time as PGN Commissioner was the Decision 2015 in Annual General Meeting on 6 April 2015.

FAJAR HARRY SAMPURNO Member of Nomination, Remuneration and GCG Committee (since April 8, 2016) Indonesian citizen, born in Blitar 18 April 1966. Bachelor degree from the Universitas Brawijaya, Master of Technology Management from Monash University and Doctorate Strategic industries from the University of Iowa. His recent work experience was as a Deputy for Mining, Strategic Industry and Media, Ministry of SOEs until now. Joined the company as Chief Commissioner by Decision of the Annual General Meeting on 8 April 2016 2016.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

YUDHO PRABOWO Member of Nomination, Remuneration and GCG Committee (Since October 1st 2015) Indonesian citizen, born in Malang on 9 December 1977 and member of the Nomination, Remuneration and GCG Committee since October 1, 2015. BA in Accounting from the University of Indonesia in 2001, holds a Master of Accounting from the University of Indonesia in 2009. Currently a lecturer at Maksi ABFII Perbanas (2014-present). Doctoral Candidate in Public Policy Administration Science Faculty of Administrative Sciences, University of Indonesia (2013-present).

BAMBANG WAHYUDI Member of Nomination, Remuneration and GCG Committee (since January 1, 2016) Indonesian citizen, born in Purworejo on 2 July 1961 and member of the Nomination, Remuneration and GCG from 1 January 2016. Bachelor Degree in Community Development and Extra School training from IKIP Jakarta in 1986, Master degree in human Resource Management from the University Bayangkara in 2004, holds a Master of Criminology Division of Social and Political Science, University of Indonesia in 2005, and obtained his PhD in Sociology from the University of Indonesia in 2009. He was a lecturer at Defence University. Nomination, Remuneration, and GCG Committee Independency Nomination, Remuneration and GCG Committee conducts its duties and responsibilities professionally and independently, without interference from any party that does not comply with law. Nomination, Remuneration, and GCG Committee Tasks and Responsibilities • Prepare the materials needed for the preparation of the remuneration policy for the Board of Directors and Board of Commissioners of PT Perusahaan Gas Negara (Persero) Tbk;

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• Propose the remuneration of Directors and Board of Commissioners of PT Perusahaan Gas (Persero) Tbk, which include: salaries / honorarium; facilities; royalty; • Ensure the implementation of the compensation and remuneration of the Board of Directors and Board of Commissioners of PT Perusahaan Gas Negara (Persero) Tbk has been in accordance with the applicable regulations; • Conduct the selection of prospective Directors of PT Perusahaan Gas Negara (Persero) Tbk; • Reviewing compliance with laws and regulations prevailing in the company; • To review the application of the principles of good corporate governance and ethical standards in the company; • To evaluate the committees under the Board of Commissioners Nomination, Remuneration, and GCG Committee Authorities • Access to records or information the company related the performance of its duties with the approval of the Board of Commissioners. • In exercising its authority, it can work together with related work units, and can make use of competent and independent experts funded by the company. • Access to documents, data, and information about the company employees, funds, assets and resources of the company are required relating to work performance; • In exercising its authority, it can work together and communicate directly with business partners among: organs supporting the BOC (Monitoring Committee Risk Management and Business Development, Audit Committee, Secretary of the Board of Commissioners, and team-related at the level of management or related work units; • When required, it can hire experts and / or consultants / assessors / independent parties outside-NR GCG Committee members and can form an ad-hoc team, with criteria and assignment periods adapted to the needs and the type of work.

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Nomination, Remuneration, and GCG Duties Based on the Decree of the Board of Commissioners Number: Kep-01 / D-KOM / 2015 dated January 29, 2015 which has been repealed and replaced by Number: Kep-16 / D-KOM / 2015 dated November 5, 2015 , the Nomination, remuneration and GCG for 2016 has been carrying out the following tasks: • Propose Independent Consultant to conduct a study of remuneration for the members of the Board of Directors and Board of Commissioners; • Discussing the results of the study Independent Consultant “PT Towers Watson” on the remuneration for the members of the Board of Directors and Board of Commissioners; • Delivering the proposed remuneration for the members of the Board of Directors and Board of Commissioners to the Board of Commissioners; • Joint Board of Commissioners discussed the remuneration of the members of the Board of Directors and the Board of Commissioners as the basis of a proposal to the minister as the Shareholders of Series A Dwiwarna; • Doing the selection of Prospective Directors of PT PGN (Persero) Tbk; • Drafting Committee Work Program 2016; • Prepare final report of the committee in 2015; • Draft charter of the Nomination, Remuneration and GCG; • Proposing the establishment of the Division of GCG under separate management from the Division of Risk Management GCG (RMG); • Develop Mapping on GCG PT PGN (Persero) Tbk; • Discuss Pending Issues in GCG PT PGN (Persero) Tbk; • Discuss Revised Board Manual of PT PGN (Persero) Tbk; • Discuss Structuring the Implementation and Monitoring of GCG PT PGN (Persero) Tbk; • Discuss Agenda Plan and realization of GCG; Nomination, Remuneration, and GCG Meeting Frequency During 2016 , the Nomination, Remuneration and GCG had (9) meetings with the attendance as follows: Name

Percentage of Attendance

Kiswodarmawan

100%

Fajar Harry Sampurno

100%

Iman Sugema

100%

Tirta Hidayat

100%

Mohamad Ikhsan

100%z

Paiman Raharjo

100%

IGN Wiratmaja Puja

100%

Yudho Prabowo

100%

Bambang Wahyudi

55%

*)proportion in accordance with the number of meetings held on each tenure

The implementation of the Nomination, Remuneration, and GCG refers to Financial Services Authority Guidelines 21 / POJK.04 / 2015 on Implementation Guidelines for Open Corporate Governance and SE FSA No. 32 / SEOJK.04 / 2015 of the Code of Corporate Governance.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

DIRECTOR SUCCESSION POLICY Based on the Articles of Association (Deed No. 23 dated April 6, 2015), the members of the Board of Directors are appointed and dismissed by the General Meeting of Shareholders (AGM), where GMS must be attended and the decision is approved by the shareholders of Series A Dwiwarna. The appointment of the members of the Board of Directors by the AGM is taken from the candidates nominated by the shareholders of Series A Dwiwarna. PER-03 / MBU / 02/2015 regarding Requirements, Procedure for Appointment and Dismissal of Directors of State Owned Enterprises, the source of candidates for the Board of Directors come from: 1. Directors of state enterprises; 2. BOC / SOE Supervisory Board; 3. SOE talents proposed by the Board of Commissioners, consisting of: a. Officials one level below the Board of Directors or officers who have special achievement; b. Directors of subsidiaries of SOEs / SOE jointventure company; 4. Talents from Ministry of SOEs; 5. Another source comprising: a. Officials of othe SOE b. Other source. The candidates w be designated a candidate member of the Board of Directors must meet the formal requirements and other requirements set forth in the PER-03 / MBU / 02/2015 mentioned above and has passed the feasibility and Proper Test conducted by professional institutions. Candidates who will be proposed at the AGM were evaluated by a team established by the Minister of SOEs involving Commissioner or Chairman of the Nomination Committee of the Board of Commissioner. AGM can dismiss Directors members who no longer qualify as a member of the Board of Directors, among other things if those concerned take action detrimental to the Company or any other cause that is considered appropriate by the AGM. Dismissal decision was taken after the subject was given the opportunity to defend themselves, except if the subject has no objection to the dismissal.

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A Board member is entitled to resign by giving written notification to the Company, the Board and other Board members, who followed by the implementation of the GMS term within 60 (sixty) days after the receipt of the resignation. The resigning director member remains held accountable since the appointment up to the approval of the resignation.

RISK MANAGEMENT AND BUSINESS DEVELOPMENT COMMITTEE Risk Management Monitoring and Business Development Committee was established pursuant to Regulation of the State Minister for State Owned Enterprises No. PER-01 / MBU / 2011 on Implementation of Good Corporate Governance (GCG) in State Owned Enterprises and No. PER-12 / MBU / 2012 on Support Organ of BOC / Supervisory Board of the State Owned Enterprises. Formation of Risk Management Monitoring and Business Development Committee was intended to assist the Board in conducting regular monitoring and provide recommendations on policy and implementation of risk management as well as planning and development efforts. Risk Management Monitoring and Business Development Committee Composition The composition is as follows:

COMMITTEE MEMBERS LEVEL OF ATTENDANCE 1 JANUARI - 30 APRIL 2016 Frequency of Attendance

% Attendance

Mohamad Ikhsan

6 times

100%

M. Arsyad Rangkuti

5 times

83,4%

Wahyu Wijayadi

6 times

100%

Hari Kustoro

6 times

100%

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COMMITTEE MEMBERS LEVEL OF ATTENDANCE 1 MEI - 30 JUNI 2016 Frequency of Attendance

% Attendance

Mohamad Ikhsan

4 times

100%

Wahyu Wijayadi

4 times

100%

COMMITTEE MEMBERS LEVEL OF ATTENDANCE 1 JULI - 30 SEPTEMBER 2016 Frequency of Attendance

% Attendance

Mohamad Ikhsan

7 times

100%

Wahyu Wijayadi

7 times

100%

Irwan Tascha

7 times

100%

Strasfiatri Auliana

7 times

100%

COMMITTEE MEMBERS LEVEL OF ATTENDANCE 1 NOVEMBER - 31 DESEMBER 2016 Frequency of Attendance

% Attendance

Mohamad Ikhsan

4 times

80%

Kiswodarmawan

4 times

80%

Wahyu Wijayadi

5 times

100%

Irwan Tascha

5 times

100%

Strasfiatri Auliana

5 times

100%

Training Program for Risk Management Monitoring and Business Development Committee During 2016, members of the Risk Management Monitoring & Business Development Committee attended a number of seminars, among others:

TRAINING PROGRAM FOR RISK MANAGEMENT MONITORING AND BUSINESS DEVELOPMENT COMMITTEE Name

Position

Date

Destination

Description

Wahyu Wijayadi

Member

24 November 2016

Singapura

9th Annual Energy Risk Asia Summit 2016

Strasfiatri Auliana

Member

24 November 2016

Singapura

9th Annual Energy Risk Asia Summit 2016

Members of Risk Management Monitoring and Business Development Committee Profiles

MOHAMAD IKHSAN Chairman of Risk Management Monitoring and Business Development Committee (Since 15 April 2015 up to now) Indonesian citizen, born in Sigli on November 7, 1964. Bachelor of Economics from the University of Indonesia, Master of Economics from Vanderbilt University and a Ph.D in economics from Illinois University. The legal basis for the appointment as PGN Commissioner was the Decision 2015 Annual General Meeting on April 6, 2015. Previously served as Advisor to the Vice President since 2009 and has worked as the Head of Team Assistant Minister for Economic Affairs.

KISWODARMAWAN Member of Risk Management and Business Development Monitoring Committee (Since 01 November 2016) An Indonesian citizen, born in Surabaya on 28 December 1957. He has educational background of Civil Engineering degree from Sepuluh Nopember Institute of Technology (ITS). His recent work experience was as President Director of Adhi Karya (Persero) Tbk up until 08 April 2016. The legal base for his first appointment as Commissioner of PGN was the Joint Decree with the liability company as an Independent Commissioner based on the Decision of Annual General Meeting of Shareholders (GMS) in 2016, dated 8 April 2016.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

WAHYU WIJAYADI Member of Risk Management and Business Development Monitoring Committee (Since 14 June 2012)

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ARSYAD RANGKUTI Member of Risk Management and Business Development Monitoring Committee (Since 14 June 2012)

An Indonesian citizen, born in Tulungagung on 27 April 1957. He served as Member of Risk Management and Business Development Monitoring Committee since 14 June 2012. He graduated with Electrical Engineering degree from Bandung Institute of Technology (ITB) in 1982 and earned his MBA title from Indonesian Institute for Management Development (IPMI) in 1989. He worked as the Director of PT Elang Mahkota Teknologi since 2009, as Corporate Service Director for PT Indosat in 2007 and also as Marketing Director of PT Indosat in 2006.

An Indonesian citizen, born in South Tapanuli on 7 November 1955. He served as Member of Risk Management and Business Development Monitoring Committee since 14 June 2012. He graduated with Mechanical Engineering degree from University of North Sumatera, Medan in 1983 and obtained his M.Sc. degree from University of Salford, England in 1994. He previously served as President Director of PT Transportasi Gas Indonesia during 2010-2013 and worked as Head of Operational Division of PT Perusahaan Gas Negara (Persero) Tbk during 2008 – 2010.

IRWAN TASCHA

HARI KUSTORO

Member of Risk Management and Business Development Monitoring Committee (Since 01 August 2016) An Indonesian citizen, born in Bukittinggi on 14 July 1957. He served as Member of Risk Management and Business Development Monitoring Committee since 01 August 2016. He graduated with Business Economics degree from Universitas Andalas Padang in 1983. He worked as the Head of Risk Management Division for PGN in 2011, previously worked as Director of Finance and Administration; and later as President Director of PT. Transportasi Gas Indonesia during 2002-2010.

STRASFIATRI AULIANA Anggota Risk Management and Business Development Monitoring Committee (Since 01 August 2016) An Indonesian citizen, born in Sydney, Australia on 28 November 1961. She served as Member of Risk Management and Business Development Monitoring Committee since 1 August 2016. She graduated with Electrical Engineering degree from ITB in 1986. She worked as Director of Corporate Services and Regional Cooperation of Indosat Employees since 2014, previously as Group Head Corporate Secretary for PT Indosat Tbk during 20062014 and as Group Head Risk Management for PT Indosat Tbk during 2009-2012.

Member of Risk Management and Business Development Monitoring Committee (Since 2013) An Indonesian citizen born in Pontianak on 5 September 1953. He served as Member of Risk Management and Business Development Monitoring Committee since 2013. He graduated with Petroleum Engineering degree from ITB in 1978 and obtained his Bachelor of Economics degree from Universitas Indonesia in 1986. He previously served as Upstream Director of PT Pertamina (Persero) during 20042006 and worked as Chief Commissioner and Commissioner of PT ELNUSA Tbk during 2004-2010 also as Commissioner of PT Pertamina EP. Independency of Risk Management and Business Development Monitoring Committee Risk Management and Business Development Monitoring Committee is chaired by a Commissioner with members comprised of 1 (one) member of Independent Commissioner and 3 (three) members qualified for professionality and came from outside of PT Perusahaan Gas Negara (Persero) Tbk. Risk Management and Business Development Monitoring Committee engaged their tasks and responsibilities professionally and independently.

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Tasks and Responsibilities of Risk Management and Business Development Monitoring Committee Tasks and Responsibilities of Risk Management and Business Development Monitoring Committee as stated in the Charter of Risk Management and Business Development Monitoring Committee of PT Perusahaan Gas Negara (Persero) Tbk as determined by the Board of Commissioners on 15 August 2012, last amended by Decree of the Board of Commissioners of PT Perusahaan Gas Negara (Persero) Tbk No: Kep-02/D-KOM/2015 dated 9 March 2015 were to provide opinion towards the Board of Commissioners regarding reports or issues conveyed by the Board of Directors towards the Board of Commissioners, identifying issues requiring the attention of the Board of Commissioners, and implementing other tasks related with the duty of the Board of Commissioners, namely: Risk Management • Understanding the Company Risk Management, which covered the Company Risk Management System, Strategic Risk Potential and Risk Management Policy; • Monitoring the effectiveness and evaluation of the utilized Risk Management system, and providing further enhancement; • Monitoring the risk potential encountered by the Company and the implementation of the mitigation; • Monitoring the conformity of the Company’s Risk Management policy and implementation; • Examining the sufficiency of the Company’s insurance scope; • Encouraging the growth of strong risk awareness culture in the Company through the Risk Management Division; • Preparing Annual Work Plan and Budget. Business Development • Assisting the Board of Commissioner in evaluating the Company’s business development/expansion plan; • Assisting the Board of Commissioner in monitoring the realization of the Company’s business plan.

Authority of Risk Management and Business Development Monitoring Committee • Accessing data, record of information of the Company related to their tasks implementation as approved by the Board of Commissioners; • In implementing their authority, the Committee may cooperate with the concerned work unit(s) and they are obliged to keep the confidentiality of the documents, data and information of the Company either from internal or external party, and it will only be utilized for the interests of performing their tasks. Tasks and Activities Implementation of Risk Management and Business Development Monitoring Committee During 2016 Fiscal Year, Risk Management and Business Development Monitoring Committee has conducted the following activities in regards of Committee tasks implementation: • Preparing Committee 2016 Work Program; • Discussing Quarterly Corporate Risk Profile, namely Quarter 4 of 2015 and Quarter 1 , Quarter 2 and Quarter 3 of 2016 period • Discussing Proposal of PGN Subsidiaries Short Term Loan Restructuration for PT. PGASCom • Discussing Proposal of PGN Subsidiaries Short Term Loan Restructuration for PT.Gagas Energi Indonesia • Discussing Approval Request for Establishment of Infrastructure and Capital Improvement Subsidiary at PT. Kalimantan Jawa Gas • Discussing Draft of RKAP 2016 Revision • Conducting meeting with Chairman of Facts Global Energy,Dr. Fereidun Fesharaki • Discussing Current Achievement of the Work Program of Directorate of Commerce and Estimation of 2016 Year End. • Discussing Status and Fulfilment of Gas Supply up to 2016 Year End, and 2017 Gas Fulfilment Plan • Conducting regular evaluation on the Work Progress of Risk Management and Business Development Monitoring Committee. • Conducting Working Visit to Surabaya region PGN • Conducting Working Visit to PT Kalimantan Jawa Gas (KJG) and Semarang region PGN

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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• Attending the 9th Annual Energy Risk Asia Summit 2016 in Singapore • Preparing the Committee Year End Report for 2016 Fiscal Year Risk Management and Business Development Monitoring Committee Meeting Frequency During 2016, Risk Management and Business Development Monitoring Committee has conducted 22 (twenty two) meetings and 3 (three) working visits to the Company’s operational regions with the following attendance level:

COMMITTEE MEMBERS ATTENDANCE LIST 1 JANUARY - 30 APRIL 2016 Frequency of Attendance

% Attendance

Mohamad Ikhsan

6 times

100%

M, Arsyad Rangkuti

6 times

83.4%

Wahyu Wijayadi

6 times

100%

Hari Kustoro

6 times

100%

COMMITTEE MEMBERS ATTENDANCE LIST 1 MAY - 30 JUNE 2016 Frequency of Attendance

% Attendance

Mohamad Ikhsan

4 times

100%

Wahyu Wijayadi

4 Kali

100%

COMMITTEE MEMBERS ATTENDANCE LIST 1 JULY - 30 SEPTEMBER 2016 Frequency of Attendance

% Attendance

Mohamad Ikhsan

7 times

100%

Wahyu Wijayadi

7 times

100%

Irwan Tascha

7 times

100%

Strasfiatri Auliana

7 times

100%

COMMITTEE MEMBERS ATTENDANCE LIST 1 NOVEMBER - 31 DECEMBER 2016 Frequency of Attendance

% Attendance

Mohamad Ikhsan

4 times

80%

Kiswodarmawan

4 times

80%

Wahyu Wijayadi

5 times

100%

Irwan Tascha

5 times

100%

Strasfiatri Auliana

5 times

100%

*) The proportion is in accordance with the number of meetings organized during their respective tenure.

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BOARD OF COMMISSIONERS SECRETARY APPOINTMENT LEGAL BASIS OF AND SERVICE PERIOD

Secretary of the Board of Commissioners of PGN was appointed based on the Decree of the Board of Commissioners of PT Perusahaan Gas Negara (Persero) Tbk Number Kep-022/D-KOM/2015 regarding Appointment of Mr. Thohir Nur Ilhami as the Secretary of the Board of Commissioners of PT Perusahaan Gas Negara (Persero) Tbk. In accordance with the Decree of the Board of Commissioners Number Kep-022/D-KOM/2015 above, Thohir Nur Ilhami took the office as Secretary of the Board of Commissioners of PGN started from 1 January 2016 until 30 December 2018. Based on the Regulation of the Minister of State Owned Enterprises (SOE) Number: PER-12/ MBU/2012 regarding Supporting Organ of Board of Commissioners/Supervisory Board of SOE, the Secretary of the Board of Commissioners must comprehend the SOE’s system of management, monitoring and development, have good integrity, comprehend the secretarial function and have good communicating and coordinating skills. The Profile of the Secretary to Board of Commissioner has been disclosed in the Company Profile Section

TASKS OF SECRETARY OF THE BOARD OF COMMISSIONERS

Secretary of the Board of Commissioners held the responsibility to conduct activities in supporting the Board of Commissioners in performing their tasks as follows: • Preparing meetings, including the briefing sheet of the Board of Commissioners; • Preparing minutes of the Board of Commissioners’ meetings in accordance with the Company’s articles of association; • Administrating the documents of the Board of Commissioners, either incoming mails, outgoing mails, minutes of meetings or any other documents; • Preparing Work and Budget Plan of the Board; • Preparing the Board of Commissioners’ reports; • Ensuring the Board of Commissioners complied the prevailing regulations and implementing GCG principles

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CORPORATE SECRETARY APPOINTMENT LEGAL BASIS AND SERVICE PERIOD The appointment of Corporate Secretary was conducted in regards of meeting the Regulation of Financial Services Authority (OJK) Number: 35/ POJK.04/2014 regarding Secretary of Issuer Company or Public Company and Regulation of State Minister of SOE Number: PER-01/MBUI/2001 regarding Implementation of Good Corporate Governance in SOE. The appointment of Corporate Secretary which currently is still in his term of office has been conducted in 2011 by the Decision of the Board of Directors of PT Perusahaan Gas Negara (Persero) Tbk Number: 020300.K/KP.03.00/UT/2011 dated 29 November 2011. The appointment of said Corporate Secretary has been submitted to BapepamLK (Capital Market and Financial Institutions Supervisory Agency) by letter Number 000100.S/ KP.02/UT/2011 dated 1 December 2011.

FUNCTIONS AND RESPONSIBILITIES OF CORPORATE SECRETARY Based on the Decree of the Board of Directors No 017600.K/OT.00/PDO/2016 dated 1 December 2016, Corporate Secretary had the following functions and responsibilities: 1. Assisting the Board of Directors and Board of Commissioners in the implementation of Corporate Governance, consisted of: a. Information disclosure towards public, including the availability of information on the Corporate’s Website (for the implementation, Corporate Secretary will be authorized to submit data and/or information towards the third party, including regulator, in accordance with the prevailing provisions and regulations); b. Timely report submission towards OJK; c. Organizing and documenting General Meeting of Shareholders; d. Organizing and documenting Board of Directors’ meetings and/or Board of Directors’ joint meetings, which invited the Board of Commissioners;

e. Coordinating the implementation of documenting Board of Commissioners’ meetings and/or Board of Commissioners’ joint meetings, which invited the Board of Directors, with Secretary of Board of Commissioners and/or Secretariat Staff of the Board of Commissioners; and f. Implementation of Corporate orientation program for Board of Directors and/or Board of Commissioners. 2. Being the link between the Corporate and the shareholders, OJK and other stakeholders; 3. Providing input to the Board of Directors and Board of Commissioners to comply with the regulatory provisions in Capital Market field, also following the development of Capital Market, particularly the regulations in Capital Market field; 4. Coordinating administrative activities (among others: payment governance; RKAP realization report; personnel administration: business trip, leave submission, disciplinary violation, training proposal, etc.) for Strategic Management and Transformation, Risk Management and GCG, HSSE. Corporate Secretary supervised: • Legal; • Government Relations; • Corporate Communication; • Corporate Support and Services.

CORPORATE SECRETARY 2016 TASKS IMPLEMENTATION Some activities concerning the stakeholders have been conducted by the Corporate Secretary during 2016, among others: 1. Organizing Annual General Meeting of Shareholders; 2. Establishing communications with the Ministry of SOE, Ministry of Energy and Mineral Resources, State Secretariat, BPH Migas, OJK, Self Regulatory Organization (BEI), KSEI, ICAMEL, BAE, and other related institutions; 3. Coordinating Hearing Meeting (RDP) with People’s Representative Council (DPR) Commissions regarding business visit with stakeholders;

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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4. Attending every Meeting of Board of Commissioners and Meeting of Board of Directors, also administrating the Minutes of Meetings of Board of Commissioners and Meetings of Board of Directors; 5. Managing information disclosure towards public, including availability of information on the Corporate’s Website; 6. Ensuring the 2016 Annual Report was prepared and delivered to public and related Regulator Authority.

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CORPORATE SECRETARY PROFILE Started from 1 December 2011, Corporate Secretary has been chaired by Heri Yusup based on the Decree of the Board of Directors of PT Perusahaan Gas Negara (Persero) Tbk Number: 020300.K/KP.03.00/UT/2011 dated 29 November 2011. The appointment of said Corporate Secretary has been submitted to BapepamLK by letter Nomor 000100.S/KP.02/UT/2011 dated 1 December 2011. The Profile of Corporate Secretary has been disclosed in the Company Profile Section

CORPORATE SECRETARY TRAINING PROGRAM No.

Date

Event

Location

Organizer

1

15 November 2016

Workshop of Asean Corporate Governance Scorecard

Hotel Borobudur Jakarta

Financial Services Authority (OJK)

2

December 2016

Dissemination of Tax Amnesty

PGN Manhattan Office

HCM Division

INFORMATION DISCLOSURE To meet the obligatory information disclosure to public, Corporate Secretary together with Investor Relation Unit always reported to the OJK and Indonesia Stock Exchange as capital market authorities.

INTERNAL AUDIT DIVISION Internal audit Function in PT PGN (Persero) Tbk was conducted by Internal Audit Division, led by a Division Head, Internal Audit and directly accountable towards the President Director. The Audit Result will be reported by Audit Result Report (LHA) which delivered to the President Director and the Board of Commissioners simultaneously.

PROFILE OF INTERNAL AUDIT DIVISION HEAD Appointment of Internal Audit Division Head was conducted by the Board of Directors and currently being chaired by Pramono Harjanto, who was appointed since 7 February 2013 based on the Decree of the Board of Directors of PT Perusahaan Gas Negara (Persero) Tbk Number: 001600.K/HK.00.01/UT/2013 dated 23 January 2013. The Profile of Internal Audit Division Head has been disclosed in the Company Profile Section

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APPOINTMENT AND DISMISSAL OF INTERNAL AUDIT DIVISION HEAD Internal Audit Division Head was appointed and dismissed by the President Director with the approval of the Board of Commissioners.

THE POSITION OF INTERNAL AUDIT DIVISION WITHIN THE COMPANY’S STRUCTURE Internal Audit Division Head held the position under the President Director, and also directly accountable towards him. STRUCTURE AND POSITION OF INTERNAL AUDIT DIVISION

PRESIDENT DIRECTOR

PRESIDENT DIRECTOR

INTERNAL AUDIT

Internal Audit Planning and Management

Audit

Special Audit

INTERNAL AUDIT DIVISION CHARTER In conducting their tasks and responsibilities, Internal Audit Division referred to the Audit Charter as determined by the Decree of the Board of Directors Number: 023105.K/PW.00/UT/2009 dated 11 December 2009, which outlined the Vision, Mission, Intention and Purpose, Scopes, Organizational Structure, Authority, Tasks and Responsibilities of IAD, Requirements and Professionalism of an Auditor, Audit Implementation Governance also Code of Ethics of Internal Auditor. While operation wise, the implementation of Audit referred to the current Internal Audit Operational Procedure as determined by the Instruction of the Board of Directors Number: 021200.I/HK.00.01/UT/2013 dated 12 April 2013. Authority of Internal Audit Division In their tasks implementation, Internal Audit Division had the following authorities: 1. Accessing every relevant information regarding the company related with the tasks and functions; 2. Communicating directly with the Board of Directors, Board of Commissioners, and/or Audit Committee and members from Board of Directors, Board of Commissioners, and/or Audit Committee; 3. Organizing regular and incidental meetings with the Board of Directors, Board of Commissioners, and/or Audit Committee; and 4. Coordinating with external auditor.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Tasks of Internal Audit Division 1. Preparing and implementing Annual Audit Work Program (PKAT); 2. Testing and evaluating the implementation of intern control and risk management system in accordance with company policy; 3. Inspecting and assessing efficiency and effectiveness on finance, operational, human resources, marketing, information technology and other activities; 4. Providing objective improvement input and information regarding the inspected activities on every management level; 5. Preparing audit result report and submitting said report towards President Director and Commissioner; 6. Monitoring, analyzing and reporting the suggested improvement follow up; 7. Cooperating with Audit Committee; 8. Preparing program to evaluate the quality of internal audit they performed; and 9. Conducting special inspection when needed. Responsibilities of Internal Audit Division The responsibilities of Internal Audit Division included the following matters: 1. Being responsible in conducting audit process in accordance with the prevailing Audit standard and code of ethics, allocating Audit resources effectively and efficiently, developing auditor’s professionalism and implementing quality assurance program in performing tasks and management of Internal Audit Division; 2. Being responsible on keeping the confidentiality of data, documents and information related with the implementation of Audit and Audit result report in accordance with the Company’s information confidentiality policy, which determined by the Board of Directors and Auditor’s Code of Ethics; 3. Gaining approval from the President Director regarding the prepared work program and Audit development plan;

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4. Reporting to the President Director regarding information concerning the ongoing Audit implementation; 5. Auditors from Internal Audit Division were prohibited to double their tasks, including the operational enforcers of the Company or its Subsidiary Entities.

PERSONNEL NUMBER OF INTERNAL AUDIT DIVISION Internal Audit Division consisted of 15 Personnel. In performing Monitoring function, Division Head of Internal Audit was assisted by 11 (eleven) Auditors and 3 (three) personnel on Internal Audit Planning and Management..

INTERNAL AUDIT DIVISION HUMAN RESOURCES COMPETENCY DEVELOPMENT AND AUDIT PROFESSIONAL CERTIFICATION In performing Audit, Internal Audit Division was supported by professional audit staff, equipped with professional certificate on Audit, Fraud even Risk Management, both from international and national institutions as follows: • 1 (one) Auditor with CIA (Certified Internal Auditor) and CRMA (Certification in Risk Management Assurance) issued by The Institute of Internal Auditors, CFE (Certified Fraud Examiner) from Association of Certified Fraud Examiners, QIA (Qualified Internal Auditor) issued by Internal Audit Educational Foundation and CRMP (Certified Risk Management Professional) issued by LSPMR (Risk Management Professional Certification Institute). • 1 (one) Auditor certified with QIA and CRMP; • 4 (four) Auditors certified with PIA (Professional Internal Auditor) issued by Accounting and Finance Development Centre (PPA&K); • 3 (three) Auditors certified with QIA; • Some other auditors were quite experienced and currently in the process of tiered certification education.

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Aside from professional certification, to improve the competence and professionalism, the personnel of Internal Audit Division were also active in attending both National and International Seminar forum such as Internal Audit National Seminar (SNIA) and seminar of FKSPI (Intern Monitoring Unit Communication Forum).

IMPLEMENTATION OF AUDIT DIVISION INTERNAL ACTIVITIES DURING 2016 Audit Implementation and Mentoring For 2016 period, due to the Company was under the transformation process, Internal Audit Division opted to prioritize the consultation side of the Internal Audit by conducting mentoring program towards Revenue Assurance work unit, which recently formed during the transformation process with the following stages: -- Revenue Data Analytic -- Revenue Solution -- Collection Administration -- Collection Handling Aside from consultation program, which stated formally within the annual work program, Internal Audit Division also actively provided consultation to other work units in needs. External Auditor Mentoring Aside from conducting audit, the Internal Audit Division was also active in performing mentoring on Audit by External Auditor such as Audit PSA 62 by KAP PWC also audit from BPK-RI. Aside from mentoring in external audit implementation, Internal Audit Division also monitored its follow up.

Regularly, on every year end, Internal Audit Division will consolidate and evaluate the result of Audit during the fiscal year period and discuss the following year Audit program proposal to maintain the convergence in conducting Audit activities. For 2016 the hearing session (sarasehan) of entire IAD personnel was held in Bogor on 29 November - 1 December 2016.

APPOINTMENT AND DISMISSAL OF INTERNAL AUDIT DIVISION HEAD Internal Audit Division Head was appointed and dismissed by the President Director with the approval of the Board of Commissioners.

INTERNAL CONTROL SYSTEM Internal control was a process that covered the Board of Directors, members of the management and other personnel in the Company to provide sufficient confidence on the Company achievement of objectives regarding operations, reporting and compliance. The purpose of the internal control system was to secure the Company or organization to be prevented from achievement of purpose failure, generating reliable Company financial statement, also ensured the Company’s activity went in accordance with the prevailing regulation and law. Internal control system also may provide information for the Company’s performance assessment base. Aligned with the Article of Regulation of State Minister of SOE Number: PER- 01/2011 regarding Implementation of Good Corporate Governance at SOE article 26, PGN constantly pursued the internal control system development by referring to COSO (Committee of Sponsoring Organizations of The Treadway Commissions) framework.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

COMPATIBILITY OF INTERNAL CONTROL SYSTEM WITH COSO Components of Internal Control System in PGN referring to COSO consisted of 5 basic components, namely: 1. Intern control environment within the Company which conducted in discipline and structured, upheld the integrity and work ethics; 2. Review towards overall business risk management; 3. Control activities which described as policy in the form of Work Referral Document, namely Charter, Operational Procedure and Work Instruction which covered every field in the Company, namely engineering, operational, finance and human resources, 4. Information System and Communication which established to maintain the accountability of transactions information quality and communication effectiveness, 5. Monitoring conducted to assess the control quality either continuously or periodically to maintain the control system. The Company must always be adjusted with the current condition.

EVALUATION TOWARDS EFFECTIVENESS OF INTERNAL CONTROL SYSTEM One way to measure evaluation and effectiveness, efficiency and compliance in internal control system implementation was by internal audit. To evaluate the implementation of Company internal control system, an Internal Audit Unit called Internal Audit Division was formed. The evaluation result of Internal Audit Division on internal control system implementation, served as one of the Management evaluation base to determine system improvement and enhancement, or policy that allowed Management to engage the Company’s operational in more effective manner.

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RISK MANAGEMENT PGN concern that risk has strong relevancy to business process. In consequence at 2003, we started to have organisational structure Divisi Analisa Bisnis dan Manajemen Risiko (ABMR) using Risk Management standard AS/NZS 4360:1999. In 2009, PGN adopted Enterprise-Wide Risk Management to meet PGN goal. Therefore, we put Enterprise Risk Management (ERM) concept to Risk Management Division Policy based on Director Decree No. 024000.K/SM.02/UT/2009. The implementation of Risk Management referred to the Regulation of State Minister of SOE Number: PER-01/MBU/2011 regarding Implementation of Good Corporate Governance in the SOE, which amended into the Regulation of State Minister of SOE Number: PER-09/MBU/2012 which stated in Article 25 regarding Risk Management, namely: 1. Board of Directors, in every decision/action making, must consider the business risk; 2. Board of Directors was obliged to establish and conduct integrated the corporate risk management program which served as part of GCG program implementation; 3. The risk management implementation program was executable, by: 1. Turning Working Unit under the Board of Directors; or 2. Assigning the existing and relevant Working Unit to implement risk management function. 4. Board of Directors compulsory to submit Risk Management Company Profile Report and its mitigation regularly along with Company’s Periodic report.

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VISION AND MISSION

CORPORATE RISK MANAGEMENT

Based on the Injunction of the Board of Directors regarding Risk Management Guideline, the Vision and Mission of risk management are: • Vision: • To be a Risk Management based-thinking Company on ongoing basis hence in every management process be conducted effectively, efficiently and accountable. • Mission: • Providing optimal contribution towards Company’s goal; • Preventing the company from unpredictable and unexpected event; • Providing sufficient confidence that the company’s risks already well mitigated and calculated.

PGN Risk Management as stated in Risk Management Guideline was referring to the International Risk Management Framework, namely COSO ERM (The Committee of Sponsoring Organization of the Treadway Commission – Enterprise-wide Risk Management), which consisted of 8 components, among others: 1. Internal Environment; 2. Objective Setting; 3. Event Identification; 4. Risk Assessment; 5. Risk Response; 6. Control Activities; 7. Information and Communication, and 8. Monitoring.

ROLE

Risk Management System Development was started since the implementation of Risk Management Information System (SIMR) in 2012, which transformed the implementation of Risk Management from manual to real-time so that Risk Level, Mitigation status can be updated whenever required. In addition, since 2016 the implementation of risk management process has served as one of the Key Performance Indicators (KPI), where in every Work Unit, Business Unit, Subsidiary and Affiliation was required to conduct the risk management process. Risk Management implementation doing by Risk Management Unit has aligned with Corporate Risk Management Roadmap.

Risk Management & GCG Division role related to the function of Company Risk Management as stated in the Decree of the Board of Directors No. 017600.K/OT.00/PD0/2016 regarding Working Procedures of President Director’s Office are: • Preparing risk management framework; • Implementing risk management, by coordinating risk assessment and risk treatment across the entire Working Units, Business Units, Subsidiaries and Affiliations, which also includes coordinating and formulating Corporate Top Risk.

THE DEVELOPMENT OF RISK MANAGEMENT

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

RISK MANAGEMENT POLICY The obligation of Risk Management implementation in PGN as stated in the Regulation of State Minister of SOE Number: PER-01/MBU/2011 regarding Implementation of Good Corporate Governance in SOE, which amended into the Regulation of State Minister of SOE Number: PER-09/MBU/2012, cascaded into Company’s Internal Policy, namely PGN Risk Management Guideline 2009, also PGN Risk Management Operational Procedure No. O-001/0.46 which prevailed since 2010. In the guideline, Board of Directors of PGN stated that: 1. In order to encounter an ever changing business environment, the management deemed the necessity in determining policy regarding Risk Management, which stated in the Risk Management Guideline. Effective risk management implementation will ensure the continuation, growth and success of the Company; 2. Every decision making in every level in PGN environment must understand and manage the risks effectively hence it will provide greater certainty towards the stakeholders and gained better information regarding business risks to support decision making and increased the value towards the Company; 3. All management levels in PGN environment was obliged to adopt and conduct a risk management both structured (clarity of system and standard, also clear organogram) and consistent of being aligned with strategy, process, human resources, technology and science for the purpose of evaluating and managing the encountered uncertainty;

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4. Every activity and decision making, particularly those deemed as significant must have its risk being analysed and maintained in a COSO based framework and risk owner was being responsible to prepare the risk maintaining strategy. Hence the risk analysis result must be documented and served as integrated part of the decision making process also had clarity regarding the authority levels; 5. As part of Good Corporate Governance (GCG) implementation, risk management must be implemented into every critical business system and process hence it may identify and maintain the risks entirely and consistently prior to events that may affect achievement of objectives; 6. Each management level within PGN environment must conduct sustainable improvement on the risk management implementation through supervision in the form of periodic report and proposal of system improvement when needed; 7. Implementation guideline on the management policy will be stated in the Risk Management Operational Procedure to be conducted consistently and responsibly; 8. Risk maintenance must be conducted on the principle of effectiveness and efficiency; 9. Decision making process must consider every risk aspect contained within the risk framework of the Company (PGN Risk Frameworks); 10. Decision making related with resources allocation will be conducted by considering the result of risk assessment; 11. Company risk management was an integrated part from the entire Company management process.

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RISK MANAGEMENT GOVERNANCE STRUCTURE The Risk Management Governance Structure is coordinated by Risk Management & GCG Division under the President Director, as depicted in the following chart: ORGANIZATION STRUCTURE PRESIDENT DIRECTOR Hendi Prio Santoso

INTERNAL AUDIT Pramono Harjanto

CORPORATE SECRETARY Heri Yusup

LEGAL Rachmat Hutama

GOVERNMENT RELATIONS Santiaji Gunawan

CORPORATE COMMUNICATION Irwan Andri Atmanto

CORPORATE SUPPORT AND SERVICES Desima E. Siahaan

STRATEGIC MANAGEMENT AND TRANSFORMATION Suseno

RISK MANAGEMENT AND GCG Willy Roswaldi

HEALTH, SAFETY, SECURITY AND ENVIRONMENT Feronica Yula Wardhani

Based on the Regulation of the Minister of the State Owned Enterprises Number: PER-01/MBU/2011 regarding Implementation of Good Corporate Governance in State Owned Enterprises, and Number: PER-12/MBU/2012 regarding Supporting Organ of Board of Commissioners/Supervisory Board, the Risk Management and Business Development Monitoring Committee was formed with the purpose of assisting the Board of Commissioners in conducting periodic monitoring and providing recommendation on the policy and implementation of Risk Management along with its business plan and development. Risk Management & GCG Division will provide quarterly report on the Company Risk Profile to the Commissaries through Risk Management and Business Development Monitoring Committee and President Director.

RISK MANAGEMENT FRAMEWORK SCHEME In 2016, PGN conducted maturity evaluation of risk management implementation to know and ensure the implementation of risk management has aligned with the prepared path and plan, also obtained the input on increasing the maturity of risk management implementation in PGN. Evaluation of Risk Management Maturity Level was helped by independent consultant, by referring to the 8 components of COSO ERM and Risk Management Evaluation Guideline prepared by the Finance and Development Supervisory Agency (BPKP) for the subcomponents and maturity stages. The methodology used for measuring maturity level of risk management implementation included survey, interview and focus group discussion (FGD). These three methods were applied on the sample with different job stratification. There would be also a document review to ensure the risk management implementation journey, and limited review on discrepancy between the plans and the executions. Based on the conducted assessment, the maturity level of PGN risk management 2016 is Mature - Defined (Level 4). At this level, PGN has utilized employed various activities and risk management techniques, and they have become a continuous process. PGN employs a strategy, a risk management policy and it has been communicated; however, the risk register is yet to be completed. Internal Audit Based on Risk (IABR) at this stage has been implemented; the Internal Audit perform its function as ‘Consultant’ in the company. Also, quantitative method has been implemented in risk analysis.

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The measurement results for PGN Subsidiaries is one level below PGN i.e. Mature - Repeatable (Level 3), at this level, the Subsidiary has had a risk management approach but the documentation and risk management information system is yet to complete. Risk Management Information System (SIMR) cannot be implemented yet. IABR cannot be applied yet. However, MR implementation equipped with Manual and Operating Procedures which adequate. Calculation and analysis system is still more qualitative and deterministic.

and potential of lawsuits against the Company by external parties that can lead to financial losses in the form of a payment obligation to the plaintiff as well as fines to the Company. On the other hand, there is also a potential of Compliance Risk due to inaccuracy in managing Company’s taxation, i.e. the perception differences of tax law application and the lack of updating information on a regular basis by Regulator, thereby causing financial losses to the Company in the form of fines.

CORPORATE TOP RISK

In addition to the above, there is also a potential of unperformed Subsidiary’s businesses due to the enactment of ESDM No. 6/2016 that requires trading of natural gas has to have the infrastructure in each business enterprise area, this could lead to Company financial loss.

The Company recognizes that with the growing business and external conditions, the risks that the Company faces are increasingly diverse and there are emerging new risks that have not been previously identified. All business processes are always requested to pay attention to conditions outside the Company in order to anticipate new risks. Throughout 2016, PGN has identified the risks in the entire Units, Business Units, its Subsidiaries and Affiliates. At the end of 2016, there were more than 1600 risk, ranging from extreme, high, medium to low risks. The entire risk mitigation measures have been formulated and monitored by the concerned Process Owner, Risk Management Division and GCG. All risks will be consolidated in the Corporate Risk Profile which presents the key risks that should be a concern to Management, they are as follows: 1. Compliance & Legal Risk Legal risks are risks arising from managing legal issues that could result in losses for the Company which originate from compliance with regulations as well as demands of other parties. This risk category is divided into subcategories: Risk Compliance and Legal Risk. In sub-category Legal Risk, the potential for a lawsuit by the counterparty to Subsidiaries/ Affiliates is associated with termination of employment contract, so that it may cause the Company to pay obligation to the plaintiff,

2. Supply Risk Supply risks occur in managing Natural Gas Supply. There are two critical observed risks, they are: first, the potential for not obtaining the addition/extension of gas supply due to natural decline, and two, not having the agreement of gas prices with suppliers, thus creates a loss of opportunity for the Company and the potential of gas supply unavailability for new market development region due to limited sources of supply in the development area, as well as the provision of gas supply allocation to the other parties, causing loss of opportunity to the Company. 3. Commercial Risk Commercial risk is the risk that occurs due to natural gas trade activity. This risk category is divided into sub-categories: substitution of energy risk and competition risk (price). In Risk sub-category of Potential transfer of some or all of the consumption volume of natural gas from existing and potential customers due to the use of substitute energy of coal, fuel oil, and electricity, causing a decrease in natural gas sales volumes. Competition risk highlights the potential shift of some or all consumption volumes of natural gas from existing customers

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and potential customers to competitors because competitors offer same products thereby causing a decrease in natural gas sales volumes. On price risk, there is a potential of disagreement in price with customers because differences in perception on components of natural gas sales price, thus resulting in problematic receivables. 4. Strategic Risk Strategic risk appears on decision-making and/or implementation of Company’s strategy or changes in external conditions. This risk category is divided into sub-categories: investments and project risk, and macroeconomic risk. There are two Risk Investment to be monitored, namely: potential changes in investments value in development pipeline natural gas project in new regions due to uncertainty of prospective customers that has impact on investment economic value and the potential for delays in pipelines construction of natural gas in new regions due to controlled licensing from the Regulator, central government, and regional and industrial area managers, that could cause a loss of opportunity to the Company. On there are two risks in macro-economy: First, the potential decrease in customer usage due to reductions in customer production associated with the weakening global economic conditions, and second, Indonesia could reduce corporate earnings and the potential of ‘take or pay‘ schema due to the gas low consumption, and therefore create an impact on corporate cash flow. 5. Operational Risk Operational risk is associated with operation of operating assets in the ordinary course of PGN business. This risk category is divided into subcategories: Risk Operation & Maintenance (O&M) and HSSE risk. In Risk Operation & Maintenance (O&M), the potential interference distribution of natural gas to customers arises due to contact between existing gas pipeline with constructions of other utilities, causing financial losses to both PGN and customers, and the potential of

operation facility cessation due to equipment damage/failure that leads to financial loss for the Company. HSSE Risk has two risks: Potential of the working accidents/incidents/health problems within subsidiary companies, due to their condition or unsafe behavior and un-standardized Health and Safety procedures, and Potential Risks due to un-readiness of Emergency Response Team (TGD) in dealing with emergencies cause by the Company’s lack of competence and experience in dealing with emergencies. 6. Financial Risk Financial risks arise on Company’s financial management activities. Those risks are: Potential volatility of interest rates the Company’s debt, due to fluctuations in the 3 months LIBOR, causing an increase in financial expense and the USD exchange rate potential fluctuations against the JPY, which could lead to an increase in interest expense and loan obligations related to mismatch between income and liabilities, as well as the emergence of losses translation on Company credits.

COMPANY’S RISKS AND ITS MANAGEMENT The objective of risk management is to maintain or decrease the level of risk to a level that can be accepted by the Company. Therefore, the Company needs each risk owners to take Risk Mitigation Measures on each level of risk: Extreme, High, Medium or Low. The list of Mitigation Measures for Risk - Risks faced by the Company are as follows: 1. Compliance & Legal Risk Compliance Risk arises due to the potential of inaccuracy in managing Company taxation due to differences in perception on tax law application and the lack of regular-update information by the regulator, thereby causing a financial loss in the form of fines that could lead to Mitigation, namely: Coordination and communication with tax authorities and to educate officers on how to implement taxation on field. In addition, the potential is not unperformed Subsidiary’s businesses due to the enactment of ESDM Regulation No.6/2016 that would require trading

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

of natural gas to have the infrastructure in each business areas that can lead to Compnay financial lossesm thereby to take Mitigation measures in the form of analysis and strategy formulation on Subsidiary’s businesses in order to comply with ESDM (Energy and Mineral Resources) Regulation No. 6/2016. The potential Legal Risk of lawsuit by counterparties to Subsidiaries/Affiliates associated with termination can lead to obligations of payment to plaintiff/accuser, and this is mitigated by providing guidance of legal settlement to subsidiaries/affiliates; legal review on legislation and contract documents to strengthen the position of subsidiaries/afiliasi. In addition to the potential of lawsuits against the Company by external parties that can lead to financial losses in the form of liability payment to prosecutor/ the state, and fines to the Company, these legal cases are mitigated by providing documentation and evidence to strengthen the Company position; coordinate with law enforcement and follow the proceedings in accordance with applicable regulations; and use legal consultant services during court proceedings. 2. Supply Risk The potential of not obtaining additional/extension of gas supply due to supply of natural decline and not having the gas price agreement with suppliers, thus create the loss of opportunity for the Company, is mitigated by coordinating with regulators (SKK Migas and the Directorate General of Oil and Gas) related to allocation of gas supply and the extension of the Gas Sales Agreement, as well as the search for potential new existing source of supply in the region. The potential unavailability of gas supply to the area of market development of new gas due to limited sources of supply in the area of development as well as the provision of gas supply allocation to other parties, causing loss of opportunity for the Company, is conducted via

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Mitigation Measures coordinated with Regulators (SKK Migas and the Directorate General of Oil and Gas) regarding allocations gas supply and using a strategy beyond pipeline transportation modes of Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG); and synchronizing the timeline between deployment of the supply potential gain. 3. Commercial Risk The Risk of Energy Substitution is the potential transfer of part or all volumes of natural gas consumption from existing and potential customers due to the use of energy substitution in the form of coal, fuel oil, shell and electricity, causing a decrease in the volume of gas salesmaintained the level of risk the acceptable level of the Company to do Mitigation Actions such as: preparation of strategy marketing & promotion (value & benefits) in accordance with the types of customers, including socialization and meeting customers regularly, Improved customer service and reliability of gas delivery to the customer, developing products and customer service, either through pipeline transport modes as well as beyond the pipeline in order to provide energy solutions for customer fulfillment. Risks Commercial of Sub-Category Competition, Potential transfer of part or the entire volume of the consumption of natural gas from the existing and potential customers to competitors due to competitors offer the same product resulting in a decrease in volume of gas sales, shall be mitigated by way of reviewing and developing a strategy on pricing and marketing policy to face the competition and retaining large customers; other startegies include: Implementation of market

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intelligence and market analysis, including the development of new markets in the region; Improving the quality of relationships with customers, especially customer decision makers. The Potential disagreement in price with the customer arises due to differences in perception of the selling price components of natural gas, causing problematic in receivable and is mitigated by evaluating the commercial aspects and negotiations with customers, related to the price or other terms and conditions. 4. Strategic Risk In Investment Risk, Potential changes is in the value of investments i.e. in project development pipeline natural gas in new regions due to the uncertainty of prospective customers that have an impact on the economic value of the investment. The Company employs two (2) Mitigation Measures that have been and are being implemented, namely: conducting surveys and active coordination with prospective customers and preparing options for planning the investments made by considering factors of potential customers. In Sub-Category Risk Macroeconomics, the potential decrease in customer usage due to a reduction in the customer’s production is associated with the weakening global economic conditions and that of Indonesian that could reduce Company’s revenue and has the Mitigation Measures to include: Review and analysis of the development of the World Economy and the Domestic as well as for new customers instead of customers canceling subscription/lowering consumption. While the potential of the emergence of take or pay because of the low consumption of natural gas that has an impact on company cash flow, the

Company is currently implementing Mitigation Measures to include: Setting up a strategy to increase sales, mapping and expansion of new markets as well as monitoring the distribution of gas to customers as well as analysis of the scenario-making Make Up Gas which will be implemented in subsequent years due to the ‘take or pay’ scheme. 5. Operational Risk Operation & Maintenance (O & M) has the potential of interference distribution of natural gas to customers due to contact between the existing gas pipeline with the construction of other utilities, causing financial losses for both PGN and the customers, and is mitigated by conducting a study on intersection of other utilities with the existing pipe and implementing the recommendations of the study results in the form of network reinforcement. The potential of the cessation of operations due to damage to facilities/ equipment failure, could cause financial loss to the Company, and is mitigated by implementing preventive and scheduled maintenance; insuring Main operating infrastructure. Operational Risk Sub Category HSSE has the Potential accidents/incidents/health problems on the personnel within Subsidiaries for their condition or unsafe behavior and unstandardized procedure occupational safety and health is mitigated by implementing standards and Culture Occupational Safety and Health PGN in Subsidiary

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

companies, as well as preparation of operating procedures Occupational Safety and Health. The risks in the unpreparedness of the Emergency Response Team (TGD) are dealt with emergencies due to the lack of competence and experience of the personnel in hadling the emergency situation, and are mitigated by preparing of emergency response procedures and implementation of emergency training and exercise. 6. Financial Risk Financial Risk has the potential volatility of Company’s debt interest rates due to fluctuations in LIBOR 3 months, causing an increase in Company financial burden and is mitigated by developing operational Procedures of Hedging and preparing studies of Planning Hedging Activity on fluctuations in the LIBOR 3 months as a basis for implementing hedging activities when required. Potential fluctuations in the exchange rate of the USD against the JPY which could lead to increase in interest expense and loan obligations related to the mismatch between income and liabilities as well as the emergence of losses translation on loans obtained by the Company is mitigated by Developing Operational Procedures Hedging and preparing Planning Hedging Activity on the movement of value 3-month LIBOR as a basis for implementing hedging activities when necessary.

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IMPLEMENTATION OF RISK MANAGEMENT PROGRAM The work program of Risk Management in Risk Management & GCG Division in 2016 includes: 1. Assisting the assessment and risk monitoring; 2. Creating Risk Aggregation report for 2016; 3. Focus Group Discussion (FGD) reviewing the Risk Key Risk (Top Risk); 4. Focus Group Discussion (FGD) Preparation and Monitoring Project Risk Profile; 5. Focus Group Discussion (FGD) Formulation & Monitoring Risk Profile Subsidiaries; 6. Dissemination of Risk Management; 7. Selection of Risk Management Award; 8. Initiating Implementation of Lost Event Repository; 9. Initiating of Development Business Continuity Management System; 10. Conducting Conscious Risk Behavior Program; 11. Revising Reference Documents of Risk Management; 12. Using of Oracle GRC Assistance; 13. Adjusting Minor maintenance (business process structure) SIMR Oracle GRC; The Work Program of Risk Management function in PGN is implemented to achieve Maturity Level listed in Enterprise Risk Management Roadmap 2016.

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MAJOR LEGAL CASES FACED BY PGN Until December 31, 2016, there are three (3) legal cases or lawsuit worth of material against PT Perusahaan Gas Negara (Persero) Tbk (PGN). Those cases are matters of continuation or still undecided and/or have legally enforceable in the previous year. Those cases are as follows: PGN MAJOR LEGAL CASE DURING 2016 CASE OF ARBITRATION CRW Case No.

18272/CYK

Institute

International Chamber of Commerce, International Court of Arbitration

The parties

CRW Joint Operation (Plaintiff) Versus PGN (Defendant)

Case Value

USD17,298,834,57

Case Principal

This case originated from the Decision of the Dispute Adjudication Board # 3 (DAB # 3) on November 25, 2008 which decided that the CRW Joint Operation was entitled to receive payment of USD17,298,834.57,- of occupational gas pipeline located in Grissik - Pagardewa No.002500.PK/243/UT/2006 on contractual basis as amended in No. 002000.AMD/ HK.02/UT/2008 dated October 24, 2008. Over the DAB Decision, PGN has filed a Notice of Dissatisfaction.

Status of Case Settlement

Furthermore, on November 3, 2011, PGN received a letter from the ICC Secretariat dated November 1, 2011 revealing that the Request For Arbitration of CRW Joint Operation to PGN, through the power of the Law of CRW Joint Operation Drew & Napier in accordance with the letter dated October 28, 2011 settlement of these problems. On October 12, 2012, CHS has filed plaintiff’s Application for Interim/Partial Award. On the Application filed by the CRW, on November 26, 2012, PGN has delivered The Respondent Against Submission of Application for Interim Award. On May 22, 2013, the Tribunal has decided Interim/Partial Award (Injunctions) requesting Company to pay in advance the claims submitted by CRW for USD17,298,835, - before eventually re-analyzed (reopened), and finally decided on Final Verdict. To the issuance of the Interim Award, the Company has applied for cancellation of the Interim/Partial Award in the High Court of Singapore. On October 10, 2013 Singapore High Court Judge issued a decision which in essence did not agree with the proposition submitted by the Company and reaffirmed Interim/Partial Award. The decision on the High Court of Singapore, on November 11, 2013 the Company has filed Appeal to the Court of Appeal of Singapore. Given the filing of Appeal referred to above did not stop the process of arbitration, the Tribunal continued the process of examination of this case. On September 25, 2014, the Tribunal issued a ruling majority (Partial Award) canceling CRW claim that Manufacture & Installation of Additional Bends and Additional Cost. Next would be open up the process, with the remaining claims of CRW. On May 27, 2015, the Judge Court of Appeal has issued a decision which in essence rejected the PGN and upheld the ruling of High Court of Singapore. Against the Singapore Court of Appeal ruling that PGN has submitted an objection letter to the Tribunal given by the Partial Award lawsuit value of US $ 17,298,835 has been reduced. Singapore’s Court of Appeal ruling as referred to above did not stop the process of arbitration, the Tribunal continued the process of examination of this case. On September 18, 2015, the Tribunal published a Final Award in essence asked PGN to pay to the claimant the amount of USD 6.5 million. On the Final Award, on December 17, 2015, the Company was to take legal actions in the form of setting aside the High Court of Singapore. On December 20, 2016, PGN has made payment of the Final Award to the CRW. With the repayment of the amount results PGN Final Award by the parties to the CRW then the case has been completed.

Impact on Company

No Effect on the Company.

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NOTICE OF ARBITRATION GAS TRANSPORTATION RATES IN TRANSGASINDO Case No.

-

Institute

Arbitrase London

The parties

ConocoPhillips (Grissik) Ltd (Plaintiff I) Petrochina International Jabung Ltd. (Plaintiff II) versus PT Transportasi Gas Indonesia (Defendant)

Case Value

USD 165.700.000

Case Principal

Plaintiffs filed a lawsuit against Transgasindo through London Arbitration related to gas transportation tariffs to Singapore and the implementation of the Access Arrangement for Grissik-Singapore Pipeline segment with a total value of approximately USD108 million demanded for ambiguity arising out of and in connection with the Gas Transportation Agreement.

Status of Case Settlement

On May 19, 2014, Transgasindo received a “Notice of Arbitration” of ConocoPhillips (Grissik) Ltd. and PetroChina International Jabung Ltd. (Plaintiff) in which the plaintiff claimed related to gas transportation tariffs to Singapore and the implementation of the Access Arrangement for Grissik-Singapore Pipeline segment with a total value of approximately USD108 million demands for ambiguity arising out of and in connection with the Gas Transportation Agreement. On December 8, 2014, the Plaintiff has included a “Statement of Claim” with the claim of USD165.7 million. Furthermore, in the “Claimant’s Reply Memorial” value of the lawsuit has been changed into a maximum USD131,4 million. Transgasindo have included a “Statement of Defense” on April 23, 2015. On July 10, 2015, the Plaintiffs have included a “Claimant’s Reply Memorial” and Transgasindo plans to enter the “Statement of Rejoinder” on 11 September 2015 and Hearing has been carried out on 19 and October 23, 2015. Based on the Final Award dated February 8, 2016, Transgasindo required to pay a sum of: • USD33.300.000 as losses on the rate increase between 11 August 2010 to 30 September 2015 plus compound interest at 3.25% per annum from the date the bill is paid up to the date of the arbitration decision. If after this decision TGI indirectly pay, you will be charged the compound interest of 8% per annum until payment is made. • USD41.000.000 as future losses associated with tariff increases paid since October 1, 2015 through the end of the contract. If after this decision TGI indirectly pay, you will be charged the compound interest of 8% per year until the payment is made. • USD2.666.406,96 as plaintiff arbitration costs. In the period ended September 30, 2016 and December 31, 2015, Transgasindo has recognized the loss in profit/loss related to this case, each for USD7.632.771 and USD37.547.669. Management has reviewed to file further legal proceedings against the decision.

Impact on Company

No Effect on the Company

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PROCUREMENT CASE IN PT KALIMANTAN JAWA GAS (KJG) Case No.

583/Pdt.G/2014/PN.Jkt.Pst dated December 10, 2014

Institute

Central Jakarta district court

The parties

PT Dwisatu Mustika Bumi (Plaintiff) versus KJG (Defendant) PT Berkah Mirza Employee (Defendant I) PBJV Group Sdn BHD (Defendant II)

Case Value

- Material USD 2,890,000, and - Nonmaterial USD 85,873,500.

Case Principal

This case is a civil case on action against KIG who terminated a contract with a consortium of Dwisatu Mustika PT Bumi, PT Blessing Mirza Employeei and PBJV Group Sdn BHD who could not submit a performance bond as required by the contract. Plaintiff accusations of breach of contract to the KIG, which KIG was deemed not provide the documents requested by the plaintiff to meet the performance bond required by KIG resulting plaintiff could not proceed EPC Project Construction and Operation of Transmission Segment Kalija I (Kepodang-Tambak Lorok)

Status of Case Settlement

Impact on Company

On November 10, 2015 the court decision issued by the Central Jakarta District Court of Central Jakarta District Court was not authorized to investigate and trial the case. Associated with the decision of the Central Jakarta District Court, until the date of the consolidated financial statements, no further developments on this case. No Effect on the Company

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INFORMATION ON ADMINISTRATIVE SANCTIONS Throughout 2016, there were no administrative sanctions imposed by the Capital Market Authority or any other authority to PGN, members of the Board of Commissioners and Board of Directors. COMPANY’S COMPLIANCE TOWARDS RULES RELATING TO CAPITAL MARKET No.

Regulations

Summary of the Regulations

Implementation

1

POJK No. 32/POJK.04/2014 on Planning and Implementation of General Meeting of Shareholders of Public Company.

Regulate mechanism and timeframe, the rights of Shareholders in implementing GMS.

The Company has implemented GMS April 8, 2016 in accordance with the procedures set forth in POJK No. 32/ POJK.04/2014.

2

POJK No. 33/POJK.04/2014 on the Board of Directors and Board of Commissioners of Issuers or Public Companies.

Regulate requirements of the Board of Directors and Dekom.

The Board of Directors and Board of Commissioners were appointed to meet the requirements, to have the duties and responsibilities, and to implement appropriate mekasnisme POJK Meeting No. 33/POJK.04/2014.

3

POJK No. 34/POJK.04/2014 concerning the NRC Issuers or Public Companies

Regulate inter alia on membership, the meetings, as well as guidelines for the nomination and remuneration committee.

The Company has a Nomination and Remuneration Committee with the membership, duties and responsibilities as well as the meetings mekanime based POJK No. 34/POJK.04/2014.

4

POJK No. 35/POJK.04/2014 concerning Corporate Secretary Issuers or Public Companies.

Regulate, among others about the duties and responsibilities, and requirements of the corporate secretary

The Company has Corporate Secretary to meet the requirements, with the duties and responsibilities as stipulated in POJK No. 35/POJK.04/2014.

5

POJK No. 31/POJK.04/2015 on disclosure of information or material facts by the Issuer or a Public Company.

Regulates the disclosure of information in the event of a material fact, ie material from events that may affect the price of securities or the decision of investors or prospective investors.

Throughout 2016, PGN has conducted 12 times information disclosures through appropriate mechanisms in accordance with POJK No. 31/POJK.04/2015.

6

POJK No. 55/POJK.04/2015 on the Establishment and Implementation Guidance of the Audit Committee

Regulate among others on the establishment, membership, duties and responsibilities of the Audit Committee.

The Company has an Audit Committee with members who meet the requirements, with duties and responsibilities in accordance with POJK No. 55/POJK.04/ 2015. The Audit Committee has an Audit Committee Charter which was ratified on January 7, 2016.

7

SEOJK No. 30/SEOJK.04/2016 on Form and Content of the Annual Report of the Issuer and Public Companies.

Regule Annual Report of Issuer and Public Companies.

The Annual Report has been prepared with the appropriate form and content according to SEOJK No. 30 SEOJK.04/2016.

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COMPANY CODE OF ETHICS Code of Business Ethics and Work Ethics (the Code of Conduct) is a Company commitment in carrying out and describing the cultural values ProCise consisting of five main values, namely Professionalism Continuous Improvement, Integrity, Safety, and Service Excellence. Code of Business Ethics and Work Ethics which have been set by the Board of Directors Decree No. 002600.K/ HK.00.01/UT/2013 dated January 25, 2013 regarding Guidelines for Business Ethics and Work Ethics. The purposes of the Code of Business Ethics and Work Ethics are: • To describe the values and ethical standards aligned with PGN vision and mission; • To describe the ProCise culture and principles of Good Corporate Governance as the foundation of ethics to be followed by all Company levels in performing their tasks; • To be a reference of the whole company behaviors in carrying out the duties and responsibilities of each Stakeholder and interact with the Company. In the development of GCG, PGN has formulated various policies concerning the Company ethics. PGN seeks the best application of ethical standards in conducting all its business activities in accordance with the vision, mission, and the culture through implementation of Business Ethics and Work Ethics. Business Ethics and Work Ethics are the guiding attitudes and behaviors that are required and applicable to all levels of the Company. The Company is fully aware that a good relationship with Stakeholders and increase Shareholders value in the long term can only be achieved through business integrity in all PGN business activities as listed in Business Ethics and Work Ethics.

FUNDAMENTALS OF CODE OF ETHICS Business Ethics and Work Ethics is a set of norms, values and follow the act which is believed by the Company Management as a standard of behavior that is ideal for the Company. Ideal behavior shall be developed based on noble values believed to be the cultural levels that the Company’s working in. 1. Business Ethics PGN develops its business ethical guideline which is a standard of behavior in business and provides guidance to the Company as an entity, to interact and connect with its Stakeholders. Application of business ethics is expected to help the Company to improve performance by taking into account the interests of Stakeholders ethically, and based on the rule of law. Broadly speaking, the ethical guidelines of the business is about standards of conduct that should be made when PGN is associated with its Stakeholders, eg, concerning the disclosure of information, equal treatment and the fulfillment of Stakeholders’ rights, antitrust, protection of human rights, gratuities, protection of intellectual property rights and others. Some Business Ethics that applies to Employee PGN are: a. The Ethics between the Company and its Employees PGN protects the interests of its employees in accordance with the applicable legislation. PGN believes that employees are one valuable asset in supporting the vision and mission of PGN. The ethical behaviors expected in dealing with workers, among others: • Provide equal opportunities in terms of remuneration, promotion and awards to all employees in accordance with the concerned performance, competence and loyalty; • Protect the rights of employees to choose or not choose to be members of trade unions;

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

• Create a working environment that is safe, healthy, conducive and free from all forms of pressure and intimidation; • Implement the Collective Labor Agreement (CLA) consistently. b. The ethics between the Company and its Customers The Company emphasizes its service excellence, proactive and responsive attitude in dealing with customers. Expected ethical behaviors in dealing with customers are, among others: • Be polite and professional with the customers (excellence service); • Communicate product information completely and accurately, particularly related to the specifications, service and safety of the product; • Be proactive and responsive in understanding and meeting the needs or expectations of customers. c. Ethics of the Company with the Goods and Service Providers Company carries out procurement of goods and services based on the principles of a competitive, transparent, fair, reasonable and accountable. Ethical behavior expected in dealing with suppliers and services include: • Determination of Providers of goods and services must be based on product quality, after-sales service, warranty, achievements and track record according to the interests of the Company; • Respect the rights and obligations in accordance with the commitment agreement and statutory provisions; • Establish open communication during procurement process to fulfillment of the rights and obligations of all parties;

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• Evaluate Providers’ goods and services and provide decisive action to providers of goods and services for unethical behavior. d. Ethics with Company’s Creditors The Company receives loan funding that is intended for the benefit of the business and to the add value of the Company. Expected ethical behaviors in dealing with creditors, among others, are: • Selection is based on the interests of the Company’s creditors to consider the benefits, costs and risks; • Respect the rights of creditors including the right to obtain information regarding the use of funds in accordance with the commitment agreement and the statutory provisions. e. Ethics of the Company with the Government In relation to interaction with national and local government, the Company shall maintain a harmonious constructive and respectful relationship. Expected ethical behaviors in dealing with regulators, among others, are: • Establish contact and good communication with the Regulators to develop healthy business climate, good competition and foster the competitiveness of national economy; • Meet all business and professional license requirements in accordance with the principle of compliance that are applicable with the law. f. The Ethics of the Company with the Public The Company is to implement social and community programs to empower the potential of local communities and improve the quality of life and synergize with government programs. Expected ethical behaviors in dealing with the public, among others, are:

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• Be aware and optimize the distribution of Company aid programs for the public; • Provide opportunities to people who want to know about Company activities within certain limits and to promote local products at Company events; • Not take any actions that lead to societal discrimination based on ethnicity, religion, race and inter-group. g. The Ethics between Shareholders and PGN The Company is committed to increasing shareholder value in accordance with the provisions of Legislation. The ethical behaviors in dealing with shareholders, among others, are: • Provide equal treatment (fairness) to all shareholders and investors in accordance with the number and type of shares owned, to be able to exercise their rights within Compan budget and applicable legislation; • Provide information declared openly to Shareholders in a manner of complete, accurate, timely and easily accessible in accordance with the laws through one door policy; • All investors and Shareholders are subject to Articles of Association and all resolutions taken lawfully in the GMS. h. The Ethics between Suppliers and Natural Gas Company PGN is aware that the business of natural gas transmission and distribution is closely linked to the availability of natural gas from its suppliers. The Company continues to make efforts to establish a harmonious cooperation and mutual benefit with its natural gas suppliers. The expected ethical behaviors in dealing with gas suppliers, among others, are:

• Conduct good cooperation, harmony and mutual benefit in accordance with the provisions of gas purchase agreement and statutory provisions; • Give priority to negotiations for deliberation in resolving disputes with natural gas suppliers. Measures through legal system are the last step used in the settlement of disputes. 2. Work Ethics Based on the values of corporate culture and the principles of Good Corporate Governance, PGN has compiled the Code of Ethics a guide to all PGN employees to carry out their duties and responsibilities. Some of the Codes of Ethics that apply to PGN Employee are: a. Individual commitment Every PGN Employee is required to provide the best capability to support PGN achievement. The commitment is realized through: • Constantly improve one’s competence according to the job demands; • Always wholeheartedly work and be responsible for the actions taken; • Identify and develop opportunities for improvement in order to optimize work processes more effectively and efficiently; • Have the initiatives to implement changes that have value-added; • Giving priority to Company interests and do not do things that could create conflict of interest; • Adhere to policies, systems, procedures and other applicable provisions; • Maintain all Company resources in order to maintain continuity of Company’s business, health and safety; • Take an active role and contribute to improvement of natural environment and social environment around operation areas; • Provide the best service for internal and external customers; • Identify customer needs and maintain good relationships with customers;

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

• Work professionally and be aware of the costs for optimal performance; • All officers in the Company shall be active and willing to enter full-time service, must fill out and report Wealth Report of State’s Employee (LHKPN) to Corruption Eradication Commission (KPK). b. Working Together amongst PGN Employees • Be honest, polite and orderly towards PGN fellow employees, as well as to respect for any differences of gender, ethnicity, race, and inter-group; • Mutual support among workers and among work units to improve Company performance; • Communicate any new ideas and mutual transfer of knowledge and ability. c. Compliance with Laws and Regulations PGN employees are required to adhere to and implement the rules, legislation and Company’s internal regulations. Compliance with laws and regulations is realized through: • Comply with standards, norms, laws and regulations that are applicable and relevant to Company activities; • Respect and obey the laws and regulations related to human rights; • Comply with regulations, systems and procedures applicable in the Company. d. Conflict of Interest PGN shall avoid all situations that may pose conflict of interest between personal interests and interests of the Company. The behaviors to avoid conflict are: • Not have share/ownership in any companies of partners or competitors to the Company, in the amount that can influence one’s decision-making, including his/her spouse and children; • Not have any businesses directly related to Company’s activities, including his/her spouse and children;

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• Not to give or receive loan of goods/services from suppliers and customers; • Not to misuse or abuse his/her authority, facilities and Company’s means for personal gain or any other parties. e. Give Acceptance PGN Employee not to receive any gifts/ souvenirs/ gratuities of any kind relating to his/ her position and works, except: • receive a banquet; • receive promotional items that include his/ her logo/name f. Gift-giving PGN Individuals can give gifts/souvenirs and entertainment to other parties on condition that: • it supports the interests of the Company; • it is not intended to bribe; • it is included in the Company budget. g. PGN Asset Protection PGN employees are responsible to manage Company’s assets in accordance with Company’s objectives. This is realized through: • Be responsible for maintaining and securing Company’s assets from loss, and damage • Conduct savings/efficiency in the utilization of the Company’s assets; • Be responsible for asset management and avoid its use beyond the interests of the Company. h. Data Recording and Reporting PGN personnel required to manage the data, reports and information as well as possible as a very important input in the decision making process. This is realized through: • Prepare reports based on sources of information are trustworthy and accountable; • Presenting the report in a timely, accurate, and communicative; • Do not hide data and reports that should have been delivered.

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i. Corporate Data and Information Confidentiality PGN Employees utilize Company data and information to increase Company’s added value in decision making: • Using adequate data security systems; • Avoid dissemination of data and information to others who are not of any interest either during or after work hour; • Submit all data related to the Company at the time of dismissal; • Maintain information confidentiality about consumers. j. Occupational Health and Safety and Environmental Management Occupational Health and Safety and Environmental Management (K3PL) are part of the Company culture. PGN the Company behavior is associated with the implementation K3PL and is realized through: • A mandatory to understand the situation and conditions of security, safety and healthy of working environment and to comply with the regulations on occupational health and safety and environmental management; • Response to incidents and emergencies caused by security problems, accidents, pollution, and other natural disasters; • Participating in creating a safety and healthy working environment. k. Political activity The Company provides an opportunity for every the Company to channel his/her political aspirations, but if the Companys decide to participate in practical politics, he/ she must comply with applicable regulations.

Ethical behaviors related to political activities are, among others: • Not become officials of any political party and not to use the Company’s facilities for the benefit of a political party; • Not to contribute in any form to any political parties outside the provisions of applicable legislation.

CODE OF ETHICS APPLICATION TO ENTIRE ORGANIZATION LEVEL During 2016, PGN’s commitment in implementing GCG continues to increase, one of them through the implementation of GCG training, socialization of GCG and Business Ethics and Ethical Guidelines for Workers conducted regularly. The Company has also distributed a handbook on Business Ethics and Worker Ethics presented by the Division of Organization and Business Processes to all workers. Business Ethics guidelines and Work ethic is the foundation in implementing the Company’s activities. Therefore, in practice PGN workers in carrying out their duties and responsibilities. Every unit manager / work unit must ensure that the Business Ethics and Work Ethics Guidelines has been well implemented in their unit / unit which they managed. Therefore, the manager / work unit must conduct monitoring on the implementation.

DEPLOYMENT OF CODE OF ETHICS Guidelines for Good Corporate Governance and Code of Business Ethics and Workers Ethics have also been published on the Company’s website http://pgn. co.id and Company’s portal http://portal.pgn.co.id and can easily be accessed by all employees of PGN. The work ethic and business ethics must be implemented consistently by the Board of Commissioners, Board of Directors and employees as the work culture in the daily operational activities. To support the implementation of business ethics and work ethics, PGN develops procedures for the dissemination and publication of the ethics and procedures for implementation, reporting, monitoring and evaluation.

PT Perusahaan Gas Negara (Persero) Tbk Laporan Tahunan 2016

Companies internalizes the Guidelines of Business Ethics and Work Ethics to improve understanding of the PGN workers on Ethics in accordance with ProCise culture and the principles of Good Corporate Governance. The specified internalization and communication process aims to provide insight to PGN workers.

CODE OF ETHICS IMPLEMENTATION AND ENFORCEMENT FORM In implementing and enforcing the code of ethics, PGN has made policies in the form of guidelines that have been disseminated among other things: Good Corporate Governance Guidelines Guidelines for Good Corporate Governance established by The Board of Directors by Decree No. 006901.K / OT.01 / UT / 2012 dated March 6, 2012. These guidelines are the basis for PGN guide to run the business. The guidelines also provide guidance to employees of PGN to apply the principles of good corporate governance in Business activities

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Code of Ethics: Sanctions for Violations Sanctions imposed for any violation of business ethics adapted to the prevailing regulations, related engagement documents, and the Collective Labor Agreement between the Company and Workers. Penalties for violation of work ethics are stipulated in the Collective Work Agreement between the company and workers. Code of Ethics: Violation and Penalties in 2016 As of December 31, 2016, there was no violation of the Company’s Business Ethics by the Company while while for Violation of the work ethic has been sanctioned in accordance with the Collective Work Agreement between the company and workers.

WHISTLEBLOWING SYSTEM Currently, the Company has issued Whistleblowing System Guidelines established under PGN Directors Decision No: 066303.K/PW.01/UT/2013 dated December 24, 2013 regarding Whistleblowing System Guidelines.

Business and Work Ethics Guidelines The Company has a Business Ethics and Work Ethics Guidelines established by the Decision of the Board of Directors Number: 002600.K/HK.00.01/UT/2013 dated January 25, 2013 concerning Business and Work Ethics Guidelines. These guidelines become references for the company organs and employees in carrying out business activities and dealing with stakeholders.

In line with the Company’s commitment in the implementing GCG, PGN continuously take into account the interests of all stakeholders based on the principles of fairness and equality according to the principles of GCG. However, in practice, due to neglection or lack of attention, the rights of the Company’s stakeholders, often appears violation reports on the part of stakeholders. Reports of violation by stakeholders

Board Manual Board Manual is guidelines for the Board of Directors and the Board in carrying out their duties. Broadly speaking, Board Manual contains work relationship guidelines between Board of Directors and Board of Commissioners, including the duties, responsibilities, ethics, authority and rights. Board Manual is based on the Indonesian corporate law principles that adopts two tiers and are based on legislation, PGN articles of association, GMS and best practices in the implementation of Good Corporate Governance.

If this can not be resolved properly can potentially harm the stakeholders and or the Company itself. Therefore, a standard mechanism is required in handling reporting violations to avoid disputes or protracted dispute between the stakeholders and the Company that may impact on the reputation and public confidence in the Company.

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Whistleblowing Guidance System (Violation Reporting Management Policy) Companies authorized by decree of Directors Number: 066303.K / PW.01 / UT / 2013 dated December 24, 2013, is a system that can be used as a medium for a witness, to submit information on violations indicated to occur in a company that can not be resolved through the normal Company procedures. Reports obtained from the Violation Reporting Mechanism (whistleblowing) is necessary to get the attention and follow-up, including the imposition of appropriate penalties in order to provide a deterrent effect for offenders and also for those who has the intention to commit violation. The objectives of Company’s Whistleblowing System are as follows: 1. As a foundation or implementation guidelines in dealing with violation reports from stakeholders; 2. As a reporting channel to the things that can not be resolved through the normal organization procedures; 3. Ensuring the completion of resolution mechanism of reported violations that is effective and in sufficient time by the stakeholders; 4. Avoid negative publication towards the Company; 5. Support fairness principles in relationship between the Company and stakeholders as the businessmen and Company’s associate 6. As one of the efforts in the disclosure of various problems in the company that is not in accordance with the applicable ethical Company standards

REPORTING VIOLATION REPORT Provisions in Management of Reporting on Company Violation consists of: 1. The Company’s obligation to receive and resolve the violation report. In this the case the Company: a. Is obliged to receive the Violation Report from internal and external parties;

b. Is obliged to receive and resolve the violation report by both reporter with identifications also those without reports. c . Provide violation report management channel that is through the Ethics Committee; d. Ethics Committee shall process any violation report in accordance with the context of the party being reported. 2. Reporting Violation Report The Company has set up a mechanism in Reporting Violations Report, which includes: a. Reporting of violations submitted to the Ethics Committee both concerning the Board of Commissioners, Directors and Workers of the Company; b. Reporting of violation may be done during or outside office hour. c Violation report are reported through official channel of the Company, d The Company receives any violation reports submitted by the stakeholders and / or representative of stakeholders verbally or in writing; e. The Company provides a description of the policies and procedures for reporting violations at the time the stakeholders and / or representatives of stakeholders filed a violation report; f. Reporting of alleged violations are submitted in writing or verbally with the mechanism as follows: • Through Company’s website: www.pgn.co.id, sub section “Reporting Violation” • Through e-mail at [email protected]; • By telephone at extension “ethics”, in which each reporting violations phone logs must be equipped with sufficient information about the reporter and the substance of the report; • Through PO BOX, which will be opened periodically to include Minutes and witnessed by a minimum of two (2) personnel from SPI and GCG; • Official letter addressed to the Company c.q PGN Ethics Committee, by way of direct transfer or by mail to the Company at the address: Komite Etik PT PGN (Persero) Tbk The Manhattan Square Mid Tower, 26th Floor Internal Audit Division.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Good Corporate Governance

g. Reporting violations in writing is advisable to include such supporting evidence such as: documents relating to the evidence of an early indication of violations; h. If violation reports which is submitted in writing, the Company provides a receipt, and if the violation report is not equipped with the identity thus will be recorded in the list Reporting Violation i. If, violation reports filed by representatives or stakeholders, in addition to the above documents are also submitted other documents which are: • Copy of identification of the stakeholders and representative of the stakeholders;

• Power of Attorney from stakeholders to the representatives of stakeholders stating that stakeholders give authority to act for and on behalf of the stakeholders; if representatives of stakeholders is an institution or a legal entity, it must be accompanied by a document stating that the party who filed the reporting violations or agency authorized to represent the legal entity. j. The Company shall submit the receipt for violation reports to the stakeholders and / or Representative of the stakeholders which filed the report.

WHISTLEBLOWING SYSTEM PROCESS

Internal

@

External

265

Investigation Result

&

Not Proven

Verified Complaint

Ethic Committee

Ethic Board Investigation Order

Sanctions

Reporting

President Director / Directors

PROTECTION FOR WHISTLEBLOWER Protection for reporter also has to be observed in the Corporate Whistleblowing System. Guidelines. The followings are governed as the form of protection for the reporter: 1. The Company is obliged to protect the reporter; 2. The specified protection for the reporter is to support the courage to report a violation; 3. Protection for the reporter includes: a. Guarantee on the confidentiality of the reporter identification in the report; b. Security guarantee for the reporter and his family. 4. A reporting violation shall receive protection from the company towards adverse treatment such as: a. Unfair dismissal; b. Degrading of position or rank; c Any form of harassment or discrimination, and; d. Records that harms the personal data files (personal record file).

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REPORT HANDLING In chapter III, the Company has set up Guidelines on the measures taken in Whistleblowing System Guidelines in Handling Violation Reports which includes: Recommendations on whether or not an investigation is required based on the received verification reports by the Ethics Committee is given within a period of 10 (ten) business days; The recommendations from the Ethics Committee are then submitted to the Board of Ethics to which then it will be decided whether or not an investigation for the violation reports is required in a period of ten (10) working days; If verification reveals that the violation report is not true and there is no evidence that thus there will be no further processing. On this matter, minutes is made and signed by the Board of Ethics; If verification reveals any indication of violations accompanied by sufficient evidence, the Board of Ethics decided that the reporting violation can be processed to the stage of the investigation; Related to the reporting of violations which involves employee(s) of PGN that requires investigation, must be followed up with an investigation conducted by the Ethics Committee and if necessary use the support of other related functions as well as external parties; The Ethics Committee reported the investigation report to the Board of Ethics; The Board of Ethics shall decide the follow up of the investigation result and determined the status of the reporting violation whether the case will be closed and not proven or is penalized, also will report to the President Director or Board of Directors; In the case where the investigation report is proven involving employee(s) of PGN, thus the follow up shall be settled by the Board of Ethics without involving other parties;

In the case where the investigation result proven that it involves member of Board of Directors, members of Board of Commissioners, Supporting Organ to the Board of Commissioners, and members of Board of Ethics this the follow up is settled by the Board of Directors without involving other parties; Violators whom are proven by the result of the investigation, shall be processed in accordance with the applicable laws and regulations.

PARTIES MANAGING VIOLATION REPORT Whistleblowing System Organ tasked with managing Whistleblowing System is the Ethics Committee which is responsible to the Board of Ethics. The Ethics Committee is an independent function or unit from the day to day operations of the Company and have access to the top leaders in the company. Functions or independent units include Internal Audit Unit (IAU) / Internal Audit, supported by the Legal function, GCG and Human Resources if necessary.

Task division in the Ethics Committee includes 2 (two) sections: 1. Report Receptionist Namely section in charge of receiving the reporting of violations, selecting reports to be processed further by the investigation section (investigation) without opening the reporter’s identity, Reception Reports are also responsible for the implementation of the reporter’s protection program, especially of confidentiality and security aspects of the reporter. For this purpose, the staff in this section has access to legal aid, financial and operational. If required 2. The Investigation Section Namely the duty to conduct further investigations concerning towards reported substantial violations. The objective is to identify and collect required evidence to ensure that a violation has occurred. In the case where there are sufficient evidence, thus the penalty recommended towards the committed violation is given to the Board of Ethics to make the decision. However, if there are no sufficient evidence, then the investigation process

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

is terminated and the violation report is not processed. In order to perform the task, the officer in this section shall receive support and operational access and information on all units being investigated. Ethics Committee is responsible to the Board of Ethics Board of Ethics is the organ responsible directly to the President Director and his duty is to decide the termination of investigation or instruct the execution of an investigation, recommend reporting violation status, penalizing, and monitor the follow up of the reporting violation. Chairman and members of the Board of Ethics consists of the Board of Directors appointed by the President Director and responsible to the President Director. In the event that the proven investigation concerns members of the Board of Ethics, the person being reported can be replaced by one of the members of the Board through the appointment of the President Director.

RESULT OF REPORT HANDLING Each investigation report conducted by the Ethics Committee shall be reported to the Board of Ethics. The Board of Ethics shall decide the follow up of the investigation result and determined the status of the reporting violation whether the case will be closed and not proven or is penalized, also will report to the President Director or Board of Directors. In the case where the investigation report is proven involving employee(s) of PGN, thus the follow up shall be settled by the Board of Ethics without involving other parties. In the case where the investigation result proven that it involves member of Board of Directors, members of Board of Commissioners, Supporting Organ to the Board of Commissioners, and members of Board of Ethics thus the follow up is settled by the Board of Directors without involving other parties. Violators whom are proven by the result of the investigation, shall be processed in accordance with the applicable laws and regulations.

REPORTING THROUGH WHISTLEBLOWING SYSTEM IN 2016 Throughout 2016, there has been no report addressed through the Whistleblowing System reporting channel.

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PREPARATION OF FINANCIAL STATEMENTS The consolidated financial statements are prepared based on the Indonesian Financial Accounting Standards (GAAP), which includes the Statements and Interpretations issued by the Financial Accounting Standards Board Accounting Association of Indonesia (DSAK) and Rule No. VIII.G.7 regarding Presentation of Financial Statements Guidelines issued by the Authority Financial services (FSA). The preparation of financial statements conducted by the Accounting Division. In conducting the preparation of financial statements, Accounting Division is supported by the professional accountant who is equipped with a professional certificate in Accounting both from international institutions and national institutions as follows: • 8 (eight) Accountant has certified CA (Chartered Accountant) issued by the Institute of Accountants Indonesia (The Indonesian Institute of Accountants); • 6 (six) has certified CPMA Accountants (Certified Professional Management Accountant) issued by the Institute of Management Accountants Indonesia (The Indonesian Institute of Management Accountants); • 4 (four) CPSAK Certified Accountants (Certified Statement of Financial Accounting Standards) issued by the Institute of Accountants Indonesia (The Indonesian Institute of Accountants); • 3 (three) Certified Accountant CMA (Certified Management Accountant) issued by The Institute of Management Accountants; • 1 (one) Certified Accountant CPA issued by CPA Australia. • 1 (one) PPJK Certified Accountants (Customs Expert Certificate) issued by the IRB (Financial Education and Training Agency). In addition to professional certification, to enhance the competence and professionalism, of Accounting personnel. Division also participated actively in the following forums Seminars, Congress, Conference, Symposium and Training of national and international such as the Seminar on International Financial Reporting Standards organized by the

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Indonesian Institute of Congress Accounting held by Association Indonesian Accountants, Accounting International Conference organized by the University of Airlangga, Accounting National Symposium organized by the Indonesian Institute of Accountants and Accounting Training held by the Indonesian Institute of Accountants. Accounting Division also actively participates as a speaker in several events such as the Asia-Pacific Conference on International Accounting Issues organized by the Craig School of Business, National Symposium Accounting held by the Indonesian Institute of Discussions in Taxation organized by the Indonesian Institute of Accountants and Taxation Discussion held by SOE Tax Forum.

EXTERNAL AUDITOR EXTERNAL AUDITOR APPOINTMENT PROCESS Based on the General Meeting of Shareholders on April 8, 2016, the Company appointed Public Accounting Firm Tanudireja, Wibisana, Rintis and Fellow member of Price WaterhouseCoopers (PWC) to audit the Financial Statements for Fiscal Year 2016. Based on the company’s Board Manual, The Board of Commissioners is responsible to propose to the AGM the Public Accounting Firm to be assigned to audit the financial statements of the Company for the current year and report to the AGM. The Board of Directors supported the Board of Commissioners in the execution of procurement of KAP until the completion of the audit process according to the scope defined. The appointment process of an external auditor is as follows:

1. The Board of Commissioners supported by the Audit Committee to review the Public Accounting Firm to be proposed at the AGM. 2. The Audit Committee proposes three candidates to the Board of Commissioners to be arranged in order of assessment ranking results. 3. The Board of Commissioners submits the confirmation on the Public Accounting Firm related to the General Auditing Company PT Gas Negara (Persero) Tbk. Fiscal Year 2016 4. The Board of Commissioners propose to the AGM to approve the appointment of the Public Accountant to audit the annual financial statements and requested the delegation of authority and power of the AGM in determining the amount of honorarium of the KAP (Public Accounting Firm); 5. If the AGM accepts the proposal of the Board of Commissioners, AGM determined the KAP, proposed by the Board of Commissioners, when the AGM rejected the AGM will determine the KAP; 6. The Board of Directors implemented the confirmation of AGM. A copy of the contract between the Board of Directors and KAP will be submitted BPK (National Audit Agency) no later than 7 (seven) days after the contract is signed. Based on the specified appointment the scope of audit services which will be implemented by PWC is: 1. General Audit on Consolidated Financial Report of the Company for Fiscal Year 2016. 2. General Audit on Financial Report of Partnership Program and Company Community Development Financial Year 2016 3. Audit Compliance with Laws and Regulations and Internal Control Fiscal Year 2016 4. Performance Evaluation of the Fiscal Year 2016 ended on December 31, 2016 and Key Performance Indicators (KPI) established by the Board of Commissioners. The total cost to audit the consolidated financial statements in 2016 amounted to USD 987 670 794, (including OPE and VAT).

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LIST OF ACCOUNTANTS AND PUBLIC ACCOUNTANT APPOINTED BY PGN OVER THE LAST SEVEN YEARS Fiscal Year

Name of Public Accounting Firms

Accountant

2010

Purwantono, Suherman, Surja member firm Ernst & Young Global Limited

Drs. Hari Purwantono

2011

Purwantono, Suherman, Surja member firm Ernst & Young Global Limited

Indrajuwana Komala Widjaja

2012

Purwantono, Suherman, Surja member firm Ernst & Young Global Limited

Indrajuwana Komala Widjaja

2013

Purwantono, Suherman, Surja member firm Ernst & Young Global Limited

Indrajuwana Komala Widjaja

2014

Purwantono, Suherman, Surja member firm Ernst & Young Global Limited

Agung Purwanto

2015

Purwantono, Sungkoro, Surja member firm Ernst & Young Global Limited

Indrajuwana Komala Widjaja

2016

Tanudireja, Wibisana Rintis dan Rekan member of Price WaterhouseCoopers

Yusron Fauzan

OTHER SERVICES The above parties appointed as PGN-External Auditors for Fiscal Year 2016 have completed their tasks independently according to professional standards of public accountants, employment agreements and the set audit scope. Tanudireja Accounting Office, Wibisana, Rintis and Partners did not provide any other consulting services to PGN

ACCESS TO COMPANY’S INFORMATION AND DATA ACCESS RELATED TO INFORMATION DISCLOSURE In order to provide convenience to the Stakeholders and to comply with the provisions of Law No.14 Year 2008 on Public Information, PGN is constantly updating Company’s information presented to the Public. To comply with the disclosure, PGN also constantly reports all information and fact material to authorities of Capital Market, both through a letter submitted to Financial Services Authority as well as in the form of electronic reporting to Indonesian Stock Exchange. PGN also actively publishes its corporate operations/events through press releases in two languages, i.e. Indonesian and English, and these publications are available for download via PGN website. In addition to the above, with the intention to provide adequate information to existing and potential investors, PGN employs a variety of communication channels, such as phone, conference call, e-mail, and Company’s website. PGN also interacts through direct face to face meetings, one-on-one/group meetings, field trips, non-deal roadshows and conferences. Proactively, the Company follows the activities of these public meeting held by government institutions, as well as securities institutions in or outside the countries, through conferences, public exposure, and investor summit.

Throughout 2016, through Investor Relations Division, PGN has held 116 meetings, 59 conference video calls, Non-Deal Roadshow, and participated in several investor conferences and summits, such as: • Mandiri Investmen Forum – Januari 2016 • UBS Indonesia Conference – Maret 2016 • Goldman Sachs – Danareksa Indonesai Investment Day – April 2016 • CIMB 10th Annual Indonesia Conference – Agustus 2016 • Maybank Kim Eng – IDX Indonesia Corporate Day – Oktober 2016 • DB Access Indonesia Conference – Novemer 2016 • 15th Morgan Stanley Annual Asia Pacific Summit – November 2016

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Furthermore, PGN has also conducted four (4) site visits or a field visits in 2016, namely: to transmission facility of PT Borneo Java Gas in February, to FSRU Lampung in May 2016, to on-shore processing facility (OPF) PT Saka energy Indonesia in Pangkah in August 2016 and PGN Gas stations in Panaran - Batam in October. Site visit is important to introduce and explain directly regarding PGN operational and business development activities to investors/analysts. PGN also continue to strengthen its information technology platform to maintain and improve its reliability in the provision of integrated information, in a timely manner and targeted through its websites and portals www.pgn.co.id and website of Ministry of State Enterprises. For customers and potential customers, more information on PGN is available by sending email to [email protected] or call contact centre at 1500 645. For investors, analysts and Shareholders, they can contact Investor Relations Division by sending email to [email protected] or call at (6221) 8064 1111

ACCESS TO COMPANY INFORMATION As a Public Company, PGN is required to communicate Company information openly to the public in a fast, precise and accurate manner. The Company therefore seeks to strengthen its advanced electronic platform of information to maintain and improve its reliability in the provision of integrated information via website www.pgn. co.id. The Company’s website provides information regarding: 1. Shareholder Information Information regarding Shareholders of the Company, located under the section “Investors”.

2. Code of Ethics Information regarding Company’s Code of Ethics is available under “About PGN” page, the Code of Ethics and Governance. This information is presented in the form of Guidelines of Good Corporate Governance, Code of Business Ethics, Work Ethics, Conflict of Interest Policy and Control Gratification. 3. Information regarding General Meeting of Shareholders On every Company GMS, starting from the announcement, the call, and resolutions of GMS, the Company always list these information on the Company’s website. Announcement; www.pgn.co.id > News The Call; www.pgn.co.id > News GMS Resolution: www.pgn.co.id > News > Publications 4. Corporate Financial Information Information regarding corporate finance is available under “Investors” page, which includes information about Company’s Financial Statements, Annual Report and all the complete Financial Report over the last 5 years, Analyst Coverage, Income Estimates and other Basic Report/Information. 5. Committee Charter Information related to committee in the Company is provided in ; About PGN > About Us > Code of Ethic & Good Governance. 6. Other Information In addition to the above information, the Company’s Website also provides information regarding Company’s operations, safety, society and the environment, PGN employees, as well as the latest news about the Company.

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CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

Good Corporate Governance

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Corporate Social and Environmental Responsibility

CONTRIBUTION TO THE SOCIETY PGN is committed to participating in the improvement of welfare and sustainable economic growth through community empowerment and environmental conservation efforts. PGN adopts the definition of social and environmental responsibility as clearly defined in the article 1 paragraph 3 and article 74 of Law No 40 Year 2007 concerning the Limited Liability Company. In 2012, the implementation of social responsibility is re-affirmed through Government Regulation No. 47 Year 2012 as mandated by Law No. 40 year 2007. In general, the Social and Environmental Responsibility (SER) is known by the international community with Corporate Social Responsibility (CSR). Therefore, as a Company listed in the Stock Exchange, SER is the form of PGN’s CSR. According to the international community understanding that is also adopted by PGN, CSR is not only charity activities, but wider than that, it covers sustainable concerns on the environment, respect for the human rights, obligations to provide comfortable office and good work relations with the employee, prioritize the preservation of occupational health and safety and also participate in improving the local economy and community. SER is the commitment of PGN to participate in realizing the sustainable economic development in order to improve the quality of life and environment that is beneficial, either for the Company, local community, society, and for the next generations.

PGN is convinced that its existence will be well accepted by the society and other stakeholders if the SER implemented in the correct and responsible way. With its role as the agent of development, PGN engages its business that is environmentally sound and participates in the Government efforts to embody the prosperity of the people, through the implementations of various programs that concern with the environment, social and society. The implementation of CSR in PGN is referring to the CSR basic concept which called as PGN Share, namely: • Contribute to the improvement of community WELFARE; • Create HARMONIOUS relationships with the stakeholders; • Partnership program and sustainable environmental development program are MANDATES; • RESPONSIVE to the society social issues; • EMPATHY to the society social issues. CSR in PGN covers 7 core subjects, among others: 1. Organizational Governance; 2. Human Rights; 3. Labour Practices; 4. Environment; 5. Fair Operating Practices; 6. Consumer Issues; 7. Community Involvement and Development.

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CSR

HOLISTIC APPROACH COMMUNITY INVOLVEMENT AND DEVELOPMENT

HUMAN RIGHTS

Organizational CONSUMER ISSUES

LABOUR PRACTICES

ORGANIZATION governance

FAIR OPERATING PRACTICES

THE ENVIRONMENT

INTERDEPENDENCE

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ENVIRONMENT

POLICIES PGN tries to create sustainability not only by committing to safety, health, and environment, but also actively participate in optimizing the energy utilization as an inseparable unity. The environment and energy policies are integrated into the Policy of Occupational Safety and Health, Security, and Mangement of Environmental as well as Energy (K3PPLE) and various programs related to the policy of environmental management system which has been implemented in 2016. This K3PPLE policy is conducted through the following efforts: 1. Undertake proactive and preventive actions in order to achieve work environment that is healthy, safe, secure, eco-friendly and efficient in the energy utilization; 2. Undertake risk management effort related to illness caused by work, work accident, security threats to assets, and environmental pollution;

3. Comply with law provisions and other requirements that are applicable to occupational safety and health, security and environmental management as well as energy sectors; 4. Provide mentoring to each employee to improve awareness and competency in occupational safety and health, security, and environmental management as well as energy sectors; 5. Undertake energy conservation efforts to reach efficiency and optimization of energy utilization; 6. Involving community around the company’s operational area as instrument of security and environmental management; 7. Evaluate the Work Safety and Health, Security and Environmental Management as well as Energy Management System regularly for continuous improvement.

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PGN is determined to create a work environment that is healthy, safe, secure, and eco-friendly at all business management areas.

In its implementation, PGN sets the following targets for environmental management in 2016: Item

Target

Implementation of Environmental

Document of Work Reference

Management System (SML)

for Environmental Management System is prepared

Environment

Leading Indicator

Implementation of SML Internal Audit

1x/year

% Follow-up of the Audit Result

100%

Completion Lagging Indicator

PROPER achievement

Blue

Environmental Pollution

0%

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To achieve such targets, a roadmap of environmental continuous improvement is set as follow:

Level of Environmental Pollution

ENVIRONMENT ROAD MAP

Continuous Improvement

Starting • Implemented by force (Government warning, public complaints, etc) • Implemented by Environmental Pollution function • Lack of management involvement

Compliance • Comply with government regulations, mainly: - Environmental Impact Assessment (AMDAL)/ Environmental Management EffortsEnvironmental Monitoring Efforts (UKL-UPL) - B3 (hazardous and toxic materials) Waste - Liquid Waste - Air Pollution • Implemented by the relevant function • Management commitment arises • Environmental Pollution Work Reference existed • Environmental Pollution training existed

THE UNDERTAKEN ACTIVITIES PROGRAM In distributing natural gas, the operational of PGN did not give significant negative impact on the environment, but the PGN’s operational activities stayed to fulfill environmentally sound principles. Each PGN’s activity always equipped with AMDAL (Environmental Impact Assessment) or UKL-UPL (Environmental Management Efforts-Environmental Monitoring Efforts) and has environmental permits from the relevant institutions. Not only maintain the operation reliability, PGN also maintains the environmental

Beyond Compliance • Implementing Environmental Management System • Being oriented to resources conservation efforts (energy efficiency, emission reduction, B3 (hazardous and toxic materials) waste, liquid waste, garbage) • Environmental Pollution is an integral part of the company’s business process • Awareness improvement

Environmental Efficiency • Oriented to resources conservation efforts (energy efficiency, emission reduction, B3 (hazardous & toxic materials) waste, liquid waste, garbage, protection To the Heart) • Also, develop the surrounding community in the environmental conservation • Become the Company’s pride • Has become a culture

quality in compliance with the environmental quality standards set by the Government. The commitment of PGN in the environmental management are among others as follows: a. Material Use In developing distribution network and transmission, PGN also used pipes made from steel or PE (Poly Ethylene) plastic with a thickness that has been calculated carefully. The pipes are coated by PE and other protective layers that are antirust, long lasting and can be buried in the ground for long term (about 30 years). The purpose is to minimize impacts to the environment.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

For paper usage in the operational activities, PGN has the policy to reduce the use of papers with electronic mailing system (e-SMS). This system is able to suppress the amount of paper consumption in administrative activities. b. Waste Management To preserve the environment, PGN provides special attention to hazardous and toxic materials (B3) waste management. Although it generates very little B3 waste, PGN is committed to managing all that wastes in accordance with Government Regulation No.101 Year 2014 concerning the B3 Waste Management by collaborating with the licensed B3 waste manager. 2016, PGN has managed to reduce the number of B3 waste for 3 tons compared to 2015. As much as 16 tons of B3 waste resulted in 2016 has been well managed. For example, the used impurities absorbent material or filter placed inside the pipes to be treated according to the prevailing regulations in order not to pollute the environment. c. Energy Audit In line with the Policy of Occupational Safety and Health, Security and Management of Environment as well as Energy (K3PPLE), then as one of the embodiments of the Company’s corporate responsibility related to the aforementioned is PGN’s effort in managing the consumed energy. In 2016, PGN has undertaken energy audit in cooperation with PT Energy Management Indonesia (Persero).

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Energy Audit is an activity to determine the actual energy performance of an energy utilizing facility and identify steps so that the energy performance be optimal and efficient through the reduction of losses incurred in the process of energy utilization while maintaining its effectiveness and productivity. The Energy Audit Program has strong legal basis especially with the issuance of Law No. 30 Year 2007 concerning Energy, particularly Article 25 concerning Energy Conservation and Government Regulation No.70 Year 2009 concerning Energy Conservation. The purposes of this activity are: • Knowing a comprehensive overview of the energy utilization that includes types and numbers of energy use, energy intensity, energy use load profile, energy equipment performance, energy balance; • Knowing the benchmark of energy intensity to discover the level of effectivity and efficiency of the energy use; • Evaluating the Energy Management System; • Identifying energy efficiency possibilities; • Providing recommendation to change the way or substituting energy-consuming devices with more energy-efficient devices with the same function along with the benefits, relevant costs, as well as the implementation action plan. The energy efficiency implementation program derived from the results of PGN’s energy audit, i.e: • Lamp replacement program from CFL type to LED Bulb type. • Refrigerant replacement program from R-22 type to hydrocarbon type.

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d. The Use of Eco-friendly Energy PGN also encourages the use of natural gas as an eco-friendly energy for the community by: • Provision of Mobile Refueling Unit (MRU) for vehicles as a pilot project with regard to the campaign of clean and eco-friendly gas energy use. The MRUs which have been operating among others IRTI MRU, Waduk Pluit MRU, Grogol MRU Grogol and Gresik East Java MRU; • Establishment of GASKU, a Natural Gas Fueling Station. The launching of this gas fueling station is a real form of PGN’s consistency in expanding the domestic natural gas utilization and supporting the Government program in gas fuel conversion for transportation. • The use of solar cell for outdoor lighting and tower repeater along the Grissik-Labuhan Maringgai transmission pipelines; • The use of gas fuel for all PGN’s operational cars. In further, PGN will continue to be committed to creating innovation and creation for the efficient and environmentally sound operational activities. e. PROPER PGN’s observance to regulations can be seen at PGN’s participation in the Assessment of Company’s Performance Rating in Environmental Management (PROPER). The PROPER assessment is based on Regulation of Minister of the Environment Number 3 Year 2014 concerning PROPER. PGN has succeeded in obtaining Blue PROPER at GDM I Offtake Cimanggis Depok Station, GDM II Eastern Part of Java, GDM III Northern Part of Sumatera Offtake

Panaran Batam Station, and GTM Compressor Pagardewa South Sumatera Station. Such achievement results have shown PGN’s commitment in the environmental management. PGN will continue to commit and strive for continuous improvement in energy efficiency, resources conservation, and biodiversity as well as waste reduction to be a green company. f. Carbon Accounting Some Carbon Accountings have been developed by many organizations with internet basis. However, the carbon accounting that had been scattered in cyberspace tends to be based on lifestyle, technology, and practices that exist in developed countries, specifically European and North America countries. The used emission factor is also more relevant to the development of technology that existed in such countries. Therefore, many of the features or activities that are not relevant or appropriate to daily conditions in developing countries. The carbon accounting that has been developed by PGN, is a part of environmental transformation activities that has been run PGN since 2013. The scope area of carbon accounting that has been developed by PGN only covers an area of emission from energy use either electricity from PLN or from its power plant and emission from the operational vehicle use dan business trip. This is in line with the Presidential Regulation Number 71 Year 2011 concerning the Implementation of National Greenhouse Gas Inventory. In 2016, PGN succeeded in reducing carbon emission as much as 6.115 Tons of CO2 eq.

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In principle, this carbon accounting is easily practiced by PGN. The operator of carbon accounting may input data of KWh meter electricity consumption, vehicle fuel consumption, and m3 volume of gas usage at certain location and year, which then the emission result of total carbon can be seen in table or chart. The datasheet is prepared by using Spreadsheet Application and also shown in the web-based version. The following are the total of PGN’s carbon emission in 2016:

PGN’S TOTAL CARBON EMISSION YEAR 2016 (IN TONS CO2 EQ) Energy Consumption Activities Venting Instrumentation Blowdown

Carbon Emission Scope 1 (Ton CO2 eq) 2016

2015

2,564.59

890.88

2,777.95

915.5

506.47

80.27

Gas Leak

8.34

1.54

Fuel Gas

37,039.48

47,396.94

Genset Fuel

973.25

990.26

Vehicle Fuel

1762.398

1,473.09

Vehicle Gas Fuel Gas For Chiller Total Scope 1

Energy Consumption Activities Electricity

498.367

566.81

314.84

245.29

46,445.68

52,560.58

Carbon Emission Scope 2 (Ton CO2 eq) 2016

2015

15,837.03

8,217.58

Penerbangan

782.93

625.86

Total Scope 2

16,619.96

8,843.44

g. Implementation of Environmental Impact Assessment (AMDAL) or Environmental Management Efforts (UKL) –Environmental Monitoring Efforts (UPL) The main activity of PGN is to undertake transmission and distribution of natural gas from suppliers to customers. Prior to its distribution, the natural gas needs to be processed in order to obtain quality that appropriates with its specifications. Given the business activities conducted by PGN is based on the utilization of natural resources wealth, PGN then committed to managing the environment wisely and

responsibly. Consequently, PGN has high commitment to comply with all prevailing laws, including Law No. 32 Year 2009 concerning the Environmental Protection and Management. Each operational activity carried out by PGN must mind the provisions stated in the documents of Environmental Impact Assessment (AMDAL) and Environmental Management Plan – Environmental Monitoring Plan (UKL – UPL) as well as Environmental Permits. Therefore, PGN can always anticipate that would arise, and undertake evaluations as well as seek the best alternative solutions in order to mitigate such impact.

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Review on environmental management practices at PGN based on the implementation of Environmental Impact Assessment (Environmental Management PlanEnvironmental Monitoring Plan / Environmental Management EffortEnvironmental Monitoring Effort) amounts to 75 permits which proven by implementation report of Environmental Management Plan-Environmental Monitoring Plan and Environmental Management EffortsEnvironmental Monitoring Efforts every semester. In addition to that, PGN’s compliance to government regulation can be seen on its environmental permits. In 2016, the environmental permits that have been obtained are as follows: 1. Environmental Management EffortsEnvironmental Monitoring Efforts (UKLUPL) on the Installation of Gas Pipeline in the Area Development of Cirebon District. 2. Environmental Management EffortsEnvironmental Monitoring Efforts (UKLUPL) on the Development of Natural Gas Distribution Pipeline and its Supporting Facilities for 27.68 km in Tualang Subdistrict and Minas Sub-district, Siak District, Riau Province 3. Environmental Management EffortsEnvironmental Monitoring Efforts (UKLUPL) on the Development of Natural Gas Distribution Pipeline and its Facilities in Pekanbaru City 4. Letter of Undertaking on the Environmental Management and Monitoring (SPPL) from Cirebon Regional Office

5. Letter of Undertaking on the Environmental Management and Monitoring (SPPL) from Jakarta – Anyer Regional Office 6. Letter of Undertaking on the Environmental Management and Monitoring (SPPL) from Karawang Regional Office 7. Letter of Undertaking on the Environmental Management and Monitoring (SPPL) from Imam Bonjol Medan Regional Office h. Training To support the success of the implementation of environmental transformation activities, training for the involved and relevant PGN’s staff members is required. Training that have been implemented in 2016 were among others: • Training on the Fire Handling Level D with Certification from Ministry of Labor of the Republic of Indonesia • Internal Audit Management System ISO 14001 and OHSAS 18001 • Professional Safety • Internal Audit on the Security System and Work Safety and Health Management System (SMK3) • Safety Information Process • Incident Investigation • Peer Educator Prevention and Mitigation of Tuberculosis / HIV & Aids and Drug Abuse at Work Place • Security Investigation Technic • Basic Safety • Expert of General Work Health and Safety (K3) • IndoHSSE 2016 • Competency Guidance for Supervisor Certification of Work Health and Safety (K3) in Oil and Gas sector • Electric Installation in Hazardous Area • First Aid at Work

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

ENVIRONMENTAL CERTIFICATION AND AWARDS PGN’s principles in the environmental management is adapted from Environmental Managemet System ISO 14001 provision. Periodically, PGN identifies the significant environmental aspects and impacts, environmental regulatory and environmental compliance evaluation, also set environmental objectives and targets, internal audit on the implementation of Environmental Management System, as well as review management implementation on the Environmental Gathering activities. During 2016, PGN obtained environmental performance achievements, among others: 1. Blue PROPER • GDM I Offtake Cimanggis Depok Station • GDM II Eastern part of Java • GDM III Northern Part of Sumatera Offtake Panaran Batam Station • GTM Compressor Pagardewa South Sumatera Station

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2. ISO 14001:2004 Certification In 2016, PGN has succeeded in obtaining ISO 14001:2004 at all Operational Areas as the embodiment of Environmental Management System (SML) implementation in the Company and compliance with the Government policies. 3. Awards • Indonesia Green Awards 2016 for Energy Saving, New and Renewable Energy Development Category • Indonesia Green Awards 2016 for Biodiversity Development Category

ACTIVITIES EXPENSES Expenses for activities that relate to environmental management in 2016 amounted to Rp 1,869,688,000.00

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LABOR PRACTICES

POLICIES

Employees Welfare

Employees are the main capital for PGN, thus PGN is committed to creating a safe and enlightening work environment, supporting employees in achieving their best potential, and creating employees welfare.

The employee’s welfare is assured to attract and get the best human resources, motivate employees to give their best performance, and retain the best employee.

Safe and Enlightening Work Environment

a. Good communications with employees For smooth communications between employees, or between management and employees, PGN has owned and developed a corporate portal that can be utilized and optimized by all employees in order to support communication during daily works, with the following features: • Corporate email application as communication media; • E-SMS application to manage mail archiving; • E-absence application to monitor the employee’s presence;

PGN attempts to create a work environment that can provide safety physically and mentally. The work environment is also expected to inspire employees in doing their activities, working, and innovating.

Best Potential from Employees PGN is committed to producing best potential employees through the improvement and utilization of best competency. The employee’s assignment and placement are adjusted to each employee competency.

THE UNDERTAKEN ACTIVITIES PROGRAM Safe and Enlightening Work Environment

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The Company provides an equal chance to all people, either man or woman regardless of ethnicity, religion, race, class, and gender.

• Knowledge Management Online (KMOn) application as tools to share knowledge and best practices in daily works; • PGN Online Paperless Payment (POPAY) application to process the internal and external payments; • PGN Learning Management System application to manage employees training; • INFOKU application for self-service management of employment data. PGN has also owned other communication media that is PGN Inside in the form of e-magazine.

b. Freedom of Association PGN as a Public Company ensures the rights of the employees to join association by forming a work union. This assurance is given since the Management embraces a paradigm that the relationship between employees and employer is an industrial relation that needs each other. Assurance on the freedom of employees to form a work union is stated in Law Number 21 Year 2000 concerning the Work Union. Employee and work union in an industrial relation has important functions that are, carrying out works according to its obligations, maintaining work order to ensure production, channeling their aspirations democratically, developing skills and expertise, and participate in promoting the company, as well as fight for the welfare of its members and their families.

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The Work Union that exists in PGN is the Work Union of PT Perusahaan Gas Negara (Persero) Tbk which abbreviated as SP–PGN. The status of this Work Union is independent and not affiliated. The SP-PGN has been registered in the labor agency with Number of Registration: 387/II/P/IX/2009 dated 19 September 2009 by Department of Labor and Transmigration – West Jakarta Administration City. The Work Union management spread on each PGN’s organization unit and centralized in the central management board. Membership in the Work Union is not mandatory. PGN believes that currently its relationship with SP-PGN has been running in harmony and each problem can be resolved by consultation. PGN has also formed a Bipartite Cooperation Institution that consists of representatives of Employees and representatives of the Company in accordance with the mandate as stated in Law No.13 Year 2003 concerning Labor, and Decree of Minister of Labor and Transmigration No. Kep 255/Men/2003 concerning Procedures for the Establishment and Composition of Bipartite Cooperation Institution. The PGN’s Bipartite Cooperation Institution has been registered through Decree of the Department of Labor and Transmigration West Jakarta Administration City Number: 2033 Year 2014. The Bipartite Cooperation Institution is really needed to avoid and minimize misunderstanding between both parties, accommodate interests and aspirations of the Company and employees, also bridging the employer and employees to express aspirations and discuss on matters of interest in the Company.

c. Collective Labor Agreement Collective Labor Agreement (CLA) is signed on 1 December 2015 and approved by the Ministry of Labor and Transmigration of the Republic of Indonesia through its decree No.Kep. 198/PHIJSKPKKAD/PKB/XII/2015 on 14 December 2015. The PGN’s Work Union represents the employees in the discussion of CLA preparation with PGN’s management. In that CLA is contained rights and obligations of the company and employees equally. The existence of that CLA is intended to: • Give certainty to the rights and obligations of the Company and Employees that include: industrial relations, work requirements, and the Company’s Code of Conduct; • Strength and improve the cooperation between the Company and Employees; • Arrange settlement of dissent fairly so as not to lead to disputes and any differences will always be resolved through deliberation and consensus. d. Timing for Work, Rest, and Permission To Leave Work To avoid excessive labor exploitation, the company has set a limit of working time for employees. Working time is adapted to working area and nature of work. PGN applies regular working time, shift working time, and special working time for working implementation at a certain area. If the employees work overtime, then they will receive overtime fees as compensation in accordance with the provisions of law.

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In the operational work that is required to run its activities in reliable for 24 hours a day, PGN uses a shift system. The shift necessity is adjusted to conditions faced in the field, however, usually there are 2 - 3 shifts in a day. If exceeds the time limit of the work shift, then the relevant employee will be given compensation calculated in reward work that has been known and agreed. This system is intended to prevent actions that categorized as forced labor.

The equal opportunity is given to all employees for joining Training and Education programs, both from the executive level to the top management. Throughout 2016 has been held in-house training that includes 27 managerial competency programs followed by 701 participants, 105 technical competency programs followed by 2441 participants, 97 public training programs followed by 254 participants, and 18 educational programs followed by 35 participants.

During work, every employee is given the opportunity to rest at certain hours and take annual leave and service leave once in every 3 years. PGN also gives compensations to employees that include permission to leave work with Basic Salary for some purposes, permission to perform pilgrimage and other religious worships, maternity leave and menstruation leave for women employees.

PGN complies with a policy for not hiring children under age and up to this report is made, the youngest employee of PGN is 22 years old. Minimum age requirement for the Company’s employee candidates is 18 years. This is in accordance with the Government decision to ratify the ILO Convention.

e. Human Rights PGN respects for human rights by applying the practice of non-discrimination based on gender, ethnicity, religion or political affiliation. This is reflected in the everyday work environment as well as the implementation of new employees recruitment. The equal opportunity is given to all people, either man or woman, regardless ethnicity, religion, race, class, gender, or physical condition to participate in the PGN’s employees recruitment program. Appointment of candidates based on the selection results, evaluation results on probation and employees orientation.

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Facilities for the Development of Best Potential from the Employees a. Competency Management The basic for guidance and development of PGN’s HR is competency, both managerial competency or technical competency.Guidance and development were carried out with methods of education, training, special assignment, or mutation program and promotion. Periodically, employees get the view of their mastered competency based on the result of the assessment process. PGN proves its commitment to developing HR organization according to strategic work scope, and forming a special unit that handles talent management in the HCM organization structure, with the scope of tasks and roles as follows: 1. The creation of a competency-based HR system that is comprehensive and integrated. 2. The availability of dictionary and competency profiles corresponding to business processes and organizations. 3. Gap identification of each employee competency. 4. The creation of talent management 5. Talent development corresponding to the Company’s needs. 6. Maintain potential employees and motivate them to perform the best

In its implementation, the management of competency data is carried out by using a Competency-based HR development model (CBHRM) and competency development plan through education, training, special assignment or mutation program, and promotion. This shows PGN’s seriousness in managing its employees’ professionalism. b. Employees Educations and Training PGN continuously guided and developed employees to meet the required competencies and skills. The Education and Training Program is consistently carried out by PGN to maintain and create the best employee competency. The competency development program is prepared in planned, systematic, and focused on the Company’s business development. PGN has patterns, syllabus, modules, and guidelines for facilitators of education and training programs for technic, operation, and commercial sectors that are directly related to revenue, natural gas distribution reliability, as well as PGN’s external customers satisfactory.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

c. Performance Management Performance Management is a supporting tool for the management to monitor the work achievement of each employee and feedback for the employee on what things to be improved. The Individual Performance Management System (IPMS) that has been implemented since 2012, allows each target of an employee should refer to the Priority Business Strategy (PBS) of the company and associated with the target of their respective superiors. The target of the company is directly supported and distributed into the target of each Director, to be continued until the executive level. With the implementation of IPMS, all employees are encouraged to give their best performance because they understand that the work performed contributed to the achievement of PGN corporately. IPMS has been supported by a web-based application that is used by all employees to input information on the performance management. All employees made the target with SMART (Specific, Measurable, Achievable, Reasonable, and Time-bound) basis in the beginning of the year, as well as connected with the target of the superior and in accordance with PBS. At the end of the first semester, every superior is required to provide feedback on achievement that has been made. At the end of the period, an appraisal on individual achievement is undertaken and the appraisal rating is given in accordance with provisions that consisted of six categories, which are Outstanding, Very Good, Good Plus, Good,

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Reasonable, and Unsatisfactory. The determination of employee performance appraisal rating is aligned with corporate performance achievement. The result of such performance appraisal becomes the basis for the determination of remuneration, employee career, and employee’s development plan. d. Employees Turnover Level In 2015, PGN had a transformation that caused its organization structure to become leaner and strategic, this results in a total of 1477 employees, as many as 374 people assigned to the Subsidiary in accordance with their respective fields of competence. This provides the positive impact that can open opportunities and wider personal development for individuals, an increase in contributions to the better PGN, and helped promote subsidiaries in accordance with their respective excellence and professionalism under the control of PGN Holding.

Employees Welfare a. Remuneration The Remuneration System of PGN which runs currently has been applied since December 2010 in response to the needs of PGN to three main issues, namely: • To attract the best talent; • To motivate existing employees so they could give their best contribution to the achievement of company’s vision and mission, and; • To retain existing talents so that they remain in PGN.

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In designing that remuneration system, the internal equity and external competitiveness always become the main references. The goal is to have a fair remuneration system. To be internal equity, all existing positions evaluated to obtain positions value (grade). While to maintain external competitiveness, PGN regularly followed salary surveys to see the position of the PGN’s compensation package against similar companies in the market. b. Benefit Program Other than interesting remuneration package, PGN also offers various very attractive benefit programs for employees and their families, such as health care program, medical insurance, accident insurance, hajj or pilgrimage cost aid, educational scholarship and others. Some of the benefit programs that were launched by the management in 2016, among others: • Employee Assistance Program Started in mid-2013, PGN provided an Employee Assistance Program (EAP). This EAP program is an additional health facility for employees and their families in the form of

counseling services. Each employee could meet in person or over the phone with a counselor to have consultations on the problems, either for personal problems, family, or in connection with the performance of the company. EAP data is secret and will not be a part of health record or personal data of the employee, as well as only known by the EAP Counselor and the relevant employee. With this EAP, employees were helped to solve their problems, so that with the completion of that problems, the employees are expected to be more focused on their works. Not just serves curative counseling services, EAP is also equipped with preventive activities such as seminars to remote areas as well as articles related to mental health. With this EAP, employees were helped to solve their problems, so that with the completion of that problems, the employees are expected to be more focused on their works. As of the end of 2015, the number of employees who have participated in EAP as many as 143 people throughout the areas of PGN.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

• Post-Retirement Health Program PGN as one of leading SOE, PGN is putting a lot of concern related to preserving their employee’s health. Management and PGN Labor Union has develop Post Retirement Health Program focusing to answer and fulfill health requirement cost when the employee has enter into retirement age, through management scheme program by PGN Retiree Welfare Foundation. PGN has revitalized its foundation as on of its preparation to PostRetirement Health Program management and guarantee its transparency and accountability of its funding management, with mutual corporation principle, “from us, by us, to us”. Through this program the retirees would be able to secure their health preserverence in all Indonesian territory through medical card from health insurance company. This program was held as PGN appreciation to their services from the retiree as predecessors who have helped to make PGN nowdays.

Corporate Social and Environmental Responsibility

ACTIVITIES EXPENSES During 2016, PGN has performed 20,688 man-days to realize the employees educational and training programs with total costs amounted to Rp. 39,114,062,860.-

291

292

Corporate Social and Environmental Responsibility

OCCUPATIONAL HEALTH AND SAFETY

POLICY Occupational Health and Safety (Health and Safety) management in the Company is a substantial thing due to its high risk of the activities of PGN’s business management that engages in natural gas transmission and distribution. With a good Health and Safety management, then all possibilities that can cause occupational accident and health can be minimized or even disappeared.

Along with the Company’s Vission namely to become a World-Class Energy Company in Gas Sector in 2020, then the Health and Safety management of PGN must be in line with this vision. This is shown in the Policy of Health and SafetyPPLE that has been stipulated. This policy focuses on the implementation of Health and Safety management system in all Health and Safety activities in the Company by strengthening the implementation of Plan, Do, Check and Action principles. Apart from that, their awareness on the energy conservation as a form of the Company’s participation in the energy utilization.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Corporate Social and Environmental Responsibility

Aspects of environmental control, occupational health and safety are the main concern of PGN as its effort to become a world-class energy Company.

The objective of occupational health and safety in the PGN Vission

Policy of occupational health and safety – Environmental and Energy Protection

293

294

Corporate Social and Environmental Responsibility

MODEL OF HEALTH AND SAFETY MANAGEMENT SYSTEM ACCORDING TO OHSAS 18001:2007

Continuous Improvement

5

Assessment and Improvement Actions

Ac t

Management’s Review

Ch k

ec

4

2

Health and Safety Policy

3

Planning

an Pl

6

Using PDCA cycle approach

Do

Implementation and Operation

Health and Safety Management System Labor protection implementation efforts from the occupational hazards, achievement of high-level health and safety as well as work comfort level will ultimately positive effect on the productivity improvement. A work environment that is secure, comfort, and safe must fulfill various requirements of safety management system, especially in meeting the requirements of a production process. This covers how far PGN is looking health and safety issues in its activities to produce a good product. To PGN, a good occupational health and safety issues handling means: • Increasing the welfare of employees and their families, lower costs for accident compensations that need to be paid; • Lower improvement costs; • Low costs of prevention compared to costs of industrial accident handling; • Maintaining the good image of the company extensively.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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Work accidents and health problems happened to an employee are not becoming problems for the relevant employee but also for his family as well as a great loss for the company. Work accident at the workplace, in general, can be prevented without the need for high investment. To be able to perform a good occupational health and safety principle, the company and the employee must use a good business sense and follow the regulations and existing rules.

Health and Safety Target In an attempt to the sustainability improvement of Health and Safety management system implementation, then efforts of continuous improvement were made. This is shown in the increase of target which relevant with the growth of the company’s Health and Safety performance.

296

Corporate Social and Environmental Responsibility

To achieve those targets, the following roadmap is set to create continuous improvement:

Level of Illness Caused by Work

HEALTH ROAD MAP

Continuous Improvement

Starting Level • Do not have Occupational Health System • Implemented by the nurse of Health and Safety function • Only oriented to the treatment of work accidents/ illness caused by work/common disease

Basic Service • Comply with government regulations • Implemented by certified Doctors and Nurses • The management commitment grows • There is a work reference • Promotional program existed

International Standard Service • Have Occupational Health System • Implemented by Occupational Health Specialist practitioners • Oriented to promotion and preventive efforts without neglecting treatment and rehabilitation

Comprehensive Service • Implemented by a team of multidisciplinary • Provide health care that is comprehensive and integrated with the company’s business process • Use the highest occupational health service standard

SAFETY ROAD MAP

Level of Security Threats

Na

tur al I

nst

inc

t Req uire a

Continuous Improvement Sup ervi sion

Indep enden t

Coopera te Reactive • Health and Safety due to natural instinct • Structuring the company’s goals • Health and Safety is delegated to Health and Safety Manager • Lack of management involvement

Dependent • The management commitment grows • Health and Safety training existed • Health and Safety procedure existed • Control by superior in achieving goals

Independent • Each individual has Health and Safety knowledge and standard and committed • Health and Safety has been internalized • Be a value for yourself • Care for yourself • Has been practiced • Become a culture • Communication improvement

Interdependent • Helped other people to implement Health and Safety • Maintaining the safety of others • Become the pride of the company • Contributed wholly • Health and Safety is communicated openly

Health and Safety Reporting PGN submits reports to regulators regularly. Those reports were submitted to Department of Labor and Transmigration every three months and to Directorate General of Oil and Gas every month.

Health and Safety Achievement The highest commitment of Top Level Management and serious efforts from all PGN in cultivating the awareness of Health and Safety risks, make some incident parameters that become the Health and Safety working references improved. In 2013, there was no work accident that causing lost work hours. In 2014, there was 1 (one) fatality incident fatality that causing lost safe work hours in the Infrastructure PMO environment. In 2015 and 2016, thanks to the support from all PGN’s members, there was no work accident that causing lost working hours.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Corporate Social and Environmental Responsibility

Safety Metric Safety Metric is a performance indicator of each Work Unit in the Health and Safety management and implementation. Through this metric, PGN monitors, evaluates, and determines improvement steps for the achievement of Health and Safety each month.

ACCIDENT 2016

S

HEALTH 0

ENVIRONMENT 29 Pollution

Occupational Illness

SAFETY

SECURITY

0

Fatality

6

1

RWC

29 Near Miss

6

MTC

First Aid

10 Venhicle

29 Security Breach

19 Property

THE REALIZATION OF ACTIVITIES IN 2016

HSSE Campaign through media: • Poster • Flyer • Wallpaper Desktop

HSSE Awards for Non-organic Employees

Health Education 1x/3 months

RCA Participation 44.34%

Observation Participation 24.91%

HSSE Meeting every month

Revision and Socialization of HSSE Work Reference Document

Security Awareness Implementation

297

298

Corporate Social and Environmental Responsibility

SAFETY METRIC YEAR 2016 ITEM

HEAD OFFICE

GDM I

GDM II

GDM III

INFRASTRUCTURE PMO

GTM

TARGET

Fatality

0

0

0

0

0

0

0

Heavy Accident

0

0

0

0

0

0

0

Medium Accident

0

0

0

0

0

0

0

LTIF

0

0

0

0

0

0

0

Light Accident

0

2

0

0

0

5

<3

0

0

0

0

0

0

0

3

2

4

0

1

First Aid

0

0

1

0

0

5

Near Miss

16

0

0

0

1

12

0.65

0.22

0.20

0.19

0.15

0.02

0

0

0

0

0

0

0

51%

73%

75%

100%

100%

100%

100%

53%

100%

100%

100%

100%

100%

100%

35%

36%

53%

69%

100%

100%

100%

100%

100%

100%

100%

1005%

99%

100%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

Lagging Indicator

Incident

Heavy Accident on Vehicles (Vehicles Accident with value ≥ 50 million Light Accident on

Health

Vehicles

TSAF llness Caused by Work

RCA

- % Participation - % Follow Up

Observasi

Severity 4/5

- % Participation % Periodically

Health

Medical Check up

Not targeted Not targeted Not targeted Not targeted

% Mutation/ Rotation Medical Check up Work Environment Measurement Certification of OHSAS 18001:2007 Health and

Audit

Leading Indicator

Not targeted

Safety Audit Implementation % Follow-up on the Completion of Audit Results Safe Work Hours

10,837,827

23,607,803 14,662,382

11,130,453

11,467,788

17,557,389

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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Safe working hours The achievement of working hours in PGN shows no lost working time (lost time injury/LTI) until the end of the 2016 report period. Until December 2016, the safe work hours of PGN has reached 89,263,642 hours.

SAFE WORKING HOURS HOLDING

10,837,827

GDM 1

23,607,803

GDM 2

14,662,382

GDM 3

11,130,453

GTM

11,467,788

PMO

17,557,389

GRAND TOTAL

89,263,642

LTI Frequency The performance parameter of PGN’s LTI Frequency shows that in 2016 has been in accordance with the set target which is Zero.

Safe Driving Distance In 2016, in general, in PGN there was no heavy accident. But in Infrastructure PMO there were 2 (two) heavy accidents on vehicles. These accidents have been investigated and reported to the Management for a lesson learned.

SAFE DRIVING DISTANCE 2011-2016 100,000,000 86466510

90,000,000 80,000,000

76062317

70,000,000

62636916

60,000,000 48747499

50,000,000 40,000,000

34157707

30,000,000 20,000,000

17535803.3

10,000,000 0 2011

2012

2013

2015

2016

300

Corporate Social and Environmental Responsibility

Total Sickness Absence Frequency (TSAF) This parameter measures level of occupational health, based on the amount of the number of employees who lost work time due to illness. PGN has the interest to increase the occupational health so that the level of lost time injury decreased, and so as the employees’ productivity increase in overall.

TOTAL SICKNESS ABSENCE FREQUENCY (TSAF) 2011-2016 0.6

0.5

0.45 0.38

0.4

0.3

0.3

0.26 0.22 0.19

0.2

0.1

0

2011

2012

2013

Year

EMPLOYEES HEALTH PROGRAM The Occupational Health Program is implemented in accordance with Regulation of the Minister of Labor and Transmigration No: PER.03/MEN/1982 Concerning the Employees Health Service that focuses on creating a healthy work environment so that illness caused by work can be prevented. The Occupational Health Management is more focusing on the efforts of health promotion, illness prevention, and preparation of First Aid at work. PGN designed and realized various programs to increase the level of employees’ health, and that is possible thanks to the full support of the management.

2014

2015

2016

To ensure the ability of work and identification of illness caused by work or other general diseases, PGN has performed periodically medical examination every year to 1,275 employees. Type of medical examination is adjusted to the potential hazards at work, where the MCU results will take into consideration for employees placement. The medical examination data is managed by using a web-based Electronic Medical Record (e-MR) application so it can be known by the management in real-time. e-MR can be accessed by the employees with a password is required so that the data confidentiality is maintained.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

The Wellness Program is an effort that PGN carried out to prevent degenerative illness (cardiovascular, Diabetes Mellitus, Hypertension illness). An employee who has 3 out of 5 syndrome metabolic symptoms is recommended to join the wellness program.This program has been carried out in 4 areas, namely PGN Manhattan, PGN Ketapang, PGN Medan and PGN Surabaya. This program is preceded by a focus group discussion on November 2016 to 150 people. To ensure the preparation of First Aid and competency of First Aid officers, debriefing for First Aid officers have been conducted followed with competitions for First Aid Officers in PGN Manhattan and Ketapang, the supply of First Aid boxes at all PGN’s work environment in accordance with Regulation of the Minister of Labor and Transmigration Number ER.15/MEN/VIII/2008 concerning the First Aid on Accidents at Work, conduct inspections on First Aid boxes regularly every month, and perform simulations for First Aid officers once every 3 months. The Prevention of Drug Abuse at Work. PGN as part of society elements has realized the importance of industry participation in the Prevention, Combating Drug Abuse and Illicit Drugs (P4GN). In 2016, it carried out the advance level of assistance of P4GN strengthening of DKI Jakarta Province, health education for employees, the formation of peer educator to 20 employees, and education on the prevention of drug abuse outside the Company to students of SMAN 02 West Jakarta as many as 70 people. To ensure a healthy work environment, then the assessment of work environment is carried out in 2016 which followed by the Health Risk Assessment in the PGN’s network and non-network environments which include: • Biology factor (yeast, legionella, and bacteria contaminations); • Chemical factor (Carbon monoxide, carbon dioxide, sulfur dioxide, nitrogen dioxide, ammonia, oxidants, Formaldehyde, total volatile organic compounds (TVOC), SO2, etc);

Corporate Social and Environmental Responsibility

301

• Physics factor (noise, lighting, temperature, humidity, the rate of air exchange, PM10, PM 2.5 ultraviolet, electromagnetic frequency, etc); • Ergonomic factor (Nordic body map discomfort and Identification of video display terminal) • Psyco-social factor (survey diagnostic stress, self-reporting questioner, and life event stress questioner) • Examination of drinking water and clean water. To increase the employees’ awareness, a health education program is performed in 2016 with details as follows: 1. Health Education with themes: • Prevention and Early Detection of Cervical Cancer at PGN’s Kartini event in April 2016 which was followed by 200 employees. • The socialization of illness caused by work in PGN Group environment which was followed by 50 employees. • The prevention and early detection of cancer to employees which was followed by 230 employees. • Roadshow for HIV & AIDS prevention and mitigation that was followed by 250 people. 2. Provide health education at PGN’s portal/desktop with themes: • Movement of people lives healthily. • Recognize 7 symptoms of “office syndrome” • Dengue chikungunya zika • The benefits of quit smoking • Lung Tuberculosis Voluntary counseling and testing HIV. PGN supports the government program with target 90% of the employees know the HIV status HIV that aims to break the chain of HIV transmission. In 2016 the voluntary counseling and testing HIV has been conducted for 3 times with coverage number of 210 people. That examination is voluntary and the result is confidential. Illness Prevention. To protect employees from hepatitis B and prevention of cervical cancer female employees, a hepatitis B immunization program to employees who do not have antibodies to hepatitis B and a Human Papilloma Virus immunization for 150 Female Employees were undertaken.

302

Corporate Social and Environmental Responsibility

CERTIFICATIONS AND AWARDS OF K3 IN 2016 PGN obtained various acknowledgment and awards from independent parties. These awards received by PGN for its commitment and achievements in applying operational activities that are free from work accident incidents and paying attention to as well as implementing the occupational health program. Those certifications and awards include: 1. PGN Certifications • Security Management System (SMS) Silver Category • OHSAS 18001:2007

2. Awards • Patra Nirbhaya Karya Utama Adi Nugraha I Award for GDM I • Patra Nirbhaya Karya Utama Award for GDM II • Patra Nirbhaya Karya Utama Award for GDM III • Patra Nirbhaya Karya Utama for GTM • Patra Nirbhaya Karya Utama for PT Kalimantan Jawa Gas • Patra Nirbhaya Karya Utama Award for SAKA Energi Indonesia • Patra Nirbhaya Karya Utama Award for PT TGI • Patra Nirbhaya Karya Utama Award for Nusantara Regas • P2-HIV & AIDS Program Award at Work Gold Category for PGN • P2-HIV & AIDS Program Award at Work Gold Category for PGAS Solution • ASEAN-OSHNET Excellence Award 2016 • Zero Accident Award for PMO • Zero Accident Award for PGAS Solution • Zero Accident Award for PT TGI • Award In The Execution of Prevention, Combating Drug Abuse and Illicit Drugs (P4GN) at Work from the National Narcotics Agency

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Corporate Social and Environmental Responsibility

ACTIVITY EXPENSES Expenses for activities that relate to occupational safety and health management during 2016 amounted to Rp18,528,429,824.50.

303

304

Corporate Social and Environmental Responsibility

SOCIAL AND COMMUNITY DEVELOPMENT

POLICY PGN as a Leading State-Owned Company is always trying to improve its best performance to provide maximum benefits for its stakeholders. The strong commitment to always caring and sharing is embodied in the Corporate Social Responsibility (CSR) programs, which consistently executed to help society so that they could improve their welfare with a better life quality. The CSR Program of PGN includes Partnership program, Environmental Development program,

and Social and Environmental Responsibility. Communities around the operational area are the priority to receive the benefits of this program and also possible for other communities as part of support to the government program. Based on Regulation of the Minister of StateOwned Enterprises No. PER-08/MBU/2013 dated 10 September 2013, the funding sources of Partnership and Community Development programs fund balance of profit after tax allowance, also comes from the company’s budget that is calculated as costs. Further, in 2013, PGN adopted a policy that only allocates the Environmental Development Program in the company’s budget, whilst the Partnership Program only manages the available fund balance.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Corporate Social and Environmental Responsibility

305

A strong commitment to caring and sharing is embodied in the Corporate Social and Environmental Responsibility Program.

Since 2015 the policy related to the implementation of CSR program has been changing, either from PGN’s PGN along with the transformation program that is being undertaken so as to change the organization structure of PGN or from the Ministry of State, in line with the amendment of the relevant regulations. Internally, PGN issued a policy to temporarily suspend lending the Partnership Program, so that more focus in solidifying and strengthening the Environmental Development Program around the operational areas. On the external side, there was an amendment to the implementation of Partnership and Environmental

Development program from the Ministry of StateOwned Enterprises with the issuance of Regulation of Minister of State No. 03/MBU/12/2016 on 16 December 2016. Partnership and Environmental Development were undertaken through a variety of programs managed by the Corporate Social Responsibility Division work unit. Broadly speaking, the scope covers the Partnership Program and Environmental Development as well as Social and Environmental Responsibility.

306

Corporate Social and Environmental Responsibility

THE UNDERTAKEN ACTIVITIES PROGRAM

Partnership Program In 2016, PGN temporarily suspended the fund’s distribution of Partnership Program as stated above. Related to the policy that temporarily suspends the fund distribution of Partnership Program, PGN focused more in the return process of current receivables by keep monitoring the implementation of State-Owned Enterprises synergy and the efforts to refund the trained partners’ receivables intensively so that could increase the level of its collectibility. In addition, PGN kept monitoring the business continuity of the trained partners that have been fostered prior to the issuance of that policy. Examples of PGN’s trained clusters among others tenun ikat cluster in Garut which then developed into Tenun Village – Trained Partner of PGN. PGN tried to drive the local economy in all operational areas and its surroundings through Community Development program to decrease the economic disparity in the economic development. This program is emphasized on the community economic development so that the ability of small medium and micro enterprises (SMEs) can be increased to be strong and independent.

Environmental Development Program Natural Disaster Relief In 2016, several disasters happened in Indonesia and as the form of concern and empathy to those who affected by disasters, PGN provided reliefs among others as follow: • Public kitchen post and health services for landslide victims in Banjarnegara; • Food assistance and health services for flood victims in Bima NTB, Garut, Karawang, Kampar, Medan, Sampang and Kendal;

• Food package for earthquake victims in Aceh; • Indonesian standby food that is corned beef for the affected areas; • Indonesia Disaster Emergency Rescue Equipment for flood victims in West Java.

Assistance on Educational and/or Training PGN puts considerable attention in the field of education, the educational reliefs given by PGN in 2016 among others: • The provision of scholarships to 1,125 college students from 15 public universities in Indonesia; • The provision of educational assistance for communities around PGN’s operational areas; • Send 12 young teachers into the Elementary School Mentoring Program in Musi Banyuasin District and Muara Enim District, South Sumatra; • Development of School Reading Park in Cirebon, Semarang, Palembang, Siak, and Mataram; • Distribution of PGN comic book the Country’s Legend series, National Heroes, and Successful People Biography to the communities surrounding the PGN’s operational areas; • Training and development for weaving artisan communities in Garut; • PGN Innovation Camp program that is followed by PGN’s scholarship recipients; • The Students Know The Country Program that is a high-school student exchange program, by sending 20 high-school students from NTB to Jambi and accepting Jambi students in NTB (A State-Owned Enterprise Program “Present To The State”); • The State-Owned Enterprise Teaches Program carried out by 18 schools around the PGN’s operational areas (A State-Owned Enterprise Program “Present To The State”).

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Assistance on Health Facilities In the health sector, PGN has conducted the following programs: • The provisions of 19 ambulance units and 1 hearse for the people of North Sumatera, Riau Islands, Riau, South Sumatera, Lampung, Banten, Jakarta, West Java, Central Java, East Java, West Kalimantan and West Papua; • Public Health Services through 10 PGN’s Healthy Cars that consists of pregnancy examination, supplementation for pregnant women, contraceptives services, basic general health and dental services, examination of infants growth and development, and supplementary feeding for children and infants in the PGN’s operational areas. This activity is carried out in Medan, Batam, South Sumatera, Lampung, Banten, DKI Jakarta, West Java and East Java; • Lebaran Homecoming Health Post that covers health services, distribution of health supplement, provision of entertainment facilities in Lampung, Brebes, and Surabaya.

Assistance on the Public Infrastructure and/or Facilities During 2016, the activities that were carried out in the fields of public facilities and infrastructures are as follows: • Build facilities and infrastructure of clean water supply in West Jakarta, Lampung; Muara Enim, West Jakarta, Serang, Cirebon, and Semarang; • Development of Suspension Bridge in Hamberang Lebak Village (a continued program from 2015) and development of Pasir Buyut village bridge in Desa Pasir Buyut, Jawilan Subdistrict, Serang; • The provision of general infrastructure to build an arboretum in Pagardewa – Muara Enim and build the Biodiversity Park in Bedegung – Muara Enim for green proper which is a continued program from 2015;

Corporate Social and Environmental Responsibility

307

• Repair the roads in the environment off Pantai Makmur village, Tarumajaya Sub-district, Bekasi; • Development of the facilities and infrastructures of clean water in Central Lombok (A State-Owned Enterprise Program “Present To The State”); • Veteran house renovation program for 50 units in NTB area (A State-Owned Enterprise Program “Present To The State”); • Development of 400 toilets in 8 District in West Nusa Tenggara (A State-Owned Enterprise Program “Present To The State”).

Assistance in Worship Facilities In 2016, PGN provided assistances in the field of worship facilities, among others: • Development and renovation of worship facilities and religious supporting facilities as well as religious activities such as donations for orphans, donations for the poor, mass marriage, as well as assistance to religious activities that relate to other feast days; • The provision of sacrificial animal for Idul Adha 1437 H. This relief is given to the communities in the surrounding of PGN’s operational areas.

Nature Conservation Support In the field of nature conservation, PGN provided assistances among others as follows: • Greening Program in watershed upstream of Citarum, Pacet – Bandung which started in 2015 and still being continued in this 2016; • PGN still continue to provide relief for the establishment of the arboretum in Pagardewa Station and Biodiversity Park in Waterfall Tourist Area of Bedegung – Muara Enim. This program is planned for completion in 2017; • Development of green open space in the area of Cikuasa Grogol, Cilegon; • Community-based watershed management program in Kulonprogo; • Mangrove plantation program in Sungai Apit Subdistrict, Siak District – Riau; • Planting shade trees in Mega Mendung Sub-district Bogor District.

308

Corporate Social and Environmental Responsibility

Public Social Assistance to Alleviate Poverty As the form of PGN’s participation in alleviating poverty, PGN provided assistances in the form of training for community empowerment, namely: Training activities for community empowerment, namely: • Provide training and support community development of woven craftsmen in Garut. • Mentoring Program of Assisted Village in Panaran, Pagardewa, Labuhan Maringgai and Bojonegara Stations • Product Branding Training Program for PGN’s Development Partners • Provide Makeup Training for 22 ex-inmates in Mataram, NTB (A State-Owned Enterprise Program “Present To The State”). • Mentoring assistance to 20 ex-national athletes in the form of entrepreneurship training in NTB (A State-Owned Enterprise Program “Present To The State”). The provision of 14,000 food packages to people in Riau, Banten, Jakarta, West Java, East Java, NTB (A State-Owned Enterprise Program “Present To The State”);

Assistance on the development of daycare in markets in Mataram City, NTB (A State-Owned Enterprise Program “Present To The State”); Electricity facilities assistance in the household electrification program for 800 poor households in 8 districts in West Nusa Tenggara (A State-Owned Enterprise Program “Present To The State”).

Assistance on education, training, internship, marketing, promotion, and other assistances that relate to the capacity improvement efforts for Development Partners of Partnership Program As the form of PGN’s participation in improving the capacity of Development Partners of Partnership Program, during the year of 2016 PGN provided the following assistances: • Development partners participation at 2016 IFEX JIEXPO Kemayoran; • Development partners participation at 2016 Inacraft Exhibition.

ACTIVITIES EXPENSES Distribution of CSR Program and Environmental Development Program, both of which use the company’s cost source of funds and profit allocation in 2016 amounted to Rp 129,872,041,136.00

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

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Corporate Social and Environmental Responsibility

REALIZATION OF THE CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITIES PROGRAM IN 2016 PARTNERSHIP AND ENVIRONMENTAL DEVELOPMENT PROGRAM DESCRIPTION

CSR

The Company’s Cost

Profit Allocation

JUMLAH Jumlah

A. ENVIRONMENTAL DEVELOPMENT PROGRAM) Relief for Natural Disaster Victims

238,456,682

2,076,517,236

607,926,775

2,684,444,011

2,922,900,693

Assistances on Education and/or

1,630,881,013

17,142,374,666

8,639,062,655

25,781,437,321

27,412,318,334

6,971,710,735

17,831,773,626

2,647,235,745

20,479,009,371

27,450,720,106

789,034,370

15,649,002,847

5,708,798,800

21,357,801,647

22,146,836,017

Worship Facilities Assistances

12,012,095,208

19,781,654,528

5,673,813,726

25,455,468,254

37,467,563,462

Natural Conservation Support

243,281,196

2,669,131,736

726,971,400

3,396,103,136

3,639,384,332

1,005,818,786

5,417,397,859

1,988,709,897

7,406,107,756

8,411,926,542

420,391,650

420,391,650

420,391,650

Training Assistances on Health Improvement Assistances on the Infrastructure and/or Public Facilities Development

Assistances in the Poverty Alleviation Mentoring Assistance for Development Partners Total Realization of Environmental

22,891,277,990

80,567,852,498

26,412,910,648

106,980,763,146

129,872,041,136

22,891,277,990

80,567,852,498

26,412,910,648

106,980,763,146

129,872,041,136

Development Program B. PARTNERSHIP PROGRAM Soft Loan Mentoring Total Realization of Partnership Program TOTAL (A+B)

310

Corporate Social and Environmental Responsibility

PRODUCT LIABILITY AND CONSUMER

POLICY

ACTIVITIES PROGRAM IN 2016

As companies face several challenges including Indonesia’s natural gas industry which is becoming increasingly competitive and the needs and expectations of customers who have changes, the PGN throughout 2016 have take proactive steps to change for the better by making services to customers as the main focus of purpose of change, PGN constantly adapt to maintain the company’s growth to realize and understand that a desired result will be achieved efficiently when activities and related resources are managed as a process.

During 2016, PGN has implemented the following excellence services program to customers: 1. PGN Contact Center PGN has a contact center service that can be accessed through number 1500645 and email [email protected] Customers and public can contact that number to get all information or to complain or ask question about PGN’s products and services.

Unique and dynamic customer characteristics always are the concern of PGN to be met and aligned with PGN’s ability. Various activities carried out by PGN to meet customers expectations, both from the technical side and excellence service.

PGN Contact Center operates for 24 hours a day and 7 days in a week. Any question on general information about PGN will be directly responded by the Contact Center Agent and for complaints will be forwarded to the authorized officers for further actions. Overall, both questions and complaints will be recorded in the Contact Center database.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Corporate Social and Environmental Responsibility

311

Excellent service by every member of PGN received high appreciations from customers. The achievement of customer satisfaction index in 2015 increased compared to 2014 to 5.3 of 6.00 scale.

In 2016, PGN Contact Center 1-500-645 make corrections to the transformation of the previous decentralization spread across 4 locations (Central Office, SBU 1, SBU SBU 2 and 3) be centralized in the Central Office Lobby Graha PGN with the addition of Agent service Walk- in which are placed in some of the previous Area Sales through Agent Inbound service only. For the implementation of corporate culture ProCISE which one of them is Service Excellence, this complaint handling has response time a maximum of 24 hours of receipt. In 2016, there were 4,372 complaints where all of those complaints were handled and solved less than 24 hours. 2. Customer Satisfactory Measurement PGN in regularly conducts customers’ satisfaction measurement for always be

able to see the consistency of the company’s performance in any chance with customers and keep introspective on the changes of customers’ hope and needs. For the year 2016, the Company conducted a customer’ satisfaction measurement through a survey done by an independent party. These measurement results were Customer Satisfaction Index (CSI), Customer Dissatisfaction Index (CDI), Customer Loyalty Index (CLI), Customer Referral Index (CRI) and Net Promoter Score (NPS). In this 2016, in that measurement process was found many hopes and problems that arise during this time that will be the input for the Company to be able to continue in providing its best services and improving its services performance. For the year 2016, the customer satisfaction measurement was focused on each service encounter and customers expectations/hopes for the future in the midst of natural gas trade market competition. The customer satisfaction survey was conducted to all

312

Corporate Social and Environmental Responsibility

customer segments, namely household, commercial, and industry customers. From the result of a research done in 2016, acquired that CSI of 5.37 higher than the previous year of 5.30 (maximum scale of 6). 3. Customer Gathering In order to establish effective communication, sharing the latest information, educate the market and establish a sense of closer kinship, PGN also active in the Customer Gathering activities. This activity is carried out also in order to get better understand and narrow the gap between the wishes of the customer and the Company’s ability to provide services. Other than Customer Gathering, PGN through the Customer Management Area is also active in visiting the Customer or Prospective Customer in order to establish the harmonization and synergy of natural gas distribution business activities. During such visits, PGN actively gave inputs to Customer or Prospective Customer to increase the efficiency of their equipment utilization as well as to understand the Customer or Prospective Customer business situations which become very valuable inputs for the management to make gas subscribe policies.

CUSTOMER GATHERING ACTIVITIES No 1.

2.

Area

Place

Date

Jakarta

Rusunawa Hall, Pulogebang

14 January 2016

Corpotarien Meeting Hall

28 February 2016

Function Hall, Malaka Jaya Village, RW 03 Perumnas Klender

3 March 2016

Community Hall RW 09 Berdikari Sentosa Garden

5 March 2016

Community Hall RW 011 Tanah Abang Flats

8 March 2016

Community Hall Pulogadung Flats

10 March 2016

Community Hall RW 015 Eramas 2000 Housing

12 March 2016

Community Hall Cengkareng Flats

14 March 2016

Secretariat Building, RW 010 Kemayoran Flats

17 March 2016

Community Hall RW 010 Cilincing Flats

22 March 2016

Cikeas Sentul Pond

26 May 2016

Batavia Sunda Kelapa Marina

16 June 2016

Penang Bistro Central Park

20 June 2016

Bandar Jakarta Summarecon

22 June 2016

Santika Hotel, TMII

23 June 2016

Cikang Restaurant, Menteng

29 June 2016

Function Hall, RW 10, Apron Blok, Kemayoran Flats

29 July 2016

Tangerang

Learning Centre PT Torabika Eka Semesta I

11 February 2016

Meeting Room Manager Torabika Eka Semesta II

17 February 2016

Al Bayyinat Mosque, Sawo Raya Street

22 February 2016

Malabar I Street, Number 120

4 April 2016

Kecipir I Street, Numbero 14

6 April 2016

Jati Street, Number II No 1

27 April 2016

Sempor IV Street

28 April 2016

Santika BSD Hotel

28 April 2016

Perumnas Karawaci

31 May 2016

Grand Ballroom Hotel Atria

20 June 2016

Bandar Jakarta Restaurant

14 October 2016

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Corporate Social and Environmental Responsibility

No

Area

Place

Date

3.

Bekasi

Jababeka Golf & Country Club

6 March 2016

Sport Hall, Blok B, RW 20 Perum Margahayu

21 April 2016

Main Square, RW 7, Subdistrict Arean Jaya Perumnas 3

24 April 2016

Holiday Inn Hotel, Jababeka Cikarang

27 April 2016

Bandar Djakarta Summarecon Bekasi

17 May 2016

Sari Ater Hotel & Resort, Subang

20 – 21 May 2016

Holiday Inn Hotel, Cikarang Jababeka

10 June 2016

Permata Sentul Golf

23 July 2016

Jababeka Golf & Country Club

4 August 2016

Permata Sentul Golf & Country Club

23 September 2016

Royale Jakarta Golf Club

13 September 2016

Sentul Highland Golf Club

10 September 2016

Permata Sentul Golf & Country Club

4 October 2016

Permata Sentul Golf & Country Club

8 October 2016

Distamben Office

14 January 2016

Subdistrict Office, Adiarsa Barat

27 January 2016

Borobudur Meeting Room, Citra Grand Hotel

27 January 2016

Meeting Room, 2nd Flour, PGN Karawang Area

2 February 2016

4

Karawang

Meeting Room, The Manor Building, 3 Flour, Suryacipta Square

4 February 2016

New Meeting Room, Puri KIIC

23 February 2016

Sindang Reret Restaurant

1 March 2016

The Pool Restaurant - Brits Hotel

1 March 2016

Zenfuku - Citra Grand Hotel

3 March 2016

Tenkai - Resinda Hotel

10 March 2016

Perumahan Bumi Karawang Permai Mosque, Karawang

11 March 2016

The Oryza Restaurant - Resinda Hotel

18 March 2016

The Oryza Restaurant - Resinda Hotel

31 March 2016

Fairways Restaurant - Sedana Golf & Country Club

31 March 2016

Seribu Rasa Restaurant

13 April 2016

Sedana Golf & Country Club

20 April 2016

Resinda Hotel Karawang

20 April 2016

Padang Golf Modern

22 April 2016

Hai Wang Restaurant

23 June 2016

Swiss Belinn Hotel Karawang

17 June 2016

Lebak Sari Indah

19 July 2016

Yu Tree Park Restaurant

22 July 2016

Restaurant Good Day

1 August 2016

Restaurant Damai Indah Golf

5 August 2016

Restaurant Good Day

1 September 2016

Aston Sentul Lake Resort & Conference Center

30 May 2016

Gedung Braja Mustika Jl. DR. Semeru Bogor

24 June 2016

Manunggal Subdistrict Field

14 August 2016

PGN Bogor Area Hall

27 September 2016

rd

5

6

Bogor

Cirebon

Jambuluwuk Ciawi Hotel

7 – 8 October 2016

Cirebon Gourmet Convention Hall & Resto.

19 May 2016

Hotel Zamrud Cirebon

26 October 2016

313

314

No 7

8 9

Corporate Social and Environmental Responsibility

Area

Place

Date

Palembang

Al-Aqobah II Mosque, Komp. Pusri Sako Kenten Palembang

18 May 2016

Jl. Batanghari Blok I-5 Komp. Pusri Sukamaju Palembang

24 May 2016

Aston Hotel, Palembang

17 June 2016

Boom Futsal Palembang

23 August 2016

Seven7 Futsal Palembang

4 October 2016

Lampung Cilegon

Hotel Aston, Lampung

23 January 2016

Hotel The 7th, Lampung

20 October 2016

Perum BPI Cilegon

19 February 2016

USSU Hotel and The Royal Hotel

26-27 and 30 May 2016

The Royal Hotel

17 June 2016

Bintang Laguna

15 July 2016

Pesona Metro, Cilegon

13 October 2016

10

Surabaya

Royal Ballroom Hotel JW Marriott, Surabaya

25 May 2016

11

Sidoarjo

Wates Subdistrict, Mojokerto

19 February 2016

Function Hall, Handayani Restaurant

30 March 2016

Sport Center, Sidoarjo

13 June 2016

Sport Center, Sidoarjo

29 August 2016

Perum. Tropodo Indah RW. 04

21 August 2016

Mercure Hotel, Surabaya

August 2016

Wates Subdistrict, Mojokerto

3 October 2016

Sport Center, Sidoarjo

11 October 2016

Perumahan Mutiara Keluarga, Pasuruan

21 February 2016

Community Hall, Suwoyuwo, Sukorejo, Pasuruan

27 February 2016

Community Hall, Suwoyuwo, Sukorejo, Pasuruan

28 February 2016

PT Amcor Tobacco Packaging Indonesia

23 March 2016

PT Bumi Satoria

23 March 2016

Futsal and Badminton Giampur Field, Pandaan, Pasuruan

30 April 2016

Royal Ballroom Hotel JW Marriott Surabaya

25 May 2016

Finna Hotel & Country Club Resort

28 July 2016

Gumaya

15 March 2016

RW Hall, Perumahan Wahyu Utomo

5 March 2016

PGN Area Semarang

7 June 2016

Novotel Hotel, Semarang

15 July 2016

PGN Area Semarang

29 July 2016

Sumber Community Hall, Semarang

29 July 2016

PGN Area Semarang

1 August 2016

Emerald Hotel

27 July 2016

PGN Area Medan

31 August 2016

Labersa Golf & Country Club

23 January 2016

Indah Puri Golf Resort Sekupang

26 February 2016

Labersa Golf & Country Club

12 March 2016

Labersa Golf & Country Club

9 April 2016

Labersa Golf & Country Club

23 April 2016

Labersa Golf & Country Club

21 May 2016

Labersa Golf & Country Club

30 July 2016

12

13

14 15

Pasuruan

Semarang

Medan Pekanbaru & Dumai

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

No

16

17

Area

Batam

Tarakan

Corporate Social and Environmental Responsibility

Place

Date

Labersa Golf & Country Club

13 August 2016

Labersa Golf & Country Club

27 August 2016

Labersa Golf & Country Club

17 September 2016

Labersa Golf & Country Club

22 October 2016

Labersa Golf & Country Club

8 October 2016

Batam Hill Golf Resort Kepulauan Riau

27 February 2016

Perumahan Greenland

23 March 2016

Tembesi Sagulung Subdistrict Office, Batam

7 March 2016

Tanjung Uncang Batu Aji Subdistrict Office, Batam

8 March 2016

Bukit Tempayan Batu Aji Subdistrict Office, Batam

16 March 2016

Sungai Langkai Sagulung Subdistrict Office, Batam

31 March 2016

Buliang Batu Aji Batam

11 March 2016

Perumahan KDA

23 April 2016

Pasum Perumahan Buana Raya Batu Aji Batam

31 May 2016

Perumahan Greenland

26 August 2016

Pamusian Subdistrict Office

24 February 2016

Karang Anyar Subdistrict Office

9 March 2016

Kampung 1 Skip Subdistrict Office

11 March 2016

Selumit Subdistrict Office

23 March 2016

Gunung Lingkas Subdistrict Office

24 March 2016

Karang Anyar Pantai Subdistrict Office

14 April 2016

Selumit Pantai Subdistrict Office

15 April 2016

Lingkas Ujung Subdistrict Office

20 April 2016

Malawele Subdistrict, Aimas District, RT. 01 RW. 01, Kabupaten Sorong

28 January 2016

Malawele Subdistrict, Aimas District, RT. 03 RW. 01, Sorong

29 January 2016

Malawele Subdistrict, Aimas District, RT. 02 RW. 04, Sorong

10 February 2016

Malawele Subdistrict, Aimas District, RT. 03 RW. 05, Sorong

10 February 2016

Malawele Subdistrict, Aimas District, RT. 01 RW. 04, Sorong

11 February 2016

Malawele Subdistrict, Aimas District, RT. 02 RW. 05, Sorong

12 February 2016

Malawele Subdistrict, Aimas District, RT. 01 RW. 02, Sorong

13 February 2016

Handayani Hotel, Aimas, Sorong

5 August 2016

Mr. Jamal’s House, Lurah Malawele, Jl. Seledri

7 August 2016

Mr. Wardoyo’s House, Jl. Labu RT. 02 RT. 04

7 August 2016

Mr. Basor’s Housei, Jl. Gambas RT. 01 RW. 03

9 August 2016

Mr. Abd. Salam’s House, Gambas Street RT. 05 RW. 06

11 August 2016

Mr. Jayadi’s House, Jl. Terong RT. 01 RW. 02

12 August 2016

Handayani Hotel, Aimas, Sorong

29 November 2016

Home of neighborhood association’s Head Sector 3 and 4

17 December 2016

315

316

Corporate Social and Environmental Responsibility

4. PGN Loving Mother Since 2014, PGN launched the PGN Loving Mother Program that aims to support government program in converting the dependence of oil fuel to gas. In addition, also synergized with the Ministry of Energy and Mineral Resources to operate the gas network that has been built in the previous years. 5. Promotion Program In order to introduce the natural gas product and PGN institution to the wide community, especially outside the existing PGN areas/ the planned new development areas, then in 2016, the following promotion activities were undertaken: • Markplus Exhibition Conference 2016 • Participation Seminar Himpunan Kawasan Industri (HKI) • Keramika Exhibition 2016 (ASAKI) • National Seminar Participation Executed by Himpunan Kawasan Industri (HKI) • Participation Jakarta Marketing Week 2016 oleh Markplus • Making Brochures Procedures Bill Payment Domestic Gas Customers • Participation Publishing Directory Asosiasi Industri Keramik Indonesia (ASAKI)

• Participation Jakarta Great Sale Festival 2016 in order Welcomes HUT Jakarta • Purchase PGN Broadcast SMS Token SMS for Domestic Customers (Promotion and Notice of Billing Household) • Participation Event The Best Contact Center • National Electricity Day Fair Participation All 71 were held by Masyarakat Ketenagalisrikan Indonesia (MKI) • Creation Stickers Prospecting Survey PGN • Participation in Investor Event Gathering Industrial Estate Krakatau Industrial Estate Cilegon (KIEC) • Participation Events National Conference of Industrial Estate 7th 2016 • Activity in the Garden Greening and Environmental Development PT. Indonesia Tanjung Priok Power UPJB

ACTIVITIES EXPENSES PGN keeps updating the Service Excellence standard to be able to meet customer expectations and create excellence service for customers. This shows the serious prove of PGN and all members of PGN in creating customer satisfaction and preparing itself in facing various business challenges or competitors in the future. To boost the quality of service and satisfaction to customers, in 2016 PGN had spent Rp 4,592,564,508.-

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

CONSOLIDATED FINANCIAL STATEMENTS

Corporate Social and Environmental Responsibility

07

317

318

Corporate Social and Environmental Responsibility

07

CONSOLIDATED FINANCIAL STATEMENTS

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

319

320

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES LAPORAN KEUANGAN KONSOLIDASIAN/ CONSOLIDATED FINANCIAL STATEMENTS 31 DESEMBER 2016 DAN 2015, DAN 1 JANUARI 2015/ DECEMBER 31, 2016 AND 2015, AND JANUARY 1, 2015

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

321

322

Consolidated Financial Statements

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

323

324

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 1/1 Page LAPORAN POSISI KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015, DAN 1 JANUARI 2015 (Dinyatakan dalam Dolar Amerika Serikat, kecuali nilai nominal dan data saham)

Catatan/ Notes

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2016 AND 2015, AND JANUARY 1, 2015 (Expressed in US Dollar, except for par value and share data)

31 Desember/ December 2016

31 Desember/ December 2015*

1 Januari/ January 2015*

ASET

ASSETS

ASET LANCAR Kas dan setara kas Investasi jangka pendek Piutang usaha - Pihak berelasi - Pihak ketiga Piutang lain-lain Piutang promissory notes Persediaan Uang muka Beban dibayar di muka

1,304,043,250 68,832,771

1,135,502,538 64,669,022

1,130,950,217 92,588,146

8

110,001,213 211,163,487 234,041,757

103,849,943 182,744,626 100,659,573

55,574,614 238,948,856 69,599,876

9 10 11

65,293,227 97,034,964 34,263,560

43,453,022 78,283,079 13,369,034

13,714,628 62,605,239 56,220,753 14,790,377

CURRENT ASSETS Cash and cash equivalents Short-term investments Trade receivables Related parties Third parties Other receivables Promissory notes receivables Inventories Advances Prepaid expenses

2,124,674,229

1,722,530,837

1,734,992,706

Total current assets

5 6 7

Total aset lancar ASET TIDAK LANCAR Piutang usaha - Pihak berelasi - Pihak ketiga Piutang lain-lain jangka panjang Uang muka, bagian tidak lancar

7

NON-CURRENT ASSETS Trade receivables Related parties Third parties Other long-term 61,790,787 receivables Advances, 118,899,606 non-current portion Investment in 403,517,140 shares of stock 1,770,763,161 Fixed assets Exploration and 12,744,097 evaluation assets 1,416,588,326 Oil and gas properties Goodwill and other intangible 50,676,966 assets Estimated claims for tax refund 129,621 Income taxes 73,901,605 Other taxes 37,654,959 Deferred tax assets 7,909,000 Others

222,589,494 52,609

240,717,868 647,410

12

228,013,045

275,839,353

10

60,507,887

117,979,126

13 14

427,438,815 1,828,630,994

387,948,711 1,871,295,357

15a 15b

52,594,652 1,708,665,674

49,947,246 1,636,331,976

16

4,627,160

3,851,047

20,779,992 73,485,563 77,050,565 5,042,289

16,466,112 90,038,765 75,598,358 5,830,095

Total aset tidak lancar

4,709,478,739

4,772,491,424

3,954,575,268

Total non-current assets

TOTAL ASET

6,834,152,968

6,495,022,261

5,689,567,974

TOTAL ASSETS

Penyertaan saham Aset tetap Aset eksplorasi dan evaluasi Properti minyak dan gas Goodwill dan aset tak berwujud lainnya Taksiran tagihan pajak - Pajak penghasilan - Pajak lain-lain Aset pajak tangguhan Lain-lain

22a 22d

* Direklasifikasi, lihat Catatan 45.

Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan konsolidasian ini.

As reclassified, refer to Note 45. *

The accompanying notes form an integral part of these consolidated financial statements.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

325

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 1/2 Page LAPORAN POSISI KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015, DAN 1 JANUARI 2015 (Dinyatakan dalam Dolar Amerika Serikat, kecuali nilai nominal dan data saham)

Catatan/ Notes

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2016 AND 2015, AND JANUARY 1, 2015 (Expressed in US Dollar, except for par value and share data)

31 Desember/ December 2016

31 Desember/ December 2015*

1 Januari/ January 2015*

LIABILITAS LIABILITAS JANGKA PENDEK Utang usaha - Pihak berelasi - Pihak ketiga Utang lain-lain Liabilitas yang masih harus dibayar Pinjaman bank jangka pendek Bagian jangka pendek dari pinjaman bank jangka panjang Utang pajak - Pajak penghasilan - Pajak lain-lain Liabilitas imbalan kerja jangka pendek

LIABILITIES

17 18

25,605,442 86,154,305 107,408,420

30,069,489 86,927,123 84,667,261

32,911,210 104,744,217 115,344,702

19

231,197,395

269,863,474

280,646,193

20b

100,000,000

-

-

20a 22b

170,987,760

121,621,548

29,342,932 13,348,181

10,965,213 10,501,871

23

51,327,452

52,704,202

815,371,887

667,320,181

Total liabilitas jangka pendek LIABILITAS JANGKA PANJANG Utang derivatif Pinjaman bank jangka panjang Utang obligasi Liabilitas pajak tangguhan Liabilitas pembongkaran aset dan restorasi area Liabilitas imbalan pascakerja Pendapatan diterima di muka

SHORT-TERM LIABILITIES Trade payables Related parties Third parties Other payables Accrued liabilities Short-term bank loans

Short-term portion of 47,745,427 long-term bank loans Taxes payable 20,469,702 Income taxes 11,980,692 Other taxes Short-term employee 55,309,832 benefits liabilities 669,151,975

Total current liabilities

25

8,828,746

11,330,750

11,005,055

LONG-TERM LIABILITIES Derivative payable

20a 21

1,296,315,710 1,335,343,701

1,253,416,592 1,333,756,692

473,038,896 1,332,255,514

Long-term bank loans Bonds payables

22d

84,645,847

94,128,626

142,128,120

24

26,306,310

31,535,308

23

94,370,721

77,843,277

2,776,712

2,886,781

Total liabilitas jangka panjang

2,848,587,747

2,804,898,026

2,144,945,955 Total non-current liabilities

TOTAL LIABILITAS

3,663,959,634

3,472,218,207

2,814,097,930

* Direklasifikasi, lihat Catatan 45.

Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan konsolidasian ini.

Deferred tax liabilities Asset abandonment and site restoration 73,554,156 obligations Post-employment 109,928,336 benefits obligation 3,035,878

Unearned income

TOTAL LIABILITIES

As reclassified, refer to Note 45. *

The accompanying notes form an integral part of these consolidated financial statements.

326

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 1/3 Page LAPORAN POSISI KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015, DAN 1 JANUARI 2015 (Dinyatakan dalam Dolar Amerika Serikat, kecuali nilai nominal dan data saham)

Catatan/ Notes

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2016 AND 2015, AND JANUARY 1, 2015 (Expressed in US Dollar, except for par value and share data)

31 Desember/ December 2016

31 Desember/ December 2015*

1 Januari/ January 2015*

EKUITAS Ekuitas yang dapat diatribusikan kepada pemilik entitas induk Modal saham - nilai nominal Rp100 per saham Modal dasar – 70.000.000.000 dari saham yang terdiri 1 saham Seri A Dwiwarna dan 69.999.999.999 saham Seri B Modal ditempatkan dan disetor penuh 24.241.508.196 saham yang terdiri dari 1 saham Seri A Dwiwarna dan 24.241.508.195 saham Seri B Saham treasuri Modal disetor lainnya Saldo laba Dicadangkan Tidak dicadangkan Komponen ekuitas lainnya

EQUITY

26a 26a 26b

344,018,831 284,339,313 2,576,863,351 (12,289,093) (29,757,693)

Total ekuitas yang dapat diatribusikan kepada pemilik entitas induk

344,018,831 (251,054) 284,339,313

344,018,831 (251,054) 284,339,313

2,343,765,418 84,586,366

1,892,288,752 406,140,550

(36,102,749)

(51,095,926)

Total equity attributable to owners of the parent

3,163,174,709

3,020,356,125

7,018,625

2,447,929

TOTAL EKUITAS

3,170,193,334

3,022,804,054

2,875,470,044

TOTAL EQUITY

TOTAL LIABILITAS DAN EKUITAS

6,834,152,968

6,495,022,261

5,689,567,974

TOTAL LIABILITIES AND EQUITY

Kepentingan nonpengendali

27

* Direklasifikasi, lihat Catatan 45.

Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan konsolidasian ini.

2,875,440,466

Equity attributable to owners of the parent Share capital par value of Rp100 per share Authorized 70,000,000,000 shares consist of 1 Series A Dwiwarna share and 69,999,999,999 Series B shares Issued and fully paid 24,241,508,196 shares of which consist of 1 Series A Dwiwarna and 24,241,508,195 Series B shares Treasury stocks Other paid-in capital Retained earnings Appropriated Unappropriated Other components of equity

29,578 Non-controlling interests

As reclassified, refer to Note 45 *

The accompanying notes form an integral part of these consolidated financial statements.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

327

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 2/1 Page LAPORAN LABA RUGI DAN PENGHASILAN KOMPREHENSIF LAIN KONSOLIDASIAN UNTUK TAHUN-TAHUN YANG BERAKHIR PADA 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali laba bersih per saham)

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, except earnings per share)

Catatan/ Notes

31 Desember/ December 2016

31 Desember/ December 2015*

PENDAPATAN NETO

29

2,934,778,710

3,068,790,845

BEBAN POKOK PENDAPATAN

30

LABA BRUTO

(2,047,838,771) (2,105,680,228) 886,939,939

963,110,617

NET REVENUES COST OF REVENUES GROSS PROFIT Distribution and transmission expense General and administrative expense Impairment losses of oil and gas properties Others expenses Other income

Beban distribusi dan transmisi

31

(220,401,617)

(201,231,465)

Beban umum dan administrasi Penurunan nilai properti minyak dan gas Beban lain-lain Pendapatan lain-lain

32

(234,003,179)

(190,418,733)

15b 34b 34a

(37,201,328) (13,217,928) 62,126,336

(97,649,297) (11,104,340) 94,536,121

444,242,223

557,242,903

33a 33b 34c

(132,404,898) 17,838,004 (5,120,175)

(119,162,853) 16,220,751 (14,304,070)

25 16

(4,526,823) -

(6,656,089) (47,235,828)

4a

7,243,369

-

13b

57,713,446

51,259,769

Finance cost Finance income Loss on foreign exchange Loss on change in fair value of derivatives Impairment lossess of goodwill Gain on bargain purchase Share in profit of joint ventures

384,985,146

437,364,583

PROFIT BEFORE INCOME TAX EXPENSE

(97,283,302) 20,882,072

(125,311,318) 90,705,639

INCOME TAX EXPENSE Current Deferred

Beban pajak penghasilan

(76,401,230)

(34,605,679)

Income tax expenses

LABA TAHUN BERJALAN

308,583,916

402,758,904

LABA OPERASI Beban keuangan Pendapatan keuangan Rugi selisih kurs Rugi perubahan nilai wajar derivatif Penurunan nilai goodwill Keuntungan dari pembelian dengan diskon Bagian laba dari ventura bersama LABA SEBELUM BEBAN PAJAK PENGHASILAN BEBAN PAJAK PENGHASILAN Kini Tangguhan

22c

* Direklasifikasi, lihat Catatan 45.

Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan konsolidasian ini.

OPERATING INCOME

PROFIT FOR THE YEAR As reclassified, refer to Note 45 *

The accompanying notes form an integral part of these consolidated financial statements.

328

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 2/2 Page LAPORAN LABA RUGI DAN PENGHASILAN KOMPREHENSIF LAIN KONSOLIDASIAN UNTUK TAHUN-TAHUN YANG BERAKHIR PADA 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali laba bersih per saham)

Catatan/ Notes

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, except earnings per share)

31 Desember/ December 2016

31 Desember/ December 2015*

PENGHASILAN KOMPREHENSIF LAIN Pos-pos yang tidak akan direklasifikasi ke laba rugi Pengukuran kembali liabilitas imbalan pascakerja Pajak penghasilan terkait

Pos-pos yang akan direklasifikasikan ke laba rugi Perubahan nilai wajar aset keuangan tersedia untuk dijual Selisih kurs karena penjabaran laporan keuangan entitas anak, setelah pajak

OTHER COMPREHENSIVE INCOME

23

6

JUMLAH PENGHASILAN KOMPREHENSIF LAIN TOTAL PENGHASILAN KOMPREHENSIF TAHUN BERJALAN LABA TAHUN BERJALAN YANG DAPAT DIATRIBUSIKAN KEPADA: Pemilik entitas induk Kepentingan nonpengendali

TOTAL PENGHASILAN KOMPREHENSIF TAHUN BERJALAN YANG DAPAT DIATRIBUSIKAN KEPADA: Pemilik entitas induk Kepentingan nonpengendali

LABA BERSIH PER SAHAM - DASAR DAN DILUSIAN

27

27

2,423,979 (565,677)

26,046,360 (4,765,052)

1,858,302

21,281,308

Item that will not be reclassified to profit or loss Remeasurement of postemployment obligation Related income tax

Items that will be reclassified to profit or loss Changes in fair value of available-for-sale financial assets Difference in foreign currency translation of subsidiaries’ financial statements, net of tax

3,921,377

(2,297,573)

885,148

(3,131,231)

4,806,525

(5,428,804)

6,664,827

15,852,504

TOTAL OTHER COMPREHENSIVE INCOME

315,248,743

418,611,408

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

304,324,421 4,259,495

401,199,880 1,559,024

PROFIT FOR THE YEAR ATTRIBUTABLE TO: Owners of the parent entity Non-controlling interests

308,583,916

402,758,904

310,669,477 4,579,266

416,193,057 2,418,351

315,248,743

418,611,408

0.013

0.017

35

* Direklasifikasi, lihat Catatan 45.

Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan konsolidasian ini.

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO: Owners of the parent entity Non-controlling interests

EARNINGS PER SHARE - BASIC AND DILUTED As reclassified, refer to Note 45 *

The accompanying notes form an integral part of these consolidated financial statements.

-

(251,054)

251,054

-

-

-

-

-

-

-

-

Penyisihan cadangan umum

Saldo 31 Desember 2015 344,018,831

-

Pembayaran dividen

Penjualan saham treasuri

Total laba tahun berjalan

Pendapatan komprehensif lain tahun berjalan

Pembayaran dividen

Penyisihan cadangan umum

Saldo 31 Desember 2016 344,018,831

284,339,313

-

-

-

-

-

284,339,313

-

-

-

-

284,339,313

2,576,863,351

233,097,933

-

-

-

-

2,343,765,418

451,476,666

-

-

-

1,892,288,752

(12,289,093)

(233,097,933)

(168,101,947)

-

304,324,421

-

84,586,366

(451,476,666)

(271,277,398)

-

401,199,880

406,140,550

(18,414,233)

-

-

885,148

-

-

(19,299,381)

-

-

(3,131,231)

-

(16,168,150)

(13,372,265)

-

-

1,538,531

-

-

(14,910,796)

-

-

20,421,981

-

(35,332,777)

(29,757,693)

-

-

6,345,056

-

-

(36,102,749)

-

-

14,993,177

-

(51,095,926)

7,018,625

-

(8,570)

319,771

4,259,495

-

2,447,929

-

-

859,327

1,559,024

29,578

General reserve allocation

Payment of dividends

Other comprehensive income for the year

Profit for the year

Balance, January 1, 2015

General reserve allocation

Payment of dividends

Other comprehensive income for the year

Profit for the year

Sale of treasury stocks

3,170,193,334 Balance, December 31, 2016

-

(168,110,517)

6,664,827

308,583,916

251,054

3,022,804,054 Balance, December 31, 2015

-

(271,277,398)

15,852,504

402,758,904

2,875,470,044

The accompanying notes form an integral part of these consolidated financial statements.

2,028,805

-

-

3,921,377

-

-

(1,892,572)

-

-

(2,297,573)

-

405,001

Consolidated Financial Statements

Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan konsolidasian ini.

-

-

-

-

-

-

Pendapatan komprehensif lain tahun berjalan

-

(251,054)

-

344,018,831

Total laba tahun berjalan

Saldo 1 Januari 2015

Kepentingan non pengendali/ Noncontrolling Jumlah ekuitas/ interests Total equity

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

Ekuitas yang dapat diatribusikan kepada pemilik entitas induk/Equity attributable to owners of the parent Komponen ekuitas lainnya/ Other components of equity Selisih Perubahan kurs karena nilai penjabaran wajar aset laporan keuangan keuangan tersedia Modal entitas anak/ untuk saham Difference in dijual/ Total ditempatkan foreign Changes in komponen dan disetor Modal Saldo laba/ currency Keuntungan/ fair value of ekuitas penuh/ Saham disetor Retained earnings translation of (kerugian) availablelainnya/ Issued and treasuri/ lainnya/ Tidak subsidiaries aktuaria/ for-sale Total other fully paid Treasury Other paid Dicadangkan/ dicadangkan/ financial Actuarial financial components capital stock stocks in capital Appropriated Unappropriated statement gain /(loss) asset of equity

LAPORAN PERUBAHAN EKUITAS KONSOLIDASIAN UNTUK TAHUN-TAHUN YANG BERAKHIR PADA 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain)

Halaman 3 Page

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

329

330

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK Halaman 4 Page LAPORAN ARUS KAS KONSOLIDASIAN UNTUK TAHUN-TAHUN YANG BERAKHIR PADA 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain)

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

31 Desember/ December 2016 ARUS KAS DARI AKTIVITAS OPERASI Penerimaan dari pelanggan Penerimaan dari pendapatan keuangan Pembayaran kepada pemasok Pembayaran pajak penghasilan setelah dikurangi penerimaan dari tagihan pajak Pembayaran untuk beban usaha dan aktivitas operasi lainnya Pembayaran beban keuangan Pembayaran kepada karyawan Kas neto yang diperoleh dari aktivitas operasi

31 Desember/ December 2015

2,966,046,617 3,058,651,519 20,892,973 15,346,823 (1,746,010,090) (1,786,658,619) (93,744,198)

(172,735,799)

(280,845,582) (133,191,010) (77,602,427)

(387,494,587) (111,457,047) (87,212,252)

655,546,283

528,440,038

ARUS KAS DARI AKTIVITASI INVESTASI Penerimaan dividen dari ventura bersama Penambahan bagian pada kerjasama operasi minyak dan gas bumi atau kontrak jasa/perjanjian partisipasi Penambahan investasi kepada entitas pengendalian bersama Penambahan aset tetap Penambahan aset minyak dan gas Penambahan aset eksplorasi dan evaluasi Penerimaan dari pelepasan investasi jangka pendek Penerimaan pelunasan promissory notes dari ventura bersama Penambahan piutang lain-lain jangka panjang Kas neto yang digunakan untuk aktivitas investasi

71,947,539

66,828,198

(23,796,271)

(70,890,494)

(53,724,197) (166,523,511) (256,514,025)

(495,929,434) (438,047,121)

(2,647,406)

(45,651,253)

-

26,366,407

-

13,714,628

(69,269,467)

(178,451,512)

(500,527,338) (1,122,060,581)

ARUS KAS DARI AKTIVITAS PENDANAAN Penjualan saham treasuri 251,054 Penerimaan atas penyertaan saham oleh kepentingan nonpengendali entitas anak Pembayaran utang derivatif (7,028,827) Penerimaan pinjaman 300,000,000 Pembayaran pinjaman jangka panjang (121,177,638) Pembayaran dividen kepada pemilik entitas induk (166,655,213) Kas neto yang diperoleh dari aktivitas pendanaan 5,389,376

523 (6,330,394) 950,000,000 (80,066,273) (268,723,467) 594,880,389

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Receipts from finance income Payments to suppliers Payments for income taxes net of the receipts from claims for tax refund Payments for operating expenses and other operating activities Payments for finance cost Payments to employees Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from joint ventures Additions of interest in oil and gas operation or service contract/ participating interest agreement Additional investment in joint venture Additions to fixed assets Additions to oil and gas assets Addition to exploration and evaluation Proceeds from disposal of short-term investments Receipt of promissory notes settlement from joint venture Additions to other long-term receivables Net cash used for investing activities CASH FLOWS FROM FINANCING ACTIVITIES Sales of treasury stock Receipts from the issuance of shares from non-controlling interest of the subsidiary Payments of derivative liabilities Receipts of loans Payments of long-term loans Payments of dividend to owners of the parent entity Net cash provided by financing activities

Pengaruh perubahan kurs

8,132,391

3,292,475

KENAIKAN NETO KAS DAN SETARA KAS

168,540,712

4,552,321

NET INCREASE IN CASH AND CASH EQUIVALENTS

KAS DAN SETARA KAS AWAL TAHUN

1,135,502,538

1,130,950,217

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR

KAS DAN SETARA KAS AKHIR TAHUN

1,304,043,250

1,135,502,538

CASH AND CASH EQUIVALENTS AT END OF THE YEAR

Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan konsolidasian ini.

Foreign exchange impact

The accompanying notes form an integral part of these consolidated financial statements.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

331

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/1 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

UMUM a.

Pendirian perusahaan

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) 1.

GENERAL a.

The Company’s establishment

PT Perusahaan Gas Negara (Persero) Tbk (“Perusahaan”) pada awalnya bernama Firma L. J. N. Eindhoven & Co. Gravenhage yang didirikan pada tahun 1859. Kemudian, Perusahaan diberi nama NV. Netherland Indische Gaz Maatschapij (NV. NIGM) pada tahun 1950, saat diambil alih oleh Pemerintah Belanda. Pada tahun 1958, saat diambil alih oleh Pemerintah Republik Indonesia, nama Perusahaan diganti menjadi Badan Pengambil Alih Perusahaan-Perusahaan Listrik dan Gas (BP3LG) yang kemudian beralih status menjadi BPU-PLN pada tahun 1961. Pada tanggal 13 Mei 1965, berdasarkan Peraturan Pemerintah No. 19/1965, Perusahaan didirikan sebagai Perusahaan Negara dan dikenal sebagai Perusahaan Negara Gas (PN. Gas). Berdasarkan Peraturan Pemerintah No. 27 tahun 1984, PN. Gas diubah menjadi perusahaan umum (“Perum") dengan nama Perusahaan Umum Gas Negara.

PT Perusahaan Gas Negara (Persero) Tbk (the “Company”) initially named Firm L. J. N. Eindhoven & Co. Gravenhage, was established in 1859. Then, the Company was named NV. Netherland Indische Gaz Maatschapij (NV. NIGM), when the Dutch Government took control in 1950. In 1958, when the Government of the Republic of Indonesia took over the entity, company name was changed to Badan Pengambil Alih Perusahaan-Perusahaan Listrik dan Gas (BP3LG) and then later became BPUPLN in 1961. On May 13, 1965, based on Government Regulation No. 19/1965, the entity was established as a state owned company (“Perusahaan Negara”) and became known as Perusahaan Negara Gas (PN. Gas). Based on Government Regulation No. 27 year 1984, PN. Gas was converted into a public service enterprise (“Perum”) under the name Perusahaan Umum Gas Negara.

Setelah itu, status Perusahaan diubah dari Perum menjadi perusahaan perseroan terbatas yang dimiliki oleh negara (Persero) dan namanya berubah menjadi PT Perusahaan Gas Negara (Persero) berdasarkan Peraturan Pemerintah No. 37 tahun 1994 dan Akta Pendirian Perusahaan No. 486 tanggal 30 Mei 1996 yang diaktakan oleh Notaris Adam Kasdarmaji, S.H. Akta pendirian telah disahkan oleh Menteri Kehakiman Republik Indonesia dalam Surat Keputusan No. C27729HT.01.01.Th.96. tanggal 31 Mei 1996 dan diumumkan dalam Lembaran Berita Negara Republik Indonesia No. 8508 Tambahan Berita Negara No. 80 tanggal 4 Oktober 1996.

Afterwards, the status of the Company was changed from a Perum to a state owned limited liability company (“Persero”) and the name was changed to PT Perusahaan Gas Negara (Persero) based on Government Regulation No. 37 year 1994 and the Deed of Establishment No. 486 dated May 30, 1996 as notarized by Adam Kasdarmaji, S.H. The deed of establishment was approved by Ministry of Justice of the Republic of Indonesia in its Decision Letter No. C27729HT.01.01.Th.96. dated May 31, 1996 and was published in The State Gazette of the Republic of Indonesia No. 8508 dated October 4, 1996, Supplement No. 80.

Perubahan terakhir pada Anggaran Dasar Perusahaan berdasarkan Akta Notaris No. 23 dan 24 dari Notaris Fathiah Helmi, S.H., tanggal 6 April 2015, masing-masing terkait perubahan Anggaran Dasar Perusahaan dan perubahan susunan Dewan Komisaris. Perubahan ini telah dilaporkan dan diterima oleh Menteri Hukum dan Hak Asasi Manusia Republik Indonesia masingmasing dalam Surat Penerimaan No. AHUAH.01.03-0928400 dan No. AHU-AH.01.030928392 tanggal 29 April 2015.

The latest amendment of the Company’s Articles of Association was based on Notarial Deed No. 23 and 24 of Notary Fathiah Helmi, S.H., dated April 6, 2015, concerning, the changes of the Company’s Articles of Association and the composition of the Boards of Commissioners of the Company. The amendments were reported to and accepted by the Ministry of Laws and Human Rights of the Republic of Indonesia in its acknowledgement Letter No. AHU-AH.01.030928400 and No. AHUAH.01.03-0928392 dated April 29, 2015, respectively.

332

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/2 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

UMUM (lanjutan) a.

Pendirian perusahaan (lanjutan)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) 1.

GENERAL (continued) a.

The Company’s establishment (continued)

Sesuai dengan Pasal 3 Anggaran Dasar Perusahaan dan Peraturan Pemerintah No. 37 tahun 1994, Perusahaan bertujuan untuk melaksanakan dan menunjang kebijaksanaan dan program Pemerintah di bidang ekonomi dan pembangunan nasional, khususnya di bidang pengembangan pemanfaatan gas bumi untuk kepentingan umum serta penyediaan gas dalam jumlah dan mutu yang memadai untuk melayani kebutuhan masyarakat. Kegiatan Perusahaan dan entitas anak (bersama-sama disebut “Grup”) meliputi perencanaan, pembangunan, pengelolaan dan usaha hilir bidang gas bumi yang meliputi kegiatan pengolahan, pengangkutan, penyimpanan dan niaga, perencanaan, pembangunan, pengembangan produksi, penyediaan, penyaluran dan distribusi gas buatan; dan jasa telekomunikasi; serta pengelolaan propertI Perusahaan dan penyediaan jasa tenaga kerja. Pada saat ini, usaha utama Perusahaan adalah distribusi dan transmisi gas bumi ke pelanggan industri, komersial dan rumah tangga.

As stated in Article 3 of the Company’s Articles of Association and in the Government Regulation No. 37 year 1994, the Company’s objectives is to implement and support the Government’s economic and national development programs, particularly in developing uses of natural gas for the benefit of the public as well as in the supply of a sufficient volume and quality of gas for public consumption. The scope of activities of the Company and its subsidiaries (together, the “Group”) comprises planning, construction, operating and development of natural gas downstream business which includes processing, transporting, storing and trading, planning, construction, production development, supplying and distribution of processed gas; and telecommunication services; and the Company’s property management and manpower service provider. Currently, the Company’s principal business is the distribution and transmission of natural gas to industrial, commercial and household users.

Kantor Pusat Perusahaan berkedudukan di Jl. K.H. Zainul Arifin No. 20, Jakarta. Untuk mencapai sasaran penjualan yang lebih responsif, Perusahaan membagi wilayah usaha menjadi tiga Regional Distribution and satu Regional Transmission, terbagi dalam:

The Company’s Head Office is located at Jl. K.H. Zainul Arifin No. 20, Jakarta. To achieve responsive sales target, the Company has divided its business areas into three Regional Distribution and one Regional Transmission, as follows:

1.

1.

Regional Distribution I Regional Distribution I, mencakup Wilayah Jawa Bagian Barat sampai dengan Sumatera Selatan, yang terdiri dari Penjualan dan Layanan Area Banten, Jakarta, Bogor, Bekasi, Lampung, Cilegon, Kerawang, Cirebon dan Palembang.

2.

Regional Distribution II Regional Distribution II, mencakup Wilayah Jawa Bagian Timur, yang terdiri dari Penjualan dan Layanan Area Surabaya, Sidoarjo-Mojokerto, Pasuruan-Probolinggo dan Semarang.

Regional Distribution I Regional Distribution I, covers Western Java Region until South Sumatera, which consists of Sales and Service Area Banten, Jakarta, Bogor, Bekasi, Lampung, Cilegon, Kerawang, Cirebon and Palembang.

2.

Regional Distribution II Regional Distribution II, covers Eastern Java Region, which consists of Sales and Service Area Surabaya, SidoarjoMojokerto, Pasuruan-Probolinggo and Semarang.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

333

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/3 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

UMUM (lanjutan) a.

Pendirian perusahaan (lanjutan) 3.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) 1.

GENERAL (continued) a.

Regional Distribution III

The Company’s establishment (continued) 3.

Regional Distribution III, mencakup Wilayah Sumatera Utara dan Kepulauan Riau, yang terdiri dari Penjualan dan Layanan Area Medan, Batam dan Pekanbaru. 4.

b.

Regional Distribution III Regional Distribution III, covers North Sumatera Region and the Riau Islands, which consists of Sales and Service Area Medan, Batam and Pekanbaru.

Regional Transmission

4.

Regional Transmission

Regional Transmission, mencakup wilayah Sumatera Selatan, Jambi, Riau, Kepulauan Riau, Lampung, Banten, Jawa Barat, Jawa Tengah dan Medan.

Regional Transmission, covers Sumatera Selatan, Jambi, Riau, Kepulauan Riau, Lampung, Banten, Jawa Barat, Jawa Tengah dan Medan

Pemegang saham langsung Perusahaan adalah Pemerintah Republik Indonesia.

The Company‘s immediate parent is the Government of Republic of Indonesia.

Penawaran umum efek Perusahaan

b.

The Company’s public offering

Pada tanggal 5 Desember 2003, Perusahaan memperoleh pernyataan efektif dari Badan Pengawas Pasar Modal untuk melakukan penawaran umum saham kepada masyarakat sebanyak 1.296.296.000 saham, yang terdiri dari 475.309.000 saham dari divestasi saham Pemerintah Republik Indonesia, pemegang saham Perusahaan, dan 820.987.000 saham baru. Saham Perusahaan dicatatkan di Bursa Efek Indonesia pada tanggal 15 Desember 2003.

On December 5, 2003, the Company obtained the effective statement from Capital Market Supervisory Agency to conduct the public offering of its 1,296,296,000 shares which comprised of 475,309,000 shares from divestment of the Government of the Republic of Indonesia’s shares, the Company’s shareholders and 820,987,000 new shares. The Company’s shares were listed at the Indonesia Stock Exchanges on December 15, 2003.

Berdasarkan Risalah Rapat Umum Pemegang Saham Luar Biasa yang diadakan pada tanggal 13 Juni 2008 dan diaktakan dengan Akta Notaris No. 49 dari Notaris Fathiah Helmi, S.H., tanggal 13 Juni 2008, para pemegang saham menyetujui pemecahan nilai nominal saham Seri A Dwiwarna dan saham Seri B dari Rp500 per saham menjadi Rp100 per saham, sehingga jumlah saham Perusahaan meningkat dari 14 miliar saham menjadi 70 miliar saham dan jumlah saham ditempatkan dan disetor penuh yang semula sebesar 4.593.437.193 saham akan meningkat menjadi 22.967.185.965 saham.

Based on the Minutes of the Extraordinary General Shareholders’ Meeting held on June 13, 2008 which were notarized in Notarial Deed No. 49 of Notary Fathiah Helmi, S.H., dated June 13, 2008, the shareholders ratified the stock split of the nominal value of Series A Dwiwarna share and Series B shares from Rp500 per share to Rp100 per share resulting in the increase of the number of the Company’s shares from 14 billion shares to become 70 billion shares and increase in the issued and paid-up capital from 4,593,437,193 shares to become 22,967,185,965 shares.

Pada tanggal 12 Mei 2014, Perusahaan menerbitkan dan mencatatkan Senior Unsecured Fixed Rate Notes senilai USD1.350.000.000 yang jatuh tempo 2024 di Bursa Efek Singapura (Catatan 21).

On May 12, 2014, the Company issued and listed USD1,350,000,000 Senior Unsecured Fixed Rate Notes due 2024 at the Singapore Exchange Securities Trading Limited (Note 21).

334

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/4 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

UMUM (lanjutan) c.

Penyelesaian konsolidasian

1. laporan

keuangan

GENERAL (continued) c.

Laporan keuangan konsolidasian Grup telah disusun dan disetujui oleh Direksi Perusahaan pada tanggal 3 Maret 2017. d.

Entitas anak, pengaturan bersama, dan entitas asosiasi Pada tanggal 31 Desember 2016 dan 2015, persentase kepemilikan Perusahaan, baik secara langsung maupun tidak langsung dan total aset entitas anak adalah sebagai berikut: Entitas anak, kegiatan usaha, kedudukan dan tanggal pendirian/ Subsidiaries, business activities, domiciles and date of establishment

Completion of the consolidated financial statements The consolidated financial statements were prepared and authorized for issuance by the Company’s Directors on March 3, 2017.

d.

Subsidiaries, joint associate entities

arrangements,

and

As of December 31, 2016 and 2015, the percentage of ownership of the Company, either directly or indirectly, and total assets of the subsidiaries are as follows:

Persentase kepemilikan/ Percentage of ownership 31 Des/Dec 16 31 Des/Dec 15

Tahun usaha komersial dimulai/Year of commercial operations started

Jumlah aset dalam juta sebelum jurnal eliminasi/Total asset in million before elimination entries 31 Des/Dec 16 31 Des/Dec 15

Dimiliki langsung oleh Perusahaan/ Held directly by the Company PT Saka Energi Indonesia (“SEI”) Eksplorasi minyak dan gas bumi/ Exploration of oil and gas Indonesia, 27 Juni 2011/ June 27, 2011

100.00%

100.00%

2013

2,670

2,364

PT PGN LNG Indonesia (“PLI”) Pengolahan liquefied natural gas/ Processing of liquefied natural gas Indonesia 26 Juni 2012/ June 26, 2012

100.00%

100.00%

2014

419

427

PT Permata Graha Nusantara (“PGN Property”) Pengelolaan dan penyewaan gedung dan peralatan/ Management and leasing buildings and equipment Indonesia 17 Juni 2014/ June 17, 2014

100.00%

100.00%

2014

330

345

PT PGAS Solution (“PGASSOL”) Konstruksi /Construction Indonesia, 6 Agustus 2009/ August 6, 2009

99.91%

99.91%

2010

133

144

100.00%

100.00%

2012

85

83

99.93%

99.93%

2009

29

26

PT Gagas Energi Indonesia (“GEI”) Distribusi gas bumi/ Distribution of natural gas Indonesia 27 Juni 2011/ June 27, 2011 PT PGAS Telekomunikasi Nusantara (“PGASKOM”) Telekomunikasi/ Telecommunication, Indonesia, 10 Januari 2007/ January 10, 2007

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

335

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/5 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

UMUM (lanjutan) d.

1.

Entitas anak, pengaturan bersama, dan entitas asosiasi (lanjutan) Entitas anak, kegiatan usaha, kedudukan dan tanggal pendirian/ Subsidiaries, business activities, domiciles and date of establishment

GENERAL (continued) d.

Subsidiaries, joint arrangements, associate entities (continued)

Persentase kepemilikan/ Percentage of ownership 31 Des/Dec 16 31 Des/Dec 15

Tahun usaha komersial dimulai/Year of commercial operations started

and

Jumlah aset dalam juta sebelum jurnal eliminasi/Total asset in million before elimination entries 31 Des/Dec 16 31 Des/Dec 15

Dimiliki melalui PGASKOM/ Held through PGASKOM PGAS Telecommunications International Pte. Ltd. (“PTI”) Jasa Telekomunikasi/ Telecommunications services Singapura/Singapore, 24 November 2009/ November 24, 2009

100.00%

100.00%

2010

4

5

PT Telemedia Dinamika Sarana (“TDS”) Jasa Telekomunikasi/ Telecommunications services Indonesia, 2 Oktober 2002/October 2, 2002

100.00%

100.00%

2013

2

1)

PT Kalimantan Jawa Gas (“KJG”) Transmisi gas/Gas transmission Indonesia, 23 Juli 2013/July 23, 2013

80.00%

80.00%

2015

310

328

PT Permata Karya Jasa (“Perkasa”) Jasa perbengkelan, pembinaan, penyaluran jasa tenaga kerja/ Workshop services, guidance, distribution of labor services Indonesia, 29 April 2015/April 29, 2015

75.00%

75.00%

2016

2

1)

99.90%

99.90%

2016

2

1)

99.96%

99.96%

2)

1)

1)

Saka Indonesia Pangkah B.V (“SIPBV”) Eksplorasi dan produksi minyak dan gas/Exploration and production of oil and gas Belanda/Netherlands, 27 Juli 2007/July 27, 2007

100.00%

100.00%

2007

917

988

PT Saka Energi Muara Bakau (“SEMB”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 10 Februari 2014/February 10, 2014

100.00%

100.00%

2015

778

530

PT Saka Ketapang Perdana (“SKP”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 17 Oktober 2012/October 17, 2012

100.00%

100.00%

2015

255

276

PT Saka Energi Internasional (“SI”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 20 Februari 2014/February 20, 2014

100.00%

100.00%

2)

2)

2)

Dimiliki melalui PGN Property/ Held through PGN Property

Dimiliki melalui PGASSOL/ Held through PGASSOL PT Solusi Energy Nusantara (“Sena”) Enginering, konsultasi dan jasa/ Engineering, consultancy and services, Indonesia, 20 April 2015/April 20, 2015 Dimiliki melalui GEI/ Held through GEI PT Widar Mandripa Nusantara (“Widar”) Jasa kelistrikan/Electricty service Indonesia, 29 Juli 2015/July 29, 2015 Dimiliki melalui SEI/Held through SEI

336

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/6 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

UMUM (lanjutan) d.

1.

Entitas anak, pengaturan bersama, dan entitas asosiasi (lanjutan) Entitas anak, kegiatan usaha, kedudukan dan tanggal pendirian/ Subsidiaries, business activities, domiciles and date of establishment

GENERAL (continued) d.

Subsidiaries, joint arrangements, associate entities (continued) Tahun usaha komersial dimulai/Year of commercial operations started

Persentase kepemilikan/ Percentage of ownership 31 Des/Dec 16 31 Des/Dec 15

and

Jumlah aset dalam juta sebelum jurnal eliminasi/Total asset in million before elimination entries 31 Des/Dec 16 31 Des/Dec 15

Dimiliki melalui SEI/Held through SEI (lanjutan/continued) Saka Overseas Assets Holding B.V. (“SOAHBV”) Eksplorasi minyak dan gas/ Exploration of oil and gas Kepulauan Cayman/Cayman Island, 24 Desember 2013/ December 24, 2013

100.00%

100.00%

PT Saka Eksplorasi Baru (“SEB”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 26 Agustus 2016/August 26, 2016

100.00%

4)

PT Saka Eksplorasi Timur (“SET”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 8 September 2016/September 8, 2016

100.00%

PT Saka Energi Asia Pte. Ltd (“SEAPL”) Eksplorasi minyak dan gas/ Exploration of oil and gas Singapura/Singapore 15 Juni 2016/June 15, 2016

2015

162

166

2)

1)

4)

4)

2)

2

4)

100.00%

4)

2016 3a) 3b)

208

4)

PT Saka Bangkanai Klemantan (“SBK”) Eksplorasi dan produksi minyak dan gas/Exploration and production of oil and gas Indonesia, 11 Maret 2013/March 11, 2013

100.00%

100.00%

2016

235

365

PT Saka Energi Sumatera (“SES”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 24 September 2012/ September 24, 2012

100.00%

100.00%

2014

33

54

PT Saka Indonesia Sesulu (“SIS”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 7 Maret 2013/March 7, 2013

100.00%

100.00%

2)

61

61

PT Saka Energi Bangkanai Barat (“SEBB”) Eksplorasi dan produksi minyak dan gas/Exploration and production of oil and gas Indonesia, 12 Mei 2014/May 12, 2014

100.00%

100.00%

2)

6

3

PT Saka Energi Investasi Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 18 Juli 2014/July 18, 2014

100.00%

2)

1)

1)

1)

PT Saka Energi Wokam (“SEW”) Eksplorasi dan produksi minyak dan gas/Exploration and production of oil and gas Indonesia, 14 September 2015/ September 14, 2015

100.00%

100.00%

2) 3c)

1)

1)

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

337

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/7 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

UMUM (lanjutan) d.

1.

Entitas anak, pengaturan bersama, dan entitas asosiasi (lanjutan) Entitas anak, kegiatan usaha, kedudukan dan tanggal pendirian/ Subsidiaries, business activities, domiciles and date of establishment

GENERAL (continued) d.

Subsidiaries, joint arrangements, associate entities (continued) Tahun usaha komersial dimulai/Year of commercial operations started

Persentase kepemilikan/ Percentage of ownership 31 Des/Dec 16 31 Des/Dec 15

and

Jumlah aset dalam juta sebelum jurnal eliminasi/Total asset in million before elimination entries 31 Des/Dec 16 31 Des/Dec 15

Dimiliki melalui SOAHBV/ Held through SOAHBV Saka Energi Exploration Production, B.V. (“SEEPBV”) Eksplorasi dan produksi minyak dan gas/Exploration and production of oil and gas Belanda/Netherlands, 24 Desember 2013/ December 24, 2013

100.00%

100.00%

2015

162

166

100.00%

100.00%

2015

121

125

100.00%

100.00%

2)

1

1

100.00%

4)

2)

1)

4)

100.00%

100.00%

2014

229

233

Saka Indonesia Pangkah Limited (“SIPL”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 5 Juli 1995/July 5, 1995

100.00%

100.00%

2007

661

695

Saka Pangkah LLC (“SPLLC”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 12 Juli 1995/ July 12, 1995

100.00%

100.00%

2007

102

109

100.00%

4)

54

4)

Dimiliki melalui SEEPBV/ Held through SEEPBV Saka Energi Muriah Limited (“SEML”) (formerly Sunny Ridge Offshore Limited (“SROL”) Eksplorasi minyak dan gas/ Exploration of oil and gas British Virgin Islands, 25 September 2014/September 25, 2014 Dimiliki melalui SI/Held through SI PT Saka Energi Sepinggan (“SEP”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 1 April 2015/April 1, 2015 PT Saka Eksplorasi Ventura (“SEV”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 14 December 2016/ December 14, 2016 Dimiliki melalui SBK/Held through SBK Saka Energy Fasken LLC (“Fasken”) Eksplorasi minyak dan gas/ Exploration of oil and gas Texas 2 Mei 2014/May 2, 2014 Dimiliki melalui SIPBV/ Held through SIPBV

Dimiliki melalui SEAPL/ Held through SEAPL Saka Energi Sanga Star Pte. Ltd. (“SESSPL”) Eksplorasi dan produksi minyak dan gas/Exploration and production of oil and gas Singapura/Singapore, 15 Juni 2016/ June 16, 2016

2016 3b)

338

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/8 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

UMUM (lanjutan) d.

1.

Entitas anak, pengaturan bersama, dan entitas asosiasi (lanjutan) Entitas anak, kegiatan usaha, kedudukan dan tanggal pendirian/ Subsidiaries, business activities, domiciles and date of establishment

GENERAL (continued) d.

Subsidiaries, joint arrangements, associate entities (continued) Tahun usaha komersial dimulai/Year of commercial operations started

Persentase kepemilikan/ Percentage of ownership 31 Des/Dec 16 31 Des/Dec 15

and

Jumlah aset dalam juta sebelum jurnal eliminasi/Total asset in million before elimination entries 31 Des/Dec 16 31 Des/Dec 15

Dimiliki melalui SEAPL/ Held through SEAPL (lanjutan/continued) Saka Energi East Kalimantan Pte. Ltd. (“SEEKPL”) Eksplorasi minyak dan gas/ Exploration of oil and gas Indonesia, 15 Juni 2016/ June 15, 2016

100.00%

4)

2016 3a)

38

4)

100.00%

3a)

2009 3a)

99

3a)

Dimiliki melalui SEEKPL/ Held through SEEKPL Saka Energi Sanga-sanga Limited. (“SESL”) Eksplorasi minyak dan gas/ Exploration and production of oil and gas Bahamas, 18 November 1983/ November 18, 1983

Keterangan: 1) Total aset di bawah 1 juta Dolar Amerika Serikat (“Dolar AS”) 2) Belum beroperasi komersial 3) Diakuisisi oleh Grup pada tahun 2016 a) SEAPL melalui SEEKPL mengakuisisi 100% kepemilikan dari SESL (dahulu British Petroleum East Kalimantan Limited) British Petroleum East Kalimantan Limited) yang memiliki 26.25% participating interest pada Blok Sanga-sanga. Lihat Catatan 4a. b) SEAPL melalui SESSPL mengakuisisi 50% kepemilikan dari Unimar LLC ("Unimar") yang memiliki 11.5625% participating interest pada Blok Sanga-sanga. Lihat Catatan 13 poin (3). c) SEW didirikan pada tanggal 14 September 2015. Pada tahun 2016, SEW telah mengakusisi 100% participating interest di Blok Wokam II dari Murphy Wokam Oil Company Ltd dengan total nilai akuisisi senilai USD250.000. 4) Didirikan oleh Grup pada tahun 2016

Remarks: 1) The total assets is below one million United States Dollar (US Dollar) 2) Not yet started commercial operation. 3) Acquired by the Group in 2016. a) SEAPL, through SEEKPL, acquired 100% interest of SESL (formerly British Petroleum East Kalimantan Limited) that owned 26.25% participating interest in Sanga-sanga Block. Refer to Note 4a.

Grup mempunyai kerjasama operasi minyak dan gas atau kontrak jasa/perjanjian partisipasi dan pembagian ekonomi pada tanggal 31 Desember 2016 dan 2015 sebagai berikut:

The Group has interests in the following oil and gas joint operations or Service Contracts/ Participation and Economic Sharing Agreements at December 31, 2016 and 2015:

Kerjasama Operasi/ Joint Operation Blok Ujung Pangkah Blok South Sesulu Blok Fasken Blok Bangkanai Blok Bangkanai Barat Blok Muriah Blok Ketapang Blok Muara Bakau Blok South East Sumatera Blok Lematang-Petar Blok Wokam II Blok Sanga-sanga

Negara/Country Indonesia Indonesia Amerika Serikat/ United States of America Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia

b)

c)

4)

SEAPL, through SESSPL, mengakuisisi 50% interest of Unimar LLC ("Unimar") that owned 11.5625% participating interest in Sanga-sanga Block. Refer to Note 13 point (3). SEW was established on September 14, 2015. In 2016, SEW acquired 100% participating interest in Wokam II Block from Murphy Wokam Oil Company Ltd with total consideration of USD250,000.

Established by the Group in 2016.

31 Des/Dec 2016

31 Des/Dec 2015

100.00% 100.00% 36.00%

100.00% 100.00% 36.00%

30.00% 30.00% 20.00% 20.00% 11.67% 8.91% 100.00% 37.8125%

30.00% 30.00% 20.00% 20.00% 11.67% 8.91% 5.00% -

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

339

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/9 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

UMUM (lanjutan) d.

1.

d.

Entitas anak, pengaturan bersama, dan entitas asosiasi (lanjutan) Informasi mengenai ventura bersama dan entitas asosiasi yang dimiliki oleh Grup pada tanggal-tanggal 31 Desember 2016 dan 2015 adalah sebagai berikut Entitas asosiasi kedudukan dan tanggal pendirian/ Asscociate domiciles and date of establishment

GENERAL (continued) Subsidiaries, joint arrangements, associate entities (continued)

and

Information about joint venture and associate owned by the Group as of December 31, 2016 and 2015 are as follows: Tahun usaha komersial dimulai/ Year of commercial operations started

Persentase kepemilikan/ Percentage of ownership 31 Des/Dec 16 31 Des/Dec 15

Kegiatan usaha/ Business activities

Ventura bersama/ Joint ventures PT Transportasi Gas Indonesia (“Transgasindo”) Transmisi gas/ Gas transmission, Indonesia, 1 Februari 2002/ February 1, 2002

59.87%

59.87%

2002, Jakarta

Transportasi gas bumi melalui jaringan pipa transmisi/Transportation of natural gas through transmission pipelines

PT Nusantara Regas (“Regas”)

40.00%

40,00%

2012, Jakarta

Pengelolaan fasilitas Floating Storage Regasification Terminal (“FSRT”) termasuk pembelian Liquid Natural Gas (“LNG “) dan pemasaran atas hasil pengelolaan fasilitas FSRT/Managing Floating Storage Regasification Terminal (“FSRT”) facilities including purchase of Liquid Natural Gas (“LNG”) and marketing of products arising from the operations of FSRT facilities.

Unimar

50.00%

-

40.00%

40,00%

2001, Delaware

Eksplorasi dan produksi minyak dan gas/Exploration and production of oil and gas

Entitas asosiasi/Associate PT Gas Energi Jambi (GEJ)

e.

Dewan Komisaris, Direksi dan karyawan

2005, Jambi

e.

Per tanggal 31 Desember 2016, berdasarkan Rapat Umum Pemegang Saham Tahunan yang dilaksanakan pada tanggal 8 April 2016, para pemegang saham menyetujui susunan Dewan Komisaris dan Direksi Perusahaan sebagai berikut: Dewan Komisaris Komisaris Utama Komisaris Independen Komisaris Independen Komisaris Komisaris Komisaris Dewan Direksi Direktur Utama Direktur Keuangan Direktur Pengusahaan Direktur Teknologi dan Pengembangan Direktur Perencanaan Investasi dan Manajemen Risiko Direktur Sumber Daya Manusia dan Umum

Boards of Commissioners, Directors and employees As of December 31, 2016, based on the Annual General Meeting of Shareholders on April 8, 2016, the shareholders approved the members of the Company’s Boards of Commissioners and Directors as follows:

Fajar Harry Sampurno Paiman Rahardjo Kiswodarmawan Tirta Hidayat M. Ikhsan IGN. Wiratmaja Puja Hendi Prio Santoso Nusantara Suyono Danny Praditya Dilo Seno Widagdo Muhammad Wahid Sutopo Hendi Kusnadi

Transportasi dan distribusi gas bumi/ Transportation and distribution of natural gas.

Board of Commissioners Chairman of the Board of Commissioners Independent Commissioner Independent Commissioner Commissioner Commissioner Commissioner Board of Directors Chairman of the Board of Directors Director of Finance Director of Operations Director of Technology and Development Director of Investment Planning and Risk Management Director of Human Resources and General Affairs

340

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/10 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

UMUM (lanjutan) e.

1.

Dewan Komisaris, Direksi dan karyawan (lanjutan)

GENERAL (continued) e.

Per tanggal 31 Desember 2015, berdasarkan Rapat Umum Pemegang Saham Tahunan yang dilaksanakan pada tanggal 6 April 2015, para pemegang saham menyetujui susunan Dewan Komisaris dan Direksi Perusahaan sebagai berikut: Dewan Komisaris Komisaris Utama Komisaris Independen Komisaris Independen Komisaris Komisaris Komisaris Dewan Direksi Direktur Utama Direktur Keuangan Direktur Pengusahaan Direktur Teknologi dan Pengembangan Direktur Perencanaan Investasi dan Manajemen Risiko Direktur Sumber Daya Manusia dan Umum

Boards of Commissioners, Directors and employees (continued) As of December 31, 2015, based on the Annual General Meeting of Shareholders on April 6, 2015, the shareholders approved the members of the Company’s Boards of Commissioners and Directors as follows:

Iman Sugema Paiman Rahardjo M. Zamkhani 1) Tirta Hidayat M. Ikhsan IGN. Wiratmaja Puja Hendi Prio Santoso M. Riza Pahlevi Tabrani Jobi Triananda Hasjim Djoko Saputro Muhammad Wahid Sutopo Hendi Kusnadi

Board of Commissioners Chairman of the Board of Commissioners Independent Commissioner Independent Commissioner Commissioner Commissioner Commissioner Board of Directors Chairman of the Board of Directors Director of Finance Director of Operations Director of Technology and Development Director of Investment Planning and Risk Management Director of Human Resources and General Affairs

1) M. Zamkhani tidak lagi menjabat sebagai komisaris sejak 14 Desember 2015 berdasarkan surat menteri BUMN No. S895/MBU/12/2015

1) M. Zamkhani was no longer the commissioner since December 14, 2015 based on letter from Ministry of state owned enterprise No. S-895/MBU /12/2015.

Pada tanggal 31 Desember 2016, susunan Komite Audit Perusahaan adalah sebagai berikut:

As of December 31, 2016, the members of the Company’s audit committee are as follows:

Ketua Anggota Anggota Anggota

Paiman Rahardjo Luki Karunia Yovita Lasti Handini Kurnia Sari Dewi

Pada tanggal 31 Desember 2015, susunan Komite Audit Perusahaan adalah sebagai berikut: Ketua Anggota Anggota Anggota Anggota

Chairman Member Member Member

As of December 31, 2015, the members of the Company’s audit committee are as follows:

Paiman Rahardjo Mohamad Slamet Wibowo Yovita Lasti Handini Kurnia Sari Dewi Achmad Surya Abadi

Pada tanggal 31 Desember 2016 dan 2015, jumlah karyawan tetap Perusahaan dan Entitas Anak masing-masing adalah 2.242 orang dan 2.262 orang (tidak diaudit).

Chairman Member Member Member Member

As of December 31, 2016 and 2015, the Company and Subsidiaries have a total of 2,242 employees and 2,262 employees, respectively (unaudited).

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

341

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/11 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

IKHTISAR KEBIJAKAN SIGNIFIKAN

AKUNTANSI

a.

laporan

Dasar penyajian konsolidasian

YANG

keuangan

2.

SUMMARY POLICIES a.

OF

SIGNIFICANT

ACCOUNTING

Basis of consolidated financial statements

Laporan keuangan konsolidasian ini telah disusun sesuai dengan Standar Akuntansi Keuangan di Indonesia, yang mencakup yang mencakup Pernyataan Standar Akuntansi Keuangan (“PSAK”) dan Interpretasi Standar Akuntansi Keuangan (“ISAK”) dan Peraturan Peraturan serta Pedoman Penyajian dan Pengungkapan Laporan Keuangan yang diterbitkan oleh Otoritas Jasa Keuangan (“OJK”).

The consolidated financial statements have been prepared in accordance with Indonesian Financial Accounting Standards, including Statemenst of Financial Accounting Standard (“SFAS”) and Intrepretation of Financial Accounting Standard (“IFAS”) and the Regulations and Guidelines on Financial Statement Presentation and Disclosures issued by Financial Services Authority (“OJK”).

Laporan keuangan konsolidasian ini disusun berdasarkan konsep harga perolehan, yang dimodifikasi oleh revaluasi aset keuangan tersedia untuk dijual, dan aset dan liabilitas keuangan yang diukur pada nilai wajar melalui laporan laba rugi, serta menggunakan dasar akrual kecuali untuk laporan arus kas konsolidasian.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit and loss, and using the accrual basis except for the consolidated statements of cash flows.

Laporan arus kas konsolidasian disusun menggunakan metode langsung dan arus kas dikelompokkan atas dasar aktivitas operasi, investasi dan pendanaan. Untuk tujuan laporan arus kas konsolidasian, kas dan setara kas mencakup kas, bank dan deposito.

The consolidated statements of cash flows have been prepared based on the direct method, by classifying cash flows on the basis of operating, investing and financing activities. For the purpose of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, cash in banks and deposits.

Penyusunan laporan keuangan yang sesuai dengan Standar Akuntansi Keuangan di Indonesia memerlukan penggunaan estimasi akuntansi penting tertentu. Penyusunan laporan keuangan juga mengharuskan manajemen untuk menggunakan pertimbangannya dalam proses penerapan kebijakan akuntansi Grup. Area-area yang memerlukan tingkat pertimbangan atau kompleksitas yang tinggi, atau area dimana asumsi dan estimasi merupakan hal yang signifikan dalam laporan keuangan konsolidasian, diungkapkan dalam Catatan 3.

The preparation of financial statements in conformity with Indonesian Financial Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are discussed in Note 3.

Kecuali dinyatakan di bawah ini, kebijakan akuntansi telah diterapkan secara konsisten dengan laporan keuangan tahunan untuk tahun yang berakhir 31 Desember 2015 yang telah sesuai dengan Standar Akuntansi Keuangan di Indonesia.

Except as describe below, the accounting policies applied are consistent with the annual financial statements for the year ended December 31, 2015, which conform to the Indonesian Financial Accounting Standards.

342

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial tatements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards

Penerapan standar dan interpretasi baru atau revisi berikut ini yang berlaku efektif 1 Januari 2016, tidak memberikan dampak material pada laporan keuangan konsolidasian:

The adoption of the following new and revised standards and interpretations effective on January 1, 2016, resulted in immaterial impact on the consolidated financial statements:

-

-

PSAK No. 4 (Revisi 2015): Laporan Keuangan Tersendiri Amandemen PSAK ini memperkenankan penggunaan metode ekuitas sebagai salah satu metode pencatatan investasi pada entitas anak, ventura bersama dan entitas asosiasi dalam laporan keuangan tersendiri entitas tersebut.

-

PSAK No. 5 (Revisi 2015): Segmen Operasi

Amendment to this SFAS allows the use of the equity method as a method of recording the investment in subsidiaries, joint ventures and associates in the separate financial statements of the entity. -

Revisi PSAK ini menambahkan pengungkapan gambaran singkat segmen operasi yang telah digabungkan dan indikator ekonomik yang memiliki karakteristik yang serupa. -

PSAK No. 7 (Revisi 2015): Pengungkapan Pihak-pihak Berelasi

PSAK No. Investasi

13

(Revisi

2015): Properti

Revisi PSAK ini memberikan klarifikasi bahwa PSAK No. 13 dan PSAK No. 22 saling mempengaruhi. PSAK No. 13 memberikan panduan untuk membedakan antara properti investasi dan properti yang digunakan sendiri. PSAK No. 22 memberikan panduan untuk menentukan apakah akuisisi properti investasi merupakan kombinasi bisnis.

SFAS No. 5 (Revised 2015): Operating Segments This SFAS revision adds a short description of operating segments which has been combined and economic indicators with similar characteristics.

-

Penyesuaian ini menambahkan persyaratan pihak-pihak berelasi dan mengklarifikasi pengungkapan imbalan yang dibayarkan oleh entitas manajemen. -

SFAS No. 4 (Revised 2015): Separate Financial Statements

SFAS No. 7 (Revised 2015): Related Party Disclosures This improvement provides additional requirements of related parties definition and provides clarification regarding compensation paid by management.

-

SFAS No. 13 (Revised 2015): Investment Property This SFAS revision provides clarification that SFAS 13 and SFAS 22 influences each other. SFAS 13 provide guidance to distinguish investment property and selfused properties. SFAS 22 provide guidance to determine whether acquisition of investment property is an business combination.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

343

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/13 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

-

-

PSAK No. 15 (Revisi 2015): Investasi pada Entitas Asosiasi dan Ventura Bersama Revisi PSAK ini memberikan klarifikasi tentang pengecualian konsolidasi untuk entitas investasi ketika kriteria tertentu terpenuhi.

-

PSAK No. 16 (Revisi 2015): Aset Tetap a.

SFAS No. 15 (Revised 2015): Investments in Associates and Joint Ventures Amendment to this SFAS provides clarification on the consolidation of the exemption for investment entities when certain criteria are met.

-

SFAS No. 16 (Revised 2015): Fixed Assets

Amandemen PSAK ini mengklarifikasi bahwa penggunaan metode penyusutan yang berdasarkan pada pendapatan adalah tidak tepat.

a.

Amendment to this SFAS clarifies that the use of the depreciation method based on income is inappropriate.

b. Penyesuaian PSAK ini memberikan klarifikasi terkait model revaluasi, bahwa ketika entitas menggunakan model revaluasi, jumlah tercatat aset disajikan kembali pada jumlah revaluasiannya.

b.

This improvement SFAS provide clarification related to the revaluation model, that when an entity uses the revaluation model, the carrying amount of the asset is back to its revalued amount.

Pemisahan jumlah tercatat dan akumulasi depresiasi dapat diperlakukan salah satunya sebagai berikut:

The split between carrying amount and accumulated depreciation is treated in one of the following ways:

(i)

(i)

Jumlah tercatat disajikan kembali secara konsisten dengan revaluasi jumlah tercatat dan akumulasi depresiasi disesuaikan untuk menyamakan perbedaan antara jumlah tercatat sebelum dan sesudah memperhitungkan akumulasi kerugian penurunan nilai; atau

(ii) Akumulasi depresiasi dieliminasi terhadap jumlah tercatat aset.

The carrying amount is restated in a manner consistent with the revaluation of the carrying amount and the accumulated depreciation is adjusted to equal the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment lossers; or

(ii) The accumulated depreciation is eliminated against the gross carrying amount of the asset.

344

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

-

-

PSAK No. 19 (Revisi 2015): Aset Tak Berwujud

SFAS No. 19 (Revised 2015): Intangible Assets

a.

Amandemen PSAK ini memberikan klarifikasi tentang anggapan bahwa pendapatan adalah dasar yang tidak tepat dalam mengukur pemakaian manfaat ekonomi aset tak berwujud dapat dibantah dalam keadaan terbatas tertentu.

a.

Amendment to this SFAS provides clarification on the assumption that revenue is not an appropriate basis to measure the economic benefit of intangible assets can be rebutted in certain limited circumstances.

b.

Penyesuaian PSAK ini memberikan klarifikasi terkait model revaluasi, bahwa ketika entitas menggunakan model revaluasi, jumlah tercatat aset disajikan kembali pada jumlah revaluasiannya.

b.

This improvement SFAS provide clarification related to the revaluation model, that when an entity uses the revaluation model, the carrying amount of the asset is back to its revalued amount.

Pemisahan jumlah tercatat dan akumulasi depresiasi dapat diperlakukan salah satunya sebagai berikut:

The split between carrying amount and accumulated depreciation is treated in one of the following ways:

(i)

(i)

Jumlah tercatat disajikan kembali secara konsisten dengan revaluasi jumlah tercatat dan akumulasi depresiasi disesuaikan untuk menyamakan perbedaan antara jumlah tercatat sebelum dan sesudah memperhitungkan akumulasi kerugian penurunan nilai; atau

(ii) Akumulasi depresiasi dieliminasi terhadap jumlah tercatat aset.

The carrying amount is restated in a manner consistent with the revaluation of the carrying amount and the accumulated depreciation is adjusted to equal the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment lossers; or

(ii) The accumulated depreciation is eliminated against the gross carrying amount of the asset.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

345

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/15 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

-

-

PSAK No. 22 (Revisi 2015): Kombinasi Bisnis Amandemen PSAK ini untuk mengklarifikasi bahwa PSAK 22 tidak berlaku untuk akuntansi terhadap pembentukan pengaturan bersama dalam lingkup PSAK 66. Amandemen ini juga mengklarifikasi lingkup pengecualian hanya berlaku untuk laporan keuangan entitas pengaturan bersama itu sendiri.

The SFAS is amended to classify that SFAS 22 does not apply to accounting for the formation of any joint arrangement under SFAS 66. The amendment also clarifies that the scope exemption applies only to the financial statements of the joint arrangement itself.

Penyesuaian PSAK ini mengklarifikasi ruang lingkup dan kewajiban untuk membayar imbalan kontinjensi yang memenuhi definisi instrumen keuangan yang diakui sebagai liabilitas keuangan atau ekuitas.

This SFAS revision clarifies the scope and obligation to pay contingent consideration which meets definition of financial instruments recognised as financial liabilities or equity.

PSAK ini juga mengakibatkan dampak penyesuaian terhadap PSAK sebagai berikut:

This SFAS also has an impact to improvement of the following SFAS:

a. b. -

PSAK No. 55: Instrumen Keuangan: Pengakuan dan Pengukuran. PSAK No. 57: Provisi, Liabilitas Kontinjensi dan Aset Kontinjensi.

PSAK No. 24 (Revisi 2015): Imbalan Kerja

a. b. -

Amandemen PSAK 24 ini mengklarifikasi akuntansi untuk kontribusi iuran dari pekerja atau pihak ketiga yang tidak bergantung pada jumlah tahun jasa, misalnya iuran pekerja yang dihitung berdasarkan persentase tetap dari gaji. -

SFAS No. 22 (Revised 2015): Business Combination

PSAK No. 25 (Revisi 2015): Kebijakan Akuntansi, Perubahan Estimasi Akuntansi dan Kesalahan Revisi PSAK ini memberikan koreksi editorial tentang keterbatasan penerapan retrospektif.

SFAS No. 55: Financial Instruments: Recognition and Measurement. SFAS No. 57: Provisions, Contingent Liabilities and Contingent Assets.

SFAS No. 24 (Revised 2015): Employee Benefits Amendment to this SFAS is to clarifiy accounting for dues contributions from employees or third parties that do not depend on the number of years of service, for example, worker contributions are calculated based on a fixed percentage of salary.

-

SFAS No. 25 (Revised 2015): Accounting Policy, Changes of Accounting Estimates and Error This SFAS revision provides editorial corrections to the limitations of retrospective application.

346

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

-

-

PSAK No. 53 (Revisi 2015): Pembayaran Berbasis Saham Revisi PSAK ini mengklarifikasi definisi kondisi vesting dan secara terpisah mendefinisikan kondisi kinerja dan kondisi jasa.

-

PSAK No. 65 (Revisi 2015): Laporan Keuangan Konsolidasian

This SFAS revision provides clarification for vesting condition, performing condition and service condition. -

Amandemen PSAK ini mengklarifikasi tentang pengecualian konsolidasi untuk entitas investasi ketika kriteria tertentu terpenuhi. -

PSAK No. 66 (Revisi 2015): Pengaturan Bersama

PSAK No. 67 (Revisi 2015): Pengungkapan Kepentingan dalam Entitas Lain Amandemen PSAK ini mengklarifikasi tentang pengecualian konsolidasi untuk entitas investasi ketika kriteria tertentu terpenuhi.

SFAS No. 65 (Revised 2015): Consolidated Financial Statements Amendment to this SFAS clarifies the exemption on consolidation for investment entities when certain criterias are met.

-

Amandemen PSAK ini mensyaratkan bahwa seluruh prinsip kombinasi bisnis dalam PSAK No. 22 dan PSAK lain beserta persyaratan pengungkapannya diterapkan untuk akuisisi pada kepentingan awal dalam operasi bersama dan untuk akuisisi kepentingan tambahan dalam operasi bersama, sepanjang tidak bertentangan dengan pedoman yang ada dalam PSAK No. 66. -

SFAS No. 53 (Revised 2015): Sharebased Payments

SFAS No. Arrangements

66

(Revised):

Joint

Amendment to this SFAS requires all the principles of business combination in SFAS No. 22 and other SFAS with other disclosure requirements is applied to initial acquisition of interests in joint operations and for additional acquisition of interests in joint operations, as long as they are not conflicted with the existing guidance in SFAS No. 66. -

SFAS No. 67 (Revised 2015): Disclosures of Interests in Other Entities Amendment to this SFAS clarifies exemption of consolidation for investment enitites when certain criterias are met.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

347

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/17 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

-

-

PSAK No. 68 (Revisi 2015): Pengukuran Nilai Wajar Revisi PSAK ini mengklarifikasi bahwa pengecualian portofolio, yang memperkenankan Grup mengukur nilai wajar kelompok aset keuangan dan liabilitas keuangan secara neto, diterapkan pada seluruh kontrak (termasuk kontrak non-keuangan) dalam ruang lingkup PSAK No. 55.

-

PSAK No. 70: Akuntansi Aset dan Liabilitas Pengampunan Pajak

This SFAS revision clarifies that the portfolio exception, which permits entities to measure the fair value of the Group's financial assets and financial liabilities on a net basis, applied to all contracts (including non-financial contracts) within the scope of SFAS No. 55. -

SFAS No. 70: Accounting Amnesty Assets and Liabilities

for

Tax

PSAK ini memberikan opsi kebijakan akuntansi bagi entitas untuk menerapkan perlakuan akuntansi atas aset dan liabilitas sesuai dengan ketentuan Undang-Undang Pengampunan Pajak berdasarkan Surat Pernyataan Harta untuk Pengampunan Pajak.

This SFAS provides accounting policy choices for an entity to apply accounting treatment for the recognition of assets and liabilities in accordance with the provision of the Tax Amnesty Law based on its Declaration Letter for Tax Amnesty.

Pilihan adalah:

The alternative accounting options are:

-

-

-

SFAS No. 68 (Revised 2015): Fair value measurement

kebijakan

akuntansi

tersebut

Menggunakan standar akuntansi yang relevan pada Standar Akuntansi Keuangan di Indonesia (Pendekatan Umum). Menggunakan ketentuan spesifik dalam PSAK No. 70 (Pendekatan Pilihan)

ISAK No. 30: Pungutan ISAK ini merupakan interpretasi atas PSAK No. 57: Provisi, Liabilitas Kontinjensi dan Aset Kontinjensi yang mengklarifikasi akuntansi liabilitas untuk membayar pungutan, selain daripada pajak penghasilan yang berada dalam ruang lingkup PSAK No. 46: Pajak Penghasilan serta denda lain atas pelanggaran perundang-undangan, kepada Pemerintah.

-

-

-

To use the existing applicable standards under Indonesian Financial Accounting Standard (General Approach) To use of the specific provision in SFAS No. 70 (Optional Approach)

IFAS No. 30 (Revised 2015): Levies This IFAS represents interpretation of SFAS No. 57: Provision, Contingent Liabilities and Contingent Assets which clarifies the accounting liability to pay the levy, other than income taxes that are within the scope of SFAS No. 46: Income tax and other penalties for violations of law, to the Government.

348

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

Standar baru, revisi dan interpretasi yang telah diterbitkan namun belum berlaku efektif pada saat ini adalah sebagai berikut:

New standards, amendments and interpretations issued but not yet effective for the period are as follows:

-

-

-

PSAK No. 1 (Revisi 2015): Penyajian Laporan Keuangan Amandemen PSAK ini memberikan klarifikasi terkait penerapan persyaratan materialitas, fleksibilitas urutan sistematis catatan atas laporan keuangan dan pengidentifikasian kebijakan akuntansi signifikan.

Amendments to this SFAS provides clarification related to the application of the requirements of materiality, flexibility systematic sequence of notes to the financial statements and the identification of significant accounting policies.

PSAK No. 3: Laporan Keuangan Interim; PSAK No. 5: Segmen Operasi; PSAK No. 60: Instrumen Keuangan: Pengungkapan; dan PSAK No. 62: Kontrak Asuransi.

SFAS No. 3: Interim Financial Statements; SFAS No. 5: Operating Segments; SFAS No. 60: Financial Instruments: Disclosures; and SFAS No. 62: Insurance Contracts.

PSAK No. 2 (Revisi 2016): Laporan Arus Kas

-

Amandemen PSAK ini mensyaratkan entitas untuk menyediakan pengungkapan yang memungkinkan pengguna laporan keuangan untuk mengevaluasi perubahan pada liabilitas yang timbul dari aktivitas pendanaan, termasuk perubahan yang timbul dari arus kas maupun perubahan nonkas. -

SFAS No. 1 (Revised 2015): Presentation of Financial Statements

PSAK No. 3 (Revisi 2016): Laporan Keuangan Interim PSAK ini mengklarifikasi bahwa pengungkapan interim yang dipersyaratkan harus dicantumkan dalam laporan keuangan interim atau melalui referensi silang dari laporan keuangan interim, seperti komentar manajemen atau laporan risiko yang tersedia untuk pengguna laporan keuangan interim. Jika pengguna laporan keuangan tidak dapat mengakses informasi yang ada pada referensi silang dengan persyaratan dan waktu yang sama, maka laporan keuangan interim entitas dianggap tidak lengkap.

SFAS No. 2 (Revised 2016): Statements of Cash Flows Amendments to this SFAS requires the entity to provide disclosures that enable users of the financial statements to evaluate changes in liabilities arising from financing activities, including changes arising from cash flow and non-cash changes.

-

SFAS No. 3 (Revised 2016): Interim Financial Statements This SFAS clarifies that interim disclosures are required to be included in the interim financial statements or through cross-references of the interim financial statements, such as management commentary or risk report available to users of the interim financial statements. If the users of financial statements can not access the information on the crossreference with the same requirements on the same period, the interim financial statements of the entity is considered incomplete.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

349

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/19 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

-

-

PSAK No. 16 (Revisi 2015): Aset Tetap, untuk paragraf yang terkait dengan aset agrikultur Amandemen PSAK ini mengklarifikasi bahwa aset biologis yang memenuhi definisi tanaman produktif masuk dalam ruang lingkup PSAK 16. Definisi, pengakuan dan pengukuran tanaman produktif mengikuti persyaratan yang ada dalam PSAK 16.

-

PSAK No. 24 (Revisi 2016): Imbalan Kerja

Amendment of this SFAS clarifies that biological assets that meet definition as bearer plants are within the scope of SFAS 16. Definition, recognition and measurement of bearer plants follows requirements determined by SFAS 16. -

PSAK ini mengklarifikasi bahwa pasar obligasi korporasi berkualitas tinggi dinilai berdasarkan denominasi mata uang obligasi tersebut dan bukan berdasarkan negara di mana obligasi tersebut berada. -

PSAK No. 46 Penghasilan

(Revisi

2016):

Pajak

SFAS No. 16 (Revised 2015): Fixed Assets, for the paragraph which relate to agriculture asset

SFAS No. 24 (Revised 2016): Employee Benefit This SFAS clarifies that the market of high quality corporate bonds are determined by currency in which the bonds are denominated and not based on the country in which the bonds are exist.

-

SFAS No. 46 (Revised 2016): Income Taxes

Perubahan pada PSAK ini adalah sebagai berikut:

Amendments of this PSAK consist of the following:

(a) Menambahkan contoh ilustrasi untuk mengklarifikasi bahwa perbedaan temporer yang dapat dikurangkan timbul ketika jumlah tercatat aset instrumen utang yang diukur pada nilai wajar dan nilai wajar tersebut lebih kecil dari dasar pengenaan pajaknya, tanpa mempertimbangkan apakah entitas memperkirakan untuk memulihkan jumlah tercatat instrumen utang melalui penjualan atau penggunaan, misalnya dengan memiliki dan menerima arus kas kontraktual, atau gabungan keduanya.

(a) Provide illustrative examples to clarify that the temporary differences that are deductible arise when the carrying amount of debt instruments assets measured at fair value and the fair value is less than the taxable base, regardless of whether the entity estimates to recover the carrying amount of a debt instrument through sale or use of, for example, to have and receive contractual cash flows, or a combination of both.

(b) Mengklarifikasi bahwa untuk menentukan apakah laba kena pajak masa depan yang tersedia cukup agar perbedaan temporer yang dapat dikurangkan dapat dimanfaatkan, maka penilaian perbedaan temporer yang dapat dikurangkan tersebut dilakukan sesuai dengan peraturan pajak.

(b) Clarified that to determine whether the taxable income will be available so that the deductible temporary differences can be utilized, the valuation deductible temporary differences would be in line with tax regulations.

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Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

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-

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PSAK No. 46 (Revisi Penghasilan (lanjutan)

2016):

Pajak

Perubahan pada PSAK ini adalah sebagai berikut: (lanjutan)

Amendments of this PSAK consist of the following: (continued)

(c) Menambahkan bahwa pengurangan pajak yang berasal dari pembalikan aset pajak tangguhan dikecualikan dari estimasi laba kena pajak masa depan. Lalu entitas membandingkan perbedaan temporer yang dapat dikurangkan dengan estimasi laba kena pajak masa depan yang tidak mencakup pengurangan pajak yang dihasilkan dari pembalikan aset pajak tangguhan tersebut untuk menilai apakah entitas memiliki laba kena pajak masa depan yang memadai.

(c) Adding that the tax reduction from the reversal of deferred tax assets is excluded from the estimate of future taxable income. Then compare the entity deductible temporary differences to the estimated future taxable income that does not include tax reduction resulting from the reversal of deferred tax assets is to assess whether the entity has a future taxable income sufficient.

(d) Estimasi atas kemungkinan besar laba kena pajak masa depan dapat mencakup pemulihan beberapa aset entitas melebihi jumlah tercatatnya jika terdapat bukti yang memadai bahwa kemungkinan besar entitas akan mencapai hal tersebut.

(d) Estimation of the likeliness that taxable income can include recovery of certain assets of the entity exceeds its carrying amount if there is sufficient evidence that it is likely that the entity will achieve it.

PSAK No. 58 (Revisi 2016): Aset Tidak Lancar yang Dimiliki Untuk Dijual dan Operasi yang Dihentikan.

-

PSAK ini mengklarifikasi bahwa perubahan dari satu metode pelepasan ke metode pelepasan lainnya dianggap sebagai rencana awal yang berkelanjutan dan bukan sebagai rencana pelepasan baru. Penyesuaian ini juga mengklarifikasi bahwa perubahan metode pelepasan ini tidak mengubah tanggal klasifikasi sebagai aset atau kelompok aset yang dilepas. -

SFAS No. 46 (Revised 2016): Income Taxes (continued)

PSAK No. 60 (Revisi 2016): Instrumen Keuangan: Pengungkapan. PSAK ini mengklarifikasi bahwa entitas harus menilai sifat dari imbalan kontrak jasa untuk menentukan apakah entitas memiliki keterlibatan berkelanjutan dalam aset keuangan dan apakah persyaratan pengungkapan terkait keterlibatan berkelanjutan terpenuhi.

SFAS No. 58 (Revised 2016): Non-current Assets Held for Sale and Discontinued Operations. This PSAK clarifies that a change from one disposal method to other disposal method are considered as the beginning of a sustainable plan and not as a new disengagement plan. This adjustment also clarified that the change in the disposal method does not change the date of classification as an asset or asset group disposal.

-

SFAS No. 60 (Revised 2016): Financial Instrument: Disclosures This PSAK clarifies that an entity must assess the nature of the contract in exchange for services to determine whether the entity has a continuing involvement in financial assets and whether the disclosure requirements related to continuing involvement are met.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) a.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

Dasar penyajian laporan konsolidasian (lanjutan)

YANG

keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) a.

ACCOUNTING

Basis of consolidated financial statements (continued)

Perubahan pada pernyataan standar akuntansi keuangan dan interpretasi pernyataan standar akuntansi keuangan (lanjutan)

Changes to the statements of financial accounting standards and interpretations of statement of financial accounting standards (continued)

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PSAK No. 69: Agrikultur

SFAS No. 69: Agriculture

PSAK 69 mengatur bahwa aset biologis atau produk agrikultur diakui saat memenuhi beberapa kriteria yang sama dengan kriteria pengakuan aset. Aset tersebut diukur pada saat pengakuan awal dan pada setiap akhir periode pelaporan keuangan pada nilai wajar dikurangi biaya untuk menjual. Selisih yang timbul dari perubahan nilai wajar aset diakui dalam laba rugi periode terjadinya. Pengecualian diberikan apabila nilai wajar secara jelas tidak dapat diukur secara andal.

SFAS 69 regulates that biological assets and agriculture products are recognised if meets several criterias, similar with assets recognition criterias. Those assets are measured at the beginning and ending of reporting period at fair value less cost to sell. Difference incurred from the fair value changes are recognised in profit or loss. Exceptions applied if the fair value clearly cannot be measured reliably.

PSAK 69 memberikan pengecualian untuk aset produktif yang dikecualikan dari ruang lingkup. Pengaturan akuntansi aset produktif tersebut mengacu ke PSAK 16. PSAK 69 tidak mengatur tentang pemrosesan produk agrikultur setelah masa panen. Sebagai contoh, pemrosesan buah anggur menjadi minuman anggur dan wol menjadi benang.

SFAS 69 provides an exception for assets which are excluded from the scope. Accounting treatment applied to productive assets referring to SFAS 16. SFAS 69 does not regulate the processing of agricultural products after the harvest. For example, processing grapes into wine and wool into yarn.

ISAK 31: Interpretasi atas Ruang Lingkup PSAK 13: Properti Investasi

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IFAS No. 31: Interpretation on scope of SFAS 13: Investment Property

ISAK 31 memberikan interpretasi atas karakteristik bangunan yang digunakan sebagai bagian dari definisi properti investasi dalam PSAK 13. Bangunan sebagaimana dimaksud dalam definisi properti investasi mengacu pada struktur yang memiliki karakteristik fisik yang umumnya diasoasiasikan dengan suatu bangunan yang mengacu pada adanya dinding, lantai, dan atap yang melekat pada aset.

IFAS 31 provides an interpretation of the characteristics of the building that is used as part of the definition of investment property in SFAS 13. The building that referred to in the definition of investment property refers to structures that have physical characteristics that are generally associated with a building which refers to the presence of walls, floors, and roofs are attached to the asset.

Standar-standar tersebut diatas baru berlaku efektif pada tahun buku yang dimulai pada atau setelah tanggal 1 Januari 2017 atau 2018.

The above standards are effective for the financial year beginning on or after January, 1 2017 or 2018.

Pada saat penerbitan laporan keuangan konsolidasian ini, manajemen sedang mempelajari dampak yang mungkin timbul dari penerapan standar baru dan revisi tersebut serta pengaruhnya pada laporan keuangan Grup.

As at the authorisation date of these consolidated financial statements, the management is still evaluating the potential impact of these new and revised SFAS to the financial statements of the Group.

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) b.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Prinsip-prinsip konsolidasi (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) b.

i. Entitas anak

ACCOUNTING

Principles of consolidation (continued) i. Subsidiaries

Entitas anak adalah seluruh entitas (termasuk entitas terstruktur) dimana Grup memiliki pengendalian. Grup mengendalikan entitas lain ketika Grup terekspos atas, atau memiliki hak untuk, pengembalian yang bervariasi dari keterlibatannya dengan entitas dan memiliki kemampuan untuk mempengaruhi pengembalian tersebut melalui kekuasaannya atas entitas tersebut. Entitas anak dikonsolidasikan secara penuh sejak tanggal dimana pengendalian dialihkan kepada Grup. Entitas anak tidak dikonsolidasikan lagi sejak tanggal dimana Grup kehilangan pengendalian.

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which that control ceases.

Grup menerapkan metode akuisisi untuk mencatat kombinasi bisnis. Imbalan yang dialihkan untuk akuisisi suatu entitas anak adalah sebesar nilai wajar aset yang dialihkan, liabilitas yang diakui terhadap pemilik pihak yang diakusisi sebelumnya dan kepentingan ekuitas yang diterbitkan oleh Grup. Imbalan yang dialihkan termasuk nilai wajar aset atau liabilitas yang timbul dari kesepakatan imbalan kontinjensi. Aset teridentifikasi yang diperoleh dan liabilitas serta liabilitas kontinjensi yang diambil alih dalam suatu kombinasi bisnis diukur pada awalnya sebesar nilai wajar pada tanggal akuisisi.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Grup mengakui kepentingan nonpengendali pada pihak yang diakuisisi baik sebesar nilai wajar atau sebesar bagian proporsional kepentingan nonpengendali atas aset neto pihak yang diakuisisi. Kepentingan nonpengendali disajikan di ekuitas dalam laporan posisi keuangan konsolidasian, terpisah dari ekuitas pemilik entitas induk.

The Group recognises any noncontrolling interest in the acquiree on an acquisition, either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. Non-controlling interest is reported as equity in the consolidated statement of financial position, separate from the equity of the parent’s entitiy.

Biaya yang terkait dengan dibebankan pada saat terjadinya.

akuisisi

Acquisition-related costs are expensed as incurred.

Jika kombinasi bisnis diperoleh secara bertahap, nilai wajar pada tanggal akuisisi dari kepentingan ekuitas yang sebelumnya dimiliki oleh pihak pengakuisisi pada pihak yang diakuisisi diukur kembali ke nilai wajar tanggal akuisisi melalui laporan laba rugi.

If the business combination achieved in stages, at the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) b.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Prinsip-prinsip konsolidasi (lanjutan) i. Entitas anak (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) b.

ACCOUNTING

Principles of consolidation (continued) i. Subsidiaries (continued)

Imbalan kontinjensi yang masih harus dialihkan oleh Grup diakui sebesar nilai wajar pada tanggal akuisisi. Perubahan selanjutnya atas nilai wajar imbalan kontinjensi yang diakui sebagai aset atau liabilitas dan dicatat sesuai dengan PSAK 55 (Revisi 2014) “Instrumen Keuangan: Pengakuan dan Pengukuran”, dalam laporan laba rugi. Imbalan kontinjensi yang diklasifikasikan sebagai ekuitas tidak diukur kembali dan penyelesaian selanjutnya diperhitungkan dalam ekuitas.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with SFAS 55 (Revised 2014) “Financial Instrument: Recognition and Measurement” in profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Selisih lebih imbalan yang dialihkan, jumlah setiap kepentingan nonpengendali pada pihak diakuisisi dan nilai wajar pada tanggal akuisisi kepentingan ekuitas sebelumnya dimiliki oleh pihak pengakuisisi pada pihak diakuisisi atas nilai wajar aset bersih teridentifikasi yang diperoleh dicatat sebagai goodwill. Jika jumlah imbalan yang dialihkan, kepentingan nonpengendali yang diakui, dan kepentingan yang sebelumnya dimiliki pengakuisisi lebih rendah dari nilai wajar aset bersih entitas anak yang diakuisisi dalam kasus pembelian dengan diskon, selisihnya diakui dalam laporan laba rugi (Catatan 4).

The excess of the consideration transferred, the amount of any noncontrolling interest in the acquiree and the acquisition-date fair value of any previously held interest in the acquire over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, noncontrolling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the profit or loss (Note 4).

Transaksi, saldo dan keuntungan antar entitas Grup yang belum direalisasi telah dieliminasi. Kerugian yang belum direalisasi juga dieliminasi. Jika diperlukan, nilai yang dilaporkan oleh entitas anak telah diubah untuk menyesuaikan dengan kebijakan akuntansi yang diadopsi oleh Grup.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform to the Group’s accounting policies.

Untuk tujuan konsolidasi entitas anak yang memiliki mata uang fungsional selain Dolar AS, aset dan liabilitas entitas anak ditranslasikan dengan kurs tengah Bank Indonesia pada akhir periode pelaporan. Sementara itu, pendapatan dan beban ditranslasikan dengan kurs rata-rata dari kurs tengah Bank Indonesia selama periode laporan laba rugi.

For consolidation purpose of subsidiaries using currency other than US Dollar as functional currency, assets and liabilities are translated using Bank of Indonesia middle rate at the end of reporting period. Besides, revenue and expenses are translated using average Bank of Indonesia middle rate during profit or loss period.

Selisih yang timbul dari penjabaran laporan keuangan entitas anak tersebut ke dalam Dolar AS disajikan dalam akun “Penghasilan komprehensif lain - Selisih kurs karena penjabaran laporan keuangan entitas anak” sebagai bagian dari komponen ekuitas lainnya pada ekuitas dalam laporan posisi keuangan konsolidasian.

The difference arising from the translation of those subsidiaries’ financial statements into US Dollar is presented as “Other comprehensive income - Difference in foreign currency translation of subsidiaries financial statements” account as part of other components of equity in the equity section of the consolidated statements of financial position.

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) b.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Prinsip-prinsip konsolidasi (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) b.

ACCOUNTING

Principles of consolidation (continued)

ii. Perubahan kepemilikan tanpa kehilangan pengendalian

ii. Changes in ownership interests in subsidiaries without change of control

Transaksi dengan kepentingan nonpengendali yang tidak mengakibatkan hilangnya pengendalian merupakan transaksi ekuitas. Selisih antara nilai wajar imbalan yang dibayar dan bagian yang diakuisisi atas nilai tercatat aset neto entitas anak dicatat pada ekuitas. Keuntungan atau kerugian pelepasan kepentingan nonpengendali juga dicatat pada ekuitas.

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions. The difference between the fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to noncontrolling interests are also recorded in equity.

iii. Pelepasan entitas anak Ketika Grup tidak lagi memiliki pengendalian atau, kepentingan yang masih tersisa atas entitas diukur kembali berdasarkan nilai wajarnya, dan perubahan nilai tercatat diakui dalam laporan laba rugi. Nilai tercatat awal adalah sebesar nilai wajar untuk kepentingan pengukuran kembali kepentingan yang tersisa sebagai entitas asosiasi, ventura bersama atau aset keuangan. Di samping itu, jumlah yang sebelumnya diakui pada pendapatan komprehensif lain sehubungan dengan entitas tersebut dicatat seolah-olah Grup telah melepas aset atau liabilitas terkait. Hal ini dapat berarti bahwa jumlah yang sebelumnya diakui pada penghasilan komprehensif lain direklasifikasi ke laporan laba rugi. iv. Entitas asosiasi

iii. Disposal of subsidiaries When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when the control is lost, with the change in carrying amount recognised in profit or loss.The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. iv. Associates

Entitas asosiasi adalah seluruh entitas dimana Grup memiliki pengaruh signifikan namun bukan pengendalian, biasanya melalui kepemilikan hak suara antara 20% dan 50%. Investasi entitas asosiasi dicatat dengan metode ekuitas. Sesuai metode ekuitas, investasi pada awalnya dicatat pada biaya, dan nilai tercatat akan meningkat atau menurun untuk mengakui bagian investor atas laba rugi. Di dalam investasi Grup atas entitas asosiasi termasuk goodwill yang diidentifikasi ketika akuisisi.

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of profit or loss of the investee after the date of acquisition. The Group’s investment in associates includes goodwill identified on acquisition.

Jika kepemilikan kepentingan pada entitas asosiasi berkurang, namun tetap memiliki pengaruh signifikan, hanya suatu bagian proporsional atas jumlah yang telah diakui sebelumnya pada penghasilan komprehensif lain yang direklasifikasi ke laporan laba rugi.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) b.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Prinsip-prinsip konsolidasi (lanjutan) iv. Entitas asosiasi (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) b.

ACCOUNTING

Principles of consolidation (continued) iv. Associates (continued)

Bagian Grup atas laba atau rugi entitas asosiasi pasca akuisisi diakui dalam laporan laba rugi dan bagian atas mutasi penghasilan komprehensif lain pasca akuisisi diakui di dalam penghasilan komprehensif lain dan diikuti dengan penyesuaian pada jumlah tercatat investasi. Dividen yang akan diterima dari entitas asosiasi diakui sebagai pengurang jumlah tercatat investasi. Jika bagian Grup atas kerugian entitas asosiasi sama dengan atau melebihi kepentingannya pada entitas asosiasi, termasuk piutang tanpa agunan, Grup menghentikan pengakuan bagian kerugiannya, kecuali Grup memiliki kewajiban atau melakukan pembayaran atas nama entitas asosiasi.

The Group’s share of post-acquisition profits or losses is recognised in profit or loss, and its share of post acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. Dividends receivable from associates are recognised as reduction in the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associates, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associates.

Pada setiap tanggal pelaporan, Grup menentukan apakah terdapat bukti objektif bahwa telah terjadi penurunan nilai pada investasi pada entitas asosiasi. Jika demikian, maka Grup menghitung besarnya penurunan nilai sebagai selisih antara jumlah yang terpulihkan dan nilai tercatat atas investasi pada perusahaan asosiasi dan mengakui selisih tersebut pada “bagian laba dari ventura bersama” di laporan laba rugi. Kerugian yang belum direalisasi juga dieliminasi kecuali transaksi tersebut memberikan bukti penurunan nilai atas aset yang ditransfer. Kebijakan akuntansi entitas asosiasi disesuaikan jika diperlukan untuk memastikan konsistensi dengan kebijakan yang diterapkan oleh Grup.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to “share in profit of joint venture” in profit or loss. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Laba atau rugi yang dihasilkan dari transaksi hulu dan hilir antara Grup dengan entitas asosiasi diakui dalam laporan keuangan Grup hanya sebesar bagian investor lain dalam entitas asosiasi.

Profits and losses resulting from upstream and downstream transactions between the Group and its associates are recognised in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates.

Keuntungan dan kerugian dilusi yang timbul pada investasi entitas asosiasi diakui dalam laporan laba rugi.

Dilution gains and losses arising in investments in associates are recognised in profit or loss.

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) b.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Prinsip-prinsip konsolidasi (lanjutan) v. Pengaturan bersama

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) b.

ACCOUNTING

Principles of consolidation (continued) v. Joint arrangements

Menurut PSAK 66, pengaturan bersama diklasifikasikan sebagai operasi bersama atau ventura bersama bergantung pada hak dan kewajiban kontraktual para investor. Pada tanggal pelaporan, Grup memiliki operasi bersama dan ventura bersama.

Under SFAS 66 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor. At the reporting date, the Group has joint operations and joint ventures.

(1) Operasi bersama

(1) Joint operations

Operasi bersama adalah salah satu jenis pengaturan bersama dimana para pihak yang memiliki pengendalian bersama atas pengaturan memiliki hak atas aset, kewajiban atas liabilitas, terkait dengan pengaturan tersebut.

A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement.

Grup memiliki kepemilikan dalam operasi bersama dimana Grup termasuk salah satu pihak yang memiliki pengendalian bersama (operator bersama), atau pihak yang berpartisipasi tidak memiliki pengendalian bersama atas operasi bersama tersebut.

The Group has interests in several joint operation whereby the Group includes as a party which have joint control of a joint operation (joint operator), or as party that participate in, but do not have joint control of, a joint operation.

Sehubungan dengan kepentingannya dalam operasi bersama bagian kepemilikan dalam operasi bersama, Grup mengakui:

In relation to its interests in joint operations, the Group recognises its:

1)

1)

2) 3) 4) 5)

Aset, mencakup bagiannya atas setiap aset uang dimiliki bersama; Liabilitas, mencakup bagiannya atas liabilitas yang terjadi bersama; Pendapatan dari penjualan bagiannya atas output yang dihasilkan dari operasi bersama; Bagiannya atas pendapatan dari penjualan output oleh operasi bersama; dan Beban, mencakup bagiannya atas setiap beban yang terjadi secara bersama-sama.

Ketika Grup melakukan transaksi dengan operasi bersama, dimana Grup merupakan salah satu operator bersama, maka Grup mengakui keuntungan dan kerugian yang dihasilkan dari transaksi tersebut hanya sebatas kepentingan para pihak lain dalam operasi bersama tersebut.

2) 3) 4) 5)

Assets, including its share of any assets held jointly; Liabilities, including its share of any liabilities incurred jointly; Revenue from the sale of its share of the output arising from the joint operation; Share of the revenue from the sale of the output by the joint operation; and Expenses, including its share of any expenses incurred jointly.

When the Group enters into a transaction with a joint operation in which it is a joint operator, the Group shall recognise gains and losses resulting from such a transaction only to the extent of the other parties’ interests in the joint operation.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

357

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/27 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) b.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Prinsip-prinsip konsolidasi (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) b.

v. Pengaturan bersama (lanjutan)

Principles of consolidation (continued) v. Joint arrangements (continued)

(2) Ventura bersama

c.

ACCOUNTING

(2) Joint ventures

Ventura bersama dicatat menggunakan metode ekuitas. Dalam akuntansi metode ekuitas, kepentingan dalam ventura bersama diakui pada biaya perolehan dan disesuaikan selanjutnya untuk mengakui bagian Grup atas laba rugi dan penghasilan komprehensif lain pasca perolehan. Ketika bagian grup atas rugi dalam ventura bersama sama dengan atau melebihi kepentingannya dalam ventura bersama (dimana termasuk kepentingan jangka panjang, dalam substansinya membentuk bagian dari investasi bersih Grup dalam ventura bersama), Grup tidak mengakui kerugian selanjutnya, kecuali telah menjadi kewajiban atau telah melakukan pembayaran atas nama ventura bersama.

Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post acquisition profits or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any longterm interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

Keuntungan yang belum terealisasi atas transaksi antara Grup dan ventura bersama dieliminasi sebesar kepentingan Grup dalam ventura bersama. Kerugian yang belum terealisasi juga dieliminasi kecuali transaksi tersebut memberikan bukti adanya penurunan nilai aset yang dialihkan. Kebijakan akuntansi ventura bersama telah diubah jika diperlukan untuk memastikan konsistensi dari kebijakan yang diterapkan oleh Grup.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

Transaksi dan saldo dalam mata uang asing Masing-masing entitas dalam Grup mempertimbangkan indikator utama dan indikator lainnya dalam menentukan mata uang fungsionalnya. Perusahaan menentukan mata uang fungsionalnya dan mata uang Grup adalah Dolar AS dan memutuskan mata uang penyajian laporan keuangan konsolidasian menggunakan Dolar AS.

c.

Foreign balances

currency

transactions

and

Each entity in the Group considers the primary indicators and other indicators in determining its functional currency. The Company determined that its and the Group’s functional currency is the US Dollar and decided that the presentation currency for the consolidated financial statements is the US Dollar.

358

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) c.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

YANG

2.

Transaksi dan Saldo dalam mata uang asing (lanjutan)

c.

Foreign currency balances (continued)

ACCOUNTING

transactions

and

Transaksi dalam mata uang asing dicatat dalam mata uang fungsional berdasarkan nilai tukar yang berlaku pada saat transaksi dilakukan. Pada tanggal laporan posisi keuangan konsolidasian, aset dan liabilitas moneter dalam mata uang asing disesuaikan untuk mencerminkan kurs yang berlaku pada tanggal tersebut dan laba atau rugi kurs yang timbul dikreditkan atau dibebankan pada usaha periode berjalan, kecuali untuk selisih kurs yang dapat diatribusikan ke aset tertentu dikapitalisasi ke aset dalam pembangunan dan pemasangan.

Transactions involving foreign currencies are recorded in the functional currency at the rates of exchange prevailing at the time the transactions are made. At consolidated statement of financial position date, monetary assets and liabilities denominated in foreign currencies are adjusted to reflect the prevailing exchange rates at such date and the resulting gains or losses are credited or charged to current operations, except for foreign exchange differentials that can be attributed to qualifying assets which are capitalized to properties under construction and installation.

Nilai tukar yang digunakan adalah sebagai berikut:

The rates of exchange used were as follows:

31 Desember/ December 31, 2016 1 Dolar AS/Rupiah 1 Dolar AS/SGD 1 Dolar AS/JPY

d.

SUMMARY OF SIGNIFICANT POLICIES (continued)

31 Desember/ December 31, 2015

13,436.00 1.44 116.42

Aset keuangan 1.1 Klasifikasi Grup mengklasifikasikan aset keuangan dalam kategori sebagai berikut: (i) diukur pada nilai wajar melalui laporan laba rugi, (ii) pinjaman yang diberikan dan piutang, (iii) tersedia untuk dijual dan (iv) dimiliki hingga jatuh tempo. Klasifikasi ini tergantung pada tujuan saat aset keuangan tersebut diperoleh. Grup menentukan klasifikasi aset keuangan tersebut pada saat pengakuan awal. Pada tanggal 31 Desember 2016 dan 2015, Grup hanya mempunyai aset keuangan yang dikategorikan sebagai (i) pinjaman yang diberikan dan piutang, serta (ii) tersedia untuk dijual.

13,795.00 1.41 120.46

d.

1 US Dollar/Rupiah 1 US Dollar/SGD 1 US Dollar/JPY

Financial assets 1.1 Classification The Group classifies its financial assets into the categories of (i) financial assets at fair value through profit or loss, (ii) loans and receivables, and (iii) availablefor-sale financial assets and (iv) held to maturity. The classification depends on the purpose for which the financial assets were acquired. Group determines the classification of its financial assets at initial recognition. As at December 31, 2016 and 2015, Group only has financial assets classified as (i) loan and receivables, and (ii) available-for-sale.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

359

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/29 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) d.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Aset keuangan (lanjutan) 1.1 Klasifikasi (lanjutan) (i) Pinjaman yang diberikan dan piutang

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) d.

ACCOUNTING

Financial assets (continued) 1.1 Classification (continued) (i) Loans and receivables

Pinjaman yang diberikan dan piutang adalah aset keuangan non-derivatif dengan pembayaran yang tetap atau dapat ditentukan dan tidak mempunyai kuotasi harga di pasar aktif. Pinjaman yang diberikan dan piutang dimasukkan sebagai aset lancar, kecuali jika jatuh temponya melebihi 12 bulan setelah akhir periode pelaporan. Pinjaman yang diberikan dan piutang ini dimasukkan sebagai aset tidak lancar.

Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.

Aset keuangan Grup yang dikategorikan sebagai pinjaman yang diberikan dan piutang Grup terdiri dari kas dan setara kas, piutang usaha, piutang lain-lain jangka pendek, piutang lain-lain, dan aset tidak lancar lainnya pada laporan posisi keuangan.

The Group’s financial assets categorised as loans and receivables comprise cash and cash equivalents, trade receivable, other receivable, short-term other receivable and other non-current assets in the statement of financial position.

(ii) Aset keuangan yang tersedia untuk dijual

(ii) Available-for-sale financial assets

Aset keuangan tersedia untuk dijual adalah instrumen non-derivatif yang ditentukan pada kategori ini atau tidak diklasifikasikan pada kategori yang lain. Aset keuangan tersedia untuk dijual dimasukkan sebagai aset tidak lancar kecuali investasinya jatuh tempo atau manajemen bermaksud melepasnya dalam kurun waktu 12 bulan setelah akhir periode pelaporan.

Available-for-sale financial assets are non-derivative instruments that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

Pada tanggal 31 Desember 2016 dan 2015, aset keuangan yang tersedia untuk dijual yang dimiliki Grup disajikan pada akun investasi jangka pendek pada laporan posisi keuangan.

At December 31, 2016 and 2015, the Group’s available-for-sale financial assets are presented as short-term investment on the statement of financial position.

360

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) d.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Aset keuangan (lanjutan) 1.2 Pengakuan dan pengukuran

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) d.

ACCOUNTING

Financial assets (continued) 1.2 Recognition and measurement

Pembelian dan penjualan aset keuangan yang lazim (reguler) diakui pada tanggal perdagangan - tanggal dimana Grup berkomitmen untuk membeli atau menjual aset. Investasi pada awalnya diakui sebesar nilai wajarnya ditambah biaya transaksi untuk seluruh aset keuangan yang tidak diukur pada nilai wajar melalui laporan laba rugi. Aset keuangan yang diukur pada nilai wajar melalui laporan laba rugi pada awalnya dicatat sebesar nilai wajar dan biaya transaksinya dibebankan pada laporan laba rugi.

Regular purchases and sales of financial assets are recognised on the trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus the transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss.

Aset keuangan dihentikan pengakuannya ketika hak untuk menerima arus kas dari investasi tersebut telah jatuh tempo atau telah ditransfer dan Grup telah mentransfer secara substansial seluruh risiko dan manfaat atas kepemilikan aset.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Aset keuangan tersedia untuk dijual dan aset keuangan yang diukur pada nilai wajar melalui laporan laba rugi selanjutnya dicatat sebesar nilai wajar.

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.

Pinjaman yang diberikan dan piutang dicatat sebesar biaya perolehan diamortisasi dengan menggunakan metode suku bunga efektif.

Loans and receivables are carried at amortised cost using the effective interest method.

Perubahan nilai wajar efek moneter dan nonmoneter yang diklasifikasikan sebagai tersedia untuk dijual diakui pada penghasilan komprehensif lain. Ketika efek diklasifikasikan sebagai tersedia untuk dijual telah dijual, akumulasi penyesuaian nilai wajar yang diakui pada ekuitas dimasukkan ke dalam laporan laba rugi sebagai “Pendapatan lainlain” atau “Beban lain-lain”.

Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in other comprehensive income. When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in equity are included in profit or loss as “Other income” or “Other expenses”.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

361

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/31 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) d.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Aset keuangan (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) d.

1.2 Pengakuan dan pengukuran (lanjutan)

e.

Financial assets (continued) 1.2 Recognition (continued)

and

measurement

Ketika efek diklasifikasikan sebagai tersedia untuk dijual mengalami penurunan nilai, akumulasi penyesuaian nilai wajar yang diakui pada ekuitas dimasukkan ke dalam laporan laba rugi sebagai bagian dari “Pendapatan lain-lain” atau “Beban lain-lain”.

When securities classified as available-forsale are impaired, the accumulated fair value adjustments recognised in equity are included in profit or loss as part of “Other income” or “Other expenses”.

Bunga atas efek yang tersedia untuk dijual dihitung dengan menggunakan metode bunga efektif yang diakui pada laporan laba rugi sebagai “Pendapatan keuangan”. Dividen dari instrumen ekuitas yang tersedia untuk dijual diakui pada laporan laba rugi sebagai bagian dari “Pendapatan lain-lain” atau “Beban lain-lain” ketika hak Grup untuk menerima pembayaran sudah ditetapkan. Pada tanggal 31 Desember 2016 dan 2015, Grup tidak memiliki investasi pada ekuitas yang diklasifikasikan sebagai tersedia untuk dijual.

Interest on available-for-sale securities calculated using the effective interest method is recognised in profit or loss as part of “Finance income”. Dividends on available-for sale equity instruments are recognised in profit or loss as part of “Other income” or “Other expenses” when the Group’s right to receive payments is established. As December 31, 2016 and 2015, Group has no investment in equity classified as available-for-sale.

Instrumen keuangan disalinghapus

e.

Aset keuangan dan liabilitas keuangan disalinghapuskan dan jumlah netonya dilaporkan pada laporan posisi keuangan ketika terdapat hak yang berkekuatan hukum untuk melakukan salinghapus atas jumlah yang telah diakui tersebut dan adanya niat untuk menyelesaikan secara neto, atau untuk merealisasikan aset dan menyelesaikan liabilitas secara bersamaan. f.

ACCOUNTING

Instrumen keuangan derivatif

Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

f.

Derivative financial instruments

Derivatif pada awalnya diakui sebesar nilai wajar pada tanggal kontrak derivatif disepakati dan selanjutnya diukur kembali sebesar nilai wajarnya. Metode untuk mengakui keuntungan atau kerugian yang dihasilkan tergantung apakah derivatif ditetapkan sebagai instrumen lindung nilai, dan jika demikian, sifat item yang dilindung nilai.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item acting as the hedge.

Keuntungan atau kerugian yang dihasilkan atas kontrak berjangka valuta asing diakui pada laba rugi sebagai penyesuaian atas laba atau rugi selisih kurs pada periode yang sama dimana kontrak berjangka valuta asing tersebut diselesaikan.

Gain or loss resulted from forward foreign exchange contracts being recognised in profit or loss as adjustments of the exchange rate differences in the same period in which the forward foreign exchange contracts are settled.

Grup tidak memiliki instrumen keuangan derivatif yang ditetapkan sebagai instrumen lindung nilai per 31 Desember 2016 dan 2015.

The Group has no derivative financial instruments which designated as hedge as at December 31, 2016 and 2015.

362

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/32 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) g.

h.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Penurunan nilai aset keuangan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) g.

ACCOUNTING

Impairment of financial assets

Pada setiap akhir periode pelaporan, Grup menilai apakah terdapat bukti objektif bahwa aset keuangan atau kelompok aset keuangan telah mengalami penurunan nilai. Aset keuangan atau kelompok aset keuangan diturunkan nilainya dan kerugian penurunan nilai terjadi hanya jika terdapat bukti objektif bahwa penurunan nilai merupakan akibat dari satu atau lebih peristiwa yang terjadi setelah pengakuan awal aset (”peristiwa kerugian”) dan peristiwa kerugian (atau peristiwa) tersebut memiliki dampak pada estimasi arus kas masa datang atas aset keuangan atau kelompok aset keuangan yang dapat diestimasi secara andal.

At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that the loss event (or events) have an impact on the estimated future cash flow of the financial asset or group of financial assets that can be reliably estimated.

Aset dicatat sebesar harga perolehan diamortisasi. Untuk kategori pinjaman yang diberikan dan piutang, jumlah kerugian diukur sebesar selisih antara nilai tercatat aset dan nilai kini dari estimasi arus kas masa datang diestimasi (tidak termasuk kerugian kredit masa depan yang belum terjadi) yang didiskonto menggunakan suku bunga efektif awal dari aset tersebut. Nilai tercatat aset dikurangi dan jumlah kerugian diakui pada laporan laba rugi. Jika pinjaman yang diberikan memiliki tingkat bunga mengambang, tingkat diskonto yang digunakan untuk mengukur kerugian penurunan nilai adalah tingkat bunga efektif saat ini yang ditentukan dalam kontrak. Untuk alasan praktis, Grup dapat mengukur penurunan nilai berdasarkan nilai wajar instrumen dengan menggunakan harga pasar yang dapat diobservasi.

Assets carried at amortised cost. For the loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a floating interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

Jika, pada periode selanjutnya, jumlah penurunan nilai berkurang dan penurunan tersebut dapat dihubungkan secara objektif dengan peristiwa yang terjadi setelah penurunan nilai diakui (misalnya meningkatnya peringkat kredit debitur), pemulihan atas jumlah penurunan nilai yang telah diakui sebelumnya diakui pada laporan laba rugi.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

Kas dan setara kas Pada laporan arus kas konsolidasian, kas dan setara kas mencakup kas, simpanan yang sewaktu-waktu bisa dicairkan dan investasi jangka pendek lainnya dengan yang jatuh tempo dalam waktu 3 bulan atau kurang.

h.

Cash and cash equivalents In the consolidated statement of cash flows, cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 3 months or less.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

363

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/33 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) i.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Piutang usaha dan piutang lain-lain

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) i.

ACCOUNTING

Trade and other receivables

Piutang usaha adalah jumlah tagihan dari pelanggan untuk barang atau jasa yang dijual atau diberikan dalam transaksi bisnis pada umumnya. Jika pembayaran piutang diharapkan selesai dalam satu tahun atau kurang (atau dalam siklus normal operasi dari bisnis jika lebih lama), piutang tersebut dikelompokkan sebagai aset lancar. Jika tidak, piutang tersebut disajikan sebagai aset tidak lancar.

Trade receivables are amounts due from customers for goods and services sold or provided in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Piutang non-usaha dari pihak berelasi merupakan saldo piutang terkait dengan pinjaman yang diberikan kepada pihak berelasi Grup.

Non-trade receivables from related parties are receivables balance reflecting loan given to related parties of the Group.

Piutang usaha dan piutang non-usaha pada awalnya diakui sebesar nilai wajar dan selanjutnya diukur pada biaya perolehan diamortisasi dengan menggunakan metode bunga efektif. Apabila dampak pendiskontoan signifikan, dikurangi provisi atas penurunan nilai.

Trade and non-trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. If the impact of discounting is significant, less any provision for impairment.

Kolektibilitas piutang usaha dan piutang nonusaha ditinjau secara berkala. Piutang yang diketahui tidak tertagih, dihapuskan dengan secara langsung mengurangi nilai tercatatnya. Akun penyisihan digunakan ketika terdapat bukti yang objektif bahwa Grup tidak dapat menagih seluruh nilai terutang sesuai dengan persyaratan awal piutang. Kesulitan keuangan signifikan yang dialami debitur, kemungkinan debitur dinyatakan pailit atau melakukan reorganisasi keuangan dan gagal bayar atau menunggak pembayaran merupakan indikator yang dianggap dapat menunjukkan adanya penurunan nilai piutang. Jumlah penurunan nilai piutang adalah sebesar selisih antara nilai tercatat aset dan nilai kini dari estimasi arus kas masa depan pada tingkat suku bunga efektif awal. Arus kas terkait dengan piutang jangka pendek tidak didiskontokan apabila efek diskonto tidak material.

Collectibility of trade and non-trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flow, discounted at the original effective interest rate. Cash flow relating to short-term receivables is not discounted if the effect of discounting is immaterial.

Jumlah kerugian penurunan nilai dibebankan pada laba rugi dan disajikan dalam “Beban distribusi dan transmisi” untuk piutang usaha dan “Beban umum dan administrasi” untuk piutang lain-lain. Ketika piutang usaha dan piutang nonusaha, yang rugi penurunan nilainya telah diakui, tidak dapat ditagih pada periode selanjutnya, maka piutang tersebut dihapusbukukan dengan mengurangi akun penyisihan. Jumlah yang selanjutnya dapat ditagih kembali atas piutang yang sebelumnya telah dihapusbukukan, diakui pada “Pendapatan lain-lain” pada laporan laba rugi.

The amount of the impairment loss is charged in profit or loss within “Distribution and transmission expenses” for trade receivables and “General and administrative expenses” for other receivable. When a trade and non-trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off agains the allowance account. Subsequent recoveries of amounts previously written off are recognised on “Other income” in profit or loss.

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) j.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

AKUNTANSI

YANG

Persediaan

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) j.

Inventories

Persediaan dinyatakan sebesar nilai yang lebih rendah antara biaya perolehan dan nilai realisasi neto. Biaya perolehan ditentukan dengan metode rata-rata bergerak. Penyisihan persediaan usang dilakukan atas dasar hasil penelaahan secara periodik terhadap kondisi persediaan. k.

Aset tetap

ACCOUNTING

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the moving-average method. Allowance for inventories obsolescence is provided based on the periodic review of the condition of the inventories. k.

Fixed assets

Aset tetap, kecuali tanah, dinyatakan sebesar biaya perolehan dikurangi akumulasi penyusutan dan rugi penurunan nilai. Biaya perolehan termasuk biaya penggantian bagian aset tetap saat biaya tersebut terjadi, jika memenuhi kriteria pengakuan. Selanjutnya, pada saat inspeksi yang signifikan dilakukan, biaya inspeksi itu diakui ke dalam jumlah nilai tercatat aset tetap sebagai suatu penggantian jika memenuhi kriteria pengakuan. Semua biaya pemeliharaan dan perbaikan yang tidak memenuhi kriteria pengakuan diakui dalam laporan laba rugi dan penghasilan komprehensif lain konsolidasian pada saat terjadinya.

Fixed assets, except land, are stated at cost less accumulated depreciation and impairment losses. If the recognition criteria are met, the acquisition cost will include the cost of replacing part of the fixed assets when that cost is incurred. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the fixed assets as a replacement if the recognition criteria are satisfied. All other repairs and maintenance costs that do not meet the recognition criteria are recognised in the consolidated statements of income and other comprehensive income as incurred.

Aset tetap, kecuali tanah, disusutkan dengan menggunakan metode garis lurus untuk bangunan dan prasarana dan metode saldo menurun ganda untuk seluruh aset tetap lainnya selama umur manfaat aset tetap yang diestimasi sebagai berikut:

Depreciation of fixed assets, except for land, is computed using the straight-line method for buildings and improvements, and the double declining balance method for other fixed assets over the estimated useful lives of the assets, as follows:

Bangunan dan prasarana Mesin dan peralatan Kendaraan bermotor Peralatan kantor Peralatan dan perabot Aset belum terpasang

Tahun/Years

Tarif/Rates

20 16 - 20 4-8 4-8 4-8 16

5.00% 10.00% - 12.50% 25.00% - 50.00% 25.00% - 50.00% 25.00% - 50.00% 12.50%

Buildings and improvements Machineries and equipment Vehicles Office equipment Furnitures and fixtures Uninstalled assets

Tanah dinyatakan sebesar harga perolehan dan tidak diamortisasi karena manajemen berpendapat bahwa besar kemungkinan hak atas tanah tersebut dapat diperbaharui/diperpanjang pada saat jatuh tempo.

Land are stated at cost and not amortized as the management is of the opinion that it is probable the titles of land rights can be renewed/extended upon expiration.

Biaya pengurusan legal hak atas tanah dalam bentuk Hak Guna Bangunan (“HGB”) yang dikeluarkan ketika tanah diperoleh pertama kali diakui sebagai bagian dari biaya perolehan tanah pada akun “Aset Tetap” dan tidak diamortisasi. Sementara biaya pengurusan perpanjangan atau pembaruan legal hak atas tanah diakui sebagai aset tak berwujud dan diamortisasi sepanjang umur hukum hak atau umur ekonomis tanah, mana yang lebih pendek.

The legal cost of land rights in the form of Building Usage Rights (“HGB”) incurred when the land was acquired initially are recognised as part of the cost of the land under “Fixed Assets” account and not amortized. Meanwhile the extension or the legal renewal costs of land rights are recognised as intangible assets and amortized over the shorter of the rights’ legal life or land’s economic life.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/35 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) k.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Aset tetap (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) k.

ACCOUNTING

Fixed assets (continued)

Jumlah tercatat aset tetap dihentikan pengakuannya pada saat dilepaskan atau saat tidak ada manfaat ekonomis masa depan yang diharapkan dari penggunaan atau pelepasannya. Laba atau rugi yang timbul dari penghentian pengakuan aset (dihitung sebagai perbedaan antara jumlah neto hasil pelepasan dan jumlah tercatat dari aset) dimasukkan dalam laporan laba rugi pada tahun aset tersebut dihentikan pengakuannya.

An item of fixed assets is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statements of income in the year the asset is derecognised.

Pada setiap akhir periode/tahun buku, nilai residu, umur manfaat dan metode penyusutan direviu, dan jika sesuai dengan keadaan, disesuaikan secara prospektif.

The asset’s residual values, useful lives and methods of depreciation are reviewed and adjusted prospectively if appropriate, at each financial period/year end.

Aset dalam penyelesaian disajikan dalam “Aset Tetap” dan dinyatakan sebesar biaya perolehan. Akumulasi biaya perolehan untuk aset dalam penyelesaian akan dipindahkan ke masing-masing aset tetap yang bersangkutan pada saat aset tersebut selesai dikerjakan dan siap digunakan sesuai dengan tujuannya.

Construction in progress is presented under “Fixed Assets” and is stated at cost. The accumulated cost of the asset constructed is transferred to the appropriate fixed assets account when the construction is completed and the asset is ready for its intended use.

Aset kerjasama operasi adalah tanah Perusahaan yang digunakan untuk menyelenggarakan kegiatan kerjasama operasi. Bangunan kantor yang diperoleh sebagai kompensasi dalam kerjasama operasi dan pendapatan diterima di muka terkait diakui pada saat aset tersebut selesai dikerjakan dan siap digunakan sesuai dengan tujuannya. Pendapatan diterima di muka diakui selama periode kerjasama operasi.

Joint operation assets are the Company’s land titles used to carry out the joint operation activities. Office building obtained as compensation in the joint operation and the respective unearned income are recognised when the construction is completed and the asset is ready for its intended use. Unearned income is recognised over the period of the joint operation.

Aset kerjasama operasi dinyatakan pada nilai dapat diperoleh kembali pada saat kejadiankejadian atau perubahan-perubahan keadaan mengindikasikan bahwa nilai tercatatnya mungkin tidak dapat diperoleh kembali. Penurunan nilai aset, jika ada, diakui sebagai rugi pada laporan laba rugi.

Joint operation assets are stated at the estimated recoverable amount whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Impairment in asset values, if any, is recognised as a loss in the profit or loss.

Biaya pinjaman yang dapat diatribusikan langsung dengan perolehan, pembangunan atau pembuatan aset kualifikasian dikapitalisasi sebagai bagian biaya perolehan aset tersebut. Biaya pinjaman lainnya diakui sebagai beban pada saat terjadi. Biaya pinjaman terdiri dari biaya bunga dan biaya lain yang ditanggung oleh Grup sehubungan dengan peminjaman dana.

Borrowing costs that are directly attributable to the acquisition, construction and production of a qualifying asset are capitalized as part of the cost of the related assets. Otherwise, borrowing costs are recognised as expenses when incurred. Borrowing costs consist of interests and other financing charges that the Group incurs in connection with the borrowing of funds.

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Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) k.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Aset tetap (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) k.

Kapitalisasi biaya pinjaman dimulai pada saat aktivitas yang diperlukan untuk mempersiapkan aset agar dapat digunakan sesuai dengan maksudnya, dan pengeluaran untuk aset kualifikasian dan biaya pinjamannya telah terjadi. Kapitalisasi biaya pinjaman dihentikan pada saat selesainya secara substansi seluruh aktivitas yang diperlukan untuk mempersiapkan aset kualifikasian agar dapat digunakan sesuai dengan maksudnya. l.

Aset eksplorasi dan evaluasi

ACCOUNTING

Fixed assets (continued) Capitalization of borrowing costs commences when the activities to prepare the qualifying asset for its intended use are in progress and the expenditures for the qualifying asset and the borrowing costs have been incurred. Capitalization of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying assets are completed for their intended use.

l.

Exploration and evaluation assets

Kelompok Usaha menerapkan PSAK No. 64, “Aktivitas Eksplorasi dan Evaluasi pada Pertambangan Sumber Daya Mineral”, yang menetapkan bahwa beban eksplorasi dan evaluasi termasuk biaya geologi dan geofisika, biaya pengeboran sumur eksplorasi termasuk biaya pengeboran sumur tes stratigrafi tahap eksplorasi dan biaya lainnya yang terkait untuk mengevaluasi kelayakan teknis dan komersialitas dari minyak dan gas yang diekstraksi dikapitalisasi dan disajikan terpisah sebagai akun “Aset Eksplorasi dan Evaluasi” di laporan posisi keuangan konsolidasian.

The Group adopted SFAS No. 64, "Activity of Exploration and Evaluation of Mineral Resources", prescribes that the exploration and evaluation expenses, including geological and geophysical costs, costs of drilling exploratory wells, including stratigraphic test well drilling costs of exploration stage and other costs related to evaluating the technical feasibility and commerciality of oil and gas are extracted separately capitalized and presented as part of "Exploration and Evaluation Assets” in the consolidated statement of financial position.

Biaya eksplorasi dan evaluasi pada suatu area of interest dibebankan pada saat terjadinya, kecuali biaya tersebut dapat ditangguhkan pembebanannya apabila izin untuk melakukan eksplorasi di area of interest tersebut masih berlaku dan memenuhi salah satu ketentuan berikut ini:

Costs of exploration and evaluation in an area of interest are charged as incurred, unless these costs can be deferred if the permission to carry out exploration activities in the area of interest are current and meet one of the following conditions:

-

Kegiatan eksplorasi dan evaluasi pada tanggal laporan keuangan konsolidasian belum mencapai tahap yang dapat menentukan apakah kegiatan tersebut akan dapat dibuktikan dan dapat diperoleh kembali (recoverable), serta kegiatan yang aktif dan signifikan dalam area of interest terkait masih berlangsung; atau

-

Exploration and evaluation activities on the consolidated financial statements date has not reached a stage which can determine whether they will be proven and recoverable, also active and significant in the related area of interest is ongoing; or

-

Biaya-biaya tersebut diharapkan dapat diperoleh kembali melalui keberhasilan pengembangan dan eksploitasi area of interest atau melalui penjualan area of interest.

-

These costs are expected to be recouped through successful development and exploitation of the area of interest or through a sales area of interest.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/37 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) l.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Aset eksplorasi dan evaluasi (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) l.

Exploration (continued)

and

ACCOUNTING

evaluation

assets

Aset eksplorasi dan evaluasi yang ditangguhkan terdiri dari biaya-biaya yang terjadi setelah izin ekplorasi diperoleh dan sebelum dimulainya pengembangan area of interest antara lain mencakup akumulasi biaya yang terkait dengan penyelidikan umum, administrasi dan perizinan, geologi, dan geofisika.

Exploration and evaluation costs include accumulated deferred costs associated with the general investigation, administration and lincensing, and geological and geophysical costs incurred to develop a mine prior to the commencement of commercial production.

Aset eksplorasi dan evaluasi dinilai untuk penurunannya pada saat terdapat bukti dan keadaan yang menunjukkan bahwa nilai tercatat aset tersebut mungkin melebihi jumlah yang dapat dipulihkan. Aset eksplorasi dan evaluasi direklasifikasi ke properti minyak dan gas bumi pada saat kelayakan teknis dan komersialitas dari minyak dan gas yang diekstraksi tersebut dapat dibuktikan.

Exploration and evaluation assets are assessed to decline when there is evidence and circumstances indicate that the carrying amount of the asset may exceed its recoverable amount. Exploration and evaluation assets are reclassified to oil and gas properties at the time of the technical feasibility and commerciality of oil and gas are extracted can be determined.

m. Properti minyak dan gas bumi

m. Oil and gas properties

Biaya pengeboran sumur pengembangan dan sumur tes stratigrafi tahap pengembangan, platform, perlengkapan sumur dan fasilitas produksi terkait, dikapitalisasi sebagai aset sumur, perlengkapan dan fasilitas dalam pengerjaan. Biaya tersebut dipindahkan ke aset sumur, perlengkapan dan fasilitas terkait pada saat pengeboran atau konstruksi selesai. Pada saat pengembangan sumur telah selesai pada lapangan tertentu, maka sumur tersebut akan ditransfer sebagai sumur produksi.

Costs of drilling development wells and development-type stratigraphic test wells, platforms, well equipment and attendant production facilities, are capitalized as uncompleted wells, equipment and facilities. Such costs are transferred to wells and related equipment and facilities upon completion. When the development well is completed on a specific field, it is transferred to the production wells.

Penyusutan, deplesi dan amortisasi atas aset minyak dan gas bumi, kecuali untuk aset sumur, perlengkapan dan fasilitas dalam pengerjaan, dihitung dengan menggunakan metode satuan unit produksi, dengan menggunakan produksi kotor yang dibagi dengan cadangan kotor yang terbukti dan telah dikembangkan.

Depreciation, depletion and amortisation of oil and gas properties, except uncompleted wells, equipment and facilities under construction, is calculated using the unit of production method, using gross production divided by gross proved developed reserves.

368

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) n.

o.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Goodwill

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) n.

ACCOUNTING

Goodwill

Goodwill yang muncul atas akuisisi entitas anak disertakan dalam aset tak berwujud.

Goodwill on acquisitions of subsidiaries is included in intangible assets.

Untuk pengujian penurunan nilai, goodwill yang diperoleh dalam kombinasi bisnis dialokasikan pada setiap unit penghasil kas, atau kelompok unit penghasil kas (“UPK”), yang diharapkan dapat memberikan manfaat dari sinergi kombinasi bisnis tersebut. Setiap unit atau kelompok unit yang memperoleh alokasi goodwill menunjukkan tingkat terendah dalam entitas yang goodwill-nya dipantau untuk tujuan internal manajemen. Goodwill dipantau pada level segmen operasi.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (“CGU”), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Penurunan nilai aset nonkeuangan

o.

Impairment of non-financial assets

Aset yang memiliki masa manfaat yang tidak terbatas – misalnya goodwill atau aset tak berwujud yang belum siap untuk digunakan – tidak diamortisasi namun diuji penurunan nilainya setiap tahun, atau lebih sering apabila terdapat peristiwa atau perubahan pada kondisi yang mengindikasikan kemungkinan penurunan nilai. Aset yang diamortisasi diuji ketika terdapat indikasi bahwa nilai tercatatnya mungkin tidak dapat dipulihkan. Penurunan nilai diakui jika nilai tercatat aset melebihi jumlah terpulihkan. Jumlah terpulihkan adalah yang lebih tinggi antara nilai wajar aset dikurangi biaya untuk menjual dan nilai pakai aset. Dalam menentukan penurunan nilai, aset dikelompokkan pada tingkat yang paling rendah di mana terdapat arus kas yang dapat diidentifikasi (unit penghasil kas). Aset nonkeuangan selain goodwill yang mengalami penurunan nilai diuji setiap tanggal pelaporan untuk menentukan apakah terdapat kemungkinan pemulihan penurunan nilai.

Assets that have an indefinite useful life – for example, goodwill or intangible assets not ready for use – are not subject to amortisation but are tested annually for impairment, or more frequent if events or changes in circumstances indicate that they might be impaired. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separatelyidentifiable cash flow (cash generating units). Non-financial assets other than goodwill that suffer impairment are reviewed for possible reversal of the impairment at each reporting date.

Pemulihan rugi penurunan nilai, untuk aset selain goodwill, diakui jika, dan hanya jika, terdapat perubahan estimasi yang digunakan dalam menentukan jumlah terpulihkan aset sejak pengujian penurunan nilai terakhir kali. Pembalikan rugi penurunan nilai tersebut diakui segera dalam laba rugi, kecuali aset yang disajikan pada jumlah revaluasian sesuai dengan PSAK lain. Rugi penurunan nilai yang diakui atas goodwill tidak dapat dibalik kembali.

Reversal on impairment loss for assets other than goodwill would be recognised if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment test was carried out. Reversal on impairment losses will be immediately recognised in profit or loss, except for assets measured using the revalution model as required by other SFAS. Impairment losses relating to goodwill would not be reversed.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/39 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) p.

q.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Utang usaha dan utang lain-lain

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) p.

ACCOUNTING

Trade and other payables

Utang usaha adalah kewajiban untuk membayar atas pembelian gas yang telah diperoleh dari pemasok. Utang lain-lain adalah kewajiban untuk membayar atas barang dan jasa selain pembelian gas yang dilakukan dalam transaksi bisnis pada umumnya. Utang usaha dan utang lain-lain diklasifikasikan sebagai liabilitas jangka pendek apabila pembayaran jatuh tempo dalam waktu satu tahun atau kurang. Jika tidak, utang usaha dan utang lain-lain tersebut disajikan sebagai liabilitas jangka panjang.

Trade payables are obligations to pay gas purchase from supplier. Other payables are obligation for goods or services other than gas purchase that have been acquired in the ordinary course of business from suppliers. Trade and other payables are classified as short-term liabilities if payment is due within one year or less. If not, they are presented as longterm liabilities.

Utang usaha dan utang lain-lain pada awalnya diakui pada nilai wajar dan kemudian diukur pada biaya perolehan diamortisasi dengan menggunakan metode suku bunga efektif.

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Pinjaman

q.

Borrowings

Pada saat pengakuan awal, pinjaman diakui sebesar nilai wajar, dikurangi dengan biaya-biaya transaksi yang terjadi. Selanjutnya, pinjaman diukur sebesar biaya perolehan diamortisasi; selisih antara penerimaan (dikurangi biaya transaksi) dan nilai pelunasan dicatat pada laporan laba rugi selama periode pinjaman dengan menggunakan metode bunga efektif.

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

Biaya yang dibayar untuk memperoleh fasilitas pinjaman diakui sebagai biaya transaksi pinjaman sepanjang besar kemungkinan sebagian atau seluruh fasilitas akan ditarik. Dalam hal ini, biaya memperoleh pinjaman ditangguhkan sampai penarikan pinjaman terjadi. Sepanjang tidak terdapat bukti bahwa besar kemungkinan sebagian atau seluruh fasilitas akan ditarik, biaya memperoleh pinjaman dikapitalisasi sebagai pembayaran di muka untuk jasa likuiditas dan di amortisasi selama periode fasilitas yang terkait.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawndown. In this case, the fee is deferred until the drawdown occurs. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Biaya pinjaman yang terjadi untuk konstruksi aset kualifikasian, dikapitalisasi selama periode waktu yang dibutuhkan untuk menyelesaikan konstruksi aset dan mempersiapkannya sampai dapat digunakan sesuai tujuan yang dimaksudkan atau untuk dijual. Biaya pinjaman lainnya dibebankan pada laporan laba rugi.

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in profit or loss.

Pinjaman diklasifikasikan sebagai liabilitas jangka pendek kecuali Grup memiliki hak tanpa syarat untuk menunda pembayaran liabilitas selama paling tidak 12 bulan setelah tanggal pelaporan.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.

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Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) q.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Pinjaman (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) q.

Pengakuan pinjaman yang diperoleh Pemerintah dari penerusan pinjaman dilakukan berdasarkan otorisasi penarikan atau dokumen lainnya yang sejenis, yang diterbitkan oleh pemberi pinjaman. Pinjaman terutang dalam mata uang pinjaman yang diberikan. r.

Sewa

ACCOUNTING

Borrowings (continued) The recognition of borrowings obtained by the Government from lenders is based on the withdrawal authorisation or other similar documents issued by the lenders. The loans are payable in their original currencies.

r.

Leases

Grup mengadakan perjanjian yang mengandung sewa di mana Grup bertindak sebagai lessee atau lessor. Grup mengevaluasi apakah secara substantial risiko dan manfaat yang terkait dengan kepemilikan aset beralih berdasarkan PSAK No. 30 (Revisi 2011), “Sewa”, yang mensyaratkan Grup membuat pertimbangan dan estimasi dari pengalihan risiko dan manfaat terkait dengan aset.

The Group has entered into arrangement that contain lease in which the Group is a lessee or lessor. The Group evaluates whether all of the risks and rewards incidental to ownership are substantially transferred based on SFAS No. 30 (Revised 2011), “Leases” which requires the Group to make judgments and estimates of transfer of risks and rewards of the assets.

Grup sebagai penyewa

Group as a lessee

Sewa pembiayaan yang mengalihkan kepada Grup secara substansial seluruh risiko dan manfaat yang terkait dengan kepemilikan aset, dikapitalisasi pada awal masa sewa sebesar nilai wajar dari aset sewa pembiayaan atau, jika lebih rendah, sebesar nilai kini dari pembayaran sewa minimum. Pembayaran sewa dipisahkan antara beban keuangan dan pengurangan liabilitas sewa, sedemikian rupa sehingga menghasilkan suatu suku bunga periodik yang konstan atas saldo liabilitas yang tersisa. Beban keuangan dibebankan langsung pada laba rugi.

A finance lease that transfers to the Group substantially all the risks and benefits incidental to ownership of the leased item, is capitalized at the commencement of the lease at the fair value of the finance lease or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

Suatu aset sewa pembiayaan disusutkan selama masa manfaat dari aset tersebut. Tetapi, jika tidak terdapat kepastian memadai bahwa Grup akan memperoleh kepemilikan di akhir masa sewa, maka aset disusutkan selama mana yang lebih pendek antara taksiran masa manfaat aset dan masa sewa.

A finance lease asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Pembayaran sewa operasi diakui sebagai beban usaha dalam laba rugi secara garis lurus selama masa sewa.

Operating lease payments are recognised as an operating expense in profit or loss on a straightline basis over the lease term.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

371

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/41 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) r.

s.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Sewa (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) r.

ACCOUNTING

Leases (continued)

Grup sebagai pemberi sewa

Group as a lessor

Dalam sewa pembiayaan, di mana Grup mengalihkan secara substansial seluruh risiko dan manfaat yang terkait dengan kepemilikan aset, Grup mengakui aset berupa piutang sewa pembiayaan dalam laporan posisi keuangan konsolidasi sebesar jumlah yang sama dengan investasi sewa neto.

Under finance lease, where the Group transfers substantially all the risks and reward incidental to the ownership of the leased item, the Group recognised asset held under lease in the consolidated statement of financial position and present them as a receivable at an amount equal to the net investment in the lease.

Pemberi sewa yang memproduksi aset sewa mengakui laba atau rugi pengalihan sesuai dengan kebijakannya atas pengakuan pendapatan biasa. Selisih antara nilai wajar aset dengan nilai tercatat diakui sebagai laba atau rugi pengalihan.

Lessor that produces leased asset recognised gain or loss from such transfer in accordance with the policy followed by the entity for outright sales. The difference between the fair value of the assets and its carrying amount is recognised as gain or loss from such transfer.

Imbalan kerja i.

Imbalan kerja jangka pendek

s.

Employee benefits i.

Imbalan kerja jangka pendek diakui pada saat terutang kepada karyawan. ii.

Imbalan pensiun dan imbalan pascakerja lainnya Grup memberikan imbalan manfaat pasti sesuai dengan Perjanjian Kerja Bersama (“PKB”), yang jumlahnya lebih besar dibanding dengan imbalan berdasarkan Undang-Undang Ketenagakerjaan No. 13/2003 (UU No. 13/2003). Karena UU Ketenagakerjaan atau PKB menentukan rumus tertentu untuk menghitung jumlah minimal imbalan pensiun, pada dasarnya program pensiun berdasarkan UU Ketenagakerjaan atau PKB adalah program pensiun imbalan pasti.

Short-term employee benefits Short-term employee benefits are recognised when they accrue to the employees.

ii.

Pension benefits and postemployment benefits

other

The Group provides defined benefits in accordance with the Collective Labor Agreement (“CLA”), which benefits are higher compared with benefits under Labor Law No. 13/2003 (Law No. 13/2003). Since the Labour Law and the CLA set the formula for determining the minimum amount of benefits, in substance pension plans under the Labour Law or the CLA represent defined benefit plans.

372

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) s.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Imbalan kerja (lanjutan) ii.

Imbalan pensiun dan imbalan pascakerja lainnya (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) s.

ACCOUNTING

Employee benefits (continued) ii.

Pension benefits and other postemployment benefits (continued)

Liabilitas imbalan pensiun merupakan nilai kini kewajiban imbalan pasti pada tanggal neraca dikurangi dengan nilai wajar aset program. Kewajiban imbalan pasti dihitung sekali setahun oleh aktuaris independen dengan menggunakan metode projected unit credit. Nilai kini kewajiban imbalan pasti ditentukan dengan mendiskontokan estimasi arus kas keluar masa depan dengan menggunakan tingkat bunga obligasi pemerintah (dengan pertimbangan saat ini tidak ada pasar aktif untuk obligasi korporat berkualitas tinggi) dalam mata uang Rupiah sesuai dengan mata uang di mana imbalan tersebut akan dibayarkan dan yang memiliki jangka waktu yang kurang lebih sama dengan waktu jatuh tempo liabilitas imbalan pensiun yang bersangkutan.

The pension benefit obligation is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds (considering currently there is no deep market for high quality corporate bonds) that are denominated in Rupiah in which the benefits will be paid and that have terms to maturity approximating the terms to the related pension obligation.

Keuntungan dan kerugian aktuarial yang timbul dari penyesuaian dan perubahan dalam asumsi-asumsi aktuarial dibebankan atau dikreditkan ke ekuitas pada pos pendapatan komprehensif lain pada periode terjadinya.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

Biaya jasa lalu diakui secara langsung di laba-rugi. Keuntungan dan kerugian dari kurtailmen atau penyelesaian program manfaat pasti diakui di laba rugi ketika kurtailmen atau penyelesaian tersebut terjadi.

Past service costs are recognised immediately in profit or loss statements of income. Gains or losses on the curtailment or settlement of a defined benefit plan are recognised in profit or loss when the curtailment or settlement occurs.

Grup memberikan imbalan pascakerja lainnya, seperti uang penghargaan, penghargaan pengabdian, dan masa persiapan pensiun. Imbalan ini dihitung dengan menggunakan metodologi yang sama dengan metodologi yang digunakan dalam perhitungan program pensiun imbalan pasti, namun pengukuran kembali atas kewajiban imbalan kerja diakui langsung sebagai beban/pendapatan pada laporan laba rugi.

The Group also provides other postemployment benefits, such as long service reward, jubilee rewards and prepension reward. These benefits have been accounted for using the same methodology as for the defined benefit pension plan, however, remeasurement on the employee benefit obligation is direcly recognised as expenses/income on the profit or loss.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

373

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/43 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) s.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Imbalan kerja (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) s.

iii. Program imbalan iuran pasti

t.

ACCOUNTING

Employee benefits (continued) iii. Defined contribution benefit program

Grup mempunyai program asuransi pensiun untuk seluruh karyawan tetap yang memenuhi syarat. Pembayaran premi awal sekaligus dan premi periodik ditentukan berdasarkan perhitungan secara periodik yang disetujui oleh Perusahaan dan Dana Pensiun Lembaga Keuangan. Selisih antara premi pertanggungan dengan kontribusi karyawan ditanggung oleh Perusahaan.

The Group has a retirement insurance plan covering all of its qualified permanent employees. One-time initial retirement premium and periodic premium payments are based on periodic calculations agreed between the Company and Financial Institution Pension Fund. The remaining balance of the premium is borne by the Company.

Grup juga menyediakan tambahan tunjangan kesehatan bagi para pensiunan karyawan berdasarkan perhitungan tertentu yang disetujui oleh Perusahaan dan Yayasan Kesejahteraan Pegawai dan Pensiunan Gas Negara sebagai pengelola dana.

The Group provides additional postretirement health care benefits to its retired employees based on certain computations agreed between the Company and Yayasan Kesejahteraan Pegawai dan Pensiunan Gas Negara as the fund manager.

Liabilitas pembongkaran aset dan restorasi area

t.

Asset abandonment and site restoration obligation

Grup mengakui liabilitas pembongkaran dan pemindahan aset dan restorasi area atas fasilitas produksi minyak dan gas bumi, sumur, pipa dan aset-aset yang terkait sesuai dengan persyaratan dalam production sharing contract (“PSC”) atau sesuai dengan peraturan yang berlaku.

The Group recognises its obligations for future dismantlement and transfer of assets and site restoration of oil and gas production facilities, wells, pipelines and related assets in accordance with the provisions in the production sharing contracts (“PSC”) or in line with applicable regulations.

Estimasi awal biaya pembongkaran dan pemindahan aset minyak dan gas bumi dan restorasi area aset diakui sebagai komponen biaya perolehan, yang disusutkan/dideplesikan dengan menggunakan metode satuan unit produksi yang sejalan dengan tarif deplesi aset yang dipilih.

The initial estimated costs for dismantlement and site restoration of oil and gas properties are recognised as part of the acquisition costs of the assets and are subsequently depreciated/depleted using the unit-ofproduction method in line with the selected assets depletion rate.

374

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/44 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) t.

u.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Liabilitas pembongkaran aset dan restorasi area (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) t.

ACCOUNTING

Asset abandonment and site restoration abligation (continued)

Dalam banyak kasus, aktivitas pembongkaran dan pemindahan aset dan restorasi area fasilitas produksi minyak dan gas, sumur, pipa saluran dan aset terkait terjadi pada beberapa tahun di masa yang akan datang. Provisi atas liabilitas pembongkaran dan pemindahan aset, dan restorasi area di masa yang akan datang adalah berupa estimasi terbaik pada tanggal pelaporan keuangan atas nilai kini dari pengeluaran di masa yang akan datang untuk melaksanakan liabilitas pembongkaran dan pemindahan aset dan restorasi area tersebut, sesuai dengan ketentuan hukum yang berlaku pada tanggal pelaporan. Perkiraan liabilitas pembongkaran dan pemindahan aset dan restorasi area di masa yang akan datang tersebut melibatkan estimasi manajemen mengenai saat aktivitas tersebut akan dilakukan, sejauh mana aktivitas tersebut harus dilakukan, dan juga teknologi yang akan digunakan di masa depan.

In most instances, the dismantlement and transfer of assets and site restoration activities of oil and gas production facilities, wells, pipelines and related assets will occur many years in the future. The provision for future dismantlement and transfer of assets and aset restoration obligation is the best estimate of the present value of the future expenditures required to undertake the dismantlement and transfer of assets and site restoration obligation at the reporting date, based on current legal requirements. The estimate future dismantlement and transfer of assets and site restoration obligation, therefore, requires management to make judgements regarding the timing of removal and transfer, the extent of restoration activities required and future removal and restoration technologies.

Estimasi tersebut direviu setiap periode/tahun dan disesuaikan bila diperlukan. Penyesuaian dicerminkan dalam nilai kini atas provisi liabilitas pembongkaran dan pemindahan aset dan restorasi area pada tanggal laporan posisi keuangan konsolidasian, dimana juga dilakukan penyesuaian dengan jumlah yang sama atas nilai buku aset yang bersangkutan.

Such estimates are reviewed on an periodical/annual basis and adjusted each period/year as required. Adjustments are reflected in the present value of the dismantlement and transfer of assets and site restoration obligation provision at the consolidated statement of financial position date with a corresponding change in the book value of the associated asset.

Pembalikan dari efek diskonto dalam penghitungan provisi diakui sebagai beban keuangan.

The unwinding of the effect of discounting the provision is recognised as a finance cost.

Modal saham Biaya tambahan yang secara langsung dapat diatribusikan kepada penerbitan saham biasa atau opsi disajikan pada ekuitas sebagai pengurang penerimaan, setelah dikurangi pajak.

u.

Share capital Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

375

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/45 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) u.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Modal saham (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) u.

Ketika entitas Grup membeli modal saham ekuitas Perusahaan (saham treasuri), imbalan yang dibayar, termasuk biaya tambahan yang secara langsung dapat diatribusikan (dikurangi pajak penghasilan) dikurangkan dari ekuitas yang diatribusikan kepada pemilik ekuitas entitas sampai saham tersebut dibatalkan atau diterbitkan kembali. Ketika saham biasa tersebut selanjutnya diterbitkan kembali, imbalan yang diterima, dikurangi biaya tambahan transaksi yang terkait dan dampak pajak penghasilan yang terkait dimasukkan pada ekuitas yang dapat diatribusikan kepada pemilik ekuitas entitas. v.

Pendapatan dan beban

ACCOUNTING

Share capital (continued) Where any Group company purchases the Company’s equity share capital (treasury stocks), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.

v.

Revenue and expense

Pendapatan Grup berasal dari kegiatan distribusi gas bumi, jasa transmisi gas bumi, penjualan minyak mentah dan gas bumi, dan jasa lainnya.

Revenue of the Group are earned from natural gas distribution, natural gas transmission services, sale of crude oil and natural gas and other services.

Pendapatan dari distribusi gas bumi dan jasa transmisi gas bumi diakui pada saat gas telah didistribusikan atau dikirim kepada pelanggan berdasarkan pencatatan pada alat meter gas.

Revenues from gas distribution and toll fees from gas transmission are recognised when the gas is distributed or transmitted to the customers based on the gas meter readings.

Pendapatan sehubungan dengan pengoperasian aset dan jaringan pipa transmisi diakui setelah jasa diberikan, dan diukur sebesar satuan gas yang telah diangkut selama suatu periode.

Revenue arising from the operation of the aset and pipeline transmission is recognised after the service is rendered and is measured based on the unit of gas which has been transported during such period.

Pendapatan penjualan minyak mentah dan gas bumi diakui berdasarkan kepemilikan entitas secara konsolidasi pada lapangan produksi (metode “entitlement”), ketika barang secara fisik dan risiko dan manfaat terkait telah berpindah kepada pembeli, yang secara umum adalah pada saat dimuat ke kapal atau truk, atau pada saat barang memasuki saluran pipa.

Crude oil and natural gas sales revenue is recognised on the basis of the consolidated entity’s interest in a producing field (“entitlements” method), when the physical product and associates risks and rewards of ownership pass to the purchaser, which is generally at the time of ship or truck loading, or on the product entering the pipeline.

376

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/46 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) v.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Pendapatan dan beban (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) v.

ACCOUNTING

Revenue and expense (continued)

Pendapatan yang diperoleh dari PSC diakui atas dasar hak neto sesuai dengan persyaratan PSC. Selisih antara lifting aktual minyak mentah dan gas bumi menimbulkan piutang jika hak Grup melebihi lifting minyak mentah dan gas tersebut (posisi under lifting) dan menimbulkan utang jika lifting minyak mentah dan gas bumi melebihi hak Grup (posisi over lifting). Volume under lifting dan over lifting dinilai berdasarkan harga jual rata-rata setahun untuk minyak mentah (yaitu Indonesia Crude Price, (“ICP”)) dan gas (yaitu harga dalam kontrak).

Revenue earned under a PSC is recognised on a net of entitlements basis according to the terms of the PSC. Differences between the Group’s actual liftings of crude oil and gas result in a receivable when entitlements exceed lifting of crude oil and gas (under lifting position) and in payable when lifting of crude oil and gas exceed entitlements (over lifting position). Under lifting and over lifting volumes are valued based on the annual weighted average sales price for crude oil (i.e Indonesian Crude Price (“ICP”)) and gas (i.e. contract prices).

Pendapatan dari jasa lainnya diakui pada saat jasa diserahkan atau secara signifikan diberikan dan manfaat jasa tersebut telah dinikmati oleh pelanggan.

Revenues from other services are recognised when the services are rendered or significantly provided and the benefits have been received by the customers.

Beban diakui pada saat terjadinya dengan menggunakan metode akrual.

Expenses are recognised as incurred on an accrual basis.

w. Perpajakan

w. Taxation

Beban pajak terdiri dari pajak kini dan pajak tangguhan. Pajak diakui dalam laporan laba rugi, kecuali jika pajak tersebut terkait dengan transaksi atau kejadian yang diakui di pendapatan komprehensif lain atau langsung diakui ke ekuitas. Dalam hal ini, pajak tersebut masing-masing diakui dalam pendapatan komprehensif lain atau ekuitas.

The tax expenses comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

Beban pajak kini dihitung berdasarkan peraturan perpajakan yang berlaku pada tanggal pelaporan keuangan, di negara di mana Perusahaan dan entitas anak beroperasi dan menghasilkan pendapatan kena pajak. Manajemen secara periodik mengevaluasi posisi yang dilaporkan di Surat Pemberitahuan Tahunan ("SPT") sehubungan dengan situasi di mana aturan pajak yang berlaku membutuhkan interpretasi. Jika perlu, manajemen menentukan provisi berdasarkan jumlah yang diharapkan akan dibayar kepada otoritas pajak.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provision where appropriate on the basis of amounts expected to be paid to the tax authorities.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

377

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/47 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 2.

IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan)

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

w. Perpajakan (lanjutan)

2.

SUMMARY OF SIGNIFICANT POLICIES (continued)

ACCOUNTING

w. Taxation (continued)

Pajak penghasilan tangguhan diakui, dengan menggunakan metode balance sheet liability untuk semua perbedaan temporer antara dasar pengenaan pajak atas aset dan liabilitas dengan nilai tercatatnya pada laporan keuangan konsolidasian. Namun, liabilitas pajak penghasilan tangguhan tidak diakui jika berasal dari pengakuan awal goodwill atau pada saat pengakuan awal aset dan liabilitas yang timbul dari transaksi selain kombinasi bisnis yang pada saat transaksi tersebut tidak mempengaruhi laba rugi akuntansi dan laba rugi kena pajak. Pajak penghasilan tangguhan ditentukan dengan menggunakan tarif pajak yang telah berlaku atau secara substantif telah berlaku pada akhir periode pelaporan dan diharapkan diterapkan ketika aset pajak penghasilan tangguhan direalisasi atau liabilitas pajak penghasilan tangguhan diselesaikan.

Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill and deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates that have been enacted or substantially enacted as at the reporting period and is expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Aset pajak penghasilan tangguhan diakui hanya jika besar kemungkinan jumlah penghasilan kena pajak di masa depan akan memadai untuk dikompensasi dengan perbedaan temporer yang masih dapat dimanfaatkan.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Atas perbedaan temporer dalam investasi pada entitas anak dibentuk pajak penghasilan tangguhan, kecuali untuk liabilitas pajak penghasilan tangguhan dimana saat pembalikan perbedaan sementara dikendalikan oleh Grup dan sangat mungkin perbedaan temporer tersebut tidak akan dibalik di masa mendatang.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not be reversed in the foreseeable future.

Aset dan liabilitas pajak penghasilan tangguhan dapat saling hapus apabila terdapat hak yang berkekuatan hukum untuk melakukan saling hapus antara aset pajak kini dengan liabilitas pajak kini dan apabila aset dan liabilitas pajak penghasilan tangguhan dikenakan oleh otoritas perpajakan yang sama, baik atas entitas kena pajak yang sama ataupun berbeda dan adanya niat untuk melakukan penyelesaian saldo-saldo tersebut secara neto.

Deferred income tax assets and liabilities are offset when there are legally-enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entities where there is an intention to settle the balances on a net basis.

378

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan)

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

w. Perpajakan (lanjutan)

x.

y.

2.

SUMMARY OF SIGNIFICANT POLICIES (continued)

ACCOUNTING

w. Taxation (continued)

Kekurangan/kelebihan pembayaran pajak penghasilan disajikan sebagai bagian dari “Beban Pajak Kini” dalam laporan laba rugi dan penghasilan komprehensif lain konsolidasian. Grup juga menyajikan bunga/denda, jika ada, sebagai bagian dari “Beban Pajak Kini”.

The underpayment/overpayment of income tax is presented as part of “Tax Expense - Current” in the consolidated statement of profit or loss and other comprehensive income. The Group also presented interest/penalty, if any, as part of “Tax Expenses - Current”.

Entitas anak yang terlibat dalam kegiatan eksplorasi dan produksi minyak dan gas bumi di Indonesia dikenai tarif pajak penghasilan badan sebesar 44% sampai 48% dan di luar Indonesia dikenai tarif pajak penghasilan badan sebesar 35%. Perusahaan dikenai tarif pajak penghasilan badan sebesar 20% karena lebih dari 40% modal saham Perusahaan terdaftar di Bursa Efek Indonesia.

The subsidiary involved in oil and gas exploration and production in Indonesia is subject to income tax at rate of 44% to 48% and outside Indonesia is subject to income tax at rate 35%. The Company is subject to corporate income tax rate 20% due more than 40% of the Company’s shares are listed on the Indonesian Stock Exchange.

Laba bersih per saham

x.

Earnings per share

Laba bersih per saham dihitung dengan membagi laba bersih yang tersedia bagi pemegang saham Grup dengan rata-rata tertimbang jumlah saham biasa yang beredar pada tahun yang bersangkutan.

Basic earnings per share are calculated by dividing net income by the weighted average number of ordinary shares outstanding during the year.

Pada tanggal 31 Desember 2016 dan 2015, tidak ada efek yang berpotensi menjadi saham biasa. Oleh karena itu, laba per saham dilusian sama dengan laba per saham dasar.

As at December 31, 2016 and 2015, there were no existing instruments which could result in the issue of further ordinary shares. Therefore, diluted earning per share is equivalent to basic earning per share.

Dividen Pembagian dividen kepada pemegang saham Grup diakui sebagai liabilitas dalam laporan keuangan konsolidasian Grup dalam periode dimana pembagian dividen diumumkan.

y.

Dividend Dividends distributed to the Group’s shareholders are recognised as a liability in the Group’s consolidated financial statements in the period in which the dividends are declared.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan) z.

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

Segmen operasi Sebuah segmen operasi adalah komponen dari perusahaan yang:

2.

SUMMARY OF SIGNIFICANT POLICIES (continued) z.

sebuah

Operating segment An operating segment is a component of an entity:

a.

Terlibat dalam aktivitas bisnis yang mana memperoleh pendapatan dan menimbulkan beban (termasuk pendapatan dan beban terkait dengan transaksi dengan komponen lain dari entitas yang sama);

a.

b.

Hasil operasinya dikaji ulang secara reguler oleh pengambil keputusan operasional untuk membuat keputusan tentang sumber daya yang dialokasikan pada segmen tersebut dan menilai kinerjanya; dan Tersedia informasi keuangan yang dapat dipisahkan.

b.

c.

Grup melakukan segmentasi pelaporan berdasarkan informasi keuangan yang digunakan oleh pengambil keputusan operasi utama dalam mengevaluasi kinerja segmen dan menentukan alokasi sumber daya yang dimilikinya. Dewan Direksi adalah pengambil keputusan operasional Grup. Segmentasi berdasarkan jenis produk. Seluruh transaksi antar segmen telah dieliminasi. aa. Transaksi dengan Pihak Berelasi

ACCOUNTING

c.

That engages in business activities from which it may earn revenues and incur expenses (including revenue and expenses related to transactions between different components within the same entity); Whose operating results are regularly reviewed by the entity’s chief operating decision-maker to make decisions about resources to be allocated to the segment and to assess its performance; and For which discrete financial information is available.

The Group segments its financial reporting based on the financial information used by the chief operating decision-maker in evaluating the performance of segments and in the allocation of resources. The Board of Directors is the Group’s chief operating decision-maker. The segments are based on the type of products. All transactions between segments have been eliminated. aa. Transactions with Related Parties

Grup mempunyai transaksi dengan pihak berelasi sebagaimana didefinisikan pada PSAK No. 7 (Revisi 2015).

The Group has transactions with related parties as defined in SFAS No. 7 (Revised 2015).

Saldo dan transaksi yang material antara Grup dengan Pemerintah Negara Republik Indonesia dan entitas berelasi dengan Pemerintah diungkapkan dalam catatan atas laporan keuangan konsolidasian yang relevan. Grup memilih untuk mengungkapkan transaksi dengan entitas berelasi dengan Pemerintah dengan menggunakan pengecualian dari persyaratan pengungkapan pihak berelasi.

Significant transactions and balances of the Group with the Government of the Republic of Indonesia and Government-related entities are disclosed in the relevant notes to the consolidated financial statements. The Group elected to disclose the transactions with Government-related entities, using the exemption from general related party disclosure requirements.

380

Consolidated Financial Statements

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IKHTISAR KEBIJAKAN SIGNIFIKAN (lanjutan)

AKUNTANSI

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) YANG

2.

ab. Aset tak berwujud a.

SUMMARY OF SIGNIFICANT POLICIES (continued) ab. Intangible assets

Hak atas tanah

a.

Biaya legal awal untuk mendapatkan hak legal diakui sebagai bagian biaya akuisisi tanah, biaya-biaya tersebut tidak didepresiasikan. Biaya terkait dengan pembaruan hak atas tanah diakui sebagai aset tak berwujud dan diamortisasi sepanjang umur hukum hak atas tanah. b.

Perangkat lunak

PERTIMBANGAN, ESTIMASI AKUNTANSI SIGNIFIKAN

b.

DAN

ASUMSI

Land rights Initial legal costs incurred to obtain legal rights are recognised as part of the acquisition cost of the land, and these costs are not depreciated. Cost related to renewal of land rights are recognised as intangible assets and amortised during the period of the land rights.

Biaya pengembangan piranti lunak komputer diakui sebagai aset yang diamortisasi selama estimasi masa manfaat, yang tidak lebih dari tiga tahun. 3.

ACCOUNTING

Software Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed three years.

3.

SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTION

JUDGEMENT,

Estimasi dan pertimbangan terus dievaluasi berdasarkan pengalaman historis dan faktor-faktor lain, termasuk ekspektasi peristiwa masa depan yang diyakini wajar berdasarkan kondisi yang ada.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Pertimbangan penting dalam penentuan kebijakan akuntansi entitas

Critical judgements in applying the entity’s accounting policies

a. Penentuan mata uang fungsional

a. Determination of functional currency

Mata uang fungsional adalah mata uang dari lingkungan ekonomi primer dimana Grup beroperasi. Manajemen mempertimbangkan mata uang yang paling mempengaruhi pendapatan dan beban dari jasa yang diberikan serta mempertimbangkan indikator lainnya dalam menentukan mata uang yang paling tepat menggambarkan pengaruh ekonomi dari transaksi, kejadian dan kondisi yang mendasari.

The functional currency is the currency of the primary economic environment in which the Group operates. The management considered the currency that mainly influences the revenue and cost of gas sales and rendering services and other indicators in determining the currency that most faithfully represents the economic effects of the underlying transactions, events, and conditions.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated)

PERTIMBANGAN, ESTIMASI DAN AKUNTANSI SIGNIFIKAN (lanjutan)

ASUMSI

3.

SIGNIFICANT ACCOUNTING JUDGEMENT, ESTIMATES AND ASSUMPTION (continued)

Pertimbangan penting dalam penentuan kebijakan akuntansi entitas (lanjutan)

Critical judgements in applying the entity’s accounting policies (continued)

b. Pengaturan bersama (lanjutan)

b. Joint arrangements (continued)

Pertimbangan diperlukan untuk menentukan kapan Grup memiliki pengendalian bersama terhadap sebuah pengaturan, yang memerlukan penilaian dari aktivitas yang relevan dan apabila keputusan sehubungan dengan aktivitas tersebut mengharuskan persetujuan dengan suara bulat.

Judgement is required to determine when the Group has joint control over an arrangement, which requires an assessment of the relevant activities and when the decisions in relation to those activities require unanimous consent.

Grup menetapkan bahwa aktivitas relevan bagi Grup untuk pengaturan bersama adalah aktivitas yang berhubungan dengan keputusan keuangan, operasional dan modal dari pengaturan tersebut.

The Group has determined that the relevant activities for its joint arrangements are those relating to the financial, operating and capital decisions of the arrangement.

Pertimbangan juga diperlukan untuk menentukan klasifikasi suatu pengaturan bersama. Pengklasifikasian tersebut mengharuskan Grup menilai hak dan kewajibannya yang timbul dari pengaturan bersama. Secara khusus, Grup mempertimbangkan:

Judgement is also required to classify a joint arrangement. Classifying the arrangement requires the Group to assess its rights and obligations arising from the arrangement. Specifically, the Group considers:

(1) Apakah pengaturan bersama melalui entitas terpisah

dibentuk

(1)

Whether the joint arrangement structured through a separate enitty

(2) Ketika pengaturan bersama dibentuk melalui entitas terpisah, Grup juga mempertimbangkan hak dan kewajiban para pihak yang timbul dari: Bentuk hukum dari entitas terpisah Persyaratan pengaturan kontraktual

(2)

When the arrangement is structured through a separate entity, the Group also considers the rights and obligations arising from: The legal form of the separate entity The terms of the contractual arrangement Other relevant facts and circumstances.

Fakta dan relevan.

keadaan

lainnya,

jika

Penilaian tersebut sering memerlukan pertimbangan yang signifikan. Kesimpulan yang berbeda baik atas kesimpulan mengenai pengendalian bersama dan apakah suatu pengaturan adalah sebuah operasi bersama atau ventura bersama, dapat secara material mempengaruhi perlakuan akuntansinya. c. Sewa Grup mengadakan perjanjian sewa di mana Grup bertindak sebagai lessee atau lessor. Grup mengevaluasi apakah secara substansial risiko dan manfaat yang terkait dengan kepemilikan aset beralih kepada Grup berdasarkan PSAK No. 30 (Revisi 2011), “Sewa”, yang mensyaratkan Grup membuat pertimbangan dan estimasi dari pengalihan risiko dan manfaat terkait dengan aset yang disewa.

is

This assessment often requires significant judgement. A different conclusion about both joint control and whether the arrangement is a joint operation or a joint venture, may materially impact the accounting.

c. Lease The Group has entered into lease arrangement in which the Group is a lessee or lessor. The Group evaluates whether all of the risks and rewards incidental to ownership are substantially transferred to the Group based on SFAS No. 30 (Revised 2011), “Leases” which requires the Group to make judgments and estimates of transfer of risks and rewards of the leased assets.

382

Consolidated Financial Statements

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PERTIMBANGAN, ESTIMASI DAN AKUNTANSI SIGNIFIKAN (lanjutan)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) ASUMSI

3.

SIGNIFICANT ACCOUNTING JUDGEMENT, ESTIMATES AND ASSUMPTION (continued)

Pertimbangan penting dalam penentuan kebijakan akuntansi entitas (lanjutan)

Critical judgements in applying the entity’s accounting policies (continued)

c. Sewa (lanjutan)

c. Lease (continued)

Sehubungan dengan perjanjian antara PLI dengan PT Hoegh LNG Lampung (“Hoegh Lampung”) untuk penggunaan fasilitas FSRU Lampung (Catatan 38), manajemen mengevaluasi bahwa perjanjian tersebut mengandung sewa dan PLI sebagai lessee mengklasifikasikannya sebagai sewa operasi.

In relation to agreement entered into between PLI and PT Hoegh LNG Lampung (“Hoegh Lampung”) for the use of Lampung FSRU (Note 38), management has evaluated that such agreement contains lease and PLI as a lessee classified it as operating lease.

Sehubungan dengan perjanjian antara KJG dengan PT PLN (Persero) (“PLN”) untuk pengangkutan gas dengan menggunakan jaringan pipa bawah laut dan fasilitas penerimaan didarat milik KJG (“GTA Kalija I”) (Catatan 38), manajemen mengevaluasi bahwa perjanjian tersebut mengandung sewa dan KJG sebagai lessor mengklasifikasikannya sebagai sewa pembiayaan.

In relation to agreement entered into between KJG and PT PLN (Persero) (“PLN”) for gas transportation through the use of KJG’s subsea pipeline and onshore receiving facilities (“GTA Kalija I”) (Note 38), management has evaluated that such agreement contains lease and KJG as a lessor classified it as finance lease.

d. Ketidakpastian eksposur perpajakan

d. Uncertain tax exposure

Berdasarkan peraturan perpajakan yang berlaku saat ini, manajemen mempertimbangkan apakah jumlah yang tercatat pada akun tagihan pajak dapat dipulihkan dan direstitusi oleh Kantor Pajak. Lebih lanjut, manajemen mempertimbangkan liabilitas yang mungkin timbul dari hasil pemeriksaan pajak yang masih diajukan keberatannya.

Based on the tax regulations currently enacted, the management assessed if the amounts recorded under claim for tax refund are recoverable and refundable by the Tax Office. Further, the management also assessed possible liability that might arise from the tax assessment under objection.

Pertimbangan signifikan dilakukan dalam menentukan provisi atas pajak penghasilan badan maupun pajak lainnya atas transaksi tertentu. Ketidakpastian timbul terkait dengan interpretasi dari peraturan perpajakan yang kompleks dan jumlah dan waktu dari penghasilan kena pajak di masa depan. Grup membuat analisa untuk semua posisi pajak terkait dengan pajak penghasilan untuk menentukan jika liabilitas pajak untuk manfaat pajak yang belum diakui harus diakui.

Significant judgment is involved in determining the provision for corporate income tax and other taxes on certain transactions. Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. The Group makes an analysis of all tax positions related to income taxes to determine if a tax liability for unrecognised tax benefit should be recognised.

Estimasi dan asumsi akuntansi yang penting

Critical accounting estimates and assumptions

Grup membuat estimasi dan asumsi mengenai masa depan. Estimasi akuntansi yang dihasilkan, menurut definisi, akan jarang sekali sama dengan hasil aktualnya. Estimasi dan asumsi yang secara signifikan berisiko menyebabkan penyesuaian material terhadap jumlah tercatat aset dan liabilitas selama 12 bulan ke depan dipaparkan di bawah ini.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next 12 months are addressed below.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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PERTIMBANGAN, ESTIMASI DAN AKUNTANSI SIGNIFIKAN (lanjutan)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) ASUMSI

3.

SIGNIFICANT ACCOUNTING JUDGEMENT, ESTIMATES AND ASSUMPTION (continued)

Estimasi dan asumsi akuntansi yang penting (lanjutan)

Critical accounting estimates and assumptions (continued)

a. Estimasi masa manfaat aset tetap

a. Estimating useful lives of fixed assets

Grup mengestimasi masa manfaat ekonomis aset tetap berdasarkan utilisasi dari aset yang diharapkan dan didukung dengan rencana dan strategi usaha dan perilaku pasar. Estimasi dari masa manfaat aset tetap adalah berdasarkan penelaahan Grup terhadap praktek industri, evaluasi teknis internal dan pengalaman untuk aset yang setara. Estimasi masa manfaat ditelaah minimal setiap akhir tahun pelaporan dan diperbarui jika ekspektasi berbeda dari estimasi sebelumnya dikarenakan pemakaian dan kerusakan fisik, keusangan secara teknis atau komersial dan hukum atau pembatasan lain atas penggunaan dari aset. Tetapi, adalah mungkin, hasil di masa depan dari operasi dapat dipengaruhi secara material oleh perubahanperubahan dalam estimasi yang diakibatkan oleh perubahan faktor-faktor yang disebutkan di atas.

The Group estimates the useful lives of its fixed assets based on expected asset utilization as anchored on business plans and strategies that also consider expected market behavior. The estimation of the useful lives of fixed assets is based on the Group’s assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives are reviewed at least each financial year-end and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of the assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in the factors mentioned above.

Grup mengestimasi masa manfaat ekonomis aset tetap antara 4 sampai dengan 20 tahun. Ini adalah umur yang secara umum diharapkan dalam industri dimana Grup menjalankan bisnisnya. Perubahan tingkat pemakaian dan perkembangan teknologi dapat mempengaruhi masa manfaat ekonomis dan nilai sisa aset, dan karenanya biaya penyusutan masa depan mungkin direvisi.

The Group estimates the useful lives of these fixed assets to be within 4 to 20 years. These are common life expectancies applied in the industries where the Group conducts its businesses. Changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, and therefore future depreciation charges could be revised.

b. Aset eksplorasi dan evaluasi Kebijakan akuntansi Grup untuk biaya eksplorasi dan evaluasi mengakibatkan biaya tertentu dikapitalisasi untuk sebuah wilayah kerja yang dianggap dapat dipulihkan oleh eksploitasi di masa depan atau penjualan atau dimana kegiatan tersebut belum mencapai tahap tertentu yang memungkinkan dilakukan penilaian yang wajar atas keberadaan cadangan. Kebijakan ini mengharuskan manajemen untuk membuat estimasi dan asumsi tertentu atas peristiwa dan keadaan di masa depan, khususnya apakah operasi eksploitasi dapat dilaksanakan secara ekonomis.

b. Exploration and evaluation assets The Group’s accounting policy for exploration and evaluation expenditure results in certain items of expenditure being capitalised for an area of interest where it is considered likely to be a recoverable by future exploitation or sale or where the activities have not reached a stage which permits a reasonable assessment of the existence reserves. This policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular whether an economically viable extraction operation can be established.

384

Consolidated Financial Statements

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PERTIMBANGAN, ESTIMASI DAN AKUNTANSI SIGNIFIKAN (lanjutan)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) ASUMSI

3.

SIGNIFICANT ACCOUNTING JUDGEMENT, ESTIMATES AND ASSUMPTION (continued)

Estimasi dan asumsi akuntansi yang penting (lanjutan)

Critical accounting estimates and assumptions (continued)

b. Aset eksplorasi dan evaluasi (lanjutan)

b. Exploration and evaluation assets (continued)

Setiap perkiraan dan asumsi tersebut dapat berubah seiring tersedianya informasi baru. Jika, setelah dilakukan kapitalisasi atas biaya berdasarkan kebijakan ini, suatu pertimbangan dibuat bahwa pemulihan biaya dianggap tidak dimungkinkan, biaya yang telah dikapitalisasi tersebut akan dibebankan ke dalam laporan laba rugi dan penghasilan komprehensif lain konsolidasian.

Any such estimates and assumptions may change as new information becomes available. If, after having capitalized the expenditure under the policy, a judgement is made that recovery of the expenditure is unlikely, the relevant capitalized amount will be written off to the consolidated statement of profit or loss and other comprehensive income.

Kegiatan pengembangan dimulai setelah dilakukan pengesahan proyek oleh tingkat manajemen yang berwenang. Pertimbangan diterapkan oleh manajemen dalam menentukan kelayakan suatu proyek secara ekonomis. Dalam melakukan pertimbangan ini, manajemen perlu membuat estimasi dan asumsi tertentu yang serupa dengan kapitalisasi biaya eksplorasi dan evaluasi yang dijelaskan di atas.

Development activities commence after a project is sanctioned by the appropriate level of management. Judgement is applied by management in determining when a project is economically viable. In exercising this judgement, management is required to make certain estimates and assumptions similar to those described above for capitalised exploration and evaluation expenditure.

c. Imbalan kerja Nilai kini kewajiban pensiun dan imbalan jangka panjang lainnya tergantung pada sejumlah faktor yang ditentukan berdasarkan basis dari aktuaria dengan menggunakan sejumlah asumsi. Asumsi yang digunakan dalam menentukan beban/(pendapatan) bersih untuk pensiun termasuk tingkat diskonto, kenaikan gaji di masa depan, perubahan remunerasi masa depan, tingkat pengurangan karyawan, tingkat harapan hidup dan periode sisa yang diharapkan dari masa aktif karyawan. Setiap perubahan dalam asumsi-asumsi ini akan berdampak pada nilai tercatat atas kewajiban pensiun dan imbalan jangka panjang lainnya.

c. Employee benefits The present value of the pension and other long-term benefit obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/(income) for pensions include the discount rate, future salary increase, future remuneration changes, employee attrition rates, life expectancy and expected remaining periods of service of employees. Any changes in these assumptions will have an impact on the carrying amount of the pension obligation.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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PERTIMBANGAN, ESTIMASI DAN AKUNTANSI SIGNIFIKAN (lanjutan)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) ASUMSI

3.

SIGNIFICANT ACCOUNTING JUDGEMENT, ESTIMATES AND ASSUMPTION (continued)

Estimasi dan asumsi akuntansi yang penting (lanjutan)

Critical accounting estimates and assumptions (continued)

c. Imbalan kerja (lanjutan)

c. Employee benefits (continued)

Grup menentukan tingkat diskonto yang sesuai pada setiap akhir tahun. Tingkat suku bunga inilah yang digunakan untuk menentukan nilai kini dari estimasi arus kas keluar masa depan yang akan dibutuhkan untuk memenuhi kewajiban pension dan imbalan jangka panjang lainnya. Dalam menentukan tingkat diskonto yang sesuai, Grup mengggunakan tingkat suku bunga obligasi pemerintah, dengan pertimbangan saat ini tidak ada pasar aktif untuk obligasi korporat berkualitas tinggi) dalam mata uang yang sama dengan mata uang imbalan yang akan dibayarkan dan memiliki waktu jatuh tempo yang kurang lebih sama dengan waktu jatuh tempo kewajiban pensiun dan imbalan jangka panjang lainnya yang bersangkutan.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligation. In determining the appropriate discount rate, the Group considers the interest rates of government bonds (considering there is no deep market for high quality corporate bonds) that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation.

Untuk kenaikan gaji masa depan, Grup mengumpulkan data historis mengenai perubahan gaji dasar pekerja dan menyesuaikannya dengan perencanaan bisnis masa depan.

For the rate of future salary increases, the Group collects all historical data relating to changes in base salaries and adjusts it for future business plan.

Asumsi kunci lainnya untuk kewajiban pensiun dan imbalan jangka panjang lainnya didasarkan sebagian pada kondisi pasar saat ini.

Other key assumptions for pension obligation and other long-term benefits are based in part on current market conditions.

d. Liabilitas pembongkaran aset dan restorasi area

d. Asset abandonment and site restoration obligations

Grup mengakui provisi untuk liabilitas pembongkaran aset dan restorasi area terkait dengan sumur minyak dan gas, fasilitas dan infrastruktur. Dalam menentukan nilai provisi, asumsi dan estimasi yang diperlukan adalah tingkat diskonto dan biaya yang diharapkan untuk membongkar dan memindahkan semua peralatan dari daerah pengeboran dan restorasi area dan waktu pelaksanaan pembongkaran dan pemindahan aset, serta restorasi area.

The Group has recognised provision for asset abandonment and site restoration obligations associated with its oil and gas wells, facilities and infrastructures. In determining the amount of provision, assumptions and estimates are required in relation to discount rates and the expected cost to dismantle and remove all the structures from the site and restore the site and timing of dismantlement and restoration of the area.

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PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/56 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 3.

PERTIMBANGAN, ESTIMASI DAN AKUNTANSI SIGNIFIKAN (lanjutan)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) ASUMSI

3.

SIGNIFICANT ACCOUNTING JUDGEMENT, ESTIMATES AND ASSUMPTION (continued)

Estimasi dan asumsi akuntansi yang penting (lanjutan)

Critical accounting estimates and assumptions (continued)

e. Pajak penghasilan

e. Income taxes

Pertimbangan dan asumsi dibutuhkan dalam menentukan penyisihan modal dan pengurangan beban tertentu selama estimasi provisi pajak penghasilan untuk setiap perusahaan dalam Grup. Banyaknya transaksi dan perhitungan yang dapat menyebabkan ketidakpastian di dalam penentuan kewajiban pajak. Apabila terdapat perbedaan perhitungan pajak dengan jumlah yang telah dicatat, perbedaan tersebut akan berdampak pada pajak penghasilan dan pajak tangguhan dalam periode di mana penentuan pajak tersebut dibuat.

Judgements and assumptions are required in determining capital allowances and the deductibility of certain expenses during the estimation of the provision for income taxes for the Group. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, these differences will have an impact on the income tax and deferred income tax provision in the period in which the determination is made.

Aset pajak tangguhan, termasuk yang timbul dari rugi fiskal, provisi, dan perbedaan temporer, diakui hanya apabila dianggap lebih mungkin daripada tidak bahwa mereka dapat diterima kembali, dimana hal ini tergantung pada kecukupan pembentukan laba kena pajak di masa depan. Asumsi pembentukan laba kena pajak di masa depan bergantung pada estimasi manajemen untuk arus kas di masa depan. Hal ini bergantung pada estimasi volume penjualan barang atau jasa, harga, biaya operasi, belanja modal, dan transaksi manajemen lainnya di masa depan.

Deferred tax assets, including those arising from unrecouped tax losses, provision and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future sales volumes or sales of service, prices, operating costs, capital expenditure, and other future transactions.

f. Penurunan nilai aset keuangan Pada setiap tanggal laporan posisi keuangan, Grup mengevaluasi apakah terdapat bukti yang objektif bahwa aset keuangan atau kelompok aset keuangan mengalami penurunan nilai. Aset keuangan atau kelompok aset keuangan diturunkan nilainya dan kerugian penurunan nilai telah terjadi, jika dan hanya jika, terdapat bukti yang objektif mengenai penurunan nilai tersebut sebagai akibat dari satu atau lebih peristiwa yang terjadi setelah pengakuan awal aset tersebut (peristiwa yang merugikan), dan peristiwa yang merugikan tersebut berdampak pada estimasi arus kas masa depan atas aset keuangan atau kelompok aset keuangan yang dapat diestimasi secara andal.

f. Impairment of financial assets At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events occurring after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows from the financial asset or group of financial assets that can be reliably estimated.

PT Perusahaan Gas Negara (Persero) Tbk Annual Report 2016

Consolidated Financial Statements

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PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/57 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 3.

PERTIMBANGAN, ESTIMASI DAN AKUNTANSI SIGNIFIKAN (lanjutan)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) ASUMSI

3.

SIGNIFICANT ACCOUNTING JUDGEMENT, ESTIMATES AND ASSUMPTION (continued)

Estimasi dan asumsi akuntansi yang penting (lanjutan)

Critical accounting estimates and assumptions (continued)

f. Penurunan nilai aset keuangan (lanjutan)

f. Impairment of financial assets (continued)

Kriteria yang Grup gunakan untuk menentukan bahwa ada bukti objektif dari suatu penurunan nilai meliputi:

Criteria that the Group uses to assess whether there is an objective evidence from an impairment, are as follows:

-

-

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Kesulitan keuangan signifikan yang dialami penerbit atau pihak peminjam; Pelanggaran kontrak, seperti terjadinya wanprestasi atau tunggakan pembayaran pokok; Terdapat kemungkinan bahwa debitur akan dinyatakan pailit atau melakukan reorganisasi keuangan lainnya; dan Data yang dapat diobservasi mengindikasikan adanya penurunan yang dapat diukur atas estimasi arus kas masa depan, seperti perubahan dalam tunggakan atau kondisi ekonomi yang berkorelasi dengan wanprestasi.

g. Penurunan nilai aset nonkeuangan

-

Indications that the debtor is experiencing significant financial difficulty; Breach of contract such as default or delinquency in interest or principal payments; The probability that the debtor will enter bankruptcy or other financial reorganisation; and Observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

g. Impairment of non-financial assets

Sesuai dengan kebijakan akuntansi Grup, setiap aset atau unit penghasil kas dievaluasi pada setiap periode pelaporan untuk menentukan ada tidaknya indikasi penurunan nilai aset. Jika terdapat indikasi tersebut, akan dilakukan perkiraan atas nilai aset yang dapat terpulihkan dan kerugian akibat penurunan nilai akan diakui sebesar selisih antara nilai tercatat aset dengan nilai yang dapat dipulihkan dari aset tersebut. Jumlah nilai yang dapat dipulihkan kembali dari sebuah aset atau kelompok aset penghasil kas diukur berdasarkan nilai yang lebih tinggi antara nilai wajar dikurangi biaya untuk menjual dan nilai pakai aset.

In accordance with the Group’s accounting policy, each asset or cash generating unit is evaluated every reporting period to determine whether there are any indications of impairment. If any such indications exists, a formal estimate of the recoverable amount is performed and an impairment loss will be recognised to the extent of the recoverable amount. The recoverable amount of an asset or cash generating unit of a group of assets is measurred at the higher of fair value less costs to sell and value in use.

Aset yang memiliki masa manfaat yang terbatas, seperti goodwill atau aset tak berwujud yang belum siap untuk digunakan, tidak diamortisasi dan diuji setiap tahun untuk penurunan nilai.

Assets that have an indefinite useful-life for example, goodwill or intangible assets not ready to use - are not subject to amortization and are tested annualy for impairment.

Aset minyak dan gas bumi yang telah menemukan cadangan terbukti, ditelaah untuk penurunan nilai ketika kejadian dan perubahan keadaan mengindikasikan bahwa nilai tercatat aset tidak dapat dipulihkan. Jika terdapat indikasi tersebut, nilai terpulihkan aset akan diestimasi. Nilai terpulihkan aset ditentukan berdasarkan nilai yang lebih besar antara nilai wajar aset dikurangi biaya untuk menjual dan nilai pakainya.

Proven oil and gas properties are reviewed for impairment losses whenever events or changes in circumtances indicate that the carrying amount may not be recoverable. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount of an asset is determined as the greater of an asset’s fair value less cost to sell and value in use.

388

Consolidated Financial Statements

PT PERUSAHAAN GAS NEGARA (PERSERO) TBK DAN ENTITAS ANAK/AND SUBSIDIARIES Halaman 5/58 Page CATATAN ATAS LAPORAN KEUANGAN KONSOLIDASIAN 31 DESEMBER 2016 DAN 2015 (Disajikan dalam Dolar Amerika Serikat, kecuali dinyatakan lain) 3.

PERTIMBANGAN, ESTIMASI DAN AKUNTANSI SIGNIFIKAN (lanjutan)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015 (Expressed in US Dollar, unless otherwise stated) ASUMSI

3.

SIGNIFICANT ACCOUNTING JUDGEMENT, ESTIMATES AND ASSUMPTION (continued)

Estimasi dan asumsi akuntansi yang penting (lanjutan)

Critical accounting estimates and assumptions (continued)

g. Penurunan nilai aset nonkeuangan (lanjutan)

g. Impairment (continued)

Penentuan nilai wajar dan nilai pakai membutuhkan manajemen untuk membuat estimasi dan asumsi atas produksi yang diharapkan dan volume penjualan, harga komoditas